Kraguljac v A & B Property Developments Pty Ltd (No 2)

[2012] SASC 1

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

KRAGULJAC v A & B PROPERTY DEVELOPMENTS PTY LTD (No 2)

[2012] SASC 1

Judgment of The Honourable Justice Kourakis

13 January 2012

CONVEYANCING - COMPLETION OF CONTRACT - TIME FOR COMPLETION - TIME OF THE ESSENCE - BY NOTICE

CONVEYANCING - THE CONTRACT AND CONDITIONS OF SALE - GENERALLY - CONDITIONS PRECEDENT AND SUBSEQUENT

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - CONDITIONS

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE

Plaintiff and defendant contracted for the sale of land – the Contract specified that it was a condition precedent that the defendant remove “all its property materials and rubbish from the land” – the Contract specified that the defendant could only grant further leases over the land with the prior written approval of the plaintiff and granted the plaintiff and its agents a non-exclusive licence to the land until the date of settlement for purposes related to the redevelopment of the land – the defendant served a notice to complete on the plaintiff requiring settlement on 26 November 2009 – the plaintiff served a notice of termination and notice of default on the defendant on 18 November 2009 – on 27 November 2009 the defendant served a notice of termination on the plaintiff – whether the defendant was in breach of any of the special conditions to the contract – whether those breaches if made out rendered the defendant’s notice to complete ineffective – whether the Contract permitted the plaintiff to terminate in the circumstances – whether the plaintiff is entitled to a return of the deposit monies paid and to damages founded on his reliance on the defendant’s performance of the Contract.

Held: The defendant acted in breach of the special conditions – by reason of the breaches the defendant’s notice to complete was ineffective – the defendant’s breaches were antecedent to the requirement on the plaintiff to be ready willing and able to settle – consequently the plaintiff was permitted to terminate by reason of the defendant’s breaches – the plaintiff is entitled to a return of his deposit and reliance damages.

Hiliary Ignatius Lantry v Tomule Pty Ltd [2007] NSWSC 81; Chandos Developments Pty Ltd v Mulkearns [2008] NSWCA 62; Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132; Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; McNally v Waitzer [1981] 1 NSWLR 294; Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171, discussed.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Western Export Services Inc. v Jireh International Pty Ltd (2011) 86 ALJR 1; Dyster v Randall & Sons [1992] Ch. 932; Mehmet v Benson (1965) 113 CLR 295; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632; Bowes v Chaleyer (1923) 32 CLR 159; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; Foran v Wight (1989) 168 CLR 385; Francis v Lyon (1907) 4 CLR 1023; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Shevill v Builders Licensing Board (1982) 149 CLR 620; Gumland Property Holding Pty Ltd v Duffy Bros Fruit Markets (Campbelltown) Pyt Ltd (2008) 234 CLR 237; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; Concut Pty Ltd v Worrell (2000) 75 ALJR 312, considered.

KRAGULJAC v A & B PROPERTY DEVELOPMENTS PTY LTD (No 2)
[2012] SASC 1

Civil:

1. KOURAKIS J:      Summary:  The defendant, A & B Property Developments Pty Ltd (A & B Property), is the registered proprietor of industrial land at Victoria Road, Largs Bay.  I will refer to it as the Largs Bays land.  Artur Dyna, is and was at all material times, a director of the defendant.  William Slipper was, at all material times, also a director, but has since resigned as a director and share holder.

2. On 16 January 2007 A & B Property contracted in writing (the Contract) to sell the Largs Bay land to the plaintiff, George Kraguljac, “and/or his nominee” at a purchase price of $6,000,000.  The Contract did not specify a particular date for settlement.  Instead the parties contracted, by cl 3 of the Special Conditions to the Contract (S.C. cl 3), that settlement would take place within 90 days of the defendant “removing all its property materials and rubbish from the Land…” or “earlier, as mutually agreed to by both parties.”

3. I commenced the hearing of this matter on 15 December 2008.  At that time the parties requested that I determine the validity and effectiveness of a notice to complete and notice of termination which had been served by A & B Property pursuant to the terms of the Contract.  In a judgment delivered on 30 June 2009 (the first judgment) I found that the notices were ineffective largely because A & B Property had not removed all of its property, materials and rubbish from the Largs Bay land 90 days prior to the day on which it contended that Mr Kraguljac was bound to settle.  I also found that Mr Kraguljac had not agreed, after the execution of the contract, to settle on 28 February 2008 irrespective of the state of the land. 

4. Following the delivery of the first judgment, A & B Property again served notices to complete purportedly pursuant to the terms of the Contract.  Before the date for completion, Mr Kraguljac filed and served notices, also purportedly pursuant to the terms of the Contract, terminating the Contract. Mr Kraguljac also gave A & B Property written notification that he had elected to terminate the contract on the ground that A & B Property had repudiated the contract at common law.  Mr Kraguljac seeks the return of the sum of $570,000 he has paid by way of deposit, or towards satisfaction of the purchase price, and other expenses incurred in reliance on the performance of A & B Property’s contractual promises.

5. A & B Property denies the allegation that it breached the terms of the Contract.  In addition, A & B Property sought, on the first day of trial, to file a cross claim seeking damages for Mr Kraguljac’s failure to settle.  It claims that as a result of Mr Kraguljac’s failure, the Largs Bay land was sold by the Commonwealth Bank as mortgagee in possession at a significant shortfall.  The bank had taken possession by late September 2009.  It excluded the directors of A & B Property by changing the locks and threatening to report any trespass to the police.  In the ordinary course, if Mr Kraguljac has wrongfully failed to settle, the measure of damages would be the difference between the contract price and the price for which the property was sold.  The Largs Bay land was in fact sold on 23 July 2010 by the Commonwealth Bank as mortgagee in possession for the sum of $3,575,000.  However, A & B Property has limited its claim to the amount of $570,000, or perhaps more strictly, to the forfeiture of the deposit of $70,000 and a counterclaim for damages in the sum of $500,000 for loss of bargain resulting from Mr Kraguljc’s wrongful failure to settle.  The claim was so limited by agreement between the parties to avoid any further delay in the hearing of the matter.

6. It is likely that it is the fall in the value of the Largs Bay land and the value of the deposit and instalments paid, which has lead to the reversal of the position of the parties since the first judgment was delivered in June 2009.  In effect, A & B Property now seeks to hold Mr Kraguljac to the Contract and Mr Kraguljac has in turn purported to terminate the Contract which he had earlier, correctly, claimed was still on foot notwithstanding A & B Property’s earlier attempts to terminate it.

7. The controversy between the parties largely falls to be determined in accordance with my factual findings on two main issues.  The first concerns the clearing of the land.  Much of the material, property and rubbish which, in my first judgment, I found was on the Largs Bay land in February 2008 has been removed.  However, some property which was there in February 2008 remained and other material was brought on to the land after that date.  Nonetheless, A & B Property contends, for several reasons which I deal with below, that the settlement pre-condition was complied with.  The second issue concerns the obligation imposed on A & B Property by another condition of the Contract, to allow Mr Kraguljac access to the Largs Bay land for the purposes of marketing the proposed subdivided commercial allotments.  Mr Kraguljac contends that A & B Property’s notice to complete was ineffective because it was, at the time, in breach of that obligation.

8. The particular issues which arise, and my determination of them, can be shortly stated as follows:

   1.Was S.C. cl 3 satisfied and, in particular;

   a)were stacks of cladding which A & B Property left on the Largs Bay land exempted from the terms of S.C. cl 3 because they could be used by Mr Kraguljac, to replace broken sheets of cladding on the building;

   b)was building material which was left on the premises by another company controlled by Mr Dyna, Rutra Pty Ltd (Rutra), exempted from the terms of S.C. cl 3 because it was not the property of A & B Property;

   c)was a scissor lift and generator left on the Largs Bay land by A & B Property exempted from the terms of S.C. cl 3 because it was kept on the Largs Bay land in case they were needed to maintain the land between the date of the Contract and settlement;

   d)were stacks of tyres, which were stored by David Lowe on the Largs Bay land pursuant to a monthly tenancy granted by A & B Property, material that fell within the scope of S.C. cl 3;

   e)were containers kept on the Largs Bay land by George Weston Foods Pty Ltd, pursuant to a monthly tenancy granted by A & B Property, material within the scope of S.C. cl 3;

   f)was any, or all, of the above property so inconsequential as to be trivial and therefore not detract from the satisfaction of S.C. cl 3?

   I find that the goods of Rutra and of the monthly tenants falls within the terms of S.C. cl 3.  I find that S.C. cl 3 was not complied with because all the goods and material of A & B Property, and the goods of others left on the Largs Bay land with its permission, were not removed in accordance with its terms.

   2.Did A & B Property fail to allow Mr Kraguljac’s agents access to the Largs Bay land in accordance with cl 12 of the Special Conditions (S.C. cl 12) by failing to agree to the access arrangements proposed by Mr Kraguljac’s solicitors?

   Yes.  I find that A & B Property was therefore in breach of S.C. cl 12.

   3.Was A & B Property in breach of the Contract by granting monthly leases to George Weston Foods Pty Ltd and to David Lowe, and expanding the area leased to Mr Giles without the consent of Mr Kraguljac?

   I find that A & B Property breached cl 11 of the Special Conditions to the Contract (S.C. cl 11) by granting those leases without the prior written approval of Mr Kraguljac.

   4.Were the breaches of the clauses as to giving access and not granting leases so closely connected with Mr Kraguljac’s obligation to settle, or otherwise so serious as to disentitle A & B Property from giving the notice to complete whilst it remained in breach of those clauses?

   I find that Mr Kraguljac’s obligation to settle was effectively contingent on A & B Property’s performance of those obligations, such that the breaches entitled Mr Kraguljac to terminate the Contract pursuant to its terms and at common law, and showed that A & B Property was not ready and willing to perform the Contract.  The notice to complete given by A & B Property was therefore ineffective.

