Mordue v Kroone

[2009] NSWSC 255

CITATION:	Mordue v Kroone [2009] NSWSC 255
HEARING DATE(S):	20 February 2009
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	20 February 2009
DECISION:	Motion for leave to rescind contract dismissed with costs
CATCHWORDS:	CONTRACT – Specific Performance – Application by defendant/vendor for leave to rescind - Where Court has already ordered specific performance of the contract but remains uncompleted - Contractual right to rescind cannot be exercised by party in default - Whether valid notice to perform provided by Defendant - Whether failure to comply gives rise to right to terminate or rescind - Notice provided by Defendant was not a notice to perform
LEGISLATION CITED:	Uniform Civil Procedure Rules r 36.5(2)(b)
CATEGORY:	Principal judgment
CASES CITED:	Abraham v Mallon (1975) 1 BPR 9157 Hardy v Wardy [2001] NSWSC 1141 Masters v Belpate Pty Ltd [2001] NSWSC 169 Michael Realty Pty Limited v Carr [1977] 1 NSWLR 553 Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212, (2002) 11 BPR 20,241 Pelley v Tebran Pty Ltd [2006] NSWSC 1072 Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 Sanctuary Investments Pty Limited v St Gregory’s Armenian School Incorporated (1998) 9 BPR 16,823 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
PARTIES:	Richard John Mordue (first plaintiff) Lynelle June Mordue (second plaintiff) Chandi Kroone (defendant)
FILE NUMBER(S):	SC 5636/04
COUNSEL:	P R Sternberg (plaintiffs) C Rundle (defendant)
SOLICITORS:	Callachor & Helby (plaintiffs) Whiteley, Ironside & Shillington (defendant)

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

BRERETON J

Friday 20 February 2009

5636/04 Richard John Mordue & anor v Chandi Kroone

JUDGMENT (ex tempore)

1 HIS HONOUR: The defendant Chandi Kroone applies for leave to rescind a contract made on 21 March 2000 between her as vendor and the plaintiffs Richard John Mordue and Lynelle June Mordue as purchasers of two hectares of land comprised in two lots of what is now an unregistered plan of subdivision of lot 12 in DP XXX277, at 74 Back Yamma Road, Parkes, which Hammerschlag J on 30 April 2007 ordered be specifically performed, but which remains uncompleted.

2 The subject contract was itself made pursuant to the exercise on 21 March 2000 of an option contained in an earlier contract made on 11 December 1996 by which the Mordues agreed to sell the land that has since become lot 12 to Ms Kroone and her husband. Special Condition 24 of the December 1996 contract granted to the Mordues an option to repurchase an area of land consisting of approximately seven acres. Hammerschlag J found that that option was duly exercised on 21 March 2000, and that as a result the subject contract – called the “reconveyance contract” the form of which was annexed to the original contract – came into effect on that date.

3 In the reconveyance contract Special Condition 23 provided:

The parties agree that this sale is made pursuant to an agreement between them that the land to be transferred to the purchasers [Mordues] forms part of the land originally sold by the purchasers to the vendors [Kroones]. At the time of such sale the subdivision of the land into parcels smaller than four hectares was not permitted by the Parkes Shire Council.

4 Special condition 24 provided:

The parties agree that the purchasers shall meet all costs of subdivision, compliance with Council requirements and reasonable conveyancing costs, together with all costs connected with relocating fencing on the new boundaries following the subdivision.

5 Also relevant for present purposes is Additional Condition A6, which provided as follows:

A6 Unregistered Plan
If any of the property is described as a lot in an unregistered plan-

A6.1 the vendor must do everything reasonably necessary to have the plan registered within the plan registration time, with or without minor alteration to the plan or any document to be lodged with the plan validly required or made by a statutory authority or the Registrar-General

A6.2 normally, either party can rescind if the plan is not so registered;

A6.3 the purchaser must serve the form of transfer within 14 days after either party serves notice of the registration of the plan and every relevant lot and plan number;

A6.4 the completion date becomes the later of that date and the date which is 21 days after that service;

A6.5 clauses A6.1 and A6.2 apply to any prior plan which is to be registered before the plan is registered; and

A6.6 the purchaser cannot make a claim, objection or requisition or rescind or terminate in respect of a boundary adjustment plan making only one or more minor adjustments.

