Zonebar P/L v Surfers Paradise Inv P/L

[1997] QSC 196

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane  No.8777 of 1997

Before the Hon. Mr Justice Shepherdson

[Zonebar P/L v.  Surfers Paradise Inv P/L]

BETWEEN:

ZONEBAR PTY LTD

(ACN 079 510 795)

Plaintiff
AND:

SURFERS PARADISE INVESTMENTS PTY LTD

(ACN 058 247 064)

Defendant

JUDGMENT - SHEPHERDSON J.

Judgment Delivered 14 October 1997

CATCHWORDS: SALE OF LAND - contract subject to a number of special conditions - plaintiff did not tender performance  - defendant terminated the contract - plaintiff has not accepted this termination of the contract and lodged a caveat - application for an interlocutory injunction seeking an order that the defendant be restrained from entering into or completing any agreement in respect of the sale of the subject land or creating any interest in such land by way of charge, lease, easement or otherwise in derogation of the plaintiff’s rights as purchaser under the contract - cross-application seeking an order that the caveat be removed.  

Counsel:  Mr P Dutney QC, with him Mr Bates for the applicant

Mr J Douglas QC, with him Mr Green for the respondent

Solicitors:  MacGillivrays for the applicant

D’Arcys for the respondent 

Heading date:  2 October 1997
IN THE SUPREME COURT
OF QUEENSLAND

Brisbane  No.8777 of 1997

Before the Hon. Mr Justice Shepherdson

[Zonebar P/L v. Surfers Paradise Inv P/L]

BETWEEN:

ZONEBAR PTY LTD

(ACN 079 510 795)

Plaintiff
AND:

SURFERS PARADISE INVESTMENTS PTY LTD

(ACN 058 247 064)  

Defendant

JUDGMENT - SHEPHERDSON J.

Judgment Delivered 14 October 1997

By contract dated 18 August 1997 the defendant sold to the plaintiff vacant land at Slacks Creek described as lots 1 and 42 on Registered Plan 853678 County of Stanley, Parish of Yeerongpilly  for $5,000,000.  A deposit was paid.  The date for completion or  settlement was 23 September 1997.  The contract was subject to a number of special conditions and also to what were called standard commercial conditions.  The plaintiff did not tender performance on 23 September 1997.  Time was of the essence of the contract.  The place for settlement had been fixed by the defendant and by letter dated 24 September 1997 the defendant’s solicitors notified the plaintiff’s solicitors that its representative had attended the settlement, that there was no appearance at settlement by the plaintiff or any representative of its solicitor’s office, that there had been a failure to pay the balance of the purchase price and so the defendant terminated the contract pursuant to Standard Condition 13.1(ii) thereof and declared the deposit forfeited.  The plaintiff has not accepted this termination of the contract and on 29 September 1997 it lodged a caveat in the Land Registry Office, Brisbane claiming a caveatable interest in the above land as purchaser under the contract.

Notwithstanding the caveat the plaintiff has applied for an interlocutory injunction seeking an order that the defendant be restrained from entering into or completing any agreement in respect of the sale of the subject land (other than the plaintiff’s contract with the defendant) or creating any interest in such land by way of charge, lease, easement or otherwise in derogation of the plaintiff’s rights as purchaser under the contract.

The defendant has countered with a summons seeking an order that the caveat be removed, that the court declare that the deposit paid under the contract is forfeited to the defendant and an order for costs.

To succeed in its application for an interlocutory injunction the applicant plaintiff must establish  that there is a serious question to be tried and that the balance of convenience lies with the granting of the injunction.

Mr Dutney QC, senior counsel on behalf of the applicant plaintiff has submitted the serious question to be tried is whether or not the respondent defendant was entitled to terminate the contract on 24 September 1997.

In the circumstances of this case I propose to mention certain aspects of the evidence before me which bear on what is said to be the serious question.

