Robinson v Becata Pty Ltd

[2004] NSWSC 310

CITATION:	Robinson v Becata Pty Limited [2004] NSWSC 310
HEARING DATE(S):	13 April 2004
JUDGMENT DATE:	7 May 2004
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Contract validly rescinded
CATCHWORDS:	CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - construction and interpretation of contracts - notice given under contract - principles for construction - CONVEYANCING - RELATIONSHIP OF VENDOR AND PURCHASER - breach of contract - notice to complete and notice to bring contract to an end - principles governing construction
LEGISLATION CITED:	Conveyancing Act 1919 Transfer of Land Act 1958 (Vic) Supreme Court Act 1970
CASES CITED:	Amad v Grant; Grosglik v Grant (1947) 74 CLR 327 Blumberg v Wood and Anor; Ex parte Blumberg [1966] Qd R 436 Burnham v Carroll Musgrove Theatres Limited and Another (1928) 41 CLR 540 Butcher v Bowen [1964] NSWR 36 Cadby v Martinez (1840) 11 Ad & El 720; 113 ER 587 Carter v Aldous [1921] VLR 234 Catley and Another v Watson and Another (1983) V ConvR 54-003 Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd (1998) V ConvR 54-575 Chelmaness Pty Ltd v Tridalet Nominees Pty Ltd (1991) 1 ConvR 54-399 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales Limited and Another (1982) 149 CLR 357 Delta Vale Properties Ltd v Mills and Others [1990] 1 WLR 445 Doe d. Armstrong v Wilkinson (1840) 12 Ad&E 743; 113 ER 995 Doe d. Cox v Roe (1802) 4 Esp 185; 170 ER 685 DWJ Holding Pty Ltd & Ors v Carrideo (1990) ANZ ConvR 185 Ellis v Dalgleish and Another [1921] VLR 333 Ex parte Callen; Re Smith and Others (1968) 87 WN (Pt 1) (NSW) 595 Falconer v Wilson [1973] 2 NSWLR 131 Gleeson v Richey [1959] VR 258 Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27 Hankey v Clavering [1942] 2 KB 326 Heyman and Another v Darwins, Limited [1942] AC 356 Laurinda Pty Ltd and Others v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 Maggbury Pty Ltd and Another v Hafele Australia Pty Limited and Another (2001) 210 CLR 181 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 McDonald and Another v Dennys Lascelles Limited (1933) 48 CLR 457 Moschi v LEP Air Services Ltd and Others [1973] AC 331 O'Brien v Dawson and Others (1941) 41 SR (NSW) 295 Phipps (P) & Co (Northampton & Towcester Breweries) Ltd v Rogers (1925) 1 KB 14; 93 LJKB 1009 Prenn v Simmonds [1971] 1 WLR 1381 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Reardon Smith Line Ltd v Yngvar Hansen-Tangen (Trading as H E Hansen-Targen) [1976] 1 WLR 989 Wilde and Another v Anstee and Another (1999) 48 NSWLR 387 Young v Lamb [2001] NSWCA 225; (2001) 10 BPR 18,553
PARTIES :	John Herbert Robinson - Plaintiff Becata Pty Limited - Defendant
FILE NUMBER(S):	SC 3798/02
COUNSEL:	A T McInnes QC; H Gulpers - Plaintiff I G Harrison SC - Defendant
SOLICITORS:	Bellantonio & Rees - Plaintiff Hunt & Hunt Lawyers - Defendant

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

CAMPBELL J

7 MAY 2004

3798/02 JOHN HERBERT ROBINSON v BECATA PTY LIMITED

JUDGMENT

HIS HONOUR:

Nature of the Case

1 The defendant entered a contract to sell a parcel of land to the plaintiff. The plaintiff seeks specific performance of that contract. The defendant resists specific performance, contending that the contract has been validly rescinded. The defendant cross-claims, seeking a declaration that the contract has been validly brought to an end.

The Contract and its Purported Termination

2 Becata Pty Limited (“Becata”) is a company which has at all relevant times had as its directors Mr Horace Treloar and Mrs Therese Treloar, and Mrs Therese Treloar as its Secretary.

3 Negotiations for the contract the subject of this litigation occurred between the plaintiff and Mr Horace Treloar. The contract itself, made on 5 October 1998, comprises two counterparts, each handwritten, which Mr Treloar wrote out, using the bonnet of his vehicle as a desk. The text of the document is as follows:

5th October 1998

Sold to ROBINSON Family Trust, Property 58A Jones St Kingswood for the sum of One hundred & fifteen thousand dollars, deposit already paid $50,000, & balance owing being $65,000 (sixty five thousand dollars) this amount being due & payable within a period of 6 months of today’s date, namely 5th May 1999.
The dimension of the land hereof sold is approx 1046 square metres and having a depth of approximately 35 metres, depth x 34.48 metres in width having a frontage to Jones being 3.5 metres in width. Now being land in Folio Identifier 6/1017475.”

4 The copy of the contract which is executed by the vendor has an attestation clause as follows:

“For and on behalf of
Becata Pty Limited
H Treloar
Director
Witness
Lee Marshall”

5 At the time the agreement was entered the land was in the process of being subdivided. The agreement had on its back a plan of the proposed subdivision, on which Mr Treloar made some marks, and initialled, for the purpose of more precisely identifying the land proposed to be sold.

