Sedrak v Starr - [2010] NSWCA 297

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Sedrak v Starr [2010] NSWCA 297

FILE NUMBER(S):
2009/298578

HEARING DATE(S):
1 September 2010

JUDGMENT DATE:
10 November 2010

PARTIES:
Maged Sedrak (Appellant)
Gavin Mark Starr (Respondent)

JUDGMENT OF:
Beazley JA Campbell JA Sackville AJA

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
SC 5407/2008

LOWER COURT JUDICIAL OFFICER:
Gzell J

LOWER COURT DATE OF DECISION:
18 September 2009; 5 November 2009; 6 November 2009

LOWER COURT MEDIUM NEUTRAL CITATION:
Magred Sedrak v Gavin Mark Starr [2009] NSWSC 996; Magred Sedrak v Gavin Mark Starr [2009] NSWSC 1178; Magred Sedrak v Gavin Mark Starr [2009] NSWSC 1193

COUNSEL:
R Harper SC; F Santisi (Appellant)
J Gormly QC; D Shoebridge (Respondent)

SOLICITORS:
JN Legal Solicitors & Attorneys (Appellant)
Woods & Day Solicitors (Respondent)

CATCHWORDS:
VENDOR AND PURCHASER – purchaser rescinds contract for the sale of a pharmacy business – deposit forfeited – whether purchaser complied with warranty to do all things necessary to obtain the landlords’ consent to assignment of the lease – construction of warranty – whether landlords’ consent could not have been obtained in any event – no basis for ordering return of deposit.

LEGISLATION CITED:
Conveyancing Act 1919

CATEGORY:
Principal judgment

CASES CITED:
Hunyor v Tilelli (1997) 8 BPR 15, 629
Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286
Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418

TEXTS CITED:

DECISION:
The appeal is dismissed.
The appellant is to pay the respondent's costs of the appeal.

JUDGMENT:

- 27 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 2009/298578
BEAZLEY JA
CAMPBELL JA
SACKVILLE AJA
10 November 2010