Mr Dutney concedes that on 23 September 1997 the applicant plaintiff did not tender performance of its obligations under the  contract on 23 September 1997.  Clause 4 of the standard commercial conditions in the contract shows that the balance of the purchase price was to be paid on the date for completion in exchange for (inter alia) a properly executed transfer of the land in favour of the applicant capable of immediate registration (after stamping) in the appropriate office free from encumbrances (other than those set out in item L specified in the contract) and title to the Property (other than the land) free from encumbrances (other than those set out in item L) but subject to the conditions of the contract.  “Property” is specially defined but the definition is irrelevant.

The special conditions of the contract show that the respondent defendant was carrying out earthworks on the land.  Clause 8.1 of the special conditions provided:-

“Prior to the Date for Completion the Vendor must deliver to the Purchaser an unqualified  certificate prepared by the Engineer certifying that the whole of the Earthworks have been completed.”

Clause 8.4 covered the situation where the Earthworks had not been completed prior to the date of completion and in such event then, on the date of completion the respondent vendor was to deliver  to the applicant purchaser a Certificate from the engineer certifying details of the works which would have to be undertaken and completed before he could certify that the earthworks had been completed and his estimate of the costs of and incidental to carrying out and completing those works.  By clause 8.4(b) the amount so certified by the engineer was to be deducted from the balance of purchase price to be paid at completion pursuant to Special Condition 4.1(a) and the purchaser was to assume carriage of the completion of the earthworks from and after the date of completion. 

Relevant to the instant application, Special Condition 4.1(a) dealt with payment of balance  purchase price and provided that on completion the purchaser was to pay the sum of $4.7 million  (plus or minus adjustments made pursuant to ... Special Condition 8.4).  Thus, special condition 4.1(a) becomes important in this case.

I mention now special condition 7 which related to a development application of the land sold.  Special condition 7.9 provided:-

“7.9 The parties agree that this Special Condition 7 has been inserted for the benefit of the Purchaser and may be waived in part or in full by the Purchaser at any time by the Purchaser giving notice in writing of waiver to the Vendor.  If the Purchaser completely waives the benefit of this Special Condition 7, settlement shall take place 14 days after such notice has been received by the Vendor.”

By letter sent by facsimile transmission on and dated 9 September 1997 the solicitors for the applicant purchaser notified the solicitors for the respondent vendor as follows:-

“The purchaser has instructed us to advise that, pursuant to the  provisions of Special Condition 7.9 of the contract, the purchaser waives the benefit of the whole of Special Condition 7.
The Contract is therefore completely unconditional.”

I mention in passing that it was notification of this waiver that caused the date for completion to be fixed at 23 September 1997.  (pursuant to Special Condition 7.9)

On receipt of the letter of 9 September 1997 the respondent vendor’s solicitors wrote to the applicant’s solicitors in the following terms:-

“We refer to your letter of 9 September 1997 wherein your client waives the benefit of  the whole of Special Condition 7.  On our calculation pursuant to clause 7.9 settlement is now due on 23rd September 1997 we look forward to receiving settlement figures.”

There then followed an exchange of letters between the solicitors (on 18 and 19 September 1997) wherein the applicant’s solicitors initially referred to an alleged conversation between representatives of the parties with alleged agreement that settlement should be effected on Tuesday 30 September 1997 notwithstanding the provisions of special condition 7.9.  This letter was followed by a denial by the vendor’s solicitors that any such agreement had been reached.  The vendor’s solicitors’ letter dated 19 September 1997 concluded:-

“As per our letter of the 15 September 1997, settlement is due on the 23rd September 1997.  Time shall remain in all respects of the essence of this contract. Kindly forward settlement figures.”

On 22 September 1997 the applicant’s solicitors forwarded the transfer and other documents to the vendor’s solicitors.  The letter asked that the transfer documentation be returned as soon as it had been executed upon the applicant’s solicitors undertaking, thereby given, to use the transfer for stamping purposes only and then to hold it in escrow for the vendor pending settlement.  Further correspondence between  the solicitors ensued with letters passing by facsimile transmission on 23 September 1997.  It was not in dispute that by letter of 23 September 1997 the transfer documents were sent back to the applicant’s solicitors.  By subsequent letter of 23 September, the vendors solicitors nominated 4pm at the offices for Corrs Chambers Westgarth at Waterfront Place, level 35, 1 Eagle Street, Brisbane as the time and place for settlement.  The vendor’s solicitors sent a settlement statement together with details of the cheques required to be paid on settlement.