6 At the time the agreement was entered the Robinson Family Trust did not exist. It is common ground between the parties that the agreement is one between Becata and the plaintiff personally. It is also common ground that the agreement is a valid one. Further, although it was not stated in the written document, it is common ground that it was a term of the agreement that settlement would take place upon the registration of the linen plan relating to the subdivision.

7 On 14 February 2001 the first of a series of five letters to the plaintiff was written. Those five letters have common features, so far as the format of the letters is concerned.

8 Each is written on a printed letterhead. That letterhead has in its top right hand corner a logo of geometrical shapes of no particular significance, under which is written “Treloar Group of Companies”. Immediately below those words is a blank space, and then the words:

“TRELOAR HOLDINGS PTY LTD
PROPERTY DEVELOPERS
BUILDERS AND INVESTORS
ACN 077 893 782”

The word “Treloar” , in “Treloar Group of Companies” , is in a much larger type than the other words and figures I have just quoted.

9 At the foot of the printed form appears the printed statement “Managing Director H Treloar”, and details of his address, telephone and facsimile number, “Secretary Director T Treloar”, with details of her address, telephone and facsimile number, and “Director D Treloar” with details of his address, telephone and facsimile number.

10 Each letter was produced on a word processor, so that its text had the appearance of typing. The text of each letter commenced in the same way, namely:

“Mr J Robinson
58A Jones Street
KINGSWOOD NSW 2747
Dear Sir,
Reference: Becata Pty Ltd to Robinson Family Trust.
Property: 58A Jones Street Kingswood being Lot 6 in DP 1017475
(“Robinson” was misspelled in one of the letter openings, but this is of no significance.)

11 Each of the letters concluded in the same way, namely:

“Yours Faithfully
[signature]
T. Treloar
Director/Secretary”

12 The body of the first letter, sent on 14 February 2001 is as follows:

“The writer wishes to advise registration of the linen plan of subdivision enabling settlement of this matter.
The vendor holds a deposit of $50,000 as such the balance at settlement being $65,000.
So as to assist you a transfer is enclosed that has been prepared on your behalf for execution by yourself and suggests settlement takes place on 28 February 2001.”

That letter enclosed a Real Property Act 1900 transfer form, which had been completed by including the title reference, identifying the transferor as “Becata Pty Ltd ACN 002 921 002” , inserting the consideration of $115,000, identifying the transferee as “Robinson Family Trust” , and by placing on it the common seal of Becata.

13 The second letter, sent on 26 February 2001, stated:

“The writer seeks to confirm settlement of this matter on 28 February 2001.
To date, the writer has not received confirmation of the settlement date nor the transfer prepared on your behalf.
Could you please advise confirmation of settlement on 28 February 2001 as a matter of urgency.”

14 The third letter, sent on 8 March 2001, stated:

“The writer seeks your advice regarding the settlement of this matter at the earliest.
Despite previous correspondence to you dated 14th and 26th February 2001 the writer has still not received confirmation of settlement from yourself.
In closing, please advise of a settlement date convenient to yourself. The writer awaits your early reply.”

15 The fourth letter, sent on 16 March 2001, stated:

“Please find this letter as notice to complete this matter by way of settlement no later than 30th March 2001.
Should settlement not occur on or by the due date the vendor rescinds the contract and is entitled to retain the $50,000 deposit held.
However, as the writer assumes that this matter has not settled due to financial reasons the vendor will refund the $50,000 deposit to you.
In closing, the writer awaits your advice.”

16 The fifth and final letter, sent on 2 April 2001, stated:

“Pursuant to previous correspondence of 16th March 2001, please find this letter as notice of rescission of the contract.
As such, the deposit of $50,000 is to be refunded to you. Please advise collection of the latter by yourself.”

17 The plaintiff took no action until after Becata’s solicitor had written a letter on 22 November 2001. On 21 December 2001 he caused his solicitor to write a letter to the solicitors for Becata, seeking to arrange an appointment to settle the transfer.

The Rival Contentions

18 This case has been argued by the parties on the basis that the outcome turns on whether the series of five letters from 14 February 2001 to 2 April 2001 are letters of Becata. It has been accepted that, if the letters are letters of Becata, the fourth letter is an effective notice to complete, and the fifth letter is an effective notice of rescission.

19 The plaintiff submits that the letters are letters of Treloar Holdings Pty Ltd, that Treloar Holdings Pty Ltd had no interest in the land, had been neither expressly nor impliedly appointed as agent for Becata, and so was in no position to give a notice on behalf of Becata.

20 The defendant, for its part, says that the notices, properly construed, are notices given by Becata, or alternatively there is an implied agency for Treloar Holdings Pty Ltd, or the Treloar Group of Companies, to give the notices on behalf of Becata.

Manner of Operation of the Two Types of Notice

Notice to Complete

21 In accordance with section 13 Conveyancing Act 1919, stipulations in contracts as to time are treated in all courts as having the same construction and effect as a court of equity gives them. Unless time for completion of a contract for sale of land is expressly made of the essence by the terms of the contract, equity does not regard a term concerning the time for completion of such a contract as being of the essence. Before a party to such a contract can rescind it for failure of the other party to complete within time, or within a reasonable time where no time is specified, the first party must serve a notice making time of the essence.