   5.Was Mr Kraguljac entitled to terminate the Contract for the breaches on which he relied even though he had not yet arranged finance to be able to settle on the Contract?

   Yes.  The obligations breached by A & B Property were antecedent to, and not concurrent with, Mr Kraguljac’s obligation to settle.  It was therefore not necessary that Mr Kraguljac show that he was ready, willing and able to settle.

   6.Was Mr Kraguljac in any event ready willing and able to complete the Contract if A & B Property had remedied its breaches?

   Even though it is not necessary for me to decide given my determination of issue 5, Mr Kraguljac was ready, willing and able to arrange finance at the time when the relevant breaches were first committed by A & B Property.

   7.Is Mr Kraguljac entitled to a return of the deposit of $70,000 and of the further sum of $500,000 which was subsequently paid towards the purchase price?

   Mr Kraguljac is so entitled by reason of the operation of cl 23 of the Contract, and by reason of that clauses incorporation in the collateral Contract pursuant to which the further payments were made.  Mr Kraguljac is also so entitled by reason of A & B Property’s breaches and repudiation.

   8.Is Mr Kraguljac entitled to an award of damages for money expended in reliance on A & B Property’s performance of the Contract even though the payments were made by a third party?

   Yes, on the basis that Mr Kraguljac was subject to an obligation to repay the amounts so expended to the third party.

9. My reasons follow.

   The Contractual Terms

10. Clause 2 of the Contract provides that the parties to it agree to sell and purchase, respectively, the land described in item 3 of the Schedule.  The land so described is the Largs Bay land.  Clause 4 of the Contract provides that the sale includes any chattel set out in item 5 of the Schedule, but alongside that item the word “nil” appears.  The purchase price is $6,000,000 and the deposit payable is $70,000.

11. Clause 20 of the Contract provides that if either party defaults in the performance of a term or condition to be performed prior to settlement, the innocent party may give a notice of default, without prejudice to any other right, requiring the defaulting party to remedy the default within three business days or such longer period as may be specified.  Clause 20(3) provides that if the default is not remedied within the specified time the “agreement shall automatically determine.”  Clause 21 of the Contract provides that if either party defaults in the performance of any term to be observed and performed at settlement, and the default continues unremedied for a period of not less than 14 days, the other party may give a notice to complete.  By clause 21(3) the time appointed for settlement in the notice to complete is deemed to be fair and reasonable if it is not less than 14 days after the date of service of the notice. 

12. Clause 21(4) of the Contract provides that if the defaulting party fails to settle on the appointed time, the complying party may terminate the agreement by notice given at any time after the appointed time for settlement.  Clause 22 of the Contract makes time of the essence in respect of the time appointed under cl 21.

13. Clause 23 of the Contract provides, in part:

    23(2) If this agreement is determined by the Purchaser under cl 20 or cl 21:

    (a)     the Vendor shall re-pay to the Purchaser all moneys paid by the Purchaser under this agreement by way of deposit or otherwise, and

    (b)     the Purchaser may sue the Vendor for damages for breach of contract provided that proceedings for the recovery of the damages shall be commenced within 12 calendar months after the determination of this agreement.

    23(3)It shall not be necessary for the Complying Party to first tender a transfer to the Defaulting Party before determining this agreement or before exercising any other rights or remedies of the Complying Party.

14. Clause 27 provides that the Special Conditions recorded in item 22 of the Schedule are incorporated into the agreement and, in the event of inconsistency between the Special Conditions and any other provision, the Special Conditions shall prevail.  Item 22 of the Schedule in turn refers to annexure A.  Annexure A is entitled Special Conditions. 

15. The following special conditions, which form part of annexure A to the Contract, are central to the dispute between the parties.

    Conditions Precedent

    3.1This agreement is subject to the Vendor removing all its property materials and rubbish from the Land and upon the Vendor leveling [sic] all the piles of dirt currently situated on the Land as agreed between the parties.

    3.2The Vendor will use its best endeavours to complete the work contemplated in clause 3.1 above immediately upon the execution of this agreement.

    3.3The parties agree that this condition precedent is for the benefit of the Purchaser and that subject to clause 3.4 below, the Purchaser may elect to settle the land and undertake to remove any rubbish, materials or property of the Vendor from the Land.

    3.4The Vendor agrees to pay the Purchaser the cost of removing and disposing or storage (as appropriate) of any rubbish, materials or property of the Vendor left on the Land after the Settlement Day.

    4.  Failure of Conditions Precedents

    4.1The Vendor and the Purchaser agree to use their best endeavours to ensure that each condition precedent is complied with in accordance with the terms set out in these special conditions.

    4.2If the condition precedent is for the Purchaser’s benefit and the time for its compliance has expired, then the Purchaser may by a written notice to the Vendor:-

    4.2.1  waive the compliance with that condition precedent; and

    4.2.2  terminate this agreement.

    4.3If the condition precedent is for the Vendor’s benefit and the time for its compliance has expired, then the Vendor may by a written notice to the Purchaser:-

    4.3.1  waive the compliance with that condition precedent,: and

    4.3.2  terminate this agreement.

    4.4The Vendor and the Purchaser may by a written document agree to extend the time to comply with any condition precedent under these special conditions.

    8.Settlement Date

    8.1The settlement date under this agreement is to be within 90 days from the Vendor satisfying the condition precedent pursuant to clauses 3.1 and 3.2 of this Agreement, or earlier, as mutually agreed to by both parties.

    11.Sale Subject to Existing Tenancies

    11.2The property is sold subject to the existing tenancies, the benefit of which the Vendor will give to the Purchaser on completion of the agreement.

    11.5The Vendor may enter into licences, leases, or agreements for licences or leases, after the date of this agreement only with the prior written approval of the Purchaser (the approval not to be withheld unreasonably).

    12.Access to the Land before Settlement

    12.1The Vendor grants to the Purchaser and its servants, agents, contractors and invitees with effect from the date of the agreement a non-exclusive licence to enter upon the Land prior to the date of settlement for the purpose of:-

    12.1.1erecting advertising signage relating to the Purchaser’s proposed intention to market the land to prospective tenants and/or Purchasers;

    12.1.2taking prospective tenant’s purchasers to inspect the land;

    12.1.3undertaking any Environment Assessments or building inspections of the property; and

    12.1.4undertaking such renovations or improvements to the Land as approved by the Vendor at the written request of the Purchaser.

    Construction of S.C. Cl 3.1

16. In my view, S.C. cl 3.1 of the Contract applies to material on the site as of the date of the Contract and continues to speak to property, material and rubbish subsequently deposited on the Largs Bay land.  That construction of S.C. cl 3.1 entails an implied obligation not to place any further property, material or rubbish on the Largs Bay land.  In my view, that implication is necessary to give efficacy to A & B Property’s express obligation to remove its property, material and rubbish from the site.  The parties could not reasonably have intended that the vendor, whilst being obliged to remove material and rubbish which was on the Largs Bay land on the day of contract, should be free to bring other property, material and rubbish onto the Largs Bay land the very next day, free of the obligation imposed by S.C. cl 3.1.  A & B Property accepted that it was subject to a continuing obligation in those terms.  However, it contended that the implication was limited to its property and did not extend to the property of third parties. 

1. However, the efficacy of S.C. cl 3.1 would equally be destroyed if A & B Property were to give permission to third parties to bring their property, material and rubbish onto the Largs Bay land between the day of contract and settlement.  In my view, the phrase, “its property materials and rubbish”, despite the possessive form of the pronoun, extends to all property, materials and rubbish which it is within the vendor’s power to prevent being deposited on the Largs Bay land. In the context of S.C. cl 3, the possessive pronoun may have been loosely used to refer to all of the material on the Largs Bay land other than the property of a lessee under an existing lease, material to which the purchaser had consented pursuant to S.C. cl 11.5, and any other items brought onto the Largs Bay land by, or at the instigation of the purchaser pursuant to other provisions of the Contract, and in particular the special conditions. 

2. Material deposited on the Largs Bay land, with A & B Property’s permission, might appropriately be referred to as “its” material even though A & B Property does not own it.  The reference to “rubbish” is in this context significant.  So too is the circumstance that the terms of the Contract were such that, objectively viewed, there was no reason to think material belonging to anyone other than A & B Property, or the tenants to whom Mr Kraguljac had consented, would be placed on the Largs Bay land.  Mr Kraguljac testified that Mr Dyna never mentioned the use of the land by any other entity.  In my view, in all the circumstances, there is some ambiguity about the meaning of the word “its” in the contractual context in which it is used.

3. The extended application of the possessive pronoun to property, material and rubbish, which the vendor can keep off the Largs Bay land, is not an unreasonable one.  It does not operate unfairly on A & B Property to bind it to the same position with respect to the material of others that it must take with respect to its own.  The very term requiring Mr Kraguljac’s consent to the grant of a future lease, S.C. cl 11.5, reinforces the reasonableness and necessity of the term I would imply.  One of the manifest purposes of the requirement is to control activity, including the depositing of material, on the Largs Bay land. A & B Property, as the registered proprietor of the Largs Bay land in possession, has a power to stop third parties depositing material on the Largs Bay land.  At the very least, it can withhold its permission from third parties and S.C. cl 3.1 can reasonably be read in a way which includes, within the expression “its property material and rubbish,” such material which it has permitted to be deposited on the Largs Bay land.  That power to exclude the property of third parties may be seen, for the purposes of S.C. cl 3.1, as the equivalent of the power which is an incident of A & B Property’s property rights over its own goods.  The construction I would give S.C. cl 3.1 is reasonably certain in operation, would operate fairly, gives the clause an operation free from absurdity, and is consistent with its purpose without, materially, departing from its literal meaning.[1]

   [1]    Cf Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 346 – 352; Western Export Services Inc. v Jireh International Pty Ltd (2011) 86 ALJR 1.

