Remax Developments Pty Limited v Chamwell Pty Limited and Hiwan Pty Limited
[2011] NSWSC 695
•06 July 2011
Supreme Court
New South Wales
Medium Neutral Citation: Remax Developments Pty Limited v Chamwell Pty Limited & Hiwan Pty Limited [2011] NSWSC 695 Hearing dates: 22, 23 and 31 March, 28 April 2011 Decision date: 06 July 2011 Jurisdiction: Equity Division Before: Sackar J Decision: Specific Performance Granted
Catchwords: CONTRACT - Principles of Construction - Implied Terms - Specific Performance - Principles in Granting Specific Performance - Right to Terminate Legislation Cited: Real Property Act 1900 Cases Cited: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368
Sutton v Cary (1916) 16 SR (NSW) 254
Cohen & Co v. Ockerby & Co Ltd (1917) 24 CLR 288
Burger King Corporation v Hungry Jacks Pty Ltd 2002 23(7) Leg Rep SL2
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33
Mackay v Dick 6 App Cases 251
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377
McDonald v Denny's Lascelles Ltd (1933) 48 CLR 457
Hong Kong Shipping Co Ltd v Kawasaki Kisen Kaisha, Ltd [1962] 1 All ER 474
Kaljo v Cody [2009] NSWSC 480
McNally v Waitzer (1981) 1 NSWLR 294
Adderley v Dixon (1824) 57 ER 239
Flureau v Thornhill [1775-1802] All ER Rep 91
Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146
Wilson v Northampton & Banbury Junction Railway Company (1874) LR9ChApp 279
Quadrant v Hutchison [1993] BCLC 442
CSS Investments Pty Ltd v. Lopiron Pty Ltd (1987) 76 ALR 463
Bahr v Nicholay (No 2) (1988) 164 CLR 604
Mehmet v Benson (1965) 113 CLR 295
Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] NSWR 25
Fullers Theatres Ltd v Musgrove (1923) 31 CLR 524
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [44]Texts Cited: Sir Edward Fry (1921) A Treatise on the Specific Performance of Contracts, Law Publishers: London 6th Edition
J W Carter (2007) Contract Law in Australia, Lexus Nexus Butterworths: AustraliaCategory: Principal judgment Parties: Remax Developments Pty Limited - plaintiff
Chamwell Pty Limited - defendant
Hiwan Pty Limited - defendantRepresentation: R McKeand SC - plaintiff
J Young - defendants
Herbert Geer - plaintiff
Consolidated lawyers - defendants
File Number(s): 2010/57390
Judgment
The Proceedings
In these proceedings the plaintiff claims the following declarations:
(i) That the contract for sale of land dated 21 April 2009 made between the plaintiff as purchaser and the first and second defendants as vendors in relation to the land known as 29 Burlington Road, Homebush and 32 The Crescent Homebush being the whole of land contained in registered plan lot 11, DP 1052760, folio identifier 11/1052760 and auto-consul 12064-1 as varied by the deed of variation of contract and settlement entered by the parties on 9 April 2010 (the contract) is a valid and enforceable contract.
(ii) A declaration that the purported termination of the contract by the defendants on 21 September 2010 was invalid and ineffective to terminate the contract or to cause forfeiture of the deposit paid by the plaintiff.
(iii) Order that insofar as it remains unperformed the contract be specifically performed and carried into execution.
(iv) The plaintiff seeks other orders consequential upon the above including an order for an enquiry into the damage allegedly suffered by it and caused by the defendant's purported termination of the contract.
The defendants whilst admitting the agreement of 21 April 2009 and the deed of variation of 9 April 2010 assert that they were justified in terminating the contract as varied on 21 September 2010 and therefore resist the relief sought.
The defendants further contend that the plaintiff itself is in breach of the contract and was not in 2010 nor at the conclusion of these proceedings ready, willing and able to complete the contract and thereby not entitled to specific performance.
The controversy between the parties obviously revolves around the proper construction of their contract and their respective conduct at relevant points in time.
Background Facts
The defendants as the vendors entered a contract dated 21 April 2009 with the plaintiff as purchaser for the sale of two properties at 29 Burlington Road Homebush and 32 The Crescent Homebush.
The purchase price was $6,380,000 inclusive of GST, with a deposit of $1.6 million paid upon exchange.
The contract leaving aside special conditions was in the standard form of contract for the sale of land, 2005 edition.
Clause 15 of the contract was in the following terms:
"15 - Completion Date
The parties must complete by the completion date and if they do not a party can serve a notice to complete if that party is otherwise entitled to do so"
The contract had an annexure to it which contained certain special conditions. Clause 31 in that annexure was in the following terms:
"31 - NOTICE TO COMPLETE
Completion of this agreement shall take place no later than six (6) months, which time is of the essence following either of the following events occurring:
(a) Approval of an application in relation to a section 96 application pursuant to the Environmental Planning and Assessment Act 1979 (NSW) is approved with respect to the current development application having number 0506-309; or
(b) Approval of a new development application with respect to the Property
Such date being herein called "completion date"
The applications referred to in (a) and (b) above are applications which have been reasonably and commercially required and approved by the Purchaser and lodged by the Vendor on behalf of the Purchaser."
In the event that neither event referred to at (a) or (b) about occurs on or before 31 December 2010 the Purchaser will be entitled to rescind the contracts and the full amount of the deposit in the sum of $1,600.000 shall be refunded by the Vendor to the Purchaser."
A further clause 33 was in the following terms:
"33 - Deposit
(a) If the Deposit by the Purchaser is an amount less than the amount set out on the Front Page of this contract, then for the purposes of standard printed Clause 9 of this contract the amount of Deposit to be forfeited thereunder shall be deemed to be the amount set out in clause 33(b) below and any difference between the Deposit actually paid and the amount set out in clause 33(b) below shall be payable by the Purchaser to the Vendor immediately upon demand.
(b) Notwithstanding clause 33(a) above the parties agree that the Deposit to be paid by the Purchaser shall be One million six hundred thousand dollars ($1,600,000)
(i) $50,000 on exchange of the Contract;
(ii) $1,000.00 by the 15 th July 2009; and
(iii) $550,000 by 30 August 2009,
released to the Vendor unconditionally.
(c) For the payment referred to in clause 33(b)(ii) above the Vendor grants to the Purchaser an extension of time before payment without penalty of fourteen (14) days if such an extension is required by the Purchaser.
(d) For the payment referred to in clause 33(b)(iii) above the Vendor grants to the Purchaser an extension of time for payment without penalty after twenty eight (28) days if such an extension is required by the Purchaser.
Clause 35 of the contract provided as follows:
"35 - Payment of Mortgage by the Purchaser
(a) the parties agree that the Purchaser shall pay the interest payments to the Vendor's mortgagee which will vary from time to time depending on the interest rates of the Vendor's mortgage and which is currently in the sum of $18,000 calculated at 4.7% per annum by the 15 th day of every calendar month until completion with a receipt forwarded to the Vendor as proof of payment of which time is of the essence commencing on 1 May 2009 into the following account:
Oxford Street Pty Limited
BSB: 332027
A/c: 552240141
St George Bank
(b) this clause 35 is an essential term of this contract and failure to make payment in accordance with Clause 35(a) entitled the Vendor to rescind this contract and recover the balance of the deposit if any."
Attempts had been made since about 2005 to have a development application approved for the relevant land. This culminated in litigation in the Land and Environment Court of New South Wales in proceedings 113057 of 2006. The development application was 0506/309 and was granted subject to conditions imposed by the court on 10 January 2008.
The plaintiff had retained Tony Owen Partners, architects to prepare the DA in accordance with clause 31 of the contract. The preparation of the new DA was lodged with Strathfield Council on 18 December 2009.
The new DA provided for the construction of a 9 storey building comprising 148 units, a three level basement carpark for 226 vehicles, associated outdoor living and recreation space, a community centre and gardens. It seems that this was a significantly larger development than had originally been planned.
In late 2009 early 2010 a dispute arose between the parties.
As the result of the dispute the defendants purported to terminate the contract by notice of termination on 17 February 2010. The notice of termination asserted that the plaintiff had failed to pay interest as agreed and to engage a company called SJB architects and pay their invoices. It was also alleged that the plaintiff had failed to lodge a DA by 1 December 2009 prepared by those architects. It was asserted that as a result the deposit would be forfeited.
