Willis v Crosland
[2021] VSCA 320
•23 November 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0024
| ANNE WILLIS | Applicant |
| v | |
| LOUISE VANESSA CROSLAND | Respondent |
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| JUDGES: | SIFRIS, WALKER JJA and MACAULAY AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 28 October 2021 |
| DATE OF JUDGMENT: | 23 November 2021 |
| MEDIUM NEUTRAL CITATION: | [2021] VSCA 320 |
| JUDGMENT APPEALED FROM: | [2020] VCC 1964; [2021] VCC 39 (Judge Macnamara) |
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CONTRACT – Sale of land – Clause permitted purchaser to terminate contract if purchaser (a) obtained report which designated current defect in structure on land as ‘major building defect’ (b) gave notice and (c) ‘is not then in default’ – Payment of deposit due at midnight on 18 December 2019 – Purchaser gave notice of termination at 7:51 pm on 18 December 2019 – Purchaser had paid most but not all of deposit – Whether trial judge erred in finding that purchaser was not ‘ready, willing and able’ to perform and so was ‘then in default’ – Purchaser not in actual breach – Whether purchaser was ‘ready, willing and able’ did not affect ability to exercise contractual right – Vendor contended by notice of contention that purchaser repudiated the contract and was ‘then in default’ – Repudiation not sufficiently raised below – New issues raised on appeal – Relevant conduct not repudiatory – Suggested repudiation not accepted before notice of termination – Purchaser was ‘not then in default’ – Vendor contended by notice of contention that report did not provide sufficient basis to terminate contract – Report did provide proper basis – Termination by purchaser valid – Appeal allowed – Notice of contention dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P Solomon QC with Mr J McComish | DST Legal |
| For the Respondent | Mr J Twigg QC with Mr W Newland | Ferdinand Zito & Associates |
SIFRIS JA
WALKER JA
MACAULAY AJA:
Introduction
The critical issue for consideration in this application for leave to appeal is whether a notice of termination given by the applicant as the purchaser of a property was a valid and effective termination of the contract of sale. General condition 21 in the contract entitled the purchaser to terminate the contract if the purchaser obtained a building report which disclosed a current defect in a structure on the land and designated it as a ‘major building defect’ (‘Condition 21’). That condition provided that the purchaser could only terminate if the purchaser ‘is not then in default’.
The notice of termination was given at 7:51 pm on 18 December 2019. The time for payment of the deposit was midnight that day. The purchaser had paid most, but not all, of the deposit prior to 7:51 pm. She contended that, at the time of service of the notice, she was ‘not then in default’, because the time for payment had not then arrived. She sued to recover the deposit paid. The vendor contended that the balance of the deposit due ($2,500) could not be paid before midnight and that the purchaser was therefore not ‘ready, willing and able’ to perform the contract, and thus in default, at the time she served the notice of termination under Condition 21.
The trial judge agreed with the vendor, finding that because the purchaser had not established that the balance of the deposit could be paid before midnight, she was not ready, willing and able to perform and therefore was ‘then in default’.[1]
[1]Willis v Crosland [2020] VCC 1964, [62]–[63] (‘Reasons’).
On this application for leave to appeal, the purchaser contended that whether she was ready, willing and able to perform was not the relevant enquiry in circumstances where she was exercising a contractual right to terminate. She submitted that the sole question was whether she was in actual breach as at 7:51 pm on 18 December 2019, the time that the notice of termination was given, and that she was not in actual breach at that time. Although the ‘ready, willing and able’ formulation was not pleaded by the vendor in her defence, the judge regarded it as a matter properly before the court, and the purchaser has filed comprehensive submissions in this Court on the issue.[2]
[2]In this Court the vendor relied in particular on the proposition that the purchaser was not able to perform the contract, not on whether she was ready or willing to do so.
By a notice of contention, the vendor contended that the purchaser had repudiated the contract, either by earlier seeking to re-negotiate the contract price or by placing herself in a position where compliance with her obligation to pay the deposit by 18 December 2019 was impossible. One or both of these matters, the vendor contended, meant that the purchaser was, at 7.51 pm on that day, ‘then in default’. Repudiation was not pleaded by the vendor and there is a question as to whether and to what extent it was raised before the judge.[3] The purchaser submitted that the vendor should not now be permitted to rely upon repudiation; however, both parties dealt with repudiation in their submissions.
[3]In a second judgment following an application by the purchaser to re-open her case, the circumstances of which are set out below, the judge regarded ‘default’ as embracing anticipatory breach: Willis v Crosland [No 2] [2021] VCC 39, [33] (‘Second Reasons’). Although not pleaded in the Court below, anticipatory breach was mentioned by the vendor’s counsel during her opening.
By a further ground in the notice of contention, the vendor submitted that the building report obtained by the purchaser did not provide a sufficient basis to terminate the contract. The judge held that it did provide a sufficient basis.
For reasons that follow, we will grant leave to appeal and we will allow the appeal. First, the purchaser was not ‘then in default’ at the time of the notice of termination (proposed ground 1). Secondly, whether the purchaser was ready, willing and able to pay the balance of the deposit did not in any way impact upon or restrict the purchaser’s ability to terminate the contract in the prescribed circumstances (proposed ground 2). Thirdly, we will not permit the vendor to rely upon grounds 1 and 2 in her notice of contention, which concerned repudiation, because, had those grounds been raised below, the purchaser could have adduced further evidence. But we note for completeness that we do not consider that the relevant conduct was repudiatory and, in any event, the suggested repudiation was not accepted before the notice of termination was given so the contract remained on foot at the time of termination. The consequence was that there was no default at that time. Fourthly, the building report did provide a proper basis to terminate the contract (ground of contention 3).
Relevant facts
On 4 December 2019, the applicant as purchaser and the respondent as vendor executed a contract for the sale of land at 959 Bacchus Marsh Road, Bullengarook, Victoria (the ‘Contract’). The purchase price was $1,875,000. The property comprised a residence, substantial stabling and surrounding land.
The Contract was in the Law Institute of Victoria’s standard form and contained a number of general conditions and special conditions. Condition 21, titled ‘Building Report’, applied because the relevant box in the particulars of sale was ticked.
