Tinsonaz Pty Ltd v Zabeel Pty Ltd

[1993] HCATrans 131

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl39 of 1992

B e t w e e n -

TINSONAZ PTY LIMITED

Applicant

and

ZABEEL PTY LIMITED

Respondent

Application for special leave

to appeal

DAWSON J
GAUDRON J

McHUGH J

Tinsonaz 1 21/5/93

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 21 MAY 1993, AT 11.24 AM

Copyright in the High Court of Australia

MR J.M. IRELAND, QC: If the Court pleases, I appear with my

learned friend, MR J.B. MASTON, on behalf of the

applicant. (instructed by Brian C. Collins)

MR R.W.R. PARKER, QC: If the Court pleases, I appear with

my learned friend, MR J.E. ARMFIELD, for the

respondent. (instructed by D.S. Harley)

DAWSON J:	Mr Ireland.
MR IRELAND:	If the Court pleases. Your Honour, may we

provide a bundle of materials to which reference

may need to be made.

Your Honours, this is an application for

special leave to appeal against a unanimous

decision of the Court of Appeal in New South Wales

which reversed the trial judge, Mr Justice

Cohen. They were proceedings between the vendor

and the purchaser of a large piece of industrial

land in Sydney.

In the Court of Appeal, Justice Mahoney

delivered reasons for judgment which appear at

page 54 and following of the application book.

Justices Priestley and Handley expressed agreement.

The applicant in this Court was the vendor of the land and was seeking specific performance of an

agreement for sale between the parties under the

1988 edition of the agreement for sale produced and

recommended by the Law Society and the Real Estate

Institute of New South Wales. The decision in this

case involves interpretation of that standard form

of contract which has been in common and regular

use in New South Wales for a number of years.

GAUDRON J: It is no longer in use. Is that the case?

MR IRELAND: That is not right.
GAUDRON J:	No.

MR IRELAND: There is, as I will come to, with respect, a

new form which has been promulgated in the

straight-talking or plain-speaking mode which

changes everything quite radically, but the current

edition which emanates in 1986 in respect of this

clause is very much still in current use. The

clause in question, as I have mentioned, has been

current since the 1986 edition of the contract.

Your Honours, the primary judge granted

specific performance to the vendor and the Court of

Appeal reversed the result which upheld the

purchaser's right of rescission. The ground for

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rescission was the existence at the date of
contract of an underground water main affecting the

land and a proposal by the Water Board to acquire

an easement over the land to protect that main.

As I mentioned, recently the Law Society and

the Real Estate Institute issued a new form of

contract which is significantly different in its

philosophy in that it adopts a plain language style
but the availability of the new form of contract

has by no means supplanted the use by conveyances

in New South Wales of the 1988 form. It remains in

daily use in this State and governs the rights and
obligations of a great number of persons involved
in the purchase and sale of land.

The applicant submits that the interpretation placed by the Court of Appeal on the standard form

contract and, in particular, upon clause 7 which

deals with errors and misdescriptions raises a
matter of general importance which is appropriate

for the attention of this Court.

In the materials which I handed up,

Your Honours, the new form of contract is at page 15 in the bundle and following.

DAWSON J: But this was not a straight contract, was it not?

You had put and call options which rather muddied

the waters, if I can put it that way.

MR IRELAND:  The order of events was this, Your Honour, that

there was a contract concluded between the parties

on 16 December 1989. By common consent - - -

GAUDRON J: Under duress, it was said.

MR IRELAND:  No, this was in the previous year, with

respect.

GAUDRON J: Sorry, yes.

MR IRELAND:  The original contract. And then by common

consent, that was rescinded, as the primary judge

found, and replaced by what was described as "put

and call options". The purchaser was entitled to

exercise an option to purchase and in default of

the purchaser exercising that option, the vendor

could put the property within a further period of

seven days.

DAWSON J:  The reason why the option was exercised was

because otherwise an amount of, what was it,

$50,000, would have been lost.

MR IRELAND:  Or, perhaps putting it another way, there was a

deliberate decision to bring the contract into

Tinsonaz 3 21/5/93

existence hoping, as Mr Justice Mahoney later

vindicated, that the right of rescission would

still be available in those circumstances.

DAWSON J: Rather than -

MR IRELAND: Rather than contest the option.

DAWSON J: Yes, and it is in that context that the questions

of misdescription arise, is it not? At the time

the actual contract was entered into, the situation

was rather different from the situation which had

hitherto obtained.

MR IRELAND:  The Court of Appeal judged the position clearly

enough as if there had been one contract originally

made in 1989 and that the relevant date for testing

knowledge as to the existence of the easement was

that date because Mr Justice Mahoney acted upon

evidence which was directed to that date.	It was
plain and common ground that by the date of

exercising the option nearly a year later, or nine

months later, that both parties knew about the

existence of the water main which had been turned

up in advancing inquiries and the matter of debate

between them.

GAUDRON J:  Does that mean that one should approach the case

on the basis that it was an attempt to rescind the

option agreement?

MR IRELAND: Before the primary judge, it was put both ways.

