Narui Gold Coast Pty Limited v Charles Harrison Pty Ltd & ORS

[2003] NSWCA 238

NEW SOUTH WALES COURT OF APPEAL

CITATION:      Narui Gold Coast Pty Limited v Charles Harrison Pty Ltd & ORS [2003]  NSWCA 238

FILE NUMBER(S):
   40155/03

HEARING DATE(S):               28/08/2003

JUDGMENT DATE: 09/09/2003

PARTIES:
Narui Gold Coast Pty Limited  -  Claimant
Charles Harrison Pty Ltd          -  1st Opponent
Charles Harrison & Co Pty Ltd - 2nd Opponent
John Charles Harrison - 3rd Opponent

JUDGMENT OF:       Sheller JA Santow JA Foster AJA   

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S):          4369/01

LOWER COURT JUDICIAL OFFICER:     Bergin J

COUNSEL:
Mr M Einfeld QC with Mr R Dubler for the Claimant
Mr A Justice for the 1st & 2nd Opponents

SOLICITORS:
Hickey (Lawyers     -  Claimant
Dennis & Company  -  1st & 2nd Opponents

CATCHWORDS:
Appeal re extending caveats until further order of the Court.

LEGISLATION CITED:
74K of the Real Property Act 1900 (NSW)

DECISION:
1.  Leave to appeal be granted.
2.  The appeal be dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40155/03

SHELLER JA
  SANTOW JA
  FOSTER AJA

TUESDAY, 9 SEPTEMBER, 2003

NARUI GOLD COAST PTY LTD v CHARLES HARRISON PTY LIMITED

Judgment

1. SHELLER JA:     I agree with Foster AJA.

2. SANTOW JA:     I agree.

3. FOSTER AJA:  This is an application for leave to appeal and, if leave be granted, to appeal from a decision of Bergin J given on 11 February 2003.  Her Honour’s decision was interlocutory.  The first and second defendants in the proceedings, now the first and second opponents in this application, were successful in obtaining from her Honour an order extending the operation of two Caveats until the further order of the Court, upon their giving the usual undertakings as to damages.  The first Caveat, numbered 8367196 had been placed on the title of land which was referred to in the application as “the primary land” and the second Caveat, which was numbered 8190703, had been placed on the title of land which was referred to as “the Lot 7 land”. 

4. It was the contention of the plaintiff, Narui Gold Coast Pty Limited (“Narui”), the claimant in these proceedings, both before her Honour and in this Court, that the defendants had demonstrated no caveatable interest in support of these caveats, with the result that the orders could not and should not have been made.

5. Her Honour, in her judgment set out the nature of the proceedings between the parties and the facts upon which they were allegedly based.  It is necessary to make brief reference to them. 

6. On 7 December 2000 a contract for the sale of the “primary land” was exchanged between Narui and the first opponent, the purchase price being $M10.5 with a deposit of $M1,050,000.  On the same day a contract for the sale of the “lot 7 land” was exchanged between Narui and the second opponent, the purchase price being $450,000, with a deposit of $45,000.  Her Honour noted the following provisions of these contracts.  Each provided that deposits were to become due and payable on the later of two dates being (a) 21 days from the date of the contract or; (b) an extended date determined by the purchaser by giving written notice to the vendor in respect of the vendor’s failure to obtain rezoning approval of the land and development approval required by the purchaser.  Her Honour further noted that the purchaser could not extend the date for payment of the deposit beyond two years from 7 December 2000.  A further special condition required the plaintiff to take all steps necessary to “appropriately” subdivide parts of the “primary land” and the “lot 7 land”. 

7. Clause 35 of the contract of sale of the “primary land” provided that:-

   “Indemnity
   35.1  The vendor hereby agrees to grant the purchaser a charge over real property of which it is registered proprietor to secure the Purchaser’s rights to any indemnity or indemnities which the Purchaser has or becomes entitled to under this contract.” 

8. Clause 34 of the contract of sale in respect of the “lot 7 land” was in identical terms. 

9. In her judgment, Bergin J referred to the nature of the proceedings which existed between Narui and the opponents.  By its original statement of claim Narui sought declarations that each of the contracts were void; alternatively, it made claims for rectification of the contracts with consequent orders for specific performance.  It alleged absence of awareness on its part of the condition relating to delayed payments of the deposit and claimed that the opponents had misled it as to the contents of the contracts.