SEDRAK v STARR

Judgment

BEAZLEY JA: I agree with Sackville AJA.
CAMPBELL JA: I agree with Sackville AJA.
SACKVILLE AJA: This is an appeal from a decision of a Judge of this Court (Gzell J): Sedrak v Starr (No 2) [2009] NSWSC 1178. The decision related to a dispute arising out of a contract dated 11 August 2008 (“Contract”) for the sale of a pharmacy business conducted from leased premises in Lane Cove (“the Premises”). The appellant, the purchaser of the business, was the plaintiff in the proceedings determined by the primary Judge. The respondent, the vendor, of the business, was the defendant. I shall refer to the appellant as “the Purchaser” and to the respondent as “the Vendor”.
The Purchaser filed a summons seeking declarations that he had validly rescinded the Contract on 9 September 2008 and that the Vendor was not entitled to recover or claim forfeiture of the deposit payable under the Contract. The Purchaser also sought an order that the Vendor repay the sum of $201,250 he provided by way of bank guarantee as a part deposit in respect of the purchase.
The Vendor filed a cross-summons seeking declarations that the Purchaser’s purported rescission of the Contract was invalid and that the Vendor’s termination of the Contract on 11 September 2008 was valid. The Vendor also sought orders for the payment of the unpaid balance of deposit and damages for breach of the Contract.
The principal dispute at the trial was whether the Purchaser was entitled to rescind the Contract on 9 September 2008 pursuant to Special Condition 12, which made the sale conditional upon obtaining the consent of the lessors (“the Landlords”) of the Premises to certain transactions. The Purchaser claimed that the requisite consent could not be obtained by the completion date as the Contract required and that, accordingly, he had been entitled to serve a notice of rescission on 9 September 2008. He was therefore entitled to recover so much of the deposit as he had paid or caused to be paid. The Vendor claimed that the purported rescission by the Purchaser was invalid and that the Vendor had validly terminated the contract on 11 September 2008 by reason of the Purchaser’s fundamental breach of the contract. The Vendor asserted that he was entitled to recover and keep the deposit payable under the Contract.
The primary Judge reached the following conclusions:
(i)the Purchaser was not entitled to issue the notice of rescission on 9 September 2008;
(ii)the Purchaser’s failure to withdraw the notice of rescission constituted a continuing breach of contract which entitled the Vendor, after he had elected to keep the Contract on foot, to terminate it;
(iii)there was no basis for the Purchaser’s claim that the parties had mutually abrogated or abandoned the contract;
(iv)the Vendor was entitled to recover and keep the deposit payable under the contract;
(v)there was no basis for an order under s 55(2A) of the Conveyancing Act 1919 (“Conveyancing Act”) for the return of the deposit paid by or on behalf of the Purchaser; and
(vi)in addition to the unpaid balance of the deposit, the Vendor was entitled to damages for expenses incurred in connection with the sale, including legal and brokerage expenses.
The notice of appeal, prepared by the appellant’s junior counsel, contained 46 grounds of appeal. The appellants filed written submissions comprising 35 pages, including 15 pages purporting to challenge the findings of fact made by the primary Judge. Much of this material was irrelevant to any matters that could be plausibly argued on the appeal or was simply unhelpful.
Mr Harper SC, who was apparently briefed very late on behalf of the Purchaser, caused two sets of “additional written submissions” to be filed on behalf of the appellant in the evening prior to the hearing of the appeal. No further reference was made in argument to the Purchaser’s earlier written submissions. Mr Harper abandoned all except 10 grounds of appeal, a number of which were repetitive. No challenges were ultimately made to any findings of fact made by the primary Judge.
In essence, the Purchaser’s argument came down to a point of construction of Special Condition 12, a contention that the primary Judge should have drawn an inference in favour of the Purchaser from the undisputed documentary evidence and a consequential claim for the return of the deposit under s 55(2A) of the Conveyancing Act.
THE CONTRACT
The Contract was in the form of the 2004 edition of a contract for the sale of business published by the Law Society of New South Wales and the Real Estate Institute of New South Wales. As I have noted, it was dated 11 August 2004.
The Contract provided that the sale price for the business was $4,025,000. Special Condition 11 required the Purchaser to pay a deposit of $201,250 (5% of the purchase price) by bank guarantee upon the making of the Contract. Special Condition 11 also provided that the balance of the deposit (a further $201,250) was payable upon the occurrence of the earliest of three events. The three events were the completion date; termination of the Contract by the Vendor as the result of default by the Purchaser in complying with an essential condition of the Contract; or the actual completion of the Contract.
The first page of the Contract nominated the “Completion date” as 8 September 2008. In addition, Special Condition 6.1 stated that “Completion of this Contract shall take place on 8 September 2008”. Clause 19 was as follows:
“19        Completion date
19.1        The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if the party is otherwise entitled to do so.
19.2        …”
It will be noted that some of the words or phrases in cl 19 are in italics, including “completion date”. Clause 1 defined a number of terms, and the heading to cl 1 stated that “a term in italics is a defined term”. “Completion date” was not a term defined in cl 1. However, the first page of the Contract was in the form of a chart, with a number of italicised words or phrases in the first column and a name or description in the second column. “Completion date”, for example, was in the first column and the second column recorded “(clause 19) … 8 September 2008”.
