ZX Group Pty Ltd v LPD Corporation Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 1855 of 2011

ZX GROUP PTY LTD (ACN 062 507 519)	Plaintiff
v
LPD CORPORATION PTY LTD (ACN 115 443 813)	Defendant

and

LPD CORPORATION PTY LTD (ACN 115 443 813)	Plaintiff by Counterclaim
v
ZX GROUP PTY LTD (ACN 062 507 519)	Defendant by Counterclaim

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JUDGE:	Williams J
WHERE HELD:	Melbourne
DATES OF HEARING:	19, 20, 25, 26 and 27 March 2013
DATE OF JUDGMENT:	17 October 2013
CASE MAY BE CITED AS:	ZX Group Pty Ltd v LPD Corporation Pty Ltd
MEDIUM NEUTRAL CITATION:	[2013] VSC 542

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VENDOR AND PURCHASER – Contract for sale of land – Prior sale – Pre-contractual and contractual warranties that land not previously sold – Breach of warranty – Previous sale – Whether warranty essential term – Whether serious breach of intermediate term –Purported termination by purchaser under contractual default provisions – Breaches of s 32 Sale of Land Act 1962 – Purported rescission under s 32(5) Sale of Land Act 1962 – Rescission denied under s 32(7) Sale of Land Act 1962 – Fraudulent misrepresentation – Whether rescission for fraudulent misrepresentation – Whether contract affirmed – Service of notice to complete by vendor - Rescission notice – Repudiation by purchaser – Election by vendor – Alleged rescission on alternative ground – Misleading or deceptive conduct under s 52, s 53A Trade Practices Act 1974 (Cth) – Damages under s 82 Trade Practices Act 1974 (Cth) – Rescission and order for repayment of deposit under s 87 Trade Practices Act 1974 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C Gunst QC with Mr S Palmer	Alderuccio Solicitors
For the Defendant	Mr M Gronow	Karavias & Associates

HER HONOUR:

Summary

On 25 August 2010, the parties executed a written contract (‘the contract’) for the sale of land at 80 Harvester Road, Sunshine (‘the land’) by the defendant (‘LPD’) to the plaintiff (‘ZX’). The purchase price was $15 million. ZX paid a deposit of $1.5 million on signing the contract. The balance of purchase money was due on 3 December 2010 and has not been paid. LPD subsequently sold and transferred the land to Foundry Road Pty Ltd (‘Foundry Road’) on 13 August 2011.

The parties have agreed that the deposit paid under the contract should be held by LPD’s solicitors, Karavias & Associates, in an interest bearing account, pending the outcome of this proceeding. Each of the parties purported to terminate the contract and each claims to be entitled to the deposit by their respective claim and counterclaim. To that extent, it may be said that they are agreed that the contract is at an end.

ZX puts its case for the return of the deposit in a number of ways. It first argues that it entered the contract induced by LPD’s pre-contractual misrepresentation to the effect that the property had not previously been sold. ZX claims that the misrepresentation was fraudulent and gave it the right to rescind at common law as well as the right to remedies under the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct.[1]
[1]On 1 January 2011, the Trade Practices Act 1974 (Cth) was substantially amended by the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) as part of the institution of the Australian Consumer Law (‘ACL’). For transactions before 1 January 2011, the unamended Trade Practices Act continues to apply: SMEC Australia Pty Ltd v McConnell Dowell Constructions (Aust) Pty Ltd & Ors (No 3) [2012] VSC 557, [33]-[41] (Vickery J).

The representation was incorporated as a term of the contract in general condition 2.3(d). ZX also argues that it validly terminated the contract for LPD’s breach of general condition 2.3(d) by the misrepresentation. It maintains that it is entitled to the refund of the deposit by way of damages. It contends that the warranty in general condition 2.3(d) was an essential term of the contract which LPD breached because it had previously sold the land to Ballcon Developments Pty Ltd (“Ballcon”). It then argues, in the alternative, that, if the warranty was not an essential term of the contract, it was an intermediate term and its breach was so serious that ZX validly terminated the contract on that basis, again being entitled to damages comprising the deposit and interest. ZX also goes on to maintain that it is entitled to the same relief because it terminated the contract under general conditions 27 and 28 for LPD’s breach of general condition 2.3(d).

ZX argues further that, in any event, it validly rescinded the contract under s 32(5) of the Sale of Land Act 1962 on the basis that LPD breached s 32 by providing incorrect information in or omitting required information from its vendor’s statement. ZX then maintains that its notice of rescission under s 32(5) alternatively sufficed as a notice of rescission on the grounds of LPD’s tortious fraudulent misrepresentation that the property had not previously been sold.

ZX also argues that, even if it had not otherwise validly terminated the contract, it brought it to an end by accepting LPD’s repudiation by its entry into a third contract for the sale of the land to Foundry Road on 17 March 2011 (“the Foundry Road contract”).

LPD denies that ZX validly terminated the contract on any basis. It maintains that it brought the contract to an end itself by serving a notice to complete and a rescission notice relying upon ZX’s failure to comply with the notice to complete. Alternatively, it argues that ZX repudiated the contract by attempting to rescind, or by subsequently asserting that the contract was terminated or by failing to complete the purchase on the due date or thereafter. LPD contends that it accepted ZX’s repudiation by the rescission notice, even though that notice referred only to ZX’s non-compliance with the terms of the notice to complete.

ZX challenges the efficacy of the notice to complete. It argues that the notice failed to make time of the essence of the contract once again and that, in any event, its obligation to pay the balance of purchase monies had not been triggered because LPD had not served a GST tax invoice required under general condition 13.3. It further maintains that LPD was not ready and willing to complete the contract because of the existence of certain caveats on the title at the time.

ZX seeks the return of the deposit plus interest under s 82 and s 87 of the Trade Practices Act, if it did not validly terminate the contract entitling it to the return of the money.

LPD not only argues that it validly terminated the contract and is entitled to the deposit under general conditions 27 and 28, but also resists ZX’s claim that it entered the contract in reliance upon any misrepresentation on LPD’s part. Alternatively, it denies the requisite causal nexus between any misrepresentation and the loss of the deposit, arguing that ZX lost that money because it was not able to complete the purchase, lacking the necessary funds.

Finally, ZX seeks the return of the deposit in the exercise of the Court’s discretion under s 49(2) of the Property Law Act 1958. LPD maintains that ZX has failed to establish the necessary exceptional circumstances to justify a favourable exercise of the Court’s discretion under that sub-section.

Conclusions

I am not satisfied that either party validly terminated the contract unilaterally. LPD did make a fraudulent misrepresentation inducing ZX to enter the contract. ZX did not however validly rescind the contract ab initio on the ground of that misrepresentation. LPD did contravene s 52 and s 53A of the Trade Practices Act by making the misrepresentation which induced ZX to enter the contract and ZX is entitled to relief under both s 82 and s 87 of the Trade Practices Act.

I will now set out my findings of fact and then refer to the submissions of the parties and explain my conclusions.

Facts

LPD purchased the land in 2005 for $4.8 million. LPD is Mr Joe Agosta’s company. He was appointed a director and company secretary of LPD from 23 February 2006. From July 2006, he was the sole director and held all its issued shares. Mr Joe Ballato was a director and company secretary of LPD for a year between July 2005 and July 2006. Mr Danny Karavias, of Karavias & Associates, had acted as LPD’s solicitor at the time of the purchase of the land and continued to do so at all relevant times.

At the time of the purchase, Mr Karavias was provided by the vendor with two extracts from the Environmental Protection Authority Victoria (“EPA”) Priority Sites Register, one dated 11 November 2003 and the other dated 25 July 2005. The Register lists sites subject to EPA requirements for active management of land or groundwater contamination. The extracts each showed the land as ‘not listed on and not in the vicinity of a site listed on the Priority Sites Register’. I note that the land is described with reference to the same Melways map number and grid reference but with different addresses in each statement. It is referred to as ‘Lot S2 Cnr Foundry and Harvester Roads, Sunshine’ in the 2003 extract and ‘Cnr Foundry and Harvester Road, Sunshine’ in 2005.

Sometime after 2005, Mr Karavias became aware that the EPA Register recorded the land, which was part of a larger subdivision, as being on or in the vicinity of a site listed on the Register in relation to the presence of contaminants. This did not reflect the fact of the subdivision and, as such, the land was not properly shown as being in that vicinity. Mr Karavias had been in contact with the EPA and was of the view that the land was not contaminated because it had never been built on.

Mr Agosta and Mr Ballato worked together for some time to obtain the necessary funds to develop the land. By May 2010, Mr Agosta, who had been involved in other projects, was generally under pressure from financiers who had stopped rolling over loans in his favour. Unit holders in a trust known as the ‘LPD Unit Trust’ were also pursuing him for funds, including Mr Vince Pulitano and Mrs Rose Pulitano, who had lodged a caveat on the title to the land on 11 March 2010.

Mr Agosta had been working with Mr John Stefanatos, a finance broker of Balmain Commercial, for some years when seeking finance. Mr Stefanatos was reporting in relation to Mr Agosta’s dealings with the land to ING, which had lent money to him. By May 2010, Mr Agosta had decided to sell the land.

At that time, Mr Ballato was more confident than Mr Agosta that funds could be obtained to develop the land. When Mr Agosta decided to sell, Mr Ballato offered to buy the land himself for $14 million, through Ballcon. He claimed to have a financier organised and told Mr Agosta that he needed to have entered into a contract for the purchase of the land in order to obtain the necessary funds. Mr Agosta told Mr Ballato that he would continue to market the land, saying words to the effect that he would do so ‘just in case things don’t go quite right’.