4. On the other hand, A & B Property’s power, and implied obligation, to keep the Largs Bay land clear, did not extend to the property, material and rubbish of a lessee in possession pursuant to an antecedent lease over part of the Largs Bay land, or of a lessee who had taken a lease after the Contract and with the consent of Mr Kraguljac.  I would not construe the obligation in S.C. cl 3.1 to extend to removing property that such a lessee was lawfully entitled to place on the Largs Bay land.  The recognition of the pre-existing leases in the Contract, necessarily entailed an acceptance by Mr Kraguljac that their property would not be removed before settlement.  Moreover, any subsequent consent given by Mr Kraguljac, pursuant to the terms of the Contract, to a lease of part of the land, necessarily carried with it an acceptance that A & B Property would be powerless to interfere with the possession of that land by the lessee, whether for the purpose of S.C. cl 3.1, or any other reason.  If A & B Property were to lease a part of the Largs Bay land without the consent of Mr Kraguljac, that act would itself constitute a breach of a condition of the Contract, irrespective of the material kept on the land by the tenant.  In addition, insofar as A & B Property allowed a third party to bring property, material or rubbish onto the Largs Bay land, other than pursuant to a lease given with the consent of Mr Kraguljac, or otherwise with his permission, then, for the purposes of S.C. cl 3.1, the property material or rubbish of the third party is to be treated as belonging to A & B Property.

5. It is not necessary to consider the operation of S.C. cl 3.1 on material which had been deposited on the Largs Bay land without the permission of A & B Property or which was unlawfully left there after it had demanded its removal.  Plainly enough, it would strain the meaning of the possessive pronoun to say that such material was its property.  However, as will been seen, all of the material on the Largs Bay land, at the relevant times, was placed, and remained, there with the permission of A & B Property.

   Chronology of Events

6. These reasons are to be read together with the first judgment.  In particular, the relevant events up until the end of calendar year 2008 are set out in that judgment.

7. Mr Kraguljac testified that, some time after I had reserved my first judgment, he met with Mr Dyna, who told him that he would never be allowed access to the Largs Bay land.  I accept Mr Kraguljac’s evidence of that conversation.  Following that meeting, on 27 February 2009, Mr Kraguljac’s solicitor wrote to the solicitor for A & B Property seeking access to the Largs Bay land for valuers, financiers and real estate agents.  The request was refused by return mail. 

8. On 21 January 2009, the Commonwealth Bank informed A & B Property, in writing, that it was ready to take possession of the Largs Bay land and arrange its sale.  It nonetheless allowed A & B Property until 27 February 2009 to provide evidence of the removal of the caveat lodged by Mr Kraguljac and a satisfactory written proposal for repayment of its loan.  The request was not satisfied and the Commonwealth Bank became the controller of A & B Property on 1 April 2009.

9. The relationship between the Commonwealth Bank and the directors of A & B Property quickly deteriorated.  On 14 July 2009, a credit manager of the Commonwealth Bank wrote to the directors complaining that they had threatened the bank’s officers with physical harm and insisting that all future contact with the bank be made in writing or through a solicitor.

10. On 27 July 2009, the solicitor for A & B Property wrote to an agent of the Commonwealth Bank offering to give it unrestricted access to the Largs Bay land on Tuesday, 28 July 2009.  The letter informed the agent that the defendant was “in the process of clearing that site to meet its obligations under an agreement with Mr George Kraguljac”.  The letter advised that the clearing would be completed on 27 July 2009, on which date A & B Property would serve Mr Kraguljac with a notice requiring him to complete the contract.

11. By letter dated 28 July 2009, the Commonwealth Bank announced that it was in possession of the Largs Bay land as mortgagee.  The Commonwealth Bank also replied that it had no confidence that the contract with Mr Kraguljac would settle.  It noted that A & B Property’s proposal to give Mr Kraguljac a notice to complete would delay the realisation of the asset for at least four months and, quite possibly, longer.  A & B Property’s solicitor replied on 29 July 2009, explaining that it shared the bank’s view that it was unlikely that Mr Kraguljac would settle but that it intended to serve the notice “to complete the formalities in order to be finally free of that individual’s claims”.

12. On 30 July 2009, the Commonwealth Bank reiterated its intention to proceed without regard to the Contract with Mr Kraguljac which, it contended, did not bind it.  The Commonwealth Bank did offer to consider a sale of the Largs Bay land separately from the other mortgaged assets of A & B Property if the proceeds of sale were sufficient to fully repay the debt it had secured over all of its land.

13. On 31 July 2009, A & B Property’s solicitor informed Mr Kraguljac’s solicitor in writing that the Largs Bay land had been fully cleared and that settlement was required within 90 days. 

14. On 6 August 2009, Mr Kraguljac’s solicitor wrote to A & B Property’s solicitor seeking agreement to engage an independent land agent to inspect the property for the purposes of determining whether it had been cleared.  The letter asserted that Mr Kraguljac had driven past the Largs Bay land on 1 August 2009 and had observed that goods and materials remained on it. 

15. On 7 August 2009, the Commonwealth Bank wrote to A & B Property’s solicitor insisting that its directors stay away from the Largs Bay land because of the repeated threats of violence made by them against the bank’s officers and its agent.  The Commonwealth Bank expressed a concern that the directors might be equally aggressive to potential purchasers.

16. A & B Property’s solicitor replied to Mr Kraguljac’s letter of 6 August 2009 on 14 August 2009, and denied that it was in breach of its obligation to clear the Largs Bay land.  A & B Property asserted that the goods and materials remaining on the Largs Bay land were the property of tenants or other occupiers.  It offered to give the solicitor access to the Largs Bay land to view that material on 21 August 2009, on the condition that Mr Kraguljac himself did not attend. 

17. On 20 August 2009, Mr Kraguljac’s solicitor sought agreement from A & B Property to a “standing arrangement” allowing inspections of the property by land agents and prospective purchasers or lessees of the proposed subdivided allotments.

18. On 21 August 2009, the Commonwealth Bank wrote to A & B Property’s solicitor again asserting that it was not bound by any contractual arrangements with Mr Kraguljac over the Largs Bay land.  Nonetheless, the Commonwealth Bank notified A & B Property that it was prepared to discharge its mortgage if all of the secured monies were repaid.

19. By email dated 21 August 2009, Mr Kraguljac’s solicitor asked A & B Property’s solicitor for a response to the proposed standing arrangement.  The solicitor also sought alternative dates on which to view the material left on the site.  On the same day, A & B Property’s solicitor proposed that the material be viewed on 25 August 2009 at 2.30 pm, however, his letter was silent on the question of the standing arrangement for sales inspections suggested by Mr Kraguljac.

20. On 24 August 2009, Mr Kraguljac’s solicitor accepted the offer to inspect the extent to which the Largs Bay land had been cleared, and again sought a response on the proposed standing arrangement. 

21. The material left on the Largs Bay land was inspected on 25 August 2009. Mr Kraguljac attended personally with his solicitor, notwithstanding the position which had been taken in A & B Property’s earlier correspondence.  A & B Property was represented by Ms Amanda Dyna, the daughter of its director Mr Artur Dyna, and its solicitor.  In the evidence before me there was no dispute between Mr Kraguljac and Ms Dyna over what they observed on the site during the inspection.  Photographs taken on the day of the inspection of the goods and materials on the Largs Bay land were also put into evidence.

22. Mr Giles, who is a lessee of a portion of the Largs Bay land, gave evidence at the trial.  Much of the material left on the Largs Bay land was either the property of Mr Giles or had been left within the area leased to him by others, and with his permission.  Many wooden pallets which remained on the Largs Bay land and were placed in stacks to cordon off the area leased to Mr Giles. Mr Giles’ original lease was granted in early 2007 with the consent of Mr Kraguljac and was for a term of three years.  However, later in 2007 the area leased to Mr Giles was extended without the knowledge and consent of Mr Kraguljac.  The increased area was substantial and restricted access to the other parts of the Largs Bay land.  It may be that some of the plant equipment and goods of Mr Giles were placed, or kept on the expanded areas of the lease.  However, I will proceed on the basis that none of his property, and the pallets, fall within S.C. cl 3.  Even if it was kept on an area not initially leased to him, it was not property to which S.C. cl 3 applied.

23. Outside of the area leased to Mr Giles were piles of used car tyres.  Mrs Krystina Dyna, the wife of Artur Dyna, testified that the tyres belonged to a person known to her as David Lowe.  According to Mrs Dyna, A & B Property had granted Mr Lowe a monthly tenancy over the area of the Largs Bay land on which the tyres were stacked.  That tenancy was granted without the consent of Mr Kraguljac.

24. Seventeen shipping containers were stored inside one of the largest buildings (the building) on the Largs Bay land.  Mrs Dyna gave evidence that they were the property of George Weston Foods Pty Ltd.  George Weston Foods Pty Ltd is a multinational corporation which trades in South Australia under the business name Tip Top Bakery (Tip Top).  Mrs Dyna testified that Tip Top held a monthly tenancy over that part of the building in which the containers were stored.  That tenancy was also granted without the consent of Mr Kraguljac.

25. A large generator and a blue scissor lift were also found in the building.  According to Ms Dyna and Mrs Dyna, the generator was used as a back-up source of electricity in the event of blackouts and the blue scissor-lift was used to carry out maintenance on the building. 

26. In an alcove at the western end of the building was a small blue truck which, according to Ms Dyna, belonged to Mr Slipper. 

27. In yet another part of the building were stacked sheets of cladding.  The external form and appearance of the cladding is similar to the cladding on the building itself; it was common ground that nearly all of the cladding on the building is asbestos.  There is no direct evidence, from anyone with the appropriate expertise, of the composition of the sheets of cladding stacked inside the shed.  Ms Dyna and Mrs Dyna accepted that the stacks of cladding belonged to A & B Property.  They both understood that the cladding had been left on the Largs Bay land so that Mr Kraguljac might continue to use it to replace broken cladding on the building.  However altruistic the decision to leave the cladding on the Largs Bay land might have been, the contractual consequences of its continued presence must be determined by the objective terms of the Contract itself and cannot be affected by the subjective motivations of A & B Property, or of its directors and their families.

