VS Property and Holding Pty Ltd v Zurzolo
[2024] VSC 89
•6 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2022 04298
| VS Property and Holding Pty Ltd & Anor (according to the attached schedule) | Plaintiff |
| v | |
| Nick Zurzolo & Anor (according to the attached schedule) | Defendant |
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JUDGE: | Quigley J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 and 7 December 2023 |
DATE OF JUDGMENT: | 6 March 2024 |
CASE MAY BE CITED AS: | VS Property and Holding Pty Ltd v Zurzolo |
MEDIUM NEUTRAL CITATION: | [2024] VSC 89 |
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REAL PROPERTY — Sale of Land — Claim for specific performance — Failure to settle on due date — Settlement Deed — Construction of the contract — Conflicting terms — Commercial purpose — Purchaser’s obligations at settlement — Failure to settle ‘through default on its part’ — Whether contract void or voidable — Whether default notice required to be served — Effect of electronic settlement clause — Gange v Sullivan (1966) 116 CLR 418, Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 — Adaz Nominees Pty Ltd [2020] VSCA 201 — Australian Broadcasting Commission v Australian Performing Rights Association (1973) 129 CLR 99 considered — Declarations made — Specific performance refused — Caveat removal ordered.
WORDS AND PHRASES — ‘through default on its part’ — Meaning of ‘default’ and ‘fault’.
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiff and Second Plaintiff | Mr C Archibald KC Ms E Poole | Darren Muir Fleiter Lawyers |
| For the First Defendant and Second Defendant | Mr J McKay | Best Hooper Lawyers |
HER HONOUR:
INTRODUCTION
On 4 August 2017, a contract for the sale of land was entered into between the first plaintiff, VS Property and Holding Pty Ltd (ACN 619 774 088) (‘VSPH’), as purchaser and the defendants, Nick and Sherryn Lee Zurzolo, as vendors (‘Sale Contract’). Settlement was due on 5 November 2020, with the balance of the $4 million purchase price to be paid on that date.[1]
[1]Document entitled ‘Statement of Agreed Facts and Key Issues’ provided to the Court by the parties on 5 December 2023, [5], [6] (‘Statement of Agreed Facts’); Sale Contract, depicted at Court Book, doc 7 (filed in S ECI 2022 04298, Supreme Court of Victoria), 73 (‘CB’).
The subject land comprises about 52 acres and is located in Rockbank, in Melbourne’s outer west.[2] The vendors had originally purchased the land as a hobby farm but over time, through changes to their personal circumstances and encroaching land development, decided to sell the land. The land is located in what is known in town planning parlance as an urban ‘growth area’. The purchaser intended to develop the land for conventional residential use.
[2]The land is known as 101 to 105 Deanside Drive, Rockbank VIC 3335 being the land described in Certificate of Title volume 9687 folio 144 and being Lot 3 on Plan of Subdivision 203463S.
The second plaintiff, Deanside Land Pty Ltd (ACN 662 312 825) (‘Deanside’), is the entity nominated by VSPH as substitute transferee pursuant to Additional Special Condition 13 of the Sale Contract.
The contract did not travel smoothly to its expected November 2020 completion. After the signing of the Sale Contract, a tripartite dispute ensued between VSPH, the vendors and the relevant water authority in relation to the vendors’ grant of an easement over part of the subject land to that water authority.
The settlement date of 5 November 2020 passed and settlement did not occur.
The tripartite dispute was eventually settled in July 2022 by way of two interrelated deeds of settlement, one of which was a deed of settlement between the Zurzolos and VSPH dated 21 July 2022 (‘Settlement Deed’).[3] Under the Settlement Deed, the Zurzolos and VSPH agreed to an extended settlement date of 15 September 2022 (‘Extended Settlement Date’).
[3]This Settlement Deed, depicted at CB, n 1, doc 40, 726 (‘Settlement Deed’).
While the Zurzolos were willing and able to settle on the Extended Settlement Date, the plaintiffs were unable to arrange finance in time and settlement did not occur.
The Zurzolos were not prepared to further extend the Extended Settlement Date and treated the Sale Contract as being at an end.
The plaintiffs deny the Sale Contract is at an end and seek specific performance. Their primary contention was that the failure to settle was through no fault of their own but by reason of delay in their lender’s processes.
The defendants claim that the Sale Contract is at an end by operation of clause 5 of the Settlement Deed. By their defence and counterclaim, the defendants seek inter alia a declaration that the Sale Contract is at an end, damages and removal of VSPH’s caveat.
The construction of the terms of the Settlement Deed is central to the resolution of the issues in this proceeding. Clause 1 of the Settlement Deed affirms the Sale Contract and provides that the parties confirm that they are bound by it. However, there are terms of the Settlement Deed which are, on their face, inconsistent with the terms of the Sale Contract, thus the construction task is not straightforward.
The dispute before the Court centres on the construction of the contractual agreement overall, and in particular, the construction and effect of clause 5 of the Settlement Deed.
BACKGROUND
Sale Contract and original settlement date
As described in paragraph 1 above, the Sale Contract was signed on 4 August 2017. It provided for settlement to occur on 5 November 2020.
Tripartite dispute with Western Water
After the signing of the Sale Contract, the relevant water authority, Western Water,[4] sought an easement over part of the subject land. In December 2018, the Zurzolos signed an agreement with Western Water for the creation of the easement and payment of compensation. After this circumstance came to VSPH’s attention, a caveat was lodged on its behalf in April 2019 with dealing number AS097321F.
[4]At this time, the relevant water authority was Western Region Water Corporation (ABN 67 433 835 375) which was abolished by statutory determination and succeeded by City West Water Corporation (trading as Greater Western Water) (ABN 70 066 902 467). For the purposes of this decision, I refer to both entities interchangeably as Western Water.
Relevantly, Further Special Condition 6 of the Sale Contract provided that the ‘[p]urchaser will be the only beneficiary for any type of compensation/acquisition on the property’.[5]
[5]Sale Contract, CB, n 1, doc 7, 75.
A tripartite dispute between the Zurzolos, Western Water and VSPH ensued and the initial settlement date of 5 November 2020 passed.
After the passing of the settlement date, the parties entered into lengthy negotiations in an effort to settle the dispute in relation to the easement sought by Western Water and to fix a new settlement date.
Zurzolos’ purported termination of the Sale Contract
By March 2022, the negotiations had not borne fruit and on 31 March 2022, the Zurzolos, through their lawyers, called for settlement of the Sale Contract to occur on, before, or by 4:00pm on Monday 2 May 2022.[6]
[6]Email letter from Best Hooper to Darrer Muir Fleeter at 4:40pm dated 31 March 2022, CB, n 1, doc 17, 251–3.
The more than 12 month delay (beyond what was already a lengthy settlement period) was creating personal and financial difficulties for the Zurzolos. This had been made clear by the Zurzolos’ solicitors in correspondence on 23 March 2022, where it stated that:[7]
As I have relayed to you on many occasions, timing is critical to our clients in this matter as they are experiencing serious and ongoing health issues (and they are unable to move on with their lives until this matter is resolved, one way or the other).
If Western Water or your client aren’t willing or able to enter terms that see our client settling by the agreed extended settlement date of 1 May 2022, we must know now as a matter of urgency. If that is the position, our client’s instructions are to then call on settlement with your client within a reasonable period of time (which we say is no more than 30 days) and any such settlement would be with the Western Water infrastructure in situ. Your client will then need to decide how it intends to proceed. In short, our clients will no longer continue on without a binding pathway to a confirmed settlement date for the contract entered with your client.
We appreciate that your client and firm have been agitating for Western Water to hurry up, unfortunately our collective efforts do not appear to be working. The seriousness of the health issues mean that our clients must now come to a resolution, they cannot be expected to sit by indefinitely (it has now been well over a year since settlement was due under the contract).
[7]Email from Robert McKay of BH to Mark Darrer of Darrer Muir Fleiter at 3:11pm dated 23 March 2022 (without prejudice), CB, n 1, doc 16, 243.
On a number of occasions, the Zurzolos’ solicitors noted in correspondence with VSPH’s solicitors that the Zurzolos were frustrated by the delay in settling the contract. For example, on 14 April 2022 the Zurzolos’ solicitor emailed VSPH’s solicitors stating that: [8]
our clients’ position remains that settlement is to proceed next month in accordance with our open letter by which we called on settlement …
… should your client wish to explore a settlement that further extends the settlement date to 15 September 2022, our client would require the following …
… (in short, if settlement does not proceed on 15 September 2022, your client would forfeit its deposit in full and any monies it has paid … and it would walk away from the deal). This must be crystal clear, there can be no further delays or extensions (no matter the justification). We will not proceed to an extended settlement on 15 September 2022 only to then be met with some other or further argument …
[8]See, eg, Email from Robert McKay of BH to Mark Darrer of DMF at 4:29pm dated 14 April 2022, CB, n 1, doc 21, 312.
The value of the land had also increased significantly at no cost to the purchaser. This was clearly evident to both the Zurzolos and VSPH. On 27 April 2022, the Zurzolos’ solicitors wrote to VSPH’s solicitors noting that the price of the land had risen substantially whilst the defendants have been ‘locked in’ to a contract which was signed in 2017 and unable to purchase anything else whilst the plaintiffs have had the benefit of a placeholder on the land without having to finance or settle it.[9]
[9]Email from Robert McKay of BH to Mark Darrer of DMF at 5:07pm dated 27 April 2022, CB, n 1, doc 23, 319–20. I note also that in the Aquamore Letter of Offer, disclosed in Supplementary Court Book, doc 130, 30 (‘SCB’), the market value of the land was estimated to be $10 million.
The ongoing dispute with Western Water was contributed to, in part, because VSPH had sought a significantly higher amount of compensation for the easement acquired by Western Water than had been offered in the agreement reached by the Zurzolos.[10]
[10]Letter from Russell Kennedy to Nick Zurzolo and Sheryn Zurzolo dated 20 February 2020, CB, n 1, doc 14, 197.
Settlement by the 2 May 2022 date did not occur.