LPD and Ballcon executed the Ballcon contract on 6 May 2010. Although it provided for Ballcon to pay a deposit of $700,000 upon execution, that money was never paid. The Ballcon contract was unconditional with regard to finance and settlement was due within 30 days, on 6 June 2010. It contained a ‘whole contract’ term in special condition 14, which relevantly provided:

14. Whole contract

…

14.5 the Purchaser has relied solely on its own judgment in purchasing the Land for the Price upon the conditions set out in this Contract;

14.6 this Contract contains the entire understanding of the parties with reference to the subject matter of this Contract and is the sole and full repository of the agreement between the Vendor and the Vendor’s Agent on the one hand and the Purchaser on the other hand;

…

14.7 there are no other understanding agreements warranties or presentations (sic) whether express or implied or extending defining or otherwise relating to the provisions hereof or binding upon the parties hereto with respect to the matters to which this Contract relates except those (if any) expressly including (sic) in this Contract;

Mr Agosta, for LPD, and Mr Ballato, for Ballcon, initialled deletions of parts of special condition 14 relating to warranties by LPD, indicating that they had turned their minds to issues raised by that provision. The deleted special conditions were as follows:

14.2no information, representation or warranty of the Vendor, the Vendor’s Solicitors or the Vendor’s Agent was supplied or made with the intention or knowledge that it would be relied upon by the Purchaser;
14.3no information, representation or warranty has in fact been so relied upon, except such as are expressly included herein; and
14.9without limiting the generality of the foregoing no promise, representation or warranty has been given that the Land is or will remain fit suitable or adequate for all or any of the purposes of the Purchaser; and
14.10all warranties and terms implied by law, relating to the fitness, suitability or adequacy of the land (to the maximum extent permitted by law) shall not apply to this Contract.

Mr Karavias was at material times of the view that the Ballcon contract could be rescinded if Ballcon did not pay the purchase price within 30 days. Mr Agosta made it clear to Mr Ballato that LPD would continue to market the land, in case Mr Ballato was unable to arrange the necessary finance for Ballcon to complete the Ballcon contract.

There was evidence from Mr Karavias to the effect that Mr Agosta and Mr Ballato had orally agreed, on behalf of their respective companies, that the Ballcon contract would be cancelled by agreement if Ballcon was unable to raise the necessary funds and if LPD found another purchaser for the land. That cancellation would not occur before the settlement date of 6 June 2010. There are a number of reasons why I am not persuaded by Mr Karavias that any such oral agreement was made between the parties to the Ballcon contract.

First of all, Mr Agosta’s own evidence was only to the effect that the parties had agreed that LPD would continue to market the land in case Mr Ballato was unable to arrange the finance to complete the purchase. Then, Mr Karavias maintains that the oral agreement was made in his presence in the course of a conversation between Mr Agosta and Mr Ballato at a coffee lounge. He states that he was present as LPD’s solicitor, and yet he took no file note of the alleged agreement. Nor did he refer to it in the file note he did take at a meeting at the offices of Mr Ballato’s solicitor, Mr Nick Lontos of Aloe & Co, on 7 May 2010, the day after the Ballcon contract was signed.

The Ballcon contract was discussed at that meeting at Aloe & Co’s offices, but there is no evidence of the alleged oral agreement having been mentioned. Mr Karavias’s hand written file note indicates only that executed parts of the Ballcon contract were exchanged by the solicitors, that Mr Lontos was to contact solicitors for a prospective lender, that settlement was expected shortly and that Mr Karavias was to prepare a necessary statutory declaration in respect of goods and a tax invoice, relating to GST. There was also the ‘whole contract’ clause and the initialled deletions which indicate that the parties had adverted to that condition.

It is significant, in my view, that Mr Ballato was not called to give evidence about the alleged oral agreement. Mr Karavias agreed under cross-examination that Mr Ballato was an old workmate and friend of Mr Agosta and that Mr Karavias thought he was living in Melbourne. Mr Agosta himself said that he and Mr Ballato had fallen out. I consider that LPD might reasonably have been expected to call Mr Ballato if his evidence would have favoured its case in this regard. He would not necessarily have failed to give a truthful account if subpoenaed to give evidence. I have taken his absence into account in deciding to reject Mr Karavias’s evidence as to the alleged oral agreement which he might have confirmed.[2]
[2]See Jones v Dunkel (1959) 101 CLR 298.

In addition, there are inconsistencies between the description of the alleged oral agreement in the evidence of Mr Karavias and Mr Agosta and the outlines of their proposed evidence filed in March 2013, which Mr Karavias prepared. Those outlines do not refer to a particular coffee shop meeting. Rather, they foreshadow evidence that the alleged oral agreement took place in discussions over a period described as ‘in about late April or early May 2010, and June 2010’. They also refer to agreement that the Ballcon contract would be cancelled in the event that Ballcon was unable to obtain finance by mid to late 2010 or if LPD was able to locate another purchaser for the land.

Further, as Mr Karavias conceded, the parties treated the Ballcon contract as being on foot right up to October 2010, when LPD purported to rescind it for Ballcon’s failure to pay the balance of purchase monies by 6 June 2010. There was no reference to the alleged oral agreement in the correspondence between the parties. In addition, the first time the alleged oral agreement was mentioned in this proceeding[3] was in Mr Karavias’ affidavit, sworn on 23 January 2013, in response to a summary judgment application by ZX.
[3]Commenced on 19 April 2011.

Mr Agosta continued to market the land through the real estate agents, Jones Lang LaSalle. The agents prepared an ‘Expressions of Interest’ document in August 2010. Mr Stefanatos brought the land to the attention of Mr Xun Zhang of ZX. ZX was provided with a copy of the expressions of interest document. It contained a copy of a planning permit dated 27 April 2010 issued by the Brimbank City Council in relation to the proposed development of the land. The permit contained conditions ordered by the Victorian Civil and Administrative Tribunal (‘VCAT’) on 19 April 2010.

Mr Zhang is ZX’s sole shareholder and one of its three directors. He lives mostly in China and visits Melbourne for business purposes. Ms Bing Wu is another director of ZX and acted on its behalf in relation to the purchase of the land. She gave evidence on behalf of ZX with the assistance of an interpreter on occasions.

Mr Zhang and Ms Wu considered that the land was in a good location, near a Coles supermarket and close to public transport. It appeared to them to be suitable for building more than 200 apartments and for use for commercial purposes.

The contract

Ms Wu was given a copy of the contract in its proposed form by Jones Lang LaSalle. On 24 August 2010, Mr Philip Nolan of ZX’s solicitors, Schetzer Brott & Appel, explained the proposed terms to her.

It is convenient to refer now to those terms which became part of the contract when it was signed on behalf of LPD and ZX.

Significantly, the contract refers to the ‘day of sale’ as that ‘by which both parties have signed this contract’. The particulars of sale show the price as $15 million ‘plus GST’ and state that this description indicates that the price is not inclusive of GST. There is provision for payment of a deposit of $1.5 million and for a ‘balance’ of $13.5 million payable at settlement. As to GST, the particulars simply refer to general condition 13.3. Settlement was to take place 100 days from the date of the contract (on 3 December 2010) or earlier by agreement. The contract also contains the following general conditions:

2. Vendor warranties

…

2.2 The warranties in general conditions 2.3 and 2.4 replace the purchaser’s right to make requisitions and inquiries.

2.3 The vendor warrants that the vendor:

(a) has, or by the due date for settlement will have, the right to sell the land; and

(b) is under no legal disability; and

(c) is in possession of the land either personally or through a tenant; and

(d) has not previously sold or granted any option to purchase, agreed to a lease or granted a pre-emptive right which is current over the land and which gives another party rights which have priority over the interest of the purchaser; and

(e) will at settlement be the holder of an unencumbered estate in fee simple in the land; and

(f) will at settlement be the unencumbered owner of any improvements, fixtures, fittings and goods sold with the land.

2.4 The vendor further warrants that the vendor has no knowledge of any of the following:

(a) public rights of way over the land;

(b) easements over the land;

(c) lease or other possessory agreement affecting the land;

(d) notice or order affecting the land which will not be dealt with at settlement, other than the usual rate notices and any land tax notices;

(e) legal proceedings which would render the sale of the land void or voidable or capable of being set aside.

2.5 The warranties in general conditions 2.3 and 2.4 are subject to any contrary provisions in this contract and disclosures in the Vendor’s Statement.

…

MONEY

10. Settlement

10.1 At settlement

(a) the purchaser must pay the balance; …

…

13. GST

13.1 The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ’plus GST’. …

13.2 The purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price if the particulars of sale specify that the price is ’plus GST’.

13.3 If the purchaser is liable to pay GST, the purchaser is not required to make payment until provided with a tax invoice, unless the margin scheme applies.

…

TRANSACTIONAL

16. Time

16.1 Time is of the essence of this contract.

…

DEFAULT

…

27. Default notice

27.1 A party is not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party is served 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 service of the notice –

(i) the default is remedied; and

(ii) the reasonable costs incurred as a result of the default and any interest payable are paid.

28. Default not remedied

28.1 All 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 towards those damages; and

(e) any determination of the vendor’s damages must take into account the amount forfeited to the vendor.

28.5 The ending of the contract does not affect the rights of the offended party as a consequence of the default.

On 24 August 2010, Mr Nolan also took Ms Wu through the vendor’s statement prepared by Karavias & Co pursuant to s 32 of the Sale of Land Act. I note the following facts.

· Ms Wu saw then a reminder notice to LPD from the State Revenue Office, referring to outstanding land tax of $60,232.50 (which included arrears). The vendor’s statement notes that information concerning rates, taxes, charges and similar outgoings is contained in attached certificates and that an adjustment is required in respect of ‘any past years’ land tax’ for which the vendor would be responsible. Ms Wu was aware, too, that arrears of land tax would be paid by LPD at settlement.

· The vendor’s statement contains the VCAT determination and its 19 April 2007 orders as to the terms of the permit for the development of the land which was to be subsequently issued by Brimbank City Council on 27 April 2007. Ms Wu relied upon Mr Nolan to read the VCAT reasons for determination.

· The statement did not contain a copy of the permit issued on 27 April 2007 under the VCAT order.

