VS Property & Holding Pty Ltd v Zurzolo

SUPREME COURT OF VICTORIA COURT OF APPEAL
S EAPCI 2024 0045
VS PROPERTY AND HOLDING PTY LTD (ACN 619 774 088)	First Applicant
DEANSIDE LAND PTY LTD (ACN 662 312 825)	Second Applicant
v
NICK ZURZOLO	First Respondent
SHERRYN ZURZOLO	Second Respondent

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JUDGES:	NIALL, WALKER and KENNY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	16 August 2024
DATE OF JUDGMENT:	13 September 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 199
JUDGMENT APPEALED FROM:	[2024] VSC 89 (Quigley J)

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CONTRACTS – Interpretation – Contract for sale of land – Parties entered into deed extending settlement date – Applicants failed to settled on extended settlement date – Where clause 5 in deed provided for ‘immediate’ termination of contract upon failure to settle by extended date – Where general condition of contract required giving of 14 day default notice prior to exercise of rights – Whether effect of clause 5 was that contract terminated automatically upon failure to settle or whether contract was able to be terminated at the election of the respondents – Harmonious interpretation of contracts – Interaction of general and specific clauses – Effect of clause 5 was that contract terminated automatically upon failure to settle – Even if contract voidable, election not subject to notice requirement – Appeal dismissed.

Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Gange v Sullivan (1966) 116 CLR 418; Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201; New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1; Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, discussed; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; Hume Steel Ltd v A-G (Vic) (1927) 39 CLR 455, applied.

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Counsel
Applicants:		Mr CM Archibald KC with Ms E Poole
Respondents:		Mr JD McKay with Mr TK Egan
Solicitors
Applicants:	Darrer Muir Fleiter
Respondents:	Best Hooper Lawyers

NIALL JA
WALKER JA
KENNY JA:

