Schmidt v Sturgeon Pty Ltd No. Scciv-02-241, Scciv-01-1584
[2002] SASC 428
•20 December 2002
ANTHONY CHARLES SCHMIDT v STURGEON PTY LTD
[2002] SASC 428
Civil
BESANKO J: On 18 June 2001, the plaintiff, Anthony Charles Schmidt, as purchaser, and the defendant, Sturgeon Pty Ltd, as vendor, signed a contract for the sale of land. The purchase price was $830,000. The settlement date specified in the contract was 14 September 2001. Settlement did not take place on that date. On 24 September 2001 the defendant served a notice to complete dated 20 September 2001 on the plaintiff requiring him to settle on 5 October 2001. Settlement did not take place on 5 October 2001. The defendant served a notice of termination of the contract on the plaintiff shortly after 5 October 2001.
The plaintiff alleges that the defendant did not validly terminate the contract. Although the notice to complete was dated 20 September 2001 and if it had been served that day or the following day it would have given the plaintiff fourteen days to complete, it was not served until 24 September 2001, thereby giving the plaintiff eleven days within which to complete. The plaintiff alleges that that period of notice was not reasonable in the circumstances. The plaintiff claims that the contract has not been validly terminated. The plaintiff lodged a caveat to protect his interest in the land. The time for removal of the caveat was extended by order of this Court on a number of occasions. The plaintiff gave an undertaking as to damages.
In this action, the plaintiff seeks the following relief:
“16.1 A declaration that the notice to complete is invalid.
16.2 A declaration that the notice of termination is invalid.
16.3 An order that the defendant give to the plaintiff a notice to complete allowing for the plaintiff to complete within the notice period.”
A claim for damages is not pursued.
The defendant denies that the plaintiff is entitled to any relief, and counter-claims for the loss it has suffered by reason of the fact that it has not been free to dispose of the land since late 2001.
The main issue at the trial before me was whether the period of eleven days was, in the circumstances, a reasonable time to require for completion of the contract.
The Facts
Before examining the evidence given by the various witnesses it is necessary to say something about the way in which the plaintiff presented its case. The plaintiff did not lead evidence of the particular reasons he did not settle on 14 September 2001 or 5 October 2001. The thrust of his case as presented in evidence was that the period of notice given by service of the notice to complete was unreasonable. He relied on the general statement of the High Court in Sindel v Georgiou & Anor (1984) 154 CLR 661 at 670 (“Sindel”) to the effect that strong circumstances must be shown to justify the giving of a notice to complete which allows less than fourteen days for completion. He sought to reinforce the application of this statement by reference to his plan to develop the land and the considerable time necessary to secure relevant approvals and carry out other preliminary work to ensure that the proposed development could proceed. The plaintiff said that his proposal to develop the land was known to the defendant.
Putting the case in this way meant that the plaintiff did not explain in evidence in chief his particular reasons for not settling on 14 September 2001 or 5 October 2001.
The plaintiff was an unsatisfactory witness in some respects. He was not forthcoming in cross-examination as to the particular reasons he did not settle on either of the dates I have mentioned.
The land is vacant land at 4 Belgrave Court, Parkside, in the State, of South Australia. As I have said the plaintiff bought the land in order to develop it. His plan was to develop the land by constructing nine single-storey dwellings each with a community title.
The defendant put the land on the market in 2001. The defendant engaged a land agent, Mr Rob John, to act on its behalf. There were negotiations between the plaintiff and the defendant. First, the plaintiff made an offer to buy the land for the sum of $820,000 with a settlement date of 28 September 2001. That offer contained a special condition that the contract was conditional upon written confirmation by recognised authority that the said land was free of contamination of any kind. That offer was rejected by the defendant.
On 1 June 2001, the plaintiff and the defendant did agree to a contract of sale of the land for a price of $830,000 with a settlement date of 31 August 2001. The contract contained the special condition referred to in the earlier offer.
By an addendum to the contract dated 5 June 2001, the parties agreed to add a condition making the contract subject to the plaintiff obtaining finance by 5:00PM on 8 June 2001. By letter dated 8 June 2001, the plaintiff gave notice to the defendant through Mr John that the condition regarding finance had not been satisfied.
The parties continued their negotiations, and the contract in issue in these proceedings was signed on 18 June 2001. The contract is not subject to any special conditions. The contract has annexed to it reports from a business called Envirosolve SA dealing with the issue of contamination on the land.