On 24 August 2010, Schetzer Brott & Appel wrote to Karavias & Associates seeking the insertion of additional special conditions into the draft contract. These relevantly included conditions relating to the VCAT application identified by the VCAT reference numbers and were as follows:

Additional special conditions
1.The Vendor must provide the following to the Purchaser at settlement failing which the Purchaser is entitled to delay settlement until they are provided:
A.All documents, files, expert reports, witness statements and applications prepared in support of the following:
(i)Application to Brimbank Council for any planning permit for the Property:
(ii)Application to the Victorian Civil & Administrative Tribunal reference P3201/2006 and P229/2007 [the application the subject of orders on 19 April 2010].

…
C.Brimbank Council endorsed plans (if issued by the said council).
D.All correspondence between the Vendor and the Brimbank Council and/or the VCAT in regards to the Property.
…

On the same day, Ms Wu spoke to Mr Zhang, who was in China. He authorised her to offer $14.5 million for the land, if there was no other purchaser. Ms Wu signed the proposed contract of sale on behalf of ZX, with that amount inserted as the purchase price. She then met Mr Stephen Boulton and Mr Steven Messina of Jones Lang LaSalle at the firm’s offices that day. She gave them the signed proposed contract and a cheque for $145,000 (or one per cent of the amount offered). After requesting and receiving Mr Boulton’s confirmation that there was no other purchaser for the land, Ms Wu allowed LPD one day to respond to the ZX offer.

ZX’s offer of $14.5 million was rejected. The particulars of sale were amended to insert a purchase price of $15 million. On the following day, 25 August 2010, Ms Wu executed the contract and paid the balance of the deposit of $1.5 million to the agent.

Ms Wu and Mr Zhang knew that there might be others interested in the land. Ms Wu considered the warranty in general condition 2.3(d) of the contract to be important. She would not have signed the contract on behalf of ZX, if she had known about the Ballcon contract. She was concerned about the possibility of violating a third party’s rights and the need for propriety in ZX’s business dealings. She thought it would be very serious if ZX breached the rights of another contracting party who might lose the chance to buy the land.

I am satisfied that ZX entered the contract induced by the misrepresentation that LPD had not ‘sold’ the land, in the sense of that word as used in the contract.

On 31 August 2010, ZX lodged a caveat dated 27 August 2010 claiming an estate in fee simple under the contract.

On about 6 September 2010, Karavias & Co prepared a tax invoice directed to ZX relating to the GST payable under the contract. Karavias & Associates faxed it to ZX’s solicitors on 13 September 2010. The amount of GST sought was $1.5 million. I accept Mr Karavias’s evidence in this regard, despite his concession that he had forgotten that he had created or sent the GST invoice to ZX’s solicitors. I accept it even though the invoice and faxed letter were not discovered in this proceeding before 18 March 2013. I also accept that it was Mr Karavias’s practice, when acting for a vendor, to provide another GST invoice, calculating the amount by reference to the adjusted purchase price.

On 6 October 2010, Ballcon lodged a caveat, dated 5 October 2010, claiming an estate in fee simple in the land under the Ballcon contract (‘the Ballcon caveat’).

On 15 October 2010, Davis Lawyers, solicitors for Ballcon, wrote to LPD’s solicitors. They referred to previous correspondence and advised that funding was in place for a settlement under the Ballcon contract on 22 October 2010. They asked Karavias & Associates to make settlement arrangements.

LPD then purported to rescind the Ballcon contract by a rescission notice dated 18 October 2010. The notice relied upon Ballcon’s failure to pay the purchase price of $14 million on 6 June 2010. It gave Ballcon 14 days to remedy the default.

Ballcon contested the attempted rescission in a letter from Davis Lawyers to Karavias & Associates dated 28 October 2010. It maintained that LPD was not ready, willing and able to effect the settlement because of the claims supported by the Pulitanos’ caveat and a further caveat which had been lodged on 2 June 2009 by Laca Nominees Pty Ltd, another unit holder in the LPD Unit Trust. After discussion and statements by Ballcon’s solicitors in correspondence to the effect that the parties had agreed that the Ballcon purchase would be completed by no later than 26 November 2010, it was eventually agreed that the Ballcon contract was at an end and that Ballcon would provide a withdrawal of its caveat. That withdrawal of the Ballcon caveat is dated 15 November 2010.

In the meantime, on about 11 November 2010, Ms Wu, Mr Zhang, Mr Agosta and Mr Stefanatos met at the offices of Balmain Commercial. Mr Stefanatos conducted the meeting. I am satisfied that there was discussion about extending the time for payment of the balance of purchase monies under the contract. Ms Wu and Mr Zhang had sought the extension even though, in Ms Wu’s opinion, ZX would have been able to raise the necessary funds to settle on the due date of 3 December 2010. Ms Wu disputes Mr Agosta’s evidence that Mr Zhang indicated that ZX would not be able to produce the balance of purchase money on that day and sought to negotiate the terms. I note, in this regard, Ms Wu’s unchallenged evidence that ZX owned property in central Melbourne and Warrandyte and that it had money available to it in bank accounts.

Mr Stefanatos, representing ING, was effectively conducting the negotiations relating to the contract with ZX. He was informing Mr Agosta of the arrangements for meetings which he had organised. LPD did not call Mr Stefanatos to give evidence. It might reasonably have been expected to do so if he had had anything favourable to say in support of Mr Agosta’s account of the reasons given by Mr Zhang for seeking an extension of time for settlement. Mr Stefanatos represented the lender ING and must be regarded as relatively independent. In the absence of any explanation for his absence and Mr Agosta’s concession that he presumed Mr Stefanatos would have been available to testify, I prefer the evidence of Ms Wu to the extent of any inconsistency with that given by Mr Agosta.[4] That is so, even though ZX is criticised for failing to call Mr Zhang. I have taken his absence into account in the same way. There was no explanation for his absence. Nevertheless, on balance, I prefer Ms Wu’s account because the absence of Mr Stefanatos is more significant as he would have been more independent.
[4]See Jones v Dunkel (1959) 101 CLR 298; O’Donnell v Reichard [1975] VR 916, 929 (Newton and Norris JJ).

At the meeting, in the context of ZX’s agreement to pay interest on outstanding purchase monies, Mr Stefanatos expressed his view that the proposal would not be problematic, as a substantial amount would be paid before Christmas that year.

On 15 November 2010, Mr Stefanatos emailed Ms Wu, referring to the recent discussions between the two of them and Mr Zhang and Mr Agosta. He noted that LPD was willing to consider an extension of time to provide for payment of $6 million no later than 3 December 2010, $2 million by 1 March 2011 and the balance of $5.5 million by 6 April 2011.

On the same day, 15 November 2010, Mr Nolan informed Ms Wu about the Ballcon caveat and the Ballcon contract. On either 15 or 16 November, Mr Nolan told her that Ballcon’s solicitor, Mr Davis, had confirmed the existence of the Ballcon contract in discussion with him. Mr Nolan also informed Ms Wu that Mr Karavias had described the Ballcon contract as an oral one which had been cancelled. Ms Wu was upset because she had been assured that there was no other contract and that ZX was the only purchaser of the land. She instructed Mr Nolan to cancel the contract.

I accept Ms Wu’s evidence that, thereafter, any further discussions between ZX and LPD were, in her opinion, on the basis that a new contract would be negotiated.

On 17 November 2010, two days after Ms Wu was told about the Ballcon contract, ZX’s solicitors wrote to LPD’s solicitors (heading the letter ‘without prejudice’) in these terms:
Our client has spoken with your client and requested that settlement be extended to 6 April 2011.
John Stefanatos has informed our client that the vendor would consider extending settlement based on the following payment structure:
$6m by 3 December 2010
$2m by no (sic) 1 March 2011
$5.5m by 6 April 2011
John also informed our client that:
1.        Interest is payable by our client.
2.        The purchaser must agree to release of the deposit.
To enable our client to properly consider the offer by the vendor would you please provide:
1.        Details of the rate of interest payable. We assume all interest is payable on 6 April 2011.
2.        Confirmation that interest will be calculated on the reducing amount owing to the vendor at any given time.
3. Section 27 statement together with a letter from the first mortgagee.
4.        Confirmation from the 1^st mortgagee and all caveators (sic) consent that they consent to the sale to the purchaser and will hand over a discharge of mortgage/withdrawal of caveat at settlement.
We await your reply.
That letter set out Ms Wu’s understanding of what had occurred at the meeting with Mr Stefanatos, which had taken place before she was made aware of the Ballcon contract. It had been at that meeting that she had proposed the timetable to which the letter refers.

On 18 November 2010, Schetzer Brott & Appel wrote to Karavias & Associates on Ms Wu’s instructions (once again heading their letter ‘without prejudice’), enclosing a copy of the Ballcon caveat and referring to the Ballcon contract. The letter went on to say:
Based on the caveat it appears that your client entered into the contract with our client in breach of general condition 2.3(d).
In the event that this has occurred clearly your client is unable to remedy a breach of general condition 2.3(d).
To enable our client to fully consider what action to take in regards to the conduct of the Vendor, we are instructed to demand that you provide us with the following:
1. Copy contract of sale dated 6 May 2010.
2. Evidence that the contract dated 6 May 2010 was not current (ie cancelled) prior to your client entering into the contract with our client on 25 August 2010.
Please provide this information within 24 hours.
Our client reserves all its rights.
We await your urgent reply.
On 22 November 2010, Mr Nolan wrote to Mr Zhang, enclosing a copy of the Ballcon caveat and referring to his own recent discussions with Ms Wu. He advised that Ballcon’s solicitor had confirmed the existence of the Ballcon contract. He stated that he had not received a reply to his request for evidence from LPD’s solicitors that the Ballcon contract had been cancelled.

Mr Nolan went on to advise ZX to issue a rescission notice requiring the default to be remedied within 14 days. It could seek the return of the deposit if the default was not remedied and the contract was terminated. He stated that, otherwise, if ZX allowed the contract to proceed to settlement, it faced the real possibility of legal action by the previous purchaser seeking to enforce its contract.

On 23 November 2010, Schetzer Brott & Appel served a ‘Rescission Notice’, of that date, upon both LPD’s solicitors and LPD directly. The notice purported to rely upon breach of general condition 2.3(d) and stated that unless the default was remedied and legal costs of $440 and interest paid, the contract would be rescinded under general condition 28.

