Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Scott v Ennis-Oakes [2020] NSWCA 239 Hearing dates: 7 May 2020 Decision date: 01 October 2020 Before: Bathurst CJ at [1]; Bell P at [61]; Gleeson JA at [64] Decision: (1) Appeal dismissed. (2) Order the appellants pay the respondent's costs of the appeal. Catchwords: LAND LAW – Conveyancing – Contract for sale – Rescission – Respondent wished to rescind contract – Appellants did not consent to proposed rescission and maintained contract was "still on foot" – Appellants elected to affirm contract rather than terminating and seeking loss of bargain damages – Appellants sought orders for specific performance – Respondent subsequently entered into a Scheme of Arrangement Deed and sought to rescind the contract on this basis – Appellants sought loss of bargain damages – Whether contract came to an end because of supervening circumstances – Whether appellants entitled to loss of bargain damages at the time when respondent terminated contract on basis of entering into Scheme of Arrangement. Legislation Cited: Conveyancing Act 1919 (NSW) Cases Cited: Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 Dominion Coal Co Ltd v Dominion Iron and Steel Co Ltd [1909] AC 293 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Heyman v Darwins [1942] AC 356 Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25 Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 Re Gibbs and Houlder Bros & Co Limited's Lease [1925] Ch 198 Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 Sibbles v Highfern Pty Ltd (1988) 164 CLR 214 at 227; [1987] HCA 66 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11 The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547 Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW [1999] NSWCA 125 Category: Principal judgment Parties: Kylie Anne Scott (first appellant) Bradley John Scott (second appellant) Nicole Rae Ennis-Oakes (respondent) Representation: Counsel: A D Crossland with M Cobb-Clark (appellants) J C Kelly SC with M F Newtown (respondent) Solicitors: Gavin Parsons & Associates (appellants) Dentons (respondent) File Number(s): 2019/305409 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2019] NSWSC 1257 Date of Decision: 23 September 2019 Before: Darke J File Number(s): 2017/232666 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] Kylie Anne Scott and Bradley John Scott (the appellants) appealed against orders made by the primary judge dismissing a claim brought by them against the respondent, Nicole Ray Ennis-Oakes (the respondent) for damages arising out of the termination of a contract for sale by the respondent to the appellants of a lot in a proposed subdivision of the respondent's property. The contract was in the standard Law Society/Real Estate Institute form supplemented by certain Additional Conditions. Additional Condition 35 provided that completion of the contract was to take place within 42 days of the date of the contract or 21 days of receipt of notice by the purchasers' solicitors of the date of the registration of the subdivision plan, whichever was the later. Additional Condition 36.3 provided that the vendor "must do everything reasonable to have the plan registered" within 12 months after contract date and if the plan is not registered within that time, the purchaser or the vendor can rescind. Additional Condition 37(b) provided that "37 Rights Upon Death, Mental Illness, Bankruptcy Without any manner negating limiting or restricting any rights or remedies which would have been available to either party at law or in equity had this clause not been included herein should the other party or anyone of them prior to completion: … (b) be declared bankrupt or enter into any scheme or make any assignment for the benefit of creditors; or … then the either party may at any time thereafter rescind this contract by notice in writing served upon the other party whereupon the provisions of Condition 19 shall apply." The primary judge found that the subdivision plan had never been registered. Pursuant to Additional Condition 36.3, the respondent wished to rescind the contract. The solicitor for the appellants indicated to the respondent that their clients did "not consent to the proposed rescission". The solicitors for the respondent subsequently sent a letter to the appellants purporting to terminate the contract pursuant to Additional Condition 36. In response, the appellants' maintained that the contract "is still on foot". On 31 July 2017 the appellants commenced proceedings the subject of this appeal seeking orders for specific performance, including orders compelling the respondent to bring about the registration of the subdivision plan. On 3 October 2017 the respondent filed a defence alleging that performance of the contract was impossible. On 12 November 2017 the respondent entered into a Scheme of Arrangement Deed (the Deed) and subsequently sought to rescind the contract pursuant to Additional Condition 37(b). The appellants initially stated that the Deed was a sham and maintained their claim for specific performance which was later abandoned. The primary judge accepted the submission that this reflected an acceptance by the appellants of the validity of the claimed rescission. In a further amended statement of claim, the appellants sought loss of bargain damages based upon an alleged breach of Additional Condition 36.2 and the alleged repudiations of the contract in April and June 2017. The primary judge concluded that there was "no proper basis" for the appellants to claim loss of bargain