Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd

[2008] NSWSC 803

CITATION:	Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 803
HEARING DATE(S):	20, 23 June 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	23 June 2008
DECISION:	Vendor was entitled to and had validly rescinded contract for failure of condition subsequent. Purchaser held liable to defendant for mesne profits for period plaintiff remained in possession of property after rescission.
CATCHWORDS:	CONTRACTS – CONSRUCTION OF CONTRACT – contract for the sale of land – where contract provides that purchaser accepts property with all defects patent and latent – where contract provides right of rescission to both parties in the event that building certificate is not issued – where contract provides that purchaser cannot make structural alterations to the property – whether vendor had done all things necessary to procure the issue of a building certificate – whether vendor obliged to effect repair work requisitioned by local Council or to allow the purchaser to undertake such work – whether vendor obliged to challenge the Council’s requisition or to afford purchaser opportunity to do so - CONTRACTS – WAIVER – whether a party can waive benefit of contingent condition where the contract confers right to rescind on both parties - CONTRACTS – CONDITION SUBSEQUENT – RESCISSION – where vendor purported to rescind on the basis that a building certificate was not issued before completion – whether rescission in bad faith, capricious, arbitrary or unconscionable – nature of equitable restraints on right to rescind – whether rescission ineffective if motivated by predominantly commercial considerations – waiver and election – distinction between rights available upon breach of contract and failure of condition precedent – whether relief against forfeiture available where contract rescinded due to failure of condition subsequent - DAMAGES – whether cross-claimant suffered compensable damage pursuant to (NSW) Real Property Act 1900, s 74P, due to caveat being lodged without reasonable cause – whether cross-claimant entitled to mesne profits after cross-defendant remained in occupation after contract validly rescinded.
LEGISLATION CITED:	(NSW) Real Property Act 1900, s 74P
CATEGORY:	Principal judgment
CASES CITED:	Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190 Godfrey Constructions Pty Ltd v Konangra Park Pty Ltd (1972) 128 CLR 529 Hardy v Wardy [2001] NSWSC 1141 Masters v Belpate Pty Ltd [2001] NSWSC 169 Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212; (2002) 11 BPR 20,241 Pelley v Tebran Pty Ltd [2006] NSWSC 1072 Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575 Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 Sanctuary Investments Pty Ltd v St Gregory's Armenian School Incorporated (1998) 9 BPR 16,823 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Woodcock v Parlby Investments Pty Ltd (1988) 4 BPR 9568
PARTIES:	Kayserian Nominees (No 1) Pty Ltd (plaintiff) J R Garner Pty Ltd (defendant)
FILE NUMBER(S):	SC 3528/07
COUNSEL:	Mr G A Sirtes (plaintiff) Mr J E Armfield (defendant)
SOLICITORS:	Robert A Hannam & Co (plaintiff) Patterson Houen & Commins (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Monday 23 June 2008

3528/07 Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd

JUDGMENT (ex tempore)

1 HIS HONOUR: On 8 January 2007, the defendant J R Garner Pty Ltd agreed to sell, and the plaintiff Kayserian Nominees (No 1) Pty Ltd agreed to purchase, for a price of $2,535,000, real property and improvements, fixtures and inclusions at Hotham Parade, Artarmon. On the same date, Kayserian, as I shall refer to the plaintiff purchaser, went into possession of the property.

The contract

2 The contract is in the standard printed form. Relevantly, Standard Condition 18 provided as follows:

18 Possession before completion
18.1 This clause applies only if the vendor gives the purchaser possession of the property before completion.
18.2 The purchaser must not before completion -
18.2.1 let or part with possession of any part of the property;
18.2.2 make any change or structural alteration or addition to the property; or
18.2.3 contravene any agreement between the parties or any direction, document, legislation, notice or order affecting the property.
18.3 The purchaser must until completion -
18.3.1 keep the property in good condition and repair having regard to its condition at the giving of possession; and
18.3.2 allow the vendor or the vendor’s authorised representative to enter and inspect it at all reasonable times.
18.4 The risk as to damage to the property passes to the purchaser immediately after the purchaser enters into possession.
…
18.6 If this contract is rescinded or terminated the purchaser must immediately vacate the property.
18.7 If the parties or their solicitors on their behalf do not agree in writing to a fee or rent, none is payable.

3 Standard Condition 19 was as follows:

Rescission of contract
19.1 If this contract expressly gives a party a right to rescind, the party can exercise the right -
19.1.1 only by serving a notice before completion; and
19.1.2 in spite of any making of a claim or requisition, any attempt to satisfy a claim or requisition, any arbitration, litigation, mediation or negotiation or any giving or taking of possession.
19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation -
19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded;
19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession;
19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and
19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses.

