McRae & Anor v Bolaro Pty Ltd
[2000] VSCA 72
•5 May 2000
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted
No. 8119 of 1996
| DONALD LINDSAY McRAE and MARGARET MARY McRAE |
| Appellants |
| v |
| BOLARO PTY. LTD. |
| Respondent |
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JUDGES: | ORMISTON, CHARLES and CALLAWAY, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 29 and 30 November 1999 | |
DATE OF JUDGMENT: | 5 May 2000 | |
MEDIUM NEUTRAL CITATION: | [2000] VSCA 72 | |
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CONTRACT – Vendor and purchaser – Repudiation – Anticipatory breach – Actual breaches – Reliance on ineffective notice pursuant to General Conditions 5 and 6 of Table A – Whether purchasers evinced intention no longer to be bound – Whether affirmation of contract by serving ineffective notice – Whether failure to pay interest breach of essential term – Whether breach accepted by vendor consisted only of actual breach or also of anticipatory breach – Whether "abandonment" of contract by both parties.
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APPEARANCES: | Counsel | Solicitors |
For the Appellants | Mr P. O'Callaghan Q.C. | Boothby & Boothby |
| For the Respondent | Mr J.A. Strachan Q.C. and Mr I.S. Williams | Birch Ross & Barlow |
ORMISTON, J. A.:
The appellants appeal from a judgment of a judge of the trial division for damages for breach of a contract of sale of land arising from what was held to be the repudiation of that contract by the appellant purchasers. Implicit in the appeal, although not explicit except to the extent to be inferred from the nature of the orders sought, is likewise an appeal from the effective refusal of the judge to make orders on the counterclaim in favour of the appellants and his refusal to order the respondent vendor to repay all amounts of principal so far paid by the appellants to the respondent. The primary issue in the appeal arises out of the failure of the appellants as purchasers to make certain interest payments and their expression through their solicitors of an inability to make those payments, and arguably any other payments, under the rescheduled contract of sale whereby they agreed to purchase the respondent vendor's cattle property in South Gippsland on terms for the price of $3.5M. The appellants failed to pay one instalment of interest, saying that they had insufficient funds to pay, which led the respondent to serve what purported to be a notice of rescission. The appellants on advice did not make any payment in response to the notice but, after they failed to pay a second instalment of interest and again professed inability to pay, the respondent took the present proceedings relying on both the failure to comply with the notice and repudiation generally. The learned judge held the notice to be ineffective, as requiring too short a period to remedy the default, but held that the appellants had repudiated the contract and thus were liable in damages for what was in effect a shortfall on the resale of the land. The appellants appeal against those findings and the judgment, while the respondent by notice of contention seeks also now again to assert that the notice was effective. It will thus be seen that all the questions raised on this appeal go primarily to the question whether in one way or another the appellants repudiated their obligations under the contract. It will be convenient, at least for future reading, if I describe in the following summary of facts the appellants as "the purchasers" and the respondent as "the vendor".
The vendor, Bolaro Pty. Ltd., a company controlled by the Osborne family, owned a substantial cattle property, called "Bolaro", situated at Buffalo, in the vicinity of Tarwin Lower in South Gippsland. The purchasers, Mr and Mrs McRae, entered into a contract dated 22 March 1995 to purchase the property from the vendor for $3.5M. which in the first place was to be paid as follows: by a preliminary deposit of $100,000 on or before 31 March 1995; by the balance of what was called the "deposit" of $2,400,000 on or before 30 November 1995 and the residue of $1M. on or before 30 November 1997. Vacant possession was to be given upon acceptance of title and payment of the whole of the "deposit" of $2.5m., with interest at the rate of 10% per annum with quarterly rests payable in arrears from the settlement date until payment of the residue. The contract of sale was substantially in what was then the conventional form inasmuch as it contained the essential details in the particulars of sale, such as the names of the parties, the description of the property (which in this case consisted of seven titles), the price, the dates of payment and the rate of interest. To these particulars were appended certain Special Conditions in part devised for the purposes of the sale together with the printed "General Conditions" in a form then conventionally adopted from Institute contracts. Finally there was reference to and incorporation of the conditions (also described as "general conditions of sale of land") in Table A of the Seventh Schedule to the Transfer of Land Act 1958.[1]
[1]It should be noted that for the purposes of this contract Table A took the form which appeared in the Tenth Reprint of the Act.