Condition 21 included the following:
21.2The purchaser may end this contract within 14 days from the day of sale if the purchaser:
(a)obtains a written report from a registered building practitioner or architect which discloses a current defect in a structure on the land and designates it as a major building defect;
(b)gives the vendor a copy of the report and a written notice ending this contract; and
(c)is not then in default.
21.3All money paid must be immediately refunded to the purchaser if the contract ends in accordance with this general condition.
21.4A notice under this general condition may be served on the vendor’s legal practitioner, conveyancer or estate agent even if the estate agent’s authority has formally expired at the time of service.
In early December 2019, the purchaser engaged ZYNC Inspections Pty Ltd to undertake a building and pest inspection of the property. Nigel Benn of ZYNC Inspections produced a Building & Pest Inspection Report dated 6 December 2019 (the ‘Benn report’). Mr Benn is a registered building practitioner. The Benn report stated that it was prepared in accordance with Australian Standard AS4349.0-2007 Inspection of Buildings (the ‘Standard’).
The Benn report identified a number of defects with the building on the property. The summary page of the report provided ‘a list of major defects that need further evaluation or repair by appropriately Licenced Contractors’, as follows:
WET AREAS
TOILET:
Toilet Condition:
A leak is present at the rear of the toilet pan and appears to be caused from either a leaking pan/waste seal or cistern leak. This needs to be repaired to prevent decay to surrounding components. A licensed plumber is required to provide a further assessment and to offer suitable rectification as required.
EXTERNAL AREAS
EXTERNAL WALLS:
Cracking To Masonry Or Concrete Elements:
Cracks are evident to the garage and the front left corner of the house. These appear to have been caused by the twisting of the garage roof beam that has pushed the brick work out. Recommend a bricklayer re-install these bricks to secure them in place.
ROOF SYSTEM EXTERNAL
CHIMNEYS:
Condition:
Chimney flashings are surface rusting and should be treated with an anti rust paint to prolong the life of the material. A licensed roof plumber is required to provide a further assessment and to offer suitable rectification as required. Also grass is growing behind the chimney and requires to be cleared away.
DECKS, PERGOLAS, BALCONIES, VERANDAHS, AWNINGS
VERANDAH:
Defects Or Maintenance Items:
Minor-moderate wet rot decay is present to the middle post to the right side. Decayed timbers need repair or replacement to prevent additional deterioration. A qualified carpenter and/or builder is required to provide a further assessment and to offer suitable rectification as required.
Some downpipes appear to be missing to the rear. Recommend the missing downpipes be installed without delay, as the free water running off the roof may affect the foundations of the dwelling and cause potential structural issues and/or attract termites. A licensed roof plumber is required to provide a further assessment and to offer suitable rectification as required.
There are a number of flashings missing to the roof structure, which if not installed could lead to the decay of structural timbers. A licensed roof plumber is required to provide a further assessment and to offer suitable rectification as required.
The rear left end of the verandah is missing a beam and post to the roof structure and requires to be installed by a licensed builder or carpenter.[4]
[4]Emphasis in original.
Under the heading ‘Conclusion & Overall Summary’, the report stated: ‘[t]his inspection is a visual building inspection assessment of the property to identify major defects and to form an opinion regarding the condition of the property at the time of the inspection.’ Under the heading ‘Summary — Overall Condition of Property’, the report recorded:
Major Defects In This Building:
The incidence of major defects in this building in comparison to the average condition of similar buildings of approximately the same age and construction and that have been reasonably maintained is considered to be:
Average/Typical: The frequency and/or magnitude of major defects are consistent with the inspectors expectations when compared to similar buildings of approximately the same age, construction that have been reasonably well maintained.
Minor Defects In This Building:
The incidence of minor defects in this building in comparison to the average condition of similar buildings of approximately the same age and construction and that have been reasonably maintained is considered to be:
Average/Typical: The frequency and/or magnitude of minor defects are consistent with the inspectors expectations when compared to similar buildings of approximately the same age, construction that have been reasonably well maintained.
Overall Condition:
A comparison of this and other dwellings of similar age, construction and level of maintenance would rate this building as Average/Typical. There may be areas/elements requiring minor repairs or maintenance.[5]
[5]Emphasis in original.
The report also provided ‘[d]efinitions to help you better understand this report’. ‘Major Defect’ was defined as a ‘defect of significant magnitude where rectification has to be carried out in order to avoid unsafe conditions, loss of utility or further deterioration of the property’. ‘Minor Defect’ was defined as a defect other than a Major Defect.
Under the Contract, the full deposit of $187,500 was due by 13 December 2019. On 5 December 2019, the purchaser paid $1,000 by electronic funds transfer towards the deposit. Those funds cleared on 9 December 2019. On 12 December 2019, the purchaser requested an extension of time for payment of the remainder of the deposit to 18 December 2019, and the vendor agreed to that request.
At 3:58 pm on 17 December 2019, the purchaser’s solicitor sent an email to the vendor’s solicitor, which attached copies of ‘reports’[6] and stated:
You will note from the reports there is a lot of damage in the kitchen/dining area due to both water and termite damage. It is uncertain how much of the frame of the house will need replacing as a result.
Our clients have instructed they are willing to proceed with the purchase of the property on the basis that the purchase price is reduced by $25,000.00, which is a fair and reasonable amount to cover the repair costs.
Can you please confirm this is acceptable to your client and that it is in order to amend the price in the Contract accordingly.
[6]Although the Benn report and another report provided by Mr Colin Hibberd of Hamley Home Inspections were provided, the purchaser only pleaded and relied on the Benn report at trial.
At 9:52am on 18 December 2019, the vendor’s solicitor replied as follows:
The issues identified in the reports do not satisfy the requirements allowing for the rescission in accordance with general conditions 21 and 22. General condition 21 allows rescission if, ‘a written report from a registered building practitioner or architect which discloses a current defect in a structure on the land and designates it as a major building defect’…
Neither report satisfies these definitions … Any past damage is not significant and does not constitute a major structural defect.
Accordingly, the contract will continue on its existing terms and conditions, including price, deposit payment and settlement date.
At 11:48 am on 18 December 2019, the purchaser’s solicitor replied to the vendor’s solicitor:
Please find attached a copy of the initial building & pest inspection report which demonstrates there are major building defects at the property.