4 Standard Condition 29 relevantly provided:

29 Conditional contract
29.1 This clause applies only if a provision says this contract or completion is conditional on an event.
29.2 If the time for the event to happen is not stated, the time is 42 days after the contract date.
29.3 If this contract says the provision is for the benefit of a party, then it benefits only that party.
29.4 If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen.
29.5 A party can rescind under this clause only if the party has substantially complied with clause 29.4.
…

5 The contract also contained a number of special conditions. Relevantly, Special Condition 2 was as follows:

2. Purchaser’s acknowledgment
The purchaser acknowledges that the purchaser has inspected the Property and that the purchaser is entering into this contract as a result of the purchaser’s own inquiries and inspections and has not relied on any statement, representation or warranty by or on behalf of the vendor other than those as set out in this contract and it is further acknowledged that this contract and the Property and all inclusions are sold and shall be accepted by the purchaser in their present state of repair and condition and subject to any defect, infestation or dilapidation including all latent and patent defects and faults and that the purchaser shall not make or take any objection, requisition or claim for compensation in relation to any or all of the matters aforesaid.

6 Special Condition 13 was as follows:

13. Building Certificate
Completion of this contract is subject to and conditional upon the Vendor obtaining at its expense a Building Certificate issued pursuant to Section 149D of the Environmental Planning & Assessment Act , 1979 in respect of the improvements erected upon the Property. If such certificate has not been obtained by the Vendor by the Completion Date then either the Purchaser or the Vendor shall be entitled to rescind this Contract in which case the deposit shall be refunded to the Purchaser in full and neither party shall have any further claim against the other arising in any respect from this Contract.

7 Special Condition 14 was as follows:

14. Access
The Vendor shall permit the Purchaser access to the Property after the date hereof for the purpose of fitting out the office area of the building. Any fitout proposed by the Purchaser shall be approved by the Vendor prior to any work being commenced and after completion of the fitout work the Purchaser shall be entitled to occupy the Property as Licensee until Completion of this Contract is effected.
The Purchaser shall obtain all approvals required for any fitout work from any relevant authority and all work carried out by the Purchaser shall be at the Purchaser’s risk in every respect and the Purchaser indemnifies the Vendor against any claim made in respect thereof. The Purchaser shall effect public risk and worker’s compensation insurance and provide copies of certificates of currency in respect thereof prior to the commencement of the fitout works.
If for whatever reason this Contract is not completed, then the Purchaser shall, if required by the Vendor, remove all fitout work carried out by it and make good the Premises to the condition in which they were at the date hereof.

Application for building certificate

8 On or about 13 April 2007, Garner, as I shall refer to the vendor defendant, made an application to the Willoughby City Council for a building certificate under (NSW) Environmental Planning and Assessment Act 1979, ss 149A and 149E. Receipt of that application on 13 April was acknowledged by the Council's letter of 17 April 2007. On 30 April 2007, the Council advised Garner that the building certificate application had been deferred pending completion of certain works, including:

Adequately weatherproof the lower ground floor to comply with the performance requirement of FP1.2, FP1.3, FP1.4 and FP1.5 of the Building Code of Australia. In particular your attention is drawn to entry of water into the lower ground floor which was noted during an inspection on 26 April 2007.

9 The Council’s letter proceeded:

Upon satisfactory completion of all works, your building certificate application will be given further consideration.

10 Shortly before the Council’s letter, Kayserian's solicitors, Forest Legal, had, on 26 April 2007, written to Garner's then solicitors Kemp Strang, mentioning that there was a flooding problem in the basement area of the property, and that Kayserian had made Garner aware of that situation, and inquiring as to Garner's intentions to remedy it. The letter also pointed out that, though an occupation certificate had been furnished, no building certificate pursuant to Special Condition 13 had yet been provided and sought to ascertain the position in that regard. Kemp Strang responded on 4 May 2007, relevantly as follows:

We understand from our client that the flooding problem is in the course of being rectified by our client with the necessary work now under way.
With regards to the Building Certificate, we are instructed that this Certificate will issue in the next few days.

11 Mr Garner supposed that that letter had been written by Mr Strang, who had the conduct of the matter, at a time when Mr Strang had not yet been instructed as to the Council's requisition of 30 April 2007. I am unpersuaded that I should reject Mr Garner's evidence on that issue. But ultimately, in any event, very little turns on whether or not Mr Strang’s letter was formulated before or after he was instructed in respect of the Council's requisition.

12 At an inspection of the property on the afternoon of 30 April 2007, at which were present at least Mr Garner senior, Mr McCreadey and Mr Wood, Mr Wood provided Mr Garner with an estimate of about $50,000 for the requisite rectification works. That estimate was confirmed by a letter dated 6 May 2007.