damages. The primary judge noted that the failure of the appellants to terminate the contract meant that "the contract remained on foot for the benefit of both parties". He stated that "[s]upervening circumstances then arose which operated to discharge the contract, namely, the circumstances underpinning the rescission" pursuant to Additional Condition 37. The appellants relied on four grounds of appeal. (1) Whether the primary judge erred in concluding that the appellants' claim for loss of bargain damages was precluded by clear statements of principle? (2) Whether the primary judge erred in finding that the contract came to an end because of supervening circumstances? (3) Whether the primary judge erred in failing to conclude that when the respondent terminated the contract pursuant to Additional Condition 37, the appellants became entitled to loss of bargain damages? (4) Whether the primary judge erred in failing to conclude that Additional Condition 37 permitted the appellants to sue for loss of bargain damages? Whether error in concluding that appellants' claim for loss of bargain damages precluded by principle (i) The primary judge did not err in concluding that the appellants' claim for loss of bargain damages was precluded by clear statements of principle. It is clear that a right to claim loss of bargain damages arises on termination of the contract by the innocent party. Until the contract is terminated by the innocent party, it remains on foot and no right to loss of bargain damages arises: [37]-[41], [44] (Bathurst CJ); [61]-[63] (Bell P); [64] (Gleeson JA). Heyman v Darwins [1942] AC 356; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11; Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164; Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14; Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 referred to. Whether error in finding contract came to an end because of supervening circumstances (ii) The primary judge did not err in finding that the contract was terminated by a supervening event, namely the entry by the respondent into a scheme of arrangement which gave rise to the right to terminate under Additional Condition 37. The contract came to an end not as a result of termination for breach of a contractual term or repudiation, but rather, as a result of a supervening event which occurred whilst the contract remained on foot: [42]-[44] (Bathurst CJ); [61]-[63] (Bell P); [64] (Gleeson JA). Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25; Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547 referred to. Whether error in failing to conclude that the appellants became entitled to loss of bargain damages when the respondent terminated the contract pursuant to Additional Condition 37 (iii) The primary judge did not err in failing to conclude that the appellants became entitled to loss of bargain damages when the respondent terminated the contract pursuant to Additional Condition 37. The appellants elected to affirm the contract and seek specific performance rather than terminating and seeking loss of bargain damages. In these circumstances, at the time of termination, the appellants had no right to loss of bargain damage: [53]-[59] (Bathurst CJ); [61]-[63] (Bell P); [64] (Gleeson JA). Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 referred to. Whether error in failing to conclude that Additional Condition 37 permitted the appellants to sue for loss of bargain damages (iv) The primary judge did not err in failing to conclude that Additional Condition 37 permitted the appellants to sue for loss of bargain damages. Once the contract had been terminated pursuant to Additional Condition 37, there was no contract to terminate and thus no right to loss of bargain damages: [53]-[59] (Bathurst CJ); [61]-[63] (Bell P); [64] (Gleeson JA). Judgment 1. BATHURST CJ: This is an appeal from orders made by a judge of the Equity Division of the Court (the primary judge) dismissing a claim brought by the plaintiffs, Kylie Anne Scott and Bradley John Scott (the appellants) against the respondent, Nicole Ray Ennis-Oakes (the respondent) for damages arising out of the termination of a contract for sale by the respondent to the appellants of a lot in a proposed subdivision of the respondent's property in Vicary Road, Terrigal (the property). 2. The contract which was dated 9 June 2015 was in the standard Law Society/Real Estate Institute form (2014 edition) supplemented by certain Additional Conditions. Of relevance for present purposes is cl 19.2 of the standard form of contract which is in the following terms: "19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation- 19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded; 19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession; 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses." 1. Additional Condition cl 32.2 (AC 32.2) provided that if there was any inconsistency between the additional conditions and the standard conditions, the additional conditions would prevail. 2. Additional Condition 35 (AC 35) provided that completion of the contract was to take place within 42 days of its date or 21 days of receipt of notice by the purchasers' solicitors of the date of the registration of the subdivision plan referred to in Additional Condition 36 (AC 36), whichever was the later. AC 36 so far as relevant was in the following terms: "36.2 The Vendor will as soon as practicable and with due expedition lodge such plan for the approval of the proper authority or authorities and for registration at the Land and Property Information NSW as a Deposited Plan and all costs and expenses of and incidental to the preparation, approval and registration of the said plan shall be borne by the Vendor. If registration is not affected within twelve (12) months of the date of this contract then either party shall have the right by notice in writing to the other to rescind this Contract whereupon the deposit shall be refunded by the Vendor to the Purchaser and neither party shall have any claim whatsoever, the one against the other. 