22 In deciding whether any purported notice to complete is adequate, the purpose which equity seeks to achieve in requiring service of such a notice must be taken into account. As Deane and Dawson JJ said in Laurinda Pty Ltd and Others v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 at 652:

“… in identifying the requirements of a valid notice to complete or perform, it may be important to bear in mind that the purpose and operation of such a notice must be explained by reference to equitable doctrine and that the rules regulating the requirements of such a notice reflect the traditional equitable notions of fairness and good conscience.”

And at 654:

“The whole point of equity’s intervention in relation to stipulations as to time was that, in the absence of express or implied contractual provision to the contrary, it regarded it as inequitable or unconscionable for a party to a contract to rescind for breach of a time stipulation without having given reasonable warning to the party in default. It seems to us, however, that, in modern circumstances, a notice will be adequate to convey such a warning if, but only if, it conveys either that the time fixed for performance is made of the essence of the contract or that the party giving the notice will, in the event of non-compliance, be entitled (or regard himself as entitled) to rescind. A notice, particularly one between solicitors, can convey those matters by implication.”

Notice of Rescission

23 The contract in the present case contains no term entitling either party to rescind or terminate in any particular circumstances. It has no express term to such effect, and, though it contains, pursuant to section 60 Conveyancing Act 1919, the implied terms set out in Schedule 3 Conveyancing Act 1919, none of those implied terms confer a contractual power to rescind or to terminate. There is no basis for believing that any rescission of the contract was based upon any equitable right to rescind the contract ab initio, such as arises where there is a misrepresentation. Thus, any rescission or termination of the present contract is an exercise of the power conferred by the common law on a party to a contract to rescind it if the other party repudiates it. Once a term as to time for performance of a contract for the sale of land has become of the essence, failure to comply with that term is a repudiation, entitling the other party to rescind the contract. Rescission of the contract is done “by so acting as to make plain that in view of the wrongful action of the party who has repudiated, he claims to treat the contract as at an end”. (Per Viscount Simon LC, Heyman and Another v Darwins, Limited [1942] AC 356 at 361.) There might – it is not necessary to decide – be ways of making such an election without communicating it to the other party to the contract, but in the present case the act which is relied on as a rescission of the contract is itself a communication to the plaintiff, namely the fifth letter. Where there is communication of the election to bring the contract to an end to the other party:

“… no particular form of communication is needed. It is sufficient if [the rescinding party] makes it unequivocably clear to [the other party] that he is treating the agreement as being at an end.” Lakshmijit v Sherani [1974] AC 605 at 616.

Principles for Construction of the Notices

24 The question of whether the fourth and fifth letters should be regarded as a notice to complete, and a notice of rescission, respectively, given by Becata rather than anyone else, is a matter of construction of those documents. A notice to complete, and a notice bringing a contract to an end in consequence of a repudiation, are each examples of notices given by “A” to “B”, where “A” and “B” are already in legal relations of some sort, and the giving of the notice is a unilateral act of one party which effects a change in that legal relationship. There are various types of such notices, where the courts have considered what principles are to be applied in construing the notice. I will consider various forms of such notice, and the principles of construction which the courts have applied to each of them.

Notices to Quit

25 In Butcher v Bowen [1964] NSWR 36 at 40 Asprey AJ said:

“The form of a notice to quit is immaterial provided it indicates in substance and with reasonable clearness and certainty an intention on the part of the person giving it to determine the existing tenancy at a certain time and the party to whom it is given could not be mislead as to the intention of the giver ...” (emphasis added)

The same approach is expressed by Isaacs J in Ex parte Callen; Re Smith and Others (1968) 87 WN (Pt 1) (NSW) 595, at 604. Having outlined the difficulties which the notice to quit in that case had, his Honour asked:

“how then can the tenant know with certainty whether he can or cannot act upon it?” (emphasis added)

26 In Blumberg v Wood and Anor; Ex parte Blumberg [1966] Qd R 436 Stable J, at 463-4 quoted with approval the words of Atkin LJ in Phipps (P) & Co (Northampton & Towcester Breweries) Ltd v Rogers (1925) 1 KB 14; 93 LJKB 1009 at 1016 of the Law Journal Report:

“… I think that the principle expressed by Coleridge CJ in Gardner v Ingram (61 LT at p. 30) is correct: “Although no particular form need be followed, there must be plain unambiguous words claiming to determine the existing tenancy at a certain time.” Bowen J, in the same case, uses language to the same effect. The date of determination must be the right date. It may, however, be given alternatively, and it is sufficient if one of the alternatives, without expressing the actual date, denotes it in terms which enable the person receiving it to make it certain. Thus notice for a fixed day or “at the expiration of the year of your tenancy which shall expire next after the end of one half-year from the date of this notice” is sufficient. It is to be noted that in such a case the legal or agreed period of notice is mentioned; and the date of the expiration of the tenancy is a question of fact which the tenant knows, or can properly be deemed to know.” Thus it seems that the tenant may properly be alerted to work out the matter of fact for himself , for he knows or is deemed to know matters of fact pertaining to his tenancy. It would be otherwise, as the learned Lord Justice points out on the same page, if the tenant were supposed to resolve matters of law to lead him to the date of termination of his tenancy. See too, per Bankes LJ at p. 1012:
“There are many decided cases in the books where the Courts have imputed to the tenant knowledge which, when applied to the notice to quit served upon him, renders clear what without that knowledge would have been neither clear nor unambiguous.”” (emphasis added)

