McFarlane v REFFOLD - [2008] SADC 77

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Minor Civil Review)
MCFARLANE v REFFOLD
[2008] SADC 77
Judgment of His Honour Judge Tilmouth
20 June 2008
CONTRACTS - PARTICULAR PARTIES - VENDOR AND PURCHASER
The plaintiff brought proceedings for the specific performance of a sale and purchase agreement of land and to extend a caveat lodged by him. The defendant resists the extension on the ground that the action was doomed to failure.
Held: inappropriate at the interlocutory stage to determine that claim cannot succeed.
Real Property Act 1886 (SA) s191, referred to.
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 332; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-2; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31, discussed.
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd & Ors [2008] HCA 10, considered.

MCFARLANE v REFFOLD
[2008] SADC 77
Background

By an agreement entered into by the parties to this action of 7 December 2007, the plaintiff contracted to purchase the land situated at 102 Government Road, Andamooka from the defendant, Mr Reffold. The purchase price was specified at $250,000 and settlement was scheduled for 11 February 2008.
Shortly before settlement, it came to the attention of Mr McFarlane that a waste water system comprising a septic tank was installed on the property without approval or consent of the local Council. Accordingly, on 8 February 2008, he purportedly gave notice pursuant to clause 22 of the Agreement of default by the vendor “in relation to clause 17”, based on the failure to obtain “approval of improvements”. The notice adjusted the settlement date to 18 February 2008 and specified the “waste water system does not follow regulations and partly outside Lot 102”. As a consequence settlement did not proceed on 11 February as contemplated.
It was rescheduled to 4 March 2008 when a cheque was tendered by Mr McFarlane for an amount that was $1,778.62 less than that specified as payable in an amended settlement statement. The difference apparently represents what the defendant says was interest payable under the agreement on account of the failure of Mr McFarlane to settle. In the meantime, on 15 February 2008, a notice to complete was sent to Mr McFarlane by the vendor and following a second failed attempt to settle, a notice of termination dated 4 March 2008 was served pursuant to clause 21(3)(d). Clause 21 entitled the vendor to terminate, on default by the purchaser to settle, providing the vendor “is not in default in the observance or performance of any of the terms and conditions contained in” the agreement: clause 21(2)(b). In this case that default was specified as falling under clause 21(3)(d) where “the purchaser fails to comply with the requirements of a notice to complete at the time appointed” for settlement.
The proceedings
The action found its way into this court on 7 April 2008 when Mr McFarlane bought proceedings for specific performance, and seeking an order extending the time for removal of a caveat previously lodged by him, which had been warned by the defendant. Clearly if Mr McFarlane retains a right to enforce specific performance of the contract for sale and purchase of land, he would be a person “claiming to be interested at law or in equity … under an agreement … in [the] land” within the meaning of s191 of the Real Property Act 1886 (SA). When the matter was first called on, the court made an interim order extending the caveat, until the underlying merits could be resolved.
Subsequently Mr McFarlane, who represented himself, maintained that he had the right to require remedy of the breach. Various grounds were suggested, including the failure to obtain development consent, pursuant to s33 of the Development Act 1993 (SA), or the contravention of s44(1) thereof.
The terms of the contract
The position of the defendant was that on any view of the facts and on any reading of the contract, Mr McFarlane was simply not entitled to invoke clause 22. Accordingly it was contended the case for the plaintiff was so clearly untenable that it could not possibly succeed: General Steel Industries Inc v Commissioner for Railways (NSW[1]. In order to appreciate this submission it becomes necessary to set out the relevant clauses.
[1] (1964) 112 CLR 125
Clause 17(1) of the Sale and Purchase Agreement provided:
The Vendor warrants that, since the Vendor became the registered proprietor of the Land, no improvements have been erected, and no alterations or repairs have been carried out, on the Land without all necessary consents and approvals having been obtained and, to the best of the knowledge, information and beliefs of the Vendor, no such improvements were erected and no such alterations or repairs were carried out without such approval or consent before the Vendor became the registered proprietor of the Land.
Clause 22(1) was expressed as follows:-
