Turner v Labafox International Pty Ltd

[1974] HCA 41

HIGH COURT OF AUSTRALIA

McTiernan A.C.J., Stephen and Mason JJ.

TURNER v. LABAFOX INTERNATIONAL PTY. LTD.

(1974) 131 CLR 660

25 October 1974

Contract—Vendor and Purchaser

Contract—Rescission—Right to rescind conferred by contract—Election—Affirmation of contract—Exercise of right to rescind precluded. Vendor and Purchaser—Contract of sale—Term conferring right to rescind if it were established that at date of contract property affected by planning scheme otherwise than as stated—Statement that property affected as shown in annexed certificate—No certificate annexed—Right to rescind—Election—Affirmation of contract—Exercise of right to rescind precluded.

Decisions

Oct. 25.
The following written judgments were delivered:-
MCTIERNAN A.C.J. I would dismiss this appeal and would do so for the reasons prepared by my brother Stephen. (at p662)

STEPHEN J. This appeal from the Equity Division of the Supreme Court of New South Wales, Holland J., is concerned, as were the three appeals in which A.S.L. Developments Ltd. was respondent and in which judgment has just been delivered, with the consequences of a failure to annex to a contract of sale a certificate disclosing how the subject land may be affected by an applicable town planning provisions. I adopt the statement of facts appearing in the reasons for judgment of my brother Mason. (at p662)

2. The standard form of contract in the present appeal is the 1972 edition but for present purposes the differences between cl. 17 of that form and cl. 16 of the 1965 edition, dealth with in Wolczyk v. Barr (1970) 92 WN (NSW) 518 , are not material. It was not argued by the respondent on this appeal that Wolczyk v. Barr was otherwise than correctly decided but instead it was sought to distinguish it. Holland J. in the course of his judgment has said: "I am satisfied that at all material times the plaintiff was fully aware of the facts which were later relied upon to ground the notice of rescission and that at no time were they a deterrent to him in the purchase of the subject properties or a reason in his mind for not going through with the purchase and completing the contract", and it was contended that the opening words of cl. 17, "Should it be established that . . ." were inapplicable to the case of a purchaser who had long been familiar with the town planning status of the subject land. I have, in what I shall for convenience refer to as the A.S.L. Developments appeal (1974) 131 CLR 660 at p 634 which concerned the 1965 edition of the standard form of contract, already dealt with a very similar contention and for the reasons there stated must reject this submission, only adding that the changes in language made in the 1972 edition appear to me to provide additional reasons for rejecting the view contended for. (at p663)

3. Holland J., while holding that cl. 17 conferred a right of rescission upon the purchaser, concluded that the purchaser's subsequent conduct disentitled him from taking advantage of it; his conduct following the making of the contract amounted to an affirmation of continuing contractual relations with knowledge of his right of rescission and there was thus a waiver of the right to rescind. The vendor's subsequent rescission notice, which treated the purchaser's rescission as a wrongful repudiation of the contract, was therefore validly given and the vendor was entitled to forfeit and retain the purchaser's deposit, relief against such forfeiture being refused in all the circumstances. (at p663)

4. In this appeal by the purchaser the refusal to relieve against forfeiture of the deposit is not in issue and the only question now remaining for determination is whether, following the events of the morning of 15th February, it thereafter remained open to the purchaser to exercise his right of rescission under cl. 17. The purchaser argues that nothing which he or his solicitor did deprived him of his right to rescind; the vendor, on the other hand, seeks in this respect to uphold his Honour's conclusion that the purchaser lost his right of rescission. (at p663)

5. That morning, in a telephone conversation with the vendor's firm of solicitors, the purchaser's solicitor insisted upon continued performance by the vendor of its obligations under the contract of sale. The extract from the cross-examination of the purchaser's solicitor which appears in the reasons for judgment of my brother Mason reveals this to have been conduct amounting to an unequivocal act of affirmation of the contract; it was also the conduct of one who, as solicitor for the purchaser, had his authority to act on his behalf in the steps necessary for completion of the purchase. Did there then exist the requisite element of knowledge necessary to found an irrevocable election and was this authorized act one which affects the right of the principal, the purchaser? If yes to each of these questions, the consequence will be that the purchaser effectively elected to affirm the contract and could not thereafter rescind under cl. 17. (at p664)