27 In Burnham v CarrollMusgrove Theatres Limited and Another (1928) 41 CLR 540 at 552-3 Isaacs J said:

“… where possible a notice to quit is construed so as to give it efficacy. In Harihar Banerji v Ramsashi Roy (1918) LR 45 Ind App 222 Lord Atkinson , for a Board including also Lord Phillimore , said with reference to the English cases on the subject (at 225-6):
“They establish that notices to quit, though not strictly accurate or consistent in the statements embodied in them, may still be good and effective in law; that the test of their sufficiency is not what they would mean to a stranger ignorant of all the facts and circumstances touching the holding to which they purport to refer, but what they would mean to tenants presumably conversant with all those facts and circumstances ; and, further, that they are to be construed, not with a desire to find faults in them which would render them defective, but to be construed ut res magis valeat quam pereat.” ” (emphasis added)

28 Thus errors in a notice which would not mislead a reasonable tenant in the situation of the actual tenant do not invalidate the notice: See also Carter v Aldous [1921] VLR 234 at 238 per Cussen J; Ellis v Dalgleish and Another [1921] VLR 333 at 337 per Mann J; Amad v Grant; Grosglik v Grant (1947) 74 CLR 327 at 347 per Dixon J; Gleeson v Richey [1959] VR 258 at 264.

29 An illustration of the principle is Doe d. Cox v Roe (1802) 4 Esp 185; 170 ER 685. There, a notice to quit was given requiring the recipient to “quit the premises which you hold of me, situated, etc commonly called or known by the name of the Waterman’s Arms.” The tenant was in fact tenant of a public house called the “Bricklayer’s Arms”. On proof that there was no public house called the Waterman’s Arms in the parish, and that the lessee did not hold any other premises as tenant of the lessor, the notice was held good. In Doe d. Armstrong v Wilkinson (1840) 12 Ad & E 743; 113 ER 995 the notice was to quit “all that messuage, farm, etc, situated at Dunnington in the County of York, which you now hold under me as tenant from year to year.” The land was in fact located in Heslington, a parish which adjoined Dunnington. It was not suggested that the tenant held more than one farm of the lessor. The notice was held good.

Notices Under Condition 5 Table A Transfer of Land Act 1958 (Vic)

30 The Transfer of Land Act 1958 (Vic) contains in its Seventh Schedule a Table A, consisting of general conditions for the sale of land. Section 48 Transfer of Land Act 1958 permits the conditions there set out to be adopted by a particular short form of words in a contract, and thereby incorporated in that contract. Table A has at all relevant times provided:

“5. Time shall be of the essence of this contract. However, if either party defaults under this contract the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless the default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within fourteen days of service of the notice and the offender fails to comply with the notice.
6. (1) Where the default has been made by the purchaser and is not remedied all moneys unpaid under this contract shall become immediately payable and recoverable at the option of the vendor.
(2) If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded.”

31 A notice given under Clause 5 of Table A is not the same as a notice to complete under the general law, though there are some similarities. Concerning a notice under a clause somewhat like Clause 5 (there were differences, but none relevant for present purposes), Brooking J said, in Catley and Another v Watson and Another (1981) V ConvR ¶54-003, at 62,115:

“[it] is not valid unless it is, in relation to its essential features as required by that condition, clear and unambiguous. By this I mean, not that its import must be clear beyond the slightest peradventure, but that its terms must be such that a reasonable person, having given it fair and proper consideration, would be left in no doubt as to its meaning. A notice is not unequivocal, in the sense in which such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice.”

Brooking J also stated, at 62,115:

“The fact that a court finds itself able to resolve an ambiguity does not necessarily lead to the conclusion that the notice is valid in this respect.”

32 That test articulated by Brooking J has been applied in Victoria to the construction of notices under Condition 5 of Table A on several occasions: DWJ Holding Pty Ltd & Ors v Carrideo (1990) ANZ ConvR 185 at 188 per Tadgell J; Chelmaness Pty Ltd v Tridalet Nominees Pty Ltd (1991) V ConvR ¶54-399 at 64,848-9 per Marks J; Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd (1998) V ConvR ¶54-575 at 66,902 per Ormiston JA, at 66,909 per Callaway JA (with whom Buchanan JA agreed); Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27 at [30]-[31] per Winneke P (with whom Charles and Eames JJA agreed).

33 In the last two of those cases further consideration was given to the attributes of the “reasonable person”, who Brooking J postulated as giving the notice fair and proper consideration. In Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd Callaway JA (with whom Buchanan JA agreed) said, at 66,909:

“That person is a layman, not a lawyer, but the doubt must be a reasonable doubt. See Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 at pp 454G and 457E. To a not inconsiderable extent in a case like the present, the matter is one of impression.”

Ormiston JA in Central Pacific , at 66,902, said that the relevant “reasonable person” was “a reasonable reader in the position of the purchaser” .