We re-iterate our clients [sic] offer to proceed with the purchase of the property on the basis that the purchase price is reduced by $25,000.00. In the event this is not acceptable to your client, we will seek instructions from our clients [sic] as to whether they propose to withdraw from the Contract of Sale pursuant to general condition 22.[7]
[7]General condition 22 was in generally the same terms as Condition 21, but dealt with pest reports rather than building reports.
At 2:59 pm on 18 December 2019, the purchaser paid $184,000 by cheque to the vendor’s real estate agent’s trust account, but did not communicate to the vendor that she had done so.
At 4:48 pm on 18 December 2019, the vendor’s solicitor sent an email to the purchaser’s solicitor, which advised that the vendor’s instructions remained unchanged and there was no basis to rescind the Contract.
At 7:51 pm on 18 December 2019, the purchaser’s solicitor sent an email to the vendor’s solicitor stating:
I … have been instructed to give notice that my client hereby ends the Contract pursuant to general conditions 21.2 and 22.2, on the basis that the reports obtained disclose a major building defect, termite activity and severe damage.
At the time of the 7:51 pm email, the purchaser had paid $185,000 towards the deposit of $187,500. (We note that that amount was 10 per cent of the revised purchase price that had been proposed by the purchaser.) The balance of the deposit remaining to be paid by 18 December 2019 was therefore $2,500.
At 1:33 pm on 19 December 2019, the vendor’s solicitor served on the purchaser’s solicitor a Notice of Default and Rescission, giving the purchaser 14 days’ notice to remedy the stated default, namely failure to pay the full deposit by 18 December 2019.
The purchaser made no further payment towards the deposit or the purchase price of the property.
The proceeding
By writ filed 27 February 2020, the purchaser commenced proceedings in the Supreme Court of Victoria for return of the deposit of $185,000 and consequential relief. The proceeding was transferred to the County Court in May 2020 and was heard in November 2020.
The purchaser’s statement of claim alleged that the purchaser had obtained a report from a registered building practitioner that disclosed four defects in the house on the property and designated those defects as ‘major building defects’ (that is, the Benn report). It further alleged that on 18 December 2019, the purchaser served the Benn report and a notice terminating the Contract on the vendor (at 11:47 am and 7:51 pm respectively) and, because she was not then in default, she had lawfully terminated the Contract pursuant to Condition 21 and was entitled to repayment of the deposit.
In her defence, the vendor alleged that the purported termination of the Contract at 7:51 pm on 18 December 2019 was ineffective because at that time the purchaser was in default, because she had failed to pay the total deposit by close of business on 18 December 2019, as required by the Contract. The Contract, it was said, had therefore been lawfully terminated by the vendor on 19 December 2019 and by virtue of its terms, the vendor was entitled to retain the sums paid towards the deposit.
The vendor did not plead that the purchaser had repudiated the Contract, by anticipatory breach or otherwise, because the premise of the defence was that she was in actual breach by not having paid the deposit by close of business on 18 December 2019. The vendor did not file an amended defence at any stage.
At trial, the starting point of the vendor’s defence was that the Benn report did not meet the threshold of Condition 21 because it did not expressly designate any of the defects as ‘major building defects’. There was a difference, according to the vendor, between designating a matter as a ‘major defect’ and a ‘major building defect’. The vendor said that an express identification of a ‘major building defect’ was required for certainty so that vendors and purchasers could know whether a report met the threshold, thereby removing the need for any analysis of whether a particular item met the objective assessment. If that submission was correct, then the vendor said the purported termination by the purchaser was invalid.
If that submission was not accepted, then the vendor submitted there were other matters which invalidated the termination notice — primarily, that the purchaser was in default. While the vendor did not plead repudiation in her defence, the issue was raised by her counsel to an extent in written and oral submissions, as set out in the following paragraphs.
In the vendor’s written opening, her counsel submitted that:
Accordingly, the court should find that:
a.the Purchaser tendered a bank cheque for $184,000 at 2:59pm on 18 December 2019, within business hours, which was $2,500 short of the necessary deposit monies outstanding ($186,500) to be paid that day;
b.the Purchaser did not make any further EFT prior to the close of business on 18 December 2019 of any of the remaining deposit monies;
c.the Purchaser did not communicate with RT Edgar Gisborne on 18 December 2019 and request that they remain open beyond 5:30pm to enable her to make payment of any further deposit monies;
as a consequence of the above, it was not practically possible for the Purchaser to make payment of the unpaid deposit monies between 5:30pm and midnight on 18 December 2019. The court should find that after the close of business on 18 December 2019, the Purchaser was not ready, willing and able to tender the deposit monies that were payable that day.
The court should find that the Purchaser was in default of her obligation to pay the deposit monies by the close of business on 18 December 2019; she had failed to take the necessary steps by close of business on 18 December 2019 to meet her obligations under the contract of sale; and she was not ready willing and able to meet the deposit payment obligations after the close of business on 18 December 2019. If the Purchaser was in default of the contract of sale at that time or had repudiated the contract of sale by the close of business that day, then she was not entitled to end the contract of sale under GC 21 at 7:51pm that evening.
…
[T]he court should find that the Purchaser was in default or had repudiated the Contract of Sale when she purported to terminate at 7:51pm on 18 December 2019 and that she did not validly terminate under GC 21.2.[8]
[8]Underlined emphasis in original, bolded emphasis added, citations omitted.
In the vendor’s oral opening submissions at trial, her counsel submitted:
Your Honour, the net result of the practical mechanisms of the contract we say mean that she was in effect in an anticipatory breach by the close of business and there was no way for her to effect the necessary payment of the deposit between the hours of 7.51 [sic] and midnight. That is at the heart of it, what we say is her default at the time that she attempts to terminate the contract.[9]
[9]Emphasis added.
And in the vendor’s oral closing submissions, her counsel said that the ‘critical issue’ was that the purchaser ‘was not, after the close of business on 18 December, ready, willing and able to tender the deposit moneys. It simply could not have been done.’ The vendor’s counsel referred to the High Court decision in Foran v Wight[10] in support.
[10](1989) 168 CLR 385; [1989] HCA 51.