6. On the question of knowledge I am satisfied that both the purchaser and his solicitor knew on 15th February that the subject land was affected by the provisions of a planning scheme. The purchaser was an architect whose training had included a course in town planning and who was purchasing this property with a view to dealing in it so as to realize a profit. He had, before purchase, made the sort of careful enquiries as to the town planning status of the land that might be expected of him and had correctly ascertained its then zoning, of which he had informed his solicitor. His solicitor knew, independently of that information, that the property was in an area affected by the City of Sydney Planning Scheme and had in his possession a somewhat "stale" planning certificate which confirmed the information which his client had given him. The only knowledge that either of them lacked was knowledge of a negative character, namely that there had not occurred the highly unlikely event of some total exclusion of the property from the ambit of the Planning Scheme. But the absence of this knowledge did not affect the mind of the purchaser who said in cross-examination, speaking of the time of purchase of the property, "I was under the belief that the zoning was as I saw it on the City of Sydney Planning Scheme". (at p664)

7. In these circumstances the making of the token enquiry by the purchaser at the Council's offices on 14th February, which served to confirm that there had been no change in zoning, is no evidence of any lack of relevant knowledge; nor can the purchaser's delay in informing his solicitor of the results of that enquiry affect the matter. The purchaser's enquiry was undertaken on his solicitor's advice only so as to satisfy what was thought to be a requirement implicit in the use of the word "established" in cl. 17 of the contract. (at p664)

8. I have referred, in the A.S.L. Developments appeals (1974) 131 CLR 660 at p 634 , to the extent of the knowledge of facts giving rise to legal rights which must exist before the doctrine of election will apply. There was here sufficient such knowledge. Until late in the morning of 15th February the purchaser did not know of his legal rights, although his solicitor was aware of them, but lack of this knowledge is in any event irrelevant for the reasons which I have stated in the A.S.L. Developments appeals. Accordingly both knowledge and conduct of an unequivocal nature were present in this case. (at p665)

9. That the purchaser's solicitor was authorized to act as he did on the morning of 15th February in demanding performance of the contract by the vendor is also not in doubt and if the consequence of so doing was to elect irrevocably as between inconsistent rights that election will bind his client. (at p665)

10. There remain only two further aspects of this appeal which call for mention. The first is that the period between the act of affirmation, the conversation between the parties' solicitors on the morning of 15th February, and the later statement that there would in fact be a rescission by the purchaser, followed by the giving of a notice of rescission, was only a matter of a few hours and during that period it seems that the vendor in no way acted to its detriment. Notwithstanding this fact, and for the reasons stated in my judgment in the A.S.L. Developments appeals, I am of the view that there was here an election to affirm the contract which was effective to prevent the purchaser from subsequently having recourse to cl. 17 of the contract. (at p665)

11. The second matter I mention only in passing. On the facts of this appeal there was another respect, concerned with road construction proposals by the Department of Main Roads, in which it may be that the purchaser initially acquired a right of rescission under cl. 17. If so then it too was lost by the election to affirm, the purchaser's solicitor having received from the vendor's solicitor on the exchange of contracts a letter from the Department which provided him with ample relevant knowledge of the facts. (at p665)

12. I would dismiss this appeal. (at p665)

MASON J. The question which arises in this appeal is whether Holland J., sitting in the Equity Division of the Supreme Court of New South Wales, was in error in holding that the plaintiff appellant had waived his contractual right of rescission of a contract dated 9th February 1973 by which the respondent Labafox International Pty. Limited agreed to sell and the appellant agreed to buy a property on which were erected three dwelling houses known as nos. 5, 7 and 9 Caroline Street, Redfern, near Sydney, for the sum of $47,000 payable as to the sum of $4,700 by way of deposit on the signing of the contract and as to the balance in cash on completion. The contract provided that completion should take place within seven days from the date of the contract and in this respect time was made of the essence. (at p665)

2. The contract was in the standard form, 1972 edition, approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. Clause 3 imposed on the vendor an obligation to give particulars of his title after the date of the agreement and within a reasonable time after written request by the purchaser. (at p666)