The following expressions are defined in cl 1:
“normally             subject to any other provision of this contract;
…
rescind                  rescind this contract from the beginning;
tenant                   the tenant (lessee) of the premises”
Special Condition 12 of the Contract provided as follows:
“This Contract is subject to and conditional upon the landlord granting, consenting and executing a Mortgage of Lease and Right of Entry in the form attached to this Contract in favour of ANZ Banking Group Limited and doing all thing [sic] necessary to obtain its registration (The ‘Landlords [sic] Consent’). The Purchaser warrants that he will do all things necessary to obtain the Landlords Consent, prior to the date of completion. In the event that Landlords Consent cannot be obtained on or before the date of completion of this Contract then the Purchaser may rescind this Contract (by notice in writing to the vendor or the vendors [sic] Solicitors) and the provisions of clause 23 shall apply.”
The documents attached to the Contract included a draft “Right of Entry” agreement, to which the proposed parties were the Landlords and the Australia and New Zealand Banking Group Ltd (“ANZ”). The draft Right of Entry agreement recited that:
the Landlords “presently lease” the Premises to the Purchaser;
the Purchaser had given to the ANZ the security described in a schedule to the agreement charging or assigning certain items of property located at the Premises; and
the ANZ had requested the Landlords to consent to the security and to the severance and removal of the property in the event of the Purchaser’s default.
Clause 1 of the draft Right of Entry contained the Landlords’ consent to the purchaser granting the security to the ANZ.
Clause 5(h) of the draft Right of Entry agreement, which became the subject of discussion in correspondence between the parties, was as follows:
“The Landlord covenants with ANZ:
…
(h)not to sell, assign or otherwise dispose of the fee simple in the land where the Leased Premises are without first obtaining from the proposed transferee an agreement with ANZ on similar terms;…”
Clause 23.1 of the Contract provided that a right of rescission could be exercised only by serving a notice before completion. Clause 23.2 stated as follows:
“Normally, if a party exercises a right to rescind expressly given by this contract or any legislation -
23.2.1the deposit and any other money paid by the purchaser under this contract must be refunded;
23.2.2a party can claim for a reasonable adjustment if the purchaser has been in possession;
23.2.3a party can claim for damages, costs or expenses arising out of a breach of this contract; and
23.2.4a party will not otherwise be liable to pay the other party any damages, costs or expenses.”
Clause 25.1 provided that if a time for something to be done or to happen was not stated in the Contract, it was to be a reasonable time.
Clause 29 dealt with the transfer of an existing lease over the Premises. It provided as follows:
“29.1      This clause applies only if -
29.1.1the premises are subject to a lease; and
29.1.2this contract does not say the sale is subject to the grant of a new lease.
29.2        The parties intend that the landlord is to consent to a transfer of the lease from the vendor to the purchaser.
29.3        The purchaser must serve the form of transfer at least 7 days before the completion date.
29.4        If the landlord does not consent to the transfer of the lease-
29.4.1by the completion date, the purchaser can rescind; or
29.4.2by the 90^th day after the contract date, a party can rescind.
29.5        A party cannot rescind under clause 29.4 after the other party has served notice of the consent of the landlord.”
Clause 27 contained “general provisions” relating to a sale of a business on premises subject to a lease. In such a case:
“27.2 the purchaser must -
27.2.1supply references and other information reasonably required by the landlord to allow the landlord to consider the application;
…
27.3 the vendor must -
27.3.1apply to the landlord for the consent of the landlord to the purchaser becoming the tenant; and
…
27.4If the consent of the landlord’s mortgagee is required, and the landlord’s mortgagee does not consent by the completion date, a party can rescind, but only if the party has complied with this clause.
27.5A party cannot rescind under clause 27.4 after the other party has served notice of the consent of the landlord’s mortgagee.”
COURSE OF EVENTS
As I have noted, Mr Harper on behalf of the defendant did not challenge any of the primary Judge’s findings of fact. The following account of the relevant events is based partly on his Honour’s narrative and partly on the undisputed documentary evidence.
The Contract was entered into on 11 August 2008. On 12 August 2008, the Vendor’s solicitor wrote to the Landlords seeking approval for the assignment of the lease of the Premises to the Purchaser. The Vendor’s solicitor sent a copy of the letter to the Purchaser’s solicitor and suggested that the Purchaser, by way of preliminary preparation, “compile a CV, and a profit and loss statement of his business”.
On 14 August 2008, the solicitor for the Landlords wrote to the Vendor’s solicitors requiring information to enable them to consider the suitability of the Purchaser as the proposed assignee. The information sought was the following:
“1.          A statement of the assets and liabilities of the proposed assignee verified by an accountant.
2.            A detailed statement of the business and commercial experience of the proposed assignee.
3.            Three trade references from suppliers of goods or services to the proposed assignee.
4.            Copies of bank statements and valuations to corroborate the statement of assets and liabilities.”