In response, the purchaser’s counsel submitted the following in closing submissions:
In my submission, this argument about I’m able, I’m willing, did she rescind, not only is it not the language contained in the defence and seems to be something of a different or morphed claim, what is correctly pleaded and what in my submission has to be shown by the defendant is that the deadline for payment of the deposit, expressly meant to be a calendar day, that what’s not express is an implied term that forms part of the contractual requirement is that there was a deadline that it occur within the usual business hours of the estate agent, an implied term.
…
What I think my friend or [sic] needs perhaps to argue is, no, it’s an implied term that meets the requirements that in fact it had to be paid within ordinary business hours and in my submission, my friend hasn’t made that out. In fact, she hasn’t even really applied that test. She’s gone down this erroneous path of saying, ‘Look at the transcript, it might be rescission, it’s practically impossible.’ Rescission or repudiation isn’t pleaded in the defence.
Really, the argument is or the requirement, what is default? What’s the default? What’s set out in the notice of default, what is pleaded in the defence as the default which deprives us or makes the notice under general condition 21 invalid is the failure to pay the deposit on the due day. In my submission, that hasn’t happened because the due date is midnight on the 18th and we terminate, validly, the contract under general condition 21 at 7.54 [sic] on the same day. So that obligation never accrues, it stops at that point.[11]
[11]Emphasis added.
Trial judge’s reasons
Judgment was handed down on 11 December 2020.
The judge found that the Benn report satisfied the contractual requirements of Condition 21, in that it disclosed a current defect in a structure on the land and designated it as a major building defect. We refer to the judge’s reasons on this point in more detail below. The vendor challenges this finding in ground 3 of her notice of contention.
The judge also found that according to the terms of the contract, payment of the deposit fell due at midnight on 18 December 2019, not by close of business on that day. This finding is not challenged.
The judge then considered whether the purchaser was ‘not then in default’ at the time notice was given to end the Contract (that is, at 7:51 pm on 18 December 2020) based on the alleged impracticability of making payment before midnight. The judge held that it was ultimately a question of burden of proof and there was no direct evidence as to the time at which an electronic funds transfer initiated by the purchaser would arrive as ‘cleared funds’ in the vendor’s real estate agent’s trust account. After considering authorities and materials about which party should suffer the adverse finding based on the lack of evidence, the judge concluded:
Here, it was an essential element of the [purchaser’s] case that she was not in default at the time of service of the notice, as was the requirement under GC 21; or, to put it in more traditional language, that she was at that time ready, willing and able to perform. That depended on proof that it was possible, in accordance with the terms of the contract, for her to have paid the outstanding amount of the deposit between 7.51pm, 18 December, and midnight on that night. It was therefore incumbent upon her either to raise some matter of which judicial notice could be taken by reason of its notoriety or else to put on evidence to prove that fact. The [purchaser] has done neither, and therefore the incidence of burden of proof precludes me from making the necessary finding in her favour.
The [purchaser’s] claim fails for this reason.[12]
[12]Reasons [62]–[63].
Application to re-open the trial
On 17 December 2020, and before authentication of the orders, the purchaser filed an application for orders including:
1Pursuant to sections 7, 8 and 9 of the Civil Procedure Act 2010, leave be granted to the [purchaser] to reopen the trial of 25–26 November 2020 in order:
1)to permit the [purchaser] to make submissions on a mistaken apprehension of the law set out at paragraph [62] of the [Reasons];
2)alternatively, to permit the [purchaser] to adduce fresh evidence on her ability to have paid the outstanding amount of the deposit between 7:51pm and midnight on 18 December 2019;
2. that paragraphs [62], [63] and [71] of the Reasons be reconsidered.
The application was determined on the papers and judgment was handed down on 4 February 2021 (the Second Reasons). While the judge accepted that he had misstated the purchaser’s position in one respect and would revise the final sentence at [48] of the Reasons accordingly, he did not accept that it altered the outcome of the proceeding.
The unrevised final sentence in [48] was in the following terms:
I did not understand [the purchaser’s counsel] to contend that an anticipatory breach by way of repudiation would not constitute a default for the purposes of [Condition] 21.2(c).
The revised final sentence in [48] is in the following terms:
[The purchaser’s counsel] contended that an anticipatory breach by way of repudiation would not constitute a default for the purposes of [Condition] 21.2(c).
The judge also considered that the issue of the purchaser’s ability to pay the balance of the deposit was an issue properly before the Court.
The judge then stated that ‘default’ extended to anticipatory breach. His Honour said:
I agree with [the vendor’s counsel] that there is nothing inherent in the word ‘default’, which ought to exclude from its ambit the concept of an anticipatory breach. Nor do I find anything in the passage quoted and relied upon by [the purchaser’s counsel] from the Law Institute Journal which supports [her] contention on that point. The learned authors certainly exclude from the concept of ‘default’ in the relevant clause defaults which have been remedied and are no longer extant. Nor do I agree that a contract cannot be repudiated if it is ‘conditional’. That contention is an overgeneralisation. No doubt it is true in the instance of a contract which is the subject of a condition precedent to formation. I do not think it necessary to express a view as to whether it is correct relative to a contract which is conditional as to performance only. Here, the conditionality, if that is a correct way of looking at [Condition 21], is not either of those characters. It is the exercise of the power under this clause which is conditional — not the entire contract or its entire performance.[13]
[13]Second Reasons [33].
In relation to the burden of proof, the judge said:
As [the vendor’s counsel] observed, Daly AsJ stated in Chatham v Coral Park Pre-Training and Breaking Pty Ltd [2020] VSC 814 [212], ‘the authorities provide that, when the question of whether a party is ready, willing and able to fulfil their obligations under a contract is put in issue in a proceeding, the parties in the position of the purchasers in this proceeding bear the onus in this regard’. Her Honour referred to Foran v Wight (1989) 165 CLR 384, 393, 406 per Mason CJ; Australian National Airlines Commission v Robinson [1977] VR 87, 91; and AU Future Health Pty Ltd v Echmoho (Hong Kong) Limited [2017] VSCA 380. In Echmoho, Robson AJA, with whom Whelan and Ashley JJA concurred, said at [75]:
The authorities confirm that a plaintiff who is not ready, willing and able to perform the contract itself should not be compensated for loss of the benefit of the contract.