In these circumstances it is necessary to go to only a few of the conditions of what otherwise might be described as a relatively conventional contract. By Special Condition 10 an additional right was given to the purchasers upon payment of the "deposit", not merely to obtain possession of the whole but also to obtain transfers of the land in respect of all titles except one. Also by Special Condition 11 the purchasers agreed that, if they sold one or both of their own farming properties near Wonthaggi before settlement, then the preliminary deposit of $100,000 would be increased by $250,000, to be paid within seven days of settlement of one of the stated properties. Attention was also drawn in argument to General Condition 3.2 which read at the time:
"3.Where this is a 'terms contract' as defined in s.2(1) of the Sale of Land Act 1962, then –
…
3.2Interest shall be paid by the purchaser to the vendor from the settlement date upon the residue outstanding at the interest rate and with the rests set out in Item (3) of the Schedule (if any). Any instalments payable under this contract shall be applied first in payment of interest and secondly in reduction of the residue."
The schedule contained specific provision as to payment of interest of 10%. Not surprisingly specific attention was given to Conditions 5 and 6 of Table A which, although familiar, should here be repeated because of their constant amendment over the years. At the time they read for relevant purposes:
"5.Time shall be of the essence of this contract. However, if either party defaults under this contract the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless the default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within fourteen days of service of the notice and the offender fails to comply with the notice.
6.(1)Where the default has been made by the purchaser and is not remedied all monies unpaid under this contract shall become immediately payable and recoverable at the option of the vendor.
(2)If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded.
(3)Where the contract is so rescinded and the notice is given by –
…
(b)the vendor, then an amount equal to one-tenth of the price ('the security') shall be forfeited to the vendor as his absolute property and he may recover possession of the land and at his option may within one year of the date of rescission either –
(i)retain the land and sue for damages for breach of contract;
(ii)resell the land in such manner as he sees fit and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages.
In addition to the security the vendor may retain any part of the price paid to him pending the determination of damages and may apply that money in satisfaction or part satisfaction of those damages."
Although hoping to sell their existing farm properties, the purchasers found the market unsatisfactory in the second half of 1995 so that they were unable to sell those properties for the price they had expected. Although no payments were due during that period it became clear to them that they would be unable to make the $2.4M. payment due on 30 November. Through their solicitors they made arrangements to meet so as to negotiate a different timetable for payment. Consequently a first deed of variation was executed on 1 November 1995. In substance it reduced the payment due at the end of the month to $600,000, which was in fact paid on that day, and pursuant to the terms of the deed possession of the property, excluding the house, was given. The residue was thereby agreed to be paid as to $1.8M. on 30 April 1996, when possession of the house was agreed to be given, and the balance of $1M. was payable on 30 November 1997. It was further agreed that the interest rate payable on the residue should be varied to 10.5% per annum monthly in arrears until the $1.8M. was paid and thereafter interest payments at the original rate of 10% per annum were to be payable quarterly in arrears on the remaining residue. A number of other terms were included in the deed but it is only necessary to notice that by clause 7 the purchasers acknowledged that, "as a result of an anticipatory breach of contract by the purchaser", the vendor had incurred additional legal costs which were to be paid pursuant to general Condition 6 of the contract.
The purchasers duly paid the interest payments of $24,500 each month for the months December 1995 to March 1996 inclusive but, although it seems that they had sold both their farm properties, by February 1996 it became apparent to the purchasers that they would still be in difficulties in making the payment of $1.8M. due on 30 April. Again the parties negotiated a variation of their arrangement and, although a draft deed was prepared, it was not executed as the terms of their arrangement were sufficiently set out in correspondence between the parties' solicitors. In a letter from the purchasers' solicitors, Messrs Boothby & Boothby, dated 3 April 1996, accepted by the vendor through its solicitors, Messrs Birch Ross & Barlow by letter dated 4 April 1996, it was agreed that a payment of $500,000 (together with the interest due at the end of the preceding month of $24,500) should be accepted in lieu of the agreed $1.8M. due on 30 April and that there should be two further payments, extending the duration of the contract as a whole, namely a payment of $450,000 on 31 March 1997 and a final payment of $1.85M. on 31 March 1998. Possession of the house was still to pass in April 1996 and the purchasers would be obliged to pay interest at 8% per annum monthly in arrears on the balance of the residue, which was effectively $15,333.33 per month. The parties had been discussing the possibility of a part resale of Bolaro in order to satisfy the vendor's claim for the balance of the purchase money, so the letter also contained the vendor's agreement to the subdivision and sale of the property at approximately $3,000 per acre.
Again the purchasers paid the interest payments then agreed of $15,333.33 on time for each of the months from April to September 1996 inclusive. However, before that final payment the purchasers had got in touch with their solicitors and their solicitors with Messrs Birch Ross & Barlow, whereby Mr Boothby stated that the purchasers would not be in a position to make any further payments after September 1996 and desired a meeting in order to seek further indulgence from the vendor, the tentative proposal being that the succeeding six months' interest would be capitalised. On 11 September 1996 Mr Barlow of Messrs Birch Ross & Barlow wrote to Messrs Boothby & Boothby, referring to those telephone conversations, and stated that Mr Osborne "would like your clients to comply with the terms of the second variation of contract of sale and is not prepared to enter into further negotiations". He thus said that the tentative appointment for negotiations on 27 September was cancelled but that, "if your clients should have some counter suggestion", he would be pleased to submit it to the vendor.