In clause 14 the contract provides that time is of the essence in relation to default by the purchaser (clause 9), default by the vendor (clause 10), and the topics of notices, service and interest (clause 13).
Clause 9.3 of the contract provides:
“9.3 Default by Purchaser in Settlement
In the event the Purchaser defaults in the due observance or performance of the obligations on the Purchaser’s part to settle and such default continues for a period of three (3) clear business days after the Settlement Date then the Vendor may serve a notice on the Purchaser requiring the default to be remedied and appointing a time for settlement being not less than three (3) clear business days after the service of the notice requiring the Purchaser to settle at the time and date appointed in the notice. If the Purchaser fails to comply with the notice the Vendor may terminate the Contract by further written notice without prejudice to the Vendor’s rights and entitlements at law. The Vendor shall be entitled to serve more than one notice without prejudice to any of its rights and obligations.”
The plaintiff paid a deposit of $30,000 under the contract.
Some time between 18 June 2001 and 12 July 2001 the plaintiff decided to engage the vendor’s agent, Mr John, to sell the dwellings which he proposed constructing on the land. A sales agency agreement between the plaintiff and Mr John of Rob John Pty Ltd was signed on 12 July 2001. Mr John secured various letters of offer, and then contracts.
By letter dated 30 August 2001, the City of Unley forwarded to the plaintiff a Provisional Development Plan Consent Notice for the erection of nine single-storey dwellings and garages on the land. A Provisional Building Rules Consent and Final Development Approval were required before any work commenced on the site.
The plaintiff received a quote from River Gum Homes “Bank Use Only” on 3 October 2001. The quote related to work connected with the provision of services to the land. The plaintiff also received a quote from consulting engineers, Allan Gilbert and Associates Pty Ltd, on 18 September 2001. The quote related to engineering services in relation to development of the land.
Condition 6 of the Provisional Development Plan Consent Notice required the plaintiff to satisfy the City of Unley that the site was free of relevant contamination. The plaintiff provided to the City of Unley a letter from Envirosolve SA dated 8 November 2001, and by letter dated 9 November 2001, the City of Unley advised the plaintiff that it was satisfied that the condition had been met.
On 8 November 2001, the plaintiff’s solicitors wrote to the defendant’s solicitors calling upon the defendant to settle on 16 November 2001. As far as I can tell, this request was ignored by the defendant who of course claimed the contract had been validly terminated.
At a time not made clear in the evidence, the plaintiff received a Scheme Description pursuant to s 30 of the Community Titles Act 1996 and executed by the City of Unley.
The plaintiff was asked in cross-examination about the finance he had secured for the purchase of the land. I find that he had secured finance for the purchase of the land both on 14 September 2001 and on 5 October 2001. I find that on both dates he was looking to secure what was called in evidence “cheaper finance”. One of the major reasons (if not the only reason) he did not settle on those dates is that he had not secured cheaper finance.
As I have said, the plaintiff had appointed Mr John as his agent to secure contracts for the proposed dwellings by Sales Agency Agreement dated 12 July 2001. At a time not made precisely clear in the evidence, he became dissatisfied with Mr John’s efforts, or at least Mr John’s efforts were not meeting his expectations. This dissatisfaction or concern may have played a part in his decision not to settle on 14 September 2001 or 5 October 2001. However, he admitted in cross-examination that the defendant was in no way responsible for his relationship with Mr John.
Mr Schmidt referred in his cross-examination to a problem that had arisen with the City of Unley concerning contamination on the land. It was never made clear what precise role the defendant had played in this problem, and in what way the defendant was responsible for it. However, I find that it was not the reason the contract did not settle on 14 September 2001. Mr Schmidt’s inability to obtain cheaper finance was the reason the contract did not settle on that date. Nor (I find) was it the reason the contract did not settle on 5 October 2001. Mr Schmidt never said in evidence in chief that it was the reason the contract did not settle on 5 October 2001. More importantly, until shortly prior to 5 October 2001, Mr Schmidt anticipated and intended that settlement would be achieved on that date. Mr Schmidt admitted that nothing relevant happened concerning the problem involving contamination on the land in that short period.
Mr Schmidt admitted, and I find, that sometime prior to 5 October 2001 he was aware that the defendant was likely to terminate the contract if settlement did not take place on that date.
Mr Rosario De Palma is a director of the defendant and he is responsible for the day-to-day operations of the company. I accept his evidence. After the contract was signed, Mr De Palma engaged Mr Geoffrey Stevens, a land broker, to act on behalf of the defendant. At a time not made clear in the evidence, Mr De Palma learned that there could be a problem with settlement. He gave Mr Stevens instructions to do whatever was necessary to ensure that settlement occurred expeditiously.