Primarily, it was pleaded that the operative

agreement was the original agreement and it was

subsidiarily maintained on behalf of the respondent

that it was the option agreement that was being put

to an end by the rescission.

GAUDRON J: It does rather muddy the waters a bit, does it

not?

MR IRELAND: It does not really, with respect, because on

either view the clause which comes to be considered

is this clause.

GAUDRON J: This 7(b)?

MR IRELAND:  Yes, 7(b) and 7(c).

GAUDRON J: Yes. Well, if you come to 7(b), however, there

may be different considerations depending on the

time you look at it.

MR IRELAND: Certainly. There are only two possibilities:

either the water main was known to the purchaser or

it was not.

Tinsonaz 4 21/5/93

GAUDRON J:  And it depends whether you look at it in terms

of the contract or the option.

MR IRELAND: Correct, but still one needs to know - I should

say the members of the Court of Appeal treated it

as the original date and did not turn their

attention to the alternative although the primary

judge did, in fact, deal with that matter in some

measure. But the important point in the case, with

respect, is whether or not clause 7(b), which on

any view forms a part of the bargain between the

parties, and clause 7(c) operate to displace a

general right of rescission under what has become

referred to as the rule in Flight v Booth.

GAUDRON J:  The Court of Appeal did not decide the case on

the basis of a general right of rescission.

MR IRELAND:	No.
GAUDRON J:	They decided it on the basis of 7(b).

MR IRELAND: That is so, and 7(c).

GAUDRON J:  And 7(c), saying that 7(c) only operated when

7(b) did not. That is to say, 7(c) did not control

7(b), in effect.

MR IRELAND:  Correct. I obviously wish to submit that that

is incorrect and that when one looks at this

instrument of general use and application, that is

simply wrong. It is certainly not supported by at

least two earlier decisions, apart from this case

at first instance, in New South Wales. It is a

matter of a controversy between the academic
writers who are joined in unison only in one

respect, namely, that this case is wrong but,

otherwise -

GAUDRON J:  If there is anything wrong with this case, may

it not, to some extent, relate to the fact that

there are these put and call options in the

background muddying the waters?

MR IRELAND:  No, with respect, Your Honour. We would say

that is a reactive approach to take but when one

appreciates that all that does is to change the

date upon which one tests the question of knowledge

and it does not alter the test which is to be

applied. As Your Honours will have seen, perhaps,

the Court of Appeal said that there was a partly

objective and partly subjective test to be applied

under clause 7(b). One looked to this particular

purchaser, the Court of Appeal said, to decide

whether they would, in fact, have gone ahead in

circumstances where they had particular plans for the land. What was determinative in the Court of

Tinsonaz 21/5/93

Appeal was the finding in that court that the

person representing the purchaser of the land

should be accepted when he said that in 1989, if he
had known about the water main, he would not have

gone ahead.

Your Honours, it is that part of the reasoning

that is most monolithically criticized in the

academic writings because, as we would seek to put

it, one cannot intrude a subjective consideration

and that the trial judge was absolutely right in

reading clause 7(b) as invoking an objective test,
uninfluenced by the particular statements of this
particular purchaser. That matter falls for
consideration, as I say, independently of which
date one takes for judging the question of
knowledge of the affectation, whether it is the
earlier period of contract or the date of exercise

of the option.

The standard clause 7 is reproduced at page 71

of the application book and, as I think I have
already hinted, clause 7(b) grants a right of

rescission, the controversy being what test should

be applied. Clause 7(c) is concerned to restrict

the availability of rescission to the purchaser to
cases, on the applicant's argument, where the value
of the affectation of the property is less than
5 per cent of the contract price. So that on the
reading which we are propounding of the contract,
cases in which the value of the affectation is no
greater than 5 per cent of the contract value, are

cases in which the right of rescission is taken

away by clause 7(c). As has been said, the Court

of Appeal, Mr Justice Mahoney, found otherwise -

deals with that, if I might draw attention to it,

at page 82 of the papers where His Honour says:

It was submitted that the right of rescission

was lost or, alternatively, did not arise

because, within cl 7(c), this was a case

"where the amount of compensation demanded is

not more than five per centurn of the price as

stated in" the contract of sale. Reference

was made, inter alia, to the consideration of

cl 7 in KKJ Pastoral Co Pty Ltd v Old Town Pty

Ltd and Stevenson v Deane.

And then His Honour says the crucial passage:

I do not think that cl 7(c) operates in

the manner suggested. It is not necessary to

determine whether the clause operates where

compensation is "payable" whether or not

"demanded", or whether it operates only where

there is in substance a "demand" for it.

Tinsonaz 6 21/5/93

And then these key words:

At the least, cl 7(c) operates only where the

issue of compensation arises. But in the

present case, that issue does not arise.

Your Honours, I think I did mention that the

two cases referred to at the top of the page by

Justice Mahoney in the Court of Appeal, that is KKJ

Pastoral Co Pty Ltd v Old Town Pty Ltd and

Stevenson v Deane were cases in which the academic

view had been accepted and applied, that 7(c) was

restrictive of the right of rescission in 7(b), so

that in what might be called the trivial cases

where the value of the affectation was under

5 per cent of the land there would be no overriding

question as to substantiality and as to materiality

dictated by the general law test as developed in

the 19th century cases and referred to generally as the rule in Flight v Booth. So, that is the extent of the reasoning as to the interplay between 7(b)

and 7 ( c) .