34 The Central Pacific case arose from a contract for sale of land where the purchaser had failed to make a payment on time. The vendor served a notice which identified the default, and an amount of interest and legal costs payable in connection with the default, and said:

“The vendor gives you notice that it intends to exercise its rights under the Contract and if after the expiration of fourteen days from service of this notice [the purchasers] fail to remedy [their] default and make payment of the interest and legal costs referred to in paragraph 2 the Contract shall thereupon be rescinded pursuant to Condition 6(2) of the said Table A.”

The purchasers said that they had not failed to comply with the notice, because the notice (by the words “if after the expiration of fourteen days from service … [purchasers] fail to remedy [their] default” gave them an indefinite time in which to remedy the default, and it was their intention to remedy the default after the expiration of 14 days from service of the notice. Ormiston JA’s exposition of the appropriate approach to construction of such a notice is given in the course of considering the facts of the particular case. His Honour said, at 66,902-3:

“… a reasonable reader in the position of the purchaser would be left in no doubt that it was obliged to make that final payment before the expiration of the 14-day period referred to. I agree that after fair and proper consideration there could be no doubt but that the words “have failed” should be treated as having been inserted for the word “fail” in clause 3 of the original notice. In truth, however, it is not so much the substitution of words or a difference tense which is required and obvious; rather it is the fact that the purchaser’s failure referred to in the notice could only properly refer to a failure to do the stipulated acts during a period which would conclude at the expiration of the 14-day period and could not refer to a failure at any time thereafter. The reasonable reader, being in this case the purchaser under the contract, would or should know the terms of the contract and the circumstances in which and the purposes for which notices of default might be given pursuant to conditions 5 and 6. In each case rights arise in the vendor if the purchaser fails to do something within the time specified in a notice. In other words the vendor cannot exercise a right arising out of a default, nor will the contract be rescinded, (nor in other cases will all moneys become immediately payable and recoverable), unless a specified default is not remedied within the specified period. The purchaser is thereby given an opportunity to remedy its default within the time specified and, if that time expires without the default being so remedied, the rights of the vendor under those conditions then and there accrue in its favour. There is no point in giving a notice under these conditions which would require payment at some unspecified date outside the period referred to in the notice. It is only non-performance by the end of the period which gives rise to rights and the purchaser as a reasonable reader must have been aware that that was the only kind of “failure” which was relevant. So understood the notice was not uncertain or ambiguous for it must be read as stipulating that that failure must have occurred by the end of the period specified in the notice, ie the purchaser must “have failed” to remedy the default at the expiration of that period, and thus the appellants were clearly on notice that, if the required payments were not made by the end of the 14-day period, the contract would then and there become rescinded.
For that purpose such of the surrounding circumstances as relate to the default and such understanding as would flow from referring to the very terms of the contract entered into by the parties are all relevant matters to take into account when construing this notice from the viewpoint of the reasonable recipient and in determining whether or not it is sufficiently clear for it now to be given effect.” (italics added, underlining in original)

35 In Greydae Pty Ltd v Malilane Pty Ltd at [31], Winneke P said of the remarks of Brooking J in Catley v Watson;

“However it should not be thought that the “reasonable person” to whom his Honour refers is a person who is a stranger to the circumstances which have given rise to the notice. That much is, I think, clear not only from his Honour’s concluding words in the passage cited (namely that “the purchaser would not be left in any uncertainty as to the meaning” ), but also from the remarks made by Ormiston JA in Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd (1998) V ConvR ¶54-575 at 66,901. As his Honour pointed out, the “reasonable reader” to whom Brooking J referred, must be the “reasonable reader in the position of the purchaser” who is knowledgeable not only of the terms of the contract, but also “the circumstances in which and the purpose for which notices of default might be given pursuant to conditions 5 and 6 [of Table A]”. Thus, before it can be said that a notice is not, relevantly, “clear and unambiguous” :
“such of the surrounding circumstances as relate to the default and such understanding as would flow from referring to the very terms of the contract entered into by the parties are all relevant matters to take into account when construing this notice from the viewpoint of the reasonable recipient and in determining whether or not it is sufficiently clear for it now to be given effect.””

The agreement of Charles and Eames JJA with Winneke P has the effect of establishing the approach articulated by Ormiston JA as the law to be applied in Victoria in construing a notice given under Clause 5 of Table A.

Notices to Complete

36 A notice to complete “must state with reasonable explicitness what it is that is being required to be done”: O’Brien v Dawson and Others (1941) 41 SR (NSW) 295 at 304 per Jordan CJ; Falconer v Wilson [1973] 2 NSWLR 131 at 145 per Mahoney J.

37 Delta Vale Properties Ltd v Millsand Others [1990] 1 WLR 445 concerned a contract which had an express clause dealing with failure to complete on time, as follows:

“(2) If the sale shall not be completed on contractual completion date, either party, being then himself ready able and willing to complete, may after that date serve on the other party notice to complete the transaction in accordance with this condition …
(3) Upon service of a completion notice it shall become a term of the contract that the transaction shall be completed within 15 working days of service and in respect of such period time shall be of the essence.”

Slade LJ said, at 452:

“… a notice of this nature which is served unilaterally by one party to a contract and, if valid, will substantially affect and curtail the rights of the other party, must, if it is to be valid, be clear and unambiguous, so that when it is received the recipient will know what he is required to do to comply with his contractual obligations.”

And at 454:

“… notices to complete served under condition 23, if they are to be valid, must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate.” (emphasis added)

Stocker and Bingham LJJ agreed.