13 On 8 May 2007, Forest Legal answered Kemp Strang’s letter of 4 May, noting the advice that the flooding problem was currently being addressed, anticipating receipt of the building certificate once it was issued, and addressing an issue which had been raised by Kemp Strang in connection with GST. In short, the contract price was expressed to be “inclusive of GST”. Kemp Strang on behalf of Garner were asserting that in fact it was intended to be “plus GST”, but that the problem might be addressed by declaring the sale to be one of a going concern. Forest Legal's response was to the effect that Kayserian insisted on the contract being GST inclusive, and was unwilling to agree to a course which might result in it becoming liable to pay ten per cent more than had been agreed.

14 On 10 May 2007, Kemp Strang responded to Forest Legal, asserting that, despite the manner in which the contract had been drafted, it was always intended that the sale be subject to a lease (which had not yet been put in written form), and noting that Kayserian wished to proceed in accordance with the terms of the contract as exchanged (thus implicitly acknowledging that Kayserian would not accede to an amendment to make it a sale of a going concern). The letter continued:

With regard to the work that your client has requested our client to carry out, our client has reviewed the contract and we note that Special Condition 2 of the contract provides that the purchaser accepts the property in its present state of repair and condition. Our client will therefore not be carrying out the work requested by your client.

15 The work referred to was the rectification of the perceived drainage problem.

16 On 11 May, Kemp Strang wrote to Forest Legal, forwarding some correspondence between Kayserian and the agent of December 2006 which contained reference to GST, and refuting the suggestion made in Forest Legal’s letter of 8 May that the proposed alteration to the contract would result in Kayserian paying ten per cent more:

That is not the case as our client would, if the contract proceeds on a taxable supply basis, be responsible for paying the GST.

17 On 24 May 2007, Forest Legal wrote to Kemp Strang, noting that the contract was due to settle on 30 May 2007 (that being the completion date referred to in the contract) and that a building certificate was to be provided by that date, and requesting advice as soon as possible as to whether the certificate would be available by the due date. A draft tax invoice in respect of GST was also requested.

18 Prior to 25 May, Garner instructed Jeweller Peetz solicitors to act for it in place of Kemp Strang. Jeweller Peetz wrote to Forest Legal on 25 May 2007, relevantly as follows:

… We are instructed to advise that our client, having attempted to obtain the Section 149D certificate for the building has been advised by Council that the issue of the Certificate will be considered once certain work relating to waterproofing has been completed. Our client does not intend to undertake the work having regard to the cost involved.
In the circumstances, as the Certificate is not able to be provided by the completion date, we are instructed to advise that our client will be serving a Notice of Rescission of the Contract on your client, pursuant to Clause 13 of the Contract of Sale dated 30th May 2007.
Our client will require possession and reinstatement of the premises within 30 days and will on receipt of vacant possession and reinstatement account to your client for the deposit.

19 On 29 May, Forest Legal sent a facsimile to the general manager of the Council, asking that the Council furnish grounds for the refusal of the building certificate. On 30 May, Forest Legal responded to Jeweller Peetz's letter of 25 May, asserting that Garner was not entitled to rescind the contract pursuant to clause 13 or for any other reason, and insisting upon completion. The grounds upon which it was asserted that Garner was not entitled to rescind included that no steps had been taken to remove the impediment to the issue of the building certificate, and that Garner was in breach of its duty of co-operation by failing to find out what was required for a building certificate to issue and to undertake any necessary work at its expense. The letter also expressed a wish on behalf of Kayserian to complete the contract "whether or not the building certificate has been issued", and asserted that, since the letter of 4 May 2007 in which Kemp Strang had said they were instructed that the building certificate would issue in the next few days:

… our client has expended a considerable amount of money fitting out the premises in the expectation that the Contract would be completed and that the issue of a Building Certificate would not be an impediment to completion.

20 The evidence in the proceedings did not ultimately make good the assertion that a considerable amount of money had been expended after 4 May 2007.

Rescission, Notice to Complete and Proceedings

21 By facsimile letter also of 30 May – the evidence does not permit it to be said whether before or after the letter from Forest Legal to which reference has just been made – Jeweller Peetz wrote to Forest Legal, relevantly as follows:

We refer to your letter dated 24 May 2007 received by us by fax today.
We are instructed that our client has not been able to obtain a Building Certificate by the completion date. In the circumstances, the Vendor hereby exercises its right to rescind in accordance with Special Condition 13 and in that regard we enclose Notice of Rescission.

22 As that letter indicated, a notice accompanied that letter, purporting to rescind the contract and to require the reinstatement of the premises and delivery up of possession within 30 days, and indicating that upon reinstatement and delivery up of possession, the deposit would be refunded.