28. There were boxes of ceramic tiles and cement in an enclosed portion of the building. 

29. There was a large amount of stacked building materials at the western end of the building.  The building is constructed over both the Largs Bay land and an adjacent allotment, allotment 28.  Much of the building material at the western end was probably within the boundary of allotment 28.  The evidence does not allow me to find, with precision, where the boundary between the allotments is on the photographs put into evidence.  I am not satisfied that all of the building material was situated on allotment 28.  I think it is likely that some of it was on the Largs Bay land but, to the extent that the building material did encroach, I find that it was relatively minor and that the material could easily have been moved onto that part of the building which was on allotment 28. 

30. Outside of the building and on the eastern side of the Largs Bay land, there were large lengths of steel which were components of a dismantled verandah.

31. Both Ms Dyna and Mrs Dyna testified that the tiles, building materials and dismantled verandah were the property of Rutra.  The directors and shareholders of Rutra are  Mr Artur Dyna and  Mrs Krystina Dyna.  According to both Ms Dyna and Mrs Dyna, Rutra trades in second hand equipment and building materials.  Ms Dyna testified that A & B Property also engaged in that business, however, Mrs Dyna’s evidence was that A & B Property merely held property and did not engage in the trading activities. I prefer Mrs Dyna’s evidence to that of her daughter’s because Mrs Dyna is likely to have a better understanding of the family’s businesses.  They both testified that the property of Rutra was left on the Largs Bay land pursuant to an informal arrangement struck by reason of the common directorship of Mr Artur Dyna in both A & B Property and Rutra.

32. I find that the cladding, the generator, the tiles and the verandah, were of a nature, size and quantity which required removal pursuant to S.C. cl 3.  They did not pass as fixtures.  I suspect that the cladding was asbestos but will proceed on the basis that it may or may not have been asbestos.  Nonetheless the chance that it was asbestos, and the need to investigate whether it was or not before it was removed, makes its presence alone a breach of S.C. cl 3. 

33. I reject the submission that a necessary implication should be drawn from the sale of the Largs Bay land as a going concern and the obligation to maintain it which allows for any of those items to be kept on the property.  The “going concern” of the Largs Bay land was in my view the business of subleasing it as industrial allotments.  It did not include the continued operation of a scrap business.  The maintenance of the Largs Bay land did not require any of the items to be kept on the land. 

34. The property of the monthly tenants, alone and together with the material of A & B Property and Rutra, also left A & B Property in breach of S.C. cl 3.  The suggested ease with which their property might subsequently have been removed on termination of the tenancies does not allow the extant breach to be excused.

35. Some time after the state of the clearing of the Largs Bay land was checked on 25 August 2009, A & B Property agreed to allow a real estate agent, whom Mr Kraguljac had engaged to help market his proposed development, to inspect the Largs Bay land on 4 September 2009.  The agent attended on that day but was prevented from inspecting the Largs Bay land because, at the very time of his visit, security guards engaged by the Commonwealth Bank, and protected by police, were in the process of forcibly wresting control of the Largs Bay land from A & B Property.

36. A war of correspondence then ensued over the extent to which the Largs Bay land had been cleared and the contractual significance of the material which remained on it.  By letter dated 8 September 2009, A & B Property’s solicitor asserted that the cladding found on the property was to pass to Mr Kraguljac on purchase “in order that he may use the same to repair the building as and when that becomes necessary.”  The solicitor asserted that there was an oral agreement to that effect struck between the parties.  Mr Kraguljac denied in evidence that any such agreement had been made.  In fact he testified that Mr Dyna had told him that he had intended to reclad the building with steel cladding and that was also Mr Kraguljac’s preferred option.  Mr Dyna was not called to give evidence.  I accept Mr Kraguljac’s evidence.  As to the remaining material, the solicitor asserted that it did not belong to A & B Property. 

37. On 25 September 2009, A & B Property’s solicitor wrote requesting confirmation that settlement would proceed and recorded “that it is our understanding that there is presently no outstanding request by your client for attendance at and or the inspection of the property pursuant [to] cl 12 of the contract.”

1. On 28 September 2009, Mr Kraguljac’s solicitor responded, by letter, disputing A & B Property’s solicitor’s interpretation of the site clearance clause.  Mr Kraguljac’s solicitor also denied the asserted oral agreement to purchase what the solicitor described as “asbestos cladding”.  Mr Kraguljac’s solicitor also disputed the assertion that there was no outstanding request for access by recounting the events observed by the real estate agent on 4 September 2009 and asserting that the agent had withdrawn his services after witnessing those events. 

2. I find that the failure to agree to a standing arrangement allowing Mr Kraguljac’s real estate agent access to the Largs Bay land, and that agent’s effective exclusion from it on 4 September 2009, put A & B Property in breach of its obligations under S.C. cl 12.  I do not accept the submission of A & B Property’s counsel that Mr Kraguljac did not want access to the Largs Bay land for his real agent after June 2009.  His testimony about the lack of any substantial marketing after June 2009 reflects the consequences of A & B Property’s obstruction.  His agent nonetheless had continued to receive enquiries.  Mr Kraguljac had not abandoned his attempts to develop the Largs Bay land as the letters to which I have referred show. 

3. I also infer from Mr Dyna’s persistent attempts to obstruct Mr Kraguljac’s redevelopment plans, both in this respect and by his obstruction of the environmental assessments, that he is responsible for removing advertising hoardings placed on the Largs Bay land by Mr Kraguljac’s agents.  Mr Kraguljac testified that Mr Dyna appeared to take some joy from the disappearance of the signs.  If signs were not put on the Largs Bay land in 2009, it was only in recognition of the futility of doing so.  In this respect also, A & B Property was in breach of its obligation under S.C. cl 12.

4. By letter dated 4 October 2009, A & B Property, through its solicitor, agreed to remove the cladding and demanded proof that Mr Kraguljac was in a position to settle.  The letter also informed Mr Kraguljac that the Commonwealth Bank was prepared to discharge its mortgage on payment of the balance owed to it.  A & B Property insisted that settlement must be effected by 29 October 2009.

5. On 6 October 2009, the Commonwealth Bank, by letter, informed A & B Property’s solicitor that its outstanding debt was about $5 million plus legal and enforcement costs.  The letter confirmed that on 29 September 2009 the Commonwealth Bank had entered into possession of the property and that any entry by the directors of A & B Property would be treated as a trespass and reported to the police.  The Commonwealth Bank insisted that A & Property could only remove its goods by making arrangements with it for supervised access.

6. On 7 October 2009, A & B Property’s solicitor informed Mr Kraguljac’s solicitor that the cladding had been removed.  On the same day, A & B Property’s solicitor wrote to the Commonwealth Bank asserting that it had an obligation to permit Mr Kraguljac and his agents reasonable access to the property and seeking the bank’s permission for that purpose.  On 9 October 2009, the Commonwealth Bank refused the request.  The Commonwealth Bank’s letter reported that, in the previous week, the Largs Bay land had been broken into and some of the locks changed.  On 13 October 2009, in the course of the hearing of an action between A & B Property and the Commonwealth Bank over the possession of the Largs Bay land, A & B Property’s solicitor submitted that “the bank’s position automatically places the plaintiff in default in relation to the contract.”

7. Mr Kraguljac did not settle on 29 October 2009 nor has he at any subsequent time tendered the purchase price.  I find that, had  Mr Kraguljac been required to settle on that date, or on 26 November 2009, A & B Property was in a position to give good title to the Largs Bay land with the consent of the Commonwealth Bank because the balance of the purchase price exceed the indebtedness of A & B Property.

8. By letter on 6 November 2009, A & B Property asserted that it was not, itself, in breach of the Contract and that if Mr Kraguljac’s breach was not remedied within 14 days, a notice to terminate the Contract would be given.  A & B Property also announced that it had concluded that Mr Kraguljac did not have any capacity to settle, irrespective of the settlement date, because he had failed to provide any information about his capacity to pay the purchase price.  On 10 November 2009, Mr Kraguljac’s solicitor asserted by letter that Mr Kraguljac was not under any obligation to pay, or to show that he had the capacity to pay, the purchase price until settlement.

9. On 12 November 2009, A & B Property’s solicitor served on the plaintiff’s solicitor a notice to complete (the Notice) founded on the failure to settle on 29 October 2009.  The Notice called on Mr Kraguljac to settle “on 26 November 2008 [sic]”. 

10. By letter dated 18 November 2009, Mr Kraguljac’s solicitor asserted that A & B Property was not in a position to settle on the Contract because the Commonwealth Bank had taken possession.  The solicitor alleged that A & B Property had breached cl 3.1, 3.2, 12.1.1. and 12.1.2 of the Special Conditions and cl 7(2) of the Contract.  Clause 7(2) of the Contract requires the vendor to keep the deposit as a stakeholder.  In my view, a breach of that obligation would not justify termination and I will therefore not refer to this ground any further.  The solicitor further alleged an underlying repudiation of the contract by A & B Property by reason of its loss of possession of the Largs Bay land, and by reason of the steps it had taken to sell the Largs Bay land to others.  In another letter of the same date sent to A & B Property’s solicitor, Mr Kraguljac terminated the contract by acceptance of the alleged repudiation of the contract by A & B Property. 

11. On the same day, Mr Kraguljac served on A & B Property’s solicitor a notice of termination pursuant to cl 4.2.2. of the Special Conditions (S.C. cl 4.2.2) grounded on the alleged failure of A & B Property to use its best endeavours to clear the Largs Bay land in accordance with S.C. cl 3.2.  Yet a further notice was served on the same day purporting to give A & B Property notice of certain defaults, and calling on it to remedy those defaults within three business days, pursuant to cl 20 of the Contract.  The breaches on which Mr Kraguljac relied were the failure of A & B Property to use its best endeavours to clear the Largs Bay land, and its failure to allow Mr Kraguljac and his agents access to the Largs Bay land for the purpose of marketing the proposed redevelopment sites.