36.3 The Vendor must do everything reasonable to have the plan registered, within twelve (12) months after contract date with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation. If the plan is not registered within that time and in that manner: (a) the Purchaser can rescind; and (b) the Vendor can rescind. 36.4 If the Vendor is prevented by force majeure from having the plan registered within twelve (12) months after the Contract date, the Vendor shall be entitled to rescind." 1. Additional Condition 37 (AC 37) provided as follows: "37 Rights Upon Death, Mental Illness, Bankruptcy Without any manner negating limiting or restricting any rights or remedies which would have been available to either party at law or in equity had this clause not been included herein should the other party or anyone of them prior to completion: (a) die or become mentally iII; or (b) be declared bankrupt or enter into any scheme or make any assignment for the benefit of creditors; or (c) being a Company, resolve to go into liquidation, have a winding up petition presented against it, enter into any scheme of arrangement with its creditors or have a liquidator, receiver, official manager or administrator appointed; then the either party may at any time thereafter rescind this contract by notice in writing served upon the other party whereupon the provisions of Condition 19 shall apply." Background facts 1. A development application in respect of the proposed subdivision was lodged with Gosford City Council on 19 August 2014 and development approval issued on 22 December 2015. However, the plan of subdivision was not registered within 12 months of the date of the contract, the primary judge finding that it had never been registered. 2. On 12 April 2017 the respondent's conveyancer, relying on AC 36.3, noted that the vendor had been "unable to achieve the registration of the plan" and proposed to rescind the contract. The notice stated that the vendor would "after 28 days exercise their right of rescission" and following consent of the purchaser would authorise the deposit to be refunded. 3. On 15 May 2017 the solicitors for the appellants sent a letter to the respondent's conveyancer stating that their clients did "not consent to the proposed rescission", reminding them that s 66ZL of the Conveyancing Act 1919 (NSW) provided that rescission under a provision such as AC 36.2 required either the express written consent of their clients or an order from the Supreme Court of NSW permitting such rescission. It was not in issue in these proceedings that this contention was correct. 4. On 14 June 2017 the solicitors for the respondent sent a letter to the appellants and their solicitors purporting to terminate the contract in accordance with AC 36.2. 5. On 10 July 2017 the appellants' solicitors sent a letter to the respondent's solicitors which included the following comments: "We refer to our correspondence, including your letter dated 14 June 2017. Our client's position is as follows: 1. The contract entered into between our respective clients for sale of the land is still on foot. That being the case, your clients are obliged, pursuant to cl 35 of the contract's 'Additional Conditions', to complete the sale within 21 days of our client's solicitor on the conveyance (Sandra Miller Conveyancing) receiving notice of the date of the registration of the subdivision." 1. On 18 July 2017 the respondent's solicitors wrote stating that the respondent did not accept that the contract was on foot and had arranged for a repayment of the deposit. However, in circumstances where the appellants maintained the contract was still on foot, the funds were transferred into a controlled monies account operated by the appellants' solicitors. 2. On 31 July 2017 the appellants commenced the proceedings the subject of this appeal seeking orders in the nature of specific performance of the contract, including orders compelling the respondent to bring about the registration of the plan of subdivision. On 3 October 2017 the respondent filed a defence alleging that performance of the contract was impossible. The defence did not include an allegation that the contract had been rescinded. 3. On 12 November 2017 the respondent entered into a Scheme of Arrangement Deed (the Deed) with Philnic Holdings Pty Ltd and Philip Oakes. His Honour found that Philnic Holdings Pty Ltd was the trustee of the Ennis-Oakes Family Trust. He inferred that Philip Oakes was the respondent's husband. 4. On 14 December 2017 the respondent's solicitors sent a letter to the appellants' solicitors enclosing a copy of the Deed and stating that the respondent intended to rely upon AC 37(b) of the contract. 5. On 21 December 2017 the respondent's solicitors sent a notice of rescission to the appellants and their solicitors in which the following was stated: "We are instructed and hereby rescind the contract for sale of land between Nicole Oakes and Kylie Anne Scott and Bradley John Scott dated 9 June·2015 (Contract), pursuant to Additional Condition 37 of the Contract." 