10. The judgment further refers to the filing by the opponents of a cross-claim alleging misleading and deceptive conduct by Narui and its agent relating to the zoning of the land and to the stage reached in relation to the application for development consent in respect of it.  Further claims were made of neglect and failure on the part of Narui to subdivide appropriately and obtain required development approval. 

11. The cross-claim also sought relief based upon the indemnity clauses in each of the contracts.  Declarations were sought that the opponents had caveatable interests in the land as purchasers and chargees.  The further and related declaration was also sought:-

    “That, in the event that the Cross-Claimant, terminates the contract for non-performance by the Cross Defendant, the Cross Claimant’s charge and the Cross Claimant’s caveatable interest in land of which the Cross Defendant is registered proprietor remain to indemnify the Cross Claimant in respect of damages.”

12. Other relief was sought to which it is not necessary to make reference.  The caveats were lodged on 7 December 2001.  Each caveat claimed an estate or interest in the relevant land being a “legal and equitable interest and charge arising from Contract of Sale of Land between the Caveatee as vendor, and the Caveator as purchaser”.

13. By an Amended Statement of Claim, Narui sought declarations that the contracts were void for uncertainty or that it had validly avoided or terminated the contracts, by accepting repudiation of them, arising from the defendants having informed Narui that they were not financially able to proceed with the purchases.  In this pleading, orders were sought for the removal of the caveats.  The Amended Statement of Claim was dated 26 February 2002.  Termination of the contracts by Narui was claimed to be by way of letter to the opponents dated 7 August 2001 or, alternatively, by the filing of the Amended Statement of Claim.

14. On 24 October 2002, the first and second opponents alleged repudiation of the contracts by the plaintiff.  This allegation was made in a letter of that date to Narui, quoted in full by her Honour in her judgment, and which was in the following terms:-

    “1. We confirm that each of our companies accepts the repudiation by Narui Gold Coast Pty Limited of its respective contracts for Sale of Land (each dated 7th December 2000) with Charles Harrison Pty Ltd & Charles Harrison and Co Pty Ltd.

    2. We understand each of the following to be objective acts of repudiation by Narui Gold Coast Pty Limited:

    (a) written notice in early 2001 that you would not co-operate with us in any way;

    (b) commencement of litigation to try to void the contracts on 5th September 2001;

    (c) inviting tenders for the whole of the Kings Forest property from clients of Hickey Lawyers in or about mid 2002, and purportedly awarding the tender to interests associated with Leda Developments in or about;

    (d) continued inactivity in obtaining the approvals required by the contracts and in sub-dividing the land the subject of the contracts thereby denying us substantially the whole of the benefits of the contracts.

    3. The contracts are or were due to settle shortly and it is objectively clear that you cannot and will not rectify these breaches. The writer has been in close contact with Tweed Shire Council to monitor progress and it seems that initial steps towards rezoning are only now taking place.”

15. A further letter was written by the opponents to Narui on 24 October 2002.  It read as follows:-

    “Each of our companies hereby accepts the repudiation by Narui Gold Coast Pty Limited of its respective contracts for Sale of Land (each dated 7th December 2002) with Charles Harrison Pty Ltd and Charles Harrison & Co Pty Ltd.”

16. As recounted in her Honour’s judgment, it was further asserted by Narui’s solicitors, on 23 December 2002, that the contracts “if…not already at an end” were “unquestionably” so because of failure of the opponents to pay the deposits on or before 7 December 2002.

17. The application before her Honour was made, pursuant to s 74K of the Real Property Act 1900, to extend the operation of the caveats, after the issuing on behalf of Narui of relevant lapsing notices to the opponents.  As her Honour indicated, the appropriate test for the making of an order under the section is satisfaction, on the part of the Court, that the claim to the caveat “has or may have substance”. 

18. Narui claimed, before her Honour and in this Court, that the relevant contracts had been terminated from 24 October 2002, if not before, and that, as the alleged caveatable interest of the defendants depended upon the terms of the now terminated contracts, it could no longer exist.  Accordingly, there was no serious issue to be tried in relation to the extension of the caveats, the claim to the caveats lacking “substance.”

