SPEERS v BRYANT SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY (1) P, MEAGHER (2) AND HANDLEY (1) JJA 29 August 1990, 28 September 1990 [1990] NSWCA 197 CONTRACT — sale of land — novation — whether company had assumed rights and obligations of individual purchasers under a contract — special conditions of contract — correspondence between solicitors — failure of company to execute contract in place of individual purchasers — held: (Meagher JA; Kirby P and Handley JA concurring)(1) There was no evidence of novation of this contract for sale of land. Allen vy Carbone (1975) 132 CLR 528 applied; (2) The argument that there was a common intention to abandon the contract, which had not been advanced at trial, was not open on the appeal and was in any case not supported by the evidence. Appeal dismissed with costs. Kirby P and Handley JJA We agree in the order proposed by Meagher JA and with those parts of his Honour's reasons for judgment which deal with the legal and factual issues involved in this appeal. Meagher JA This is an appeal from a judgment of Conomos DCJ, who awarded damages of $21,665.00 to be paid by the appellants to the respondents. The appellants were purchasers of land from the respondents, and his Honour held that they were defaulting purchasers. The property was Lot 3, Plan No. 627556, being the whole of the land in Certificate of Title Vol. 14934 Folio 196 and known as Lot 3 Bangalow Road, Byron Bay. The purchase price was $76,250.00. The purchasers were described as the appellants, Mr and Mrs Speers "or nominee". The parties' contracts were exchanged on 10 December, 1985. It is common ground that the purchasers did not complete the contract. Their sole defence is that before the time for completion arrived the contract was novated, as a result of which a company called Ocean Crest Property Development Pty Ltd assumed the rights and obligations of the purchasers under the contract. There were a number of special conditions in the contract. Of these, Condition 1 was in the following terms: "This contract is subject to the purchasers being able to obtain a satisfactory approval to an application for development application (sic) for the construction of a 30 unit Motel Complex. The purchasers shall forthwith upon exchange take such steps as are necessary to complete the development application which application shall be lodged at their expense but consented to by the vendor. In the event that approval is not provided within 6 months from the date of this contract then either party shall be at liberty to rescind this contract and any deposit or other moneys paid shall be refunded to the purchasers in full and neither party shall be liable for any claim for compensation." 2 UNREPORTED JUDGMENTS In due course, a development application was lodged at the Byron Shire Council, purportedly by Ocean Crest Development Pty Ltd (presumably, a misnomer for Ocean Crest Property Development Pty Ltd). On 28 May, 1986 it was approved by the Council, subject to 76 conditions. The company Ocean Crest Property Development Pty Ltd was a company with a paid up capital of $4.00; its four shareholders and directors were the appellants and Mr and Mrs Bond. Mr Bond was the real estate agent who introduced the two appellants to the property. On 12 June, 1986, the appellants, on the letterhead of the company, wrote to Mr Andrews, the solicitor for all parties, a letter which, omitting formal parts, read as follows: "Re Purchase Land Bangalow Road, Byron Bay In regards to above purchase would please alter name on Contract from H and J Speers or nominee to - OCEAN CREST PROPERTY DEVELOPMENT Pty Ltd as above. Conditions No's 1 and 2 acceptable, and we are proceeding with the purchase unconditionally. Would you please notify us of amount of Stamp Duty required, and will forward same together with balance of Deposit as per Contract." Accordingly, Mr Andrews drew up a new contract showing the respondents as vendors and the company as purchasers and a Memorandum of Transfer showing the respondents as Transferors and the company as Transferee. He sent them to Mr Bryant, one of the respondents, on 16 June, 1986, under cover of a letter, which, omitting formal parts, read as follows: "We have been advised by the Purchaser that the name of the purchaser will now be Ocean Crest Property Development Pty Ltd and we have prepared fresh documentation accordingly. We enclose same and would be obliged if you could arrange for signatures where indicated and return to us at your earliest convenience." On 23 June, 1986 he seems to have sent the same documents to Barbara Neill and Co., who now seemed to be acting for the remaining two respondents, Miss Wills and Mr Froggatt. Omitting formal parts, it read as follows: "We enclose fresh Contract in the name of Ocean Crest Property Development as Purchaser for signature by Rose Wills and David Froggatt as Vendors." In due course, each of the then respondents must have executed both the contract and the Memorandum of Transfer, because at trial both documents (each executed by all these respondents) were produced by the appellants from their file. However, neither document was ever executed by the company. This is hardly surprising in view of a letter which the female appellant wrote at some time to Mr Andrews. It is undated, and, again omitting formal parts, reads as follows: "Motel Site, Bangalow Road, Byron Bay When I wrote to you last, Thad not had a chance to examine the Development Approval on the above site in detail. I was very disturbed to see that this approval was not unconditional. I have had an estimated costing of these conditions and find that the amount of fill required above the usual level, the sewerage and extra concreting involved and the high level of Council fees make the whole project unviable. The DA also made the point that strata titling would not necessarily be approved and that is vital to the project. Please apologise to the Vendors but I am unable to proceed with the purchase in view of the above