On 11 May 2022, the Zurzolos purported to terminate the Sale Contract on the basis that the purchaser’s failure to settle meant that the Sale Contract was ‘now terminated or otherwise at an end’, or alternatively that the purchaser’s failure to settle constituted a repudiation of the Sale Contract and that repudiation was accepted by the Zurzolos.[11]
[11]Email from Amelia Toohey of BH to Mark Darrer of DMF at 4:58pm dated 11 May 2022, CB, n 1, doc 28, 359.
On 28 June 2022, the Zurzolos served a 14 day default notice on VSPH pursuant to General Condition 27 of the Sale Contract.[12] That default notice provided that the Sale Contract would be rescinded pursuant to General Condition 28 of the Sale Contract unless settlement occurred within 14 days, being 12 July 2022.
[12]Email from Robert McKay of BH to Mark Darrer of DMF at 5:20pm dated 28 June 2022, CB, n 1, doc 30, 458–64.
The Zurzolos extend the default notice period
On 12 July 2022, being the final day of the notice period, the Zurzolos offered to extend the notice period to 22 July 2022, being a further 10 days in order for settlement negotiations to continue.[13]
[13]Email from Robert McKay of BH to Mark Darrer of DMF at 2:54pm dated 12 July 2022, CB, n 1, doc 36, 547–54.
The extended date of 22 July 2022 passed and again settlement did not occur.
Settlement of the tripartite dispute and Extended Settlement Date
In July 2022, the tripartite dispute between the parties and Western Water was eventually settled by agreement. This was documented in two separate but interrelated deeds of agreement.
The first was the Settlement Deed between the Zurzolos and VSPH dated 21 July 2022.[14]
[14]Settlement Deed, CB, n 1, 726.
The second was a deed of settlement between the Zurzolos, VSPH and Western Water (‘Westen Water Deed’) made on 26 July 2022.[15]
[15]Deed of Settlement with Western Water, CB, n 1, doc 46, 1270.
The Settlement Deed purported to settle the issues between the purchaser and the vendors and provide certainty to both parties, including with respect to the settlement date, which was agreed to be extended to 15 September 2022.
The Western Water Deed provided for a mechanism to value the easement and pay compensation for it, but with additional conditions favouring the vendors in terms of costs and part compensation included in the separate settlement deed between them.
The plaintiffs attempts to arrange finance
The plaintiffs proceeded to arrange finance to complete the sale. The finance was to be facilitated through Ozyloans, a finance broker.
Mr Saahil Gupta is a director of both plaintiff companies.[16] Mr Gupta’s evidence was that the initial contact with the finance broker, Mr Mark Shaikh from Ozyloans, occurred around late July 2022.[17]
[16]Revised Witness Statement of Saahil Gupta dated 27 November 2023 (filed 6 December 2023 in S ECI 2022 04298, Supreme Court of Victoria), [1] (‘Gupta Witness Statement’).
[17]Ibid [14]; Transcript of Proceedings (Supreme Court of Victoria, S ECI 2022 04298, Quigley J, 6–7 December 2023), 79, lines 24–6 (‘Transcript’).
According to Mr Gupta’s evidence, in August 2022 he wanted to approach the National Australia Bank as a possible lender to facilitate a larger refinancing involving other borrowings and assets controlled by him and his business partner, Mr Vikas Kalra, but that did not eventuate.[18]
[18]Gupta Witness Statement, n 16, [16].
The finance broker, Mr Shaikh, arranged an offer from Australia Pacific but that offer was not taken further by the purchasers.[19]
[19]Ibid [17]–[18].
An alternative private finance entity, Aquamore Finance Pty Ltd (‘Aquamore’), was approached and Aquamore ultimately made an offer of finance which was accepted by VSPH.[20] From the documents relied upon by the plaintiffs, this occurred around 10 September 2022.
[20]Ibid [19]–[40]; Aquamore Letter of Offer, SCB, n 9, doc 130, 30; Text messages between Saahil Gupta and Vikas Kalra of VSPH and Mark Shaikh of Ozyloans spanning 10 September 2022 to 16 September 2022, CB, n 1, doc 66, 1507.
There was no evidence of any earlier attempts at arranging finance despite the several previous dates being set for settlement.
In the lead up to the Extended Settlement Date, the emails and messages passing between VSPH’s directors, VSPH’s solicitors, the finance brokers, and ultimately Aquamore and its solicitors, and the Zurzolos’ solicitors, indicate that the plaintiffs were aware of the critical settlement date of 15 September 2022 set under the Settlement Deed.[21] This correspondence includes:
[21]Text messages between Saahil Gupta and Vikas Kalra of VSPH and Mark Shaikh of Ozyloans spanning 10 September 2022 to 16 September 2022, CB, n 1, doc 66, 1501.
(a) On 12 September 2022, the plaintiffs’ solicitor expressed to the Zurzolos’ solicitor that the plaintiffs’ financier may require one day extra to complete settlement.[22]
[22]Email from DMF to BH at 4:23pm dated 10 September 2022, CB, n 1, doc 67, 1510.
(b) On 14 September 2022 at 9:59am, the plaintiffs’ solicitor requested an extension to the Extended Settlement Date to Friday 16 September or Monday 19 September 2022 in order to finalise the financial arrangements. At 12:22pm on the same day, the Zurzolos’ solicitor rejected this request and insisted settlement occur on 15 September 2022.[23]
[23]Email from DMF to BH at 9:59am dated 14 September 2022, CB, n 1, doc 71, 1530; Email from BH to DMF at 12:22pm dated 14 September 2022, CB, n 1, doc 72, 1531.
(c) On 14 September 2022 at 1:01pm, in a WhatsApp group message between Mr Gupta and Mr Vikas Kalra of VSPH and Mr Shaikh of Ozyloans, Mr Gupta sent a WhatsApp message to Mr Shaikh stating: ‘@Mark Sheikh [sic] Bro what’s the update for Aquamor [sic] are we going ahead with Aquamor [sic] for Deanside? it is serious as we need to settle and so far no extension agreed.’[24]
[24]Text messages between Saahil Gupta and Vikas Kalra of VSPH and Mark Shaikh of Ozyloans spanning 10 September 2022 to 16 September 2022, CB, n 1, doc 66, 1503.
(d) In the same WhatsApp group message, on 14 September 2022 at 1:33pm, Mr Kalra sent a WhatsApp message to Mr Shaikh stating: ‘Bro Mark. Just confirm tomorrow is last day for Deanside to settle…No [rescission] notice in this’.[25]
(e) On 14 September 2022 at 6:01pm, the plaintiffs offered to pay $200,000 in exchange for an extension to the settlement date. This request was rejected by the Zurzolos on the following morning, being the morning that settlement was to occur.[26]
(f) On the evening of 14 September 2022 at 10:09pm, Mr Gupta sent a WhatsApp message to Mr Shaikh in the same WhatsApp Group stating: ‘Mark Bhai get this one LOF tonight pls.. as This deal would be dead otherwise.’[27]
[25]Ibid 1503. The original message contains a typographical error where ‘rescission’ is misspelt as ‘recession’.
[26]Email from DMF to BH at 6:01pm dated 14 September 2022, CB, n 1, doc 81, 1602–3.
[27]Text messages between Saahil Gupta and Vikas Kalra of VSPH and Mark Shaikh of Ozyloans spanning 10 September 2022 to 16 September 2022, CB, n 1, doc 66, 1504.
Whilst the Zurzolos considered the requests for an extension to the Extended Settlement Date, the documents make it clear that their position was that there would be no further extension.
Nomination of Deanside prior to settlement
Additional Special Condition 13 of the Sale Contract provided for the nomination of a substitute transferee. VSPH purported to exercise that nomination right on 9 September 2022, nominating the second plaintiff, Deanside.
Despite the lack of compliance with the time frame set out in the Sale Contract, the Zurzolos did not oppose the nomination but set additional conditions for their acquiesce, which included the condition that settlement take place on the Extended Settlement Date in accordance with the terms of the settlement deed.[28]
[28]Email from BH to DMF at 10:30am dated 15 September 2022, CB, n 1, doc 80, 1601.
I note that the issue of the nomination of Deanside effectively fell away during the hearing and for the reasons which ultimately resolve the proceeding, the issue of the legality of the nomination as issue is not further considered.
Failure to settle on the Extended Settlement Date
While the vendors were willing and able to settle,[29] the finance required by the plaintiffs to settle the balance of the purchase price was not organised in time to meet the Extended Settlement Date, and the Sale Contract did not settle.
[29]Email from BH to DMF at 11:17am dated 15 September 2022, CB, n 1, doc 81, 1602; Email from BH to DMF at 12:22pm dated 14 September 2022, CB, n 1, doc 72, 1531.
The Zurzolos were not prepared to further extend the Extended Settlement Date and in reliance on clause 5 of the Settlement Deed treated the Sale Contract as being at an end.[30]
[30]Email from BH to DMF at 8:38am dated 16 September 2022, CB, n 1, doc 109, 1891.
STATEMENT OF AGREED FACTS
Prior to the trial, the parties prepared a document entitled ‘Statement of Agreed Facts and Key Issues’ (‘Statement of Agreed Facts’).
Key issues
The document identified the key issues as:
(a) Whether the Zurzolos are entitled to exercise any rights arising from VSPH and/or Deanside not having paid the balance on 15 September 2022 without having given a default notice under general conditions 27.1 and 27.2 of the Contract.
(b) Whether VSPH and/or Deanside as purchaser failed to settle the sale on 15 September 2022 through ‘default on its part’ within the meaning of clause 5 of the Settlement Deed.
(c) Whether the Contract was terminated on 15 or 16 September 2022, such that the deposit and other monies payable by VSPH and/or Deanside have been forfeited to the Zurzolos.
Agreed Facts
Amongst the agreed facts were the following matters set out below:
(a) From early 2019 Western Water, the Zurzolos and VSPH negotiated in an attempt to resolve the easement issue and reached agreement by July 2022.[31]
[31]Statement of Agreed Facts, n 1, [9].
(b) By the parties failing to complete on (or within a reasonable time of) the original settlement date of 5 November 2020, time under the Sale Contract ceased to be of the essence.[32]
[32]Ibid [10].
(c) There are terms of the Settlement Deed that:[33]
[33]Ibid [12].