On the same day, the Vendor’s solicitor sent a letter to the Purchaser’s solicitor requesting that he respond directly to the Landlords’ solicitor.
On 26 August 2008, the Landlords’ solicitor informed the Vendor’s solicitor that nothing had been heard from the Purchaser. The letter asked whether the Vendor wished the Landlords to consider the draft Right of Entry agreement. The letter concluded as follows:
“If so, please provide confirmation of the proposed assignee’s acceptance of the obligations set out in clause 5.1 of the lease”.
Clause 5.1 of the lease provided that the lessee could apply to the Landlords for consent to the grant of a mortgage over the lease. Such consent was not to be unreasonably withheld if each of six specified conditions was satisfied, including a requirement that the purpose of the loan be to enable the business to be acquired, conducted or expanded.
On the same day, the Vendor’s solicitor forwarded the letter to the Purchaser’s solicitor stating that the information requested by the Landlords should be provided to them by the end of the week.
On 28 August 2008, the Purchaser’s solicitor sent a number of documents to the Landlords’ solicitors. These included a document purporting to state assets and liabilities, as follows:
“Dr Maged Sedrak
Assets & Liabilities account as at 30/06/2008
Assets:
Belgrave Pharmacy fittings  $   750,000.00
Residential property  $2,500,000.00
Furniture  $   100,000.00
Jewelry  $     50,000.00
Superannuation  $     40,000.00
Life insurance  $2,000,000.00
Total Assets:  $5,440,000.00
Liabilities:
Loan ANZ  $ 300,000.00
Credit Card balance  $     1,500.00
Total Liabilities  $   301,500.00
Net Assets:  $5,138,500.00”
The statement of assets and liabilities was accompanied by a letter from accountants, identified as the Purchaser’s “accountants and tax professionals”, certifying that “we have prepared the attached assets and liabilities account as at 30 th June 2008”.
The letter of 28 August 2008 also enclosed a statement of the Purchaser’s business and commercial experience, as follows:
“54 YO Registered pharmacist since 1977.
I owned my first pharmacy in Melbourne, Victoria in 1984 till 1994.
I managed and run [sic] the business very successfully until I decided to have a long overseas holiday in Europe and the US, and have time to extend my education and experience in the art of Pharmaceutical compounding.
I moved to Sydney 1995 as it has a warmer weather which suited our family better.
1995 I purchased Styles pharmacy in St Marys, NSW
1996 I purchased Engadine Day and Night Pharmacy, two years later I purchased the freehold of the pharmacy which is a two story building at the heat [sic] of the Engadine shopping centre.
I purchased that freehold for 1.25M [owned by my service company]
Currently I am practicing my profession at my compounding only pharmacy, Belgrave Compounding pharmacy, located … Kogarah ….
I purchased the freehold of the pharmacy at Jan 2007 for 1M through my service company, the business is running very successfully since I established it June 2007
I’ve seen a good business opportunity when [the Vendor] offered his pharmacy at Lane Cove for sale which will allow me to extend my experience to another nicer side of Sydney.”
The Purchaser recorded the names and addresses of three entities as “Trading References”, although one was a proprietary company with only a post box address. He did not provide any written references.
On 29 August 2008, the Landlords’ solicitor, Mr Gallagher, sent an email to the Vendor’s solicitor stating as follows:
“I am waiting on instructions, however given the terms of special condition 12 of the contract, I observe that [the information received from the Purchaser’s solicitor] is an inadequate response to the requests set out in my letter to you dated 14 August 2008. You may wish to raise this with the purchaser.
I have reviewed the Right of Entry Agreement. Subject to further instructions, I advise that my clients will not have their right to deal with their property fettered. Accordingly, clause 5(h) is to be deleted. Clause 5.1 of the lease adequately provides for a lessee obtaining the lessor’s consent to a mortgage of the lease.” (Emphasis added.)
The Vendor’s solicitor asked Mr Gallagher to specify the inadequacies in the material presented by the Purchaser. Mr Gallagher responded that the statement of assets and liabilities was not certified; the statement of business experience referred to enterprises that were not reflected in the statement of assets and liabilities; no trade references had been supplied; and the Purchaser had declined to provide anything to substantiate his financial standing. Mr Gallagher also pointed out that there was no security deposit under the lease. Accordingly, the Landlords needed to consider carefully the financial standing and capability of the Purchaser and to consider what guarantees for the performance of his obligations were appropriate.
On the same day, the Vendor’s solicitor forwarded Mr Gallagher’s observations to the Purchaser’s solicitor.
On 1 September 2008, Mr Gallagher wrote to the Purchaser’s solicitor setting out the shortcomings of the Purchaser’s response and asking for further information. Mr Gallagher noted that the statement of assets and liabilities had not been certified and he asked for title details of the residential property and details of the ownership of two pharmacies that had been referred to by the Purchaser. Mr Gallagher sought details of the service company referred to in the statement of business experience, the basis on which the Purchaser treated life insurance as a current asset and trade or suppliers’ references. The letter commented that the request for additional material was “reasonable and … normal practice in leasing transactions”. The letter concluded as follows:
“We note that the proposed assignee has advised you of our clients’ initial comments regarding the Right to Entry Agreement. We have forwarded a copy to our clients’ mortgagee with a request for its comments.” (Emphasis added.)