23 A letter from the Council to Forest Legal of 31 May 2007 set out the Council's grounds for its requisition of 30 April 2007. There followed correspondence in which Forest Legal rejected Garner's entitlement to rescind and, on 4 June 2007, served a notice to complete. On 5 June 2007, Kayserian lodged a caveat number AD172455X in respect of the property, claiming an interest pursuant to the contract, presumably as beneficial owner. On 3 July 2007, the Council wrote to Garner, drawing attention to the requisition of 30 April 2007 and requesting advice as to the progress of the works, indicating that should the works not be carried out, the application for a building certificate would likely be refused and the Council may then serve the appropriate orders requiring the works to be performed.

24 The present proceedings were instituted on 9 July 2007 when Kayserian filed a statement of claim, essentially for specific performance of the contract. Garner subsequently filed a cross-claim, for a declaration that it had validly rescinded the contract, an order for possession and an order for the withdrawal of the caveat. The pleadings have subsequently been amended, but for present purposes I need only mention that, in addition to those claims, Garner now also claims an inquiry as to damages.

25 The main issues, as the case has developed, have become:

· First, was Garner disentitled to rescind by reason of being in breach of a term, express or implied, to the effect that it would do all things necessary to procure fulfilment of the building certificate condition, (Special Condition 13)?

· Secondly, was Kayserian entitled to waive the benefit of the building certificate condition and, if so, did it do so?

· Thirdly, was Garner's rescission ineffective by reason of being mala fide , capricious, arbitrary or unconscionable?

· Fourthly, is Kayserian in any event entitled to relief against forfeiture?

Was Garner disentitled to rescind by reason of being in breach of the contract?

26 I turn then to the first issue, namely, whether Garner was disentitled to rescind by reason of being in breach of its own relevant contractual obligations.

27 The building certificate condition in this contract was not a condition precedent to the formation of the contract, but a condition precedent to completion or performance of the contract; in other words, it was what is conventionally called a condition subsequent. Where such a condition is not satisfied due to the default of one of the parties to the contract, that party is not entitled to rescind for failure of the condition, and only the innocent party can exercise the right of rescission – even where, as in the present case, the contract expressly confers the right to rescind on both parties [Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 440-441; Plumor Pty Ltd v Handley (1996) 41 NSWLR 30, 34 (which also establishes that the onus of the party proving that the purporting to rescind is itself in default lies on the party resisting rescission)]. A party wishing to rescind cannot take advantage of its own ineffective or inefficient measures to comply with its contractual obligations [Hardy v Wardy [2001] NSWSC 1141, [8]] and where a vendor’s default has deprived the purchaser of a substantial chance that the condition would have been fulfilled, the vendor cannot exercise the right of rescission [Sanctuary Investments Pty Ltd v St Gregory's Armenian School Incorporated (1998) 9 BPR 16,823; Masters v Belpate Pty Ltd [2001] NSWSC 169; Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212; (2002) 11 BPR 20,241, [58]-[59]; Pelley v Tebran Pty Ltd [2006] NSWSC 1072, [170]].

28 Kayserian contends that these principles come to its aid in two ways. First, it is said that Garner's failure to inform Kayserian of the substance or content of the Council's requisition of 30 April 2007 resulted in Kayserian being unable to take steps itself to obtain the building certificate – by retaining a builder, obtaining a report as to the works required to comply, proceeding with those works itself, and obtaining approval from the Council by 30 May 2007. Secondly, it is said that the effect of Special Condition 13 in conjunction with Standard Condition 29, or of terms that the law would in any event imply, meant that Garner was required, at its own expense, to undertake any works required to bring the building to a standard such that the Council would issue a building certificate, and that it was Garner's failure to perform such works by 30 May 2007 that led to the failure of the condition.

29 I will deal first with the second of those propositions. A contract must be construed as a whole, and so far as possible in such a way as to avoid inconsistency between its own terms. For present purposes, Special Condition 2, Special Condition 13 and Standard Condition 18 (relating to the position of the purchaser in occupation) must all be considered. Special Condition 2, on its face, makes clear enough that the contractual intent was that the purchaser take the property in its present condition subject to all existing defects, latent or patent, and that the vendor was not required to do anything to improve the condition of the property or remedy any defects. Standard Condition 18 makes clear that the purchaser, even though in possession – which itself is the exception rather than the rule – was not to be entitled to carry out structural building works, although Special Condition 14 gave the purchaser a limited and qualified right to fit-out the premises. Special Condition 13 made it a contingent condition – as distinct from a promissory term – that the vendor obtain at its own expense a building certificate.