On 4 August 2017 the first applicant (‘VS Property’), as purchaser, and the respondents (the ‘Zurzolos’), as vendors, entered into a contract for the sale of land in Rockbank. VS Property paid a deposit of $400,000. The second applicant (‘Deanside’) was later nominated by VS Property as substitute transferee pursuant to the contract. Settlement was due on 5 November 2020, with the balance of the $4 million purchase price to be paid on that date.
After the signing of the contract a tripartite dispute ensued between VS Property, the Zurzolos and the relevant water authority.[1] The dispute concerned the Zurzolos’ grant of an easement over part of the subject land to the water authority. Sometime after the grant of the easement, VS Property lodged a caveat over the land.
[1]At the time the tripartite dispute initially arose, the water authority was Western Region Water Corporation (Western Water). By the time the tripartite dispute was settled, the water authority was Greater Western Water, which was the successor to Western Water.
Settlement did not occur on 5 November 2020, as a consequence of the tripartite dispute. The Zurzolos called on settlement to occur on 2 May 2022, but VS Property did not settle the contract at that time. On 28 June 2022 the Zurzolos served a default notice on VS Property, pursuant to General Condition 27 of the contract (‘GC 27’). GC 27.1 provided that ‘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 money owing, until the other party is given and fails to comply with a written default notice’. The effect of GC 27.2 was that the ‘offended party’ must give the other party 14 days to remedy the default (the ‘14 day notice period’).
On 12 July 2022, the final day of the notice period, the Zurzolos agreed to extend the notice period to 22 July 2022, in order for settlement negotiations to continue. Settlement did not occur in July.
The tripartite dispute was settled in July 2022 by the three parties to that dispute entering into interrelated deeds of settlement. One deed, dated 21 July 2022, was between the Zurzolos and VS Property (the ‘settlement deed’). The other deed, the terms of which were agreed prior to the execution of the settlement deed but which was not executed until 26 July 2022, was between Greater Western Water, the Zurzolos and VS Property (the ‘GWW Settlement Deed’).
Under the settlement deed, the Zurzolos and VS Property agreed to extend the settlement date recorded in the contract to 15 September 2022 (the ‘extended settlement date’) without penalty. Clause 5 of the deed provided as follows:
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 or this Deed shall then 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.
The Zurzolos were willing and able to settle on the extended settlement date. However, VS Property and Deanside were unable to arrange finance to settle on that date, and settlement did not occur. The Zurzolos were not prepared to further extend the settlement date and treated the contract as being at an end.
VS Property and Deanside denied that the contract was at an end and brought a proceeding seeking specific performance of it. At trial they contended that cl 5 was not engaged because the failure to settle was not their fault, but occurred by reason of delay in their lender’s processes. They also contended that the effect of cl 5, read with GC 27, was that the Zurzolos were required to give them a default notice before relying on their default and terminating the contract.
The Zurzolos defended the proceeding on the basis that the contract was at an end by operation of cl 5 of the settlement deed. They sought, by counterclaim, a declaration to that effect, damages and removal of the caveat.
The trial judge held that VS Property’s and Deanside’s failure to settle the contract on the extended settlement date was through default on their part, and there is no challenge to that conclusion on the appeal.[2] The judge also held that:
(a)the effect of cl 5 is that the contract is voidable at the innocent party’s (ie the Zurzolos’) option;[3] and
(b)the Zurzolos were not required to provide notice under GC 27 before they exercised their right under cl 5 to terminate the contract.[4]
[2]VS Property & Holding Pty Ltd v Zurzolo [2024] VSC 89, [116] (‘Reasons’).
[3]Reasons, [138].
[4]Reasons, [145]–[151].
As a consequence, the judge declared that the Zurzolos had duly terminated the contract and that the deposit moneys were forfeited to them. She also ordered that VS Property take all steps required to remove the caveat.
VS Property and Deanside now seek to appeal from those orders, on the following proposed grounds of appeal:
(1)The primary judge erred in law, having held that clause 5 of the Settlement Deed operated such that the Sale Contract became voidable at the exercise of an option by the Respondents, in concluding that:
(a)clause 5 brought the Sale Contract immediately to an end, and
(b)thereby clause 5 was wholly inconsistent with General Condition 27 of the Sale Contract which provided for exercise of rights by the Respondents upon giving (and failure by the Applicants to comply with) a default notice. (Judgment, [146])
(2)The primary judge erred in law in concluding that clause 5 of the Settlement Deed overrode and must take precedence over General Condition 27 of the Sale Contract. (Judgment, [145]-[147], [150]).
(3)The primary judge ought to have held, by construing the Settlement Deed and Sale Contract as a whole (including clause 1 of the Settlement Deed which affirmed the Sale Contract, clause 3 which extended the settlement date without penalty, and the recitals which recorded a dispute arising from the Respondents having purported to confer rights of easement on a third party without notice to the Applicants, and the recent resolution of that dispute), that the Respondents were obliged by General Condition 27 to give a default notice to the Applicants before exercising their option to terminate the Sale Contract.
(4)The primary judge ought to have held that, as no default notice had been given under General Condition 27, the Respondents had not exercised an option to terminate the Sale Contract and the Applicants were entitled to specific performance.
The Zurzolos filed a notice of contention, arguing that the effect of cl 5 of the settlement deed was automatic and did not require any step by them.
We consider that the trial judge’s ultimate conclusion — that the contract was at an end and the Zurzolos had not been required to serve a notice of default under GC 27 — was correct. It follows that her Honour’s orders dismissing the applicant’s claim, entering judgment on the counterclaim, ordering VS Property to remove the caveat and declaring that the monies paid under the contract were forfeited to the Zurzolos were also correct. However, we have reached the conclusion that the contract was duly terminated by a different pathway, namely that cl 5 operated to terminate the contract automatically upon VS Property’s failure to settle. That is, we would uphold the Zurzolos’ notice of contention.
In light of that conclusion we would grant leave to appeal but dismiss the appeal.
We note for completeness that, in light of the Zurzolos’ success on the notice of contention, the judge’s declaration that the Zurzolos ‘have on or by 16 September 2022 duly terminated the contract of sale’ might be considered inapt. That is because the contract was terminated on 15 September 2022 by the operation of cl 5. We will hear from the parties about whether that declaration ought to be set aside or varied.

Summary of key facts

It is necessary to set out in some greater detail the terms of the contract, the course of dealings between the parties that led to them to enter into the settlement deed, and the terms of the settlement deed. There was no dispute about those matters.

The contract

The contract was entered into on 4 August 2017. It provided for the sale of the property for the price of $4 million. A deposit of $400,000 was payable. VS Property was permitted to nominate a substitute transferee, but VS Property remained liable for the performance of the purchaser’s obligations.[5] Settlement was due on 5 November 2020.
[5]Additional Special Condition 13.
The contract included various conditions and special conditions. The terms of the contract which are of particular relevance on the appeal were as follows:
(a)General Condition 16.1 provided that time was of the essence.
(b)General Condition 27 provided for the giving of a default notice:
27      Default Notice
27.1A 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 money owing, until the other party is given and fails to comply with a written default notice.
27.2     The 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.
(c)General Condition 28 (‘GC 28’) provided for the consequences if a default under the contract was 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 is 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 toward those damages; and
(e)any determination of the vendor’s damages must take into account the amount forfeited to the vendor.
28.5The ending of the contract does not affect the rights of the offended party as a consequence of the default.