matters. Apart from anything else, the worry has been making me really ill and I have been hospitalised, as Dr Holmes will confirm." It is not easy to ascertain when it was written, but it was obviously written after 12 June, since it refers to the letter of that date. URJ SPEERS v BRYANT (Meagher JA) 3 The appellants rely on a novation. But, in these circumstances, a novation must mean a tripartite contract substituting the company for the appellants. No combination of the above facts or documents could possibly amount to a novation, and this his Honour held. However, his Honour's reasons for so holding cannot be sustained. His Honour held that the reason why there was no novation was the absence of an informed consent on behalf of the respondents. But the equitable notion of an "informed consent" has got nothing to do with the common law of contract, which in general is based on objective criteria; Taylor v Johnson (1983) 151 CLR 422. The real reason why there was no novation was because there was no binding novating agreement. A novation of a contract to sell land is itself a contract for the sale of land. In New South Wales "the usual method of selling real estate... is by means of the signing and exchange of contracts in the form approved by the Real Estate Institute of New South Wales" (per Stephen, Mason and Murphy JJ in Allen v Carbone (1975) 132 CLR 528 at 523 (sic)). There is no indication in the present case that any departure from that normal. practice was intended; indeed, the very preparation of a new draft form of contract tends to show that the normal practice was to be adhered to. Yet no contract was ever executed by the company, much less exchanged. Further, the new proposed contract required the new purchaser to pay a deposit on execution, and no deposit was paid. The conclusion is inescapable that no novation ever took place. No doubt the evidence permits an inference that in the period 16-23 June the respondents would have been agreeable to a novation if one took place. No doubt a similar inference could be drawn as to the company's attitude on 12 June. No doubt on 12 June the appellants were similarly inclined although the female appellant's subsequent undated letter would suggest that she, at least, had wearied of any contract, original or novated. But none of these factors militates against the conclusion that no novation in fact ever took place. On the appeal the appellants sought to argue a submission that, in any event, even it there were no novation, there was at least a common intention to abandon the contract, which thereby became spent. There are two answers to that submission. On is that it was not made below, nor was it open on the pleadings; and, if it had been explored below, further evidence may have had to be called. The second is that no such inference can be drawn; at most there was a common intention to abandon the contract of 10 December, 1985 if, and only if, a novation occurred. There is only one aspect of the case which calls for comment. When dealing with what he was pleased to call "the background history" of the transaction, the learned trial judge said: "A Mr Eric Bond and his wife Darielle Bond would appear to be eager speculators in relation to land in the northern coastal part of New South Wales. A solicitor, Graeme Thomas Andrew, the principal of the firm of Hungerford, Lehmann and Andrews, Solicitors of Mullumbimby, was a friend of the Bonds. He also acted for the defendants. He was not known to the plaintiffs. The Bonds, however, retained him to act for all parties. It is obvious to me the plaintiffs are unschooled people and, indeed, Mr John Robert Bryant is a humble plumber, who could hardly be termed as "street wise". I am sure the Bonds worked on him in order to entice him to sell the property and to use their own solicitor. Mr Andrews quite wrongly went along with the instructions he received from the Bonds and acted not only for the plaintiffs, but also for the defendants and for the company Ocean Crest Property Development Pty Ltd, which was formerly a shelf company purchased by him for the defendants and the Bonds. He also effected a change of name of that shelf company from its prior 4 UNREPORTED JUDGMENTS narne to its present name. He well knew that the company was a four dollar company and that the sole shareholders and directions were the Bonds and the Speers. He also knew the plaintiffs were trusting people who would take the advice of a professional adviser without question." It is to be deplored that his Honour chose to express himself in terms so lacking in the moderation one would expect in judicial utterances. It is doubly to be deplored that he did so when there was an absence of evidence to support almost all the derogatory comments which I have set out. Thus, there was no evidence that Mr and Mrs Bond were "eager speculators" in land; there was no evidence that Mr Andrews was "a friend of the Bonds"; there was no evidence that Mr Andrews was "not known to the plaintiffs"; there was no evidence the "the Bonds retained Mr Andrews to act for all parties"; there was no evidence that "the plaintiffs are unschooled people" or that Mr Bryant belonged to that subclass of plumbers who can properly be described as "humble"; there was no evidence that "the Bonds worked on Mr Bryant in order to entice him to sell the property and to use their own solicitor"; there was no evidence to support the finding that "Mr Andrews quite wrongly went along with the instructions he received from the Bonds"; and there was no evidence that Mr Andrews "knew the plaintiffs were trusting people who would take the advice of a professional without question". Happily, however, his Honour's misguided rhetorical extravagances did not prevent him arriving at the right conclusion. The appeal should be dismissed with costs. Counsel for the Appellant: P R GLISSON Counsel for the Respondent: SW GIBBS, P MOYLAN Solicitors for the Appellant: BALZER and MARVIN, LISMORE Solicitors for the Respondent: W P WALTERS, LISMORE