6 Although the cover sheet of the reconveyance contract did not specifically identify the subject matter of the contract as a lot in an unregistered plan, the provision relating to a plan registration time had six months inserted in it, the subject matter of the reconveyance contract was in fact at the relevant date and for that matter still is a lot in an unregistered plan, and the proceedings before Hammerschlag J appear to have proceeded on the basis that clause A6 was potentially applicable.

7 As I have recorded, Hammerschlag J on 30 April 2007 decreed specific performance of the reconveyance contract. There was subsequent disputation as to the respective responsibility of the parties for procuring registration of the plan of subdivision (in the light of Special Condition 24), and as to the precise form of the plan of subdivision and the areas of the three lots into which lot 12 was to be subdivided – namely the lot of about two hectares to be retained by Ms Kroone (to whom Mr Kroone had conveyed his interest), and the two lots of one hectare each to be reconveyed to the Mordues.

8 In the course of that disputation, the Mordues brought a contempt application against Ms Kroone. That application was dismissed by Rein J, by consent, and on 26 March 2008 his Honour, apparently also by consent, made directions for the further implementation of the decree for specific performance, as follows:

1. The Defendants shall lodge with the Parkes Shire Council [“Council”] a development application (“the DA”) to subdivide the two one hectare lots in compliance with the Order dated 30 March 2007 in accordance with the plan prepared by Arndell Surveying a copy of which is annexed hereto and marked “A” [“the subject lots”] from the remainder of Lot 12 within twenty one days and do all things and sign all documents reasonably necessary to progress the DA.

2. The Plaintiff shall reimburse the Defendant the costs and expenses associated with the lodgement of the DA including the costs and expenses associated with obtaining any plans, reports or other such material required by Council to accompany the DA within fourteen days of the request for such reimbursement being made by the Defendant.

3. The Defendant shall provide to the Plaintiff a copy of the approval [“the approval”] or refusal of the DA from Parkes Shire Council with seven days of receipt from the approval or refusal from council.

4. The Plaintiff do all things and sign all documents necessary to satisfy each and every condition of the approval including but not limited to constructing an access, providing services and paying Council contributions and other fees and charges in respect of each Lot in the subdivision including Lot 3. In this regard the Defendant shall co-operate with the Plaintiff and in so doing shall sign all documents and do all such things reasonably required to satisfy those conditions but the Defendant shall not be required to incur any cost or expenses in so co-operating.

5. Once the Plaintiff notifies the Defendant the terms of the approval have been satisfied the Defendant shall procure the execution of the original plan of subdivision by Council and mortgagee and shall lodge that plan of subdivision by Council and mortgagee and shall lodge that plan for registration at the LPI. The Defendant shall not be required to lodge that Plan unless the Plaintiff has provided to the Defendant a bank cheque in favour of the LPI in an amount of the lodgement fee at LPI and consent from the caveator and from this Honourable Court [if necessary] to the lodgement of the plan. All other costs and expenses incurred in this process including the costs of obtaining mortgagee’s consent and production of title deeds shall be reimbursed by the Plaintiff within seven days of receiving a request from the Defendant for such reimbursement.