Mr De Palma said that, but for the caveat, he would have caused the defendant to sell the land. I accept that evidence.
The loss claimed by the defendant by counter-claim consists of various rates and other charges paid by the defendant in relation to the land.
The water rates incurred by the defendant total $1,778.91, the Council rates total $3,007.35, the Emergency Services Levy totals $96.80 and the land tax total $13,807.35. Counsel for the plaintiff did not contend that damages or compensation of this type were not recoverable pursuant to the plaintiff’s undertaking as to damages, or the Real Property Act (s 191 X), should I find that the contract was validly terminated.
I am satisfied that the water rates and council rates have been paid by the defendant and that they relate to the period the defendant has been unable to sell the land.
Counsel for the plaintiff challenged the claim for land tax. He points to the apparently large increase in the amount stated on the settlement statement prepared by Mr Stevens and dated 5 October 2001 (ie $5,000 for the year 2001-2002). He also points to the fact that the claim for land tax relates to the 2002-2003 year; a period which has not yet expired. The period during which the defendant has been unable to sell the land is some sixteen months (ie, October 2001 to, say, January 2003). It is the water rates incurred during that period which is the defendant’s loss. Of necessity I must approach the matter fairly broadly and calculate the loss for water rates for the period of approximately sixteen months at $12,000.
Counsel for the plaintiff also made the latter point in relation to the claim for the emergency services levy which relates to the period 2002-2003. I see no reason not to calculate the amount at the amount claimed. The figure is similar to the figure for the previous year, and relates only to a twelve month period whereas the defendant could claim for a longer period.
In the result, the loss the defendant has suffered as a result of being unable to sell the land should be calculated as follows:
$ Water rates 1,778.91 Council rates 3,007.35 Land tax 12,000.00 Emergency Services Levy 96.80 Total
16,883.06
In cross-examination Mr De Palma admitted that he was aware of the plaintiff’s plans to develop the land for the construction of nine dwellings and he was aware that Mr John had been engaged by the plaintiff to secure contracts for the sale of the proposed dwellings. Mr John may have mentioned how that process was going but Mr De Palma did not think it was any of his concern. Mr De Palma was not asked any questions in cross-examination concerning contamination on the land.
Mr Geoffrey Stevens is a conveyancer. He was an honest witness and I accept his evidence. He was engaged by Mr De Palma on behalf of the defendant in July 2002.
Minter Ellison, solicitors, were acting on behalf of Mr Schmidt in relation to the settlement. Ms Denise Crosby, a land broker, and Mr Strawbridge, a legal practitioner, were those responsible for the plaintiff’s work at Minter Ellison. Mr Stevens became aware that Minter Ellison were acting for the plaintiff in early September 2001.
On a date not made precisely clear in the evidence, the memorandum of transfer was executed and sent to Minter Ellison to attend to stamping.
Mr Stevens had various conversations with Ms Crosby in September and October 2001. It is unnecessary to set out all the details. It is sufficient to say that Ms Crosby gave no reason for the plaintiff not settling on 14 September 2001 or thereafter, save that on 14 September 2001 she told Mr Stevens that finance had been approved. Ms Crosby thereafter told Mr Stevens that the plaintiff should be able to settle in the near future.
On 14 September 2001, Mr De Palma asked Mr Stevens to do whatever was necessary to effect settlement. Mr De Palma may have made that clear to Mr Stevens before 14 September 2001. Mr Stevens told Ms Crosby that his instructions were to secure settlement promptly.
Mr Stevens sent a copy of the Notice of Default to Minter Ellison by facsimile transmission on 14 September 2001. He sent the original by registered mail to Mr Schmidt.
Mr Stevens sent a copy of the Notice to Complete to Minter Ellison by facsimile transmission on 20 September 2001. He sent the original by registered mail to Mr Schmidt. It is common ground that it was put in the post on 22 September 2001 and received (or is deemed by a provision in the contract to have been served by the plaintiff) on 24 September 2001. It was Mr Stevens who selected the period specified in the notice.
Thereafter, Mr Stevens considered that settlement would be effected on 5 October 2001, if not before. Ms Crosby never said anything to him to indicate the contrary. In fact, she said the plaintiff wanted to settle and it would be by 5 October 2001, if not before. On 28 September 2001 (or possibly 26 September 2001) Mr Stevens told Ms Crosby that the defendant would terminate the contract if settlement was not effected by 5 October 2001. On 4 October 2001, Ms Crosby spoke to Mr Stevens and asked him if the settlement time on 5 October 2001 could be changed from 11.30 p.m. to 2.30 p.m. He agreed.