By letter dated 24 September 1997 the respondent vendor’s solicitors notified the applicant’s solicitors:-

“We advise that a representative of our office attended at settlement yesterday afternoon  at 4pm and waited until 5pm 23rd September 1997 at the offices of Corrs Chambers Westgarth level 35 Waterfront Place 1 Eagle Street Brisbane.

Our client was ready willing and able to settle.  Your client obviously was not.

There was no appearance at settlement by your client or any representative from your office.  Your client has failed to pay the balance of the purchase price under the contract and our client hereby terminates the contract pursuant to clause 13.1(ii).  Our client hereby declares the deposit forfeited and will exercise all remedies available to it at law.”

By letter dated 25 September 1997 the applicant’s solicitors sent by facsimile a letter to the respondent vendor’s solicitors in response to the latter’s facsimile letter of 24 September.  The applicant’s letter contained (inter alia) the following:-

“Our client denies that the vendor was entitled under the contract:
(a)     to require completion of the contract on 23 September 1997; and

(b)     to seek payment of the amount set out in the settlement statement you submitted on 23                 September 1997

The vendor has failed to comply with the provision of special conditions 8.1 and 8.4 of the contract.  In terms of the contract the vendor cannot seek completion of the contract until it complies with either special condition 8.1 or special condition 8.4.”

The letter went on to allege that the vendor had purported, wrongfully, to terminate the contract and put the vendor on notice that unless it unconditionally withdrew its notice of termination and affirmed the contract and stated that it would comply with the terms of the contract then the purchaser would without further notice commence proceedings.  I note the letter stated that the purchaser would seek specific performance by the vendor of the contract and alternatively to that claim damages of $3,000,000 for wrongful termination of the contract.

By letter dated 26 September 1997 the vendor’s solicitors replied stating:-

“By your letter of 9 September 1997 you asserted that the contract was completely unconditional.  Obviously this applied to all special conditions including the conditions set out in clause 8.  Relying on that (and in the absence of any other request from you prior to settlement) our client did not deliver to your client an unqualified certificate as contemplated by clause 8.1 the relevant earthworks having in fact been completed.
In these circumstances we firmly remain of the view that our client has lawfully terminated the contract ... .”

The purchaser’s solicitors in a subsequent letter (26 September 1997) rejected the vendor’s claims and said “we are instructed that the statement “the relevant earthworks having in fact been completed” is completely untrue.”

On 29 September 1997 Baseline Consulting Pty Ltd - Development Consultants and Engineers wrote to the vendor stating:-   

“Re BULK EARTHWORKS - SPRINGWOOD
We hereby certify that the contracted Bulk Earthworks for the above project were completed by 23rd September 1997 ... .” 

As mentioned earlier the plaintiff lodged the caveat on 29 September 1997.

The serious question to be tried bears also on the defendant’s cross-application for the plaintiff  to show cause why its caveat should not be removed.  In re Jorss’ caveat (1982) Qd.R 458 the Full Court of the Supreme Court of Queensland held that a caveat lodged pursuant to provisions of s.98 of the Real Property Act 1861-1980 will be removed where the caveator fails to show on the  evidence that there is a serious question to be tried which would justify leaving the caveat undisturbed.  In re Burman’s caveat (1994) 1 Qd.R 123 the Court of Appeal approved the approach taken in re Jorss’ caveat namely that in a case such as the present the issue with respect to the caveat is akin to that relating to an interlocutory injunction.

In re Jorss’ caveat (at p.464) Andrews J. (with whose reasons the other members of the court  agreed) said:-

“As to the cause to be shown, there have been statements to the effect that, as to the alleged interest in land of a caveator, there must be shown to exist “a colourable title”.  I have always understood this to mean fairly arguable or seriously arguable in each case meaning substantially the same thing.”