(i) the Zurzolos and VSPH affirm the [Sale] Contract, and they each confirm they are bound by it (clause 1);
(ii) the parties agreed to extend the settlement date recorded in the [Sale] Contract to 15 September 2022 without penalty (clause 3);
(iii) the Zurzolos and VSPH were to settle on the Extended Settlement Date, and VSPH agreed no further complaint or objection could be made in the future regarding any alleged breaches by the Zurzolos of their obligations under the [Sale] Contract prior to the date of the Settlement Deed, or any deficiencies, misdescription or non‑disclosures in the [Sale] Contract or the section 32 vendors statement (clause 4); and
(iv) in the event that VSPH failed to settle, through default on its part, the [Sale] Contract on the Extended Settlement Date, the Zurzolos and VSPH then agreed that the [Sale] Contract was immediately at an end, and all monies VSPH had paid under the [Sale] Contract were to be immediately and irrevocably released to the sole use, benefit and account of the Zurzolos, and VSPH was to immediately withdraw any caveat it had lodged against the title to the Land, and VSPH fully and finally released the Zurzolos from any and all claims, suits or actions, arising from, or of and incidental to, the matters raised in the Settlement Deed (clause 5).
(d) VSPH and Deanside did not pay the balance due under the [Sale] Contract and Settlement Deed on 15 September 2022.[34]
(e) The Zurzolos did not give VSPH and Deanside a default notice in respect of the non‑payment of the balance.[35]
(f) The Zurzolos have not settled and have refused to settle the sale under the Contract in performance of General Condition 10.1.[36]
[34]Ibid [14].
[35]Ibid [15].
[36]Ibid [16].
THE SETTLEMENT DEED
The recitals of the Settlement Deed set out the background to the dispute which led to the agreement reached between the Zurzolos and VSPH. By clause 10 of the Settlement Deed the recitals are agreed to form part of the contract.
I set the recitals out in full below.
A.The Vendors are the registered proprietors and owners of the land known as 101‑105Deanside Drive, Rockbank 3335 Victoria, being the land more particularly described in Certificate of Title Volume:9687 Folio:144 (Property).
B.By a contract of sale of real estate dated 4 August 2017 (Contract) the Vendors agreed to sell and the Purchaser agreed to purchase the Property (a copy of the Contract is annexed to this Deed and marked ‘Annexure 1’).
C.The Contract provides for settlement on 5 November 2020 (and the parties have agreed to extend the settlement date informally in anticipation of entering this deed).
D.In or around 2018, the Purchasers were approached by the Western Region Water Corporation ABN 67 433 835 375 (Western Water) regarding the prospect of it acquiring an easement over the Property.
E.The Vendors subsequently entered into a Deed of Agreement to Licence, Construct and Create Easement (Easement) with Western Water in or about December 2018 (D18 Deed) regarding the taking of the easement on the Property (a copy of the Deed is annexed to this Deed and marked ‘Annexure 2’).
F.Among other things, the D18 Deed provides or confirms as follows:
(i)Western Water needed to acquire the Easement (as that term is defined in the D18 Deed) on the Property for the purpose of the Aintree Sewer Rising Main and Koroit Link Water Main Project;
(ii)Western Water was granted a licence to access the Property to undertake various works on the Property within the strip of land that comprises the Easement; and
(iii)Western Water agreed to pay the Vendors a ‘Purchase Price’ of $400,000 (plus GST if applicable) for the taking of the Easement (and that this sum was made up of any compensation payable to the Vendors pursuant to the Land Acquisition and Compensation Act 1986 (LACA)).
G.After exchanging the D18 Deed, Western Water paid to the Vendors a deposit of $20,000 in accordance with the terms of the Deed and it has since installed assets or infrastructure at the Property within the Easement (Infrastructure) in reliance on the D18 Deed.
H.The Easement has not been registered on the title to the Property (and the Purchaser has, to date, refused to consent to the registration of the Easement).
I.The Vendors purported to rescind or avoid the D18 Deed by notice given on 17 July 2020 in accordance with section 13 of the LACA (copies of the letter and notice are annexed to this Deed and marked “Annexure 3”).
J.Western Water has since indicated that it denies the validity of the purported rescission or avoidance of the D18 Deed by the Vendors.
K.Western Water was abolished by statutory determination, and has been succeeded by City West Water Corporation (trading as Greater Western Water) ABN 70 066 902 467 (GWW).
L.The Purchaser has threatened to avoid or terminate the Contract based on the matters raised at Recital D to K above (inclusive) (Acquisition Dispute).
M.The Purchaser and Vendors have had dealings with Western Water / GWW in an attempt to resolve the Acquisition Dispute and they have now resolved same by the attached Deed of Settlement marked ‘Annexure 4’) (GWW Settlement Deed) which is to be signed and exchanged by the parties contemporaneously with the signing and exchanging of this Deed (and held in escrow pending receipt of an exchanged signed copy from Western Water / GWW).
N.The GWW Settlement Deed provides for the payment of the following sums of money to the Vendors:
a.$65,000.00; plus
b. the amount assessed in accordance with the applicable procedure outlined in the Western Water Settlement Deed; or otherwise
c. that a compulsory acquisition regarding the Easement and or Infrastructure will proceed on 3 October 2022 at the election of the Purchaser (in which case, the above sums will not then be paid).
O.The Vendors called on settlement to occur on 2 May 2022, the Purchaser has to date failed to acknowledge this and it has not settled the Contract. On 28 June 2022, the Vendors served a 14‑day default notice on the Purchaser again calling on settlement to occur by 12 July 2022.
P.In order to avoid further disputation, uncertainty and costs, the Vendors and the Purchaser (the Parties) have reached agreement to fully and finally settle as between themselves all issues raised above and disputes between them on the terms as set out in this deed.
The terms of the Settlement Deed state that the parties have agreed to settle the matters raised in the recitals set out above on terms which include that:
(a) Clause 1 provided that the Parties affirmed the Sale Contract and each confirmed that they are bound by it. A copy of the Sale Contract was annexed to the Settlement Deed at Annexure 1.
(b) Clause 2 provided that the purchaser agreed to extend the settlement date recorded in the Sale Contract to 15 September 2022 without penalty, which was referred to as the Extended Settlement Date.
(c) Clause 4 provided:[37]
[37]Each of the terms referred to in this clause are defined in the Settlement Deed.
The Parties must settle the Contract on the Extended Settlement Date and the Purchaser agrees that no further complaint or objection can be made in future regarding any alleged breaches by the Vendors of its obligations under the Contract prior to the date of this Deed, or any deficiencies, missed descriptions or nondisclosures in the Contract (or in the section 32 vendors statement annexed there to), whether as to the Easement, the Acquisition Dispute, the GWW Settlement Deed, the LACA, or any other matters whatsoever.
(d) Clause 5 provided:[38]
[38]Each of the terms referred to in this clause are defined in the Settlement Deed.
In the event that the Purchaser fails to settle, through default on its part, the Contract on the Extended Settlement Date the parties then agree that the Contract is immediately at an end and all monies the Purchaser has paid under the Contract and this Deed shall be immediately and irrevocably released to the sole use, benefit and account of the Vendors and the Purchaser must then immediately withdraw any caveat(s) it has lodged against the title to the Property and it fully and finally releases the Vendors from any and all claims, suits or actions, arising from, or of and incidental to, the matters raised in this Deed or in the GWW Settlement Deed.
(e) Clause 6 of the Settlement Deed provided for payment by the purchaser to the vendors an amount of $100,000 in consideration for the parties’ entry into the Western Water Deed and for the vendors’ legal costs incurred and inconvenience arising from the dispute with Western Water and the purchaser associated with the easement and infrastructure, which amount does not form part of the consideration paid or payable under the Sale Contract nor part of the purchase price together with an amount of $65,000 which was an amount agreed to be paid by Western Water under the Western Water Deed at the settlement of the Sale Contract on the Extended Settlement Date. Further, the purchaser was to have no claim to the $20,000 deposit already paid to the vendors by Western Water.
(f) In Clause 10, the parties acknowledged the accuracy of the recitals and acknowledged that the recitals form part of the Settlement Deed.
(g) In Clause 11, the parties also warranted and represented to each other that they had inter alia obtained competent legal and other professional advice concerning the terms and effect of the Settlement Deed, have had the opportunity to negotiate its terms, that its terms are fair in all the circumstances and are binding upon them according to its terms.
The Sale Contract
The Sale Contract was annexed as Annexure 1 to the Settlement Deed. The Sale Contract included General Conditions 1–28, Special Conditions 1–2 and Additional Special Conditions.
The Sale Contract provided that the terms of the contract are contained in the:[39]
[39]Sale Contract, CB, n 1, 72.
(a) particulars of sale; and
(b) special conditions, if any; and
(c) general conditions
in that order of priority.
The terms which are of relevance in this proceeding are set out below.
(a) Special Condition 2, which provided for electronic conveyancing in accordance with the Electronic Conveyancing National Law.
(b) Special Condition 2.1, which provided that this special condition has priority over any other provision to the extent of any inconsistency.
(c) Special Condition 2.7, which provided that the parties must do everything reasonably necessary to effect settlement electronically on the next business day or at the option of either party otherwise than electronically as soon as possible, if after the locking in of the nominated settlement time settlement has not occurred by 4:00pm, or 6:00pm if the nominated time for settlement is after 4:00pm.
(d) Additional Special Condition 7, which provided that, in the event that the purchaser fails to complete the purchase of the property on the due date specified in the Sale Contract or on any such date as may have been mutually agreed by the parties, the Purchaser will pay to the vendor interest on the balance owing under the Sale Contract as well as reimburse to the vendors a number of other costs and expenses.
(e) Additional Special Condition 13, which provided for the nomination of substitution or additional transferee and the manner of exercise of the nomination. It stated:[40]
13 Nomination
General condition 18 is deleted and replaced by the following:
The purchaser may nominate a substitute or additional transferee, but the named purchaser remains personally liable for the due performance of all the purchaser’s obligations under this contract.
[40]Each of the terms extracted in paragraphs 51(e), 52(c), (d) are defined in the Sale Contract.