1. On 15 February 2018 the respondent filed an amended defence which included an allegation that the contract had been brought to an end on 20 December 2017 pursuant to AC 37. 2. The appellants initially took issue with that allegation denying the contract had been rescinded pursuant to AC 37 and stating that the Deed was a sham. They maintained their claim for specific performance, although by their amended statement of claim filed on 15 March 2018 they sought, in the alternative to specific performance, damages for breach of contract including breaches of AC 36.2 and AC 36.3. 3. However, on 18 July 2019 the appellants' solicitors sent a letter to the respondent's solicitors in the following terms: "We refer to the notice of rescission contained in your letter dated 21 December 2017. Our clients accept that that notice was valid and the contract of sale entered into by our mutual clients was thereby validly rescinded. It follows that in the proceedings, our clients no longer seek an order for the specific performance of the contract. The only relief they seek in the proceedings is damages. For abundant clarity, our clients do not accept the validity of the notice of the rescission dated 14 June 2017 or that your client had a right to rescission at that time or for reasons set out in that notice dated 14 June 2017. As you are aware, our firm has held on trust the funds returned by your client in July 2017 (consisting of the deposit under the contract for sale and a portion of landscaping costs incurred by our clients). Given the above, our firm will deal with the funds in accordance with our clients' instructions." 1. By a further amended statement of claim filed on 21 August 2019, the appellants' claim for specific performance was abandoned. The primary judge accepted the submission that this reflected an acceptance by the appellants of the validity of the claimed rescission. The only relief sought was damages for breach of contract. 2. At the commencement of the hearing, the appellants further amended their statement of claim adding allegations that the respondent repudiated the contract on either 12 April 2017 and/or 14 June 2017. Ultimately the appellants' claim for damages rested upon an alleged breach of AC 36.2 and the alleged repudiations of the contract by the respondent in April and June 2017. 3. The primary judge concluded and it is not disputed, that the appellants sought loss of bargain damages. The primary judgment 1. The primary judge concluded that there was "no proper basis" for the appellants to claim loss of bargain damages. He stated that the claim was precluded by the application of clear statements of principle made by the High Court in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260-261; [1988] HCA 11 to the effect that an entitlement to loss of bargain damages requires termination of the contract due to the defendant's wrongful conduct. He noted that the same conclusion had been reached by this Court in Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW [1999] NSWCA 125 per Sheller JA at [48] with whom Priestley and Stein JJA agreed. 2. The primary judge stated that even if it was assumed in favour of the appellants that the conduct of the respondent was wrongful such that the appellants could have terminated the contract, "their failure to do so meant that the contract remained on foot for the benefit of both parties". He stated that "[s]upervening circumstances then arose which operated to discharge the contract, namely, the circumstances underpinning the rescission" pursuant to AC 37. 3. The primary judge noted that the provisions of condition 19 applied to a rescission of the contract under AC 37 and that cl 19.2.3 expressly enabled a party to claim damages arising out of a breach of contract. However, he concluded that cl 19.2.3 should not be read as to provide for a right to claim loss of bargain damages as the clause operated only where the contract has come to an end by the exercise of a right to rescind. He stated that the clause operated to permit the pursuit of a claim for damages that had accrued by the time of the rescission. By contrast, he concluded that a claim for loss of bargain damages only accrues where the contract had been terminated due to the wrongful conduct of the defendant. 4. The primary judge also concluded that the appellants had not established that the respondent had breached AC 36.2 although he concluded that the defendant's purposed rescission of the contract on 14 June 2017 amounted to repudiation of the contract. The grounds of appeal 1. The appellants relied on the following grounds of appeal: "1. That the primary judge erred in failing to conclude that when the respondent terminated the contract for sale of land entered into by the parties on 9 June 2015 (the Contract) pursuant to Additional Condition (AC) 37 of the Contract (the Termination Step), the appellants became entitled to loss of bargain damages. 2. That the primary judge erred in failing to conclude that AC 37 had the effect of permitting the appellants to sue for loss of bargain damages following the Termination Step. 3. That the primary judge erred in concluding that the appellants' claim for loss of bargain damages was precluded by clear statements of principle made by the High Court of Australia and applied by this Court ([27] of the Reasons). 4. That the primary judge erred in finding that the Contract came to an end because of supervening circumstances ([38] of the Reasons)." 