6. The Defendant will notify the Plaintiff within three days of receiving notification from the Defendant mortgagee that the Certificates of Title from the subject lots have been delivered by the LPI to that mortgagee. The Plaintiff shall prepare a withdrawal of the caveat and any acknowledgement or other document necessary to affect removal of the notification of the orders by this Honourable Court in so far as they effect Lot 12 within fourteen days of receiving such notification from the Defendant and shall within that period notify the Defendant that is in a position to accept and transfer of the subject lots and to remove from the remainder of Lot 12 the caveat and the orders of the Honourable Court. The parties shall within a further fourteen days from this last mentioned notification by the Plaintiff to the Defendant exchange the documents necessary to effect a transfer of the subject lots from the defendant to the Plaintiff without encumbrances and remove the caveat and orders from the residue of the land held by the Plaintiff. At this time the plaintiff will pay to the Defendant and amount equivalent to the Defendant’s reasonable conveyancing costs as provided for in Special Condition 24 of the Agreement for Sale.

7. Each party has liberty to apply on three (3) days notice to a judge of the court.

8. The plaintiffs to pay the defendants costs associated with the re listing of the matter before the Court and attendance before the Court for directions, as agreed or assessed.

9 On 3 April 2008 the Mordues’ solicitors Callachor & Helby submitted to Ms Kroone’s solicitors Whiteley, Ironside & Shillington a development application and subdivision plans for signature by Ms Kroone as the registered proprietor. On 9 April, Ms Kroone’s solicitors returned the application and plans unsigned, indicating that Ms Kroone would submit her own development application; she did so on 10 April 2008. Development approval was granted by Parkes Shire Council on 21 May 2008. On 27 May, Ms Kroone’s solicitors sent to the Mordues’ solicitors a letter enclosing a copy of the notice of determination of the development application. The evidence establishes that that letter was transmitted by facsimile and sent by document exchange to the Mordues’ solicitors. Two days later, on 29 May, Ms Kroone’s solicitors sent to the Mordues’ solicitors a letter seeking reimbursement of the costs that Ms Kroone had incurred in conjunction with the development application, and the Mordues paid those costs on 25 June 2008.

10 On 21 August 2008, Ms Kroone’s solicitors sent a letter to Mr Mordue’s solicitors, as follows:

We refer to previous correspondence in relation to this matter. We refer to the Judgment/Order dated 13th April 2007 of His Honour Mr Justice Hammerschlag [“the orders”] following the hearing of the matter and in particular to paragraph 3 and 4 which we set out below:
3. Declares that in consequence of the Option having been validly exercised, the parties entered into the Contact signed by the parties and annexed to the Contract for Sale of Land dated 1 December, 1996 (“the Reconveyance Contract”) –Annexure “A”.

4. Orders that the parties specifically perform and carry into execution the Reconveyance Contract to enable the Plaintiffs to obtain approval of and registration of a subdivision of land in accordance with the terms of the contract (Annexure “A”) and to obtain separate title(s) in respect of the land identified therein.

Clause A.6 of the Reconveyance Contract provides, inter alia:

If any of the property is described as a lot in an unregistered plan – A6.1 the vendor must do everything reasonably necessary to have the plan registered within the plan registration time, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made by a statutory authority or the Registrar-General;
A6.2 normally, either party can rescind if the plan is not registered…
We note that the plan registration time is six months after the date of the contract (the date of the Reconveyance Contract is 21st March 2000 – see Order 2 of the orders].
Special condition 24 of the Reconveyance Contract provides:
The parties agree that the purchaser shall meet all costs of subdivision, compliance with Council requirements and reasonable conveyancing costs together with all costs connected with relocating fencing on the new boundaries following the subdivision.
The parties were in dispute about the interpretation of the Orders and the Reconveyance Contract and further Orders were made by consent on 26th March 2008 by His Honour Mr Justice Rein [“the further orders”].
In accordance with Order 1 of the further orders our client lodged a Development Application with Parkes Shire Council on 14th April 2008. Our client provided to your client a copy of the Development Approval under cover of our letter dated 27th May 2008 in accordance with Order 3 of the further orders. Our client has not be [sic] asked to execute any further documents or to do anything else to progress the subdivision since that time.
The purpose of this letter is to advise you that unless the plan of subdivision is registered in accordance with Clause A 6.2 within 6 months of the further orders i.e. by 26 September, 2008 our client will instruct us to approach the Court to obtain leave to exercise her rights to rescind the contract pursuant to the terms of the contract. In the event that your clients acknowledge that they can not complete the reconveyance contract please advise in your order to save costs of such application. We reserve the right to tender this letter on such application.