13.2 Exercise of nomination
The purchasers may not exercise its right of nomination under special condition 13 without the consent of the Vendor unless the Purchaser:
(a)Is not and has not been in default under this contract;
(b)Delivers to the Vendor at least 30 days before the Date of Settlement:
(i)A nomination form, properly completed with the relevant particulars and executed by the Purchaser, nominee purchaser and any Guarantor under any guarantee and indemnity;
(ii)Where the nominee purchaser is or includes a company, a guarantee and indemnity executed by the directors and shareholders of the nominee purchaser in the form of the Guarantee, except for any changes necessary due to the nomination, guaranteeing the obligations of the purchaser and nominee purchaser; and
(iii)Where the nominee purchaser is or includes a trustee of trust, and the nominee purchaser executes the nomination form as trustee of that trust, a guarantee and indemnity executed by all of the beneficiaries of the trust in the form of the Guarantee, except the obligations of the purchaser and nominee purchaser; and
(iv)Pays to the Vendor’s Solicitors an amount of $350 to reimburse the Vendor’s Solicitors for its reasonable legal, administration and out of pocket costs incurred in relation to the nomination.
The following General Conditions are of particular note.
(a) Clause 16.1 provided that time was of the essence.
(b) Clause 26 provided for interest payable on any money owing under the contract during the period of default without affecting any other rights of the offended party.
(c) General Condition 27 provides the following default notice provision:
27 Default Notice
27.1 A party is not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for moneys owing, until the other party is given and fails to comply with a written default notice.
27.2The default notice must:
(a)specify the particulars of the default; and
(b)state that it is the offended party’s intention to exercise the rights arising from the default unless, within 14 days of the notice being given –
(i)the default is remedied; and
(ii)the reasonable costs incurred as a result of the default and any interest payable are paid.
(d) Clause 28 deals with circumstances where the default is not remedied:
28 Default not remedied
28.1All unpaid money under the contract becomes immediately payable to the vendor if the default has been made by the purchaser and it not remedied and the costs and interest are not paid.
28.2 The contract immediately ends if:
(a)the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the contract will be ended in accordance with this general condition; and
(b)the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.
28.3 If the contract ends by a default notice given by the purchaser:
(a)the purchaser must be repaid any money paid under the contract and be paid any interest and reasonable costs payable under the contract; and
(b)all those amounts are a charge on the land until payment; and
(c)the purchaser may also recover any loss otherwise recoverable.
28.4 If the contract ends by a default notice given by the vendor:
(a)the deposit up to 10% of the price is forfeited to the vendor as the vendor’s absolute property, whether the deposit has been paid or not; and
(b)the vendor is entitled to possession of the property; and
(c)in addition to any other remedy, the vendor may within one year of the contract ending either:
(i)retain the property and sue for damages for breach of contract; or
(ii)resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and
(d)the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and
(e)any determination of the vendor’s damages must take into account the amount forfeited to the vendor.
28.5 The ending of the contract does not affect the rights of the offended party as a consequence of the default.
SUBMISSIONS OF THE PARTIES
Plaintiffs’/Defendants by Counterclaim’s submissions
The plaintiffs submitted that the principal issues in the proceeding were:[41]
(a) whether the constraint in General Condition 27 of the Sale Contract precluding the Zurzolos from exercising termination rights without providing notice under the affirmed Sale Contract is removed by reason of the operation of clause 5 of the Settlement Deed; and
(b) whether clause 5 of the Settlement Deed properly construed was not engaged, where the price was not paid on the scheduled date by reason of the lender not completing its processes for funds to be released in time, and the failure by VSPH or Deanside to settle was thereby not ‘through default on its part’.
[41]Plaintiff’s Submissions (filed 9 November 2023 in S ECI 2022 04298, Supreme Court of Victoria) (‘Plaintiff’s Written Submissions’), [6].
The plaintiffs emphasised that the genesis of the delay to settlement was the dispute with Western Water which was caused by the actions of the plaintiffs entering into the agreement for creation of an easement with Western Water.[42] The scheduled date for completion of the Sale Contract was extended numerous times and ultimately the Settlement Deed affirmed the whole of the Sale Contract and the date for completion was extended to 15 September 2022 ‘without penalty’.[43]
[42]Gupta Witness Statement, n 16, [11].
[43]Settlement Deed, CB, n 1, doc 40, 726.
The Western Water Deed between all parties settled the dispute and contained terms for the compulsory acquisition of the easement and how the compensation would be calculated and paid.
The plaintiffs relied on the steps they took to arrange finance[44] and say they gave notice of the nomination of Deanside as substitute purchaser, and that the parties proceeded to make the conveyancing arrangements in the name of Deanside.[45] The plaintiffs say that the defendants accepted the nomination of Deanside on certain conditions.[46]
[44]Ibid [14]–[24].
[45]Plaintiff’s Written Submissions, n 41, [13].
[46]Ibid [13], which refers to the letter from Brett Taback of Best Hooper to Subodh Kumar dated 15 September 2022, CB, n 1, doc 80, 1601.
The Plaintiffs submitted that the Sale Contract provided for settlement on the nominated date by the particulars of sale[47] and for time to be of the essence by General Condition 16.1.[48] However, the plaintiffs say[49] that the parties agree that, by repeated extensions arising from the protracted dispute with Western Water, time ceased to be of the essence.[50]
[47]Sale Contract, CB, n 1, doc 7, 73.
[48]Ibid 87.
[49]By reference to paragraph 22(a) of the Defendants’ Defence and Counterclaim (filed 9 January 2023 in S ECI 2022 04298, Supreme Court of Victoria).
[50]Plaintiff’s Written Submissions, n 41, [22].
The plaintiffs argued that the correct approach to interpreting the contractual obligations between the parties requires the Sale Contract and the Settlement Deed provisions to be read harmoniously and consistently. As a provision in a commercial contract, clause 5 is to be construed objectively by reference to the text of the document and its ordinary meaning together with the context, being the entire text of the Settlement Deed and the Sale Contract annexed to it, and the purpose of the document.[51]
[51]Ibid [18] citing Bisognin v Hera Project Pty Ltd [2016] VSCA 322 (Santamaria and Ferguson JJA, Riordan AJA) [74] citing Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [46]–[48] (French CJ, Nettle and Gordon JJ), 132 [109] (Keifel and Keane JJ) and 134 [120] (Bell and Gageler JJ) (‘Mount Bruce’).
Emphasis was placed on the statement in the Australian Broadcasting Commission v Australian Performing Rights Association[52] that the whole of the instrument has to be considered since the meaning of any one part of it may be revealed by other parts, and the words of every clause must, if possible, be construed so as to render them all harmonious with one another.[53]
[52](1973) 129 CLR 99, 109 (Gibbs J) (‘Australian Broadcasting Commission’).
[53]Plaintiff’s Written Submissions, n 41, [19].
Further, consistent with the reasoning in Suttor v Gundowda Pty Ltd[54] and Gange v Sullivan,[55] the plaintiffs urged caution against construction that results in automatic termination of agreement without enabling the party who is not in breach to choose whether to take steps in accordance with the agreement.
[54](1950) 81 CLR 414, 441 (Latham CJ, Williams and Fullagar JJ) (‘Suttor’).
[55](1966) 116 CLR 418 (‘Gange’).
Nomination of Deanside and Specific Performance
The plaintiffs submitted that in the ordinary case of a sale of land, a court will grant specific performance as a matter of course and that the Zurzolos did not raise any discretionary considerations for the refusal of that relief where the contract remains on foot.[56]
[56]Ibid [14] citing Patel v Sengun Investments Holding Pty Ltd [2023] VSCA 238, [102]–[104] (Emerton P, Walker and Kaye JJA).
It was submitted that following the nomination of Deanside, the Zurzolos proceeded with conveyancing arrangements in the name of Deanside without objection, accepted the nomination on certain conditions, and confirmed readiness to settle on that basis. It was submitted that the nomination, in those circumstances was effective and consequently specific performance should be granted to Deanside (and otherwise VSPH).[57]
[57]Ibid [15].
The plaintiffs submitted that if necessary, such relief may be granted on condition that a guarantee be delivered in the terms provided by the Sale Contract.[58]
[58]Ibid [16] citing Additional Special Condition 13.2, CB, n 1, doc 7, 80.
The Zurzolos’ defence to the claim for specific performance on the basis that the Sale Contract had been automatically terminated by operation of clause 5 of the Settlement Deed was challenged on the basis that clause 5, properly construed, did not remove the constraint on exercising rights of termination without first giving a contractual notice required by General Condition 27 of the Sale Contract.[59]
[59]Ibid [17]–[30].
Requirement for contractual notice
The plaintiffs submitted that as the Settlement Deed affirmed the Sale Contract and the parties agreed to be bound by it, this meant that by reason of General Condition 27 of the Sale Contract, in order for the defendants to terminate the Sale Contract, the defendants were required to serve a 14 day default notice on the plaintiffs, and they did not do so. The plaintiffs say that there is a restriction on a party exercising rights for termination unless a 14 day notice is provided and here, after the Extended Settlement Date had passed, the contract was not automatically at an end as the defendant claimed.
The plaintiffs relied on General Condition 27.1 to argue that the defendants were not entitled to exercise any rights arising from the plaintiffs’ default other than the right to receive interest and the right to sue for monies owing until notice is given and a failure to comply with a written default notice eventuated. They argued that this provision remained operative as the Settlement Deed provided that the parties ‘affirm the [Sale] Contract (and that each confirm that they are bound by it)’ and that the parties agreed to extend the settlement date recorded in the Sale Contract to 15 September 2022 ‘without penalty’.
As the Settlement Deed contained no provision to vary the Sale Contract or even contemplates any inconsistency with the Sale Contract which would require reconciliation, the plaintiffs submitted that there was no basis to construe the Settlement Deed as removing all machinery in General Condition 27 and the requirement for notice to be given for termination was still required.