On 2 September 2008, the Purchaser’s solicitor provided additional information to the Landlords. The information included the following:
details of the residential property;
advice that the Purchaser was the sole director and shareholder of Saint Mina Pty Ltd, which owned the premises and business operated at Kogarah;
a suggestion that the insurance policy be disregarded;
a statement that Saint Mina Pty Ltd owned the Engadine property; and
the names of three individuals who might be contacted at each of the three trade references.
A letter from the Purchaser’s accountants was enclosed certifying that they had prepared the statements of assets and liabilities.
On 4 September 2008, the Vendor’s solicitor notified Mr Gallagher that an appointment to settle had been made for 8 September 2008, subject to the Landlords’ urgent advice as to their approval of the Purchaser as the new tenant.
Mr Gallagher responded on the same day to the Vendor’s solicitor as follows:
“We are communicating with you as the obligation to prove the suitability of the assignee is on your client. Please pass on our correspondence to the proposed assignee.
Your client has the benefit of the extraordinary situation of no security bond or guarantee being required when the lease was granted by a previous owner of the premises. One might presume that this arose out of some agreement or relationship with the previous owner.
The proposed assignee is unknown to our clients, he has not substantiated his alleged assets and liabilities.
Our clients are not minded to ring around the country asking questions about [the Purchaser’s] reputation, business or financial capacity.”
On the same day (4 September 2008), Mr Gallagher, on behalf of the Landlords, sent a draft assignment of lease to the Vendor’s solicitor, subject to the Landlords’ instructions. The email stated that Mr Gallagher awaited “comment from our clients’ mortgagee regarding the proposed Right of Entry Agreement”.
At 9.04 am on 5 September 2008, Mr Gallagher sent an email to the Vendor’s solicitor, with a copy to the Purchaser’s solicitor. The email included the following:
“You should ask the proposed assignee to indicate if he will give the guarantee sought and give evidence substantiating the scant information provided to date.
Why cannot, or will not, the assignee provide trade references? Our clients’ request for information was made 3 weeks ago, as soon as your client requested consent to assignment.
Our clients are not acting unreasonably.
We invite you to take a critical look at the quality, quantity and time taken for the information to be provided thus far.
The material provided does not support a view that the proposed assignee has the attributes to be reasonably required of an assignee. This is particularly relevant as it presently appears the proposed assignee does not intend to secure his obligations under the lease in any way.
Has the proposed assignee commented on the deed of consent?
You should be directing attention to the proposed assignee’s obligations to do what is necessary to obtain consent under the contract.
We also note that our clients’ mortgagee has not advised us when its consent will be forthcoming regarding the Right of Entry Agreement, otherwise than as advised to you yesterday.”
The Purchaser’s solicitor replied on the same day, stating that the material requested on 1 September 2008 had been provided; the Purchaser had provided a certified statement of assets and liabilities, the referees did not provide written references; and the Landlords’ refusal to ring around was “disingenuous and unreasonable”.
Also on 5 September 2008, the Vendor’s solicitor wrote to Mr Gallagher arguing that the Purchaser had supplied the information required by the Landlords and that, accordingly, the Landlords were not entitled “to withhold consent to the assignment”.
The Vendor’s solicitor provided a copy of this letter to the Purchaser’s solicitor. In the covering letter, however, the Vendor’s solicitor pointed out that the Purchaser had not responded to the Landlords’ letter of 14 August 2008 until 28 August 2008. The Vendor’s solicitor asserted that the delay constituted a breach of cl 25.1 of the Contract.
On 5 September 2008, Mr Gallagher sent another email to both the Vendor’s solicitor and the Purchaser’s solicitor, attaching the letter of 4 September 2008 received from the Purchaser’s solicitor. The email went on as follows:
“It is apparent that our advice to you regarding the Right of Entry Agreement and the status of our clients’ bank considering and consenting to that document has not been received by the proposed assignee. Please pass that information on to the proposed assignee.
Our comments as set out in our email to you sent at 9.04 this morning stand. You may wish to draw the proposed assignee’s attention to clauses 5.2(c) (i) and (iii) of the lease.”
Clause 5.2 of the lease provided that the lessee could not assign or sub-let without the written consent of the lessor. That consent was not to be unreasonably withheld if the lessee satisfied certain conditions, including proving that the proposed assignee was a respectable and solvent person capable of carrying on business in the premises as permitted by the lease (cl 5.2(c)(i)) and furnishing such guarantees as might reasonably be required (cl 5.2(c)(iii)).
Mr Gallagher sent another letter on 5 September 2008 to the Vendor’s solicitor drawing attention to deficiencies in the information provided by the Purchaser. The letter stated that insufficient information had been provided to satisfy the Landlords as required by the lease.
On 8 September 2008, the Vendor’s solicitor wrote to the Purchaser’s solicitor suggesting it was not unreasonable for the Landlords to be provided with current financial statements for the pharmacy conducted by him and with valuations. The solicitor asked for confirmation that some or all of the documents would be provided to the Landlords urgently.
The Purchaser’s solicitor replied on the same day claiming that he had done everything reasonably requested of him. The letter reserved all the Purchaser’s rights.
On 8 September 2008, the Vendor’s solicitor wrote to the Purchaser’s solicitor drawing attention to cll 25.1 and 27.2.1 of the Contract and asserting that sufficient verified and substantiated information had not yet been provided to the Landlords to enable them to assess the Purchaser’s financial standing. The letter stated that unless the Purchaser agreed not to rescind the Contract proceedings would be taken for specific performance of the Contract.
