DAINFORD LIMITED v CHARLES KAREL URBAN SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, SAMUELS and PRIESTLEY JJA 17 July 1989, 17 July 1989 [1989] NSWCA 56 Gleeson CJ This appeal arises out of a contract for the sale and purchase of land at Mosman which was entered into between the appellant, as purchaser, and the respondents as vendors on 30 April 1981. CL15 of the contract of sale was in the following terms: "15. If the Vendor shall be unable or unwilling to comply with or remove any objection or requisition or claim for compensation which the Purchaser has made and shall not have waived within fourteen days after the Vendor has given him notice of intention to rescind this agreement, the Vendor, whether he has or has not attempted to remove or comply with the objection or requisition and notwithstanding any negotiation in respect thereof and whether the Purchaser has or has not taken possession, shall be entitled by notice in writing to rescind this agreement." The respondents, whom I shall call the vendors, on 4 June 1982 purported to rescind the contract of sale pursuant to CL15. That followed an exchange of correspondence between the solicitors for the respondents and the solicitors for the appellant, whom I shall call the purchaser. The correspondence originated in relation to claims and counterclaims that were made about certain parcels of land to which I shall make further reference in due course. As a result, the purchaser made certain assertions concerning its entitlement which were reflected in an objection and requisition and a claim to compensation. Although the claim to compensation was ultimately withdrawn, the objection and requisition were pursued. In those circumstances, by letter dated 4 May 1982, the solicitors for the vendors informed the solicitors for the purchaser that the vendors required the purchaser, pursuant to CL15, to waive the requisition and objection within fourteen days after the receipt of that letter and stated that unless the objection and requisition were waived, the vendors intended to rescind the contract. It was pursuant to that notice that the purported rescission of 4 June 1982 took place. Before coming to a more detailed description of the dispute that arose between the parties, it is necessary briefly to sketch in the background relating to the land the subject of the contract of sale. The contract of sale related to a substantial area of land in a heavily built-up part of Mosman. The business of the purchaser was that of a land developer and it was contemplated by the parties that the land, the subject of the contract of sale, would be treated by the purchaser as a development site. The land is depicted in a plan which is annexure B to the reasons for judgment of the learned trial judge, Needham J. The subject land includes three parcels, two of which are consistently described as lanes and one of which is sometimes described as a lane and sometimes described as a right of way. By a convention that has been adopted for the purposes of argument in this Court, those three parcels have been given the following descriptions. That parcel which is depicted on annexure B as "right of way five metres wide" has been described as lane No 1. It is at the rear of lots 1, 2, 3, 4 and 5 in deposited plan No 4628. It has at all material times provided a means of access to the 2 UNREPORTED JUDGMENTS commercial premises which are situated on those allotments. Prior to the making of the contract which is the subject of this litigation, the vendors had assumed a contractual obligation to the owners of those allotments to grant in their favour rights of way over lane No 1, although it appears to be the case that at no time material to the present proceedings had such rights of way ever actually been granted. The papers indicate that there was some debate perhaps going on with the local council as to precise width of the land which was to be the subject of the rights of way. However that may be, it is common ground that lane No 1, although described in the plan as a "right of way five metres wide", would in fact be more accurately described as being land which was subject to contractual obligations of the vendors to grant rights of way in favour of lots 1, 2, 3, 4 and 5 of deposited plan 4628. The second relevant parcel of land is Eric Lane which is not clearly depicted on annexure B. It is depicted on other documents in evidence and in fact extends from Military Road adjoining lot 5 in deposited plan 4628 to the northern extremity of the land depicted on annexure B. Eric Lane is at an angle of 90 degrees to another lane depicted on annexure B, simply as "lane 6.095 metres wide". For reasons that do not require examination, that land has been consistently referred to in argument as "Cherry Blossom Lane". Construed literally, the contract of sale between the vendors and the purchaser obliges the vendors to transfer to the purchaser the whole of the land outlined in red on annexure B including lane No 1, Eric Lane and Cherry Blossom Lane. There was a somewhat complicated history relating to the formation of the actual contract of sale and the drafting history is outlined in detail in the reasons for judgment of the learned trial judge. It suffices for present purposes to say that his Honour found that it was only as a result of a slip in the drafting of the relevant documents that the vendors