11 Callachor & Helby replied, by facsimile letter dated 21 August as follows:

We refer to your letter of 21 August 2008.

We have turned this office inside out and cannot find a letter from you dated 27 May 2008. Please send one by fax as soon as you can. Our client certainly wishes to proceed. We paid for the fees sought under cover of your letter dated 29 May 2008 but have nothing from you since then.

12 Whiteley, Ironside & Shillington responded on 21 August, enclosing a copy of their letter of 27 May and noting from their facsimile records and DX book that it had been faxed and forwarded by DX on 27 May. It does not appear to be in dispute that the letter of 27 May was indeed sent on the date that it bears, and I am in any event satisfied that it was, but it was not noticed and cannot now be found in the offices of Callachor & Helby.

13 On 22 August, Mr Helby retained Angus Arndell, surveyor, to oversee the remaining works required by the conditions of the development approval, including construction of access and the like; that work proceeded. On 2 October, Callachor & Helby sent a letter to Whiteley, Ironside & Shillington, enclosing a plan and application for a subdivision certificate, asserting that all works had been completed and all requisite moneys paid to Council for the water service and electricity, and requesting execution and return of the application. However, by letter dated 15 October 2008 from Whiteley, Ironside & Shillington, Ms Kroone declined to do any act or sign any document having the effect of affirming the contract, until the Motion which she had filed on 29 September 2008, seeking leave to rescind the contract, had been determined.

14 In a letter dated 24 November 2008, Parkes Shire Council states, in respect of the relevant development application, that all physical works required for the subdivision have been completed to Council’s satisfaction – apart from the disconnection of the raw water connection which is considered a minor work – but that the construction certificate had not been issued, as an application form was not signed by the owner (Ms Kroone); further as a construction certificate could not be issued retrospectively and thus condition 9 of the development approval could not be satisfied to allow issue of a subdivision certificate, and Council would not oppose modification of the development approval by removal of Condition 9 on application by the owner (Ms Kroone).

15 Ms Kroone’s case is, primarily, that six months from the orders of Rein J of 26 March having elapsed on 26 September 2008, without the subdivision having been registered, she is entitled to rescind under Additional Condition A6, which is said to operate for the benefit of both parties, so that either can rescind if the plan is not registered within that timeframe.

16 In my view, this contention is misconceived. Additional Condition A6 confers on either party a right to rescind if the plan is not registered within six months of the date of the contract, which period expired on 21 September 2000. Such a condition is not a condition precedent to the formation of contract, but a condition precedent to completion or performance – that is, what is conventionally called a "condition subsequent". Where such a condition is not satisfied due to the default of one of the parties to the contract, that party is not entitled to rescind for failure of the condition, only the innocent party being entitled to exercise the right of rescission – even where, as in the present case, the contract expressly confers the right to rescind on both parties [Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 440-441; Plumor Pty Ltd v Handley (1996) 41 NSWLR 30, 34. A party wishing to rescind cannot take advantage of its own ineffective or inefficient measures to comply with its contractual obligations [Hardy v Wardy [2001] NSWSC 1141, [8], and where a vendor’s default has deprived the purchaser of a substantial chance that the condition would have been fulfilled, the vendor cannot exercise the right of rescission [Sanctuary Investments Pty Limited v St Gregory’s Armenian School Incorporated (1998) 9 BPR 16,823; Masters v Belpate Pty Ltd [2001] NSWSC 169; Mitchell v Pattern Holdings Pty Ltd [2002] NSWCA 212; (2002) 11 BPR 20,241, [58]-[59]; Pelley v Tebran Pty Ltd [2006] NSWSC 1072, [170]]).