On 25 November 2010, Karavias & Associates responded that the Ballcon contract had been cancelled ‘by mutual agreement’ and the Ballcon caveat withdrawn. They enclosed a deed of cancellation of the Ballcon contract and a form of withdrawal of the Ballcon caveat, each dated 15 November 2010, as well as a cheque for ZX’s legal costs as demanded. They asserted that any breach of general condition 2.3(d) was rectified and that LPD was ready, willing and able to settle on 3 December 2010. The solicitors sought a transfer of land for execution by LPD.

On 25 November 2010, ZX’s solicitors also wrote to LPD’s solicitors, this time alleging breaches of s 32(5) of the Sale of Land Act (presumably meaning to refer to alleged breaches of the requirements of s 32(2)). The letter stated that ZX rescinded the contract and demanded repayment of the deposit, particularising the alleged breaches in the following terms:

1.Title search attached to the vendor’s statement is dated 9 April 2010.
After this date but prior to the execution of the contract by our client a land tax charge was registered on the title and caveat no. Ah429953Q was lodged.

2. A copy of planning permit no. P810/2005 was not attached to the vendor’s statement.

3. The vendor’s statement refers to the address of the property as ”80 Harvester Road Sunshine”. According to our searches, this is the address for the Sunshine Market which is next door to the property.

The correct address which should have been included in the vendor’s statement is ”401A Hampshire Road Sunshine 3020”.

4. Item 3.2 of the vendor’s statement provides that the outgoings do not exceed $85,000.

The searches attached to the statement disclose that the following amounts are due and payable:

(a) $60,232.50 – Land Tax

(b) $967.57 – Water Rates

(c) $39,456.26 – Council Rates

This gives a total of $100,423.83 which is well in excess of $85,000.

5. The orders of VCAT dated 18 April 2007 (sic) in regards to the property were not included in the vendor’s statement.

6. Item 7 in the vendor’s statement has not been completed re insurance.

7. The second warning on the first page of the vendor’s statement is not in accordance with the Sale of Land Act (”Act”).

8. The third warning on the first page of the vendor’s statement is not in accordance with the Act;

9. The section 173 agreement no. U209262Y also applies to land owned by the Brimbank City Council – refer to the attached copy title volume 10431 folio 109. This was not disclosed in the vendor’s statement.

10. Refer attached EPA certificate [dated 25 November 2010 and describing the land as 401A Hampshire Road Sunshine with a Melways reference of Map 40 grid reference H11]. You failed to include this certificate in the vendor’s statement.

We note the certificate provides that:

“……this site is listed on, or is in the vicinity of a site listed on the Priority Sites Register……”.

(Caveat no. AH429953Q had been lodged on 14 August 2010 by Quebec Investments Pty Ltd in the capacity of mortgagee.)

On 29 November 2010, Schetzer Brott & Appel wrote again to LPD’s solicitors about the vendor’s statement. They narrowed the scope of their challenge and gave particulars of their allegations which are now repeated in ZX’s second further amended statement of claim, filed on 6 September 2012. They allege that the vendor’s statement was deficient because of LPD’s failure to give particulars of the land tax charge registered on the title on 29 July 2010 or to attach a copy of planning permit number P810/2005 dated 27 April 2007, its alleged misstatement that outgoings did not exceed $85,000 and its failure to supply the particular EPA certificate dated 25 November 2010. Again, ZX purported to rescind the contract under s 32(5) of the Sale of Land Act and demanded repayment of the deposit.

By 1 December 2010, the Pulitanos’ claim had settled on the basis that Mr Agosta was to pay $450,000 to Mr and Mrs Pulitano on settlement of the sale of the land. They would withdraw the caveat and transfer their units in the LPD Unit Trust. On 2 December 2010, the solicitors for other caveators, Baxter Commercial Pty Ltd (a company owned by Mr Ballato) and LPD Corporation Pty Ltd (as trustee for the LPD Unit Trust), confirmed their clients’ agreement to receive $200,000 at settlement of the sale of the land. They, too, would provide a withdrawal of caveat upon receipt of that amount.

On 7 December 2010, ZX’s solicitors wrote to Karavias & Associates, referring to their 29 November 2010 letter. Threatening legal proceedings, they demanded repayment of the deposit within two days.

Karavias & Associates responded on the same day, disputing the alleged breaches of s 32 of the Sale of Land Act. They said what follows.

· The vendor’s statement made it clear that LPD would be responsible for payment of land tax arrears which were disclosed in a letter from the Commissioner of State Revenue included in the statement. A release of the statutory charge would be obtained before settlement. Karavias & Associates enclosed a document, dated 15 November 2010, signed by Mr Karavias and prepared by the State Revenue Office, under which he undertook to attend settlement for the purpose of collecting land tax on behalf of the Commissioner of State Revenue.

· The applicable planning permit information was included in the vendor’s statement containing the relevant planning certificate, the 19 April 2007 VCAT order and the VCAT decision which included the conditions of the permit subsequently issued.

· The annual outgoings did not exceed the stated amount of $85,000, as they did not include the land tax arrears for which LPD was responsible.

· There was no applicable EPA information not included in the vendor’s statement.

· The contract remained on foot and LPD did not intend to return the deposit and would resist any vendor-purchaser summons served by ZX.

· LPD was, however, prepared to discuss an extension of the settlement date, subject to appropriate payment and interest terms being agreed.

· LPD would rely upon s 32(7) to argue that there was no prejudice to ZX, which was not in any less advantageous position as a result of any false or missing information, and that LPD had acted honestly and ought reasonably be excused for any breach.

On 8 December 2010, Karavias & Associates wrote to Schetzer Brott & Appel again, referring to their letter of 17 November 2010 and discussions about the extension of time for payment and LPD’s willingness to extend settlement to 6 April 2011, on terms which included payment of $6 million by 17 December 2010 and $7.5 million by 6 April 2011, with interest at the rate fixed by the contract.

On 9 December 2010, ZX’s solicitors responded to LPD’s assertions in answer to the objections to the vendor’s statement and took issue with them. Essentially, they maintained their objections.

On 15 December 2010, Mr Nolan wrote to Karavias & Associates inviting Mr Karavias and Mr Agosta to a meeting with Ms Wu at their office. Mr Stefanatos was also to attend.

On 17 December 2010, Mr Karavias wrote to the solicitor for Laca Nominees Pty Ltd advising that a meeting had taken place with the representatives of ZX at their solicitors’ office. Mr Karavias recorded that ZX’s representatives had advised that they would formulate a settlement proposal as a matter of urgency.

On 21 December 2010, Schetzer Brott & Appel wrote to Mr Karavias referring to the parties’ wish to meet again to discuss the sale of the land. They stated that they had been instructed that such a meeting would only take place 24 hours after they had received a new contract and vendor’s statement, as well as a deed signed by Ballcon releasing ZX from any claims.

On the same day, 21 December 2010, Karavias & Associates reported to Gadens Lawyers, the solicitors for the registered first mortgagee, Perpetual Nominees Pty Ltd. They advised that ZX wanted to execute a fresh contract of sale which had been prepared for a meeting where contracts were to be exchanged and the first further payment of $2 million would be made. LPD anticipated receiving a deed of release in favour of ZX, signed by Ballcon. It sought the mortgagee’s consent to the sale and confirmation that a discharge of the mortgage would be available at settlement, as would the information required by s 27 of the Sale of Land Act.

A 21 December 2010 extract of the EPA Register, relating to ‘401A Hampshire Road Sunshine with Melways map 26 grid reference H11’, states that the land is not listed on or in the vicinity of a site listed on the Register at that date.

On 22 December 2010, Karavias & Associates forwarded to Gadens Lawyers copies of a new contract of sale, a new s 32 vendor’s statement, a release of ZX by Ballcon dated 22 December 2010 and a copy of their letter of the same date to Schetzer Brott & Appel enclosing the same documents.

ZX did not sign the new contract, which once again provided for a purchase price of $15 million plus GST. Settlement under the new contract was to be due on 6 April 2011.

On 23 December 2010, ZX’s solicitors wrote to Mr Karavias, again under the heading ‘without prejudice’. They advised that ZX would agree to a new contract with a different payment schedule. A balance of $13.5 million would be paid without interest, with $4 million paid on 31 January 2011 and $9.5 million on 6 May 2011. ZX also required LPD to obtain a written acknowledgement from Centrelink that it would not construct office accommodation on the land and that Centrelink did not wish to proceed with a lease. It sought that LPD pay amounts due and payable to Brimbank Council under the planning permit.

In February 2011, Ms Wu, Mr Zhang, Mr Agosta and Mr Stefanatos met at Crown Casino. According to Mr Agosta, Ms Wu and Mr Zhang told him and Mr Stefanatos that some investors had not come up with money and that the exchange rate was not good. Mr Agosta claims to have asked Mr Stefanatos what this information had to do with him. He said that he had had enough: ZX was either ‘in’ or ‘out’ and LPD could return to its financiers only so many times. The land had to be sold and ZX had to be able to pay something if it was interested. Mr Agosta left the meeting, telling Mr Stefanatos to ‘sort it out’.

Ms Wu denies that she said ZX could not purchase the property for the alleged reasons. She maintains that ZX was treating the contract as terminated and negotiating for a new one. It had no subsisting obligations under the contract. Once again, to the extent of any inconsistencies, I prefer the evidence of Ms Wu in the absence of evidence from Mr Stefanatos who, once again, might have provided evidence from a relatively independent standpoint. I have again taken into account ZX’s failure to call Mr Zhang.

On 15 February 2011, ZX’s solicitors received the notice to complete dated 11 February 2011, under cover of a letter from Schetzer Brott & Appel. It was in these terms:

NOTICE TO COMPLETE
…
LPD CORPORATION PTY LTD (A.C.N. 115 443 813)
gives you notice:

(1) That LPD CORPORATION PTY LTD is ready and willing to transfer to you the property situated at 80 HARVESTER ROAD SUNSHINE in accordance with Contract dated 25^th August 2010.
(2) You are required to complete the purchase and to pay the balance of the purchase money on or before 4 pm on the 21^st day of February 2011, and in this respect time is of the essence of the contract.
(3) LPD CORPORATION PTY LTD appoints 4 pm on 21^st day of February 2011 at the Office of GADENS SOLICITORS of Level 25, 600 Bourke Street Melbourne as the time and place for completion.
(4) Unless you complete within the time specified in this notice, LPD CORPORATION PTY LTD will be entitled to terminate the contract.