12. At the hearing of this matter, Mr Kraguljac also relied on the expansion of Mr Gile’s lease and the monthly tenancies granted without his consent.  I accept that the termination of a contract can be supported by breaches which were not relied on at the time of termination.[2]

    [2]    Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 262, 278; Concut Pty Ltd v Worrell (2000) 75 ALJR 312, [51].

13. On 27 November 2009, A & B Property served on Mr Kraguljac a notice of termination based on Mr Kraguljac’s failure to settle on 26 November 2009. 

    Mr Kraguljac’s Ability to Settle

14. I accept that Mr Kraguljac acted towards A & B Property, and dealt with their contractual relationship, in a way which optimised his commercial position.  I am nonetheless satisfied that if the contractual provisions which enlivened his obligation to settle had been performed by A & B Property, Mr Kraguljac was willing and able to settle.  He had paid a substantial amount towards the purchase price when he was not contractually bound to.  A failure to settle would almost certainly have resulted in the loss of those payments.  He had attracted the interest of commercial partners with substantial assets.  He had negotiated extensively with his bankers.  I do not draw any adverse inference against Mr Kraguljac for not adducing any more certain evidence about how he would have accumulated the balance of the purchase price had A & B Property not breached its obligations.  Those breaches substantially disrupted his redevelopment plans.  I approach this matter in a way which is analogous to the assessment of a party who terminates for anticipatory breach.  Given that the time for Mr Kraguljac to settle had not yet been reached, because of the breaches of A & B Property, only a “substantial incapacity” or a “definitive resolve” not to complete should be held against him.[3]  It may be that the redevelopment was less likely to be profitable by September 2009, but faced with the alternative of losing what he had already expended on settling the Contract, I am satisfied Mr Kraguljac would have chosen, and was capable of successfully completing, the latter.

    [3]    Foran v Wight (1989) 168 CLR 385, 408 – 409, 427.

    Characterisation of the Terms and Conditions of the Contract

15. I will commence by stating the general principles by which contractual terms are classified, and the consequences of their breach identified.

16. The characterisation of a term of a contract as a condition is a matter of construction of the contract as a whole.[4]  The mere contractual description of a term as a condition is not a sufficient basis on which to construe it as such.  Plainly enough, expressly providing that a breach of a particular term will enliven a right on the part of the innocent party to terminate will generally do so.  It is relevant to the question of construction that the contract is a commercial one.[5] 

    [4]    Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641.

    [5]    Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632.

17. If, on an objective view of the importance of a contractual term, it can be inferred that the innocent party would not have entered into it unless assured of strict compliance the term is likely to be classified as a condition.

18. The insufficiency of damages for breach of a term, or a difficulty in enforcing a term or proving damages may imply an intention that the term was a condition.[6]  The objective prospect of serious loss or damage resulting from the breach is also an indicator that a term is a condition. 

    [6]    Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 557.

19. However, if the degree of loss will be affected by the form of breach, and in particular whether it is a serious or trivial breach, the term is more likely to be classified as intermediate.[7]  In the case of an intermediate term, whether or not the breach gives rise to a right to terminate will depend on the gravity of the breach.[8]

    [7]    Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

    [8]    Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 562; Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

20. In Perri v Coolangatta Investments Pty Ltd[9] the High Court held that a “condition will not be construed as a precedent to formation unless the contract read as a whole plainly compels this conclusion”[10]

    [9] (1982) 149 CLR 537.

    [10]   Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 552.

21. In the construction of contractual terms for this purpose there is a tension between the common law preference for certainty, and as a result, the classification of terms as conditions, and the equitable focus on the justice of the particular case and an evaluation of the relative importance of the breach in question.  In order to maintain sufficient flexibility to do justice in the particular case, the equitable preference is to treat terms as warranties.  Not surprisingly, in more recent times the tension has increasingly been resolved by characterising terms as intermediate.[11]

    [11]   Ankar Pty Ltd v National Westminster Finance (Australia)) Ltd (1987) 162 CLR 549.

22. At common law contractual parties have a right to terminate the contract in the event of an actual breach of a condition, an actual breach of an intermediate term which occasions sufficiently serious consequences, and when faced with prospective non-performance, or repudiation of a condition.

23. The seriousness of the breach is determined by reference to its nature, and consequences, in the context of the contract as a whole.[12]  Repudiation is a manifest unwillingness or inability to perform the contract as a whole, or to perform a condition thereof.  It is the renouncement or the inability to perform an essential term, or an absence of willingness or ability which goes to the root of the contract, which amounts to a repudiation.[13]  Repudiation in itself does not effectively terminate the contract unless and until the innocent party accepts the promisor’s unwillingness and elects to terminate it[14] 

    [12]   Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 68 - 69.

    [13]   Foran v Wight (1989) 168 CLR 385; Francis v Lyon (1907) 4 CLR 1023.

    [14]   Thomson Reuters, Laws of Australia (1 December 2011) Legal Online [7.6.110] <>

    A termination for breach does not rescind the contract.  Both parties are discharged from further performance but rights already acquired are not discharged.[15] On the termination of a contract the innocent party is not only discharged from performance but may also bring an action for damages for the loss of bargain.[16]  However, the damages must flow from the breach itself and not the innocent party’s decision to terminate the contract. 

    [15]   McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 476 – 477.

    [16]   Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 31 (Mason J), 47 (Brennan J), 55 (Deane J).

    Preconditions for Notices of Completion and Termination

24. Contractual provisions governing the service of contractual notices to complete, or of termination, regulate, and extend, the equitable principles by which time stipulations were given, in equity, the same effect they had at common law on the giving of a notice requiring compliance.

25. Contractual terms allowing for the provision of default notices serve at least two purposes.  First, they provide a strong negative incentive on the defaulting party to comply.  Secondly, they allow for the termination of the agreement with some certainty where the innocent party confidently expects that the defaulting party will not remedy his or her default.  The party serving the notice will then be entitled to claim reliance damages and possibly expectation damages. 

26. A failure on the part of the defaulting party to remedy his or her default and to complete the contract will, generally, give the party who has served the notice in accordance with the agreement between the parties a right to terminate it, either in accordance with the terms of the agreement itself or by reason of a repudiation constituted by the failure of the defaulting party to comply with the notice.  The proper and effective service of a notice to complete will compel the party on whom the notice is served to settle in accordance with the notice, notwithstanding the loss occasioned by the serving party’s breach, or risk losing the benefit of the contract.  If a party, who is himself or herself, in breach of a term of the Contract can nonetheless serve an effective notice to complete, he or she may procure the substantial benefit of the contract without performing his or her own obligations.  Similarly, if a party who is in breach of his or her obligations is entitled to terminate a contract for the breach of the other party, he or she may be relieved of any liability for the failure to perform any executory obligations.  At the very least, such a party will be free to enter more profitable transactions over the same subject matter notwithstanding his or her own breach.

27. In McNally v Waitzer[17] (McNally), a vendor gave a notice to complete even though he had failed to provide sufficient particulars of title to enable the purchaser to prepare a transfer of the land pursuant to the terms of the contract.  The decision of the trial judge that the notice was, for that reason invalid, was upheld on appeal.

    [17]   McNally v Waitzer [1981] 1 NSWLR 294.

28. Hutley JA referred to Neeta (Epping) Pty Ltd v Phillips,[18] where Barwick CJ and Jacobs J in a joint judgment explained:

    In cases where the contract contains a stipulation as to time but that stipulation is not an essential term then before a notice can be given fixing a time for performance, not only must one party be in breach or guilty of unreasonable delay, but also the party giving the notice must himself be free of default by way of breach or antecedent relevant delay.  Only then may a notice be given fixing a day a reasonable time ahead for performance and making that time of the essence of the contract.[19]

    [18] (1974) 131 CLR 286.

    [19]   Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, 299.

29. Hutley JA held that the failure to provide the necessary particulars of title put the vendor in default and he could therefore not give an efficacious notice to complete.  Hutley JA held that the vendor’s breach was not so trivial as to justify disregarding the omission.[20]  Reynolds and Glass JJA agreed with the reasons of Hutley JA on this issue.

    [20]   McNally v Waitzer [1981] 1 NSWLR 294, 301.

30. A further question arose in McNally. That question was the extent to which the vendor had to be ready, willing and able to proceed to completion in order to serve an effective notice of completion.  The contention that the vendor was bound to discharge a land tax liability he had incurred before serving the notice to complete was rejected.  Reynolds JA said:

    It is to be observed that the phrase used is “to proceed to completion” and this is a very different condition from one that requires that at the time of the giving of the notice the vendor is able to complete.  The vendor, or indeed the purchaser, is to be judged to be presently able to fulfil his contractual obligations if he can do so at the due time.  It could hardly be asserted that a purchaser giving a notice to complete would have to show that on the date he gave it he had immediately available funds to complete any more than it could be asserted that a vendor who had contracted to sell an unencumbered freehold could not give a notice to complete unless he first discharged the mortgage.  Re Barr's Contract [1956] Ch 551 provides no authority for such a proposition. What it does establish or reassert is that the giving of a notice to complete is analogous to instituting a suit for specific performance and the “clean hands” principle is equally applicable but the requirement of the law is no greater in the case of a notice to complete.[21]

    [21]   McNally v Waitzer [1981] 1 NSWLR 294, 296.

31. On that question, Hutley JA, also, did not accept the unqualified proposition that the entitlement of a party to give a notice to complete depended on that party himself being ready, willing and able to complete at the time that he gives the notice.[22]  Hutley JA explained:

    If it means that a party must have discharged any encumbrances which have to be discharged prior to or on completion before he gives a notice to complete, it is quite contrary to established conveyancing practice.