38 In Wilde and Another v Anstee and Another (1999) 48 NSWLR 387 at 404 Austin J said:

“Given its equitable origins, the purpose of a notice to complete is … to give reasonable warning to the party in default, so as to remove any basis for a claim by that party that it would be inequitable or unconscionable for the innocent party to rescind. If that is the purpose of a notice to complete, the essential ingredient of the warning, apart from specifying what the giver requires to be done and prescribing a time which is reasonable, is to convey to the recipient that if the notice is not complied with, the defaulting party will no longer have any basis for holding the giver of the notice to the contract. This ingredient is supplied if the notice states that if completion does not occur as required by the notice, the giver will terminate the contract (assuming, of course, that the statement in the notice is not countermanded or waived by other conduct). It is sufficient if the giver’s intention to terminate is communicated by the notice when read in the light of surrounding conduct and circumstances , even if the notice is itself ambiguous.” (emphasis added)

Notice of Exercise of Option

39 In Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Kirby P, at 677 set out the following principles concerning exercise of options:

“1. The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that this is what is intended: see Dixon CJ in Ballas v Theophilos (No 2) (ibid at 196); see also R Fox, "Options" (1950) 24 ALJ 7 at 11. However because clarity and lack of equivocation are matters of opinion and impression, because inflexible insistence on form could lead to plain injustice and because fact situations vary almost infinitely a number of elaborations of this primary rule have been developed by the courts.
2. It is not necessary, for example, for the effective exercise of an option, that terminology conforming precisely to the terms of the option should be used: see Williams J in Ballas v Theophilos (No 2) (ibid at 205); cf Gower-Chapman v Morris [1987] NSW Conv R No 55-341.
3. The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt: cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Isaacs J of the phrase "in the circumstances of its receipt", adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 at 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at least up to the time for the exercise of the option had expired.
4. Although a notice may mis-state the terms of the option which it purports to exercise, it may nevertheless amount, depending on the circumstances, to an unqualified and unconditional exercise of the option: Quadling v Robinson (1976) 137 CLR 192 at 201. On the other hand, if the grantee of the option sets out an erroneous understanding of it and then purports to exercise the option as so understood, the exercise will, generally speaking, be ineffective (ibid at 201): see also Oliver v Oliver (1958) 99 CLR 20.
5. Nonetheless, every case depends ultimately upon its own facts and the proper construction of the document which is in dispute. Accordingly care must be observed in laying down general rules suggested to be of inflexible operation: see Gibbs J in Quadling v Robinson (ibid at 201) and cf Hope J in Johnson v Bones (at 37).”

Samuels JA at 681-2, and McHugh JA at 683 each adopted a test of enquiring what a piece of writing purporting to exercise an option would fairly be understood as meaning. Samuels JA expressly adopted Isaac J’s addition of the words “in the circumstances of its receipt” ; McHugh JA did not expressly do so, but gave a reference to Carter v Hyde at the page where that addition occurs.

40 In Prudential Assurance at 678-9, Kirby P also said that:

“… it is a mistake, in a letter apparently drawn by a layman, to adopt an approach of a close analysis of the terms of every word, taking each in isolation. Even in the case of a document drafted by lawyers and with litigation in mind, such an approach might be unsafe.”

41 In Young v Lamb [2001] NSWCA 225; (2001) 10 BPR 18,553 Stein JA (with whom Mason P and Hodgson JA agreed) adopted the test stated by Kirby P in Prudential Assurance Co Ltd v Health Minders Pty Ltd at 677.

Break Clauses in Leases

42 It appears to be a common practice in England for leases of land to be entered for long terms, with one or other party given a contractual power to bring the lease to an early conclusion, by service of a notice of a particular kind, at a particular time. Clauses conferring such a contractual power are referred to as “break clauses”. Cadby v Martinez (1840) 11 Ad & El 720; 113 ER 587 concerned a lease for 21 years from Michaelmas Day (29 September) 1823. That lease contained a break clause enabling the tenant to determine the tenancy at the end of seven or fourteen years, on six months prior notice. The tenant purported to exercise this right by a notice given on 1 November 1836, which gave notice of intention to deliver up the premises on 24 June 1837, three months short of the fourteen years. That notice was held to be ineffective, notwithstanding that the landlord realised as soon as he saw the notice that the notice was not good.

43 Hankey v Clavering [1942] 2 KB 326 concerned a tenant with a lease for 21 years from 25 December 1934, which contained a contractual right to terminate the lease at the end of seven years by the giving of six months notice. The tenant gave a notice, on 21 June 1941, saying he would give up the premises on 21 December 1941. That notice was held invalid. Lord Greene MR said, at 329:

“Notices of this kind are documents of a technical nature, technical because they are not consensual documents, but, if they are in proper form, they have of their own force without any assent by the recipient the effect of bringing the demise to an end. They must on their face and on a fair and reasonable construction do what the lease provides that they are to do. It is perfectly true that in construing such a document, as in construing all documents, the court in a case of ambiguity will lean in favour of reading the document in such a way as to give it validity, but I dissent entirely from the proposition that, where a document is clear and specific, but inaccurate on some matter, such as that of date, it is possible to ignore the inaccuracy and substitute the correct date or other particular because it appears that the error was inserted by a slip. By the clear wording of this notice the plaintiff purported to bring the lease to an end on December 21, 1941. In so doing he was attempting to do something which he had no power to do, and, however much the recipient might guess, or however certain he might be, that it was a mere slip, that would not cure the defect because the document was never capable on its face of producing the necessary legal consequence.”