On 18 February 2011, ZX’s solicitors responded that they had only received the 11 February 2011 letter enclosing the notice to complete on 15 February 2011. Under the heading ‘without prejudice’, they claimed that ZX had duly rescinded the contract under s 32(5) of the Sale of Land Act by their letter of 29 November 2010. As a result, the contract was at an end and the notice to complete was ineffective. They pointed out that only a court could declare that the purchaser has not rescinded the contract under s 32(7) of the Sale of Land Act.

Stating that there was no admission that the contract remained ‘valid’, the letter went on to challenge the validity of the notice to complete on another ground. Schetzer Brott & Appel argued that the notice did not reinstate time as of the essence of the contract, because the period of effectively three business days for compliance by arranging a settlement was not reasonable or fair. There were outstanding matters relating to a lease in favour of the Commonwealth, and LPD’s failure to provide a letter from the council extending the planning permit and confirming that no payment was outstanding under it.

Schetzer Brott & Appel went on to state the terms upon which ZX would be prepared to enter a new contract of sale for the purchase of the land, including provision for settlement on 6 May 2011.

By a letter dated 3 March 2011, ZX’s solicitors advised Karavias & Associates of their instructions that ZX would be transferring $4 million into their trust account on the following day.

On 4 March 2011, Dwyer Mahon & Robertson solicitors wrote to Karavias & Associates with reference to ‘Leguidi (sic) purchase from Agosta’, enclosing a statement showing a transfer of $1 million into the trust account of Karavias & Associates that day, by way of deposit for the sale of a one half share of the land, subject to agreement as to terms.

On 8 March 2011, Mr Stefanatos emailed Mr Jamie Gilchrist of ING and Mr Rob Hinton of Gadens Lawyers advising them that LPD was negotiating a sale of the land and referring to the transfer of funds. Mr Stefanatos said:

Jamie/Rob,
Please see attached correspondence from the ZX Group and a new purchaser who is looking to acquire 50% of the project for $10m.
The potential new purchaser owns a large trading business and is a significant property owner.
As a sign of good faith the proposed new purchaser has deposited $1m into Danny’s trust account with a view of finalising the contract of sale within the next 7 days….they did this to secure the site before it could be re offered (sic) to the market….once the contract is executed it is anticipated a further $1m will be paid and will be held in Danny’s trust account….final payment of $8m to occur 60/90 days thereafter.
Joe advises he is also close to securing a further commitment for 25% of the project from a well known Melb builder for $5m.
The potential purchaser, LPD and the builder will be working together on the project going forward.
The above structure should net LPD $15m for 75% of the project i.e. a $5m increase to what the ZX Group were offering. This amount will be applied against the ING debt commitment.
The borrower has elected (at this stage) not to continue with the ZX Group moving forward given:
-the strength of their original offer was the relatively quick settlement period… this did not eventuate
-given the 3rd December 2010 settlement was not reached a further commitment to stage the payments over time was not adhered to
-ZX Group were continually trying to alter the original agreement to the detriment of LPD, i.e. they didn’t want to pay penalty interest for missing settlement which amounted to over $120K per month and wanted other concessions post the execution of the original contract
-the suggested $4m highlighted in SBA letter whilst maybe sitting in SBA trust account has not been transferred into Danny’s trust account or to ING…to do this I suspect ZX Group would want further concessions/conditions than the original contract allowed for
-given past history (even if $4m was paid to Danny’s trust account or ING) there is still significant uncertainty when final settlement would occur
-LPD is in a financial position with ING that needs a higher degree of certainty and confidence when dealing with transaction counter parties

If the ZX group (sic) agree to continue with the original contract which would mean a further payment of $4m being released to ING or Danny’s trust account LPD may reconsider their position but this window of opportunity is somewhat diminishing with the goodwill and commitment shown by the new purchaser …
Joe/Danny – if I haven’t got any of the above correct please advise. [5]

The email was copied to Mr Karavias and Mr Agosta.

[5]The ellipses formed part of the original document and do not indicate omissions from the quotation by the Court.

Under cover of letters also dated 8 March 2011, Karavias & Associates served a rescission notice of the same date upon ZX and its solicitors, respectively. The rescission notice was directed to ZX and its solicitors and continued in these terms:

SCHEDULE
1. Vendor:  LPD CORPORATION PTY LTD…
2. Purchaser:  ZX GROUP PTY LTD …
3. Date of Contract of Sale:    25^th AUGUST 2010
4.Land Description:            Being the land described in Certificate of Title Volume 10431 Folio 108

5. Property Address: 80 HARVESTER ROAD SUNSHINE 3020
6.Due date for Settlement: 3^rd DECEMBER 2010 pursuant to the Contract of Sale and extended pursuant to the Notice to Complete dated 11^th February 2011 to the 21^st February 2011

7. Price:  $15,000,000.00 PLUS GST
8.Particulars of Default:      Failure to pay the balance of purchase money of $13,500,000.00 plus GST of 1,500,000.00 (sic) which fell due for payment on the 21^st FEBRUARY 2011 pursuant to the Notice to Complete
9.Interest Rate:  12.5%
10. Legal Costs:  $450.0

TAKE NOTICE that:
(A)You are in default under the Contract referred to in the Schedule and that the particulars of default are specified in Item 8 of the Schedule.
(B)The Vendor intends to exercise the Vendor’s rights under the Contract unless the default is remedied and the legal costs specified in Item 10 and interest on the amount due under the Contract (being the amount specified in Item 8) at the rate specified in Item 9 from the date specified in Item 8 to the date on which the default is remedied are all paid within 14 days of service of this notice upon you.
(C)Unless the default is remedied the Contract will be rescinded pursuant to Condition 28.2 of the Contract without further notice to you, and the Vendor will exercise such other rights and remedies conferred upon the Vendor by the contract or by statute or howsoever otherwise arising out of the default (including, without limitation to the foregoing, the right to sue for damages for breach of Contract within one year of the date that the contract is rescinded and to retain the deposit) as the vendor may elect.

Whilst the transaction foreshadowed in Mr Stefanatos’s email to Mr Gilchrist and Mr Hinton did not proceed, Mr Vince Legudi and a builder, Mr Raffaele Aiello, did purchase the land through their company, Foundry Road, for $15 million under the Foundry Road contract executed on 17 March 2011. Foundry Road had been registered on 17 March 2011 with Mr Legudi and Mr Aiello as its directors and secretaries.

The Foundry Road contract contains a special condition to the effect that it is conditional upon and subject to the 25 August 2010 contract of sale with ZX ‘being rescinded and at an end at or prior to settlement’. The Foundry Road sale proceeded to settlement and Foundry Road became the registered proprietor of the land on 13 August 2011.

In the meantime, on 20 May 2011, ZX’s new solicitors, Alderuccio Solicitors, wrote to Karavias & Associates referring to ZX’s rescission of the contract under s 32(5) by the 29 November 2010 letter. Alderuccio Solicitors challenged LPD’s entitlement to serve the 8 March 2011 rescission notice on the basis that it was not ready and able to complete by transferring clear title. They referred to the caveats lodged by Laca Nominees Pty Ltd, Mr and Mrs Pulitano, Quebec Investments Pty Ltd and Baxter Commercial Pty Ltd.

ZX’s solicitors asserted that LPD had repudiated the contract by issuing the notice of rescission and, additionally, by executing the Foundry Road contract. The letter continued as follows:

In the circumstances, if the Contract of Sale had not already been validly rescinded by our client, as our client contends, the sale of the Property by your client to Foundry Road Pty Ltd. prior to the expiration of the period to remedy the default as set out in your client’s Rescission Notice constituted a repudiation of the Contract of Sale by your client. We are instructed to advise that if our client has not previously validly rescinded the Contract of Sale, our client hereby accepts your client’s repudiation of the Contract of Sale whereby the Contract of Sale is terminated. Alternatively, the Contract of Sale has been discharged by agreement.
In any event, our client requires your client to repay to our client the deposit monies of $1.5m paid by our client.

On 25 May 2011, Karavias & Associates responded by letter, referring to a discussion between the solicitors and confirming that LPD had agreed that the net deposit of $1.17 million would be transferred from the Karavias & Associates trust account to an interest-bearing trust account and would not be released without written agreement or an order of the court. They confirmed that ZX would provide a withdrawal of its caveat.

The Foundry Road contract was settled on 29 June 2011.

Submissions and discussion

As the effect of the misrepresentation depends upon the ultimate status of the contract between the parties, it is convenient to first consider the submissions relating to the alleged breaches of the contract by each of the parties. Those submissions raise a number of questions.

Did ZX validly terminate the contract for breach of general condition 2.3(d)?
Was general condition 2.3(d) an essential term?

ZX argues that the warranty in general condition 2.3(d) as to the land not having been sold previously was an essential term of the contract. It argues that the contractual representation was one that related to the fundamental matter of LPD’s title and its right to sell the land.

There is no dispute that the applicable principles are to be found in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd.[6] In Koompahtoo, the High Court referred to the well-known passage from Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd[7] where Jordan CJ considered the issue of the essentiality of a contractual term:

The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.[8]

[6](2007) 233 CLR 115 (‘Koompahtoo’).

[7](1938) 38 SR (NSW) 632.

[8]Ibid 641-2.

Gleeson CJ, Gummow, Heydon and Crennan JJ pointed out that Jordan CJ’s words were to be read in light of later developments in the law, saying:

It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and … the commercial purpose it served, that determines whether a term is “essential”, so that any breach will justify termination.[9]

[9](2007) 233 CLR 115, 138 [48].