    …

    The requirement that the party giving the notice to complete should be ready, willing and able has obviously been derived from traditional equity pleading of a suit for specific performance and should be given a similar meaning.  The allegation of readiness does not mean that the plaintiff has satisfied all that he has been required to do to complete.  If this were not so, it would never have been possible to specifically enforce contracts which were dependent upon ministerial consent for he may be required to make application to the Minister which he is not able to do until after he has obtained the order of the court. … Readiness and willingness is negatived by proof that the party seeking to enforce the contract has done something inconsistent with his obligations under the contract and which has not been or is incapable of rectification.

    …

    The correct rule, in my opinion, is simply that a vendor who is in default in respect of things which up until then should have been done cannot give a notice to complete, but he can give notice to complete prior to performing all those other things which he has to perform in order to complete the contract.[23]

    [22]   That proposition had been stated in Maxsujur Pty Ltd v Asimus [1980] 2 NSWLR 96, 99 per McLelland J in Eq.

    [23]   McNally v Waitzer [1981] 1 NSWLR 294, 303 - 304.

1. In Alexus Pty Ltd v Pont Holdings Pty Ltd,[24] Young J explained the position in these terms:

   One must distinguish between essential and non-essential obligations. Lack of readiness to perform an essential obligation ordinarily leads to inability to give a notice to complete or to force specific performance. However, this is not ordinarily the case where the obligations concerned are inessential; see Measures Bros Ltd v Measures [1910] 2 CH 248, 260-1; Dyster v Randall & Sons [1926] Ch 932 and Bahr v Nicolay (No 2) [1988] 164 CLR 604.

   There are some provisions in a contract which merely sound in damages and even a vendor in breach may still force completion. An example is Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395, 401. In that case the sale of a commercial property was subject to leases and the leases were not as disclosed in the contract. This was a matter which merely sounded in damages and did not prevent completion.

   On the other hand, where there is a substantial defect and the purchaser is entitled to an abatement of the purchase price it is not open to the vendor to give a notice to complete or to force specific performance without at least offering compensation: see Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 9419, 9426, a case where the vendor was in breach of its duty to take reasonable care of the property between contract and completion. Other examples are cases where the vendor has promised to build a house on the property sold and there have been grave defects in the building; see Tildesley v Clarkson [1862] EngR 422; (1862) 30 Beav 419; 54 ER 951 and Doyle v East [1972] 1 WLR 1080.[25]

   [24]   Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171.

   [25]   Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171, 22 – 24.

2. In Mulkearns v Chandos Developments Pty Ltd,[26] the vendor terminated a contract after the purchaser failed to complete in accordance with a notice served pursuant to the provisions of the contract.  The purchaser contested the effectiveness of the notice to complete because, at the time it was given, the vendor was under an obligation to the purchaser to ensure that it had performed its obligations under leases over portions of the land held by certain third parties.  In particular, it was contended that the vendor was in breach of an obligation to maintain a roof on one of the leased buildings.

   [26] [2003] NSWSC 1132.

3. Referring to McNally, Young CJ in Eq said:

   In McNally v Waitzer (supra) itself, Reynolds JA strongly suggested that what was required was that the vendor demonstrate at the material time that it was ready willing and able to proceed to completion.  His judgment does not mention breaches.  On the other hand, Hutley JA does appear to refer to breaches and his quotation from Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, 299, confirms this. The writer of the headnote has picked up these words. The third Judge, Glass JA, agreed with both Reynolds JA and Hutley JA. He obviously could not have done so had there been a material difference between them. It seems to me that Hutley JA at p 304 makes it clear that he too is talking about readiness and willingness because he says, "Readiness and willingness is negatived by proof that the party seeking to enforce the contract has done something inconsistent with his obligations under the contract and which has not been or is incapable of rectification." He refers to Meagher Gummow and Lehane a paragraph that is now [20-115] of the fourth edition. This reference again seems to emphasise the readiness and willingness aspect, a matter which is not to be determined on whether or not there has been a breach of contract, at least unless the breach is substantial: Mehmet v Benson (1965) 113 CLR 295, 307-9.[27]

   [27]   Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132, [41].

4. The passages in McNally to which Young CJ in Eq referred, are passages dealing with the effect of the failure of the vendor to discharge the land tax liability before settlement, and did not deal with the existing breach by reason of the failure to provide particulars.  However, it is to be observed that Hutley JA did not rely on the fact of breach alone, but also on the interdependence between the vendors failure to provide particulars of title and the purchasers failure to provide a completed transfer.

5. Young CJ in Eq went on to say:

   The Court must take a commercially realistic view of the completion of contracts for the sale of land particularly contracts with respect to commercial developments.  It would be quite opposed to the presumed intention of parties to a contract if settlement could be indefinitely delayed because of some minor problem with respect to the state of the building or other possible breach of an obligation to a third party which the vendor under the contract had promised to look after.  It may be that the category of breaches which go to readiness, willingness and ability extend beyond matters of title or vacant possession, but this is certainly the main subject matter of such breaches.  It is noteworthy that Mr Mulkearns said that he would have settled had some sum been set aside to cover the replacement of the roof, but he did not appear to be putting forward that view in August.[28]

   [28]   Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132, [44].

6. On appeal from the decision of Young CJ in Eq, in Chandos Developments Pty Ltd v Mulkearns,[29] the New South Wales Court of Appeal left open the question whether a party was precluded from serving a notice to complete if he or she were in breach of any contractual obligation, or whether they were only so precluded if they were in a breach of an essential term or in breach in a substantial way.  The analogy with suits for specific performance would suggest the latter.[30]  It is not necessary for me to finally resolve this question because, in my view the breach of A & B Property here was a substantial one.

   [29] [2008] NSWCA 62.

   [30]   Dyster v Randall & Sons [1926] Ch. 932; Mehmet v Benson (1965) 113 CLR 295, 307.

7. I observe that these authorities are concerned with those interdependent obligations of vendors and purchasers on which settlement is dependent.  In my view, the effect of these authorities is as follows.  First, a notice to complete or settle can not effectively be relied on by a party who has himself or herself failed to perform an obligation on which the settlement is contractually dependent.  In such a case the other party is not obliged to settle because, on a proper construction of the contract the condition on which the obligation rests has not been satisfied.  Secondly, the party serving the notice must be in a position to perform any still executory obligations by the date he or she has nominated for settlement.  In my view, it must also be the case that a party in breach of an essential term, or who has otherwise repudiated the contract, can not invoke contractual provisions which demand performance of the other party’s obligations on pain of loss of the benefit of the contract.  That rule is necessary to avoid an otherwise irreconcilable conflict between the right to terminate, which is enlivened by a failure to comply with a notice to complete given by the contract, and the common law right to terminate of the other party.

8. Rescission when a precondition to settlement has not occurred raises a related issue, considered in Hilary Ignatius Lantry v Tomule Pty Ltd.[31] In that case, it was a contractual precondition to settlement that the local government authority issued a certificate of compliance with building regulations.  A request for that certificate was made but the local government authority determined that the certificate would not be issued until specific rectification work was completed.  The purchaser gave a notice of rescission.  The vendor contended that the purchaser was not entitled to rescind unless and until it had given a notice to complete, and could show that the vendors were unwilling or unable to carry out the work referred to by the local government authority.  It was common ground that:

   [31] [2007] NSWSC 81.

   (a) the special condition imposed an obligation on the purchaser to immediately apply for a building certificate;

   (b)that, in the event that work was required for such a building certificate to be issued, the vendor was not required to complete the work; and

   (c)that, in that event, a purchaser was entitled either to proceed with the settlement without the work being completed or to rescind the contract.

   The issue between the parties was whether a purchaser who was in breach could rescind for non-satisfaction of a condition precedent without giving notice to the vendor.  White J said:

   Where completion of the contract depends not on the performance by a party of his contractual obligations, but on the occurrence or non-occurrence of the specified event by a certain time, a party entitled to rescind on the occurrence or non-occurrence of that event may exercise that right when the time arrives without prior notice.  In Aberfoyle Plantations Ltd v Khaw Bian Cheng [1960] AC 115, the Privy Council said (125) that:

   "Where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles.”

   The position is settled by the judgments of the majority of the High Court in Perri v Coolangatta Investments Pty Limited.  In that case, the contract did not fix a time for completion.  Completion was therefore due within a reasonable time.  The contract included a condition that it was entered into subject to the purchasers completing a sale of their own property.  The vendor gave a notice to complete and purported to terminate the contract on the basis of the purchasers' non-compliance with that notice.  Wilson J held that the vendor brought the contract to an end in this way.  Six weeks after serving a purported notice of termination, the vendor commenced proceedings for a declaration that the contract had terminated.  By then, a reasonable time for completion had passed.  The majority of the High Court held that by instituting the proceedings when the condition for completion (namely, the sale of the purchasers' own property) was neither waived nor fulfilled, the vendor elected to avoid the contract (at 547 and 570). 

   Gibbs CJ said (at 545):

   "Suttor v Gundowda Pty Ltd and Gange v Sullivan are consistent with Aberfoyle Plantations Ltd v Cheng and support the view that where a conditional contract fixes the date by which the condition is to be fulfilled the contract may be terminated if the condition has not been fulfilled when that date arrives, and that it is unnecessary to give any prior notice to the other party.”

   His Honour concluded (at 546) that:

   “ ... I consider that when the time has elapsed for performance of a condition which is not a promissory condition, but a condition precedent to the obligation to complete a contract of sale, either party, if not in default, can elect to treat the contract as at an end if the condition has not been fulfilled or waived, and that it is not necessary first to give a notice calling on the party in default to complete the contract or fulfill [sic] the condition.  What I have said is, of course, subject to any sufficient indication of a contrary intention in the words of the contract itself. "

   Brennan J, with whom Stephen J agreed, said (at 569-570):

   "Then it was submitted that the vendor could not avoid the contract unless it had given a notice to complete and the notice had not been complied with.  The notice of 17 July 1978 was given before the expiration of the time limited for fulfilment of the stipulation and called for performance of the contract before the expiration of that time.  Further, it was submitted, the vendor seeking to avoid the contract was bound to give a notice to complete after that time expires, affording the purchasers a further reasonable time for compliance with the demand in the notice. These submissions suggest a confusion between the consequence of non-fulfilment of a contingent condition and the consequence of breach of a promissory term.  A notice to complete insists upon performance by a party in default to whom the notice is given of an obligation binding upon him.  It can have no application to a situation where the party to whom it is given is under no obligation to perform. And here, of course, the vendor was not seeking performance by the purchaser after 10 August 1978.