The plaintiffs submitted that the Settlement Deed affirmed the Sale Contract in its entirety, and the settlement date is agreed to be an extension of the date recorded in the Sale Contract rather than establishing any separate arrangements. To deny the protection of a contractual notice and steps to effect settlement on the next business day would also be incompatible with the agreed extension of the Sale Contract settlement date being ‘without penalty’.[60] It was argued that this interpretation allowed clause 5 to be read harmoniously with the balance of the terms of the Settlement Deed and the Sale Contract, maintaining a requirement for notice to be given before the exercise by the Zurzolos of a right of termination.[61]
[60]Plaintiff’s Written Submissions, n 41, [26].
[61]Ibid [27].
The plaintiffs argued that the context and purpose for the entry into the Settlement Deed also supports a requirement for notice before exercising rights for termination.[62] It was argued that the completion of the Sale Contract had been delayed by the disputes generated by the Zurzolos agreeing to the creation of an easement, and the evident purpose of the Settlement Deed was to re‑set a date for settlement of the Sale Contract while addressing sundry aspects of the unresolved disputes. It was argued that it is not probative to seek to examine the parties’ own divergent motives and asserted rationales over the course of extended negotiations.
[62]Ibid [28].
It was argued that accordingly, there were no contextual circumstances supporting the removal of ordinary contractual protections in the wake of resolution of the disputes generated with Western Water and that there is no evidence of contractual intention to deprive the Zurzolos of a choice whether to keep the sale on foot in the event of default.[63]
[63]Ibid [29].
Contract voidable not void
The plaintiffs argued that the Sale Contract was voidable, not void, its voidability being subject to the default notice regime in the Sale Contract. The plaintiffs say this interpretation is consistent with the proper interpretation of the contract as a whole and with the general approach as set out by the High Court in Suttor and Gange as to automatic termination clauses such as clause 5 of the Settlement Deed.
Electronic Settlement – Special Condition 2.7
The plaintiffs further submitted that if the settlement does not occur by the end of the agreed date, Special Condition 2.7 requires the parties to ‘do everything reasonably necessary to effect settlement … electronically on the next business day’.[64]
[64]Ibid [22].
Consequently, it was argued that if the defendants wished to choose to end the Sale Contract after settlement did not occur on the Extended Settlement Date, they were required to issue a notice under General Condition 27 of the Sale Contract. As the Zurzolos did not do so and in any event the plaintiffs were ready to settle on the following business day in accordance with Special Condition 2.7, the Sale Contract has not been terminated.
No ‘default on its part’
Further, it was argued that clause 5 was not engaged by the circumstances through which VSPH failed to complete the sale.[65]
[65]Ibid [17].
The plaintiffs argued that the failure to settle on the extended settlement date was not ‘through default on its part’ but rather was caused by the delay in the processes of its lender, Aquamore. The evidence of Mr Gupta set out the steps he and his business partner, Mr Kalra, took in arranging finance, initially by contacting the National Australia Bank, but ultimately dealing with a broker, Mr Shaikh, who attempted to negotiate finance through a private lender, Aquamore.[66]
[66]Gupta Witness Statement, n 16, [11]–[41].
The plaintiffs relied on the evidence of electronic communications between representatives of the plaintiffs and the broker, and the evidence of Mr Gupta to demonstrate the action taken by the plaintiffs in dealing with the lenders and their emphasis on action required to meet the due date for settlement.[67]
[67]Plaintiff’s Written Submissions, n 41, [36]; Transcript, n 17, 31, lines 1–3, 31, lines 1–3; Text messages between Saahil Gupta and Vikas Kalra of VSPH and Mark Shaikh of Ozyloans spanning 10 September 2022 to 16 September 2022, CB, n 1, doc 66, 1501–9; Text messages between Mark Darrer of DMF and Robert McKay of BH ending on 16 September 2022, CB, n 1, doc 70, 1526–9.
The plaintiffs rely on the evidence of Mr Gupta as to the steps he took to arrange finance and the sequence of events which unfolded over the period leading up to 15 September 2022. In particular, the matters relied upon were as follows:
(a) VSPH engaged a broker to arrange financing soon after signing the Settlement Deed;[68]
[68]Ibid [35] citing Gupta Witness Statement, n 16, [11]–[14].
(b) discussions with potential lenders continued through August 2022 and eventually Aquamore agreed to provide finance;[69]
[69]Ibid [35] citing Gupta Witness Statement, n 16, [15]–[18].
(c) VSPH and Deanside emphasised the due date for settlement but also informed the Zuzolos of the risk that settlement might require extra time and kept them informed as the day approached;[70]
(d) bridging finance was considered;[71] and
(e) Aquamore’s financing processes took multiple steps extending through the week for settlement and included the preparation of documents for Aquamore’s lawyers.[72]
[70]Plaintiff’s Written Submissions, n 41, [36].
[71]Ibid [36] citing Gupta Witness Statement, n 16, [22].
[72]Ibid [36] citing Gupta Witness Statement, n 16, [19]–[39].
There was also communication between the solicitors for the parties in the lead up to the Extended Settlement Date. This included on 12 September 2022 where the solicitors for the plaintiffs warned that there was a risk the finance would result in funds being available one day late.[73]
[73]Email from DMF to BH at 4:23pm dated 12 September 2022, CB, n 1, doc 67, 1510; see also Email from DMF to BH at 9:59am dated 14 September 2022, CB, n 1, doc 71, 1530; Email from DMF to BH at 6:01pm dated 14 September 2022, CB, n 1, doc 76, 1577; Email from DMF to BH at 4:51pm dated 15 September 2022, CB, n 1, doc 89, 1803.
The plaintiffs considered bridging finance in case of delay.[74] Aquamore’s procedure for finalising the finance and releasing funds required multiple steps extending through the week leading up to settlement, including documentation requirements for Aquamore’s lawyers.[75]
[74]Gupta Witness Statement, n 16, [22].
[75]Gupta Witness Statement, n 16, [19]–[39].
The plaintiffs’ evidence was that, as foreshadowed to the defendants’ lawyers earlier in the week, Aquamore’s finance was ready for release on the next day, 16 September 2022.[76] The plaintiffs argued that in the circumstances the failure to settle on 15 September was caused by the extended processes of the lender beyond the plaintiffs’ control and the failure to settle was not through default of the plaintiffs.
[76]Plaintiff’s Written Submissions, n 41, [37].
The plaintiffs argue that consequently, clause 5 of the settlement date was not engaged.[77] Rather the circumstances of settlement having occurred were subject to the other terms of the Sale Contract which the plaintiffs argue provided for settlement on the next business day (Special Condition 2.7, which relates to electronic settlement) or notice to be given before any termination by reason of General Condition 27.1.
[77]Ibid [38].
The plaintiffs argued that the Zuzolos’ reliance on clause 5 of the Settlement Deed conflated the separate elements in the threshold condition, being the failure to settle and the circumstances that caused that failure. Both parts of the clause, it was argued, must be given effect: the failure to settle and the reason why the failure arose. It was argued that to construe otherwise would leave redundant that part of the clause’s text which is ‘through default on its part’.
This analysis, according to the plaintiffs, means that clause 5 of the Settlement Deed was not engaged, and rather, the relevant operative clauses were:[78]
(a) Special Condition 2.7, which provided for settlement to take place the next business day where electronic settlement was to occur; or
(b) General Condition 27.1, which required the Zurzolos to follow the default notice procedure before termination would be effective.
[78]Plaintiff’s Written Submissions, n 41, [38].
The Defendants/Plaintiffs by Counterclaim submissions
In their submissions, the Zurzolos emphasised the history of failure to settle the Sale Contract, which is recorded in the recitals of the Settlement Deed. Recital O notes that the vendors called on settlement to occur on 2 May 2022, and that on 28 June 2022, the vendors served a 14 day default notice on the purchaser again calling for settlement to occur by 12 July 2022.[79]
[79]Defendants’/Plaintiffs by Counterclaims’ Outline of Submissions (filed 9 November 2023 in S ECI 2022 04298, Supreme Court of Victoria) (‘Defendants’ Written Submissions’), [4]; Email from Robert McKay of BH to Mark Darrer of DMF at 5:20pm dated 28 June 2022, CB, n 1, doc 30, 458–64.
On the final day of the notice period, the Zurzolos offered to extend the notice period by a further 10 days in order for settlement negotiations to continue, this offer being accepted by the plaintiffs’ lawyer.[80]
[80]Defendants’ Written Submissions, n 79, [3]; Email from Robert McKay of BH to Mark Darrer of DMF at 2:54pm dated 12 July 2022, CB, n 1, doc 36, 547–54.
On 21 July 2020, being the penultimate day of the extended notice period, the parties reached the compromise embodied in the Settlement Deed and the Western Water Deed.
The Zurzolos argued that their case was a straightforward one as the evidence established beyond doubt that the plaintiffs did not settle on the Extended Settlement Date of 15 September 2022.[81] The defendants argue that the evidence also established beyond doubt why the completion did not occur on that date, being that the plaintiffs had not procured finance to enable completion to occur. There was no suggestion that the Zurzolos prevented the plaintiffs from completing the Sale Contract or that they were otherwise in breach of the Sale Contract or Settlement Deed so as to excuse the plaintiffs from performing.
[81]Defendants’ Written Submissions, n 79, [8].
Further, the Zurzolos emphasised that there was no term in the Sale Contract or the Settlement Deed excusing the plaintiffs from completing settlement in circumstances where it was having difficulties with its finance or any like provision.[82]
[82]Ibid [8].
The Zurzolos relied on clause 5 of the Settlement Deed and argued that the correct approach to construction of the contract between the parties was that clause 5 was the operative clause upon which the defendants could rely to claim the Sale Contract was at an end if settlement did not occur on the Extended Settlement Date. The Zurzolos argued that, consistent with the principles applicable to the interpretation of commercial contracts stated by the Court of Appeal in Adaz Nominees Pty Ltd v Castleway Pty Ltd[83] and AventusCranbourne Thompsons Road Pty Ltd v Home Consortium Leasehold Pty Ltd,[84] the Court is to take an objective approach to contract interpretation which requires reference to the text and its ordinary meaning together with the context.[85]
[83][2020] VSCA 201, [70] (Whelan and McLeish J JA and Riordan AJA) (‘Adaz Nominees’).
[84][2020] VSCA 199, [36]–[38] (Kyrou, Niall and Hargrave JJA).