Proceedings were commenced by the plaintiff seeking interlocutory relief from this court on 5 March 2010. On 11 March 2010 upon the usual undertaking as to damages orders were made directing the defendants not to enter into any lease, mortgage or selling and/ or advertising for sale of the relevant properties in addition taking any steps to act on the notice of termination dated 17 February 2010 until further order.
The parties thereafter entered negotiations and as a result on 9 April 2010 executed what is described is a deed of variation of contract. The recitals are as follows:
RECITALS:
"A. On 21 April 2009, Remax (as purchaser) entered into a contract with Chamwell and Hiwan (as vendor) to purchaser (sic??) certain property known as folio identifier 11/1052760 and Auto-Consol 12964-1, known as 29 Burlington Road, Homebush and 32 The Crescent, Homebush, respectively (the Contract).
B. On 17 February 2010 and prior to settlement under the Contract, Chamwell and Hiwan served a notice on Remax purporting to terminate the contract (the Notice).
C. As a result of Remax being served with the Notice, on 5 March 2010, Remax initiated proceedings against Chamwell and Hiwan in the Supreme Court of New South Wales by summons seeking particular declarations and orders in respect of the Contract and the Notice (the Court Proceedings).
D. Without any admission of liability, it has been agreed by Remax, Chamwell and Hiwan to resolve the Court Proceedings and vary the Contract on the terms set out in this deed."
The deed contained a number of relevant provisions as follows:
" 2. VARIATION OF CONTRACT AND PAYMENT
(a) The parties agree to vary the Contract in accordance with schedule 1 to this deed.
(b) Subject to the parties completing the Contract (as varied in accordance with Schedule 1 to this deed), Remax agrees to:
(i) Pay to Chamwell and Hiwan an amount of $500,000.00 as follows;
(A) As to $45,000.00 on the date of this deed;
(B) As to $100,000.00 on the date of completion of the Contract; and
(c) As to the balance, within ninety (90) days from completion of the Contract in respect of which payment time is of the essence;
(ii) discontinue the Court Proceedings (and in this regard each party agrees to pay their own costs of the Court Proceedings); and
(iii) Grant to Chamwell and Hiwan the Second Mortgage in accordance with clause 4.
(iv) The parties acknowledge that the payments referred to above are in settlement of the Court Proceedings and accordingly exempt from GST.
3. SETTLEMENT APARTMENTS:
Subject to Remax obtaining the Development Approval the parties acknowledge and agree to the following:
(a) Within 14 days of preparation of the Strata Plan for the purposes of achieving pre sales of the Remix (sic) Development Remix (sic) will provide to Chamwell and Hwan (sic) details of the apartments comprising the Remix (sic) Development together with a coy of the Strata Plan and the valuation prepared by the Valour for the purpose of determining the price at which the apartments within the Remix (sic) Development (the Valuation) are to be sold to the public.
(b) Within 14 days of receiving the Strata Plan and Valuation, Cham well (sic) and Hwan (sic) shall (in writing to Remix (sic)) can elect whether it requires Remix to transfer to it or sell on their behalf (and immediately on settlement pay to them the proceeds of sale) apartments within the Remix Development (subject to the qualifications in clause (c)) with a combined value (as determined by the Valuation) not exceeding $3,000.00.
(c) Chamwell and Hiwan are not entitled to nominate any apartments which are located (or proposed to be located) either wholly or party, on the top level of the Remax Development.
(d) In the event that the combined value of the apartments selected by Chamwell and Hiwan exceeds $3,000.00 calculated by reference to the Valuation then Chamwell and Hiwan can elect to pay the amount by which their value exceeds $3,000.000 to Remax on receipt of the transfers and certificates of title. In the event that the value of the apartments is less than $3,000,000 calculated by reference to the Valuation then Remax will at the time that it delivers the transfers and certificates of title pay to Chamwell and Hiwan the difference between the value of the relevant apartments as determined by the Valuation and $3,000.000. Notwithstanding the above and notwithstanding any provision contained herein to the contrary Chamwell and Hiwan will not be entitled to nominate apartments with a combined value based on the Valuation exceeding $3,200,000. Furthermore in the event that the apartments nominated by Chamwell and Hiwan hve a value as determined by the Valuation in excess of $3,000,000 then Chamwell and Hiwan must pay stamp duty on the excess over $3,000.00.
(e) Chamwell and Hiwan agree that in the event that Remax is able to demonstrate that it has entered into contracts with 3 rd parties to purchase 50% of the apartments in the Remax Development for prices consistent with the Valuation they will not as part of the process of selecting the Settlement Apartments be entitled to dispute the values attributed to the Settlement Apartments.
(f) In the event that subject to paragraph (d) of this clause a dispute arises in relation to the valuation of the apartments selected by Chamwell and Hiwan then the parties agree to jointly commission a further valuation of the relevant apartments from a valuer agreed by them or in the event that they cannot reach agreement as to the identity of the valuer within 7 days then a valuer appointed by the Expert (Further Valuation). The parties acknowledge and agree that the Further Valuation will be binding upon them and that Chamwell and Hiwan must within 14 days of receipt of the Further Valuation make a further selection of apartments in accordance with the requirements of paragraph .
(g) In the event that chamwell and Hiwan fail to comply with the preceding paragraph, then Remax may select the Settlement Apartments and Chamwell and Hiwan agree to accept Remax's selection as the Settlement Apartments.
(h) Within 28 days of registration of the Strata Plan Remax will transfer to either Chamwell and Hiwan or to any third party or parties which they nominate the Settlement Apartments selected in accordance with this clause 3 or in the event that Chamwell and Hiwan elect for Remax to sell them on their behalf then take appropriate steps to sell them as expeditiously as possible (on the same terms as Remax sells the other apartments in the Remax Development). In the event that they are transferred to Chamwell or Hiwan or their nominees as provided above then Remax will pay the stamp duty payable on the transfers: In order to give effect to the obligations set out above Remax will deliver transfers in the LPI standard form with the purchase price for each apartment being the price attributed to it in the Valuation together with the relevant certificates of title.
(i) Chamwell and Hiwan covenant and agree that they are not entitled to rescind the Contract or delay Completion due to any of the matters (whether outstanding or otherwise) referred to or arising from this clause.
4. REGISTERED SECOND MORTGAGE
(a) Upon the parties completing the Contract, Remax agrees to grant to Chamwell and Hiwan a registered second mortgage over the Property securing a maximum value of $3,355,000.00 in the form attached and marked "A" (Second Mortgage).
(b) Chamwell and Hiwan agree that it is a condition of the grant of the Second Mortgage that they enter into any deed of priority required by Remax's first mortgagee.
(c) On execution of the Second Mortgage Chamwell and Hiwan will also execute and provide to Remax a discharge of the Second Mortgage to be held in escrow by the solicitor for Remax until either the transfer of the Settlement Apartments to Chamwell or Hiwan or completion of the sales of the Settlement Apartments pursuant to clause 3(g). Chamwell and Hiwan agree that at that time the solicitor for Remax will be entitled to register the discharge of the Second Mortgage.
(d) Chamwell and Hiwan covenant and agree that they are not entitled to rescind the Contract or delay Completion due to any of the matters (whether outstanding or otherwise) referred to or arising out of this clause."
In what is described as Schedule 1 to the deed there are a number of changes to the original special conditions agreed in 2009. An important variation was to clause 31. Pursuant to the schedule that clause was deleted and it was replaced by new clause 32 which was in the following terms:
"32 - Completion date
Completion of the agreement shall take place no later than 30
August 2010."
Clause 4 referred to above in particular 4(a) referred to a registered second mortgage to a maximum value of $3,355,000 in the form attached and marked "A". The form of mortgage which is attached as Schedule A to the deed of variation in turn has an annexure, which contains a provision which deals with the timing of the repayment of the mortgage.
A form of mortgage had been executed by Mr Freeland and Mr Nigro on behalf of the plaintiff and by Ms Fiona Melhem for the second defendant and Mr Warwick Mirzikinian for the first defendant and annexed as well.
On 29 April 2010 Strathfield Council refused the application for the development approval that had then been lodged. A development application has however since been approved.