19. Her Honour rejected this submission.

20. Her Honour was satisfied that Clause 35 of the Contract of Sale of the “primary land” and Clause 34 of the contract in respect of the “lot 7 land” provided the opponents with charges which were, relevantly, caveatable interests in respect of the land.  She pointed out that the charges operated to secure, (a)  “rights to any indemnity or indemnities which the defendants had under the respective contracts; and (b)  rights to any indemnity or indemnities to which the defendants might become entitled under the contracts”.  The contract in respect of the “primary land” contained express indemnities, set out in special conditions (Cls. 31 and 32).  These were (a)  in respect of the costs that might be incurred by the first opponent in doing such things and completing such works to satisfy conditions required by the relevant Council for the Development Approval, if the plaintiff neglected to do such things and complete such works; and (b) for similar costs incurred in providing water mains, sewerage mains, electricity/power lines and telephone lines, should the plaintiff neglect to provide these services.  She pointed out that there were, however, no similar special conditions in the contract in respect of the “lot 7 land”.

21. Her Honour had regard to the affidavit of Douglas Raymond Tune of 3 February 2002 filed on behalf of the opponents.  She considered that this provided some evidence that the opponents had incurred at least some costs in preparing for the subdivision of the “primary land’, as a result of alleged breach on the part of the claimant of its obligations “appropriately” to subdivide and consolidate the land, as required by special condition 30.1 of the contracts.  There were, accordingly, some costs for which the opponents could claim indemnity under the contract. However, it has been conceded in this appeal that no such costs have been incurred. This argument is no longer available to the opponents.

22. Her Honour was satisfied, however, that there was a serious issue to be tried as to whether the rights granted under the indemnity clauses in the contracts continued to exist, notwithstanding the termination of the contracts themselves.  Her Honour referred to McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 476-477. Although the contracts had been terminated, they were not at an end for all purposes. If the opponents were successful in establishing wrongful repudiation of the contracts by the plaintiff, they remained on foot for the purpose of assessment of damages resulting from this breach. Her Honour said:-

    “The indemnity clauses are not limited to the express indemnities in the special conditions; they include indemnities to which the defendants became entitled under the contracts.  The indemnity clauses are in very broad and unqualified terms, except to the extent that they were to arise ‘under the contract’.”

23. Her Honour also indicated that, in her view, there was a serious issue as to whether the claims made by the defendants for “damages” fell within the wording of the indemnity clauses in the contracts.  In this regard, she said:-

    “A question for the trial judge will be the meaning of “indemnity” and “indemnities” in the indemnity clauses.”

24. After referring to discussion of the term “indemnity” in certain texts on damages, she said:-

    “The breadth of the indemnity clauses in these contracts may include what has been described as the defendants’ claim for “damages”, in part of in whole.”

25. Her Honour was, also, of the view that the opponents’ claim that the indemnity clauses covered these potential damages for wrongful repudiation, relevantly, had “substance” and resulted in there being a serious issue to be tried.     

26. Her Honour, accordingly, extended the operation of the caveats. 

27. On appeal, it was accepted by Mr M. Einfeld QC, who appeared with Mr R. Dubler for the claimant, that the claimant had the heavy burden in the appeal, of establishing that the caveats had “no arguable substance”.  He submitted, however, that a proper construction of the indemnity clauses of the contract necessarily discharged this burden.  It appears that some of the submissions upon which counsel relied in the appeal were not made to her Honour. 

28. Counsel’s first submission was that the indemnity clauses in the contract, set out above, when construed in the context of the whole of the contracts, unarguably required that the rights to indemnity referred to in the clauses related only to the specific indemnities set out in the contract and to which reference has already been made.  In making this submission, counsel also relied upon the words “under this contract” appearing in the clauses.  There is force in counsel’s submission but I cannot regard it as unarguably correct.  In the first place the clause speaks not only of rights to indemnity which the purchaser has under the contract; it also embraces such rights to which the purchaser “becomes entitled” under the contract.  Arguably this part of the clause contemplates that rights to indemnity may arise, other than those which are expressly spelt out in the contract.

29. Also, as already indicated, clause 34 of the contract relating to “the lot 7 land” is in identical terms.  That contract, however, contains none of the specific rights to indemnity which appear in the contract for the “primary land”.  Counsel submits that the introduction into the lot 7 contract of the indemnity clause should be regarded as resulting from mere inadvertence on the part of the draftsman, the contracts having been signed on the same day and having both been drafted on behalf of the purchaser.  This may be a correct approach.  However, arguably, the existence of the clause in the lot 7 contract indicates that it is intended to cover a wider field of indemnity than the specific matters referred to in the contract for the primary land.