The Contract was not completed on 8 September 2008. On 9 September 2008, the Purchaser’s solicitor served the notice of rescission. The notice relied on the failure of the Landlords to grant consent to the Mortgage of Lease and Right of Entry on or before the date of completion, in accordance with Special Condition 12 of the Contract. In the alternative, the notice relied on the right to rescind conferred by cl 29.4.1 of the Contract, on the basis that the Landlords had not provided their consent to the transfer of the lease by the completion date.
On 11 September 2008, the Vendor’s solicitor terminated the Contract on the ground that the notice of rescission constituted a breach of an essential term of the Contract. The Vendor subsequently called on the bank guarantee previously provided by the Purchaser as payment of part of the deposit.
PRIMARY JUDGMENT
The primary Judge, after recounting the facts, expressed the view that the word “references” in cl 27.2.1 of the Contract meant written appraisals of the Purchaser and his business capacity. The word bore the same meaning in the Landlords’ solicitor’s letter of 14 August 2008. The Landlords did not merely ask for the identification of three referees.
His Honour found that what the Landlords required from the Purchaser, not unreasonably, was not only a statement of assets and liabilities, but also copies of bank statements and a valuation report to corroborate the statement of assets and liabilities. In his Honour’s view (at [39]):
“It was up to [the Purchaser] to provide all reasonable information including the identification of [his residential] property and his half interest in it”.
Likewise the Purchaser’s statement of his experience had failed to make clear which pharmacies were no longer owned by him.
The primary Judge rejected the Purchaser’s submission that the attitude adopted by the Landlords’ solicitor in his letter of 29 August 2008 (in which the Landlords required cl 5(h) of the Right of Entry agreement to be deleted) remained the Landlords’ position throughout. His Honour found (at [43]) that, to the extent that the Purchaser had formed the view that the Landlords’ Consent for the purposes of Special Condition 12 could not be obtained before the date of completion, that view was erroneous:
“The [L]andlords had not refused to consent to the mortgage of lease and right of entry when [the Purchaser] issued the notice of rescission”.
The primary Judge found (at [44]) that the Purchaser was in breach of cl 27.2.1 of the Contract when he issued the notice of rescission:
“The scant material contained in the statement of assets and liabilities, the inaccuracy in including the entire interest in the residential property when it was jointly owned, the failure to provide written references and the failure to substantiate any of the values attributed to the assets discussed above constituted a failure to provide the requested information. The information that was requested was not, in my view, unreasonable. The landlord was entitled to assess the worth and ability of [the Purchaser] as the proposed lessee. [The Purchaser] was not entitled to rescind the contract for sale on general principles. It was he who was in breach.”
His Honour then addressed the Purchaser’s argument that he was entitled to rescind pursuant to Special Condition 12. His Honour was prepared to assume that the “date of completion” for the purposes of Special Condition 12 was 8 September 2008. However (at [48]-[49]):
“The right to rescind, limited to the purchaser only, was contained in a provision that required the purchaser to do all things necessary to obtain the landlords’ consent. That created an obligation on the part of the purchaser that affected the right to rescind. The right to rescind was conditional upon the purchaser not being in breach of the warranty.
In this case [the Purchaser] was in breach of that warranty. For the reasons set out above, [the Purchaser] did not do all things necessary to obtain the landlords’ consent prior to 8 September 2008.”
The primary Judge held that the Purchaser was not entitled to rely on cl 29.4.1 of the contract to rescind. The meaning of “the completion date” in cl 29.4.1 was the date of actual completion. The Purchaser’s reliance on cl 29.4.1 was premature. In any event, the right to rescind under cl 29.4.1 was conditional upon the Purchaser complying with his obligations under cl 27.2. The Purchaser had not done so.
The primary Judge pointed out that on 10 September 2008, the Vendor’s solicitor had written to the Purchaser’s solicitor stating that the Vendor did not accept the Purchaser’s purported rescission. The letter required the Purchaser to compete the Contract and to withdraw the notice of rescission by 11 September 2008. As the Purchaser had not withdrawn the notice of rescission, he committed a continuing breach of an essential term of the Contract entitling the Vendor to terminate.
His Honour found that there was no basis for an exercise of discretion conferred by s 55(2A) of the Conveyancing Act in favour of the Purchaser. The Purchaser’s conduct was “wanting”, the Landlords’ requirements were reasonable and the Vendor had not failed to seek to enforce his rights. There was nothing unjust or inequitable in allowing the Vendor to retain the whole of the deposit.
His Honour made orders giving effect to his findings and conclusions.
REASONING
Mr Harper accepted on behalf of the Purchaser that
the primary Judge had correctly found that the Purchaser had failed to comply with cl 27.2.1 of the Contract, in that he had failed to supply references and other information reasonably required by the Landlords in connection with the proposed assignment of the lease of the premises;
the primary Judge had correctly found that the Purchaser was in breach of cl 27.2.1 at the time he purported to issue the notice of rescission;
the primary Judge correctly held that if the Purchaser was in breach of the warranty contained in Special Condition 12 (“Warranty”) at the time the notice of rescission was served, the Purchaser was not entitled to rely on Special Condition 12 to rescind the Contract;
the primary Judge found that the Purchaser was in breach of the Warranty (which required the Purchaser to do all things necessary to obtain the “Landlords Consent”) to the grant and execution of the Mortgage of Lease and the Right of Entry agreement for the same reasons as his Honour found that the Purchaser was in breach of cl 27.1.2 of the Contract; and
if the Purchaser was not entitled to rescind he was in breach of an essential term of the Contract, thereby entitling the Vendor to terminate the Contract.
Construction Argument
Mr Harper argued that the primary Judge had been wrong in concluding that the Purchaser had breached the Warranty. He contended that the Warranty should be given a narrow construction. In particular, the Warranty should not be interpreted as requiring the Purchaser to provide information of a kind that the Landlords might reasonably require for the purposes of considering whether to consent to an assignment of the lease.