30 Sometimes, of course, a building certificate will be issued without any rectification works being required; sometimes, a Council may issue a requisition requiring rectification works before it is prepared to issue such a certificate. In my view, the provisions of Special Condition 13 and Special Condition 2 are easily reconcilable. The vendor was not prepared to be bound to do any work on the property. The purchaser agreed to take the property in its present condition with all defects, but both parties reserved a right to rescind if the building certificate could not be obtained. The purchaser was obliged to take the property in its present condition with all defects, but not if a building certificate could not be obtained. The result is that Garner was not obliged to bring the building to a state of repair for a building certificate to issue, nor to carry out such works as might be requisitioned by the Council, but if no certificate could be obtained, either party could rescind.

31 What Garner was obliged to do by Special Condition 13 and Standard Condition 18 was to make an application for a building certificate within a time frame that, in the ordinary course, would have permitted the application to be considered and determined and the certificate to issue, if it was to issue at all, prior to the completion date; to pay the necessary fees in connection with obtaining the certificate; to facilitate such inspections as may be required; and to do nothing to obstruct or prevent a certificate from being issued if the Council were minded to issue one. But, because of Special Condition 2, it was not obliged (contractually, as between the parties) to do anything to rectify defects if the Council requisitioned works. Nor did the contract contemplate that the purchaser would be given an opportunity to rectify defects if the Council requisitioned works. In the ordinary case, the purchaser would be in no position to rectify defects, because it would not be in possession before completion. Even in this case, in which it might be argued that a purchaser in possession was in a different position and had the ability to carry out rectification works, the terms of Standard Condition 18 make clear that it was not intended that the purchaser would perform structural or rectification works, and that it was limited to installing its own fit-out.

32 It was contended, on behalf of Kayserian, that Garner was obliged to invite or require Kayserian to do the subject works. There is no basis for imposing any such obligation upon Garner, in circumstances where the contract covers the ground and provides that Kayserian was not entitled to carry out structural works. Garner's obligation, to do all things necessary on its part to procure the issue of a certificate, did not extend to affording Kayserian an opportunity to perform rectification works.

33 Accordingly, I do not accept that Garner was bound to bring the building to a standard at which Council would issue a building certificate; nor do I accept that Garner was bound to give Kayserian an opportunity to perform such works, since the contractual intent reflected in Special Condition 18 was to the contrary.

34 It was also argued that Garner either ought to have agitated with the Council the legitimacy of its requirement for the rectification works which it requisitioned, or alternatively at least ought to have permitted Kayserian an opportunity to do so. However, contrary to the submissions of Mr Sirtes, for Kayserian, it is not apparent that, by invoking provisions of the Building Code of Australia that might not in its terms have been applicable to garages, Council was necessarily overreaching its powers. Moreover, at least one of the provisions so invoked (FP1.3) was applicable in its terms to garages. It was not suggested to Mr Patten, the Council officer who had conduct of the matter, that the Council was not entitled to requisition the works which it stipulated, or was otherwise in error. Even if the Council was mistaken in part as to the applicability of the Building Code, I do not accept that reasonable steps on the part of Garner to obtain a building certificate involved agitating with Council the legitimacy or propriety of its requisition. So far as offering an opportunity to Kayserian to negotiate with Council is concerned – and assuming, although I am far from persuaded that it is correct, that Kayserian would have had standing to do so in circumstances where Garner remained the registered proprietor of the property, the owner on the Council roll and the applicant for the certificate – I do not see that Garner's obligation to do all things necessary on its part to obtain the issue of a certificate extended to giving Kayserian an opportunity to agitate Council's requisitions with the Council.

35 Accordingly, I am not satisfied that Garner has failed to do whatever was reasonably necessary on its part to cause a building certificate to issue. It follows that I am not satisfied that it was disentitled on that basis from exercising the contractual right of rescission.

Did Kayserian waive the benefit of the building certificate condition?

36 I turn then to the second issue: the question of waiver. Mr Sirtes, for Kayserian, quite correctly in my opinion, abandoned that argument this morning, although it was originally pleaded.

37 While it is true that, where a contractual condition is for the benefit of one party only, that party may waive the condition and insist on performance notwithstanding that the condition is not satisfied, it is a fundamental element of that principle that the condition be for the benefit of one party only. Where a contractual right of rescission on failure of a condition is expressly given to both parties, there is no room for waiver of that condition by only one of them. Accordingly, Mr Sirtes was quite correct to abandon this issue.

Was Garner’s purported rescission ineffective by reason of bad faith, arbitrariness, capriciousness or unconscionability?