The events that led to the settlement deed

In December 2018, without notice to VS Property, the Respondents signed an agreement with Western Water to create an easement on the Property (the ‘easement agreement’).
On 17 April 2019, VS Property lodged a caveat against the title to the property. On 29 April 2019, VS Property wrote to the Zurzolos noting that works were being performed on the property and noting that the works may constitute a breach of contract, because the contract obliged the vendor to deliver the property in the same condition as it was on the day of sale. These works related to the easement agreement.
From early 2019, Western Water, the Zurzolos and VS Property negotiated in an attempt to resolve the issues in relation to the easement agreement.
The parties failed to complete on, or within a reasonable time of, the original settlement date of 5 November 2020. The parties agreed that, as a consequence, time under the contract ceased to be of the essence.
On 23 March 2022 the Zurzolos’ solicitors informed VS Property that the more than 12-month delay in settlement was creating personal and financial difficulties for the Zurzolos.
On 31 March 2022 the Zurzolos, through their lawyers, called for settlement of the contract to occur on 2 May 2022. That same day, VS Property’s solicitor responded proposing that settlement should occur on 1 July 2022, with VS Property retaining a ‘right to extend the settlement date up to, but absolutely no later than 31 November, 2022’, in exchange for an additional payment for each month of extension. On 1 April 2022 the Zurzolos rejected that proposal.
Negotiations over the settlement date, and the terms of any settlement deed, continued. On 7 April VS Property, through its solicitors, proposed a new settlement date of 15 September 2022, along with some other matters. On 14 April 2022, the Zurzolos’ solicitor wrote to VS Property’s solicitor stating that the Zurzolos’ position was that settlement should proceed in May, but also setting out terms that they would require if the settlement date were to be extended. On 27 April 2022 the Zurzolos’ solicitor again wrote to VS Property’s solicitor, reiterating the terms set out in the letter of 14 April 2022.
The contract did not settle on 2 May 2022.
On 28 June 2022 the Zurzolos served a notice of default on VS Property under GC 27. The notice called on settlement to occur by 12 July 2022. On 12 July 2022, the Zurzolos agreed to extend the date for settlement under that notice of default until 22 July 2022.
By 21 July 2022, the Zurzolos and VS Property had reached resolution with Greater Western Water on terms set out in the GWW Settlement Deed although, as noted above, that deed was not executed until 26 July 2022.

The settlement deed

On 21 July 2022, by a deed of settlement made between them, VS Property and the Zurzolos agreed to resolve all disputes in relation to the contract and the property. The terms of the Settlement Deed relevantly include the following:
(1)The Parties affirm the Contract (and they each confirm that they are bound by it) and a copy of same is annexed to this Deed at ‘Annexure 1’.
…
(3)The Parties each agree to extend the settlement date recorded in the Contract to 15 September, 2022 without penalty (Extended Settlement Date).
(4)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 the future regarding any alleged breaches by the Vendor of its obligations under the Contract prior to the date of this Deed, or any deficiencies, misdescriptions or non-disclosures in the [Sale Contract] (or in the section 32 vendors statement annexed thereto) ….
(5)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 had paid under the Contract and or this Deed shall then 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 the this Deed or in the GWW Settlement Deed.
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(7)The Purchaser cannot now or in the future seek to avoid settlement or its performance of the Contract based on the outcome of the [easement agreement] (nor based on any matters that arise in or from the [easement agreement] or under the GWW Settlement Deed or anything that deed requires of the parties).
(8)Save for the performance and enforcement of this Deed, the GWW Settlement Deed, and under the Contract, the Parties fully and finally release one another from any and all claims, suits, actions, demands, or damages, arising out of or connected to the Easement and/or the [easement agreement].
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(10)The Parties acknowledge the accuracy of the Recitals and acknowledge that the Recitals form part of this Deed.
The recitals to the settlement deed recorded the fact of the contract, the disputes that arose concerning the easement and the terms of the tripartite settlement deed with Greater Western Water. Of particular relevance were the following recitals:
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’).
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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 …
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 … 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).
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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 … 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.