I am not persuaded by ZX’s contention that general condition 2.3(d) should be regarded as an essential term because it amounted effectively to a warranty that LPD had not alienated its interest in the land so as to prevent it from fulfilling its obligation to give an unencumbered title to ZX. Even if a purchaser’s interest under an executory or partly executory contract for the sale of land were properly characterised as an equitable interest in that land,[10] that would not prevent the vendor from creating another competing equitable interest. The contest between any number of such interests would be resolved in accordance with equitable principle.[11] The maxim nemo dat quod non habet does not apply in the case of equitable interests.
[10]See Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 where the High Court cast doubt upon the accuracy of the longstanding characterisation of the interest of a purchaser under a contract for the sale of land as an equitable interest, reviewing the operation of the doctrine of conversion and identifying the significance of the availability of specific performance to the purchaser.
[11]See Rice v Rice (1853) 2 Drew 73; 61 ER 646; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326.

Given the definition of the ‘day of sale’ in the contract, the warranty in general condition 2.3(d) was one as to an existing fact at that date: that LPD and a previous purchaser had not signed a contract for the sale of the land. The warranty was accompanied by other warranties that the vendor had not granted an option to purchase, agreed to lease or granted a pre-emptive right which gave another rights with priority over the purchaser’s interest.

LPD’s principal obligation under the contract was to transfer an unencumbered estate in the land, at settlement. Prior to settlement, it would have had the opportunity to take any necessary steps to ensure that that principal obligation would be met and to deal with any outstanding claim on the part of a previous purchaser. On its face, the warranty would have covered any previous contract, regardless of the fact that it might already have been terminated. The singular form of the verbs in the qualifying clauses (‘which is currently over the land and which gives another party rights which have priority’), which follow the reference to the grant of a pre-emptive right, shows that they did not apply to the warranty as to a previous sale. The warranty should not therefore be construed as limited to a sale giving rise to rights with priority over those of the purchaser (whatever such a clause might mean).

The common intention of the parties to the contract is to be ascertained objectively and the parties’ language understood in the context of the relationship established by the contract and its commercial purpose of effecting the sale and transfer of the land. Adopting this approach, I am not persuaded that it was the parties’ common intention that the relevant part of general condition 2.3(d) should be an essential term, any breach of which should justify termination of the contract.

Was there a serious breach of an intermediate term?

ZX argues, alternatively, that even if the warranty as to a previous sale in general condition 2.3(d) is regarded as a non‑essential term, there was a sufficiently serious breach to justify its termination of the contract.

Breaches of non‑essential terms can be trivial or serious in terms of their consequences. The plurality in Koompahtoo said this:

Breaches of this kind are sometimes described as “going to the root of a contract”, a conclusory description that takes account of the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party. Since the corollary of a conclusion that there is no right of termination is likely to be that the party not in default is left to rely upon a right to damages, the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract. [Footnotes omitted][12]

[12](2007) 233 CLR 115, 140 [54] (Gleeson CJ, Gummow, Heydon and Crennan JJ), citing Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 561-2; GH Treitel, Remedies for Breach of Contract (Clarendon Press, 1988), 350-1; JW Carter, Breach of Contract (2^nd ed, 1991), 199-200.

The Court must consider whether LPD’s breach of general condition 2.3(d) effectively deprived ZX of ‘a substantial part of the benefit to which [it was] entitled under the contract’. This, again, involves a question of construction and consideration of the benefit to which ZX is entitled under the contract.[13]
[13]Koompahtoo (2007) 233 CLR 115, 140 [55] (Gleeson CJ, Gummow, Heydon and Crennan JJ).

As I have said, the principal benefit for ZX under the contract was the transfer of an unencumbered title at settlement. The warranty was as to the existence of a previous sale as at the date of the contract. The settlement date fixed by the contract was 3 December 2010. On 15 November 2010, the Ballcon contract was cancelled by agreement between LPD and Ballcon. In those circumstances, there is insufficient evidence to satisfy me that the existence of the Ballcon contract on 25 August 2010, when the parties executed the contract, would have prevented the settlement of the sale of the land on the due date. Ballcon also went on to provide ZX with a deed of release by 22 December 2010. In my view, damages would provide adequate compensation to ZX for any loss resulting from the breach of general condition 2.3(d). I am not persuaded that, if the term is not regarded as essential, its breach was sufficiently serious to justify termination.

Did ZX terminate the contract under general conditions 27 and 28?

ZX argues that it nevertheless terminated the contract in accordance with its terms under general conditions 27 and 28. The meaning of these conditions is, again, to be determined objectively. A provision entitling a party to terminate a contract for breach of any condition is to be strictly construed and a right must be conferred in clear language.[14] General condition 27, which provided for notice of default, assumed the existence of a default which could be cured. Whilst a failure to comply with a time stipulation with regard to payment, for example, might be regarded as capable of being remedied past that date,[15] a warranty, such as that in this case, as to the happening of a prior event, could not later be remedied. Cancelling a previous contract does not remedy the breach of the warranty going to its existence as at a particular date. In all the circumstances, ZX did not validly rescind the contract on the ground of LPD’s breach of general condition 2.3(d) by its notice of 23 November 2010.
[14]See Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187.
[15]Ibid [119]-[124] (Sheller, Beazley and Stein JJA); Tricontinental Corporation Ltd v HDFILtd (1990) 21 NSWLR 689, 702 (Samuels JA), 722-3 (Waddell AJA).

Did ZX affirm the contract?

If I am wrong about the character of general condition 2.3(d) and its breach should be regarded as one of an essential term, or a serious breach of a non-essential term justifying termination by ZX, or at least a breach triggering a contractual right in ZX to terminate on notice under general conditions 27 and 28, I am not persuaded by LPD’s argument that ZX elected to affirm the contract.

Regardless of whether or not it was headed ‘without prejudice’, I would not regard Schetzer Brott & Appel’s 17 November 2010 letter, asking for details of any offer to extend the settlement date, as the requisite unequivocal election to affirm.[16] Whilst Ms Wu had instructed Mr Nolan to cancel the contract when she learnt of the Ballcon contract, she had also been told of a conversation in which Mr Nolan had been assured that the contract alleged in the Ballcon caveat was an oral one which had been cancelled. Further, although the letter was sent two days after Ms Wu found out about the Ballcon contract, it referred back to the parties’ earlier discussions and sought information as to any offer by LPD to extend the time for payment of the balance of purchase money. Its wording is not consistent only with the intention to affirm the contract and might be regarded as contemplating the possibility of a fresh agreement.
[16]See Sargent v ASL Developments Ltd (1974) 131 CLR 634, 646 (Stephen J) (McTiernan ACJ agreeing)).

Schetzer Brott & Appel also wrote to Karavias & Associates on the following day. In their 18 November 2010 letter, they sought details of the Ballcon contract and evidence of its cancellation before 25 August 2010 to enable ZX to consider its position. ZX reserved its rights. If, contrary to my view, ZX would otherwise have been in a position to rescind, I would not have concluded from this letter either that it elected to affirm rather than exercise its right to terminate.

Did ZX validly rescind the contract under s 32(5) of the Sale of Land Act, and if so should LPD be excused for any breach under s 32(7)?

ZX also relies upon what it submits was its rescission of the contract under s 32(5) of the Sale of Land Act, either by its letter of 25 November 2010 or by its letter of 29 November 2010.

Section 32 of the Sale of Land Act 1962 provided:

32 Statement of matters affecting land being sold
(1) A vendor under a contract for the sale of land shall—
(a)give to the purchaser before he signs the contract a statement signed by the vendor; and

(b)       include in the contract a statement—
containing the matters specified in subsection (2). …
(2)The statements required by subsection (1) shall contain the following matters—
(a)particulars of any mortgage (whether registered or unregistered) over the land, which is not to be discharged before the purchaser becomes entitled to possession or to the receipt of rents and profits, including the particulars specified in Schedule 1;
(aa)particulars of any charge (whether registered or not) over the land imposed by or under an Act to secure an amount due under that Act, including the amount owing under the charge;
(b)a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction;
(c)in the case of land to which a planning instrument applies a statement containing—
(i)        the name of the planning instrument;
(ii)       the name of the responsible authority;
(iii)the zoning of the land under that instrument or, in a case where the land is reserved under that instrument, the purpose for which it is reserved;
(iv)where a planning instrument prohibits the construction of a dwelling house on land outside the metropolitan area, notice of such prohibition;

(ca) a warning to the following effect—
‘Important notice to purchasers:
The use to which you propose to put the property may be prohibited by planning or building controls applying to the locality or may require the consent or permit of the municipal council or other responsible authority. It is in your interest to undertake a proper investigation of permitted land use before you commit yourself to buy.’; …

(d) in any case—
(i)the amount of any rates, taxes, charges or other similar outgoings affecting the land and any interest payable on any part of those rates, taxes, charges or outgoings which is unpaid including any rates, taxes, charges or outgoings for which the purchaser may become liable in consequence of the sale and which the vendor might reasonably be expected to have knowledge of; or
(ii)a statement that the total amount of those rates, taxes, charges or other similar outgoings and interest does not exceed the sum specified; …

(3)The vendor shall attach to the statement required by paragraph (a) of subsection (1) and to the contract—
(a)a copy of (or, in the case of land under the Transfer of Land Act1958, a reproduction of, or statement of information as to, being a reproduction or statement provided by the Registrar) either—
(i)in the case of land under the Transfer of Land Act 1958 the Certificate of Title; or …

(ba)in the case of land which is the subject of a subdivision other than a subdivision referred to in paragraphs (c), (d) or (e), … where the plan has not yet been sealed or certified, a copy of the latest version of the plan, together with details of any amendments proposed to the plan and, in the case of a staged subdivision within the meaning of section 37 of the Subdivision Act 1988— …
(iv)a statement of the contents of any permit under the Planning and Environment Act 1987 authorising the staged subdivision; …

(4)Where the information required by any one of paragraphs (c), (d) or (e) of subsection (2) is contained in a certificate issued by the relevant authority it shall be sufficient compliance with the requirements of that paragraph of subsection (2) if that certificate or a copy of that certificate is attached to the statement required by paragraph (a) of subsection (1) or to the contract.