   In the present case, when the time limited for fulfilment of the stipulation passed, the purchasers did not come under an obligation to complete.  That obligation remained contingent on their completion of a sale of the Lilli Pilli property. The vendor was then entitled to say: ‘As you have not completed the sale of your Lilli Pilli property, our contract is still contingent. I have waited long enough. Our sale is off.’  Thereafter, the vendor was not seeking to rescind the contract for breach by the purchasers of their obligations; it was seeking to rescind the contract because the event upon which the obligations of both parties were conditioned had not occurred.  The ground on which it sought to rescind the contract affected the formation of obligations to complete, not their performance. No notice to complete was called for."

   By contrast, if a party wishes to terminate for breach of the other party's obligation to do something within the required time, time for performance of the obligation must have been made essential either by the terms of the contract or the giving of notice.[32]

   [32]   Hilary Ignatius Lantry v Tomule Pty Ltd [2007] NSWSC 81, [51] – [56].

9. White J reasoned from the absence of an obligation to give a notice to complete, that it was not necessary for the purchaser to establish his or her capacity to complete before exercising the contractual right to rescind.  White J explained:

   Foran v Wight (1989) 168 CLR 385, upon which counsel for the vendors relied, was concerned with a different question. It was concerned with rescission for actual or anticipatory breach. A party seeking to rescind a contract for actual or anticipatory breach must be ready and willing to complete in the sense described in that case. So also, a party serving a notice to complete must be willing and able to complete when the time for completion under the notice arrives. However, no authority was cited to show that a party must prove an ability and willingness to complete before he or she can exercise a contractual right to rescind for failure of a condition precedent to the parties’ obligations to complete. I do not consider that Jeppesons Road Ltd v Di Domenico [2005] QCA 391, is authority for such a proposition.

   The reason for the requirement of readiness and willingness to complete in the event of rescission for anticipatory or actual breach was explained by Mason CJ in Foran v Wight (at [404]-[405]). It is based on the injustice of a party who is not willing or able to perform his own obligations being able to take advantage of a breach or anticipatory breach of the other party. That rationale has no role to play in the case of rescission for failure of a non-promissory condition precedent to completion, where the relevant obligation has not arisen.

   No such requirement was suggested in Perri v Coolangatta Investments.  There, the vendors purported to terminate on the basis of a notice to complete which only Wilson J held to be valid.  If the notice to complete were invalid, then the vendor, by asserting that the contract had been determined before proceedings were commenced, would not itself have been ready and willing to complete when it commenced the proceedings.  However, it was not suggested that this precluded the vendor from exercising its contractual right of rescission for failure of a condition precedent, which it was held it did by commencing proceedings.

   For the same reasons, it is not an objection to the purchaser exercising his right of rescission for non-fulfilment of the condition to completion that he was, or might have been, in breach of special condition 13.2.1, where that breach did not contribute to the non-fulfilment of the condition (Gange v Sullivan at 442).

   Indeed, even in the case of termination for breach, a party seeking to terminate for the opposite party's breach is not precluded from doing so by reason of his own breach of contract if he has not repudiated the contract, if his breach is of a non-essential term, and if there is no causal relationship between his breach and that of the opposite party (see Nina's Bistro Bar Ltd (formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 620 and 632; Road Show Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 479-480. That must be so is a fortiori in the case of non-fulfilment of a non-promissory condition to completion. The alleged breach of clause 13.2.1 was that the purchaser did not supply documents within the time specified in that clause and did not supply all the required documents. Subclause 13.2.1 required delivery of the documents within twenty days. The purchaser delivered documents required by that clause in twenty-two days. If this were a breach, the breach was waived. No complaint was made of late delivery. Nor could it have been, as the vendors’ solicitors had advised on 1 June 2004 that work in relation to the transfer of licence would be deferred until the position with respect to the purchaser's finance and other issues was clarified.[33] 

   [33]   Hilary Ignatius Lantry v Tomule Pty Ltd [2007] NSWSC 81, [77] – [81].

10. Ultimately, White J found that the purchaser was in fact in a position to complete if a building certificate had been issued.

    Analysis

11. I have found in [48] - [50] above, that A & B Property did not remove its property from the Largs Bay land 90 days prior to the date on which it stipulated settlement was to take place.  It follows that Mr Kraguljac was not bound to settle on that day, and that A & B Property was not contractually entitled to serve the notice to complete on 12 November 2009.  The Notice was therefore ineffective, as was A & B Property’s subsequent Notice of Termination.

12. The breach by A & B Property of S.C. cl 11 and 12, also precluded reliance by it on the completion provisions of the contract.  It was clearly within the contemplation of the parties in this case that the Largs Bay land would be developed.  The express provisions not to lease the land without the consent of Mr Kraguljac, and to give access for real estate agents, environmental assessments, building work and surveys, were calculated to allow steps to be taken towards that development before settlement.  It is unlikely that Mr Kraguljac would have entered into the contract if he were not assured of strict compliance with those obligations.  The commercial importance of clearing the Largs Bay land, and allowing access to it, is clear from the very terms of the Contract.  Clause 7 of the Special Conditions conferred on Mr Kraguljac the right to sublease the Largs Bay land in conjunction with A & B Property, so that “the goal of 100 per cent occupancy” might be achieved “as soon as possible.”  The parties plainly contemplated that the purpose of the acquisition by Mr Kraguljac was the expeditious development of the Largs Bay land as an industrial site and the letting of portions of it.[34]

    [34]   As to commerciality indicating a condition see Bowes v Chaleyer (1923) 32 CLR 159.

13. In my view, those obligations were conditions.  Moreover, there is such a substantial contractual interdependence between those terms and the contractual obligation to settle, that A & B Property was precluded from insisting on settlement whilst it was in breach of those terms.  If A & B Property were entitled to insist on completion, it would receive the substantial benefit of the Contract, namely the full purchase price, after having wrongfully obstructed the expeditious development of the Largs Bay land which was an expressly stated object and condition of the purchase. 

1. The obstruction of Mr Kraguljac’s attempt to develop and lease the Largs Bay land was, in its very nature, likely to substantially hinder his attempts to arrange the necessary finance.  It is not necessary to find that the obstructions did in fact have that effect because Mr Kraguljac does not seek loss of bargain damages.  The question here is one of construction of the terms of the Contract, in order to determine the relationship between the contractual right to issue a notice to complete and breach of the other terms of the contract.

2. If I have wrongly classified the terms as conditions, I am nonetheless satisfied that the breaches committed by letting parts of the Largs Bay land without permission and obstructing access to the Largs Bay land were serious enough to justify termination.  They caused substantial delay and undermined the attempts to market the development.  In a commercial development of this type, time and marketing is often of critical importance.  The breaches here were serious breaches judged against their potential to sabotage the manifest purpose of the terms which were calculated to facilitate and expedite the redevelopment.

3. The condition which Mr Kraguljac contends was not satisfied, and which he contends founded the right to terminate pursuant to S.C. cl 4.2.2, was the failure of A & B Property to use its best endeavours to remove its property, material and rubbish from the Largs Bay land in accordance with S.C. cl 3.1.  Special Condition cl 3.1 is expressed, by its heading and its terms, to be a condition precedent.  Moreover, S.C. cl 4 is expressed on the assumption that it is applicable on its terms to the condition precedent stipulated in S.C. cl 3.  However, the right to terminate conferred by S.C. cl 4.3.2 is contingent on the expiration of the time for compliance, yet the only time specified by S.C. cl 3 is the time from which the vendor must commence to use its best endeavours. 

4. I am satisfied by virtue of the findings I made in [99] to [105] of the first judgment, and my findings in these reasons, that A & B Property has not used its best endeavours to clear the Largs Bay land of its property.  Special condition cl 3 provides an incentive for the expeditious clearing of the Largs Bay land by fixing the settlement date at no later than 90 days thereafter.  Additionally, there is in S.C. cl 3 an implied obligation to clear the land within a reasonable time.  That time had undoubtedly expired by September 2009.  However, I am not satisfied that A & B Property did not commence to do so immediately on execution of the contract.  Nor am I satisfied that the phrase “as agreed between the parties” in S.C. cl 3.1 refers to a subsequent agreement which the parties might reach as to the time by which the Largs Bay land was to be cleared.  In my view, it refers only to agreement about the way in which the dirt was to be levelled.

5. Special Condition cl 3 stipulates a condition precedent to Mr Kraguljac’s obligation to settle, and imposes the obligations on A & B Property to clear the land to which I have referred.  It does not operate as a condition precedent of the type considered by White J in Hiliary Ignatius Lantry v Tomule Pty Ltd.[35]  It is difficult to give S.C. cl 4 any work to do independently of cl 20 of the Contract, because the condition on which settlement depends in S.C. cl 3 is the performance of an obligation by the vendor.  In my view, S.C. cl 4 simply makes it clear that the purchaser need not insist on the performance of the obligations imposed on the vendor by S.C. cl 3, and may instead terminate the Contract pursuant to the provisions of cl 20 of the Contract.

   [35] [2007] NSWSC 81.

6. I have found that A & B Property breached its contractual obligation to allow Mr Kraguljac’s agents access to the Largs Bay land and to allow the erection of signage on the Largs Bay land.  Those breaches enlivened Mr Kraguljac’s power to terminate the Contract pursuant to cl 20 of the Contract.  Mr Kraguljac also relied on the breach of the obligation to clear the Largs Bay land within a reasonable time to found the notice given pursuant to cl 20 of the Contract.  He was entitled to do so.  The breaches were of conditions, or were serious breaches of intermediate terms.  Mr Kraguljac was therefore entitled to terminate the Contract. 