38 The third issue is whether Garner's purported rescission was ineffective by reason of bad faith, arbitrariness, capriciousness or unconscionability. Founding on the observation of Gibbs J, as the later Chief Justice then was, in Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575, 590 – to the effect that, in that case, it was mere speculation that the vendors had rescinded the contract as an excuse to enable themselves to be rid of the contract for some ulterior purpose such as to attain a higher price for the land from some other purchaser – Kayserian submitted that unconscientious dealing could be established by a motive of escaping a contract upon a technicality in order to secure a better price.

39 As the High Court explained in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, 325, the question is whether the right of rescission was exercised unconscientiously (or unconscionably). The concept of unconscientious (or unconscionable) dealing is one well known to equity, and, as their Honours pointed out, is not established simply by elements of hardship or unfairness in terms of the transaction or the manner of its performance. As Ipp JA, with the concurrence of Mason P and Giles JA, pointed out in Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190, Pierce Bell Sales, like Godfrey Constructions Pty Ltd v Konangra Park Pty Ltd (1972) 128 CLR 529, was a case concerning a contract which contained a clause that afforded a vendor a practically unrestricted power to rescind. Young J, as his Honour the Chief Judge in Equity then was, explained in Woodcock v Parlby Investments Pty Ltd (1988) 4 BPR 9568, 9570, that such clauses were construed to mean that a vendor may, if it is not unreasonable for it to do so, rescind a contract if it were unwilling to comply with the requisition, but could not utilise the condition to make the contract a solemn farce, since the effect of such a clause would otherwise be to give a vendor an option to perform or not. As Ipp JA also said in Actall v Pacific Bay Development, there is no need for equity to intervene in this way by imposing a restriction on the strict legal right to rescind in a case where the contract itself imposes a requirement of reasonable conduct as a condition precedent to the vendor's right to rescind. His Honour wrote (at [56]):

[56] In my opinion, in the circumstances of this case, where the parties have expressly agreed on the extent of the limitations on the vendors’ right to rescind, there is no requirement for equity to intervene. The mere fact that subsequent circumstances have resulted in Pacific Bay benefiting financially from its own rescission is not material. The mere fact that Pacific Bay was motivated by its own financial interest does not constitute the rescission unfair. The parties, by the very terms of their agreement, agreed that this would be Pacific Bay’s (conditional) right in the circumstances that in fact prevailed. To paraphrase Callinan J in [ Romanos v Pentagold Investments Pty Limited [2003] HCA 58; (2003) 217 CLR 367] at 385, there is no reason to suppose that this was not a matter that was factored into all of the terms and conditions of the contract, including in particular the price and the time within which it was to be paid. To paraphrase Kirby J in Romanos at 383, this conclusion is reinforced by the entire circumstances of the relationship between the parties; the commercial character of the transaction and of Actall; the availability to Actall at all times of independent legal advice; the explicit terms of cl 28.2; and the absence of any suggestion that Actall was disadvantaged, vulnerable or otherwise in need of equity’s protection from a party in a superior position.

40 I would be quite prepared to accept that equity might preclude the exercise of a contractual right of rescission in circumstances in which equity would impose an estoppel, arising from the conduct of the party seeking to exercise that right. In very general terms, that would ordinarily require a representation by that party to the effect that the right of rescission would not be exercised, or at least an assumption by the other party, known to the first party, to that effect; coupled with conduct of the other party amounting to detrimental reliance on the relevant representation or assumption. Were those circumstances established, I would be inclined to accept that equity would not permit the first party to insist on its strict legal right to rescind.

41 Are those circumstances satisfied in the present case? Kayserian relies on the course of correspondence between 30 April and 25 May 2007, which I have summarised above, and more particularly on Garner's "silence" as to the fact of the Council's requisition and Garner's decision not to perform the works required. In addition, Kayserian submitted that the works would have to be done by Garner even if it rescinded, as the subsequent correspondence from the Council in July 2007 confirmed, and that Garner's true reason for exercising its right of rescission was not its unwillingness to perform the works, but its dissatisfaction with the outcome of the GST issue.

42 If I had to decide as a matter of fact what was Garner’s true motive, I would accept Kayserian's submission in that behalf, particularly given that, on 30 May, Kayserian indicated that it was content to settle with or without a building certificate, yet Garner persisted in maintaining its rescission. It is difficult to understand Garner's decision to rescind, and to persist in it, unless there were some commercial benefit in doing so. But, as Actall v Pacific Bay Development makes clear, the circumstance that the predominant or sole reason for exercising a right of rescission is the commercial interest of the rescinding party is quite beside the point. Indeed, in almost every case in which a right of rescission is exercised, it is not just, or even primarily, because of the ground which has arisen to trigger the right of the rescission, but also if not predominantly because the rescinding party considers it would be better off if it exercises the right to rescind than if it does not. The passage I have already cited from Actall v Pacific Bay Development shows that such considerations do not vitiate the exercise of the right of rescission.