Events occurring after entry into the settlement deed

On 9 September 2022, VS Property gave notice to the Zurzolos that it nominated Deanside as the substitute purchaser to take transfer of the property under the contract. The Zurzolos accepted the nomination.
On 12 September 2022, VS Property notified the Zurzolos that its financier may require one extra day to complete settlement.
On 14 September 2022, VS Property requested an extension of the extended settlement date to Friday 16 September or Monday 19 September 2022 in order to finalise the financial arrangements. The Zurzolos rejected this request and insisted that settlement occur on 15 September 2022.
Later on 14 September 2022, VS Property offered to pay a further deposit of $200,000 in exchange for an extension of the extended settlement date to 26 September 2022. The Zurzolos rejected this offer on 15 September 2022.
On 15 September 2022, VS Property and Deanside did not pay the balance due under the contract and the settlement deed. This was because their financial arrangements were not finalised in time. Their solicitors informed the Zurzolos’ solicitors that they would be ready to settle on the following afternoon.
On 16 September 2022, the Zurzolos’ solicitor, by email to VS Property’s solicitors, stated that ‘the deed has taken effect and the contract of sale has automatically and immediately come to an end’.
The Zurzolos did not, at any time after VS Property’s failure to settle on 15 September 2022, give VS Property or Deanside a default notice in respect of the non-payment of the balance. The Zurzolos have not settled and have refused to settle the contract.
On 25 October 2022, VS Property and Deanside instituted a proceeding seeking specific performance of the contract. As noted earlier, the respondents by counterclaim sought declaratory relief to the effect that the contract had been terminated and the deposit forfeited, and sought an order that VS Property remove its caveat.

The judge’s decision

The judge set out the relevant principles applicable to construction of the settlement deed, which were not in dispute. Her Honour observed that the determining issues in the proceeding were, relevantly for present purposes, as follows:
(a)whether, on the proper construction of the settlement deed, cl 5 was engaged in circumstances where the settlement monies were not paid on the extended settlement date by reason of the lender not releasing funds in time, such that the failure to settle was thereby not ‘through default on [VS Property’s] part’;
(b)if the answer to (a) was ‘yes’ — that is, cl 5 was engaged — whether the effect of cl 5 was that the contract was automatically void, or whether it was voidable at the innocent party’s option; and
(c)whether the effect of cl 5 of the settlement deed was that the Zurzolos could exercise the termination rights without providing notice, notwithstanding the terms of GC 27.[6]
[6]Reasons, [106].
Her Honour accepted that the principles applicable to the construction of the contractual obligations between the parties required the provisions in question to be read ‘harmoniously and consistently’. However, she considered that there were clauses in the documents that were clearly inconsistent, and that she must determine the meaning and effect of them reading the documents as a whole.[7]
[7]Reasons, [107].
In particular, her Honour observed that the consequences which cl 5 provides are to follow VS Property’s failure to settle, through default on its part, are in direct conflict with the consequences of default which are set out in GC 27 of the Sale Contract. Her Honour held that it ‘makes no commercial sense to include the consequences in cl 5 if the consequences of a default were to be those which are set out’ in GC 27.[8] She also observed that the purpose of cl 5 was ‘to address the delays in settlement’ of the contract. ‘This circumstance forms part of the mutually known objective background circumstances and part of the direct purpose of’ the settlement deed.[9]
[8]Reasons, [108(e)].
[9]Reasons, [108(f)].
As to the first issue identified above, her Honour held that cl 5 was engaged in the circumstances of the case. That is, VS Property’s failure to settle was ‘through default on its part’.[10] That finding was not subject to challenge on the appeal.
[10]Reasons, [122].
As to the second issue identified above, the judge held that the effect of cl 5 was that the contract was voidable at the option of the innocent party (the Zurzolos), rather than automatically.[11] In that regard, her Honour relied upon the High Court decisions of Suttor and Gange.[12] Her Honour accepted that the question was one of construction of the particular contract, and that the ‘legal result will depend on the terms of the condition and the factual circumstances’.[13] Here, she concluded that:
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.[14]
[11]Reasons, [138].
[12]Reasons, [124]ff. See Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 (‘Suttor’) and Gange v Sullivan (1966) 116 CLR 418; [1966] HCA 55 (‘Gange’).
[13]Reasons, [128].
[14]Reasons, [134].
The judge also held that the Zurzolos’ election had been confirmed on the morning of 16 September 2022 (the day after the default).[15]
[15]Reasons, [171]; see also [135].
As noted earlier, her Honour’s conclusion that cl 5 operated at the election of the Zurzolos was challenged by their notice of contention.
As to the third issue, her Honour held that giving effect to GC 27 was inconsistent with the ‘precise and bespoke terms’ of cl 5 concerning the consequences of default by VS Property.[16] As a consequence, her Honour held that cl 5 was not subject to GC 27. Her Honour said this:
[16]Reasons, [147].
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, but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’. 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.
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.
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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.
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.
…
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.[17]
[17]Reasons, [141]–[142], [144]–[149], [151] (citations omitted).
Her Honour further rejected VS Property’s argument that the words ‘without penalty’ in cl 3 of the settlement deed should be read to ameliorate the operation of cl 5 or to support an interpretation that GC 27 operated to require a default notice to be served.[18]
[18]Reasons, [153].