3. Clause 17, so far as it is material, provided:

"17. Should it be established that at the date of this agreement the property was affected by any one or more of the following: (a) any provision of any planning scheme, whether prepared or prescribed, or any interim development order made under the provision of the Local Government Act, 1919; . . . (c) any proposal for realignment widening siting or alteration of the level of a road or railway by any competent authority; . . .

in any manner other than as disclosed in the Fourth Schedule hereto, then the Purchaser shall be entitled to rescind this agreement but shall not be entitled to make any other objection requisition or claim for compensation in respect of any such matter. Any right of the Purchaser to rescind under this clause shall be exercised by notice in writing given to the Vendor prior to completion. In relation to paragraph (c) hereof, the property shall be deemed to be affected by a proposal if the Purchaser produces a written statement of the authority concerned, the substance of which is other than that the property is not affected by any proposal of the authority." (at p666)

4. The 4th Sch. stated:

"The property is affected as shown in the copy certificate under Section 342AS of the Local Government Act, 1919, annexed hereto."

No such certificate was annexed to the contract; nor did the 4th Sch. contain any statement as to the manner in which the property was affected by planning provisions and orders or other proposals of the kind referred to in cl. 17. (at p666)

5. Contracts were exchanged on Friday, 9th February 1973 at the office of the respondent's solicitor, a clerk from the appellant's solicitor attending on the appellant's behalf. The solicitor for the appellant believed, as a result of discussions with the respondent's solicitor, that the latter would deliver to him up-to-date replies to conveyancing inquiries. In fact, contrary to this belief, up-to-date replies to conveyancing inquiries were not available to the respondent's solicitor. He delivered such replies as he had, but they were out of date. Included in the documents handed over on exchange was a certificate dated 18th July 1972 from the State Planning Authority of New South Wales relating to nos. 5, 7, 9, 11, 13 and 15 Caroline Street, Redfern, stating that under the City of Sydney Planning Scheme the land was zoned "Light Industrial/County Road" and that further information regarding the county road might be obtained from the Department of Main Roads. Also handed over was a letter to the respondent's solicitor from the Department of Main Roads, dated 8th February 1973, stating that the properties nos 11-15 Caroline Street were shown affected by the approximate boundaries of a planned county road included in the City of Sydney Planning Scheme maps gazetted in July 1971, and stating: The Department's investigations are not completed. At this stage there is no adopted design requiring nos. 5-9 Caroline Street, but it appears likely that the whole of nos. 11-15 will be required for the Southern Freeway proposals." No certificate under s. 342AS of the Local Government Act was handed over on exchange. (at p667)

6. The appellant's solicitor did not see the copy of the contract executed by the respondent or the documents handed over on exchange until Monday, 12th February 1973. He then became aware of the absence of a s. 342AS certificate and that in consequence of the decisions of the Court of Appeal in Wolczyk v. Barr (1970) 92 WN (NSW) 518 and Jonray (Properties) Pty. Ltd. v. Taranto (1970) 92 WN (NSW) 929 , in the absence of such a certificate the appellant was entitled under cl. 16 of the 1965 edition of the standard form of contract (the counterpart of the existing cl. 17) to rescind the contract if the property was in any way affected by the provisions of any town and country planning scheme. Although the appellant's solicitor was aware that he had a potential ground for rescission he did not communicate the existence of this possibility to his client because he wished to make sure that there was certain ground for rescission before so advising the appellant. However, on Tuesday, 13th February 1973 he informed the appellant that the answers to inquiries were inadequate and that no s. 342AS certificate had been handed over. He asked the appellant to attend the South Sydney Council, which was the responsible authority, to require it to expedite the issue of a s. 342AS certificate. At about the same time he endeavoured to obtain advice from counsel and a lecturer in conveyancing. The burden of their advice seems to have been that he could be liable for professional negligence if he advised his client to rescind unless he first established that such a right existed. (at p667)