7. At the time of Mr Kraguljac’s termination, he was under no obligation to settle because, at the very least, the Largs Bay land had not been cleared.  The breaches of A & B Property were of obligations which were antecedent to, and not concurrent with, Mr Kraguljac’s obligation to settle.  In my view, Mr Kraguljac was entitled to terminate the Contract whether or not he was ready willing and able to settle.[36]

   [36]   Cf Foran v Wight (1989) 168 CLR 385 at 408 409, 427.

8. In any event for the reasons I gave in [67], I am satisfied that Mr Kraguljac was ready willing and able to settle immediately before he determined to terminate the Contract.  He was therefore entitled to terminate the Contract pursuant to cl 20.

   Damages

9. If the contract is terminated pursuant to an express term of the contract for a breach which is not sufficiently serious to found a right to terminate at common law, loss of bargain damages will not be awarded.[37]  I have found that the breaches of A & B Property were such as to entitle Mr Kraguljac to terminate the Contract at common law.

   [37]   Shevill v Builders Licensing Board (1982) 149 CLR 620; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.

10. Nonetheless his claim is only for reliance damages.  Mr Kraguljac’s claim is that he has expended money for the purposes of the Contract which has been wasted by reason of the Contract’s non-performance.  Mr Kraguljac claims that he has suffered loss as a result of the breaches of A & B Property which caused him to terminate the Contract.  Mr Kraguljac does not make a claim for loss of bargain damages as he might have.[38]

    [38]   Shevill v Builders Licensing Board (1982) 149 CLR 620, 629; Gumland Property Holding Pty Ltd v Duffy Bros Fruit Markets (Campbelltown) Pty Ltd (2008) 234 CLR 237; Progressive Mail House Pty Ltd v Tabali Pty Ltd (1988) 157 CLR 17, 32.

11. Restitution damages are awarded to return to the innocent party, the benefit of property transferred, or money paid, by the innocent party to the party in breach, where the innocent party has terminated the contract upon a serious breach by the other party.  Where the contract has been terminated by the innocent party, the measure of damages may be the money spent in reliance on the performance of the terminated contract.[39]  The innocent party may recover the price previously paid for the goods or services that will not now be delivered.  Restitution damages are not true restitution.[40]

    [39]   Thomson Reuters, Laws of Australia (1 December 2011) Legal Online [7.9.220] <   Thomson Reuters, Laws of Australia (1 December 2011) Legal Online [7.9.270] <>

    Mr Kraguljac is entitled to the return of the deposit of $70,000 made on the execution of the Contract pursuant to the terms of cl 23.

12. I set out in the first judgment the circumstances in which Mr Kraguljac paid $500,000 to A & B Property by way of cheques in the sum of $150,000, $100,000, and $250,000.[41]  The payments were made in accordance with an agreement, the terms of which are set out in a letter from Mr Kraguljac to Mr Dyna dated 20 December 2007, which were accepted by A & B Property by the banking of the cheques enclosed with that letter.[42]

    [41]   Kraguljac v A & B Property Developments [2009] SASC 184, [42] – [50], [59].

    [42]   Kraguljac v A & B Property Developments [2009] SASC 184, [52].

13. I found in my first judgment, and remain of the view, that the agreement thereby reached was not in itself a contract for the sale of land, nor was it a variation of the Contract.  The agreement was an agreement which was contemplated by the terms of Special Condition cl 8.1 of the Contract (S.C. cl 8.1).  As well as providing a “mutually agreed” date for settlement pursuant to S.C. cl 8.1, the terms of the agreement set out in the letter of 20 December 2007 also imposed an obligation on A & B Property to clear the site by 31 January and an obligation on Mr Kraguljac to make the further payments in the sum of $500,000.  By the agreement made on 20 December 2007, the further payments were made by way of further “deposit.”

14. If that agreement is construed to incorporate, by reference, cl 23 of the Contract, as I think it does, then those payments must be returned to Mr Kraguljac.  If those payments were made by way of instalments towards the purchase price, then there is an implication that they were not to be forfeited in the event that the Contract was not completed and must be returned.[43]  In any event, they are clearly payments made in reliance on the proper performance of the Contract by A & B Property and are therefore recoverable by way of restitution damages. 

    [43]   McDonald v Lascelles Ltd (1933) 48 CLR 457.

15. Mr Kraguljac also claims damages in the sum of $187,560.44 for the expenditure on the proposed development of the site.  Mr Kraguljac proposed to develop the land, as I earlier observed, by subdividing it into an industrial estate comprising about 18 allotments.  Those expenses have, in my view, been thrown away because of the breaches by A & B Property which allowed Mr Kraguljac to terminate the Contract pursuant to its terms.  They are not additional losses caused by the termination itself, and are therefore recoverable, even if A & B Property’s breaches did not justify termination in accordance with the common law.  Those payments are therefore prima facie recoverable.

16. However, A & B Property contends that Mr Kraguljac is not entitled to recover those expenses because they were in fact made by a third party whom Mr Kraguljac is not obliged to indemnify.  The payments were made by the company ATH Nominees Pty Ltd (ATH).  Mr Kraguljac was at all material times a director of ATH.  Until August 2007, he was also a shareholder.  In August 2007, he transferred his share to Heath Investments Pty Ltd (Heath).  Heath remains the sole shareholder of ATH.  On transferring his share, Mr Kraguljac entered into a share option agreement with Heath, whereby Mr Kraguljac was granted an option to repurchase the share on settlement on the Largs Bay land and the registration of mortgages in favour of Heath.  Mr Kraguljac gave evidence that the development of the Largs Bay land was to be undertaken by ATH.  The sales contract named Mr Kraguljac or his nominee as purchaser.  In that context, the share option agreement is to be construed to refer to the settlement on the Largs Bay land by which ATH would become the registered proprietor, subject to a mortgage to Heath for the amounts lent to it by Heath.  Indeed, a meeting held between Mr Kraguljac and certain directors of ATH, who were also directors of Heath, records agreement and consent to the nomination of ATH as the purchaser of the Largs Bay land at the same time that the share option agreement was made.

17. The loans secured by the mortgages referred to in that documentation were made pursuant to an agreement, recorded in a letter dated 14 December 2006, between Mr Kraguljac and ATH on the one part and International Retirement Communities Pty Ltd (IRC) and Heath on the other part.  The letter of 14 December 2006, acknowledges the receipt of advances which had already been made and were to be paid to A & B Property towards the purchase of the Largs Bay land.  The letter also refers to further advances which were to be made to facilitate the purchase of the Largs Bay land.  The letter includes a term that the loan arrangements would be formalised by providing mortgages over the Largs Bay land on settlement.

18. Mr Kraguljac contends that he is liable to repay IRC and Heath for those advances.  The quantum of the sum advanced is not disputed.  A & B Property contends that Mr Kraguljac is not liable for that expenditure because the development was, in effect, undertaken by IRC, Heath and ATH and because Mr Kraguljac was not personally liable to repay the advances.

19. I reject that submission.  The letter of 14 December 2006 is addressed to the Chairman of IRC and Heath.  It contains the following acknowledgement:

    “On behalf of myself (GK) and ATH Nominees Pty Ltd (ATHN), I hereby acknowledge the receipt of the first of your IRC loan advances as cheques … that are to be cashed and applied to pay the monies required under the signed HoA with A&B Property Developments Pty Ltd (A&B), and also to pay a further $70,000 to A&B so as ultimately to secure the Options and the Contracts to purchase [the Largs Bay land and adjoining allotments] from A&B Properties Developments Pty Ltd …

    It is confirmed that these and any and all further Loan Advances for this project from your Companies are to bear interest at the rate of 25 per annum, compounded annually, and adjusted daily, until fully repaid through refinancing through the National Australia Bank (NAB) and/or Bankwest Ltd (BWL) and/or Macquarie Bank Ltd (MQB) and/or the ultimate property resale proceeds.  HI will also be entitled to a fee of $2000 per month from 1.9.07 until settlement with A&B, for the administration of ATHN.”

20. I am satisfied that those paragraphs establish that the advance which had already been made, and any future advances, were loans to Mr Kraguljac and ATH jointly.  It is not surprising that the loan was made to both jointly.  ATH was incorporated with a capital of one dollar.  It had not yet commenced trading in August 2007.  It is very unlikely that an advance would have been made to it alone.  The loan was accepted “on behalf of” both Mr Kraguljac and ATH.  The reference to the expected repayment on settlement did not, in my view, carry with it a negative implication that the money would not be repaid if the settlement never proceeded.  The stipulation as to the time for repayment implied that Mr Kraguljac and ATH would use their best endeavours to obtain sufficient finance from the mentioned banks to repay the loan, and that alternatively, the loan would be repaid from the proceeds of the development and not before.  There was no reason for IRC and Heath to accept a risk that it would never be repaid.  The drastic consequence of the total loss of the substantial advances which had already been made, and any future advances, if settlement did not proceed, militates against the implication of such a term.  In the ordinary course, a consequence as drastic as that would be expected to be expressly recorded.  In my view, the effect of that paragraph is to preclude the term, which would ordinarily be implied, that the loan was repayable on demand.  The right to demand repayment was deferred and/or suspended by reason of the matters referred to in the second paragraph, for so long as there was a reasonable prospect of settlement on the Largs Bay land with the assistance of finance from the named institutions.

21. Accordingly, I find that Mr Kraguljac has, by reason of A & B Property’s, breaches suffered a loss in the nature of the liability undertaken to repay the advances of IRC and Heath. 

22. The total sum claimed by way of return of the deposit and other advances and the development expenditure is $757,560.44.  There will be an award in favour of Mr Kraguljac in that amount.

23. I will hear the parties as to the precise form of orders and as to interest and costs.