The notice of contention

It is appropriate to consider first the issue raised by the notice of contention: namely, whether the judge was correct to conclude that the effect of cl 5 was to render the contract voidable, or able to be terminated, at the election of the Zurzolos, rather than automatically terminated by the operation of cl 5, after VS Property failed to settle on 15 September 2022.
As the judge observed, and the parties accepted, this is a question of the construction of cl 5; it is not governed by the decisions in Suttor or Gange, concerning the construction of other contractual clauses in different terms. Furthermore, it is a question of law that is to be determined on an appeal by reference to the correctness standard of review.
We consider the construction of cl 5 to be finely balanced, and to be a matter on which reasonable minds may differ. We also note that the judge considered she was faithfully applying the remarks of the High Court in Suttor, in particular. Nonetheless, we have come to a different conclusion about the proper construction of cl 5. In our opinion it operated to bring the contract to an end automatically, upon the failure of VS Property to settle on 15 September 2022. It did not require any further step by the Zurzolos. That conclusion follows from the text of the clause, considered in light of its context and purpose.

The parties’ submissions on the notice of contention

The Zurzolos submitted that the principle identified in Suttor and Gange is ‘an interpretational presumption that may be displaced by sufficiently clear language suggesting that the provision was to effectuate an automatic termination’. In this case, they submitted, cl 5 contained several indications that an automatic termination was objectively intended by the parties. In particular, they pointed to the repeated use of the word ‘immediately’ and VS Property’s final release of them from all claims.
In response, VS Property and Deanside submitted that the authorities on the construction of a clause of this kind are clear, and the language of cl 5 did not displace the ‘usual position’. They submitted that if the Zurzolos’ construction were to be accepted, then cl 5 would deprive the Zurzolos of a choice whether to complete the transaction or not, were VS Property to default.

Principles concerning construction of contracts

It is appropriate to commence the analysis of the issue raised by the notice of contention not with a consideration of Suttor, Gange and related cases, but with a consideration of the general principles applicable to the construction of a commercial agreement. Those principles were not in dispute. They were set out by this Court in Adaz Nominees Pty Ltd v Castleway Pty Ltd,[19] and can be summarised as follows:
[19][2020] VSCA 201 (‘Adaz Nominees’). See also Electricity Generation Corporation v Woodside Energy Ltd(2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ); [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd(2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ); [2015] HCA 37; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd(2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ); [2017] HCA 12.
(a)In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. To answer that question, ‘the reasonable businessperson [is] placed in the position of the parties’, and the Court applies the following principles:
(b)The rights and liabilities of parties under a provision of a contract are determined objectively. The subjective intentions of the parties are irrelevant.
(c)The objective approach requires reference to the text and its ordinary meaning, together with:
(i)the context, being the entire text of the contract including matters referred to in the text; and
(ii) the purpose of the contract and/or the clause in question.
(d)These matters will ordinarily be identified by reference to the contract alone, but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’. 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.
(e)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. However, the court does not weigh the commerciality of the agreement, and business common sense is a topic on which reasonable minds may differ.
(f)If 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.
(g)However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible. 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.
(h)Post-contractual conduct is inadmissible to construe the terms of the contract. However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.[20]
[20]See Adaz Nominees [2020] VSCA 201, [70] (Whelan and Riordan AJJA).
In addition, and to the extent possible, clauses within a contract are to be construed harmoniously with each other.[21] However, if there is any inconsistency between terms then the specific clause will prevail over the general clause.[22] In this case there was no real dispute that, if there was an inconsistency between cl 5 and GC 27, the former was to prevail. Rather, VS Property and Deanside contended that a harmonious construction was open and ought to be adopted.
[21]Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ); [2005] HCA 17. See also Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99, 109 (Gibbs J); [1973] HCA 36, cited in Bytan Pty Ltd v BB Australia Pty Ltd (2012) 41 VR 46, 50 [12] (Warren CJ, Osborn JA agreeing at 63 [80], Cavanough AJA agreeing at 65 [96]); [2012] VSCA 233; ICM Investments Pty Ltd v San Miguel Corp (2014) 48 VR 503, 513 [24] (Nettle, Santamaria and Beach JJA); [2014] VSCA 246.
[22]Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455, 465–6 (Higgins J, Gavan Duffy J agreeing at 466); [1927] HCA 24, cited in C & F Nominees Mortgage Securities Ltd v Karbotli (2021) 64 VR 218, 247 [122] (Kyrou, McLeish and Sifris JJA); [2021] VSCA 134; Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324, [46] (Ashley, Beach and McLeish JJA).
In the present case, the immediate context includes the text of the settlement deed and of the contract, which was annexed to the deed.
We pause to observe that there was some debate in oral argument about whether this Court could properly have regard to the contents of the correspondence between the parties that was in evidence before the trial judge. The Zurzolos contended that regard could be had to that material, both to elucidate the purpose of cl 5 and of the settlement deed, and because cl 5 was ambiguous. In contrast, VS Property and Deanside contended that this Court could not have regard to the terms of the correspondence, but was limited to the matters contained in the recitals to the settlement deed. We have not found it necessary to resolve whether this Court is permitted to have regard to the correspondence because we consider that it is possible to reach a conclusion about the operation of cl 5 relying solely on the recitals, without recourse to the extrinsic materials. Thus those principles set out above concerning recourse to extrinsic materials do not enter further into the analysis.