On 10 August the plaintiff received an offer of finance from St George Bank. The offer was for a facility of $4,180.000. The offer was said to be subject to a first mortgage over the relevant properties together with a guarantee and indemnity from a person called Ms Ilona Michalik (who has not featured in these proceedings) and further a first registered mortgage over property owned by her at 68 Churchill Avenue, Strathfield. There was to be a first registered fixed and floating charge over the assets and undertakings of the plaintiff and a guarantee and indemnity in the amount of the loan given by a Mr Neil Freeland, Mr Filippo Montesanti and Mr Remolo Niko Nigro. There was no mention of a second mortgage in the facility offer. It is common ground that no one from the plaintiff disclosed to St George Bank prior to the 14 September that it had agreed to give the defendants a second mortgage or indeed of the existence of the deed of variation.
The offer was accepted by Mr Freeland on behalf of the plaintiff on 16 August. Attached to the letter of offer is what is described as general standard terms. Clause 2 is relevant. It prescribes relevantly as follows:
"Declarations.
2.1 - You declare that:
(a) neither you nor if you are a corporation any director or other person breaches any law or any obligation to another person by signing any arrangement with us or entering transactions or performing obligations under them and that all necessary authorisations to do so have been obtained.
(b) .....
(c) .....
(d) all the information given by you or on your behalf (such as financial statements) is correct and not misleading; and
(e) .....
(f) you have not withheld any information that might have caused us not to enter into any arrangement with us."
On and from 10 August the respective legal representatives were attempting to ready themselves to complete the sale. Settlement was initially fixed for 20 August although it soon became obvious that settlement was not going to happen on that date.
It is clear from an email from a Mr Leung at St George to Mr Nigro that part of the delay was occasioned by the completion of various steps the bank required pursuant to its internal procedures. It is also clear that some of the delay had been caused by the "capital constrained environment" described in an earlier email again to Mr Nigro from a Mr Leeming at St George in mid July. Arrangements were however made for a settlement to take place on 26 August.
In an email of 19 August to the solicitor for the defendants, a Ms Anna Hahm, Mr Greg deMesquita solicitor for the plaintiff said:
"Anna, I refer to our discussions today and enclose amended draft settlement figures for Thursday 26 August 2010. I note that I have not had an opportunity to obtain my client's further instructions in respect of these figures and accordingly they remain subject to my client's further instructions and final approval.
I confirm that we will be handing over a (stamped) registerable second mortgage at settlement and that your client will enter into a deed of priority with our client's mortgagee following settlement....."
On 24 August Ms Hahm had a telephone conversation with Mr deMesquita. She asked that he keep her informed and include her in the negotiations on the deed of priority with St George Bank. Her note indicates that Mr deMesquita said that that should not be a problem. Mr deMesquita told Ms Hahm that his supervising solicitor Mr Buchanan was in negotiations with the bank with regard to the deed of priority. This had no basis it seems in fact.
However on 26 August Mr deMesquita telephoned Ms Hahm to inform her that the plaintiff was unable to settle on that day and indicated the need to reschedule the settlement for 30 August. Ms Hahm sent an email to Mr deMesquita on 26 August in the following terms:
"I confirm the above matter has been rescheduled for 30 august 2010 at Espreon at a nominated time of 2.30pm."
On 27 August a Ms Sarah Malkoun who was assisting Ms Hahm sent an email to Mr deMesquita referring to the proposed settlement on 30 August and asking for the following documentation prior to settlement:
"1. Transfer
2. x 2 withdrawal of caveat
3. Draft deed of priority (if available)
4. s47 for 32 The Crescent, Homebush
5. Registered stamped second mortgage."
An amended settlement sheet was prepared in anticipation of the matter settling on 30 August.
On 30 August in a telephone conversation Ms Hahm asked Mr deMesquita whether she could see the draft deed of priority. Mr deMesquita said he was still getting instructions.
On 27 August 2010 Ms Hahm had another conversation with Mr deMesquita in order to reschedule settlement for 2 September.
On 31 August Ms Hahm sent a letter in the following terms:
"We refer to the above matter and to you emails of 27 August, 2010 received by the writer after 5.30pm.
We deny the vendors' intention to sell the abovementioned properties to a third party of otherwise deal with the property.
As regards to clause 4(d) of the Deed, it was the contemplation of both parties that the Deed of Priority ("DOP") entered into was to be provided on or prior to settlement. The vendors confirm this was a mutual agreement between both parties prior to execution of the Deed.
The vendors relies on the mutual agreement and still seek a copy of the DOP prior to settlement stipulating your client's total value of the mortgage on the above property including a line of credit facility (if any).
We put you on notice that the vendors require a personal guarantee on an unencumbered security to secure their second mortgage enclosed in your second email.
We refer you to clause 2 of Schedule 1 of the Variations to the Contract, that settlement for the above matter shall take place on or before even date.
We confirm settlement has been rescheduled for Thursday, 2 September, 2010 at 2.30pm at Espreon as per your request.
We advise that cancellation or rescheduling of settlement incurs further legal fees for the vendors. Please note we will seek indemnity of these legal costs should another settlement by cancelled or rescheduled.
Should you have any queries please do not hesitate to contact the writer or our Ms Malkoun."
At or about the same time on 31 August the defendants served a notice to complete. The notice recited the entry into the contract for sale on 21 April 2009 and asserted that the plaintiffs had failed to serve on the defendants a form of transfer as required by clause 4.1 of the contract of sale. It contained an assertion that the defendants were ready, willing and able to complete and that the plaintiff was in default. The notice required that by 1 September a form of transfer for execution was to be provided by the plaintiff and a completion of the settlement was to take place at 2.30pm on 20 September. As to the latter date the notice asserted that "in this respect time is of the essence".
On 1 September Ms Hahm and Mr deMesquita had a further conversation. She again requested a copy of the deed of priority prior to the settlement. There was a discussion about the stamping of the transfer which had been forwarded by Mr deMesquita earlier that day.
On 1 September Mr deMesquita telephoned Ms Hahm to reschedule the settlement for 7 September.
On 2 September a further letter passed between Ms Hahm and Mr deMesquita. In it she asserted on behalf of her clients that they had been ready, willing and able to settle on the scheduled settlement date. Her letter went on:
"Our clients have been informed by the purchaser that the first mortgagee does not know of a registerable second mortgage granted to our clients and which we registered on the above property nor have they been contacted regarding our client's second mortgage. It a requirement to seek the first mortgagee's consent to register the second mortgage. If the purchaser's intention was to hand a registerable second mortgage on settlement without seeking the first mortgagee's consent any registered second mortgage by our client could expose them in further litigation to assert their interest. If your client is genuine in providing a valid registerable second mortgage entitling the protection of our client's interest then a DOP must be provided on settlement.
Our client requires a draft of the deed of priority (DOP) prior to settlement. It was a condition precedent that the DOP was to be provided on settlement. Your client has missed settlement on several occasions. If your client was in a position to settle this matter on previous scheduled settlement dates the DOP would have been prepared and served upon us by now."
On 7 September Ms Hahm received a telephone call from Mr deMesquita to the effect that he would like to rearrange settlement for 9 September. He had the previous day sent amended draft settlement figures for Thursday 9 September. On that day he also sent an original stamped second mortgage to be held in escrow. It was in the form prescribed by the deed of variation.
On 7 September Ms Hahm sent a letter to Mr deMesquita. The letter warned that a further cancellation of the settlement would not be acceptable and reliance would be placed on the Notice to Complete. The letter also called for a response to the letter of 2 September.
On 7 September Mr deMesquita sent a letter to Ms Hahm in which he indicated that his client would have a deed of priority for her client's review "shortly after settlement on Thursday." He further asserted that his client had fully complied with its obligations pursuant to the deed of variation.
On 8 September Ms Hahm sent a fax to Mr deMesquita requiring a copy of the deed of priority. Again she asserted her construction of the deed of variation. She raised concerns about the level of indebtedness which the property may bear and the possibility that the plaintiff might become insolvent significantly diminishing or rendering nugatory the defendant's security as factors underscoring her commercial interpretation of the deed of variation.
On 8 September Ms Hahm sent a further amended settlement sheet.
On 8 September Mr deMesquita sent what was described as a draft deed of priority to Ms Hahm. This purports to a draft agreement between Westpac Banking Corporation and the respective parties to the sale. It is unsigned by Westpac but again it is common ground that Westpac had not seen the proposed draft deed at that point.
On 9 September Ms Hahm sent a letter to Mr deMesquita in which she inquired whether the deed had been approved by Westpac and when it was expected Westpac would sign the document. She also required a letter confirming that Westpac had approved of the deed in that form. Lastly she requested a copy of the signed deed.