This letter provoked a lengthy letter from Messrs Boothby & Boothby on behalf of the purchasers dated 27 September 1996. It referred to the letter of 11 September and noted its contents. The letter then proceeded, omitting some irrelevant details, as follows:
"Our clients understand your client's position and have been most grateful of his assistance throughout, and in particular in granting the terms of the second Variation of Contract. At the time the variation was agreed upon it was intended, and indeed appeared, to give our clients the opportunity and time to sell their Yarrawonga properties and part of Bolaro to produce some capital to pay to your client and at the same time reduce our client's interest commitments. It was also hoped that the beef industry would pick up enabling our clients to improve their position from an income point of view.
Unfortunately our clients have not had a change of fortune. The Yarrawonga properties [which were two houses and one house allotment] which were estimated to have a value of up towards $500,000 at the time 'Bolaro' was purchased have not been sold. Two attempts have been made to auction the house without a bid being offered and no offers have been made since that time …
The possible sales of part of Bolaro have also come to nothing. ... Once again the wet winter has not helped and the continued slump in beef cattle prices has no doubt contributed to a loss of confidence in the market.
At this time our clients are at a loss to make a suggestion which may be acceptable to your client. They share your client's high regard for 'Bolaro' and would dearly love to be able to continue there. On the other hand they are presently earning very little income from the property and the capital which had been set aside to cover the interest which we have been paying over the past six months or so is rapidly running out. While there will be sufficient in hand to pay the interest due at the end of September there will not be sufficient to cover the next month's interest.
Our clients cling to the hope that possibly the summer will bring a sale of the Yarrawonga properties and possibly part or parts of 'Bolaro'. Their only option is to ask that the interest due be accrued for a period of up to six months in the hope that something positive will happen in that time.
We are not sure whether your client will be in a position to forgo the interest for this period. As our clients have paid $1,200,000 in capital then hopefully your client's equity would not be put at risk. We would be most grateful if you could convey the above proposal to your client. If it is not acceptable then our clients would be grateful of any suggestion of an alternative course of action which your office or your client may suggest which may be acceptable to your client." (Emphases added.)
As forecast the purchasers paid the monthly interest due on 30 September 1996 of $15,333.33 and did not make the payment due of interest on 31 October of that year. It seems that neither the parties nor their solicitors had any further negotiations or discussions and no further proposal was put forward on behalf of the purchasers. Pursuant to instructions Messrs Birch Ross & Barlow prepared a notice of rescission which bore date 14 November 1996, on which day it was put into the document exchange at Leongatha from whence it was transmitted to Melbourne that night, but it did not reach the document exchange facility of the purchasers' solicitors until Monday 18 November 1996. The notice of rescission was directed to each of the purchasers and read (omitting formal descriptive matters of detail):
"Bolaro Pty. Ltd. … HEREBY GIVE NOTICE that you have made default under the contract of sale by your neglect to pay the instalment of interest … $15,333.33 due and payable on 31st October 1996.
NOW TAKE NOTICE that unless you remedy your default and pay the instalment of interest of the sum of … $15,333.33 to our solicitors Messrs Birch Ross & Barlow … within fourteen days from the date hereof this Contract of Sale shall be rescinded pursuant to Condition 6 of the General Conditions of Sale of Land under the Transfer of Land 1958 (as amended by the Sale of Land (Amendment) Act 1982)."
There was no response to this notice, the solicitors for the purchasers advising their clients that, as in their opinion the notice had only been served on Monday 18 November, the fourteen days notice required under Condition 6 had not been given as the notice had required payment within fourteen days of 14 November 1996. On this issue as to the notice and its effectiveness the learned judge found in favour of the purchasers.
The notice, however, did provoke a response from the purchasers' solicitors in the form of a letter dated 29 November 1996. The notice of rescission was accompanied by a bald letter of the same date enclosing the notice and referring to previous correspondence. Thus the letter of 29 November read:
"We received your letter of 14 instant. Unfortunately our clients' position has not altered since our letter to you of the 27th September last. There has been no movement on the Yarrawonga properties or to any parts of "Bolaro". Unfortunately some disappointing recent attempts to sell properties in the general area have not helped. While these properties would not compare with "Bolaro" in terms of quality, their failure to sell does suggest a general downturn in rural prices.
Our clients would welcome the opportunity to meet and perhaps discuss any options which may be acceptable to your client, even if such options allow only more time to our clients, who remain hopeful that a resurgence in beef prices and consequent lift in farm values will provide a solution to the problem.
We look forward to hearing from you." (Emphasis added.)