Construction of cl 5

Applying these principles, in our view the language of cl 5 is clear: if the purchaser does not settle, by reason of its own default (which is in fact what occurred), then ‘the contract is immediately at an end’. Read according to the ordinary meaning of those words, cl 5 operates of its own force to bring the contract to an end on the occurrence of VS Property’s failure to settle. There is no reference to any election by, or option of, the Zurzolos to terminate, and no specification of any step that is to be taken by them to cause cl 5 to operate. And the word ‘immediately’ (which is used three times in cl 5) supports the proposition that the termination occurs upon the occurrence of the failure to settle, not some time later after the Zurzolos take a further step.
Nor is there anything in the context or purpose of cl 5 to suggest that it requires the Zurzolos to take a step in order for cl 5 to operate. To the contrary, the context, as set out in the recitals, reveals that the parties had been in dispute over two matters:
(a)the Zurzolos’ grant of the easement to Greater Western Water; and
(b)VS Property’s failure to settle the contract more than a year after settlement was originally due.

Those matters in turn reveal two clear purposes in entering into the settlement deed: to end the disputes between them and to cause the contract on the extended settlement date either to settle or to terminate. In more general terms, these purposes can be understood as aspects of a single purpose: to bring the dealings between the parties to an end with finality.
Furthermore, as part of the context, the history reflected in the recitals supports the conclusion that the termination for a failure to settle is, as cl 5 states, to be ‘immediate’, not delayed by waiting for the Zurzolos to make their election.
This approach to cl 5 also produces a harmonious construction as between cl 5 and GC 27. That is because, if this approach to cl 5 is adopted, then if and when cl 5 comes to operate according to its terms, the Zurzolos are not ‘exercising any rights arising from the other party’s default’ (which is the trigger for the operation of GC 27). Rather, the automatic operation of cl 5 is simply the giving effect to the expressed intentions of both parties about the consequences that are to occur if VS Property fails to settle by reason of its own default. The two clauses simply operate in distinct and separate circumstances; there is no inconsistency between them.
Were it not for Suttor and the related authorities to which the judge referred, there could have been no basis for reading cl 5 other than according to the ordinary meaning of its words. It is thus necessary to consider whether Suttor and the related authorities required a departure from the clear words used in cl 5.

Suttor and related authorities

The key passage from Suttor is as follows:
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.[23]
[23]Suttor (1950) 81 CLR 418, 441 (the Court); [1950] HCA 35.
The principle underlying that proposition is that the law will not permit a party to take advantage of his own wrong.[24]
[24]See New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1, 6 (Lord Finlay LC), 9 (Lord Atkinson) (‘New Zealand Shipping Co’); Suttor (1950) 81 CLR 418, 440–1 (the Court); [1950] HCA 35; World Best Holdings Ltd v Sarker (2010) 14 BPR 27,549, 27,557 [61] (Handley JA, Tobias and Campbell JJA agreeing); [2010] NSWCA 24.
If this passage from Suttor were to be applied as if it was a rule of construction, requiring a particular outcome for a clause of the kind described, it might reasonably be thought that in this case cl 5 must be construed as making the contract between the parties voidable, rather than void. However, that would be to misunderstand the effect of the principle articulated in Suttor.
The approach adopted in Suttor was based on the decision of the House of Lords in New Zealand Shipping Co. As Lord Diplock explained in Cheall v Association of Professional Executive Clerical and Computer Staff, in New Zealand Shipping Co all their Lordships agreed that, ‘except in the unlikely case that the contract contains clear express provisions to the contrary, it is to be presumed that it was not the intention of the parties that either party should be entitled to rely upon his own breaches of his primary obligations as bringing the contract to an end’.[25]
[25][1983] 2 AC 180, 189 (emphasis added).
Likewise, in Gange, Taylor, Menzies and Owen JJ described the principle as follows:
Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end.[26]
[26](1966) 116 CLR 418, 441; [1966] HCA 55 (emphasis added). See also Butler v Kenny [2022] VSCA 102, [29] (Kyrou, McLeish and Walker JJA); Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568, 579–80 (Samuels JA).
Thus, as the judge correctly recognised, and the parties before us accepted, Suttor is not to be understood as laying down an inflexible rule to be applied to a provision that brings a contract to an end upon the default of one party. It establishes a presumption, or a ‘disposition’ on the part of the courts. But the question remains one of construction: what did these parties agree, based on the words they chose, understood objectively in light of their context and purpose? That is, Suttor does not displace the ordinary approach to the construction of a commercial contract.
The analysis must thus return to the language of cl 5, understood in light of its context and purpose. In our view the language is clear and intractable; and the context and purpose simply support the clear terms the parties have adopted: if the purchaser fails to settle, through its own default, the contract is immediately at an end. It is difficult to imagine clearer language.
The history set out in the recitals fortifies the conclusion that, understood objectively, the parties’ intention in entering into the settlement deed was to provide, once and for all, for the settlement to occur and, if it does not, for the contract to come ‘immediately’ to an end. There was to be no more forgiveness for any default. Thus, in circumstances where:
(a)a contract was entered into in 2017 (recital B);
(b)the contract was to be settled in 2020 (recital C);
(c)there were disputes between the parties and a third party, resulting in a threat by the purchaser to terminate the contract (recitals H and L);
(d)by 2022, settlement had not occurred, and the vendors called for settlement to occur by May 2022 (recital O);
(e)following the failure of the property to settle in May 2022, the vendors served a default notice under GC 27 calling for settlement on 12 July 2022 (recital O); and
(f)on 21 July 2022 the parties agreed to extend the settlement date (recital C) and ‘to fully and finally settle … all issues above [ie in the recitals] and disputes between them’, in order to avoid further disputation and costs (recital P);
a reasonable businessperson would conclude that a key purpose of the deed was to provide for a final settlement date and that the operation of cl 5 was to terminate the contract if, after all those events, the purchasers failed to settled on the nominated date.
For these reasons we would uphold the notice of contention and conclude that, by reason of the operation of cl 5, the contract came to an end at midnight on 15 September 2022, following VS Property’s failure to settle on that day.