On 9 September there is no issue but that all parties except the defendants attended the settlement who refused to do so. It is conceded by the defendants that St George Bank attended the settlement with the requisite monies in hand to complete the purchase.
The matter could obviously not settle on that day in the absence of the vendors.
On 10 September Mr Buchanan sent a letter of complaint to Ms Hahm about her client's failure to attend the settlement and that his client was going to seek specific performance.
On 14 September Mr Buchanan wrote to a Sarsha Housham of Gadens (who acted for St George Bank). The letter is in the following terms:
"Dear Sarsha
Remax Developments Pty Ltd purchase from Chamwell Pty Ltd and Hiwan Pty Ltd
Property: 29 Burlington Road and 32 The Crescent Homebush and 68 Churchill Avenue, Strathfield
We refer to our previous correspondence in relation to the above matter.
We confirm that there has been a long-running dispute between our client and the Vendors in relation to the Contract for Sale ("Contract"). That dispute became the subject of Supreme Court proceedings in March this year in relation to the enforceability of the Contract.
In order to resolve that dispute commercially our client has agreed to give the Vendors the right to choose 6 units in the completed development which it is proposed (subject to your client's consent) will be secured by way of a second mortgage with the amount secured capped at $3,355,000.00. It is intended that no claim will be able to be made under the second mortgage until 30 June 2013 (which is well after the intended completion date of the construction of the development).
As foreshadowed last week we have been instructed to commence proceedings in the Supreme Court seeking an order for specific performance requiring the Vendors to complete the Contract. We expect an initial hearing in relation to this matter will take place in the Supreme Court later this week.
Although not relevant to the Supreme Court proceedings, can you please let us know whether or not your client would be agreeable to our client granting the second mortgage subject to execution of a Deed of Priority acceptable to your client.
Yours faithfully"
On 16 September Gadens having obtained instructions from their client responded accordingly:
1. "We refer to your letter of 14 September 2010 informing us of the following:
(a) long running dispute between the Borrower (as purchaser) and the vendors of the Property which became the subject of Supreme Court proceedings in March this year (Dispute);
(b) that in order to resolve the dispute commercially the Borrower has agreed to give the vendors the right to choose 6 units in the completed development to be undertaken at the Property; (Agreement) and
(c) a proposal for the Borrower to provide a second mortgage over the Property in favour of the vendors to secure obligations under the Agreement (Second Mortgage Proposal).
2. We also refer to the facility letter dated 10 august 2010 between the Lender, the Borrower and the Guarantors (which incorporates General Standard Terms versions 05/2010) (Facility Letter), under which the Lender was to provide a loan facility to the Borrower of $4,180,000 (Facility)
3. We are instructed to confirm the following in relation to this matter:
(a) that prior to a telephone discussion between you and the Lender directly on 14 September 2010, the Lender was not aware of the dispute, the Agreement or the Second Mortgage Proposal (Sale Issues);
(b) that the Borrower's failure to disclose the Sale Issues to the Lender is a breach of several declarations provided by the Borrower under the terms of the Facility, including without limitation, the following declarations:
(i) that all the information given by or on behalf of the Borrower is correct and not misleading;
(ii) that the Borrower has not withheld any information that might have caused the Lender not to enter into the Facility Letter;
(iii) that there is no pending or threatened court or other proceedings affecting the Borrower except those in which a decision against the Borrower would be insignificant; and
(c) that in these circumstances the Lender will not proceed with the Facility and the offer provided under the Facility Letter is withdrawn by the Lender.
4. In accordance with the Facility Letter, the Borrower is responsible for payment of the Lender's establishment fee and legal fees. We enclose a copy of our revised tax invoice for this matter and ask that you arrange for the following bank cheques to be provided to us by return:
(a) St. George Bank $10,900 (being payment of the balance of the establishment fee); and
(b) Gadens Lawyers $9,653.49 (being the Lender's legal fees for this matter as per the enclosed tax invoice)."
On 21 September the defendants served a notice of termination. The notice simply referred to the notice to complete of 31 August and a failure to comply with it as the ground for termination.
Following the withdrawal of St George as financier the plaintiff in about November 2010 approached the Capital One Financial Group (Capital One) for assistance in obtaining fresh finance for the completion of the purchase.
On 13 December 2010 Capital One agreed to broker bridging loans for the plaintiff in the total sum of $4.2 million. It wrote to the plaintiff in indicative terms stating that a first mortgage of $2.5 million would be made available subject to satisfactory valuation from a firm called MVS Valuers. It was also indicated that the expected value would be around $7 million. The first mortgage was to be over the properties the subject of the development. There was to be a registered second mortgage for $1.7 million over the same properties again subject to satisfactory valuation but not in favour of the defendants. The first mortgagee was to be a company called Stacks Managed Investments Limited the second mortgagee was to be Capital One. Because of the way in which the loans were to be structured the defendants could under that proposal only at best have been favoured with a third mortgage.
On 14 and 18 March 2011 Capital One indicated that it was prepared to provide $1.7 million by way of a second mortgage subject to a registered second mortgage over the relevant properties and in addition a first registered mortgage over freehold property at 316 Parramatta Road, Burwood. That property was owned by a company called Rabah Enterprises Pty Ltd. Joint and several guarantees were to be provided by Mr Nigro and his co-directors Mr Montesanti and Mr Freeland and his co-shareholders Mr Youseff and Nouredeen Abdul-Rahman the directors and shareholders of Rabah.
In his evidence before me Mr Gant indicated that there had been a letter of offer from Stacks for a first mortgage of $2.5 million. This had been accepted as had the offer from Capital One. Mr Gant, however, agreed in cross examination that by reference to a funding table which he had prepared even with the loans which had been arranged, the plaintiff still required an additional $700,000 described as "developer contribution".
Following his cross examination on 22 March, Mr Gant had a conversation with Mr Nigro. As a result of that conversation Capital One in a letter dated 22 March 2011 referred to the earlier second mortgage of $1.7 million but Capital One now indicated that it was able to provide additional funding of $800,000 if required. The new second mortgage loan amount would therefore be for $2.5 million.
In his affidavit of 21 March 2011 Mr Nigro indicated that as an alternative to taking up a second mortgage approved by Capital One he was considering having the plaintiff pay cash or equivalent in the sum of $1.7 million on settlement and he expected to be able to do that. When questioned Mr Nigro gave rather unsatisfactory evidence about what he described as his ability to access cash or other unencumbered property as security. He also described shareholdings in other properties that were in Queensland and another that might be in Fairfield. The arrangements put before the court at this stage namely that on or about 23 March were still predicated upon the defendants being granted only a third mortgage.
Mr Nigro agreed that he personally did not bring the deed of variation to the knowledge of St George at any point during his dealings with that institution in 2010 and left it to the lawyers to do so. It was clearly brought to the attention of Capital One.
On 23 March there were further developments in relation to the provision of finance. In a handwritten affidavit of that date Mr Nouredeen Abdul-Rahman indicated that he could if required produce bank cheques in sums of between $700,000 up to $1 million by 24 March 2011. The funds he said would come from personal bank accounts and/or in accounts that could be accessed at any time. He said he would apply those funds to the purchase of the properties.
On 30 March a further letter issued from Capital One indicated that the offers of 14 and 24 March would remain open until determination of the current proceedings.
At the resumed hearing on 31 March an affidavit of Mr Buchanan of 24 March was read. Mr Buchanan deposed that Mr Abdul-Rahman had placed $800,000 in bank cheques into his trust account pursuant to an irrevocable authority to be used solely for settlement. Mr Buchanan was not required for cross-examination. Mr Gant was called again on 31 March to clarify an issue concerning a number of matters importantly the basis upon which the particular valuation had been done. He indicated that in his giving evidence about his calculations he had used what was described as the DA approved value. There is no doubt the relevant DA had been approved.
He was asked some questions by counsel for the defendants however about whether or not Capital One would be prepared to be a third mortgagee:
"Q. Why have you not the subsequent letters of offer put Capital One as third mortgagee?
A. Well we won't do a third mortgage.
Q. Why won't you?
A Well we just would not because the equity is not in the site for us to do a third mortgage.
Q. Well, you say in your affidavit of 9 February that:
The loans we are arranging are made up of a first mortgage to be provided by Stacks and a second mortgage by Capital One in the sum of $1.7 million. The mortgagees for both loans will permit a third mortgage. Having the loans structured in this way makes no difference to the value of the security or the ease with which it may be enforced."