It seems that at this stage the vendor was not entirely unwilling to consider any reasonable proposals inasmuch as Mr Osborne asked his accountant Mr Horsburgh of Coopers & Lybrand to look into the purchasers' capacity to pay. Mr Horsburgh asked Mr Barlow to arrange for an inspection of the purchasers' books and records within 48 hours of his sending a letter to the solicitors on 2 December 1996. At the same time Mr Horsburgh passed on the vendor's instructions that, if they were not given the opportunity to see those books and records, Mr Barlow was instructed to start legal proceedings on their behalf to obtain possession as soon as possible. That letter was in turn faxed to Mr Boothby, who on 4 December 1996 sent a detailed response to Messrs Birch Ross & Barlow. Although headed "Without Prejudice", that claim to privilege was abandoned during the trial. The letter referred to the preceding communications and continued, omitting irrelevant parts:
"Although we have now been able to contact our clients and discuss the matter with them we have not been able to obtain clear instructions as it is a devastating situation for them.
Unfortunately your client's request as to the production of books, records, income tax returns and sworn statements within 48 hours could simply not be met. Our clients' Accountant is away until after Christmas and the records are not up to date. Quite apart from this we are unsure why your client would require the information sought. Our clients' asset position has been previously detailed to your client. Apart from the properties at Yarrawonga our clients have the equity in approximately 1000 head of cattle along with their equity in "Bolaro", which is of course known to your client.
In view of the fact that your client is clearly not in a position to wait any longer, our clients now accept the position that one way or the other "Bolaro" will have to be sold. We have advised them that in the absence of any arrangements to the contrary your client could take action to have them evicted from the property and then arrange for the property to be resold. We have pointed out to our clients that they could resist the legal action which would delay the matter for many months. However, this is not our clients preferred course of action. This would almost certainly benefit no one (apart from the legal people) in the long run.
Our clients have farmed in South Gippsland for all of their lives and in view of the lower real estate values and the abysmal cattle market they are faced with the possibility of losing the greater portion, if not all, of their assets. The prospect of being evicted from the property and having to dump all the cattle on a poor market is, not surprisingly, of great concern to them.
As we stated earlier we do not have clear instructions but we feel that a far better result could be achieved from the sale of the property if it were to be sold while our clients remained in possession of the property. This would also enable them to unload their cattle more slowly and hopefully to better advantage. Our clients' concern now is to try to save something from the wreck to enable them to make a fresh start. If higher values for the property can [be] realised then it would obviously be of benefit to our clients and your client's position would not be prejudiced.
It would seem that an arrangement to sell on amicable terms could not be achieved without a meeting taking place to sort out the details. Could we once again request of your client that such meeting take place? If you client is not in a position to agree to this then we are at a loss to know what other suggestion to make." (Emphases added.)
To this Messrs Birch Ross & Barlow replied briefly on 5 December 1996, referring to the letter and effectively rejecting it, stating that "our client’s instructions remain that we are to issue a Supreme Court writ seeking possession of the property". Otherwise the letter merely asked whether the solicitors had instructions to accept service of any writ. A writ claiming that the contract had been rescinded was in fact issued and served on 12 December 1996 but did not at that stage claim possession.
It should here be noted that, although the vendor as respondent contends that the letters speak for themselves, the appellant purchasers relied on what they asserted in evidence, which was not the subject of any cross-examination, that they were merely unable at the time to pay the agreed interest payments and, by implication at least, that they would have been able to pay the last two payments of principal pursuant to the terms of the second variation. So it was said by Mr McRae that they were unable to pay the interest payment for October "because we did not have the ready funds to make payment and were hoping that we could negotiate a further variation to the contract to give us more time to pay". They were disappointed that the vendor would not enter into further negotiations but Mr McRae denied that they were "unable or unwilling to perform the contract", so that he insisted that, "at all times we were anxious to do so". He admitted that he was anxious to achieve further extensions of time for payment so that they could more easily perform their obligations but "at no time did we regard ourselves as being unable to perform the contract, whereby we would be deprived of its benefit", whatever precisely that might mean. He maintained also that, if a valid notice of rescission had been given so that it was necessary to raise the money to pay interest so as to keep the contract on foot, "we could have and would have done so. We could have done so in a number of ways which had not at that time been considered in detail …". They had not considered these matters because the notice given was invalid and until a further notice was served time would not run against them. He stated that they could have sold cattle “in November 1995” (sic) for approximately $240,000. They could have obtained money by agisting cattle on "Bolaro" itself so that they might have received income of about $5,000 per week. Likewise he referred to the Yarrawonga properties as being a source of funds, including the house property, which was subsequently sold for $270,000, and $200,000 from the other two blocks of land. Thus he said in his witness statement:
"If the steps referred to above had been taken the interest liability would have been met from agistment, and the other funds referred to would have enabled us to meet the payment of $450,000 on 31st March 1997."