Mr Harper submitted that the obligations imposed on the Purchaser by the Warranty were qualitatively different from and directed to an entirely different subject matter than cl 27.2.1. In particular:
the Warranty was to do all things necessary to secure the “Landlords Consent”, while cl 27.2.1 required the Purchaser to supply references and other information reasonably required for the Landlords to consider the proposed assignment of lease;
the obligations imposed by the Warranty were directed to the grant and execution by the Landlords of the Mortgage of Lease and the Right of Entry agreement; and
cll 27 and 29 were directed to the quite different issue of the assignment of the lease to the Purchaser.
Mr Harper argued that the Warranty could not be construed literally, since there were some matters beyond the power of the Purchaser to procure, such as the consent by the mortgagee of the Premises to the execution of the Mortgage of Lease and of the Right of Entry agreement. The Warranty could only require the Purchaser to do all things within his power to place the Landlords in a position to grant, consent to and execute (as the case may be) the relevant documents: Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286, at 309, per Stephen J.
Mr Harper relied on these considerations to support his submission that the Warranty did not extend to the obligations imposed on the Purchaser by cl 27.1.2. On his submission, the Purchaser’s obligation to supply references and any information reasonably required by the Landlords for the purpose of determining whether to consent to the assignment of the lease was exclusively covered by cl 27.1.2. It followed, so Mr Harper argued, that the Warranty, insofar as it required the Purchaser to do all things within his power to obtain the “Landlords Consent”, did not include an obligation to supply references or other information reasonably required by the Landlords for the purpose of obtaining their consent to the assignment of the lease. The Warranty, on its proper construction, only required the Purchaser to take such actions as were necessary to obtain the “Landlords Consent” but which were not already required by cl 27.1.2.
There is no obvious textual reason to adopt the Purchaser’s construction of the Warranty. On the contrary, the language of Special Condition 12 is strongly against the Purchaser’s construction. The obligation under the Warranty is to do all things necessary to obtain the “Landlords Consent” (a defined term). It may be accepted that the obligation is confined to all things that are within the Purchaser’s power to do. But it is certainly within the Purchaser’s power to provide the Landlords with such financial information as may reasonably be required by them for the purposes of determining, for example, whether to execute the Right of Entry agreement. There is nothing in the language of the Warranty to indicate that it is to be read down so as to exclude any requirement that might also be imposed by cl 27.1.2.
As a matter of language, both the Warranty and cl 27.1.2 are capable of covering the same or similar ground. The language of the Warranty imposes an obligation that might well go beyond providing references and information reasonably required by the Landlords for the purpose of determining whether to consent to an assignment of the lease. Nonetheless both provisions are perfectly capable of operating together. Clause 27.1.2 obliges the Purchaser to give the Landlords references and information reasonably required to enable them to consider whether to consent to an assignment of the lease. The Warranty obliges the Purchaser, among other things, to give the Landlords information reasonably required by them to determine whether they should execute the Right of Entry agreement.
The context in which both the Warranty and cl 27.1.2 appear supports a broader interpretation of the Warranty than that contended for by the Purchaser. Any landlord asked to execute a document whereby a third party lender, in the event of default by an incoming tenant, can remove “Secured Property” from the leasehold premises has a strong interest in ascertaining, for example, the financial strength and business acumen of the incoming tenant. Indeed, the Landlords implicitly made this point in their solicitor’s email of 29 August 2008 to the Vendor’s solicitor. In the context of a reference to Special Condition 12, the email pointed out that the Purchaser had not responded adequately to the Landlord’s request for financial information.
Moreover, the Purchaser’s construction of the Warranty could lead to a commercially extraordinary result. On the Purchaser’s construction, if he wished to rescind the Contract he could simply decide to provide no financial information to the Landlords. That would prevent him from rescinding under cl 29.4 of the Contract, but the refusal to provide the information of the contract would not constitute a breach of the Warranty. Accordingly, so far as the terms of the Contract are concerned, the Purchaser would remain free to rescind pursuant to Special Condition 12.
It may be that this result could be avoided by applying the principle that a party to a contract is not entitled, as against the other party, to rely on an event (the failure to obtain the Landlord’s consent to execute the Right of Entry agreement) caused or materially contributed to by the first party’s own default: Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418, at 440-443, per Latham CJ, Williams and Fullagar JJ; Hunyor v Tilelli (1997) 8 BPR 15, 629 (McLelland J). However, it is not entirely clear whether, on the Purchaser’s construction, that principle would apply in the circumstances of the present case. The possibility that the principle may not apply strongly suggests that the Purchaser’s construction of the Warranty is not correct.
For these reasons I reject the Purchaser’s construction argument. The primary Judge correctly held that the Warranty required the Purchaser to provide to the Landlords references and financial information reasonably required by them for the purpose of determining whether to consent to or execute the draft Right of Entry Agreement.
Landlords’ Consent
The second argument advanced by Mr Harper was that even if the Vendor’s construction of the Warranty was correct, the primary Judge should have found that by the date of completion (which he identified as 8 September 2008), there was no reasonable likelihood that the Landlords would have agreed to execute the draft Right of Entry agreement in the form attached to the Contract. Accordingly, any breach by the Purchaser of the Warranty was irrelevant since, independently of that breach, the consent of the execution of the Right of Entry agreement could not have been obtained by the date of completion.