43 Insofar as it was suggested that Kemp Strang's letter of 10 May 2007 was, in effect, an affirmation that the contract would remain on foot, I am unable to accept that submission. The reference to Special Condition 2 of the contract in that context does no more than indicate the basis on which Garner was refusing to carry out works to remedy the flooding problem as Kayserian had requested. In any event, no occasion for waiver or election had arisen as at 10 May 2007. This was not a case in which there had been a breach triggering a right to terminate, when the concept of election and waiver might have been relevant; but the potential failure of a condition in circumstances where the date for its fulfilment or failure had not yet arrived. No question of election had as yet arisen.

44 Insofar as it was suggested that Garner was obliged to communicate to Kayserian the substance of the Council's requisition, and that it was considering its position so far as rescission was concerned, as Ipp JA pointed out in Actall v Pacific Bay Development, at [48], the vendor in such a situation has no obligation, contractual or otherwise, to advise the purchaser of the possibilities that it from time to time might entertain with regard to its contractual rights. Moreover, for the reasons already indicated, as Garner's obligations did not extend to giving Kayserian an opportunity to perform the rectification works, it was not obliged to communicate, in advance of its decision to rescind, the content of the requisition.

45 I accept that the position might well be otherwise if the vendor was aware that the purchaser entertained and was acting to its detriment on a particular assumption, so far as the vendor's intentions were concerned; but the evidence does not establish here that Kayserian entertained any such assumption, or acted to its detriment in reliance upon it, let alone that Garner was aware of any such assumption or detrimental reliance on it.

46 Factually, the evidence suggests that it would have made not the slightest difference to Kayserian, had it been told on 30 April of the Council's requisition and that Garner was considering or even had decided to rescind. In cross-examination, Mr Kayserian said:

Q. Yes, you were aware after the 10th of May 2008 that council was requiring work to be done to these premises before a building certificate was issued?
A. Yes.
Q. And you were aware at least no later than the 10th of May 2008 that if that building certificate didn't issue there was a risk that the contract mightn't go ahead?
A. Yes, it was brought to my attention by the solicitor, yes.
Q. Yes, no later than about the 10th of May 2008
A. Correct.
Q. 2007?
A. Can't recall the date, but it was brought to my attention.
Q. Yes, but before the contract was actually cancelled by the defendant?
A. That's right, before the 30
Q. Before the 30th of May?
A. That's right.

Q. And you made no attempt to ask the defendant whether the defendant would agree to you carrying out any work on the premises before the 30th of May 2007, did you?

A. No, because my solicitor told me that we've got, can't basically do that.
…
Q. What did your solicitor tell you?
A. My solicitor said to me that they can't rescind the contract, because they didn't take every reasonable step, they had plenty of time to do the job, in those circumstances.
Q. Is this the position, that your solicitor told you after the 10th of May but before the 30th of May that the defendant to these proceedings couldn't rescind the contract?

A. That's right.
Q. So there was absolutely, you did not make any attempt between the 10th of May and the 30th of May to get the defendant's permission to carry out any work on the premises, did you?
A. No, I didn't make any attempt.
Q. There was absolutely nothing to stop you from seeking that permission, correct?
A. Probably not.
Q. You were aware at some time after the 10th of May and before the 30th of May that if the building certificate didn't issue, then there was a risk the contract was going to be cancelled, correct?
A. Ah, I didn't think it was risky.
Q. You knew, I suggest to you, that if the building certificate didn't issue there was a risk the contract was going to be cancelled do you agree with that?
A. It's.
Q. Can you answer me?
A. It's a chance I take, I didn't think it was risky.
Q. Yes, when you say it was a chance you took, you did know that there was a risk that it might happen?
A. Most probably. But probably it was on my side, that's what I thought.
Q. Yes, and is this the position, that in knowledge of the fact that there were, there was such a risk, you still decided to take no steps to see if you could even have got permission to do the work yourself?
A. That's correct.

47 The better view of Mr Kayserian's evidence and the factual situation as a whole is that it establishes no reliance at all on any assumption that the condition would be satisfied or any right of rescission not exercised after 30 April 2007. Moreover, even if Kayserian were deprived of an opportunity to negotiate with Garner the possibility of making a contribution to the cost of having the works performed, or carrying them out itself, in circumstances where it had no right to do so, that is not relevant detriment. Nor does the loss of an opportunity to enter into some negotiation with the Council count as relevant detriment. The loss of a mere opportunity to negotiate, in the absence of a relevant right, is not detriment.