Q. Now if you were in that position what you are saying, is that you would not accept a third mortgage?
A. No, because its different to the second mortgage because we have got it structured on the basis of a certain LVR and we don't-its something that we don't do is take third mortgages."
His Honour
"Q. So your transaction or your offer does not work if Mr Young's client is to be the second mortgagee?
A. It does not Your Honour
His Honour
Anything arising
McKeand: No Your Honour"
Between that date and the resumed date (28 April) for the continuation of submissions further materials were provided to the court on the question of available finance. It comprised an affidavit of Mr Nigro of 18 April. By now the financial arrangements had been restructured yet again. Capital One on 15 April had offered to assume the position of proposed first mortgagee and to provide $2.9 million towards settlement. Security was to be a first registered mortgage over the relevant properties. A first ranking fixed and floating charge was to be taken over the assets of the plaintiff in its own right and as trustee for the Mr Holdings Unit Trust. Joint and several guarantees were to be provided by the same persons earlier referred to. The plaintiff accepted that offer.
It was proposed for the first time on or by 18 April that the financial arrangements were now restructured so as to give the defendants a second mortgage as promised. A draft deed of priority was proposed in order to give effect to the offer.
A further affidavit of Mr Buchanan of 12 April had indicated that additional monies totalling approximately $1.7 million had been provided in cheques by Mr Nouredeen Abdul-Rahman for deposit into his trust account in company with an authority irrevocably directing and authorising his firm to hold those monies for the sole purpose of the payment of the balance of monies owing by the plaintiff on settlement. In the event that settlement was not to occur the monies would be refunded to Mr Abdhul-Rahman ($1.51 million) and Mr Neil Freeland ($200,000).
An affidavit was also filed and sworn by Mr Youssef Abdul-Rahman also dated 18 April. It indicated that he and his brother Nouredeen were the only directors of Rabah Enterprises Pty Ltd the registered proprietor of the property at 316 Parramatta Road, Burwood. Mr Abdul-Rahman indicated that the property had been given a value of $2.5 million by Colliers. The affidavit further indicated that the property would be available as collateral security for a loan in order for the plaintiff to meet its obligations to pay $355,000 to the defendants within 90 days after completion of the purchase of the Homebush property. The defendants did not seek to cross- examine any of these deponents.
DISCUSSION
Valid and Enforceable Contract
T he first ground of relief that the plaintiff seeks is a declaration that itself and the defendants had entered into a valid and enforceable contract for the sale of land dated 21 April 2009 as varied.
The defendants do not contest that the contract for the sale of land was, at some time, a valid and enforceable contract but that it was validly terminated on 21 September 2010.
Defendants Right to Terminate
For the defendants to have validly terminated the contract it must first be found that there was a breach of the contract by the plaintiff. This obviously requires a precise construction of the terms of the deed of variation, with reference to the objective intentions of the parties in the formulation of its terms.
Principles of Construction
The principles of construction relating to contracts are well established. When construing the terms of a contract, considerations of commercial objective and common sense will be of considerable importance. The contractual genesis should also be carefully considered.
In Regency Media Pty Ltd v AAV Australia Pty Ltd Beazley J A, said:
[47] "The intention of the parties to a contract "is to be ascertained from the instrument as a whole": see Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 437 per McTiernan, Webb and Taylor JJ. Primacy is to be given to the language used by the parties: see McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579. However, in determining the objective intention of the parties, the court is entitled to know the commercial purpose of the contract. As Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ explained in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]:
"In Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 350, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996:
'In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.'"
[48] In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 the High Court noted, at [40], that it had recently reaffirmed in Pacific Carriers Ltd v BNP Paribas " the principle of objectivity by which the rights and liabilities of the parties to a contract are determined ". The Court continued:
"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." (Citation omitted)
69 In the same judgment McColl JA said:
[105] "Commercial contracts should be construed so as to be given a sensible commercial operation: Upper Hunter District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 (at 437) per Barwick CJ; Australian Broadcasting Commission v Australasian Performing Right Association [1973] HCA 36; (1973) 129 CLR 99 (at 109) per Gibbs J (as he then was); Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 (at 313-4) per Kirby P; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA (at [64]).
[106] If words used in a written contract are unambiguous, the Court must give effect to them notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The Court has no power to remake or amend a contract for the purpose of avoiding a result considered to be inconvenient or unjust. However, if the language of a contract is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate": Australian Broadcasting Commission v Australasian Performing Right Association Ltd (at 109) per Gibbs J.
[107] Ascertaining the meaning of a written agreement includes taking into account what it would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract ( Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70 ; (2001) 210 CLR 181 (at [11]) per Gleeson CJ, Gummow, and Hayne JJ), an exercise which requires objective determination: see Pacific Carriers Ltd v BNP Paribas [ 2 004] HCA 35 ; (2004) 218 CLR 451 (at [22]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ and subsequent High Court authority to like effect."
Registered Second Mortgage
Express Term
Clause 4(a) of the deed of variation, the meaning of which is in dispute in the proceedings, must be read with these commercial considerations in mind.
Clause 4(a) reads:
(a) Upon the parties completing the Contract, Remax agrees to grant to Chamwell and Hiwan a registered second mortgage over the Property securing a maximum value of $3,355,000.00 in the form attached and marked "A" (Second Mortgage).
When construing the clause it is obviously necessary to specify what is meant by the words "Upon the parties completing the Contract." The phrase "upon completion" for example in relation to a sale of land has been held to be a reference to the actual time of settlement: see Sutton v Cary . The phrase here is in a form which is different. When one however considers the contract as a whole and its commercial purpose, I consider the clause should be construed similarly in order to achieve that purpose. I consider those words in 4(a) were intended to be used in that sense, namely that from the time and date of settlement the plaintiff would "grant...a second mortgage" and it had to be, as promised, in a position to do so, at that time. There is no doubt that when the parties negotiated the variation to the original contract the character of that contract changed in my view quite dramatically from a straight sale and purchase to something much more. The commercial purpose that the second mortgage was intended to underpin involved a repayment of the second mortgage or an option to acquire units in the development at the election of the defendants. To interpret the relevant words in that way in my view is the only way to make the contract commercially workable as a matter of common sense. The phrase in clause 2(b), "Subject to the parties completing the Contract..." does not in my view detract from that interpretation. Clause 2(b)(iii) makes it clear that the obligation on the plaintiff to grant the second mortgage was to be "in accordance with clause 4." It seems to me that the parties wished to ensure that the defendants were going to be placed in a position where their options were preserved with some considerable degree of certainty.
It is important, however, to consider how far the precise obligation in 4(a) extends. Although the term itself refers in my view to the point of settlement, it is necessary to examine whether the obligation envisaged by the term carried with it associated obligations to do such things for example as were necessary to fulfil this primary obligation.
In ascertaining the scope of the obligation it is important to note that the deed of variation was the means by which the parties decided to settle all of their disputation about the contract. Importantly it not only laid down a process which would lead to ending the litigation but would provide the vendors as I have already observed with an option to be repaid or to take in lieu six units in the new development. These options would only be of value if secured by the promised second mortgage.
In creating the option for the vendors to take the units in lieu of a repayment of the mortgage considerable effort and thought went into settling on a regime to give it effect. Clause 3 establishes a most detailed way of determining value.
One discerns a clear resolution from the deed of variation to get on with the development and sale/purchase but there was a very different commercial objective and purpose to the earlier agreement which would lock the defendants in for a long period (until 30 June 2013 as provided by clause 14 of the mortgage as varied) and even longer potentially if they took the investment of units. The promises in clauses 4(a) and (b) therefore need to be seen in this context.
Against this commercial backdrop the plaintiff's duty in my opinion with respect to the fulfilment of the promise in clause 4(a) was to ensure the granting of a second mortgage at the precise date and time of settlement. It seems to me that the clause as a matter of common sense imposed a positive duty on the plaintiff to procure the fulfilment of the promise. To construe the obligation as the plaintiff does, namely that no obligation arose until after settlement, would in my mind render the obligation virtually nugatory. That construction would suppose that the first mortgagee was in place having negotiated its terms and conditions (including its assessment of its security position) in the absence of knowledge of the agreement to grant the second mortgage. That in my mind would lead to a commercially absurd result. I do not think the parties seriously contemplated that the plaintiff would merely attempt to grant the second mortgage subject to the good graces of a first mortgagee. Springing on a first mortgagee for the first time after settlement the existence of an antecedent obligation of the plaintiff and expecting to get a sympathetic ear is commercially unrealistic. It could be expected to lead to the kind of reaction that provoked St George Bank to withdraw the offer of funding upon the revelation of the deed of variation and the second mortgage in September 2010.