1. It should be noted that the appellants did not assert on the appeal that the primary judge was incorrect in concluding that the respondent did not breach AC 36.2 of the contract. Further, it was common ground between the parties on the appeal that the purported rescission of 14 June 2017 amounted to a repudiation of the contract. The parties' submissions Grounds 3 and 4 The appellants 1. Although the submissions at the hearing focussed primarily on grounds 1 and 2, it is convenient first to deal with grounds 3 and 4 which do not turn on the construction of AC 37. 2. The appellants in their written submissions submitted what they described as the absolute statement by the primary judge that there could be no claim for loss of bargain damages unless the subject contract is brought to an end by the innocent party by acceptance of the promisor's breach was inconsistent with what was said by the High Court in Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 (Tabali). It was submitted that in Tabali an order was sought for possession of premises pursuant to a covenant in a lease permitting re-entry and taking of possession for non-payment of rent which was submitted to be different from a right to rescind under general law for breach of a fundamental term. The appellants noted that Mason J, with whom Wilson, Deane and Dawson JJ agreed, found that the conduct of the lessee amounted to a repudiation of the lease and the lease having been brought to an end by reason of re-entry for forfeiture, the lessee was liable for loss of bargain damages. 3. The appellants submitted that it followed that there was no necessary nexus between the claim for loss of bargain damages and termination for repudiation. They referred to the statements made by Mason J in Tabali at 31 that the "essential foundation [for loss of bargain damages] may be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power to do so. 4. The appellants submitted, referring to what was said by McLelland J in The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547, that the reason there was no need for a nexus between loss of bargain damages and termination for repudiation is that the relevant cause of action arose not on termination but on the repudiation itself. They submitted, referring to what was said by McLelland J at [15], that the significance of termination for loss of bargain damages lies not in the termination giving rise to the cause of action but rather in the fact that "until the contract is terminated, it cannot always be predicted that the party in breach will not remedy the breach … But if, ultimately, the contract is terminated, so that thereafter the breach is incapable of being remedied by performance of the relevant obligation, then damages may be assessed on that basis; but the cause of action still remains the same breach". 5. It was submitted that it follows from what was said in that case that all that was necessary for the claim for loss of bargain damages was for the contract to have come to an end which it did as a consequence of the respondent's rescission pursuant to AC 37. 6. So far as the authorities relied upon by the primary judge were concerned, the appellants submitted that what was said by Sheller JA in Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW at [47]-[51] "may be inconsistent with later decisions of this Court". They did not identify those later decisions. So far as Sunbird Plaza v Maloney was concerned, they submitted that the Court was not required to decide whether the only method of bringing the contract to an end to allow the vendors to sue for loss of bargain damage was termination for breach. They submitted that the decision was that there could be no loss of bargain damages whilst an order for specific performance remained undischarged and the contract was on foot. They submitted statements to broader effect made by Mason J and Gaudron J were obiter. They made similar submissions in respect of the statement of principle made by Nettle, Gordon and Edelman JJ in Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164 at [196]. 7. The appellants also submitted that the decision of the Privy Council in Dominion Coal Co Ltd v Dominion Iron and Steel Co Ltd [1909] AC 293 did not support the conclusion reached by the primary judge. Counsel for the appellants submitted at the hearing that in that case, although there had not been an election to terminate the agreement, the plaintiff, having been held to be not entitled to specific performance, was entitled to damages for loss of its bargain. However, this was a case where the contract had been brought to an end as a result of the respondent's refusal to perform its obligations. 8. So far as ground 4 is concerned, it was submitted that the circumstances underlying the rescission were not supervening circumstances which operated to discharge the contract. Rather, it was submitted that what brought the contract to an end was the respondent's rescission pursuant to AC 37. It was submitted, particularly having regard to the opening words of AC 37, that it would be "wrong" to treat that rescission as barring the appellants' claim for loss of bargain damages. The respondent 1. It is unnecessary to set out the respondent's submissions on these grounds in any detail. Put shortly, it was submitted that the authorities relied on by the primary judge not only justified but compelled the conclusion he reached. Consideration 1. In my opinion, the conclusion reached by the primary judge was clearly correct. 