In Genrich v. Maitland Holdings Pty Ltd (1982) Qd.R 58 the Full Court held that on an application for the removal of a caveat there is a burden of proof upon the caveatee of showing that the facts upon which the caveat is said to rest do not support a claim to an estate or interest in land and if this is discharged then the caveator must then show that issues exist which so tend to support a fairly arguable title as to justify the prevention of dealings with the land until they have been decided in appropriate proceedings. I mention in passing that in re: Oil Tool Sales Pty Ltd; Classified Pre Mixed Concrete Pty Ltd Caveator (1966) QWN 11 Douglas J. said that on an application to remove a caveat a claim for title to or an interest in land should not be fully litigated. Genrich approved that view.

It is a matter that I bear in mind in dealing with the defendant’s application to remove the caveat.  I see no reason not to apply the above principles in the above cases to an application to remove a caveat under the Land Title Act 1994.

Within the substantial question to be tried is embedded a more basic question and that is (leaving aside the question of the certificate under special condition 8) whether or not the plaintiff who seeks specific performance of its contract was ready willing and able to complete the purchase on 23 September 1997.

The evidence before me shows the following:-

(a)the contract was not subject to finance;

(b)the solicitors for the plaintiff are “Smits Leslie” - Leonardus Gerardus Smits of that firm is the solicitor acting for the plaintiff and he is also a director and shareholder of the plaintiff.  He has sworn that the other shareholder and his co-director is Gary Watts.  In an affidavit sworn by Smits on 29 September 1997 he has said:-

“5 Immediately after the contract was signed Gary Watts and I commenced negotiations  with Suncorp - Metway Bank Ltd.  I obtained an approval for a loan in an amount equal to 60% of the value of the land to enable completion of the purchase only.  At all relevant times Zonebar has had an excess of $2 million in private liquid funds available to it upon call in accordance with arrangements made by me and approved by my co-director Gary Watts for the contemporaneous issue to the provider of those funds of redeemable preference shares in Zonebar, on the condition that those funds would be applied towards the purchase price of the land.  Zonebar has therefore at all times been in a position to complete its purchase of the land.”

(c)A Mr Hayes is the sole director of the defendant.  The defendant’s land is mortgaged to Saiha Pty Ltd and Sazanami Pty Ltd - two companies apparently controlled by Japanese persons.  By letter dated 1 October 1997 the defendant’s solicitors wrote to the plaintiff’s solicitors.  This letter referred to Mr Hayashi, the manager of the two mortgagees having approached Mr Hayes on 30 September 1997 and it went on:-

“Mr Hayashi related information received from solicitor Mr C O’Shea, Corrs Chambers Westgarth regarding an apparent approach from your client, Mr Smits seeking to facilitate the formation of a joint venture with our client’s mortgagees with a view to ostensibly obtaining finance in relation to the subject contract.  We are instructed that your client indicated to Mr O’Shea that they only had available funds in the approximate amount of $2,000,000 . . . We believe your client’s actions to be outrageous and at variance with the previous sworn evidence of Mr LG Smits appearing at paragraph 5 of his affidavit dated the 29th of September 1997.  Clearly your client would appear to have not been in a position previously to complete the contract and indeed is still not able.”

In response to that Smits swore an affidavit on 2 October 1997 in which, in reference to the last mentioned letter from the defendant’s solicitors, he denied that he had ever discussed with O’Shea the possibilities of a joint venture with the defendant’s mortgagee and that he had ever said to O’Shea words to the effect that the plaintiff “only had available funds in the approximate amount of $2,000,000.”  He went on to swear that he contacted O’Shea on 30 September 1997 “with the sole purpose of discussing with him means by which his client mortgagees might involve themselves in resolving the difficulties caused by the defendant purporting to terminate the contract.”    This quoted extract bears some significance in light of the two letters to which I am about to refer.

(d)By a letter dated 30 September 1997 John Anthony Leslie describing himself as sole managing director and sole director of Tendiris Pty Ltd wrote to the directors of the above two mortgagees for the attention “Mr Chris O’Shea” a letter referring to the loan  securities held by the registered mortgagees over the title to the properties the subject  of the contract of sale.  This letter included the following:-

“We hereby offer unconditionally to pay those mortgagees:

1.The sum of $2 million upon the transfer of the loan securities to Tendiris Pty Ltd  (“Tendiris”) and

2.A payment of a further sum of $2 million at the expiration of six (6) months after the transfer of the loan securities to Tendiris

upon such terms and conditions as might otherwise be specified reasonably and lawfully by your solicitors
This offer shall remain open for acceptance on or before 5pm on Wednesday 1 October 1997.