For the reasons above, I believe the issue as to whether it was possible, as a matter of practicality, for the outstanding balance of the deposit to be paid by the purchaser between 7.51pm and midnight on 8 December 2019 [sic] was a matter which arose for decision in the proceeding and the burden of proof on that matter lay with the [purchaser].[14]
[14]Ibid [36]–[37].
The judge considered that the failure to call evidence about the possibility of payment between 7.51 pm and midnight on 18 December 2019 was a forensic decision by counsel.[15] His Honour also observed that the purchaser’s pleaded case was that the short payment of deposit by her was the result of inadvertence, but that the purchaser did not give evidence and the alleged ‘inadvertence’ remained unverified.[16]
[15]Ibid [40].
[16]Ibid [41].
His Honour dismissed the summons and thus dismissed the application to adduce fresh evidence.
Propose ground of appeal
The purchaser relies on two proposed grounds of appeal as follows:
Ground 1 — The trial judge erred in finding that the [purchaser] was not entitled to terminate the contract of sale pursuant to General Condition 21, on the basis that she had failed to establish that she was ‘not then in default’ within the meaning of cl 21.2(c).
Ground 2 —The trial judge erred in finding that it was necessary for the [purchaser] to establish that she was ‘ready, willing and able’ to perform the contract, as a precondition for being entitled to terminate the contract of sale pursuant to General Condition 21.
Notice of contention
The vendor relies on three grounds of contention as follows:
1.For the reasons stated in the [vendor’s] amended written case in response dated 21 June 2021, the trial judge’s decision should be affirmed on the ground that the [purchaser’s] conduct, in her words and her actions, constituted a renunciation of the contract of sale; that renunciation of the contract was not retracted prior to 7:51 pm (or at all); as such the [purchaser] could not be regarded as ‘not then in default’ at the time she purported to terminate the contract; and consequently her right to terminate the contract was not engaged.
2.Further or alternatively (and to the extent a notice of contention is necessary), for the reasons stated in the [vendor’s] amended written case dated 21 June 2021, the trial judge’s decision should be affirmed on the ground that the [purchaser] repudiated the contract of sale by placing herself in a position in which compliance with her obligations under cl 14 of the contract of sale was impossible, such that at 7:51 pm when she purported to terminate the contract she was not ‘not then in default’ and the right to terminate the contract was not engaged.
3.Further or alternatively, for the reasons stated in the [vendor’s] amended written case dated 21 June 2021, the trial judge’s decision should be affirmed on the ground that the [purchaser] never obtained a building inspection report that designated a current defect in a structure on the relevant land a ‘major building defect’ in accordance with cl 21 of the contract of sale, and consequently the right to terminate the contract of sale for which cl 21 provides was never engaged.[17]
[17]Emphasis in original.
The purchaser objects to grounds of contention 1 and 2 on the basis that they raise new points not pleaded or sufficiently raised in the court below. Other substantive objections are also raised by the purchaser.
Proposed grounds of appeal 1 and 2
Although raised as distinct grounds of appeal, it is convenient to deal with grounds 1 and 2 together, as they concern overlapping issues.
Submissions
The gravamen of the purchaser’s submissions is that because she had until midnight on 18 December 2019 to pay the full deposit, she was ‘not then in default’ at the time she gave notice (7:51 pm on 18 December 2019) and therefore the requirements of Condition 21 were fulfilled and she was entitled to terminate the Contract.
The purchaser submitted that the words of Condition 21 were clear and unambiguous, and so the Court must give effect to them. According to the purchaser, Condition 21.2(c) prescribed:
(a) a criterion (that is, ‘default’, not some other standard); and
(b) a temporal element imported by the words ‘is not then’ (that is, requiring an existing default, not the possibility of future default).
The purchaser submitted that there were four errors in the judge’s conclusion:
(c) first, that the judge departed from the contractual text by misconstruing the word ‘default’, which means actual breach of a contract and does not connote anything wider, particularly not the concept of ‘ready, willing and able’.
(d) secondly, that there was no foundation in the text for the added language of ‘ready, willing and able’.
(e) thirdly, that the terms are not synonymous and asking whether a party would be ‘ready, willing and able’ to perform at a future point says nothing about whether at an earlier point there was a breach of the contract; and
(f) fourthly, that the words ‘ready, willing and able’ are inconsistent with the basic structure and purpose of Condition 21 — a terminating purchaser would, by definition, be unwilling to perform a contract.
The purchaser submitted that it is not necessary for a party that wishes to exercise a contractual right of termination to show that the party is ‘ready, willing and able’ to perform. Rather, it was said that what is required is determined by the contractual clause itself and here it was sufficient that the purchaser was ‘not then in default’. According to the purchaser, the judge was wrong to find that it was an ‘essential element’ of the purchaser’s case that she be ‘ready, willing and able’ to perform and that this depended on proof that it was possible for her to have performed before midnight on 18 December 2019.
Further, the purchaser submitted that the requirement that a plaintiff be ‘ready, willing and able’ arises in the context where a plaintiff desires the contract to be performed (for example, where a plaintiff seeks specific performance) and the defendant’s non-performance is a breach of contract. By contrast, the purchaser argued that she did not desire performance of the Contract and did not seek any remedy as a substitute for the expected performance. Rather, she sought to terminate the Contract pursuant to a contractual right to do so.
The vendor principally relied upon grounds 1 and 2 of the notice of contention in answer to proposed grounds 1 and 2 of the appeal. She submitted that the purchaser’s repudiation of the Contract constituted a default under Condition 21, and that such repudiation was operative at the time of the purported notice of termination.
Analysis
In our opinion, proposed ground 2 has merit substantially for the reasons advanced by the purchaser. The enquiry as to whether the purchaser was ‘ready, willing and able’ to pay the balance of the deposit was not a relevant enquiry. It is of course relevant to the mutual or reciprocal performance of obligations. Party A cannot insist on performance by party B unless party A is in a position to perform. However, this state of readiness is irrelevant if party A is entitled, by an express contractual provision, to terminate a contract for breach and does not wish to perform or seek performance by party B.[18]
[18]Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd (2009) 178 FCR 57, 62 [23], 72 [76] (Perram J, Goldberg and Jacobson JJ agreeing at 58 [1]); [2009] FCAFC 85 (‘Allphones’). See also Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329, [103] (Santow JA, Mason P agreeing at [1] and Hodgson JA agreeing at [2]).