7. The appellant, who was an architect, had earlier been informed in January by the respondent's real estate agent that two of the properties, nos. 5 and 7, were zoned "Light Industrial 4(b)" and that the third appeared to be partly zoned in this fashion and partly to be affected by county road proposals described as the proposed "Southern Distributor" roadway. In fact he was shown a copy of the City of Sydney Planning Scheme map gazetted on 16th July 1971 and knew that it was a copy of the prescribed map. This information did not deter him from buying the properties. Indeed, on Monday, 12th February 1973, three days after the contract in question was signed, he contracted to buy the three adjoining properties, nos 11, 13 and 15 Caroline Street, knowing that they were all affected by the country road proposals. Moreover, before contracts were exchanged on 9th February 1973 he informed his solicitor that he was aware of the zoning of the properties and was satisfied with it. (at p668)

8. The appellant, then ignorant of the rescission which his solicitor contemplated, acted in accordance with his advice. The appellant attended at the office of the Council on Wednesday, 14th February 1973 but was unable to get a s. 342AS certificate. He was shown a copy of the City of Sydney Planning Scheme map identical with the one he had already seen. It confirmed what he already knew. Unaware of any urgency, he did not communicate with his solicitor until Thursday, 15th February. (at p668)

9. Meanwhile, on the previous Monday afternoon the respondent's solicitor had given to the appellant's solicitor the settlement figures assessed on the footing that completion would take place on the following Friday. The appellant's solicitor had asked for written particulars of the respondent's title. These particulars were despatched by letter dated 13th February, stating that they were as set out in the contract and that settlement was to take place on the Friday. The letter was received on Wednesday, 14th February. (at p668)

10. Before 15th February no hint of the possibility of rescission was given to the respondent's solicitor. On that day the appellant's solicitor had a telephone conversation with Mrs. Jarvis, an employee in the Office of the respondent's solicitor. The appellant's solicitor made a strong complaint that he had not received written particulars of the respondent's title under cl. 3 of the contract and demanded them. He complained that the documents delivered with the contract were out of date. (at p668)

11. In cross-examination the appellant's solicitor gave the following evidence as to this conversation:

"And you were insisting that the vendors perform the obligations imposed upon them under the contract to furnish proper particulars of title? - And I concede, as I did the other day, that I was perhaps on the wrong track. And when you used the words 'We insist on your performance of the contract', 'We have to do all these things and we must not be prejudiced by delay', you were insisting - that is the bottom of p. 3 of your affidavit-you were insisting that the vendor supply proper particular and not the rather informal way in which they were furnished by the letter of 13th February. That is correct? - Yes, I was doing that. Then you said: 'If you want to do something to guarantee your due performance of the contract. I am giving you this opportunity to get cracking'? - Yes. What you are referring to is the giving of proper particulars, correct? - Yes.

Then you said, 'I am insisting on strictly adhering to the contract' and you were referring there to the vendor's obligation, as you then considered it, to give proper particulars of title? - Yes." (at p669)

12. Shortly after this conversation the appellant informed his solicitor of the results of inquiries which he, the appellant, had made the previous day. The solicitor then advised him that he had a right to rescind the contract. The appellant said, "If they are not going to be reasonable and you are sure that I have a right to do so, I will rescind". (at p669)

13. Late in the afternoon of the same day the respondent's solicitor telephoned the appellant's solicitor to ascertain what was the difficulty. The appellant's solicitor reiterated his complaints about the particulars, the out-of-date inquiries and the absence of a s. 342AS certificate. Initially he made no reference to the existence of a right to rescind but when the respondent's solicitor stated that all the respondent's obligations under the contract had been complied with and that it was ready to settle, the appellant's solicitor stated for the first time that he was going to advise his client to rescind on the basis of Wolczyk v. Barr (1970) 92 WN (NSW) 518 . Notice of rescission was served on the same day. (at p669)

14. The learned judge, following the decision in Wolczyk v. Barr and Jonray (Properties) Pty. Ltd. v. Taranto (1970) 92 WN (NSW) 929 , held that a right to rescind had arisen under cl. 17. However, he concluded that the notice of rescission was invalid on the ground that the appellant, after acquiring knowledge of the existence of the right to rescind, had been guilty of delay in exercising his right and, further, had affirmed the contract when his solicitor in the conversation with Mrs. Jarvis had called upon the respondent to furnish particulars under cl. 3. The appellant contended that his Honour was incorrect in holding that there had been a waiver of the right to rescind and an affirmation of the contract before the notice of recission was served. The respondent submitted that the judgment of the trial judge was correct and further submitted that in the circumstances, even accepting the correctness of the decisions in Wolczyk v. Barr (1970) 92 WN (NSW) 518 and Jonray (Properties) Pty. Ltd. v. Taranto (1970) 92 WN (NSW) 929 , no right to rescission had arisen in the circumstances of the case. (at p669)