appeared, on the face of the documents, to have assumed a contractual obligation to convey lane No | free from encumbrances. The learned judge found as a fact that prior to the formation of the contract, it was known to the purchaser that there was some kind of proposal to create rights of way in favour of the owners of lots 1, 2, 3, 4 and 5 in deposited plan 4628. His Honour found that pre-contract discussions between the representatives of the parties referred to lane No 1 as the "site of a proposed right of way". Furthermore, noting that the purchaser was a land developer active in the area and that principals of the purchaser were apparently already interested in land in the immediate vicinity, his Honour considered that it was highly improbable that the purchaser would have been unaware of the proposals. The actual findings of his Honour on this point are contained in his reasons for judgment in the following terms: "On 8 October 1980 a meeting was held in Mr Urban's office, at which were present Messrs Urban, Kondylis, Urquhart and Adler. The evidence relied upon by the plaintiff in these proceedings was principally documentary. The defendants called oral evidence from the two estate agents, Mr Urban, and the two solicitors who had been involved, on the defendant's part, in the transaction. The plaintiff called Mr Adler in reply. Accordingly, the issues of fact arose principally, if not wholly, out of his evidence. The four persons present at the October conference all agreed that the plans on Mr Urban's office wall were the centre of attention. Messrs Urban, Urquhart, and Kondylis all said that Mr Urban pointed out to Mr Adler the right of way marked on the survey plan and said that, while the site of the right of way was included in the property to be sold, it was not able to be built upon, as the trustees were forced to grant a right of way to the proprietors of the lots fronting Military Road. URJ DAINFORD LIMITED v CHARLES KAREL URBAN (Gleeson CJ) 3 According to their evidence, Mr Adler said that he was not concerned about that, as it was not intended to build on that part of the land. He also said that he knew about the right of way as 'we already own the site behind it' a private hospital. Mr Adler's evidence was that, although the plans were shown to him and the right of way indicated, no reference was made to the fact that that part of the land could not be built upon. In fact, he said, Mr Urban, at what appears to have been a later meeting told him that the plaintiff could develop the whole of the land, including the lane and the right of way. I do not accept this evidence. It is inconsistent with the evidence of the three other witnesses, none of whose evidence on that point was in any way shaken and it is inherently improbable. It would have been extraordinary if Mr Urban, conscious as he was of the terms of the contracts with the adjoining proprietors, and of the obligations of the trustees in respect of the lanes, had made such a promise. It is inconsistent also with the admitted fact that Mr Urban pointed out the right of way to Mr Adler. Further, as some support for the conclusion I have reached, architects, retained by the plaintiff, in July 1981 submitted plans for the development of the area, which plans clearly show right of way, not to be built on." It is plain from that passage in his Honour's reasons for judgment and from the correspondence exchanged between the solicitors for the respective parties leading up to this litigation, that, at least at the time the dispute came to Court, the purchaser was taking the stance that it was entitled to have transferred to it, free from encumbrance and in particular right of way, lane No 1. This is of some significance having regard to one of the arguments advanced in the course of the hearing of this appeal on behalf of the purchaser. How it came about that the purchaser advanced such an assertion during the course of the conveyancing transaction is referred to in various portions of the judgment of Needham J. His Honour said, for example: "On 27 April 1982, almost a year after the exchange of contracts, the plaintiff, for the first time, asserted that it was entitled to the transfer of the site of the lanes without any restriction. The defendants, through Dennis and Co treated this claim as an objection or requisition which they were both unable and unwilling to comply with or remove. The plaintiff agreed to settle for a price reduction of $152,130 but, although it subsequently said that it did not press that claim, it did not withdraw its claim that title to the lanes and rights of way should pass to it without encumbrance." His Honour also recorded: "There was no submission made on behalf of the plaintiff that the claim to which I have referred was not an objection or requisition, so that the difficult question which led to differing views in Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd 128 CLR 529 does not arise. The question is whether the defendants are to be entitled to rely upon their power of rescission in CL15." His Honour resolved that question favourably to the defendants, that is to say the vendors who are the present respondents. The principal argument that was advanced on appeal in this Court is one that is not mentioned at all in his Honour's reasons for judgment. In effect, the appellant mounts what might be called a collateral