17 The time for judging whether Additional Condition A6 was satisfied was six months after the date of the contract, namely, 21 September 2000. It was not satisfied at that date, but the reason it was not so satisfied was Ms Kroone’s failure to perform the contract from the date of the exercise of the option until that date. As the right to rescind could not be exercised by a party that was in default, Ms Kroone was, therefore, not entitled to take advantage of or rely on Additional Condition A6 to rescind.

18 The condition having failed, and the Mordues not having exercised the right to rescind, but rather having sought and obtained specific performance of the contract, the condition does not somehow revive so as to give Ms Kroone a new right to rescind under it at some later date, let alone so as to take effect from some later date. Nor is it imported into the orders of 26 March 2008, and specifically order 4. (In this respect, it is also instructive that the other provisions of those orders which requires steps to be taken specify a time for compliance, and order 4 does not).

19 Accordingly, it seems to me, the case as primarily put on behalf of Ms Kroone cannot succeed.

20 The question then is whether she can succeed on a different basis. As I have recorded, order 4, unlike the other provisions of the short minutes of 26 March 2008, did not fix a time for compliance, and the issue is whether the letter of 21 August 2008 operated as a notice to perform, fixing an essential time for compliance with order 4 so as to entitle Ms Kroone to terminate for breach in the event of non-compliance.

21 The short minutes of 26 March 2008, although made by consent, are not part of the contract, but part of the decree for specific performance to facilitate performance of the pre-existing contract. In those circumstances, it is far from clear that time for compliance with an order that does not specify a time for compliance can be fixed by a unilateral notice from a party: the rules provide a method for fixing a time for compliance with an order of the Court where one is not specified in the order, by application under Uniform Civil Procedure Rules r 36.5(2)(b) for the Court to fix a time for compliance. That is not to say that a notice might not have some evidentiary value in establishing unreasonable delay for evidentiary or discretionary purposes.

22 But even if a notice could effectively make time for compliance with order 4 essential, this notice was not effective for that purpose, for two reasons. First, the time allowed was some five weeks. It is not always necessary that a notice to perform allow enough time for all the remaining steps to be taken, but a notice must be reasonable in all the circumstances. Those circumstances can and often do include prior delay by the recipient – and such prior delay is not to be permitted to enlarge the period of notice that would otherwise be required [Michael Realty Pty Limited v Carr [1977] 1 NSWLR 553]. But “all the circumstances” must involve, amongst other matters, the expedition with which the contract has proceeded to that stage, and the approach of each of the parties to performance of their obligations under it. In this respect it is relevant to have regard to the Mordues’ prompt payment of the costs of the application for subdivision in June 2008, having been requested in late May. Taking all the circumstances together, a period of five weeks in August – when some time longer than that, probably about two months, was reasonably required to complete all the works – was not reasonable.

23 More significantly, perhaps, assuming that a notice to perform could have been given, this was not an effective notice to perform. While it is not essential to the validation of a Notice to Complete that it expressly makes time of the essence, if by appropriate words it conveys a threat to terminate in the event of non-compliance [Abraham v Mallon (1975) 1 BPR 9157], a notice to perform must at least call on the recipient to perform the outstanding obligation. In this case, the outstanding obligation was that imposed by clause 4 of the short minutes, namely "To do all things and sign all the documents necessary to satisfy each and every condition of the approval ...". The letter of 21 August did not do that, but simply advised "Unless the plan of subdivision is registered in accordance with clause A 6.2 within six months of further order, by 26 September 2008 our client will instruct us to approach the Court to obtain leave to exercise her rights to rescind the contract pursuant to the terms of the contract."

24 Registration of the plan of subdivision was not itself something which the Mordues were obliged by the contract, or by the further orders, to achieve.

25 Accordingly, treating it as generously as I can, I do not think the letter of 21 August 2008 could have been a valid notice to perform, non-compliance with which could justify termination of the contract for breach.

26 It follows that Ms Kroone is not entitled to rescind or terminate the contract.

27 I order that the Motion be dismissed with costs.

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