[85]Defendants’ Written Submissions, n 79, [11].
They submitted that reading the whole of the contractual documents together harmoniously required clause 5 to prevail over the earlier provisions in the Sale Contract which provided for the default notice procedure.
The primary submission of the vendors was that giving effect to the clear words of clause 5 mean in the circumstances of the failure to settle on the Extended Settlement Date as a result of the default of the purchasers brought the Sale Contract to an automatic end. The timely arrangement of finance to settle the contract was the responsibility of the Purchasers. The failure to settle was through their ‘default’.
The defendants argued that clause 5 had a two‑fold structure. It commenced with a trigger which would bring the clause into operation and concluded with the consequences which would flow from the activated clause. The clause was for the benefit of the vendors and against the purchaser which had been guilty of a longstanding delay in performance. The words ‘through default on its part’ were to clarify that the clause would only operate if the default in settlement was the default of the plaintiffs and that this was consistent with doctrines of contract law which recognise that the parties have interdependent obligations[86] and that a party cannot avail themselves of the other party’s breach if they are not willing and able to complete their own obligations.[87] Accordingly, it was submitted that by expressly linking the adverse consequences to the plaintiffs’ breach, the clause made it clear that the plaintiffs could not be drawn into innocent forfeiture.
[86]Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41.
[87]Foran v Wight (1989) 168 CLR 385 at 452.
Further, the use of the word ‘default’ and not ‘fault’ was purposeful because the word ‘default’ suggests the breach of a legal obligation, rather than some broader notions of fault or responsibility. To discern no difference between the words ‘fault’ and ‘default’ in contractual and commercial arrangements would be unworkable and uncommercial.
To treat the scope or content of clause 5 in the manner suggested by the plaintiffs would be to import, in effect, a ‘best endeavours’ interpretation. If this were the correct approach it would thwart the commercial benefit for which the defendants had bargained. It was argued that the evidence established beyond doubt that the parties were agreeing to a significant extension on the basis no further extensions would be granted in the event of further default to settle on the purchaser’s part. The conversion of the 15 September 2022 date to an aspirational target rather than a hard deadline would defeat the mutual intention of the parties.
Reference was made to paragraph 20(a)–(c) of the Reply and Defence to Counterclaim[88] where the plaintiffs admit they did not pay the balance on 15 September 2022 and did not do so by reason of their finance provider ‘not having completing its processes for releasing funds for payment of the balance.’[89] As no other defence was pleaded, the Zurzolos argued that the plaintiffs failed to settle through default on their part.
[88]Filed 2 March 2023 in S ECI 2022 04298, Supreme Court of Victoria.
[89]Defendants’ Written Submissions, n 79, [10].
The Zurzolos submitted that the analysis contended by the plaintiffs is not supported by the language of clause 5 or the genesis and commercial purpose of the Settlement Deed.[90]
[90]Ibid [10].
In light of the above analysis, the defendants submit that on its proper construction, clause 5 of the Settlement Deed was engaged in the circumstances which resulted in the Sale Contract being automatically void when the plaintiffs failed to settle on the Extended Settlement Date.
Alternatively, the defendants argued that if the Sale Contract was taken to be voidable after the Extended Settlement Date had passed, it was properly at an end by the defendants’ confirmation by email sent on the morning of 16 September 2023 that the Sale Contract was ‘automatically and immediately’ at an end.[91]
[91]Transcript, n 17, 149, lines 14–24; Email from BH to DMF at 8:38am dated 16 September 2022, CB, n 1, doc 109, 1891.
ANALYSIS
Principles of construction
The Court of Appeal conveniently summarised the legal principles in relation to construction of commercial agreements in Adaz Nominees:[92]
[92]N 83, [70].
(a) The terms are construed objectively, and the subjective intentions of the parties are irrelevant.[93]
[93]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ).
(b) The objective approach requires reference to the text and its ordinary meaning, together with:
(v) the context, being the entire text of the contract including matters referred to in the text; and
(vi) the purpose.
These matters will ordinarily be identified by reference to the contract alone,[94] but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’.[95] Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.[96]
[94]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95, [45]–[47] (Santamaria, Ferguson and McLeish JJA) (‘Eureka Operations’); Mount Bruce, n 51, 116 [46]–[48] (French CJ, Nettle and Gordon JJ); Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29, 50 [76] (McLure P, with whom Newnes JA and Le Miere J agreed) (‘Hancock’).
[95]Lopes v Taranto [2018] VSCA 288, [66]–[72] (Kyrou, McLeish and Hargrave JJA) (‘Lopes’), quoted with approval in Canale v G W & R Mould Pty Ltd [2018] VSCA 346, [45] (Whelan and McLeish JJA with whom Tate JA agreed).
[96]Mount Bruce, n 51, [46], [49] (French CJ, Nettle and Gordon JJ).
(c) Unless a contrary intention appears in the contract, the Court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense.[97] However, the Court does not weigh the commerciality of the agreement, and business commonsense is a topic on which reasonable minds may differ.[98]
[97]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).
[98]Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43] (Gleeson CJ, Gummow and Hayne JJ).
(d) If, after completion of this process, the language used in the contract ‘is ambiguous or susceptible of more than one meaning’ then evidence of surrounding circumstances external to the contract is admissible to assist with interpretation of the language in question.[99]
(e) However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible.[100] Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.[101]
(f) Post contractual conduct is inadmissible to construe the terms of the contract.[102] However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.[103]
[99]Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352 (Mason J) (‘Codelfa’). See, Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 62–3 [39] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ); Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, 605 [2]–[5] (Gummow, Heydon and Bell JJ); Mount Bruce, n 51, 116–7 [46]–[49], [52] (French CJ, Nettle and Gordon JJ).
[100]Ibid.
[101]Codelfa, n 99, 352 (Mason J); Golf Australia Holdings Ltd v Buxton Construction Pty Ltd [2007] VSCA 200, [28] (Nettle and Redlich JJA, with whom Neave JA agreed). As Gordon J said in Construction Forestry Mining Energy Union v Bovis Land Lease Pty Ltd [2008] FCA 1669, [15]: ‘the back‑and‑forth of the parties in concluding the transaction’ is not considered in construing the document.
[102]FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350.
[103]Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37] (Tate, Beach JJA and Sifris AJA).
Evidence of the parties
I note that objection was taken by the plaintiffs to parts of the evidence contained in the witness statement of Mrs Sheryn Lee Zurzulo dated 5 December 2023. This was on the basis that it contained information which was not relevant to the interpretation task the Court had to undertake either because it was evidence of the Zurzolos’ own subjective or actual intention, did not assist in understanding the parties’ commercial intention or related to events after the Settlement Deed had been entered into. A redacted version of the witness statement was before the Court. Mrs Zurzolo confirmed the content of this amended statement.[104]
[104]Transcript, n 17, 132, lines 9–28.
Mr Gupta gave oral evidence to confirm the content of his affidavit.[105]
[105]Transcript, n 17, 77, lines 11–31.
Otherwise, the parties relied on the documents which formed the Court Book documents, limited to the documents set out in a document entitled ‘Tendered Documents Index’ provided to the Court on 8 December 2023.
The issues
I consider the determining issues in the proceeding are:
(a) whether, on the proper construction of the Settlement Deed, clause 5 was engaged in circumstances where the settlement monies were not paid on the Extended Settlement Date by reason of the lender not completing its processes for funds to be released in time and thus the failure to settle was thereby not ‘through default on its part’;
(b) if clause 5 was engaged, whether the effect of that provision at law was the contract was automatically void, or voidable at the innocent party’s option;
(c) was the effect of the default notice provision in General Condition 27, in light of clause 5 of the Settlement Deed, such that the defendants could exercise the termination rights without providing notice; and
(d) whether the effect of the electronic settlement provision (Special Condition 2.7) was to validly permit the plaintiffs to settle on the next day after the Extended Settlement Date.
Application of the construction principles
I agree that the correct approach to interpretation of the contractual obligations between the parties requires the provisions to be read harmoniously and consistently. However, as indicated at the outset, there are clauses in the documents which are clearly inconsistent and I must determine the meaning and effect of them reading the documents as a whole.[106]
[106]Adaz Nominees, n 83; Australian Broadcasting Commission, n 52.
In this regard, in order to determine this proceeding, the proper construction of clause 5 is pivotal and at the outset I make the following observations:
(a) Clause 5 is a clause which is for the sole benefit of the vendors. I draw this conclusion from the words of the clause itself and in the context of the contract as a whole, in particular reference to the Recitals which form part of the Settlement Deed.
(b) The opening words refer to the default by the purchaser and makes no reference to default by the vendors.
(c) The word used is ‘default’ and not ’fault’. Those words have a different meaning.
(d) The balance of the clause deals with the consequences which follow from that default.
(e) The consequences which follow are in direct conflict with the consequences of default which are set out in General Condition 27 of the Sale Contract. It makes no commercial sense to include the consequences in clause 5 if the consequences of a default were to be those which are set out in General Condition 27.
(f) The purpose of clause 5 was to address the delays in settlement of the Sale Contract. This circumstance forms part of the mutually known objective background circumstances and part of the direct purpose of the Settlement Deed.
Whether Clause 5 is engaged and the meaning of ‘through default on its part’
The first consideration is the proper construction of clause 5 and whether it is engaged in the circumstances here.
The failure (to settle) was not in issue. The plaintiffs’ pleadings concede that settlement did not occur on the Extended Settlement Date.[107]
[107]Statement of Agreed Facts, n 1, [14].
Where the parties differed in whether the clause was engaged or otherwise was in connecting the failure to settle and the concept or meaning of the word ‘default’.
It was the cause of the failure and the allocation of blame which was said by the plaintiffs to be required to be factored into determining the effect of the words. That is, the failure through which the default occurred.
The plaintiffs argued that it was not a failure through which the default was occasioned which was a result of their own action (or inaction) but that of the finance broker and the arranging of finance that was required through the broker and the lender processes which caused the delay which led to the failure to settle. That the clause had two parts: a failure to settle and consideration of the cause of that event.