15. In Sargent v. A.S.L. Developments Ltd. (1974) 131 CLR 660 at p 634 I have already expressed the view that Wolczyk v. Barr (1970) 92 WN (NSW) 518 was correctly decided. Clause 17 of the 1972 edition of the contract is not in terms identical with cl. 16 of the earlier edition. Three differences are to be noted:
(1) Clause 17 confers a right of rescission on the purchaser only, whereas cl. 16 conferred a right of rescission on the vendor as well;
(2) The opening words of cl. 17 read, "Should it be established that at the date of this agreement the property was affected by . . . .". whereas the opening words of cl. 16 were. "Should it be established prior to completion that at the date of this agreement the property was affected by . . . ."; and
(3) The word "disclosed" now appears in the expression "in any manner other than as disclosed in the Fourth Schedule hereto" which applies to all forms of affection as specified in the clause, whereas formerly it was used in relation to road proposals only. (at p670)

16. These differences in language have been used to support an argument that a different meaning should be attributed to cl. 17, but, with the exception that the right of rescission is now restricted to the purchaser. I do not regard the alterations in language as having any significance. Furthermore, it is of some importance that the clause appears in a standard form of conveyancing contract which was revised by its authors after publication of the decisions of the Court of Appeal to which I have referred. Yet, apart from the alterations already noted, no attempt was made to give the clause a different operation. (at p670)

17. The issue for decision is whether the appellant, in the light of the knowledge which he had of the facts giving rise to a right of rescission, was precluded by the subsequent acts of his solicitor from exercising that right. (at p670)

18. In Sargent v. A.S.L. Developments Ltd. (1974) 131 CLR p.634. I have expressed the view that a binding election to affirm a contract may be made by a person who then has knowledge of the facts giving rise to a right of rescission, though unaware of the existence of the right of rescission, and that unequivocal conduct affirming the contract will in such circumstances preclude the exercise of the right of rescission. There is no need to repeat what was then said. (at p670)

19. It is enough to say that here the evidence clearly reveals a positive affirmation of the contract by the appellant's solicitor on 15th February in his conversation with Mrs Jarvis. As he admitted in cross-examination, he insisted upon performance of the contract and the furnishing of the particulars of title required by cl. 3. In so soding he was acting within the scope of his authority from the appellant. What he did was adverse to the respondent and was justifiable only on the footing that the contract was subsisting. It was, therefore, subject only to the question of knowledge, an unequivocal affirmation of the contract and therefore binding on the appellant. (at p670)

20. The aspect of knowledge does not in my view admit of any doubt. Both the appellant and his solicitor were in no doubt as to what the zoning of the land was on 15th February. Their additional inquiries were directed only to obtaining formal confirmation of the situation as they believed it to be. In the circumstances their belief constituted sufficient knowledge of facts entitling the appellant to rescind under cl. 17 to enable to conclude that the solicitor's conduct on 15th February amounted to a binding election to affirm. (at p671)

21. It should not be thought from what I have said that the appellant was disentitled to take time to conclusively establish the correct zoning of the land before taking steps, if he were so minded, to rescind the contract. He was not bound to elect immediately and he was at liberty to take advice and conclusively establish the zoning, so long as in the meantime he refrained by his own or that of his solicitor from affirming the contract. Unhapply for him that qualification was not observed. (at p671)

22. It remains only to say that if the letter of 8th February 1973 from the Department of Main Roads should be read as showing that the property was affected within the meaning of cl. 17 (c) in any manner other than as disclosed in the 4th Sch., a matter as to which I have some doubt, the relevant circumstances were known to the appellant's solicitor and to the appellant on or before 15th February 1973 when the critical conversation took place with Mrs Jarvis. Consequently, in so far as the road proposals could be regarded as an independent ground for rescission, it was also a ground put beyond the appellant's reach by what occurred on that day. (at p671)

23. In my opinion the appeal should be dismissed. (at p671)

Orders

Appeal dismissed with costs.