The principal basis of the Purchaser’s submission was the statement in the email of 29 August 2009 from the Landlords’ solicitor that they were not prepared to have their right to deal with their property fettered and that, accordingly, cl 5(h) of the draft Right of Entry agreement was to be deleted. Mr Harper submitted that this email and subsequent correspondence, including some that post-dated 8 September 2008, demonstrated that the Landlords were adamant that cl 5(h) had to be removed and that, as at 8 September 2008, they would not have been prepared in any circumstances to execute the Right of Entry agreement in a form that contained cl 5(h).
The primary Judge rejected this argument, finding that the Landlords had not refused to execute the Mortgage of Lease and the Right of Entry agreement at the time the Purchaser served the notice of rescission. In my opinion, there is no basis for challenging the primary Judge’s finding.
It is true that the email of 29 August 2008 demanded the removal of cl 5(h) from the draft Right of Entry agreement. But the email did not say that the Landlords would not, under any circumstances, execute the draft Right of Entry agreement if it contained cl 5(h). Nor did the email say that there was no point in negotiating as to whether the Landlords would execute the draft Right of Entry agreement in the form attached to the Contract. It must be borne in mind that it is very common for parties to state a position in uncompromising terms, yet to be prepared to continue negotiating in relation to their announced position.
The Landlords flagged in their correspondence a willingness to negotiate on the terms of the Right of Entry agreement. For example, their letter of 1 September 2008 recorded that the Purchaser’s solicitor had been advised of the Landlords’ “initial comments regarding the Right of Entry Agreement”. Similarly, on 5 September 2008, the Landlord’s solicitor, Mr Gallagher, advised the Vendor’s solicitor that the Landlords were awaiting comment from their mortgagee regarding the proposed Right of Entry agreement. The advice did not say that the draft agreement submitted to the mortgagee excluded cl 5(h).
On the same day, 5 September 2008, Mr Gallagher complained to the Vendor’s solicitor that his advice regarding the draft Right of Entry agreement and the status of the mortgagee’s consent to that agreement had not been passed on to the Purchaser. That was a reference to the email of 9.04 am on 5 September 2008, in which Mr Gallagher told the Vendor’s solicitor that no advice had been received from the mortgagee as to whether it consented to execution of the draft Right of Entry agreement.
All that can be said on the basis of this evidence is that by 8 September 2008 (assuming, in accordance with the Purchaser’s submissions, that this is the relevant date) the Landlords had stated their negotiating position in relation to cl 5(h). At that stage it was unclear whether the Landlords would execute the Right of Entry agreement in the precise form attached to the Contract. They had not refused to do so. Nor had they acted in such a way to justify an inference that they would refuse to execute the agreement.
What the Landlords would have done in relation to the Right of Entry agreement, particularly if the Purchaser had complied with his obligations under the Warranty, is a matter of conjecture. However, there is no basis in the evidence for concluding that, regardless of whether the Purchaser complied fully with his obligations under the Warranty, the Landlords’ Consent could not have been obtained prior to 8 September 2008. Accordingly, the Purchaser has not demonstrated any error in the finding made by the primary Judge.
The Purchaser’s additional written submissions contended that the correspondence showed that the Landlords would have required other changes to the draft Right of Entry Agreement relating to the position of the Landlords’ mortgagee. The argument was not pursued in oral submissions. In any event, this contention carries the matter no further. The documentary evidence does not justify a conclusion that, regardless of the Purchaser’s compliance with the Warranty, the Landlords would not have consented to or executed the Right of Entry agreement by the date of completion because of objections made or requirements communicated by the Landlords’ mortgagee.
The Purchaser’s second argument fails.
Clauses 27 and 29
Mr Harper rather faintly argued that the right of rescission conferred on the Purchaser by cl 29.4 of the Contract, where the Landlords did not consent to the transfer of the lease by the completion date, was not affected by the Purchaser’s failure to comply with the obligation imposed by cl 27.2.1 to provide information to the Landlords. In my opinion, this argument lacks substance.
Clause 27 contains what are described in the heading as “general provisions” which apply where the premises are subject to a lease. Clause 27.2.1 requires the Purchaser to provide information that is reasonably required to allow the Landlords to consider “the application”. This term is not defined in the Contract, but it plainly is intended to include an application to transfer an existing lease. This is made clear by cl 27.3, which requires the Vendor to apply to the Landlords for their consent to the Purchaser becoming the tenant of the Premises.
The right of rescission conferred by cl 29.4 arises only if the Landlords do not consent to the transfer of the lease. It is the Vendor who is responsible for applying for the Landlords’ consent. But the Purchaser is obliged to provide information reasonably required by the Landlords when considering the Vendor’s application. It is plain that the Purchaser’s right to rescind does not arise unless the Purchaser has complied with his obligation under cl 27.2.1.
Reasonable Opinion
The Purchaser’s additional written submissions on the appeal seem to advance an argument that Special Condition 12 entitled the Purchaser to rescind if he reasonably formed the opinion that the Landlords’ Consent could not be obtained. This argument was not developed in oral submissions but cannot succeed in any event. Special Condition 12 contemplates an objective state of affairs, namely that the Landlords’ Consent cannot be obtained by the date of completion. It says nothing about the Purchaser’s opinion being the trigger for an entitlement to rescind.
Conveyancing Act, s 55 (2A)
In view of the conclusions that I have reached, no basis has been shown for interfering with the primary Judge’s decision not to exercise the discretion conferred by s 55(2A) of the Conveyancing Act in favour of the Purchaser. His Honour took into account all relevant considerations and made no error of principle.
CONCLUSION
For these reasons the appeal must be dismissed. The Purchaser must pay the Vendor’s costs of the appeal.
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LAST UPDATED:
10 November 2010