48 It follows that I do not accept that the exercise of the right of rescission was vitiated by bad faith, capriciousness, arbitrariness or unconscionability.

Is Kayserian entitled to relief against forfeiture?

49 The fourth issue is whether Kayserian is entitled to relief against forfeiture.

50 The fundamental difficulty with that argument is that there is no forfeiture; not even the deposit is forfeited. This is not a termination for breach, where questions of forfeiture would arise, but rescission for failure of a condition subsequent. It is and always has been common ground that the deposit will be returned to Kayserian if Garner succeeds. I am not aware of any case or circumstance in which relief against forfeiture has been granted in that context and, in principle, there is no reason why it should be available. The doctrine is concerned with unconscientious insistence on strict legal rights upon the breach by one party of a contractual obligation resulting in that party incurring a forfeiture of property or rights.

51 Here, a condition which both parties agreed was a condition precedent to completion has failed. There is no forfeiture against which relief might be granted. Accordingly, the purchaser is not entitled to relief against forfeiture.

52 In those circumstances, it is unnecessary for me to resolve the factual dispute – essentially between Mr Nisbet for the plaintiff on the one hand, and Mr Figgis for the defendant on the other – as to the scope of the appropriate rectification works and the time frame which they would have required. It will suffice to indicate that were it necessary to do so, in light of the manifold omissions from the works for which he had provided that Mr Nisbet conceded in cross-examination, and his concessions of the additional time that would be required for those works to be undertaken, I would have preferred the evidence of Mr Figgis.

The cross-claim

53 I turn then to the cross-claim. It necessarily follows from my conclusions so far that Garner is entitled to a declaration that it has validly rescinded, an order that the caveat be removed, and judgment for possession of the property.

54 The remaining question is Garner’s claim for an inquiry as to damages. Originally this was put on two bases: first, pursuant to (NSW) Real Property Act 1900, s 74P, for lodging a caveat without reasonable cause; and secondly, as a claim for mesne profits for Kayserian remaining in occupation of the property subsequent to rescission.

55 So far as the first is concerned, even if I were satisfied that s 74P is attracted in any case in which it is determined that a claim of a caveatable interest is not made good, I am unsatisfied that the evidence establishes that any damage has been occasioned on that account. It is itself a powerful answer to a claim for damages on that basis that Kayserian offered to complete the contract regardless of the circumstance that the building certificate was not obtained. As I am not satisfied that the caveat has occasioned any damage, I would not order an inquiry on that footing.

56 As to the claim for mesne profits, however, the provisions of the contract, and in particular Standard Condition 18.6, obliged Kayserian upon rescission immediately to vacate the property. The Notice of Rescission afforded a period of 30 days in which it might do so. On any view, it seems plain that Kayserian has remained wrongfully in possession of the property since 1 July 2007, and that Garner is entitled to mesne profits for that period. Garner is entitled to damages to be assessed for trespass.

Orders

57 Subject to any submissions that counsel may wish to make as to the form of the orders, my orders will be:

(1) Order that the further amended Statement of Claim be dismissed.

(2) Declare that the Contract for Sale of Land dated 8 January 2007 between the plaintiff Kayserian Nominees (No 1) Pty Limited as purchaser, and the defendant J R Garner Pty Ltd as vendor, of the property situate at and known as XX Hotham Parade, Artarmon, being the land comprised in Folio Identifier XX/XXXX, was validly rescinded by the defendant by the notice dated 30 May 2007.

(3) Give judgment that the plaintiff give the defendant possession of the said property.

(4) Grant leave to the defendant to issue a writ of possession accordingly, such writ not to issue for 35 days.

(5) Order that the plaintiff forthwith withdraw caveat AD172455 in respect of the said property.

(6) Order that the defendant do all things, execute all documents, and give all directions and consents necessary or convenient to procure the return forthwith to the plaintiff of the deposit, together with any interest accrued on it.

(7) Order that an inquiry be held as to the mesne profits to which the defendant is entitled, such inquiry to proceed before me until further order.

(8) Give judgment that the plaintiff pay the defendant the amount certified upon such inquiry.

(9) Order that the plaintiff pay the defendant's costs.

(10) Reserve leave to both parties to apply for any special costs order upon conclusion of the inquiry.

(11) Grant liberty to apply in the event of any issue arising in connection with implementation of these orders.

(12) Direct that the defendant serve any affidavit evidence on which it proposes to rely on the inquiry by 11 July 2008.

(13) Direct that the plaintiff serve any evidence upon which it intends to rely on the inquiry by 1 August 2008.

(14) Adjourn the inquiry for hearing before me, estimated time two hours, on a date to be arranged with my Associate.

58 No objection having been taken to the form of the proposed orders, I make orders accordingly.

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