attack upon his Honour's reasons, submitting that he has failed to advert to an important consideration relevant to the attempt by the vendors to rely upon CL15 of the contract. For reasons which will shortly appear, I am of the view that there was no 4 UNREPORTED JUDGMENTS inadvertence on his Honour's part in this regard but that the issues which he stressed in his reasons for judgment were those which fairly arose for determination of the matter. In order to explain this, however, it is necessary for me to give some of the details of the argument which are now advanced on behalf of the appellant. A reference has already been made to the circumstance that the transaction involved, inter alia, parcels of land which were described as "lanes" in addition to lane No 1. It is perfectly obvious from a consideration of the correspondence that what might be described as the commercial bone of contention between the parties related to lane No | and in particular to the purchaser's ultimate assertion that it was entitled to have that parcel of land transferred to it free from encumbrances and the rejection of that assertion by the vendors who were obliged by contract to create rights of way in favour of certain third parties. Nevertheless, it was argued in this Court that whilst his Honour devoted himself in his reasons for judgment to a consideration of the disagreement that arose between the parties in relation to that matter, he should also have attended to the position which existed in relation to the parcels of land that have been referred to as Eric Lane and Cherry Blossom Lane. The vendors are the trustees of the estate of the late M. M. Symons. The previous trustee of that estate was a trustee company. At all material times the trustee company remained the registered proprietor of the land referred to as Eric Lane and Cherry Blossom Lane, and for that matter the land referred to as lane No 1. In the course of the correspondence between solicitors for the respective parties considerable attention was devoted to the question of the manner in which the vendors were going to make title to the three lanes. The requirement that such title should be transferred free of encumbrance was made in a general or global way - although, as has been noted, the commercial difficulty arising from that requirement related specifically to lane No 1. There was a time in the correspondence, however, when references were being made to difficulties which the vendors were experiencing, or might experience, in making title to all of the lanes, those difficulties relating to the necessity for consolidation of the land and the requirements of the Registrar General. Ultimately after some debate in relation to that matter, the solicitors for the purchaser took the attitude that they would be content if, upon settlement, they received a transfer executed by the trustee company and bearing a mark or notation from the Registrar General to the effect that it was willing to register it. This debate was going on at the same time as the parties were in dispute as to the particular problem concerning lane 1 to which I have referred. On 19 May 1982 the solicitors for the vendors wrote to the solicitors for the purchasers a letter which included the following information: "Tt was not until your letter of 1 March 1982 that you claimed title to be the 'right of way' - which we interpret to mean a title without any obligation to give right of way to the adjoining properties. Our letter of 3 March 1982 was written on the basis of this interpretation which was confirmed by your reply of 12 March 1982. We believe our client will be able to comply with the other requirements of your letter dated 27 April 1982. However, our client is bound to give these rights of way that your company has known at all material times, and we hereby give you notice that unless you waive your claim for compensation within fourteen days after receipt by you of this letter, it is our client's intention to rescind the agreement." URJ DAINFORD LIMITED v CHARLES KAREL URBAN (Gleeson CJ) 5 The first sentence of the second of those two paragraphs appears to contain an intimation that the solicitors for the vendors were going to be able to meet the requirements of the solicitors for the purchaser in relation to the conveyancing method to be adopted in respect of the three lanes but the letter repeats what had been said on a number of occasions previously, that is to say, that the vendors did not intend to convey title to lane No | free from encumbrance. Accordingly, by the time of the purported rescission, the position that had been reached was the only outstanding matter in dispute between the parties and the only matter that had ever been of any substantial commercial significance was that concerning the proposed rights of way over lane No 1. It has been submitted on behalf of the appellant that Needham J was in error in his reasons for judgment in failing to consider the difficulties which the vendors had experienced in relation to transferring title to Eric Lane and Cherry Blossom Lane. In my view, the short answer to that submission is that, although there was a time in the history of the dealings between the parties when the matter of making title to Eric Lane and Cherry Blossom Lane had assumed some significance, that issue had disappeared by the time of the critical correspondence relating