30. Counsel also relied upon the words “under this contract” as necessarily excluding any indemnity for damages resulting from wrongful repudiation of the contracts.  Such rights did not arise under the contract.  They arose after the termination of the contract.  They came into existence by operation of law and not as a result of any agreement contained within the contract itself. 

31. Again, I cannot agree that this proposition is unarguably correct.  The acceptance of the renunciation of a contract discharges the injured party from further performance of his obligations, but does not bring the contract itself to an end (Heyman v Darwins Limited (1942) AC 356, per Lord Porter at 399). In this regard, Mr A.D. Justice, counsel for the opponents relies upon the following statement of principle, enunciated by Lord Diplock in Lep Air Services v Rolloswin Limited (1973) AC 331 at 350:

    “Generally speaking, the rescission of the contract puts an end to the primary obligations of the party not in default to perform any of his contractual promises which he has not already performed by the time of the rescission.  It deprives him of any right as against the other party to continue to perform them.  It does not give rise to any secondary right in substitution for the primary obligation which has come to an end.  The primary obligations of the party in default to perform any of the promises made by him and remaining unperformed likewise come to an end as does his right to continue to perform them.  But for his primary obligations there is substituted by operation of law a secondary obligation to pay to the other party a sum of money to compensate him for the loss he has sustained as a result of the failure to perform the primary obligations.  This secondary obligation is just as much an obligation arising from the contract as are the primary obligations that it replaces…”  (emphasis added).

    Again, I am unable to agree that the words “under this contract” necessarily prevent the opponents’ claim for damages for wrongful repudiation from falling within the terms of the indemnity clause. 

32. The claimant makes a further submission that, as a matter of law, a claim for damages can never be characterised as a claim for indemnity.  In making this submission counsel relied primarily on passages in the judgments in Birmingham and District Land Company v London and North-Western Railway Company (1887) 34 ChD 261. The passage most relied upon by counsel is from the judgment of Bowen LJ (at 2745) which reads as follows:-

    “But it is quite clear to my mind that a right to damages, which is all that the defendants have here if they are entitled to anything, is not a right to indemnity as such.  It is the converse of such a right.  A right to indemnity as such is given by the original bargain between the parties.  The right to damages is given in consequence of the breach of the original contract between the parties.”

33. It is submitted on behalf of the claimant that this passage is, in effect, of universal application and lays down, as a principle of law, that a claim for damages can never be a claim for indemnity.  For my part, I am unable to accord such an effect to this passage.  Although, undoubtedly, it must be most persuasive in any context where the word “indemnity” is subject to consideration, it does not mean, in my view, that the word cannot take colour and meaning from the context in which it is used.  In Birmingham the Court was required to consider the meaning of a provision in the English Rules of Court which permitted the joining of third parties, against whom indemnity was claimed.  The word was being construed within the context of that rule.  Indeed, Cotton LJ (at 271) said of the rule that it “must mean where the defendant claims a direct right to indemnity by contract express or implied.” 

34. The words “right to indemnity” are not, in the present case, of course, being used in connection with any rule of Court permitting action to be brought for contribution or indemnity, where the statements made in Birmingham might be accorded a controlling influence on construction (see e.g. per Pincus J in Westpac Banking Corporation  v P&O Containers Limited (1991) 102 ALR 239 at 242). In the present case, I consider it to be at least reasonably arguable that the word “indemnity” can be given a far less restricted meaning, such as appears in the definition in the Shorter Oxford English Dictionary where it is given a meaning of “Compensation for a wrong done, or trouble, expense or loss incurred”. Her Honour, although it appears that she was not referred to Birmingham, was of the view that, arguably, the word could be given a similar width of meaning.  I am not persuaded, by counsel’s submissions, that her Honour necessarily erred in taking this approach.

1. In the result, I am not persuaded that her Honour’s order should be set aside.  I am satisfied, however, on the basis of Mr Einfeld’s submissions, which I do not need to set out, that leave to appeal should be granted.

2. I propose the following orders:-

   1.  Leave to appeal be granted.

   2.  The appeal be dismissed with costs.

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LAST UPDATED:               09/09/2003