As noted, the opening words of the clause refer to the failure of the purchaser (not the vendors) to settle. It is clear that the purchasers failed to settle so the first part of the clause is engaged. Some meaning must also be given to the words ‘through default on its part’. It is clear that the clause was included for the benefit of the vendors and to the extent the clause reinforces the contractual doctrine that an innocent party should not forfeit where they were not responsible for the obligation which is breached, the vendors are the innocent party.
There is a difference between the word or concept of ‘default’ and that of ‘fault’. ‘Default’ in ordinary parlance, and I am of the view it is well understood in a legal or contractual context, means a failure to fulfil an obligation. In relation to the law, ‘default’ is defined as a ‘failure to perform an act or obligation legally required’.[108] ‘Default’ does not carry with it ‘responsibility’ or ‘blame’ as a component. The word ‘fault’ by contrast has a different ordinary meaning connoting responsibility for acts or omissions. It is defined by reference to words and phrases such as ‘cause for blame’, ‘culpability’, ‘misdeed’ and ‘mistake’.[109] The word ‘fault’ is not used in clause 5.
[108]Macquarie Dictionary (online at 4 March 2024) ‘default’ (def 3).
[109]Macquarie Dictionary (online at 4 March 2024) ‘fault’ (defs 2, 3, 5).
The default sits squarely at the feet of the purchasers. They had an obligation to settle, that is to say provide the settlement monies at the due date. It was the purchasers’ failure to settle and not the failure of the vendors. There was a default and the default being the failure to settle was the default of the purchasers.
It would be contrary to the intention and commercial purpose of the Settlement Deed to construe their obligation to settle in the manner urged by the plaintiffs. It would not be consistent with the words used and the context of the contract as a whole to interpret the clause in a manner which would allow the blame to be offset elsewhere. The requirement to pay the settlement monies is fundamental to the performance of the Sale Contract.
Even if the word ‘default’ were to be interpreted as incurring moral culpability or responsibility, I am of the view that the facts demonstrate that the blame sits squarely at the feet of the plaintiffs and the responsibility for that requirement was theirs alone.
It was quite plain from Mr Gupta’s evidence that the plaintiffs had left things extremely late in terms of arranging finance which in turn put themselves at risk of default by not having sufficient funds available in time for the Extended Settlement Date.
There was failure to settle, and the reason for the failure was the inaction of the plaintiffs to produce the funds. That was their responsibility alone under the Sale Contract. General Condition 10.1(a) of the Sale Contract could not be more clear: at settlement, the purchaser must pay the balance.
I note that neither the Sale Contract, nor the Settlement Deed itself contained any condition which made allowance for the settlement to be subject to finance, or provide at all for that eventuality. Such a clause where finance is required is commonplace in contracts for the sale of land. In this circumstance, it is clear that the responsibility for funding the balance of the purchase price lay with the plaintiffs. The words of the clause do not admit a best endeavours approach. The words are clear.
Consequently, I find that clause 5 was engaged as the settlement failure occurred through the default of the purchasers.
Clause 5 of the Settlement Deed – void or voidable?
The next consideration is whether the lawful effect of clause 5 is that the contract is automatically void or voidable at the option of the innocent party, being the vendors.
In Suttor and Gange the High Court of Australia found that the legal operation and effect of specific conditions expressed to be in terms that the contract was at an end were that the contracts were voidable, not void.
I have reviewed these authorities and am of the view that there are several points to be made about them in the context of this proceeding.
First, it is clear that the effect of every condition must depend on the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition. In this regard, I consider that clause 5 is clear in this meaning and intent.
Secondly, the authorities show a disposition on the part of courts to treat non‑fulfillment of a condition outside the control of a party (such as that considered in Gange, where the condition required an application to be made for planning permission and a positive response by the local planning authority to the application to have been granted by a certain date or in Suttor, where the Treasurer’s consent was required) as voidable and not void, in order to forestall a party to a contract from gaining some advantage from their own conduct in securing or contributing to the non‑fulfillment of a condition bringing the contract to an end.
The legal result will depend on the terms of the condition and the factual circumstances. Where the condition is adjudged to be for the benefit of a particular party, the occasioning of the event which is identified permits the party for whom the condition is beneficial, to rely on the terms of the condition. In Gange, the condition and the factual circumstances, whilst arguably able to be construed as bringing the contract to an automatic end, was treated as voidable. On the facts in that case, the Court was satisfied the purchaser had made it clear that the contract was rescinded.
In Suttor, the terms of the condition in question provided for the deemed cancellation of the contract with return of the vendor’s deposit and the end of either parties’ liability under the contract if the Treasurer’s consent was not obtained within two months or within such time as mutually agreed by the parties. At page 440, the Court referred to the explanation given by Lord Atkinson in New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France (1919) AC 1 that:
It is undoubtably competent for the two parties to a contract to stipulate by a clause in it that the contact shall be void upon the happening of an event over which neither of the parties shall have any control, cannot bring about, prevent or retard. For instance, they may stipulate that if rain should fall on the thirteenth day after the date of the contract, the contract should be void.
The Court went on to state that:
Where the event in question is one which cannot occur without default on the part of one party to the contract, the position is clear. The provision is then construed as making the contract not void but voidable: only the party who is not in default can avoid it, and he may please himself whether he does so or not.
In this regard, the plaintiffs’ submissions tried to liken the factual circumstances here to those which dealt with contingent conditions or conditions which were required to be performed by third parties alien to the contract in issue.
As previously stated, I read the clause 5 as being (in the context of the relevant Recitals O and P) as being a condition for the sole benefit of the Vendors. It is unambiguous in this respect. If one considers the evidence of the context, the Recitals and the significant delay in the settlement of the Sale Contract from its original intended settlement date, there is a strong argument to conclude this that clause 5 means what it says.
I am not satisfied that the proper construction of the terms of the Sale Contract and Settlement Deed, overall, can be interpreted as requiring reference to Condition 27 thus triggering a further hiatus or notice period as urged by the plaintiffs. The terms of clause 5, in my view, make it clear what the outcome is to be if settlement does not occur on the Extended Settlement Date.
However, given the approach taken by the courts in Suttor and in Gange (notwithstanding the distinction on the facts of these cases and those which are before me that I have made earlier) and the principle that where there is a clause which is for the benefit of an innocent party, that innocent party ought not lose the benefit of the contract at the hands of the defaulting party, the consequence is that the contract ought to be treated as voidable at that innocent party’s option.
If the effect of the terms of clause 5 of the Settlement Deed is not to automatically bring the Sale Contract to an end by operation of its terms in light of the preference indicated by the authorities to treat a condition which endures for the benefit of a particular party as voidable and not void, the conduct and communication in the lead up to the Extended Settlement Date makes it clear that the contract was to be at an end. Further, if that were not enough, the end of the Sale Contract is put beyond doubt by the confirmation sent on the morning of the 16 September 2023.
The communications in the week leading up to the Extended Settlement Date demonstrates that this was the intention of clause 5 as understood by the parties, specifically by Mr Gupta, his solicitors and the vendors.
Further, I note that on the facts of Suttor and in Gange, the default was outside any control or influence of the parties to the contract. I do not accept that the failure to arrange finance in a timely way (especially where the drop dead date was well known to the party whose obligation it is to make payment) can be seen in the same category as the factual circumstances in those earlier authorities.
I am satisfied that clause 5 of the Settlement Deed is triggered and despite the strong constructional arguments that, on its terms clause 5 may bring the contract to an automatic end, the Sale Contract became voidable at the option of the Zurzolos.
The next question is whether the Zurzolos’ right to exercise this option is to be read subject to the 14 day default notice procedure prescribed by Special Condition 27 of the Sale Contract.
Clause 5 of the Settlement Deed and Special Condition 27 of the Sale Contract
As outlined at paragraph 55 above, Special Conditions 27 and 28 of the Sale Contract prescribes a default notice procedure whereby the Sale Contract could be brought to an end within 14 days by the non‑defaulting party issuing the defaulting party with a default notice and the defaulting party failing to remedy that default.
The terms of the Settlement Deed need to be read with the terms of the Sale Contract. On its face, there is a clear conflict between the operation of General Condition 27 of the Sale Contract and clause 5 of the Settlement Deed. The meaning of the contractual terms will ordinarily be identified by reference to the contract alone,[110] but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’.[111] Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.
[110][111]Lopes, n 95, [66]–[72] (Kyrou, McLeish and Hargrave JJA).
Considering the context of the document alone, it is clear from the Recitals that the Settlement Deed was entered into in the context of a period of disputation and significant delay. Whilst this delay was initiated by the actions of the Zurzolos entering into arrangements with the water authority in respect of the easement, it is also clear that the settlement date to complete the Sale Contract had well passed and the Zurzolos’ demands for settlement had been either ignored or not met by the purchaser. This was in the context of demands being made and a default notice served, as reflected in Recital O of the Settlement Deed. The parties expressly identified the reason to enter into the Settlement Deed was to avoid further disputation, uncertainty and costs, and reached agreement to fully and finally settle as between them all issues raised in the Recitals.
In clause 10 of the Settlement Deed, the parties acknowledged the accuracy of the Recitals and that the Recitals formed part of the Settlement Deed.[112] In clause 11(vi), the parties agreed and warranted that the terms of the Settlement Deed are binding on them according to its terms.[113] In clause 1, the parties also agreed that they affirmed the Sale Contract (and confirmed they are bound by it).[114]
[112]Settlement Deed, CB, n 1, 729.
[113]Ibid 729.
[114]Ibid 727.
There is no express provision in the Settlement Deed that deals with the manner in which conflicting terms between the Sale Contract and the Settlement Deed are to be reconciled. In that event, the usual construction principles must apply.[115]
[115]The Sale Contract provides for the usual priority of particulars of sale, special conditions and general conditions in that priority.
An attempt to harmonise the terms is required. In that regard, I am of the view that if the Settlement Deed contains an express provision in it which conflicts with the earlier terms of the Sale Contract, the terms of the Settlement Deed must take precedence.
In my view, it makes no sense to include clause 5 if it were not to operate to override General Condition 27. General Condition 27 provides for a default notice period and for the consequences of the failure to rectify within the notice period or some other agreed period. Clause 5, on its terms — as bringing the Sale Contract immediately to an end — is wholly inconsistent with the provisions contained in General Condition 27 and provides for a different process and consequence which in turn is consistent with Recital O of the Settlement Deed.