If the Vendor makes default in the observance or performance of any term or condition contained in this agreement to be observed or performed by the Vendor at or before settlement, the Purchaser may give to the Vendor notice in writing (in this clause called “the Purchaser’s notice”) requiring the Vendor to remedy the default within the period of five business days after the service of the notice or such longer period as is specified in the notice.
Clause 22 provides, in the event of Vendor default, for the purchaser to give notice electing either to terminate or to rectify, under penalty of interest to the date of postponed settlement.
The submission of Mr Esau for the defendant was that clause 17 contained a warranty and moreover one with respect to past events, that is to say events preceding contract. He maintained a breach of clause 17 may well found an action for damages, but was not otherwise of a kind that attracted the operation of clause 22. This was so because, firstly clause 22 related to post-contractual events, and secondly it applies specifically to “default in … any term or condition”, which did not include warranties.
Thus it was submitted, the expressions “term or condition” as opposed to “warranty” preserved a dichotomy between these respective types of clauses throughout the agreement, which were mutually exclusive. Counsel pointed to other clauses maintaining the distinction, such as vendor warranties with respect to roads and fences (clause 15) and purchaser’s warranties (clause 30). Hence it was submitted, clause 22 was not an available to Mr McFarlane in the case of any potential breach of clause 17.
Terms, conditions and warranties!
Breach of an essential term or condition of any contract entitles the other party to terminate, in contrast to breaches of warranties, or non-essential or subsidiary terms. The High Court in Associated Newspapers Ltd v Bancks[2] adopted the following passage from the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd[3]:
The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.
[2] (1951) 83 CLR 322 at 332
[3] (1938) 38 SR(NSW) 632 at 641-2
In Progressive Mailing House Pty Ltd v Tabali Pty Ltd[4] Mason J described a “fundamental breach” to mean “breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract”. The court in contract disputes, is required to “give effect to the obligations to which the parties had bound themselves”: Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd & Ors[5]. As in that case, there is no reason, despite the presence of clauses 17 and 22, why general contractual principles do not apply to the contract of sale and purchase. Under general contractual principles, should there be vendor breach of an essential term, that would then be capable of triggering the remedies offered to the purchaser under clause 22, because the law would regard the warranty as amounting to a condition.
[4] (1985) 157 CLR 17 at 31 and see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 82 ALJR 345 at 357 [49]
[5] [2008] HCA 10; 224 ALR 1
These principles serve to illustrate that quite apart from the proper construction of the contract, if it turns out the failure to obtain an approval or consent is itself an essential term, then ordinary contractual principles apply. If that is so, it is arguable that default of clause 17 by the vendor, is potentially capable of resolution in the manner provided for under s22. It also remains for the trial court to determine if clause 17 amounts to, a representation concerning the property but no more, a warranty in relation to the property, a statement which is a condition of sale, or a delineation of that which is agreed to be sold under the contract of sale, capable of constituting a condition recognised by the general law of contract and therefore picked up by clause 22: Stephens v Selsey Renovations Pty Ltd[6]; Travinto Nominees Pty Ltd v Vlattas[7].
[6] (1974) 1 NSWLR 273 at 276.
[7] (1973) 129 CLR 1 at 25.
On that view, the court cannot be satisfied the claim to specific performance is doomed to failure. Despite the attractiveness at first sight, of the submission put by Mr Esau, this is a matter not ripe of resolution by way of interlocutory relief at this stage. It is one to be resolved at trial, when such issues as whether there was vendor breach in the first place, the importance to the parties of a lawfully installed waste water system, the significance of the apparent default, the consequences of breach, the capacity of either party to remedy it, and whether it is capable of prospective remedy under clause 22 amongst other questions, can then be fully agitated. At this stage it would premature and contrary to principle to determine that Mr McFarlane has no arguable case.
Conclusion
In those circumstances, the Court declines to determine the plaintiff has no arguable cause of action. Since questions of whether the caveat should be further extended, and questions of the balance of convenience as well as questions of undertakings as to damages were not explored, the parties should be heard on those matters and any others that arise, consistent with these reasons.