2. It is clear that a right to claim loss of bargain damages, whether for wrongful repudiation as alleged in the present case, anticipatory breach or breach of a condition arises on termination of the contract by the innocent party. On such termination, both parties are absolved from future performance of the contract and the defaulting party comes under what has been described as a secondary obligation to compensate the innocent party for the loss of the bargain. However, until the contract is terminated by the innocent party, it remains on foot and no right to loss of bargain damages arises. The position was summarised by Viscount Simon LC in Heyman v Darwins [1942] AC 356 at 361 in the following terms: "If one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further, the other party has an option as to the attitude he may take up. He may, notwithstanding the so-called repudiation, insist on holding his co-contractor to the bargain and continue to tender due performance on his part. In that event, the co-contractor has the opportunity of withdrawing from his false position, and even if he does not, may escape ultimate liability because of some supervening event not due to his own fault which excuses or puts an end to further performance: a classic example of this is to be found in Avery v. Bowden. Alternatively, the other party may rescind the contract, or (as it is sometimes expressed) 'accept the repudiation,' by so acting as to make plain that in view of the wrongful action of the party who has repudiated, he claims to treat the contract as at an end, in which case he can sue at once for damages. 'Rescission (except by mutual consent or by a competent court)' said Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co., Ld. 'is the right of one party, arising upon conduct by the other, by which he intimates his intention to abide by the contract no longer. It is a right to treat the contract as at an end if he chooses, and to claim damages for its total breach, but it is a right in his option.' But repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation, on the one side, and acceptance of the repudiation, on the other." See also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849. 1. The position is the same in this country. Thus in Sunbird Plaza v Maloney Mason CJ with whom Deane, Dawson and Toohey JJ agreed, succinctly expressed the principle in the following terms at 260-261: "Loss of bargain damages are recoverable only if the contract is at an end. Once termination due to the defendant's wrongful conduct is established the plaintiff is entitled to damages for loss of bargain: Dominion Coal Co. Ltd. v. Dominion Iron & Steel Co. Ltd.. Barwick C.J. suggested in Ogle, that termination is not an essential element in an action for loss of bargain damages, except in the case of anticipatory breach, but the preponderant opinion in Australia and England is against his view: see Ogle, per Gibbs, Mason and Jacobs JJ.; Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd., per Mason J. (with whom Wilson and Deane JJ. agreed generally, and Dawson J. agreed); Photo Production Ltd. v. Securicor Ltd." See also Gaudron J at 272-273. 1. More recently in Mann v Paterson Constructions Pty Ltd Nettle, Gordon and Edelman JJ stated the principle as follows at [196]: "The position is clearer still with respect to damages for anticipatory breach of contract. By itself, the repudiation of a contract does not entitle the innocent party to loss of bargain damages for anticipatory breach: the entitlement arises only, if at all, upon the innocent party's election to terminate the contract, and the power of termination itself arises by operation of law, with the result that clear words are necessary to exclude it. It follows, a fortiori, that the law, not the agreement of the parties, furnishes the obligation to pay damages consequent upon termination for breach. And that conclusion is only reinforced by authority to the effect that such damages are 'available under the general law' upon termination for breach of a term fundamental in character, but 'require very clear words' where the term is expressly deemed to be fundamental." 1. Contrary to the appellants' submissions, nothing was said of the contrary by the High Court in Tabali. In Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 it was held that the exercise of a right of re-entry pursuant to a provision in the lease in question did not make the breach of a covenant to pay rent in respect of which the right of re-entry was exercised a breach of an essential term as the evidence did not justify finding that there was a fundamental breach of contract which would have entitled the lessor to rescind the contract under the general law and sue for damages. In Tabali Mason J noted that in Shevill the Court was "not called upon to decide whether a lessor can sue to recover damages for loss of bargain when he [or she] re-enters under a proviso for re-entry in consequence of the lessee's repudiation or fundamental breach". He stated his conclusion at 31 in the following terms (citations omitted): "It is often said that repudiation or fundamental breach — in the sense of breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract (Federal Commerce & Navigation Co. Ltd. v. Molena Alpha) — entitles the innocent party to rescind the contract and sue for damages for loss of the bargain: see, e.g., Ogle v. Comboyuro Investments Pty. Ltd.. But this does not mean that such damages are recoverable only in the event of discharge for breach though it is essential to an award of damages for loss of bargain that the defendant can no longer be required to perform his contractual obligations in specie. This essential foundation may be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power so to do. In either event, assuming repudiation or fundamental breach by the defendant, he could no longer be required to perform the contract and is liable for damages for loss of bargain. The well-recognized distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not in the other, provided of course that the exercise of the power is consequent upon a breach or default by the defendant which would attract an award for such damages. Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach. This is because the termination, so far from insisting on performance by the party at fault, brings to an end his obligation to perform his promise in specie." 1. By contrast in the present case, the appellants affirmed the contract and it was terminated by a supervening event, namely the entry by the respondent into a scheme of arrangement which gave rise to the right to terminate under AC 37. Thus the contract came to an end not as a result of termination for breach of a contractual term or repudiation, but rather, as a result of a supervening event which occurred whilst the contract remained on foot. The consequence was stated by Kitto J in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 235 at 250; [1954] HCA 25 in the following terms (citations omitted): "The doctrine of anticipatory breach is, of course, applicable as soon as A has communicated to B his refusal to carry out the contract. Under that doctrine B is put to his election. He may, if he chooses, treat the contract as brought to an end in consequence of A's default, and recover damages from A for loss of the benefit of the contract. Alternatively, he may treat the contract as continuing on foot, in which case it will remain in force for the benefit of both parties, just as it would if the refusal had never been declared. If A persists in his refusal, B may at any time while the refusal continues elect to treat the contract as at an end and sue for damages; but unless and until he does so the contract remains on foot, and A may withdraw his refusal and require B to perform the contract on his part, subject only to giving B reasonable notice of his change of intention, or he may take advantage of any supervening circumstances of such a character as to discharge the contract." 1. Nor does the decision of McLelland J in The Millstream Pty Ltd v Schultz provide any assistance to the appellants. In that case, the non-defaulting party, not being entitled to specific performance or equitable damages, sought common law damages for loss of its bargain and it was argued that it could not do so as the contract had not been terminated at the time the proceedings commenced. McLelland J rejected the proposition stating that the cause of action arose at the time of repudiation not at the time of termination. He noted at [15] that "until the contract is terminated, it cannot always be predicted that the party in breach will not remedy the breach", but that if the contract is ultimately terminated, then damages may be assessed for the loss of the bargain but the cause of action remains the same breach. His Honour was not dealing with the question of whether a claim for loss of bargain damages can be maintained when the contract is not terminated for breach but by reason of a supervening event. 2. In these circumstances, grounds 3 and 4 of the grounds of appeal have not been made out. Grounds 1 and 2 The appellants 1. The appellants submitted that the opening words of AC 37 "Without any manner negating limiting or restricting any rights or remedies which would have been available to the other party at law or in equity had this clause not been included" (see [5] above) meant that the appellants' right to terminate and sue for loss of bargain damages was preserved. 2. Counsel for the appellants submitted that to reach that conclusion it was unnecessary to turn to cl 19.2.3 to determine the remedial consequences as they were dealt with within the chapeau to AC 37. 3. In support of this proposition, he relied on comments made by the plurality in Sibbles v Highfern Pty Ltd (1988) 164 CLR 214 at 227; [1987] HCA 66 (Sibbles) where it was stated that an election to affirm a contract did not deprive the innocent party of the right to rescind where the repudiatory conduct continued. He submitted that the right to terminate and the entitlement for damages for loss of bargain were "so closely aligned" that both would be intended to be protected by the opening words of AC 37. 4. In answer to the proposition that by electing to rescind under AC 37, the respondent was affirming the contract he submitted that "there was no gap between the repudiation and the rescission". Referring to the correspondence between the parties, he submitted that it was clear that the respondent had no intention to honour the contract. 5. Counsel for the appellants submitted that notwithstanding that there was no termination up to the time of rescission, the appellants had that accrued right which was preserved as was the consequence, namely, the right to claim loss of bargain damages. He referred in that context to the width of AC 37. 