Late on 4 October 2001, Mr Strawbridge spoke to Mr Stevens and advised him that the plaintiff was going to put a caveat over the land. Mr Strawbridge made reference to the finance from a certain source being too expensive and he offered the defendant an extra $5,000 if the settlement could be delayed until the following week. That offer was rejected by the defendant.
Mr Stevens sent the settlement statement to Minter Ellison by facsimile transmission on the morning of 5 October 2001.
Mr Stevens went to the Lands Titles Office twice on 5 October 2001. No representative from the plaintiff was present.
Mr Stevens prepared a Notice of Termination later that day and sent a copy by facsimile transmission to Minter Ellison and at the same time he sent the original of the notice of termination by registered mail to the plaintiff.
Ms Crosby (or I infer Mr Strawbridge) did not at any time raise the issue of contamination of the land with Mr Stevens.
On the basis of Mr Stevens’ evidence I find, that there was no reason relating to conveyancing matters (ie, carrying out of searches, the preparation and execution of memorandum of transfer, the stamping of the memorandum) why, on 24 September 2001 and thereafter, settlement could not be effected on 5 October 2001. Indeed, I did not understand the plaintiff to contend to the contrary.
Was the Contract Lawfully Terminated?
The main issue in the action was whether the period of notice given to the plaintiff to complete the contract was reasonable. If it was, then the defendant was entitled to terminate the contract. In my respectful opinion the relevant principle was stated by Mason J (as he then was) in Louinder v Leis (1982) 149 CLR 509 at 526:
“Accordingly, delay beyond the stipulated date will give rise to a liability in damages. But because equity treats the time stipulation as non-essential, mere breach of it does not justify rescission by the innocent party and will not bar specific performance at the suit of the party in default. Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission.”
Counsel for the plaintiff relied on to the decision of the High Court in Sindel.
In Sindel, the contract for the sale of land was entered into on 23 July 1977. The contract did not specify a date for completion or settlement. The vendor gave a notice to complete by registered post on 28 September 1977 requiring completion by 12 October 1977. In the course of considering whether a period of 13 days notice was sufficient, the Court said (at 669 – 670):
“In considering this question it is material to take account of the circumstances as they existed at the time the notice was given. They are conveniently set out in the judgment of Glass J.A. They are as follows: (a) On 14 September 1977, the purchaser's solicitors had completed their searches and enquiries. The only outstanding conveyancing work was the receipt of an answer to their requisitions sent on 9 September and the execution of the transfer by the purchaser, its marking by the Stamp Office and its submission to the vendor. (b) On the same day the transfer was sent out to the purchaser for execution. (c) On 19 September the period of six to eight weeks, which according to the evidence was the average time for completing such a contract, had expired. (d) On 28 September the vendor's answers to requisitions were received. (e) On the same day the vendor sent out a notice to complete expiring on 12 October.
The appellant submits that the period of thirteen days was reasonable because at that stage the purchaser had to do no more than have the transfer marked and submitted and obtain a bank cheque for the balance of the purchase price. As the contract provided for cash on completion the purchaser could not reasonably ask for an extended period to put himself in funds. The primary judge rejected this submission stating:
‘Answers to requisitions had only just been delivered, the period of six to eight weeks which might be regarded as normal for completion of such a sale had only just expired, and while searches and enquiries had been completed on 14 September it was reasonable to assume that final arrangements for finance, including the answering of requisitions delivered by the mortgagee, might reasonably take more than thirteen days.’
Although in Ajit v. Sammy [], the Privy Council held that a six day notice to complete was reasonable in the circumstances of that case, it is our view that strong circumstances must be shown to justify the giving of a notice to complete which allows less than fourteen days for completion. In the present case we agree with the conclusion reached by the primary judge that the time allowed was insufficient. The determination of what is a reasonable time for completion of a contract for the sale of land, judged in the light of the circumstances of the particular case, is very much a matter of impression. And we have not been persuaded the primary judge and the Court of Appeal were wrong on this issue.”