Grounds 1, 2 and 3

Our conclusion about the construction of cl 5 makes it strictly unnecessary to deal with the grounds of appeal. However, it is appropriate to state that, if we are wrong about the proper construction of cl 5, so that it operated upon the election of the Zurzolos, we would conclude that cl 5 was not subject to the operation of GC 27. That is, the event specified in cl 5 having occurred, the Zurzolos were entitled to exercise their option to terminate on 16 September 2022 (which they did). They were not required to serve a notice of default and permit VS Property to remedy that default within 14 days. Our reasons for that conclusion are as follows.
Grounds 1, 2 and 3 are each directed, in slightly different ways, to the relationship between cl 5 of the settlement deed and GC 27. However, the ultimate question is whether the judge was correct to conclude that, once cl 5 was engaged, GC 27 did not operate to require 14 days’ notice to be given before the Zurzolos could treat the contract as terminated. It is thus convenient to deal with these three grounds together, in order to answer that ultimate question.

VS Property’s and Deanside’s submissions

VS Property and Deanside contended that notice pursuant to GC 27 was required before the Zurzolos were entitled to terminate the contract pursuant to cl 5 of the contract. In support of that proposition, they made the following arguments:
(a)First, the judge had decided (correctly) that cl 5 rendered the contract voidable at the option of the Zurzolos, rather than providing for automatic termination upon default. Thus the judge was wrong when she later held that cl 5 brought the contract immediately to an end.
(b)Secondly, once a step by the Zurzolos to exercise their rights was required under cl 5, the judge was wrong to find that cl 5 was inconsistent with GC 27. Rather, because cl 5 provided for rights upon default, GC 27 then regulated how such rights were to be exercised. Thus, the two clauses were able to operate consistently with one another and were not wholly inconsistent.
(c)Thirdly, once it is accepted that there was no inconsistency between the two provisions, it was not necessary for cl 5 to override or take precedence over GC 27, and the trial judge erred in so concluding.
(d)Fourthly, the judge did not have proper regard to all of the recitals to the settlement deed.
(e)Fifthly, the judge had incorrectly identified a ‘constricted contractual purpose’ of the settlement deed, namely to ‘bring about a final date’ for settlement. Rather, the purpose was broader: it was to resolve the dispute between the parties and to affirm the contract ‘with an extended date’. Furthermore, by reason of the repeated extensions to the settlement date arising from the dispute, time had ceased to be of the essence.
(f)Sixthly, the judge erred by not adopting the ‘harmonious construction’ of cl 5 and GC 27 advanced by VS Property and Deanside.
(g)Finally, VS Property and Deanside submitted that because cl 5 contained no provision for, or regulation of, the process by which the Zurzolos might make their election, that ‘gap’ was filled by cl 27.