Their equity would have been about 47% of the contract price, so that he said it would have been relatively easy to borrow the balance of purchase money. However he said nothing as to how the purchasers would pay the arrears of interest or interest after 31 March 1997. Whether these matters are relevant or not is considered in para.24 below.
After the writ was issued the purchasers served their defence and counterclaim on 14 January 1997 claiming that it was the vendor who had wrongfully terminated the contract, and so they counterclaimed repayment of $1.2M. On 31 January 1997 the vendor asked the respondents to vacate the property but on 4 February they refused to do so. On 14 February 1997 the statement of claim was amended so as to seek injunctive relief to restrain the purchasers from remaining upon or entering on or in possession of the property. In due course proceedings for interlocutory relief were sought in the Practice Court and on 20 June 1997 Beach, J. granted an interlocutory injunction requiring the purchasers to vacate. An appeal was brought to the Court of Appeal and an application was made for a stay. At the time that application was brought on the parties agreed that there should be a stay to 31 July 1997 which was reflected in an order of this Court dated 20 June. It was later agreed that that appeal should be discontinued which was effected shortly thereafter by the filing of a notice of discontinuance, but in the meantime, as part of the resolution of the application to this Court on 20 June, the plaintiff-vendor had undertaken to the Court that it would place $1.2M. in an interest bearing trust account pending determination of the proceeding. The purchasers vacated "Bolaro" on 31 July and the property was resold on 11 December for only $2.575M.
The pleadings were amended in a number of presently immaterial ways during the following months and the action itself came on for trial in May of 1998. On 30 July the learned trial judge delivered judgment whereby, while holding that the notice of rescission was ineffective, he held that the purchasers by their conduct had repudiated the contract of sale so that the vendor was awarded damages which in the order took this form:
"(i)Damages in the sum of $982,000 being the loss on resale of the property;
(ii)$102,750 by way of occupation rental;
(iii)An occupation rental for the period between the Plaintiff's resumption of possession and the resale of the property less the net amounts received by the Plaintiff for agistment activities;
(iv)$38,000 being the agreed accountant's fees;
(v)The additional costs of sale as claimed."
Items (iii) and (v) were never quantified or assessed, although the proceeding was adjourned for further consideration. It was not explained how the order then came to be authenticated while the damages had only been partly assessed, but no point was made that it may be still interlocutory.[2] Although it was not stated, one may assume that the $1.2M. held on trust has been or will be repaid to the purchasers.
[2]If necessary, I would grant leave to appeal. See National Australia Bank Ltd. v. Maher (No. 2) [1999] VSCA 189 at paras.13-19 and 26-30, and the cases therein cited.
From the judgment and those orders the purchasers have appealed to the Court of Appeal. Some nine grounds are relied upon which may be summarised in this way. Apart from a general and unspecified ground that the judgment was against the evidence and the weight of the evidence, a number of grounds asserted that the learned judge was in error in particular ways. In ground 2 it was asserted that he erred in finding that the purchaser had repudiated the contract and, "alternatively", in finding that the vendor had accepted the purchaser's repudiation on 5 December 1996. By ground 3 it was asserted that the judge should have found that, by serving the notice of rescission the vendor had affirmed the contract and was precluded from accepting as a repudiation any anticipatory breach occurring before the breach relied on in the notice; in particular such affirmation should have been found from the service of a notice calling upon the purchasers to pay the October 1996 instalment of interest; and that in consequence of the abandonment of reliance upon an anticipatory breach, the parties’ rights "thereafter were governed only by the actual breach and its consequences". The fourth ground asserted that the judge wrongly found that the purchasers' failure to pay interest pursuant to the contract constituted a repudiation thereof. Fifthly it was said that the judge should have found that the failure to pay interest was not "a breach of an essential term of the contract" and thus could not amount to repudiation. In the sixth place, the purchasers assert that the judge wrongly found that the vendor had accepted the repudiation on 5 December 1996, which would appear to be a repetition of ground 2(b). The seventh ground raised questions as to the evidence and the alleged failure of the learned judge to give any or any adequate consideration to the "unchallenged evidence" of the purchaser McRae and his solicitor that the purchasers would have had sufficient assets to pay "interest and arrears". Likewise ground 8 asserted that the judge failed to pay any or any sufficient regard to the letters from the purchasers' solicitors, the purpose of which was, allegedly, to "obtain an indulgence". By the ninth ground the purchasers contended that the learned judge should have found that, by serving a defective notice of rescission and refusing afterwards to perform the contract, the vendor had repudiated the contract and that repudiation had been accepted; alternatively that the judge should have found that the parties had abandoned the contract in the circumstances.