The author of Voumard the Sale of Land (5th edition Lawbook Co 1995) puts the matter in these terms (at para [9370]):
“So far as concerns the period of time to be specified in the notice, the question as to what is reasonable must be judged as at the date of the giving of the notice: and the circumstances to be taken into account will include the nature of the property, whether there are any conveyancing difficulties, what remains to be done by the party in default (for example, if the party in default is the purchaser, the amount of money which he or she is required to pay), whether the party not in default has been pressing for completion and whether he or she has waived prior notices, and whether it is of special importance to the party not in default to obtain early completion.”
(For a thorough summary of the relevant matters and references to relevant authorities see “The Modern Law of Notices to Complete” (1985) 59 ALJ 260.)
The defendant referred me to O’Connor v Slattery & Anor [1981] 2 NSWLR 447. In that case, Holland J said (at 452):
“It is often said that the time given by the notice must be a reasonable time but that is ambiguous because it does not say from whose point of view it must be reasonable. As the goal is the doing of equity between the parties reasonableness must cut both ways, so the positions and interests of both sides are material.
Reasonableness in the above sense is to be judged as at the time the notice was given taking account of the nature and terms of the contract, what needed to be done on both sides to be ready to settle, what remained to be done and past delays and attitudes to time. However, the giver is not required to take account of matters extraneous to the contract affecting the receiver’s ability to perform that are not his business or not known to him or not such that they ought to be known to him.”
I have reached the view that the period of notice given by the defendant in this case was reasonable in all the circumstances. My reasons for reaching this conclusion are set out below.
First, the contract provides for a period of notice of not less than three (3) clear business days (clause 9.3). I realise that a minimum period cannot be converted into a reasonable period. All the circumstances must be considered. Nevertheless, it is a relevant consideration that the parties themselves agreed to a short minimum period after the failure by the purchaser to settle on the date specified in the contract.
Second, it is a matter of considerable significance that the settlement period specified in the contract was nearly three months (18 June 2001 to 14 September 2001). There was then a further period of twenty days before the date fixed for settlement. The contract was an unconditional contract. The contract was not, for example, conditional upon the plaintiff obtaining finance or development approval.
Third, as at 24 September, 2001, there were no obstacles to settlement in terms of the conveyancing matters that needed to be attended to (ie, carrying out of searches, preparation and execution of the memorandum of transfer and stamping) in order to effect settlement on 5 October 2001.
Fourth, the defendant had not served any prior notices to complete and waived the same. What the defendant had done by serving the Notice of Default promptly was to indicate that it wished settlement to proceed as expeditiously as possible.
Fifth, the plaintiff had the finance to settle on 14 September 2001 and on 5 October 2001. There were no problems with finance. The plaintiff’s wish to obtain cheaper finance is irrelevant. This is not a case where the plaintiff had difficulties with finance and the defendant was aware of these difficulties or should reasonably have anticipated such difficulties (InRe Barr’s Contract [1956] 1 Ch. 551; 1961 25 Conv (N.S.) 260).
Sixth, insofar as it is relevant to look at other circumstances known to the defendant and affecting the plaintiff’s ability to settle, I find that the reason the plaintiff did not settle on 14 September or 5 October 2001 was his desire to obtain cheaper finance, and possibly his dissatisfaction with the progress being made by Mr John in securing contracts of sale in relation to the proposed dwellings. Neither of those matters is relevant to the period of notice given to the plaintiff.
As far as the issue of contamination of the land was concerned, I find that that was not a reason the plaintiff failed to settle. In any event, it was a matter that was never communicated to the defendant or its agent, Mr Stevens (Re Roger Malcolm Development Ltd’s Contract (1960) 176 EG 1237).
I do not think there is anything about the nature of the land which bears upon the question of whether the period of notice was reasonable. Insofar as it might be relevant to take into account the fact that the land is vacant and that, to the knowledge of the defendant, the plaintiff proposed to develop it, a long period for settlement was provided for in the contract and other than the issue of contamination of the land which I have already dealt with, the plaintiff does not suggest that in the context of the proposed development of the land there was any other matter which suggested a longer period of notice was appropriate.
In my opinion, the plaintiff’s claim must be dismissed.
The defendant has suffered a loss of $16,883.06 by reason of its inability to sell the land caused by the lodging of the caveat, and on the counter-claim there will be the judgment for the defendant against the plaintiff for that amount. The contract provides that in the event the contract is terminated by the defendant then the defendant is entitled to retain the deposit. The plaintiff did not dispute that the defendant was entitled to retain the deposit if the defendant had validly terminated the contract. In those circumstances, I will hear the parties on whether a declaration that the defendant is entitled to retain the deposit is necessary. I will also hear the parties on the question of costs and any other appropriate orders.
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