The letter was marked “critically urgent”. 

Evidence before me shows that the principal activity of Tendiris Pty Ltd is financier and property developer.  That evidence, being extracts from records of the Australian Securities Commission also shows connections between the plaintiff and Tendiris Pty Ltd.  Ross Alexander Dalgleish was a director of the plaintiff from 29 July 1997 to 12 August 1997 and was a director of Tendiris from 13 August 1993 to 10 November 1993.  The registered office of Tendiris from 20 November 1995 to 21 April 1996 was c/- Smits Newton & Partners Level 259 George Street, Sydney and that same place was an earlier principal place of business of Tendiris.  Leslie was appointed director of Tendiris on 6 June 1995 and secretary of Tendiris on 1 May 1996.  There appears to be no doubt that John Anthony Leslie, the signatory of the letter from Tendiris was and is the partner of Smits.

Apart from the letter from Tendiris written to the mortgagees, Combined Hospitality Services of Bonnyrigg NSW wrote to the vendor respondent a letter sent by facsimile on and dated 1 October 1997.  That letter read:-

“RE: SALE TO SMITS & ORS. - SPRINGWOOD

We wish to advise that in a conversation with Mr. Leo Smits this morning he asked us to convey to you that he is considering your proposal of yesterday in the spirit of achieving an early result.  He asks, however, that you appreciate the fact that he was unable to devote his full attention to a considered reply as his wife gave birth to a baby yesterday:

He further asked us to bounce off you the suggestion that the Japanese continue as Mortgagees under the new ownership but at a reduced exposure level.  The centrepiece of the thought being:-

a).A facility of some six (6) months.

b).A $1.0 million reduction of the current loan at inception.

c).The deposit of $225,000 released to yourselves.

d).Full interest to be prepaid.

e).The right to reduce the principle (sic) during the term of the loan by way of full nett      proceeds of any sales being applied to the debt.

Please note that the preceding is for consideration only and would enable settlement to be effected at a date earlier than the 17th.  October next and could in fact enable settlement within 2 - 3 working days.

We await your reply.”

Combined Hospitality Services are Hotel Brokers/Real Estate Agents.

Smits affidavit sworn on 29 September 1997 is really the only evidence which suggests that in effect the plaintiff was on 23 September 1997 ready willing and able to perform the contract.  Smits did not use the words “ready willing and able” - instead he said that the plaintiff had at all times been in a position to complete its purchase.  The weight of Smits’ evidence on this important topic has been greatly reduced by the above letter of 30 September 1997 written by Leslie and the letter of 1 October from Hospitality Services.  When all the evidence on this point is considered, and particularly the failure to tender performance, one reaches the irresistible conclusion that on 23 September 1997 the plaintiff was not ready willing and able to complete what was an essential obligation under the contract.  Put simply, it did not have the necessary funds.   In making this finding I have borne in mind the following statement by Barwick CJ. in Mehmet v. Benson (1965) 113 CLR 295 at p.307:-

“The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense.  It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations.”  

I shall later return to this matter of tender.

I turn now to the matter of the non-production by the defendant on the date of settlement of  the engineer’s certificate referred to in para. 8.1.

This is not a document which the contract required the defendant as vendor to hand over in exchange for the balance of the purchase price.  The draftsman of the contract has carefully listed the documents the obligation to hand over which lay on the defendant as vendor.  The certificate is not among them. In my view the certificate does not go to title.  Consequently one would not expect to find it listed in  standard condition 4.