The effect of the authorities is summarised by Parker J in Inlon Pty Ltd v Celli SpA:
[I]f [the terminating party] Celli were seeking to obtain damages for loss of the contract, or orders against Inlon for the specific performance of the Distribution Agreement, it would be necessary for Celli to show that it was ready, willing and able to comply with its own obligations. But all Celli is seeking to do is terminate the Agreement and escape from the obligations thereunder. Even in a case of common law termination, I am not sure that Celli would be debarred by a lack of readiness and willingness from doing so. But in a case of contractual termination, the Full Federal Court has held that a lack of readiness and willingness, on its own, does not prevent the contractual right of termination from being exercised: Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd [2009] FCAFC 85; (2009) 178 FCR 57 at 69–72 [55]–[76].[19]
[19][2017] NSWSC 569, [97].
As Professor Carter notes, ‘[t]here is a fundamental distinction between a promisee who calls for performance by the promisor and a promisee who seeks to justify a decision to terminate performance of the contract’.[20] In the case of the latter, ‘it is not an element of proof of valid termination that the promisee was ready and willing to perform the contract at the time of termination. So much is obvious where the promisee terminates prior to the time for its performance’.[21] Thus, to the extent that the judge relied on this reason for concluding that the purchaser was in default at the time she served the notice of termination, his Honour erred.
[20]J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 2nd ed, 2018), [7–28].
[21]Ibid.
As for proposed ground 1, whether the purchaser was entitled to terminate the Contract is a matter of construction of Condition 21. The critical issue is whether the purchaser was ‘in default’ at the time of termination. It is plain that the purchaser was not in actual breach of her obligation to pay the deposit at the time of termination, the time for performance not having arrived. If that were the end of the inquiry, the purchaser would be entitled to succeed. However, in order to determine this application for leave to appeal, it is necessary to consider grounds 1 and 2 of the notice of contention. As noted, the vendor submitted that the alleged repudiatory conduct of the purchaser constituted a default within the meaning of that term as used in Condition 21. If there is merit in the vendor’s submission, proposed ground of appeal 1 would fail; if not, the ground must succeed.
Grounds of contention 1 and 2
Submissions
By her first ground of contention (‘contention 1’), the vendor submitted that the effect of the purchaser’s solicitor’s emails at 3:58 pm on 17 December 2019 and at 11:47 am on 18 December 2019 and the short payment of the deposit (in a sum that reflected the proposed revised purchase price) constituted renunciation of the Contract. According to the vendor, those matters demonstrated a rejection by the purchaser of an essential term of the Contract, that is, the price. This was, in substance, an allegation of repudiation.
By her second ground of contention (’contention 2’), the vendor argued that the purchaser’s conduct of putting herself in a position in which it was impossible for her to remedy the short payment constituted ongoing repudiation which entitled the vendor to terminate the Contract absent retraction.
Each contention had the consequence, it was submitted, that the purchaser could not contend that she was ‘not then in default’ as at the time of the purported termination. It was submitted that the repudiatory conduct had immediate consequences, prior to any acceptance thereof, and operated directly as a default. In that regard, the vendor contended that the term ‘default’ in Condition 21 was not coterminous with the term ‘breach’. Her counsel pointed to the fact that both terms are used in the Contract and submitted that they must have different meanings. Counsel submitted that ‘default’ was broader than ‘breach’, and included repudiation of the Contract. Thus the two arguments concerning repudiation were not put as common law bases for termination of a contract, but as matters that fell within the terms of Condition 21, properly construed.
The purchaser contended contentions 1 and 2 should be rejected for three reasons:
(g) first, that these contentions raise new issues that were not pleaded or otherwise raised below;
(h) secondly, that the claim of repudiation is contrary to authority and principle because the vendor did not accept any such repudiation before the purchaser terminated the Contract. The purchaser argued that, to the contrary, she expressly affirmed the Contract and then purported to rely on her own contractual rights to terminate; and
(i) thirdly, in any event, the vendor could not establish that the purchaser’s conduct amounted to repudiation of the Contract.
Analysis
We accept the purchaser’s submission that contentions 1 and 2 of the notice of contention raise new issues and, for that reason, we will not permit the vendor to rely on those contentions. Additionally, we also note, for completeness, we do not consider that the conduct referred to therein was repudiatory. Finally, we consider that, in any event, contentions 1 and 2 are not arguable. Our reasons for these conclusions are set out below.
In our opinion, the purchaser should not be permitted to raise on appeal the question of the repudiation of the Contract, set out in contentions 1 and 2, with the contended consequence that the purchaser was, immediately and without acceptance of such repudiation, in default.
First, repudiation was not pleaded and, more importantly, other than a passing reference to repudiation in the case as pleaded and conducted at trial, the factual and legal matters referred to during the hearing before us were not raised, argued or put below. The vendor’s case at trial was that default occurred at the close of business on 18 December 2019. Parties are bound by the way they conduct their case at trial.[22] Repudiation was not a part of that case. Indeed, to the extent that repudiation was raised in passing at trial, the purchaser objected to the vendor raising the issue because it was not pleaded.[23]
[22]University of Wollongong v Metwally[No 2] [1985] HCA 28, [7] (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ); Coulton v Holcombe (1986) 162 CLR 1, 7–8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); [1986] HCA 33.
[23]See [34] above.
Secondly, repudiation is a serious issue. Where the relevant conduct is said to evince an intention not to be bound by a contract with the consequence, as suggested by contention 1, that there is an immediate default, the allegedly repudiating party must be given the opportunity to lead evidence in relation to the conduct and its suggested consequences. Likewise, where the repudiation is said to arise from impossibility of performance, as suggested by contention 2, the allegedly repudiating party must be given the opportunity to lead evidence in relation to that issue. The loss of such an opportunity in this case is fatal to the ability to rely on the contentions. Where, had an issue been raised, evidence could have been given which by any possibility could have prevented the point from succeeding, the point cannot be taken afterwards.[24]
[24]Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438 (Latham CJ, Williams and Fullagar JJ); [1950] HCA 35; Coulton v Holcombe (1986) 162 CLR 1, 7–8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); [1986] HCA 33; Water Board v Moustakas (1994) 180 CLR 491; [1988] HCA 12.