Giving effect to General Condition 27 is inconsistent with the insertion of clause 5 and its precise and bespoke terms as to the effect of default, and the financial and legal consequences which flow from the triggering of clause 5.
To draw any contrary conclusion would be inconsistent with the Recitals which set out the history and understanding of the context by the parties. The vendors were frustrated by the delays. The purchaser had failed on multiple occasions to settle when called up to do so. To read clause 5 as being subject to the operation of General Condition 27 would be to ignore the commercial purpose of clause 5 and the clear and agreed basis for entering into the Settlement Deed, that is to bring about a final date for settlement.
There is no sensible or cogent reason for clause 5 of the Settlement Deed to be read subject to General Condition 27 as it was inserted after the Sale Contract and is in such precise terms I cannot conclude that it must be read in any other manner than on its terms.
If one looks at the surrounding context of the making of the Settlement Agreement, including the information known to both parties, as disclosed by the documents, this further strengthens the conclusion as to this interpretation. However, I note this is secondary, and confirmatory rather than determinative, as I have relied on the terms of the Settlement Deed itself, in particular the Recitals (which, by virtue of clause 10, form part of the Settlement Deed) and the unique wording of clause 5 and its inconsistency with General Condition 27, to come to this conclusion that clause 5 must be given its full effect.
I can form no other view of reading these two conflicting terms together to make commercial sense of the Settlement Deed and the Sale Contract as part of that Settlement Deed.
I note that reference was made by the plaintiffs’ to the default notice provision being actioned by the vendors in June 2022.[116] I observed that this occurred prior to entry by the parties into the Settlement Deed and thus before the alterations to the contractual obligations between the parties, in particular the inclusion of clause 5 of the Settlement Deed. Consequently, this matter is irrelevant in the factual circumstances now being considered.
[116]See [25] above.
Meaning of ‘without penalty’ in Clause 3
I reject the plaintiffs’ argument that the words ‘without penalty’ in clause 3 of the Settlement Deed should be read to ameliorate the operation of clause 5 or to support an interpretation that Special Condition 27 of the Sale Contract still operates to require a default notice to be served as this would be the imposition of a penalty.
I am of the view that the words ‘without penalty’ in clause 3 operates to prevent reference back to the penalties as agreed in the original Sale Contract which includes in it penalties for failure to settle in accordance with the terms of the Sale Contract. The terms of the Settlement Deed provide separately for a different penalty regime if the contract is not settled in accordance with its terms (in particular clauses 4 and 5).
I am not persuaded that the use of the words ‘without penalty’ in this clause has the meaning or effect submitted on behalf of the plaintiffs.
Finally, I turn to the plaintiffs’ claim that the proper construction of Clause 2.7 (which provides for electronic settlement) provided a period of grace until the next day for settlement to occur.
Effect of the Special Condition 2.7
I reject the submission of the plaintiffs that the proper interpretation and effect of Special Condition 2.7 authorises an extension of time for settlement to occur on the next business day in circumstances where the reason for the failure to settle using the electronic settlement service is not caused by a failure of the electronic settlement process.
Special Condition 2 is a clause designed to be used by parties if the settlement and lodgement of the property sale will be conducted electronically. Parties opt into using Special Condition 2 by marking the box adjacent to the clause heading ‘EC’.[117] The box has not been marked in the Zurzolo’s Contract of Sale, however, both parties appear to accept that Special Condition 2 applies given the settlement and lodgement was to be conducted electronically.
[117]See Mediratta v Clark [2019] VSC 685 (Derham AsJ).
Electronic conveyancing via PEXA has become the default mode of conveyancing in Victoria since August 2019.
Special Condition 2.7 is only triggered if settlement does not occur after the PEXA workspace has ‘locked’. I underline the trigger below:
2.7 The parties must do everything reasonably necessary to effect settlement:
(a) electronically on the next business day, or
(b) at the option of either party, otherwise than electronically as soon as possible – if, after the locking of the workspace at the nominated settlement time, settlement in accordance with special condition 2.6 has not occurred by 4.00 pm, or 6.00 pm if the nominated time for settlement is after 4.00 pm.
According to clause 2.14 of the current PEXA Service Charter,[118] (Version 17.0, November 2022) and the PEXA Service Charter which applied at the time the Sale Contract was signed (Version 6.1, July 2027), PEXA will only ‘lock’ the Electronic Workspace at the date and time of Scheduled Settlement if the Electronic Workspace is in ‘Ready Status’. ‘Lock or locked’ means, in respect of an Electronic Workspace, the locking by PEXA of an Electronic Workspace at the point in time of reaching the Scheduled Settlement and the Electronic Workspace being in Ready Status. ‘Ready Status’ means in an Electronic Workspace in the PEXA system as having all tasks and activities completed by the relevant participating subscribers.
[118]The PEXA Service Charter states that it describes the services PEXA provides and outlines PEXA’s service commitments to Subscribers in accordance with the terms of a signed Participation Agreement. At the time of writing this decision, current and historical versions of the PEXA Service Charter are located at < type="1">
In its written and oral submissions, counsel for the plaintiffs argued that Special Condition 2.7 required the parties to ‘do everything reasonably necessary to effect settlement … electronically on the next business day’ if settlement does not occur by the end of the agreed day.
First, it is clear from the text of Special Condition 2.7 that the obligation for the parties to do ‘everything reasonably necessary to effect settlement … electronically on the next business day’ is only triggered in circumstances where the electronic workspace has ‘locked’ at the nominated settlement time but settlement in accordance with Special Condition 2.6 has not occurred by 4:00pm (or 6:00pm, if the nominated settlement time is after 4:00pm).
There is no evidence before me that the workspace had ‘locked’ at the scheduled settlement time, thus I cannot find that the clause was factually engaged in the circumstances.
Second, it is plain to me that the purpose of Special Condition 2.7 is to require the parties to complete settlement on the next business day where settlement does not occur because of some technical malfunction on the platform arising after the workspace has ‘locked’.[119]
[119]This is consistent with the analysis of the identically worded General Condition 18.7 in David P Lloyd and William F Rimmer Victorian Land Contracts (Thomson Reuters, 2019), GC 18.120.
I reject the notion that Special Condition 2.7 can be relied on in circumstances where settlement did not occur at the scheduled settlement time because the purchaser had failed to secure finance by the agreed settlement date. It would be a nonsensical interpretation to place on this Special Condition that it provides carte blanche to allow an additional day to complete settlement for a reason not associated with the mechanism and requirements of the technical procedure of the electronic settlement regime.
CONCLUSION
Clause 5 is a term inserted into the Settlement Deed for the sole benefit of the Vendors. It is intended to provide for the consequences of a failure to settle the Sale Contract at the Extended Settlement Date which are modified from those which were part of the contractual arrangements provided for in the Sale Contract.
The correct construction of the Settlement Deed, in particular the meaning and effect of clause 5 is that it takes precedence over the General Condition 27 and any requirement to serve a default notice.
Whilst the words of clause 5 are clear on their face that the contract is to be at an end, and this is supported by the context of the document as a whole, the authorities lean towards an interpretation that in such circumstances the contract should not be treated as void but voidable at the option of the innocent party.
Here, whilst I consider that there is a strong argument that the preferable construction of clause 5 of the Settlement Deed is that the Sale Contract is at an end according to its terms, I am of the view that the correct application of the law is to treat the Sale Contract as voidable at the option of the vendors.
The vendors’ communication of the view that they were not prepared to agree to an extension of time beyond the Extended Settlement Date was made clear leading up to the Extended Settlement Date and that position was confirmed on the morning of 16 September 2022.[120] Such confirmation put the position beyond doubt and the Sale Contract was at an end.
[120]Email from BH to DMF at 8:38am dated 16 September 2022, CB, n 1, doc 109, 1891.
There is a difference between the words ‘fault’ and ‘default’. The word ‘default’ means a failure to fulfil an obligation. There is an acceptance that the Purchaser did not settle on the due date. That failure to settle was a default by them. They had the obligation to provide the settlement funds and failed to do so.
Even if there were some concept of blame or responsibility to be apportioned in the concept of ‘default’, I am of the view that the responsibility or blame rests with the actions or inactions of the purchaser in not facilitating the finance by the due date. I do not agree that the plaintiffs can rely on their agents, the finance providers or lenders in these circumstances. Additionally, there was no ‘subject to finance’ clause in the Sale Contract.
I disagree with the interpretation sought to be relied upon by the plaintiffs in respect Special Condition 2.7 to extend the time for settlement. In my view, that clause is clearly intended to operate only where the electronic settlement process is engaged and fails for some technical reason. It is not available to any party in order to ‘buy time’ for some other reason, and certainly not where a party failed to obtain finance necessary to complete settlement.
ORDERS TO BE MADE
In view of the foregoing, I will make a declaration as sought by the defendants in their counterclaim.
I will not make an order for specific performance as sought by the plaintiffs.
I will also order that the caveat lodged over the subject land by the first plaintiff be removed forthwith.
I will provide the parties an opportunity to make submissions as to the appropriate form of final order and in respect of costs.
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SCHEDULE OF PARTIES
S ECI 2022 04298
BETWEEN:
VS Property and Holding Pty Ltd (ACN 619 774 088) First Plaintiff Deanside Land Pty Ltd (ACN 662 312 825) Second Plaintiff - and - Nick Zurzolo First Defendant Sherryn Zurzolo Second Defendant Nick Zurzolo First Plaintiff by Counterclaim Sherryn Zurzolo Second Plaintiff by Counterclaim - and - VS Property and Holding Pty Ltd (ACN 619 774 088) First Defendant by Counterclaim Deanside Land Pty Ltd (ACN 662 312 825) Second Defendant by Counterclaim Eureka Operations, n 94, [45]–[47] (Santamaria, Ferguson and McLeish JJA); Mount Bruce, n 51, 116
[46]–[48] (French CJ, Nettle and Gordon JJ); Hancock, n 94, 50 [76] (McLure P, with whom Newnes JA and Le Miere J agreed).
2
9
108