Consideration

It is appropriate to commence with the text of the two provisions, which have been set out earlier.
GC 27 of the contract applies to a default by a party. If such a default occurs, then GC 27 in effect requires that 14 days’ notice be given, so that the party in default has an opportunity to remedy the default. If the defaulting party fails to do so, then the innocent party may exercise their rights that arise from the default. GC 28 then sets out the consequences of a default not being remedied.
By clause 4 the parties agreed that they ‘must settle the contract’ on the extended settlement date. Clause 5 of the settlement deed then provided for the consequences of a failure to settle by reason of VS Property’s default, namely that:
(a)the contract is ‘immediately at an end’;
(b)all monies VS Property had paid would be ‘immediately and irrevocably released to the sole use, benefit and account of’ the Zurzolos;
(c)VS Property ‘must then immediately withdraw any caveat(s) it has lodged’ against the title to the property; and
(d)VS Property ‘fully and finally releases’ the Zurzolos ‘from all claims, suits or actions arising from’ the matters raised in the deed.
When regard is had to the text of cl 5, it is immediately apparent that that clause is quite different in its terms — and its intended effect — from GC 27 and GC 28. The word ‘immediately’ is used three times in cl 5, and must be given proper work to do in the operation of that clause. As the Zurzolos submitted, ‘there is a stark difference between a provision that provides for termination of an agreement only after a 14 day notice, and a term that brings a contract “immediately” to an end’ — and that is so even if termination was not automatic. Clause 5 plainly intended that termination of the contract could be effected considerably more quickly than the 14 day period for which GC 27 provided. Furthermore, cl 5 provides for different consequences upon default than those for which cl 28 provides.
If cl 5 required the Zurzolos to take a step to exercise their rights following VS Property’s default, it does not follow that GC 27 and GC 28 then regulated how such rights were to be exercised. There is, in our view, no ‘gap’ needing to be filled. An election can be made simply by the Zurzolos communicating their decision to VS Property.
Ultimately, after consideration of the text, context and purpose of cl 5, it is clear that to subject an election under cl 5 to the process set out in GC 27, and to the consequences set out in GC 28, is simply inconsistent with the language of cl 5. The clauses cannot be construed harmoniously. Once that inconsistency is recognised, it is plain that cl 5 must prevail over GC 27. Clause 5 was a specific clause, directed at a narrow category of default, and providing for specific consequences for that class of default.
Thus, even if the effect of cl 5 was not automatic, but required a step by the Zurzolos,[27] then as soon as such a step is taken (that is, immediately upon such a step being taken), the contract was brought to an end, without the need for compliance with GC 27.
[27]This aspect of her Honour’s reasons was the subject of the notice of contention. However, and notwithstanding our conclusion in relation to the notice, it is appropriate at this point in the argument to assume her Honour was correct to construe cl 5 as requiring a step to be taken by the Zurzolos to cause the contract to terminate upon default by VS Property; for if that were not so, and the termination was automatic, then there could be no question of GC 27 applying to require a 14 day notice period.
The recitals to the settlement deed do not require any different conclusion. Rather, for the reasons set out above in relation to the notice of contention, which we shall not repeat, the recitals support the conclusion that cl 5 was to operate independently of GC 27. In addition to those matters, however, it is relevant to observe that recital O recorded that the Zurzolos had already served a default notice under GC 27. It would be surprising if the process that the parties had adopted to resolve their dispute required the Zurzolos to issue a further default notice, when the parties had chosen the language found in cl 5.
The fact that the other recitals reveal that the contract was kept on foot while the parties were in dispute and continued to seek resolution of those disputes does not support any different view about the relationship between cl 5 and GC 27. Rather, the history, taken as a whole, explains the imperative and urgent language of cls 4 and 5.
Thus construing cl 5 as not requiring a notice of default is entirely consistent with the circumstances recorded in the recitals.
In conclusion, if the effect of cl 5 was that the contract was voidable at the option of the Zurzolos, then:
(a)cl 5 was inconsistent with GC 27;
(b)cl 5 operated to the exclusion of GC 27; and
(c)GC 27 did not oblige the Zurzolos to give notice under GC 27 before exercising their option to terminate the contract.
For these reasons, even if the effect of cl 5 was to require the Zurzolos to make an election to terminate the contract, grounds 1, 2 and 3 must fail.

Ground 4

Ground 4 arises only if one of grounds 1, 2 or 3 succeeds. Because none of those grounds succeed, ground 4 does not arise.

Conclusion

For the foregoing reasons, we would grant leave to appeal and dismiss the appeal.
Our preliminary view, subject to hearing from the parties, is that the appellants should pay the respondents’ costs of the proceeding on the standard basis.
We will also hear from the parties about whether the declaration in paragraph 5 of the judge’s order ought to be set aside or varied.

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[2024] VSCA 199

13 September 2024