This is not a case where there could not possibly be any further evidence or where all possible evidence was before the court or where the issue was a legal issue. Further evidence could have been led in relation to both contentions 1 and 2. It is notable that, in relation to contention 1, the trial judge observed that the purchaser had chosen not to give evidence as to the pleading that the underpayment of the deposit was inadvertent. Plainly that was a matter on which she could have given evidence, had she understood the case might include an allegation of repudiation based, in part, on the short payment of the deposit. And, on the issue raised by contention 2, the purchaser sought to re-open the trial and be permitted to adduce new evidence concerning her ability to make payment of the outstanding amount of the deposit between 7:51 pm and midnight, an application that was refused by the judge. Thus it is reasonable to assume that further evidence would have been led had the matters raised by contentions 1 and 2 been pleaded and raised at trial.
It is unnecessary to determine precisely what evidence the purchaser would have led. The critical point is that the purchaser lost the forensic ability to determine how to deal with the serious allegations of repudiation. Those were issues requiring detailed consideration of the facts and the law and they were not part of the case at trial.
For completeness we observe that, in any event, we do not consider that the conduct referred to in either contention 1 or contention 2 is sufficient to constitute a repudiation of the Contract. We can express our reasons for this briefly.
In relation to contention 1, the conduct (namely the emails and the short payment of the deposit), judged objectively, represented a negotiating position adopted by the purchaser. Prior to the valid termination of the Contract by the purchaser, there is no evidence in support of the contention that she did not intend to abide by the Contract if her negotiating position failed.
In relation to contention 2, the conduct said to constitute repudiation turns on the alleged impossibility of performance. But this contention is based on incomplete and insufficient evidence. As already noted, had this issue been raised as a question of repudiation below, further evidence would likely have been led by the purchaser.
Finally, and again for completeness, we do not consider that either of contentions 1 and 2 is arguable, even if the conduct identified in one or both of those contentions constituted a repudiation. The critical point is that, assuming the purchaser, by the alleged conduct, had evinced an intention not to be bound by the Contract, and had thereby repudiated the Contract, the repudiation was not accepted by the vendor in order to bring about an end to the Contract. Unless and until a repudiation is accepted, a contract remains on foot.[25] In fact, not only was the alleged repudiation not accepted, the vendor sought to enforce her rights under general condition 34 of the Contract by serving a default notice. However, this was only after the purchaser had validly terminated the Contract under Condition 21. It was therefore of no force or effect.
[25]Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560, 625 [165] (Nettle, Gordon and Edelman JJ); [2019] HCA 32; Visscher v Giudice (2009) 239 CLR 361, 379–80 [53] (Heydon, Crennan, Kiefel and Bell JJ); [2009] HCA 34; Foran v Wight (1989) 168 CLR 385, 396 (Mason CJ), 441 (Dawson J); [1989] HCA 51; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 48 (Brennan J); [1985] HCA 14; Shevill v Builders Licensing Board (1982) 149 CLR 620, 625–6 (Gibbs CJ); [1982] HCA 47; Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414, 426 (Kitto J), 431 (Taylor J); [1965] HCA 30.
In our opinion, the requirement that the purchaser be ‘not then in default’ at the time that she served the notice of termination under Condition 21 required that the purchaser be not then in breach of the Contract. That is a common sense approach to a standard form contract for the sale of property in Victoria that is in common use by many persons, with varying experiences in business and real estate transactions. While the words ‘breach’ and ‘default’ are both used in the contract, that does not require the conclusion that the word default has any broader meaning than the word breach; the Contract is not a statute.
Conduct evincing an intention not to be bound by a contract is not a breach of the contract. There is no breach if the time for performance has not fallen due. Rather, there is an indication that the party does not, at the time of the conduct, intend to perform when the time for performance arrives. Without more, this is a state of affairs that has no relevant legal consequences. The contract remains on foot and each party is required to comply with any obligation as and when it falls due. Likewise, the fact that a person is, at a particular time, unable to perform their obligations under a contract, when the time for performance has not yet arrived, does not constitute an actual breach of the contract, even if it constitutes a repudiation.
However, following repudiatory conduct, the other contracting party has an election available to them. The other party need not wait for an actual breach to occur. The other party can either accept the repudiation and terminate the contract, in which event further performance is unnecessary, or seek to enforce the contract. The critical point is that, unless and until an election is made, there is no alteration in the rights and obligations of the parties. Those rights and obligations remain on foot and, contrary to the vendor’s submission, there is no default or breach of contract.[26] In that context, if the party evincing an intention not to be bound by the contract, or otherwise repudiating the contract, validly exercises a right of termination, any unaccepted repudiation of the contract by that party is of no consequence.[27]
[26]J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 1st ed, 2011), [7-51], quoted in Network Ten Pty Ltd v Seven Network (Operations) Ltd [2014] NSWSC 692, [137] (Stevenson J); Meriton Apartments Pty Ltd v The Owners Strata Plan No 72381 [2015] NSWSC 202, [323] (Slattery J).
[27]Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 450 (Latham CJ), 476 (Williams J); [1946] HCA 25; Heyman v Darwins Ltd [1942] AC 356, 382 (Lord Wright), 399 (Lord Porter); White and Carter (Councils) Ltd v McGregor [1962] AC 413, 427 (Lord Reid), 444–5 (Lord Hodson, Lord Tucker agreeing at 434); J W Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2013), 687 [30–30].
In the present case it is clear that the vendor never accepted the purchaser’s alleged repudiation. Rather the vendor purported to act in accordance with the Contract, assuming that the Contract remained on foot, by issuing a Notice of Default and Rescission, giving the purchaser 14 days to remedy the default and perform her obligation. But, because the Contract had by then been terminated, there was nothing to perform.[28]
[28]Kyren Pty Ltd v Wunda Projects Australia Pty Ltd [2012] SASCFC 23, [130] (Sulan, Anderson and David JJ); Allphones (2009) 178 FCR 57, 69–72 [55]–[76] (Perram J, Goldberg and Jacobson JJ agreeing at [1]); [2009] FCAFC 85; Idameneo [2004] NSWCA 329, [103] (Santow JA, Mason P agreeing at [1], Hodgson JA agreeing at [2]).