For its part the vendor has filed and served a notice of contention which in substance seeks a finding that the notice of rescission was effective to rescind the contract pursuant to condition 6 of Table A. Ground 1 of that notice asserts simply that the learned judge erred in finding that the notice was defective and did not comply with condition 5 of Table A. Secondly, it is asserted that the judge should have found that, because the notice had been left in the Leongatha Document Exchange on 14th November 1996 for transmission to the purchasers' solicitors' document exchange box, then it had been served on 14 November by reason of condition 13 of Table A and Rule 6.07(1)(d) of the Rules of this Court; consequently the date of notice was the same as the date of service resulting in sufficient compliance with condition 5; and accordingly that the notice was effective to rescind the contract. Thirdly, the vendor's notice contended that the judge should have found that, irrespective of the date of the notice, it left the actual recipient in no doubt that it was given pursuant to conditions 5 and 6 and that the purchasers were required to remedy the default within 14 days of service, so that on this alternative basis, the notice was likewise effective to rescind the contract.
The primary issue squarely raised on the appeal, however, is whether the purchasers evinced an intention to repudiate by their behaviour in relation to the performance of the contract, especially in the latter part of 1996. The vendor sought also to have this Court reverse the finding as to the defective notice of rescission, but presently I am inclined to agree with the trial judge that the notice was insufficient, for I do not think it satisfactory to say that it was served the moment it was placed in the document exchange in the town of the solicitor who served it. Nor did any of the rather artificial interpretations sought to be placed by the vendor on the provision in Table A (Condition 13) which incorporated by reference r.6.07 of the General Rules of Procedure of this Court, provide an answer which sensibly gave fourteen days' notice to the purchasers.
The purchasers relied on the fact that the only sums they failed to pay were two instalments of interest for the months of October and November 1995 each of $15,333.33 and from those failures one could not infer that the purchasers were not ready, willing and able to pay the rest of the purchase moneys.
One may concede that a provision for the payment of interest is not necessarily to be characterised as a term of the kind breach of which entitles a vendor to say that there has been breach of an essential term. So much is clear from Green v. Sommerville[3] but that case is not authority for the proposition that every term in a contract of sale requiring the payment of interest is to be treated as a non-essential term. The interest payments in Green's case were not entirely dissimilar to those in question in the present case inasmuch as they amounted to terms for the payment of interest while the balance of principal was outstanding. Green's case strictly did not relate to a terms contract, although it did concern the payment of a deposit and a subsequent but not long deferred obligation to complete the transaction by the payment of the balance. In the present case the original covenant for the payment of interest was not entirely different in character, but it was imposed pursuant to a terms contract, in circumstances where the obligation arose after possession was given but before completion by payment of two final instalments, on payment of which the purchaser was entitled to a transfer. (General Condition 12.) If the present dispute had arisen in circumstances where the purchasers had had no previous difficulties in making payments and the non-payment of interest had come out of the blue, as it were, persisting for only two months, without further explanation or background, then the requirements of Conditions 5 and 6 of Table A might have to have been called in aid before the vendor could claim rescission. Provisions of that kind are intended to and do enable a vendor to treat relatively minor breaches of contract as if they amount to repudiation if not remedied, but for that reason they are construed with some strictness.
[3](1979) 141 C.L.R. 594.
The purchasers argued that there was no real difference in the present case for, although there had been two variations leading to rescheduling of the payments of principal, the interest obligation was essentially the same as in the original contract.
As I have said, if the non-payment of the two instalments of interest had occurred without explanation then I think it would have been difficult to infer an intention no longer to be bound by the whole contract. In the present case, however, there were detailed reasons given in letters why the instalments were not and could not be paid, with an explanation as to why only the September payment would be made, as indeed occurred. It is that correspondence, viewed against the background of the parties' dealings up to that time, which suggests that non-payment betokened a good deal more. Even if one was to look solely at the terms of the letters, it was tolerably plain that not only would there be no more payments of interest but that at the end of the day there would be no payments of principal, unless something occurred which the purchasers could not then foresee. Apart from a refusal to pay any interest until the next instalment was due in the following April, which "required" (in the sense that it was implicitly requested) what was called a "capitalisation" of interest, there was no new proposal put forward on behalf of the purchasers although they were fully aware that the vendor was impatient with their procrastination. To this extent the background relating to the variations is relevant, insofar as each of those variations resulted from an inability of the purchasers to pay, first, at the times originally agreed, and, secondly, at the times subsequently agreed in late 1995. On one occasion costs were paid upon the basis that there had been a breach of contract, but on both occasions there had been considerable generosity given as to a revision in scheduling, while the interest charged was by no means exorbitant.