I therefore consider that the words in clause 4(a): "Upon the parties completing the Contract" should as I have said be construed as requiring the plaintiff to be in a position to grant the second mortgage at and from the date and time of settlement. The obligation was absolute. This was not a clause simply obliging the plaintiff to use reasonable or best endeavours.
There is no dispute here but that the plaintiff made no attempts and took no steps to inform its chosen first mortgagee by the 9 September 2010 of its obligation to grant the second mortgage. It follows in my view that the plaintiff was in breach of that term on that day and for that reason. It was therefore not only in breach of clause 4(a), but not in my opinion ready willing and able to complete at that time, in the relevant sense. That is however clearly not an end to the matter.
The defendants, in my mind with some force, submit that the engine of the deed of variation is the second mortgage and that it would therefore be unthinkable to the reasonable person either as the vendor or the purchaser that the second mortgage was not going to be granted at the time and on the day of settlement. I agree.
The defendants relied upon Cohen v Ockerby , which suggests that in business or mercantile contracts expressions are not to be read in a narrow spirit of construction but as the court would suppose two honest businessmen would understand the words they have used with reference to their subject matter and the surrounding circumstances. This, it is submitted by the defendants, invites an element of commercial morality. It is submitted that based on this 'commercial morality' it was always envisaged that the plaintiff would provide a registered second mortgage at settlement and that there was therefore an obligation on the plaintiff to put itself in a position to grant the registered second mortgage and communicate transparently with the defendant regarding its progress in doing so.
The promise to grant a mortgage upon settlement - as a matter of commercial commonsense - must mean that the plaintiff had obtained the consent of the first mortgagee prior to completion and that this forms part of the obligation to be found in 4(a). In addition this construction makes much more sense where for example the vendors expressly had agreed to limit their remedies dramatically in accordance with clause 4(d) to which I shall return.
Implied Term
Although it is strictly unnecessary for me to decide given my findings above, if I am wrong about what I see as the express term contained in 4(a) I would find in the alternative that there has been a breach of an implied term to similar effect. The defendants rely on the implied term two ways. First they argue that there was an implied term to (a) act in good faith (b) act reasonably; and/or (c) cooperate with the cross claimants so that upon completion the cross defendants would be in a position to grant a registered second mortgage with the consent of the relevant first mortgagee. Further or in the alternative they argue the existence of an implied term requiring that prior to completion the cross defendants would inform the cross claimants of the consent of the relevant first mortgagee to the second mortgage and the deed of priority required by the cross-defendants' first mortgagee.
In construing an implied term, the defendants point to a number of authorities, including Burger King Corporation v Hungry Jack s Pty Ltd , where the Court of Appeal found breaches of implied terms of cooperation, good faith and reasonableness as implications in law. In addition to there being implication as a matter of law, the defendant also submits that there is "ad hoc" implication according with BP Refinery , where business efficacy is alleged to mean nothing more than one party unconscionably taking advantage of the other in order to deprive it of the benefit of the contract.
The plaintiffs claim that there is no implied term in any variation posited by the defendant. Their argument is that the deed of variation contained within it clear terms specifying the nature of the plaintiffs obligations and that there is both no occasion for the existence of an implied term, and even if there were, that any such term would run contrary to the express provisions. They claim that all relevant obligations to be performed by the plaintiff were "subject to the parties completing the contract" as specified by clause 2(b) of the contract. As such, the plaintiff's position is that the express contractual terms, by virtue of clause 4(d) especially, would run contrary to any suggested implied term requiring any performance before the date of completion. They partly rely on Central Exchange Ltd v Anaconda Nickel Ltd in making this submission, and particularly refer to Steytler J's analysis of the authorities on good faith in that:
"One thing that is clear, however, is that the principles of good faith "do not block use of terms that actually appear in the contract."
The plaintiff submits in its written submissions that the implied term that the defendants plead is vague and the defendants do not adequately confront the express terms. Whilst the defendants have in effect confessed to difficulties in articulating the basis upon which they plead the implied term, the generality of this position does not create any necessary conflict between a good faith requirement and the express terms of the contract. In fact, as the defendants point out in written submissions, it may not ultimately matter whether the question is one of implication or interpretation - the point is that the commercial context of the parties means that there must, as a matter of commonsensical construction and based on an understanding of the nature of the negotiations between the parties, be an associated obligation to do those things necessary to grant a second mortgage. Whether these obligations arise through implication or as an associated requirement of express terminology, the point is that both conclusions stem from the same commercial context. The substantive effect of the commercial matrix when read alongside the contractual terms gives rise to an obligation in my view to act reasonably in securing the second mortgage. My preferred approach is to find the associated obligation as I have as a matter of construction of the express term, but in the alternative an 'ad hoc' implied term would in my mind be open to secure the fulfilment of the plaintiff's obligation in the same respect.
Deed of Priority
Express Term
In terms of the deed of priority, the way that this argument is put is that the plaintiff was obliged to show the defendant the deed of priority as this was an associated requirement necessary for the fulfilment of 4(b).
Clause 4(b) requires that:
4(b) Chamwell and Hiwan agree that it is a condition of the grant of the Second Mortgage that they enter into any deed of priority required by Remax's first mortgagee.
Importantly, it should be noted that clauses 4(a) and (b) create interdependent obligations and expressly state what the respective parties are required to do under the contract (the plaintiff in the case of 4(a) and the defendants in the case of 4(b)). The grant of the second mortgage obliges the defendants to enter "any" deed of priority as may be required by "Remax's first mortgagee."
Clauses 4(a) and (b) clearly therefore establish in my view concurrent obligations as a matter of the clear language used. For the plaintiff to perform its obligation under clause 4(a) in granting a registered second mortgage at the time of settlement and as part of that same process, they must place the defendants in a position so that they can comply with "any" request of the first mortgagee that requires that a deed of priority be executed by the defendants. The plaintiffs' obligation to grant a second mortgage is clearly intertwined with the obligation on the defendants to execute a deed of priority if required. It again in my mind would make no commercial sense to view the clause objectively any other way. The plaintiff in my view again would have to do such things as would be necessary as part of being ready to grant the second mortgage to ensure that the defendants do not lose the opportunity to get the second mortgage because a required deed of priority has not been available if required.
Lord Blackburn in Mackay v Dick remarked:
"Where it appears that both parties have agreed that something shall be done, which cannot effectively be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on [the] circumstances."
The deed of priority was to be in a form that was required by the first mortgagee. Clauses 4(a) and (b) presuppose again as a matter of commercial sense that the first mortgagee has been made fully aware of the obligation of the plaintiff to grant the second mortgage and in time so as to state its requirements in terms of any deed of priority. A deed of priority may be of considerable commercial significance especially where (although there is no suggestion of this here) mortgagees may provide additional advances. The better view of clause 4(b) is that the plaintiff not only had at the time and date of settlement to be in a position to grant a second mortgage under 4(a) but to positively ensure that the defendants were placed in a position where they could fulfil any requirement of the first mortgagee in respect of a deed of priority. Clause 4(b) in my view required the plaintiff to do all that was necessary for that to happen. But again the plaintiff's did nothing on or prior to the 9 September in that regard other than engage in the somewhat bizarre and misleading action of sending a deed of priority to the defendants on 8 September as set out above. Although bearing Westpac's name, it is clear the bank were never shown the document at any point on or before 9 September.
As Dixon and Fullagar JJ outline in McRae and Commonwealth Disposals Commission a fundamental question of contract law is the question of what the promisor really promised. The question here is whether the defendant promised that they would enter into any deed of priority with the first mortgagee, without even sighting the deed at the point at which the second mortgage had been granted. This is again in my view an absurd commercial construction, and could not have been intended by the parties.
Implied Term
Again in the alternative the defendants pleaded an implied term which required the plaintiffs to (a) act in good faith (b) act reasonably; and/or (c) cooperate with the cross claimants in relation to the deed of priority. Whilst it is again not necessary to decide this issue given my finding of an express term above, I would again have been inclined to find the existence of an implied term to this effect were it necessary to do so.