Ground of contention 3
Submissions
The vendor submitted that the Benn report does not expressly designate any defect in the building as a ‘major building defect’. According to the vendor, self-evidently a ‘major defect’ is not a ‘major building defect’.
The vendor argued that the purpose of Condition 21 is to provide the purchaser with a right to terminate the Contract where a structure carries a ‘major building defect’, which a purchaser cannot identify without the aid of a building inspector. The vendor referred to the previous iteration of the standard form contract which provided a right to terminate upon a purchaser obtaining a building report that ‘shows a major structural defect’. In the event of a dispute, this wording was the subject of judicial evaluation as to whether a given defect was ‘major’ and ‘structural’.[29] According to the vendor, the requirement that the report ‘designates it as a major building defect’ avoids this outcome. The vendor further submitted that the judge was wrong to construe the Contract by reference to the Standard, which had its own definitions.
[29]See Clarke v Mariotis [2009] VSC 279.
According to the vendor, none of the conclusions in the Benn report ought to fall within the concept of ‘major building defect’ enabling termination. In particular, the vendor referred to the identification of the leak at the rear of the toilet pan, which she submitted was not a ‘structural defect’. The vendor further pointed to the findings in the Benn report, set out at [13] above, that the ‘major defects’ were ‘Average/Typical’ and ‘consistent with the inspectors expectations when compared to similar buildings of approximately the same age, construction that have been reasonably well maintained’, and that the overall condition was found to be ‘Average/Typical’ and that there may be ‘area/elements requiring minor repairs or maintenance’.
In response, the purchaser said that the supposed disjuncture between a ‘major building defect’ and a ‘major defect’ designated as such in a building report prepared by a registered building practitioner, has no foundation in the text, purpose or context of the Contract. The purchaser submitted that the Benn report identified and designated major defects in a structure on the land — in a building, being the house and garage — and that nothing more was required.
The purchaser said the vendor’s argument is self-contradictory. The purchaser submitted that, on the one hand, the vendor conceded the standard form contract was deliberately amended to avoid the need for contestable evaluative assessment, but on the other hand, explicitly invited the Court to engage in an assessment as to whether certain defects ought not to have been designated as ‘major’ or that Mr Benn ought to have designated only ‘structural’ defects.
We note that in oral argument the vendor raised, for the first time, an argument that, in preparing his report, Mr Benn had not engaged in the task for which Condition 21.2(a) provides, and had not been appointed to perform that task, and thus his report was not a report that satisfied the requirements of Condition 21. Rather, he had conducted a ‘pre-purchase inspection’ and prepared a pre-purchase standard property report in accordance with AS 4349.1. Thus, the vendor submitted, Mr Benn ‘did not exercise the jurisdiction’ conferred and required by Condition 21. The vendor contended that a report that would satisfy Condition 21 had to be a report in which the building inspector was asked to turn his or her mind to the matters identified in Condition 21, and that a ‘pre-purchase inspection’ report was not a report of that kind.
Analysis
The two critical requirements of Condition 21.2(a) are that the report ‘discloses a current defect in a structure on the land’ and the registered building practitioner ‘designates it as a major building defect.’ It is not essential (even though it might be desirable) for the registered building practitioner to use that precise form of words. While the language actually used by the building practitioner deserves close attention, the requisite designation may be discerned from the terms of the whole report. While there may well be contexts in which it is essential for a precise form of words to be used, so that ‘form’ might be said to be important as a matter of substance, this is not such a case. In that regard, we agree with the judge’s conclusion that the question is whether the report in substance identified defects in the relevant structure and designated them as ‘major building defects’.[30]
[30]Reasons [46].
Read as a whole, the report deals with and satisfies the two requirements. The report clearly identifies and discloses defects in a structure on the land, namely the house. Those defects are identified on the summary page. The clear wording of the first requirement does not call for any assessment of structural defects, as contended by the vendor. Rather it directs attention to whether there is a defect in a structure on the land, for example, in a house or other building. Further, the identified defects in the house or building were described on the summary page as ‘major defects’. Elsewhere in the report, the major defects under consideration were described in a heading as ‘Major Defects In This Building’. In our opinion, the report identified and disclosed major defects in the building. The consequence is that the report identified ‘major building defects’, even though it did not use that precise phrase. It thus satisfied the requirement of Condition 21.2(a).
As for the argument that Mr Benn had not been appointed to undertake, and had not performed, the task required by Condition 21.2(a), this argument was not raised below. Nor was it raised in the notice of contention or in the vendor’s written submissions on the appeal. In addition, there was no evidence before us as to the terms on which Mr Benn was engaged, although the terms of his appointment were said to be important. For those reasons we will not allow the vendor now to rely upon this argument. But, for completeness, we make the following observations about it:
(j) first, as already explained, the report addressed the required issues as a matter of substance;
(k) secondly, to the extent that this argument depended on a distinction between a ‘pre-purchase inspection’ report and a ‘pre-settlement inspection’ report, we reject such a distinction. In either case the report is intended to address the same issue, that is, informing a party, about to make a substantial financial commitment, whether there are major defects in the building;
(l) thirdly, senior counsel for the vendor conceded that the expert is ‘permitted to form any view or apply any standard … and is not confined to the Australian standard’ and ‘[h]e is permitted to use whatever he likes and he won’t be wrong if he uses it.’ There was thus no error in relying on the Standard; and
(m) finally, even if the registered building practitioner was not asked whether performing or preparing a pre-purchase report would address the Condition 21.2 ‘major building defect’ issue — the gravamen of the vendor’s submission — the report nonetheless addressed the requisite issue.
The parties agree that, if the report complied with Condition 21.2(a), then it is not open to a party to go behind the report and challenge it on the basis that the defects it identified as major defects were not properly characterised as major, or otherwise seek to have the Court engage in a contestable evaluative assessment.
Contention 3 is thus without substance and is dismissed.
Disposition
Accordingly, we will grant leave to appeal and allow the appeal. The notice of contention will be dismissed. We will hear from the parties as to the precise form of order, interest and costs.
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