There was, as Your Honours have already

isolated in this case, an additional factor which

came into play and that followed from the sequence

of events: contract, rescission, option, exercise

of option. The question arose whether, in this

case, the actual knowledge of the purchaser of the

affectation at the date of exercise of the option

precluded compensation.

GAUDRON J: Well now, when you put it like this, it seems to

be that the case was fought - you accepted the case

was fought on the basis of a notional rescission of

the option rather than - - -

MR IRELAND:	No.
GAUDRON J:	If you say the date of the exercise of the

option, how does that become relevant unless you

ignore the contract?

MR IRELAND: That becomes relevant on this analysis: if it

be right to say that when the option was put in

place there was not a concluded conditional

contract but only a commitment to keep the offer

open, which is the unsettled controversy in this

Court concerning the legal analysis of options, then it is able to be said that the contract

between the parties which was effective and which

was rescinded did not take place until the exercise
of the option itself, so that one tests the
exercise date as the relevant date for the
knowledge of the purchaser with respect to the

conclusion of the contract.

Tinsonaz 21/5/93

GAUDRON J: Yes. But you just suggested a little while

before that you test the knowledge by reference to

the date of the option.

MR IRELAND:  I meant to say "exercise of the option", if I

did say that, I am sorry. It seems to us that the

two competitive - there are three possible dates:

original contract, which seems to have been dealt

with in the Court of Appeal; granting of the

option, or exercise of the option.

GAUDRON J:  And you say the exercise of the option is the

critical date?

MR IRELAND:	We do.
GAUDRON J:	Even though it was exercised, it says, under

duress.

MR IRELAND:  That cannot matter. "Under duress" meant under

duress, that if our counsel is wrong when he says

that we are entitled to a right of rescission, as

they had counsel's advice, then the duress is that

we would be losing our money. That is all it

means. That phrase, "under duress", is examined by

the primary judge and given the meaning it deserves

which is "under protest". In other words, we are

taking a punt that we can both exercise this option

to create a contract and then immediately exercise

a right of rescission. That is all it really

meant.

GAUDRON J:	I understand what you are saying.
MR IRELAND:	I have mentioned, Your Honours, the unanimous

view that the case is wrong in the Court of Appeal

and I have given Your Honours the extracts from

those materials. This month's part of the Australian Law Journal has an article by a Ms Skapinker who is one of the authors of one of

the two standard texts in which that view is

vehemently put.

We would say that the academic interest in the case - to use a neutral word - suffices to show

that it is attended by sufficient doubt and also

the other first instance decisions which go the

other way.

In summary, Your Honours, it is submitted that this is a case appropriate for the grant of special

leave to appeal. It involves at least two and

possibly three questions of general and continuing

importance in the daily business of land sales in

New South Wales. In addition, the question whether

the rule in Flight v Booth may be displaced by

Tinsonaz 21/5/93

contractual provisions has some application outside

the State in the - - -

GAUDRON J: But does that arise?

MR IRELAND: It might arise if one

GAUDRON J: It does not directly arise, does it?

MR IRELAND:  It might arise in this way, that if 7(c) would

cover the field and restrict the right of

rescission, then the next question would be whether

that is contractually possible in light of the

principle in Flight v Booth, if one got to that.

GAUDRON J: That would very much depend on the argument of

your opposition, would it not?

MR IRELAND:  I cannot anticipate those, Your Honour.

So, we would say in summary, the previous

judges of the supreme court and the academic
controversy indicates sufficient doubt, and the

applicant asks the Court to grant special leave so

that the matter can be clarified by this Court.

GAUDRON J: Before you conclude, do you say that the new

Plain English contract replicates the substance of

the old - - -

MR IRELAND:  No, it does not. I have included that in the

bundle. It has, it seems, an unqualified right of

rescission even in trivial cases. But my point

simply is that there is such great currency of this

contract and continued use of it that there would

be hundreds, if not thousands, of transactions

still governed by the clause in this form.	Or,
alternatively, it is genuinely possible that

special conditions may be introduced mirroring the

old provisions which would throw up the same

problem.

submissions. Your Honours, those are our respective

DAWSON J:  The Court need not trouble you, Mr Parker.

Having regard to the context, involving as it

does the existence of put and call options, in
which the issues arise, this case is not a suitable

vehicle for determining the correct construction of

clause 7 and special conditions 1 and 2 of the 1988

standard form of contract for the sale of real
property. Otherwise, the case does not raise any
question which would attract the grant of special
leave. In so saying, we are not to be taken as

endorsing the correctness of the decision of the

Court of Appeal. Accordingly, special leave is

refused.

Tinsonaz 9 21/5/93

MR PARKER:	I ask for costs, Your Honour.
DAWSON J:	Mr Ireland?

MR IRELAND: There is nothing I can say.

DAWSON J: Leave is refused with costs.

AT 11.44 AM THE MATTER WAS ADJOURNED SINE DIE

Tinsonaz 10 21/5/93