I interpret standard condition 4 as containing concurrent obligations of the vendor and purchaser.  The plaintiff did not tender performance at all.  The primary obligation of the plaintiff under the present contract was to seek out its vendor and tender the balance purchase money owing (see Palmer v.  Lark (1945) Chancery 182 at pp.184-5; Francombe v.  Foster Investments Pty Ltd (1978) 2NSWLR 41 at p.48 and Wilson v.  Kingsgate Mining Industries (1973) 2NSWLR 713 at p.726.) Of course here a date and time for performance had been fixed but the plaintiff’s solicitors did not bother to attend. Nevertheless their case is that the defendant failed to complete the earthworks and so the plaintiff was excused from tendering performance. I note that in his affidavit sworn on 29 September 1997 Smits has said that at his request on or about 24 September 1997, Gary Watts engaged consulting engineers to inspect the land to ascertain whether or not earthworks had been completed and that based on what Watts had been told by one of those engineers there were a number of large mounds of earth present on the front one-half of the land and that no filling works had been carried out to the rear section of the land.

The defendant responded to this claim (made after 23 September 1997) by pointing to the letter written by the plaintiff’s solicitors on 9 September 1997 which concluded “The contract is therefore completely unconditional”.  The defendant’s solicitors by letter dated 26 September 1997 notified the plaintiff’s solicitors that they relied on that statement and did not deliver the unqualified certificate as contemplated by cl.8.1 although the relevant earthworks had in fact been completed.  This is a classic case of estoppel.  I do not find it necessary to consider argument concerning whether clause 8 was solely for the plaintiff’s benefit.

In my view, even if the plaintiff’s argument is correct and the statement in the letter of 9 September 1997 cannot give any rise to estoppel, the failure to produce the engineer’s certificate at settlement did not justify absence of tender of performance by the plaintiff.  The absence of the certificate could not on any view be said to be a breach of a term which went so directly to the substance of the contract or was so “essential to its very nature that its non-performance may fairly be considered by the plaintiff as a substantial failure to perform the contract at all” (Luna Park (NSW) Ltd v.  Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 302). The tender of the balance purchase moneys required the defendant to hand over in exchange the documents listed in general condition 4 and vacant possession. In my view the matter of the engineer’s certificate was not an essential aspect of this contract of sale - it was a matter going to damages only. Such a view is confirmed by Special Condition 4.1(a) which specifically said the sum of $4.7 million (plus or minus adjustments made pursuant to clause 15 and special condition 8.4) shall be paid on completion. Important also is Special Condition 8.5 - “The provisions of Special Condition 8 shall not merge upon completion”. Time was of the essence. Thus the applicant purchaser in performing its obligations under the contract should have tendered performance and if it believed the earthworks had not been completed in accordance with Special Condition 8 it could then itself have performed the earthworks and sued for the cost. The plaintiff has, by its caveat placed a blot on the defendant’s title and attempted to justify that step by pointing to an alleged default by the defendant which goes to damages only. By its application for an injunction it has sought to restrain the defendant from entering into any other contract and more particularly, a lease with a likely future occupant of the land. The material shows that both plaintiff and defendant have been negotiating with the same prospective tenant.

As I have already said time was of the essence and there has been an admitted failure by the applicant plaintiff to tender performance precisely on the due date.  This failure to perform an essential term  gave the defendant the right to terminate the contract unilaterally (see Mehmet v.  Benson (1965) 113 CLR 295 at 303; Tropical Traders Ltd v. Goonan (1964) 111 CLR 41 at 50).

I have concluded that the applicant has failed to satisfy me that there is a serious question to be tried for which its counsel contends.

I therefore dismiss the application for the interlocutory injunction.

As for the respondent’s application to remove the caveat, the respondent has satisfied me - for reasons which I have given - that the facts on which the claim to caveat is based do not support the applicant’s claim.  The applicant has failed to satisfy me that the caveat should remain on the titles to the land.

It is unnecessary to consider submissions made by Mr J.S. Douglas QC concerning the value of the undertaking in damages by the plaintiff.

In summary, the orders I make are these:-

1.Application for interlocutory injunction dismissed.

2.That pursuant to s.127 of the Land Title Act 1994 Caveat No.702240356 be removed forthwith.

3.I declare that the deposit paid under the contract dated 18 August 1997 between Surfers Paradise Investments Pty Ltd as vendor and Zonebar Pty Ltd as purchaser is forfeited to the vendor.

I shall hear from the parties on the question of costs.