The purchasers maintain that they intended at all times to pay the balance of the principal and had the means to make each of the other payments on time. A desire to do that may well have been what was in their minds at the time although I have grave reservations even as to that. The difficulty facing them was that they had sold both their farm properties near Wonthaggi, which were originally intended as a primary source for payment of the residue of the principal on "Bolaro". The Yarrawonga properties were of relatively little value, although the sale of all of them could have produced a capital sum sufficient to make the April payment. But the latter payment was not really the problem. The real problems were the payment of the interest in the meantime and the ultimate obligation, though deferred for another year, to pay the final instalment of $1.85M. Short of selling part of "Bolaro" there seemed no means of making that payment and, even then, it was not clear how much would be left.
The witness statements put forward a number of possibilities but the significant fact is that none of them were conveyed to the vendor in the form of offers. At the very time when one would have expected some firm proposal to be put forward there was nothing more than a request to defer the payment of all the interest until the next instalment was due and, even then, a quick calculation would have shown that the proceeds of sale of the Yarrawonga properties would not have fully covered both the instalment then due together with the six months of interest. Nor did the purchasers put forward any sensible proposals in relation to their earning of income. They said nothing in the correspondence, and even in the witness statements little is said except more generalities as to the possibility of agisting other cattle.
The matters relied on by the purchasers and referred to in the last two paragraphs, inasmuch as they reflect what is summarised in para.12 above, are, in any event, strictly irrelevant. What was in Mr McRae’s mind at the time or in that of his partner can have no bearing on this case except to the extent that they were communicated to the vendor. It is the whole of the objective circumstances, especially the contents of the three letters, as well as the purchasers’ acts, which are the only materials relevant for determining whether they had evinced an intention no longer to be bound.
It seems that this might be truly a case, not infrequently referred to in the older bankruptcy authorities where non-payment of relatively small sums shows clearly enough that a party is unable to pay their debts as they fall due, for which in this case one may read the purchasers' obligations under the contract. Each time the purchasers had sought indulgences from the vendor but had never come forward with proposals based on finance from outside sources. They wanted a third indulgence but the vendor saw no reason to give it to them. On that basis the correspondence and the non-payment of interest evinced an intention no longer to be bound by the terms of the contract.
It may also be said that the payments of interest in themselves were payments pursuant to what had become an essential term, but I doubt this can be sustained in itself. No doubt those payments were to be made as part of the price for the extension of time negotiated under the second variation, but they were not substantially different from what had been agreed previously, they do not in any sense appear to be an additional burden undertaken by the purchasers and their non-payment for two months, without more, could not be taken as sufficient indication of an inability and unwillingness to complete the contract. The vendor's case must depend, as it does, on an objective assessment of the correspondence but the language used, however uninformative it might at some points appear, clearly enough saw the contract at an end unless the purchasers could put up a proposal. That was hardly likely: even after some prompting, they were still at a loss to provide any sensible plan by way of renegotiation of the contract and that very fact confirmed what was obvious by that stage, namely, that the purchasers could no longer perform their obligations under the contract so that they thereby evinced an intention no longer to be bound. Though they may have been willing, objectively they had been shown to be neither ready nor able to perform their contractual obligations, present and future.
Having regard to that analysis, I do not see that it is necessary to examine in turn each of the grounds relied upon by the purchasers. The vice of many of the arguments put forward was that they concentrated on a single event or document from which it was said that no relevant inference could be drawn. Thus the argument commenced with an analysis of the letter of 27 September 1995. On its own, it may not have evinced an intention no longer to be bound. As I have said, however, the history of the party's relationships both before and after gave it an added significance. Perhaps it was then but a plea for patience, but it was patience to be extended after a long history of generosity on the part of the vendor. Moreover, even if the purchasers' arguments could stop at that date, what occurred thereafter proved that the purchasers neither had the present capacity nor the future ability to make their required payments under the contract. The two payments in themselves merely bore out their present inability; the later letters made good their continuing inability to provide any prospect in the future of their paying the substantial amounts by way of residue of principal.
Likewise a principal argument of the purchasers was that the vendor did not accept the alleged repudiation. The argument, however, was an over-simplification dependent on certain passages in the High Court judgments in Foran v. Wight[4]. The circumstances which arose in that case were very different from the present so that the conclusions reached should not be pressed further than is appropriate. Properly a distinction may be made between an anticipatory breach and an actual breach (see per Dawson, J. at 442), in that it was there said that, if repudiation by anticipatory breach is not accepted before the time stipulated for performance, the remedies thereafter available are for actual rather than anticipatory breach. One must, however, always identify what the repudiation is. In the present case the repudiation did not consist in a mere refusal to pay the interest owing at the end of October 1995. It is almost impossible to conceive of that as repudiation at common law but the giving of notice under conditions 5 and 6 may have enabled the vendor to rescind for a single breach, if proper notice had been given. But the repudiation here in question was a clear intimation by the purchasers that they would be unable to make any interest payments beyond that due on 30 September.
[4](1989) 188 C.L.R. 385 esp. at 417, 432 and 442.