(5) Where a vendor—
(a)supplies false information to the purchaser in the statements or certificates required to be given by this section; or
(b)fails to supply all the information required to be supplied in the statements or certificates required to be given by this section—

the purchaser may rescind any contract for the sale of the land which has been entered into on the basis of that information at any time before he accepts title and becomes entitled to possession or to the receipt of rents and profits. …
(7)Notwithstanding subsection (5) the purchaser may not rescind the contract if the court is satisfied that the vendor has acted honestly and reasonably and ought fairly to be excused for the contravention and that the purchaser is substantially in as good a position as if all the relevant provisions of this section had been complied with.

Even if the vendor’s statement supplied by LPD did not comply with the requirements of s 32, ZX should not be permitted to rescind under s 32(5) because LPD had acted honestly and reasonably and ought fairly to be excused for any breach and ZX was not in any less advantageous a position as a result of the false or missing information.

I will explain my conclusion with reference to the challenges to the vendor’s statement listed in the 25 November 2010 letter. I have reached the following conclusions in relation to the matters raised by ZX in that letter:

1. LPD had no obligation to disclose the Quebec Investments Pty Ltd claim under s 32(2)(a), as its mortgage was to be discharged before or at settlement.

2. Whilst LPD had an obligation to disclose the registered charge in relation to land tax arrears under s32(2)(aa), that charge was only registered on 29 July 2010, relatively shortly before the sale of the land by the contract signed on 25 August 2010. The vendor’s statement also made it clear in other places that LPD would be responsible for payment of the land tax arrears it secured. Those arrears were disclosed in a letter from the Commissioner of State Revenue which was included in the statement. Ms Wu was aware of the outstanding amount and of LPD’s acknowledgement of its responsibility to pay it. In addition, by November 2010, LPD had also acted to remedy the breach, by giving an undertaking to the Commissioner to collect the outstanding amount of tax on his behalf.

3. Section 32(3)(ba)(iv) required a statement of the content of a planning permit in the case of a staged subdivision, but there is no evidence that the land was part of such a subdivision. Indeed, Mr Karavias said only that he did not know whether or not it was. In any event, the vendor’s statement included a planning certificate, as well as the 19 April 2007 VCAT order for Brimbank City Council to issue what was to be the permit numbered P810/2005 issued on 27 April 2007. In addition, there was a copy of the absent permit in the expressions of interest document provided to ZX in August 2010 before it entered into the contract. It would seem that ZX was alive to the issues relating to the permit because it sought additional special conditions in the contract, requiring LPD to provide it with all documents relating to the VCAT proceeding under which the permit’s conditions had been determined.

4. There was no breach of s 32(2) by the alleged misstatement of the address of the land.

5. There was no breach of the requirement of s 32(2)(d)(ii) in relation to the statement that the total amount for which the purchaser might become liable did not exceed the sum of $85,000 specified, as it did not. The vendor’s statement clearly indicated that LPD would be responsible for payment of arrears of land tax.

6. The 19 April 2007 orders of VCAT (to which ZX’s challenge would seem to refer) were included in the vendor’s statement.

7. There is no evidence of any insurance maintained by LPD required to be disclosed under s 32(2)(g).

8. There was no apparent breach of s 32 with regard to the inclusion of warnings in the vendor’s statement or the alleged failure to refer to Brimbank City Council land affected by the s 173 agreement.

9. Whilst s 32(2)(e) might be regarded as requiring the inclusion of an EPA Priority Sites Register Extract, the extract from the Register dated 25 November 2010 does not establish that there was any information relating to a relevant matter affecting the land as at the date of the contract. Indeed, other extracts in evidence, dated 11 November 2003 and 25 July 2005, show that the land had previously been described as not listed on or in the vicinity of a site listed on the Register in relation to the presence of contaminants. The later extract, dated 21 December 2010, shows a similar record. I note, too, that the Melways reference for the site the subject of the extract dated 25 November 2010 differs from that given in each of the three other certificates, supporting Mr Karavias’ opinion that, before the matter was rectified at his instigation on behalf of LPD, the Register did not properly record the land as subdivided, and his view that EPA certificates were being supplied which related to adjoining land.

In its letter of 29 November 2010, ZX reduced the number of challenges to the vendor’s statement to three: those relating to the alleged non-disclosure of the statutory charge for land tax, the absence of the planning permit and the failure to include the erroneous EPA extract in its solicitors’ 29 November 2010 letter to Karavias & Associates. I have dealt with each of those matters already.

Should ZX be prevented from rescinding under s 32(7)?

Even if LPD did breach s 32 of the Sale of Land Act by failing to disclose the land tax charge, it should not be permitted to rescind under s 32(5) because, in my view, it ought to be excused for any breach under s 32(7).

There are four matters about which I must be satisfied under s 32(7) in order to prevent ZX from rescinding the contract under s 32(5), namely that:

1.LPD acted honestly;
2.it acted reasonably;
3.it ought fairly to be excused the contravention; and
4.ZX was in substantially as good a position as if all the relevant provisions of s 32 had been complied with.

I am not persuaded that LPD should be regarded as having acted dishonestly for the purposes of s 32(7), in the sense that it acted dishonestly in relation to any contravention of s 32. ZX argues that it acted dishonestly because it had failed to disclose the Ballcon contract before ZX entered into the contract. I disagree. Section 32 requires the disclosure of prescribed matters, and on balance, in the absence of reference to any relevant authority to the contrary, I prefer the view that it is in relation to the disclosure of those matters that I must be satisfied that the vendor acted honestly. As I understand it, ZX does not argue that s 32 required a reference to the existence of the Ballcon contract.

ZX also submits that LPD acted dishonestly because the vendor’s statement included a material falsehood in that it failed to refer to the land tax charge. It was asserted on behalf of ZX that Ms Wu’s unchallenged evidence was that ZX would not have entered into the contract if she had known of the charge. Ms Wu said that if land tax was not paid, it meant that a company was not trustworthy. She went on to say that ZX would not have entered into the contract if it had been made clear to her that the total amount of rates and the like exceeded $100,000. I am not persuaded that ZX would not have entered into the contract had it known of the land tax charge. Ms Wu knew from the vendor’s statement both the amount of the arrears of land tax and of LPD’s undertaking to pay them.

The charge was registered only on 29 July 2010. Whilst Karavias & Associates might have updated the search in the vendor’s statement to refer to the charge in compliance with s 32(2)(a), they did disclose all relevant details about the tax arrears and noted LPD’s responsibility to pay them. Mr Agosta left all legal aspects of the sale of the land to Mr Karavias. In the circumstances, I am satisfied that LPD itself acted honestly.

LPD would also appear to have acted reasonably. Mr Agosta was aware of the land tax arrears, which he said were caused by LPD’s financial difficulties. He did not consider them significant because they were to be paid out of monies to be received at settlement of the sale of the land. It would seem that it is LPD’s conduct which is to be assessed and any negligence on the part of its solicitors not attributed to it.[17]
[17]Fifty-Eighth High Wire v Cohen [1996] 2 VR 64, 77 (Charles and Callaway JJA).

I am able to take into account LPD’s subsequent behaviour when considering whether ZX is in substantially as good a position as if LPD had complied with all the relevant provisions.[18] Mr Karavias had, by November 2010, provided an undertaking to the Commissioner of State Revenue to collect the outstanding land tax at the settlement of the sale. Bearing in mind that undertaking and also what was revealed by the vendor’s statement in relation to the arrears and LPD’s undertaking to meet them, I am satisfied that ZX was in substantially as good a position as it might have been had LPD complied with s 32(2)(a). I am not persuaded by the argument to the contrary based upon the possibility that a lower price might have been successfully negotiated in all the circumstances. ZX remained prepared to buy the land for $15 million when it attempted to renegotiate the sale after purporting to rescind the contract. ZX should not be permitted to rescind the contract under s 32(5) of the Sale of Land Act.
[18]Ibid 74 (Brooking JA (Callaway and Charles JJA agreeing)).

Did ZX rescind the contract on the grounds of LPD’s fraudulent misrepresentation at common law?
Was the misrepresentation fraudulent?

ZX also claims that LPD should be deemed under s 13 of the Sale of Land Act to have fraudulently misrepresented that it had not previously sold the land. It argues that LPD has not fulfilled its onus to prove that it had reasonable grounds to believe and did believe that its representation in general condition 2.3(d) was true, or that it had no reason to suspect that it was false or that it otherwise acted innocently. I agree. I am satisfied that LPD should be deemed to have made the misrepresentation fraudulently, knowing as it did that it had previously entered into the Ballcon contract. Even if I were satisfied that the Ballcon contract parties had agreed that it could be cancelled by LPD if Ballcon had not obtained the necessary finance to complete and LPD had found another buyer, there would have been insufficient evidence to persuade me that LPD had satisfied its onus.

Did ZX rescind for fraudulent misrepresentation?

ZX then submits that it rescinded the contract by its notice of 29 November 2010 on the basis of LPD’s fraudulent misrepresentation inducing it to enter the contract. On one view of it, by 29 November 2010, ZX had been faced with what might be regarded as two inconsistent options with regard to the available remedies for the misrepresentation. It could have chosen to avoid the contract or to pursue contractual remedies.

ZX had been notified of the Ballcon caveat on 15 November 2010. It had elected to pursue its contractual remedies for breach of the contract and statutory remedies for breach of s 32 of the Sale of Land Act, neither of which was consistent with rescission or termination of the contract ab initio on the grounds of the tortious fraudulent misrepresentation.[19] Relying upon the breach of general condition 2.3(d), ZX had served the 23 November 2010 rescission notice, giving LPD time to cure its default and seeking the return of the deposit under general condition 28. Its solicitors had also written their 25 November 2010 letter purporting to rescind under s 32(5). Ms Wu affirmed that the relevant letters were sent with her authority.
[19]See Alati v Kruger (1955) 94 CLR 216, 222 (Dixon CJ, Webb, Kitto and Taylor JJ).