to rescission but pursuant to CL15. The learned judge was, in my opinion, quite right to concentrate his attention on the disagreement between the parties over lane No 1. The next matter that was submitted on behalf of the appellant was that this was a case in which the vendors had no title at all to the relevant part of the land and for that reason CL15 could not be invoked. Reference was made to In Re Jackson and Hayden Contract [1905] 1 Ch 603. In that case Buckley J at 607, dealing with a similar condition in an English contract of sale said: "There is an obvious difference between an objection to a vendor's title as being imperfect and an objection that he has no title at all. You cannot take an objection to that which has no existence." Here the relevant objection related to the vendor's unwillingness, or inability, to transfer lane No | free from rights of way. That was a problem of allegedly imperfect title. Insofar as the submission to which I have referred also related to the problem concerning the existence of the trustee company as registered proprietor of the land, it has no application, for two reasons. The first is that which I have already given in relation to the other argument advanced on behalf of the appellant. The second is that the vendors, as trustees of the Symons Estate, were not relevantly in a position of people who "had no title at all to the land". They were the successors in title of the registered proprietors. The next submission was to the effect that "the vendors had the burden of establishing the ground of refusing to comply with the requisition", and that they failed to do so. In my view, it is quite clear both how it came about that the contract of sale was entered into in the form which it ultimately took and that the vendors were not in a position to comply with the purchaser's requisition. The next submission that was made on behalf of the appellant was a challenge to the finding of the learned judge that there was no recklessness on the part of the vendors. His Honour dealt with that matter in his reasons for judgment as follows: "The facts which I have set out establish, in my opinion, that there was no recklessness in the entering into of the contract by the vendors. They understood, as, in my opinion, the purchaser also understood, that while the site of the right of way was to pass to the plaintiff, it was to pass subject to the rights of the neighbouring properties. The exchange of contracts on 30 April 1981 was 6 UNREPORTED JUDGMENTS perhaps negligent on the part of the defendants in that it placed them under a legal obligation they had no intention of assuming, but the conduct of the vendor, according to the Privy Council (see [1963] 1 WLR at p 1425), 'has to be reasonable; he does not have to be beyond criticism.' The plaintiff knew full well that the defendants did not intend to pass title to the lanes without creating the right of way; it was only when somebody who had not been involved in the formation of this contract came into the matter and took counsel's opinion that the legal obligation of the defendants was seen and relied upon." His Honour concluded that there was no recklessness on the part of the vendors. In my opinion, his Honour's reasoning in this regard was correct and has not been made the subject of successful challenge in this Court. The final argument that was submitted on behalf of the appellant is an argument that is not referred to in the reasons for judgment of the learned judge and was not mentioned in the grounds of appeal. However, we gave leave to amend the grounds of appeal. The fact that it was not originally mentioned may be of some significance. It rather tends to suggest that the argument, if it were put at first instance, would have been put in a somewhat muted fashion. This is not surprising. In short, the argument is to the effect that on a proper analysis of the exchange of correspondence between the solicitors for the parties immediately prior to the purported decision, it is to be inferred that the purchaser's solicitors waived the objection or requisition to which reference has already been made, as well as the claim for compensation. As I indicated at the outset of these reasons for judgment, there is a measure of inconsistency between that submission and the attitude that was being taken up by principals of the purchaser, even during the course of evidence before the learned trial judge, where Mr Adler was apparently insisting that he had not known about proposals to create the rights of way and was asserting, even at that stage, that the purchaser was entitled to have lane No 1 transferred without encumbrance. In any event, I am of the view that the argument is not sustained by the terms of the relevant correspondence. The correspondence seems to me to make it perfectly plain that the solicitors for the purchaser were, at the material times immediately prior to rescission, taking their stand upon what they asserted to be their client's right to have title to lane No 1 without encumbrance. In my view therefore, the appellant has failed to make good any of the arguments advanced on the hearing of this appeal and I propose that the appeal should be dismissed, with costs. Counsel for Appellant: WE Hodgekiss with EA Moore Solicitors for Appellant: Drummond and Reuben Counsel for Defendant: EC Lewis Solicitors for Defendant: Dennis and Co