Consequently the vendor’s case depended on the purchasers' being shown to have evinced an intention to be no longer bound in respect of obligations which fell due for performance, not only on 31 October, but monthly thereafter, so far as interest was concerned, and on the days fixed by the amended terms for payments of the balance of the residue in March 1997 and March 1998. Even if it would be dangerous to draw such an inference from the letter of 27 September and the one instance of non-payment, there were certainly sufficient indications at that time to draw the conclusion that the purchasers were unable to pay the substantial amounts of interest which would fall due monthly through to March 1997 and, so it would seem, thereafter. One payment in October was inconsequential except to the extent that it proved that the letter did not contain a mere idle threat. In any event in the present case there was not merely one date fixed on which the purchasers did not intend to perform their obligations and their repudiatory intention extended well into the future. The vendor was not obliged to accept or reject that repudiation by 31 October, nor was there any waiver or affirmation by reason of its ineffective notice based on that breach. It was able to and does point to the subsequent non-payment and more especially to the two subsequent letters which reiterated in clear terms the purchasers' inability to carry out their obligations under the contract. It was a repudiation of that character, evidenced both by breaches and stated inability to perform which was accepted in December 1996.
Further, the purchasers have argued that the service of an invalid notice of rescission amounted in the present circumstances to a repudiation of the contract by the vendor. This remarkable proposition is said to flow from decisions such as Lund v. McWaters[5] and Amman Aviation Pty. Ltd. v. The Commonwealth[6]. No such broad proposition can be distilled from those cases, although in particular circumstances an act by which a party might seek to rescind a contract may be inconsistent with its intending that the contract remain on foot. No such intention can here be inferred, the vendor's notice seeking in fact to exercise its rights under the contract, albeit by taking advantage of a right to rescind but only if the relevant condition were not satisfied. There was no such rescission because of the vendor's failure to comply with conditions 5 and 6, but that merely had the consequence that, being ineffective, the vendor retained its rights howsoever it chose thereafter to exercise them. It would have had different consequences only if, in turn, an intention no longer to be bound by the contract had been evinced by some act on the part of the vendor so that it would be treated as having repudiated the contract. At all times the vendor here wished the contract to be performed, and it would be strange that in these circumstances it did not retain the right to rely upon the acts of the purchasers which could at any relevant time be viewed as a whole as constituting repudiatory conduct. If the behaviour of the purchasers after the expiration of the defective notice could still be characterised as repudiatory, the vendor was still entitled to accept that repudiation so as to bring the contract to an end, unless in the meantime it had acted inconsistently so as, for example, to encourage the purchasers to act upon a belief that the vendor no longer relied upon those acts. In no way could that be said to have occurred so far as these parties were concerned in the months and weeks leading up to the vendor’s acceptance of repudiation and the issue of the writ. If the whole of the purchasers' conduct could be then characterised as repudiatory, as I have concluded earlier in this judgment, there could be no bar to the vendor acting to accept that repudiation.
[5][1982] V.R. 575 esp. at 584.
[6][1990] 22 F.C.R. 522 esp. at 535, 542 and 564-5.
Similar arguments would apply to the alternative contention that by serving the notice of rescission it had waived the prior breach and had affirmed the contract. Reliance on conditions such as General Conditions 5 and 6 says nothing in itself as to waiver or affirmation. They contain a means of effecting rescission but only on a conditional basis. If a good notice results in payment, clearly that breach cannot thereafter be relied upon as such. If it results in non-payment, then the contract by its terms is at an end. If a notice is ineffective, then neither conclusion can be drawn, but the breach remains an unremedied breach, the contract necessarily remaining on foot with all its remedies still available. Affirmation is only relevant if it can be shown that a remedy is lost by reason of some conduct inconsistent with the particular remedy continuing available. No such conduct occurred here. Although the purchasers may be correct in saying that a particular anticipatory breach became an actual breach on 31 October 1996, that is of little consequence here for the relevant anticipatory breach arose from the purchasers' statement that they could not and would not be making any interest payments thereafter. That remained the case as their later letters confirmed. The parties' rights were not governed only by the specific breach but by the consequences of the purchasers' intention no longer to make the required payments in accordance with the contract.
The other grounds relied upon in the notice of appeal may be said to be subsumed in the arguments to which I have referred and were not otherwise separately relied upon.
For these reasons I am of opinion that the appeal must be dismissed.
CHARLES, J. A.:
I agree with Ormiston, J.A.
CALLAWAY, J. A.:
I, too, agree with the learned presiding judge. There is no need to consider the scope of Conditions 5 and 6 of Table A, to which a good deal of argument was directed, because the conduct of the purchasers went beyond an anticipatory breach or breaches in respect of a payment or isolated payments of interest. It clearly evinced an inability to perform the contract.
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