6. Counsel for the appellants accepted that a possible reading of AC 37 was to protect the party who had an accrued right to damages in respect of conduct or breaches up to the time of rescission under that clause but stated that the construction for which he contended merely required giving the clause an "expansive meaning" which, on its face, it had. He submitted that the rescission under AC 37 brought the contract to an end thereby enlivening the claim for loss of bargain damages. He accepted that after the rescission under AC 37, the appellants persisted in their claim for specific performance but stated that "the appellants were entitled to turn on a dime and terminate the contract at any time". He submitted that was the effect of the passage in Sibbles on which he placed reliance. He submitted that the fact the rescission was not accepted for two years was irrelevant on the question of accrued rights. 7. Counsel for the appellants submitted that in construing AC 37 it was relevant to consider what was "the danger which the parties contemplated and against which the parties were content to allow the other [party] to protect itself" per Warrington LJ in Re Gibbs and Houlder Bros & Co Limited's Lease [1925] Ch 198 and to the principle that a person should not be allowed to take advantage of his or her own wrong: see for example Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 188-189. He also referred to the plurality's approval in Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at [23] of the reference by Hope JA in Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 487 to "the familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law". He emphasised the use of the words "without [in] any manner" and "negating" in the opening words of AC 37 which he submitted showed an intention to protect the position of the parties to the extent rationally available. The respondent 1. Senior counsel for the respondent referred to the use of the word "available" in the chapeau to AC 37. He submitted that no matter how generously the words could be construed, they do not embrace rights which were not available at law or in equity at the time of rescission. He stated that the preconditions to loss of bargain damages are that there is a contract in existence and that this contract is brought to an end by reason of the wrongful conduct of the defendant. Consideration 1. The issue concerning the construction of AC 37 is to determine what a reasonable person in the position of the parties would have taken it to mean: see, for example, in respect of commercial contracts, Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]. 2. The clause self-evidently assumes that the contract is in existence at the time the right to terminate is exercised. Further, it deals with termination in circumstances not amounting to default by either party to the contract. 3. It seems to me that in those circumstances, the clause is designed to protect rights enforceable at the time of termination including, relevantly, preserving rights for damages for breach of contract which had already accrued to either party. The application of cl 19.2.3 to termination under AC 37 makes this clear. Further, cl 19.2.4 of the contract makes it clear that there is no other right to damages. 4. The appellants sought to overcome this difficulty by reliance on the chapeau to AC 37 which preserves "any rights and remedies which would have been available". However, the rights and remedies referred to are rights and remedies which are available at the time of termination, not rights or remedies which may have arisen had the clause not been invoked. 5. In the present case, rather than terminating and seeking loss of bargain damages, the appellants elected to affirm the contract and seek specific performance. In these circumstances, at the time of termination, they had no right to loss of bargain damages and therefore nothing was preserved by AC 37. Once the contract had been terminated pursuant to AC 37, there was, in effect, no contract to terminate and thus no right to loss of bargain damages. 6. The principles of construction referred to by the appellants which I have set out at [51] above do not assist. So far as the first is concerned, the object of the parties in entering into the clause was to provide what they considered to be an appropriate adjustment of rights if any of the eventualities in AC 37 occurred. As to the second, the exercise of a right conferred by a contract does not involve a person taking advantage of his or her own wrong. As to the third, there was no abandonment of remedies. The appellants elected to affirm the contract. Whilst they maintained that position they were not entitled to loss of bargain damages, the remedy not being available by virtue of their election to keep the contract on foot. 7. In these circumstances, grounds 1 and 2 have not been made out. Conclusion 1. In the result, I would make the following orders: 1. Appeal dismissed. 2. Order the appellants pay the respondent's costs of the appeal. 1. BELL P: I have had the benefit of reviewing the reasons for judgment of the Chief Justice. I agree with those reasons and the orders his Honour proposes. 2. In short, the appellants never terminated the contract by reason of the respondent's repudiatory conduct. In fact they positively sought, through their claims for specific performance, to keep the contract on foot. This was the opposite of any claim for loss of bargain damages. The appellants were, at all material times, asserting their right to preserve and enforce the bargain. 3. What occurred was that, in the interim, the contract was validly terminated by the respondent in circumstances where that was contractually permitted. There was no operative breach of contract which was capable of sustaining a claim for loss of bargain and damages. 4. GLEESON JA: I agree with Bathurst CJ. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 October 2020