Effect of 4(d): Potential breach but no right to terminate?
Clause 4(d) outlines that:
"Chamwell and Hiwan covenant and agree that they are not entitled to rescind the Contract or delay Completion due to any of the matters (whether outstanding or otherwise) referred to or arising out of this clause."
On a proper reading of the clear words of this clause it is difficult to see how any breach of (a) - (c) could properly give rise to a right to terminate.
The defendants put a number of arguments that effectively required that 4(d) be read down so as to suggest that termination is possible where 4(a)-(c) are breached. They argued that the purpose and object of the deed of variation need to be taken into consideration and claim that the purpose and object of the clause was to move the parties to speedily resolve disputes; guarantee that the second mortgage would be granted by the plaintiff upon completion of the sale and agree that the vendors be able to vacate and deed of priority required by the first mortgagee. On this basis, the defendant submits that 4(d) is concerned with issues of "substantial compliance"; it is predicated upon the fact that the plaintiff will grant a second mortgage and therefore it only applies where there has been substantial non-compliance with 4(a) - (c). It is difficult however in my view to give any real content to the notion, here, of substantial compliance.
There is a clear inconsistency it seems to me between the defendant's construction of the clause and the express terms to be found therein. There seems to me to be no basis for asserting that clause 4(d) is triggered only in situations where there is substantial non-compliance with (a) - (c). Not only is there no basis for this construction from the terms themselves, but the particular term in my view in fact expressly dispels any possibility that this construction could be correct. The term does not lend itself to being read down. The unambiguous terminology that: "Chamwell and Hiwan "covenant and agree" that they are not entitled to rescind the contract or delay completion due to any of the matters (whether outstanding or otherwise) referred to or arising out of this clause" is in my view unequivocal. The emphatic language of the clause rationally in my mind excludes the possibility that the clause could be read as applying only in certain limited and unspecified circumstances. Furthermore, this view is ironically supported by the commercial context that the defendants point to themselves - that is, the context that the deed was agreed to for the purposes of encouraging settlement and preventing litigation. That the defendants seek then to rely on this environment of encouraging settlement as a basis for reading down 4(d) is thus it seems to me a contortion of logic and commercial commonsense; it is for this very reason that 4(d) must be said to unwaveringly apply, negating the capacity for the defendants to terminate pursuant to breach of any one of the provisions found in 4(a)-(c).
One could theoretically seek to distinguish between the terms "rescission" and "termination" and posit that the term "rescind" used in the contract did not remove the right to terminate. This argument was not put to me by the defendants. Whilst this argument may seem to have some force, the better view is that - especially given the strong commercial imperative to encourage settlement and prevent litigation or non-fulfilment of the contract - the term "rescind" should be interpreted broadly so as to also include the notion of "termination."
The common law has sometimes found it necessary to use the terms "rescission" and "termination" interchangeably as seen in McDonald v Dennys Lascelles Ltd, for example, where Dixon J uses the term "rescind" in the sense of meaning "terminated." J W Carter points out that it may generally be preferable to use the terminology of termination in the context of breach. However the intentions of the parties (objectively ascertained) in drafting the deed must of course play the determinative role when construing the scope of meaning to be given to the term "rescind." Considering the function of the deed - it would be a mistake in my mind to read the term "rescind" in the narrow sense of the word. Rather, it seems to me that the broader use of the term "rescind" should be applied to give proper effect to the intentions of the parties in expressly agreeing as indeed they were entitled - that the failed performance of clauses 4(a) to (c) would not give the defendants a right to rescind and to further delay the completion of the contract in any manner. This in my view is by the earlier repetition of the same clause in, clause 3(i), a clear reflection of the same commercial imperative - to get on with it.
As was outlined by Upjohn LJ in Hong Kong Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd :
"No doubt there are many simple contractual undertakings, sometimes express but more often than not because of their very simplicity...to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a 'condition .' So to there may be other simple contractual obligations of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract.." (my emphasis)
It thus follows that by virtue of 4(d) of the deed of variation in my view the defendants were not entitled to terminate the contract based on any breaches arising out of 4(a)-(c).
The better view of 4(d) is that the clause gives express effect to the parties intentions to prevent the settlement of the sale from being derailed any further, and as such, expressly removes from the defendants right to terminate for any breach arising out of that clause. The defendants were not entitled to terminate on 21 September. Put another way, a breach of clauses 4(a) and (b) will only give rise, potentially to a claim in damages.
Effect of the Notice to Complete
The defendant also as I understand it put that their right to terminate is on the basis that they served a notice to complete on the plaintiff, which made time of the essence in delivering the stamped transfer under the contract (see Conveyancing Act 1919 (NSW) s13 ), and which, upon failure of the plaintiff to comply with this requirement gave rise to the defendants right to terminate.
Clause 4.1 of the standard terms required the stamped transfer to be delivered at least 14 days before the completion date of the contract. Pursuant to the deed of variation, the completion date for the contract was the 31 August 2010. Therefore, upon the failure of the defendant to deliver the transfer by this date, the defendants allege that the plaintiff had failed to comply with its obligations and therefore served a notice of termination on the 21 September.
The more detailed factual chronology that outlines the communications which took place between the parties in relation to this issue have been outlined in the background facts and need not be repeated here.
Of particular relevance however is the principle, raised by the plaintiff, that a notice to complete will only be effective "if that party is otherwise entitled to do so" as articulated in Kaljo v Coady ; see also: McNally v Waitzer .
The problem that thus arises for the defendants is that they themselves had failed to attend the scheduled settlement on 9 September, thus putting them in a position where they were in my view in breach of the terms of the deed of variation. Even if the defendants were successful in establishing their allegation that time was of the essence and the plaintiffs therefore had not fulfilled their obligations in delivering the stamped transfer by the relevant date, the notice to complete and subsequent notice of termination would only be effective if the defendants had themselves been in a position where they were free from default and were themselves ready, willing and able to perform the contract.
The defendants made requests of the plaintiff with regards to sighting a deed of priority and being assured of communications with the first mortgagee. I consider that these were not inappropriate given the view I have taken as to the construction of clauses 4(a) and (b). But, in addition, on the same day as they served the notice to complete (31 August) they required a personal guarantee on a unencumbered security (which, has no contractual mandate at all). This is clear evidence of a reluctance on the part of the defendants not to complete the settlement except on their terms. That of course culminated in their refusal to attend the settlement. That conduct was repudiatory and they had no contractual right to conduct themselves in that way. See : Koompahtoo Local Aboriginal Land Council v. Sanpine Pty Ltd .
However, the defendants failure to attend settlement and effectively assert a remedy they had contractually forgone, (pursuant to Clause 4(d)) denied them in my view the ability in the circumstances to serve a notice of termination on 21 September. Even if the notice to complete served on the 31 August did validly make time of the essence in the performance of the contract, the failure to turn up to the scheduled settlement put them in default, hence in my view they could not seek to terminate pursuant to the notice to complete.
Specific Performance
Notwithstanding the finding that the defendants had no basis to terminate as alleged, the question as to whether the plaintiff is entitled to specific performance of the contract remains a question to be addressed.
The first step in deciding this will be to establish whether or not damages are an adequate remedy, as there can be no order for specific performance where damages are an adequate remedy: see, for example: Adderley v Dixon ; Flureau v Thornhill and Pianta v National Finance & Trustees Ltd at 151 per Barwick CJ. Indeed in some cases it may be necessary to award specific performance instead of damages because, as outlined by Lord Selborne in Wilson v Northampton & Banbury Junction Railway Company:
" The principle which is material to be considered in the present case is that the Court gives specific performance instead of damages, only when it can by that means do more perfect and complete justice."
I do not understand the defendants here to assert that if relevant, damages would be an adequate remedy.
Specific performance is of course a discretionary remedy and discretion cannot be fettered by the contract: see, for example, Quadrant v Hutchison. Courts have generally lent in favour of granting specific performance especially where vendors have repudiated agreements for the sale of land.
There is I believe a firm basis for asserting that damages would not be an adequate remedy in this case given the uniqueness of the land transaction and the redevelopment involved. A court will more readily grant specific performance in sale of land contracts where the purchaser cannot simply go onto the market and buy an equivalent parcel.
However, a live issue at the trial was whether the plaintiff was itself of course in a position where it was ready, willing and able to perform the contract such that an award for specific performance could be made.