Lord Clauson agreed.

44 Cadby v Martinez, and Hankey v Clavering have both been overruled by the House of Lords, by a 3:2 majority, in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. That case concerned a lease containing a break clause which entitled the tenant to terminate the lease on 13 January 1995. The tenant served a notice “to determine the lease on 12 January 1995”. The majority held the notice was effective. Lord Steyn, at 767, said:

“The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene.”

45 His Lordship also said, at 768:

“There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, eg notices to quit, notices to determine licences, and notices to complete: Delta Vale Properties Ltd v Mills [1990] 1 WLR 445, 454 E-G. To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:” the Delta case at p.454 E-G, per Slade LJ and adopted by Stocker and Bingham LJJ; see also Caradine Properties Ltd v Aslam [1976] 1 WLR 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.”

Lord Hoffman, at 775, said that the interpretation of a notice requires one:

“… to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meaning of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker’s utterance. But it is only a part; another part is our knowledge of the background against which the utterances was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also … to understand a speaker’s meaning, often without ambiguity, when he has used the wrong words.
When, therefore, lawyers say that they are concerned, not with subjective meaning, but with the meaning of the language which the speaker has used, what they mean is that they are concerned with what he would objectively have been understood to mean. This involves examining not only the words and the grammar but the background as well.”

46 Lord Clyde, at 782, applied the test which Slade LJ had used in Delta Vale Properties Ltd v Mills for validity of a notice to complete, namely that such notices “… must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate”, and went on to say:

“The standard of reference is that of the reasonable man exercising his commonsense in the context and in the circumstances of the particular case. It is not an absolute clarity or an absolute absence of any possible ambiguity which is desiderated. … The test is an objective one.”

47 The majority took the view that the reasonable recipient of the notice would have recognised it as an exercise of the break clause, even though it contained a wrong date. By contrast, Lord Goff of Chieveley, at 754, said that the mistaken date could not be altered by a process of construction: “the simple fact is that the tenant has failed to use the right key which alone is capable of turning the lock.”

48 If it were unambiguously clear that the letters in question in the present case were ones written by Treloar Holdings Pty Ltd, it would be necessary to decide whether I would adopt the reasoning of the majority in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd as a means of treating the letters as saying something different to what, on their face, they actually say. However it is not, in my view, unambiguously clear on the face of the letters that they are letters from Treloar Holdings Pty Ltd. The principal, and most prominent part of the printed letterhead is “Treloar Group of Companies”. While the name of Treloar Holdings Pty Ltd and its ACN appears on the printed part of the letterhead, a single company is manifestly not a group of companies. Becata is a company which could readily be described as part of the Treloar group of companies. While the typing immediately below the signature on the letter identifies the writer of the letter as “T Treloar”, and her position as “Director/Secretary”, it does not identify of which company she is “Director/Secretary”. The heading “Reference: Becata Pty Ltd to Robinson Family Trust” identifies the transaction that is the subject of the letter. There is, in my view, an ambiguity on the face of the letters about which company they are written on behalf of. Thus it is not necessary to decide whether to follow the reasoning of the majority in Mannai to the extent of using context to read a notice as saying something different to what, without that context, it would be read as saying clearly.

Conclusion Concerning Construction of Unilateral Notices

49 There are significant differences between the various types of unilateral notice which I have been considering. Those differences relate to what is the message a valid notice of the particular type needs to give. For instance, a notice to quit needs to convey the message that the giver determines a particular tenancy at a particular time; a notice of exercise of option needs to convey the message that the particular option in question is being exercised; a notice exercising a contractual power needs to convey the message that that particular contractual power is being exercised; and so on. However a common theme runs through the cases concerning these various types of unilateral notice, to do with the approach taken to construing the notices. For all of them, an effective notice is one which conveys its message (whatever that message might be) clearly and distinctly to a reasonable reader in the position of the recipient of the notice. Being “in the position of the recipient” involves, in particular, having the knowledge of the circumstances surrounding the transaction in which the notice is given which the recipient has or ought to have.

50 These same principles necessarily cannot be applied to the construction of certain other types of documents. A will, for example, is not a document addressed to, and intended to be read by, a particular person, so there cannot be any scope for using the knowledge of a particular intended recipient in construing it. The same can be said of other unilateral acts in the law that have no particular recipient – for example, an exercise of a power of appointment, or a deed poll.

51 The discussion of the case law earlier in this judgment shows how there are examples from a long time ago of the background knowledge of the recipient of a notice being used to construe the notice. This shows that this principle of construction is in no way novel, and is not the product of any comparatively modern antiliteralist tendencies.

52 The principle of construction has been reasoned to by several different paths. For example, in Wilde v Anstee Austin J arrived at the principle, so far as construction of a notice to complete was concerned, by considering the purpose which a notice to complete was intended to achieve. In Mannai Lord Hoffman arrived at the principle from highly general considerations of how people communicate with one another by words. When there are these various ways of deriving the principle, one can have greater confidence in it than if there were one method of derivation only.