On discovering the misrepresentation which might have given rise to the right to rescind under the law of tort for deceit, Ms Wu instructed ZX’s solicitors to cancel the contract. ZX was fixed with the knowledge of its solicitors and was bound by their acts taken on its behalf, because it had authorised them to carry out the conveyance. What Stephen J said of a vendor in Sargent v ASL Developments Ltd[20] is equally applicable to a purchaser such as ZX:

Again, where a vendor so arranges matters that his solicitor undertakes on his behalf the carrying out of a conveyancing transaction as a whole he thereby not only authorises his solicitor to perform all necessary steps but also places the solicitor in the position of acquiring at first hand knowledge of relevant facts, at the same time depriving himself of the opportunity of acquiring such first hand knowledge. If any such steps taken by the solicitor happen to constitute acts of affirmation of the continued existence of the contract they will be binding upon the client. If they be unequivocal and are performed at a time when the solicitor has himself acquired knowledge of facts giving rise to a right to rescind the contract the client will, without the need to attribute to him the knowledge of his solicitor, be bound by those acts of affirmation as on an election; the duly authorized conduct of the solicitor, who has acquired the relevant knowledge, will, without either conduct or knowledge on the client’s part, constitute an effective election not to rescind the contract. [Footnotes omitted].[21]

[20](1974) 131 CLR 634.

[21]Ibid 649 (McTiernan ACJ agreeing), citing Provincial Insurance Co. of Canada v. Leduc (1874) LR 6 PC 224, 239; Hough v. Guardian Fire and Life Assurance Co. Ltd. (1902) 18 TLR 273; Ayrey’s Case [1918] 1 KB, 142.

Accordingly, ZX did not rescind the contract on the ground of LPD’s fraudulent misrepresentation by its 29 November 2010 notice and the contract was still on foot when LPD itself later purported to rescind.

Did LPD validly terminate the contract?

LPD relies upon its 11 February 2011 notice to complete and its 8 March 2011 notice of rescission to argue that it validly terminated the contract and that ZX forfeited the deposit on the grounds of its failure to complete. I am not persuaded that LPD did bring the contract to an end as it purported to do under general conditions 27 and 28.

Did the notice to complete make time of the essence?

Whilst general condition 16 of the contract made time of its essence, this had ceased to be the case after the 3 December 2010 settlement date. LPD might have unilaterally fixed another date for settlement by service of a notice to complete, provided that the notice gave ZX the requisite reasonable time to comply.[22] What constitutes a reasonable time is a question of fact to be judged at the time when notice is served.[23] The onus is on the party giving the notice to establish that a reasonable time has been allowed. It will be significant whether sufficient time has been allowed for the performance of any acts which need to be done.[24] It has been held that there must be strong evidence to justify a notice allowing for less than 14 days for completion of a contract for the sale of land.[25]
[22]See McNally v Waitzer [1981] 1 NSWLR 294.
[23]Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 638-9 (Mason CJ), 645 (Brennan J).
[24]Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214, 220 (Derrington J).
[25]Sindel v Georgiou (1984) 154 CLR 661, 670 (Mason, Murphy, Wilson, Brennan and Dawson JJ).

ZX’s solicitors objected that the notice to complete served on 15 February 2011 only allowed three business days for outstanding matters under the contract to be dealt with. Clearly, this period was not reasonable in the circumstances. Time was not again made of the essence of the contract. Insofar as the rescission notice relied upon the date for completion fixed by the notice to complete, it was ineffective.

Did rescission notice terminate the contract on an alternative ground?

LPD argues that the rescission notice could nevertheless operate to terminate the contract by accepting ZX’s repudiation.

LPD maintains that ZX had repudiated the contract by:

· its purported rescission notices of 23 and 25 November 2010;

· its alleged statements in early November 2010 and February 2011 to LPD that it could not complete the contract; and

· its failure to pay the balance of purchase price by 3 December 2010 or at all.

Indeed, LPD argues that each of the notice to complete and the rescission notice was sufficient to indicate LPD’s acceptance of ZX’s repudiation.

LPD had expressly affirmed the contract in Karavias & Associates’ letter of 7 December 2010 to ZX’s solicitors. Karavias & Associates had then written to ZX’s solicitors again on 8 December 2010, indicating LPD’s willingness to extend settlement on specified terms, once again affirming the contract in the context of ZX’s failure to pay the balance of purchase monies on the due date of 3 December 2010.

Whilst I am not persuaded that ZX stated in early November 2010 or February 2011 that it could not complete the contract, its conduct after its unsuccessful attempts to rescind indicated that it would not perform its obligations under the contract and that it sought only to negotiate a fresh one. In the circumstances, it had repudiated the contract.

I am not however persuaded that LPD accepted that repudiation, as it submits. The notice to complete affirmed the contract by insisting on performance. LPD therefore cannot avail itself of the authority supporting the proposition that a contracting party who gives a wrong reason for refusal to perform a contractual obligation can rely upon a justification which did exist when it purported to rescind.[26]
[26]See Nund v McWaters [1982] VR 575, 585 (Brooking J (Stark and Murphy JJ agreeing)).

What was the effect of the caveats?

I also note that, if it had been necessary to decide the question, I would not have been satisfied by the presence of the caveats on the title to the land that LPD was not ready willing and able to complete the sale. There was ample evidence that the caveators would have agreed to withdraw their caveats in return for money, as they had previously agreed to do in relation to the 3 December 2010 settlement date under the contract. Indeed, they provided withdrawals of caveat at the date of settlement of the Foundry Road contract on 29 June 2011.[27]
[27]LPD might also have applied for the removal of the caveats under s 90(3) of the Transfer of Land Act 1958: see Wright v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1993] 1 VR 502.

Alleged failure to supply GST invoice

ZX challenges the notice to complete and rescission notice on another basis. It argues that it was not obliged to pay the balance under the contract because LPD had not provided it with a GST tax invoice to trigger its obligations to pay under general condition 13.3. I have found that LPD did indeed provide a GST invoice calculating the tax payable on the basis of a purchase price of $15 million. That invoice was provided before the service of the notice to complete on about 13 September 2010.

Did LPD repudiate the contract by the Foundry Road sale?

ZX argues that LPD repudiated the contract by entering into the Foundry Road contract within the 14-day period provided for settlement under its 8 March 2011 rescission notice. This argument must fail. The Foundry Road contract was conditional upon the termination of the contract.

Is ZX entitled to relief under the Trade Practices Act 1974 (Cth)?
Did LPD contravene s 52 and s 53A?

I am satisfied that LPD contravened each of s 52 and s 53A of the Trade Practices Act by making the misrepresentation that induced ZX to enter the contract.

The relevant provisions of the Trade Practices Act, as at the time of the misrepresentation, were:

52 Misleading or deceptive conduct
(1)A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
53AFalse representations and other misleading or offensive conduct in relation to land
(1)A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land:
…
(b)make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land; or

…
(3)In this section, interest, in relation to land, means:
(a)a legal or equitable estate or interest in the land;

82 Actions for damages.
(1)Subject to subsection (1AAA), a person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

87 Other orders
(1)Subject to subsection (1AA) but without limiting the generality of section 80, where, in a proceeding instituted under this Part…the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA, IVB, V or VC, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 82, 86C, 86D or 86E, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
…
(2)The orders referred to in subsection (1) and (1A) are:
(a)an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct,… to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order;

…
(c)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;
(d)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage; …

LPD’s misrepresentation was a clear and unambiguous one as to an existing fact and amounted to misleading or deceptive conduct within the meaning of s 52. It was made in connection with the sale of LPD’s interest in the land. It was also a false or misleading characterisation of that interest: to the extent that the Ballcon contract gave Ballcon an equitable interest or equity binding LPD which was not disclosed. It also contravened s 53A(1)(b) in the circumstances.

Is ZX entitled to relief under the Trade Practices Act?

ZX seeks the return of the deposit by way of damages under s 82 of the Trade Practices Act. If it had lost the deposit as a result of its entry into the contract in reliance upon the misrepresentation contravening s 52 or s 53A, causation for the purposes of relief under s 82 would be established. The misrepresentation would not need to be the only cause of the loss and it would be enough if it played some part in inducing entry into the contract.

I am satisfied that ZX would not have entered into the contract if it had known of the Ballcon contract and that it was indeed induced to enter the contract as a result of LPD’s misrepresentation. I was not persuaded to doubt Ms Wu’s evidence in this regard on the basis that ZX later sought to negotiate to buy the land after finding out about the previous sale.

ZX must prove loss caused by the misrepresentation before it can recover compensation for that loss by way of damages under s 82.[28] As LPD did not validly terminate the contract unilaterally, forfeiting the deposit under general condition 28, I am not satisfied that ZX has yet suffered its loss. It has, however, lost interest on the deposit from the date of its payment on 25 August 2010 and is entitled to damages for that sum under s 82.
[28]Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ).

ZX seeks a declaration under s 87 that the contract is rescinded ab initio. In the circumstances, I am persuaded that it is appropriate in the exercise of the Court’s discretionary power under s 87 to grant that relief to in light of ZX’s disadvantageous position as a party to the contract it entered in reliance upon LPD’s misrepresentation.[29]
[29]See Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608, 621 (Gummow J (Black CJ and Cooper J agreeing).

Insofar as LPD seeks to rely upon alleged affirmation of the contract by ZX in relation to the availability of the remedy sought under s 87, I note that rescission of the contract under that provision is the act of the Court and not a right of the misled party. Whilst the factual circumstances as a whole would be taken into account when determining whether the deposit should be returned, the Court would not have been precluded from granting rescission under s 87 by any affirmation of the contract on the part of ZX.[30] In any event, I have already indicated my conclusion that ZX did not affirm the contract after it discovered the Ballcon caveat and the Ballcon contract and the fact that it had been misled.
[30]Byers v Dorotea Pty Ltd (1986) 69 ALR 715, 730 (Pincus J).

I will declare under s 87(2)(a) that the contract is and has been at all relevant times void ab initio. I will also order LPD to refund the deposit to ZX under s 87(2)(b) of the Trade Practices Act.

I will hear the parties as to the form of orders and in relation to costs.

[2013] VSC 542

17 October 2013