Whilst the plaintiff has undoubtedly caused delay on a number of occasions, there is a separate question as to whether it is now ready, willing and able to perform the contract. The plaintiff did not for example comply with the deed of variation, which required amongst other things a 30 August completion date, but rather, occasioned continued delays.
The question of whether it is now ready, willing and able to perform the contract and therefore to what extent its past delays and breaches should stand in the way of the grant of the remedy needs to be carefully considered.
Lord Radcliffe in delivering the opinion of the Privy Council said in Australian Hardwoods Pty Ltd v Commissioner for Railways :
"A plaintiff who asks the Court to enforce by mandatory order in his favour some stipulation of an agreement which itself consists of independent undertakings between the plaintiff and the defendant cannot succeed in obtaining such relief if he is at the time in breach of his own obligations. The case of Measures Bros v. Measures [1910] 1 Ch. 336, [1910] 2 Ch. 248 is a familiar instance of this principle. The appellant in this case has not been able to deny or at any rate has not denied that it was in default in several respects at the time when the respondent served upon it the notice of termination. Secondly, where the agreement is one which involves continuing or future acts to be performed by the plaintiff, he must fail unless he can show that he is ready and willing on his part to carry out those obligations, which are in fact part of the consideration for the undertaking of the defendant that the plaintiff seeks to have enforced. Here the appellant could never show that it was ready and willing to perform its share of the Agreement of 1956: for its breaches had brought upon it the notice of determination which precluded it for good from doing anything more in furtherance of that Agreement."
In sir Edward Fry's A Treatise on the Specific Performance of Contracts the following statement appears :
"With regard to the matters to be done by the plaintiff according to the terms of the contract, it is, from obvious principles of justice, incumbent on him, when he seeks the performance of the contract, to show, first, that he has performed or been ready and willing to perform, the terms of the contract on his part to be then performed; and secondly, that he is ready and will to do all matters and things on his part thereafter to be done; and a default on his part in either of these respects furnishes a ground upon which the action may be resisted."
Barwick CJ in Bahr v Nicholay (No 2) when discussing the effect of past breaches said:
"In my opinion, notwithstanding the defaults of the plaintiff in the payment of the instalments of price, he was not unready or unwilling to perform the contract in its essential terms: specific performance ought to have been granted."
Likewise, in Mehmet v Benson, Barwick CJ said:
"That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready, willing and able to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be awarded specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance."
The discretion may or may not be exercised in favour of a grant depending upon precisely what term or terms have been breached and whether they are to be regarded as essential or inessential.
The evidence clearly in my view supports the position that the plaintiff was indeed not ready, willing and able to perform the contract as at 9 September or it seems to me at the point when these proceedings were commenced. On 9 September St George Bank attended via Gadens with the requisite cheques in hand but the plaintiff was in no position to grant a second or for that matter any other mortgage except the first mortgage as agreed on that day, nor had it placed the defendant in a position to agree to any deed of priority.
The plaintiff asserts that even if the defendants could not have been the second mortgagee at that time then one alternative would have been that they could be the third mortgagee. This is put on the basis that the rights that extend to the third mortgagee are the same as the rights that apply to the second mortgagee under The Real Property Act 1900 (eg. s57) . The plaintiff therefore submits that any supposed difference between the rights afforded to a second or third mortgagee should not be seen as substantially different.
The plaintiff draws on Mehmet v Benson where Barwick CJ said:
"The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations."
As Isaacs and Rich JJ commented to Fullers' Theatres Ltd v Musgrove at 537:
"The rule means that, apart from express stipulation to the contrary, one party to a contract is not entitled to force upon the other party something which, by reason of a departure from the terms of the contract, is so materially altered in character as to be in substance a different thing from that contracted for."
The plaintiffs assert that they were always in a position to substantially complete the contract by providing the defendant with what it submits were the essential rights that the contract granted them, ie a mortgage, albeit a third mortgage. In evidence before me in relation to a time when the proposed finance had been rearranged and which involved a first mortgage granted to Stacks and a second mortgage to Capital One, Mr Gant said the proposal did not involve granting a second mortgage to the defendants. He indicated that the reason for that was that Capital One did not regard there to be enough equity in the site to interest them. I do not see on that basis why a third mortgage should have been of interest either to the defendants. After all, the second mortgage for them secured very important commercial options which transcended the ability to exercise a power of sale on default. To have offered a third mortgage would not involve in my opinion the fulfilment of the substance of the bargain in its essential ingredient. Whilst a breach of the obligation in 4(a) as I have found would only give a right in the defendants to a claim in damages does not mean that I am unable to take a breach of such a term into account in exercising my discretion to grant or not specific performance. I do not consider the offer of a third mortgage in the circumstances here would permit the plaintiff to legitimately assert that by that offer it was ready, willing and able to complete the contract. However, given my findings otherwise as to their current readiness, the resolution of that question at worst from the plaintiff's position is to potentially reflect itself on the question of costs.
The position on 9 September 2010 and at the commencement of proceedings was thus that the plaintiff was not in my opinion in a position to grant a registered second mortgage under the contract, and in my view it was not ready, willing and able to complete on those terms.
However, I do regard the position as entirely changed by mid April this year.
From 18 April 2011 it does seem to me that the plaintiff is in a position to perform the agreement as varied in all its essentials. Capital One's offer of 15 April which has been accepted by the plaintiff displays that they will now be first mortgagee. The defendants will have their second mortgage. The evidence of Mr Buchanan and Mr Youseff Abdul-Rahman which has not been challenged demonstrates beyond doubt in my mind that there is an abundance of cash to complete the sale and a deed of priority is now available. This evidence persuades me that the plaintiff is now and albeit at the virtual conclusion of the trial ready willing and able to complete and I so find. The defendants have invited me to be suspicious about the plaintiff's ability to complete but I do not consider that has any force on the facts as to available finance which have not been the subject of serious or any challenge.
Both parties have in the past been guilty of breaches, but as a matter of discretion I do not consider the breach or breaches by the plaintiff should now disentitle it to specific performance and I propose to so order. I consider in all the circumstances to refuse the remedy would work an unwarranted unfairness.
An Enquiry into Damages?
In addition to the aforementioned claims, both the plaintiff and defendants seek an inquiry into damages arising out of the other parties alleged breach.
The conclusion that either party has or has not incurred financial loss as a result of the other parties' breach of contract should not be inferred by the court in the absence of evidence establishing that this is the case.
However, this does not mean that there is no room for either the plaintiff or the defendant to seek to persuade the court that an enquiry into damages should to be ordered. The court is not, given the way the trial proceeded, in a position at the moment to assess whether either plaintiff or defendants for that matter have suffered any financial loss as a result of the other parties' breaches. There is to be no criticism of either party by reason of that having occurred.
Whilst I have found that there was no right on the part of the defendants to terminate the contract by reason of clause 4(d) and that specific performance should be ordered and whilst I have also found that the plaintiff was in breach of clauses 4(a) and (b), this does not mean that further enquiry could not shed light on some basis for awarding some damages to either party.
I consider that as a matter of fairness I should grant leave to both parties to be heard, if they wish to exercise that leave on the question as to whether an enquiry or enquiries should be ordered. The potential of such an enquiry of course does not bar the award of specific performance of a contract. I also propose to grant leave to both sides to have the matter re-listed in any event to address the question of costs.
Orders
I therefore propose to make the following orders:
(i) Declaration that the contract for sale of land dated 21 April 2009 made between the Plaintiff as purchaser and the first and second defendants in relation to the land known as 29 Burlington Road, Homebush and 32 The Crescent Homebush being the whole of land contained in registered plan lot 11, Bp 1052760, folio identifier 11/1052760 and auto-consul 12064-1 (the contract) is a valid and enforceable contract.
(ii) A declaration that the purported termination of the contract by the defendants on 21 September 2010 was invalid and ineffective to terminate the contract or to cause forfeiture of the deposit paid by the plaintiff.
(iii) Order that insofar as it remains unperformed the contract be specifically performed and carried into execution.
(iv) I grant leave to either plaintiff or defendants to approach my associate to have the matter re listed for the purposes of making application for an enquiry into damages.
(v) I grant leave to the parties to approach my associate to have the matter re listed for argument on the question of the appropriate order as to costs.
(vi) I grant liberty to parties to apply generally on 3 days notice.
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Decision last updated: 07 July 2011
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