Comparison with Construction of Bilateral Documents

53 It is now well established that construction of a written contract involves ascertaining the meaning which the document 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: Prenn v Simmonds [1971] 1 WLR 1381 at 1383-5; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (Trading as H E Hansen-Targen) [1976] 1 WLR 989 at 995-997; Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales Limited and Another (1982) 149 CLR 357 at 350-352; Maggbury Pty Ltd and Another v Hafele Australia Pty Limited and Another (2001) 210 CLR 181 at 188. When that is the way a contract itself is construed, it comes as no surprise that a notice given under the contract is construed on analogous principles.

Application of Principles of Construction to Facts of this Case

54 For these reasons, in construing the alleged notice to complete, and notice of rescission, the background information known to the recipient of the notice can be used as an aid to its construction. In the present case, the addressee of the letters, Mr Robinson, was aware that he had agreed to purchase 58A Jones Street, Kingswood from Becata, and that Mr H Treloar was a director of Becata. The letters all clearly relate to 58A Jones Street, Kingswood. There is no suggestion that Mr Robinson had any other business transaction at all with Treloar Holdings Pty Ltd, or any other company in the Treloar group of Companies.

55 While the fourth and fifth letters in the series are the ones on which the validity of the rescission depends, those letters can be construed bearing in mind earlier letters in the series. The earlier letters in the series are themselves part of the relevant background information which the recipient would, by the time of the fourth and fifth letters, be taken to have. The first letter, in advising of registration of the linen plan, and requesting settlement, performs tasks which would, in the ordinary course of things, be done by or on behalf of Becata. In enclosing a transfer executed under the Common Seal of Becata, the ordinary inference of the recipient of the letter would be that the letter was written either by, or with the authority of, Becata.

56 The fourth and fifth letters are the letters which, if they were to be effective, would need to be written either by or with the authority of Becata. From the point of view of the recipient of a notice to complete, or a notice of rescission, it does not matter whether the notice is written actually by Becata, or on behalf of Becata – what matters is that, in one way or another, it is a letter of Becata.

57 In my view, a reasonable recipient of the series of letters, with the background information which Mr Robinson had, would fairly conclude the letters to be letters of Becata. Thus, given the basis on which the parties have fought this case, the contract has been effectively rescinded.

No Evidence of the Recipient being Confused or Misled

58 Counsel for Becata submitted that I should take into account that there is no evidence that Mr Robinson was confused or misled by either of the notices. It is true that there is no such evidence. However, it seems to me, in principle, that such evidence could not have been received. The enquiry the Court is engaged in is an objective one of whether the fourth letter would clearly convey to a reasonable recipient in the position of Mr Robinson the matters required for a proper notice to complete, and whether the fifth letter would clearly convey to such a recipient the matters required for a proper notice of rescission. Concerning the analogous question of a notice of exercise of option, Kirby P said, in Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673, at 678:

“… the court’s duty is to give an objective interpretation to the letter in question, for which oral evidence would appear to be inadmissible.”

Effect of the “Rescission”

59 While the fifth letter referred to itself as “Notice of Rescission” of the contract, a correct analysis of the situation is that it effected a rescission of the contract at common law, not a rescission at equity. Such a rescission excuses future performance, without undoing the contract from the beginning; Heyman and Another v Darwins, Limited [1942] AC 356 at 399; McDonald and Another v Dennys Lascelles Limited (1933) 48 CLR 457 at 476-7; Moschi v LEP Air Services Ltd and Others [1973] AC 331 at 350. To distinguish such a rescission at law from a rescission in equity, the usual conveyancing practice in New South Wales is to refer to a rescission at law as a “termination”. The writer of the letters in this case appears to have been oblivious to that distinction, but the legal effect of what has been done is nonetheless that of rescission at law.

The Deposit

60 The letters proceeded on the basis that, once the rescission had occurred, the deposit of $50,000 would be repaid. That stance on the part of Becata was never resiled from, and counsel for Becata before me, stated that Becata would refund the deposit. Becata offered an undertaking to the Court that it would do so.

61 The case has clearly been litigated on the basis of that stance of Becata. It may be that in reliance on that stance the plaintiff made no application under section 55 Conveyancing Act 1919 to seek refund of the deposit. In these circumstances, the preferable way of fulfilling the Court’s obligation under section 63 Supreme Court Act 1970, to determine all matters in controversy between the parties and avoid multiplicity of proceedings, is to accept an undertaking from Becata concerning the deposit. However, in circumstances where the effect of the plaintiff losing the proceedings is that it will be ordered to pay the costs of the defendant, it is appropriate to modify the undertaking to take that obligation into account.

Order

62 Upon the defendant by its counsel undertaking that it will pay to the plaintiff the sum of $50,000, minus the amount of the costs of the plaintiff of these proceedings as agreed or assessed:

(1) declare that the contract for sale of land dated 5 October 1998 between the defendant as vendor and the plaintiff as purchaser in respect of the land known as and situated at 58A Jones Street, Kingswood, was validly terminated pursuant to a notice dated 2 April 2001;

(2) order the plaintiff to pay the costs of the defendant of these proceedings, provided that:

(a) this order shall not be enforceable until the defendant has performed its undertaking hereinbefore contained, and

(b) upon the defendant performing its undertaking hereinbefore contained this order shall cease to have effect.

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Last Modified: 05/17/2004