SANTA PRISCA IMPORTS PTY LTD v ACTION MOTOR GROUP PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY P, MEAGHER and SHELLER JJA 17 May 1996, 11 June 1996 CONTRACTS — agreement for lease wrongful repudiation — concurrent obligations under the agreement — termination — damages On 28 June 1991, Santa Prisca Imports (SPI) and Action Motor Group (AMG) entered into an agreement for lease of premises from 1 March 1992 to 29 February 1996. Pursuant to CL4, SPI, the lessor agreed to install a motor vehicle hoist in consideration of AMG, the lessee, entering into the agreement. SPI was to use its 'best endeavours' to ensure the construction would take place before 31 August 1991. Time was not of the essence. At the time the agreement was entered into, AMG was in occupation of the premises, subject to a sub-lease which was due to expire on 29 February 1992. On 23 March, when the hoist had still not been constructed, AMG gave a notice to vacate. SPI began proceedings in the Commercial Division claiming a declaration of wrongful repudiation and damages. In response, AMG asserted that SPI, by failing to construct the hoist within a reasonable time, was in breach of the agreement. Cole J found that AMG was entitled to have the hoist installed prior to the execution of the lease. SPI was in breach of a 'serious and important' obligation under the agreement for lease, and thus it had released AMG from its obligations thereunder. SPI appealed from this decision. HELD: 1. Time was not of the essence for the carrying out of the obligations under the agreement. Where no date is specified, the mere fact that one promise is given in consideration for the performance of another does not establish some priority in performance. 2. Continued non-performance of a term of an agreement may, after a period of time and in particular circumstances, evince an intention no longer to be bound by the terms of the agreement or its inability to perform it. Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 349 per Fullagar J. 3. AMG was being asked to execute a lease pursuant to the agreement at a time when SPI was unable to perform a substantial and important concurrent obligation under the agreement and there was no sign that it would be able to do so within a reasonable time. Thus AMG was entitled to terminate the agreement for lease. ORDERS Appeal dismissed with costs. Mahoney P I agree with the judgment of Sheller JA. Meagher JA I agree with Sheller JA. Sheller JA AGREEMENT FOR LEASE On 28 June 1991 the appellant, Santa Prisca Imports Pty Ltd (SPI), and the respondent, Action Motor Group Pty Ltd (AMG), then known as Marque Automobiles Pty Ltd, executed an agreement for lease whereunder SPI as lessor agreed to lease land known as 67-77 Flinders Street, Darlinghurst to AMG from 1 March 1992 to 29 February 1996 upon the terms therein contained. One of those terms, CL4, was as follows: "In consideration for the Lessee entering into this Agreement the Lessor agreed [sic] that it shall at its cost cause to be installed a motor vehicle hoist within the leased premises whereby motor vehicles can be raised from the present 2 UNREPORTED JUDGMENTS ground floor to the present first floor of the premises. Such installation to be performed in accordance with the terms and conditions of the existing building approval for such purpose obtained by the Lessee from the Council of the Municipality of South Sydney and to be performed in a proper and workmanlike manner with the least possible inconvenience and interruption to the Lessee. The Lessor agrees to use its best endeavours to cause the works associated with such installation to take place before 31st August, 1991 and to be conducted in a proper and expeditious manner." CLS provided that SPI should cause its solicitors to submit a lease pursuant to the agreement to AMG or its solicitors no later than 31 January 1992. In CL6 AMG agreed to cause such lease to be executed by all parties and returned to SPI's solicitor no later than 15 February 1992. NOTICE OF VACATING PREMISES As the agreement for lease acknowledged, at the time it was made AMG was in occupation of the land pursuant to a memorandum of sub-lease from Town and Country Living Pty Ltd which was due to expire on 29 February 1992. AMG remained in occupation until 23 March 1992 when it gave SPI a notice of vacating premises in which it alleged, amongst other things, that the hoist referred to in CL4 had not been constructed by 31 August 1991 and had still not been constructed at the date of the notice. The notice continued: "As a result of the failure of [SPI] to construct the said hoist [AMG] lost the said motor vehicle dealership. As [AMG] cannot carry on the business of selling by retail Audi Motor Vehicles they hereby give notice that they will vacate the premises at the expiration of one (1) calender [sic] month from the date of service of this notice upon [SPI]. [AMG] will not enter into the lease nor will it execute the lease documents." The substance of this notice was false. The dealership was lost for other reasons. The notice was an attempt to attach to the failure to install the hoist a seriousness and consequence it did not have. PROCEEDINGS By a summons filed in the Commercial Division of the Court on 23 April 1992 SPI claimed declarations that AMG had repudiated the agreement for lease which it had accepted, and claimed damages. The repudiation was particularised as the notice of vacating premises, the refusal to withdraw the notice and AMG's vacation of the premises. In its points of defence AMG denied that it had repudiated the agreement and alleged a breach by SPI of its agreement to build the hoist. The proceedings were heard by Cole J. The parties told his Honour when the matter was called on that they wanted him to determine which of SPI and AMG had repudiated the agreement for lease. On 1 July 1992 Cole J gave judgment for AMG "on [AMG's] cross claim." The quantum of damages was referred to a Master for determination. This appeal is from that decision. FACTUAL BACKGROUND The hoist had not been installed by 23 March when AMG gave notice of vacating the premises and refusal to execute the lease. Cole J found that up until mid-February 1992 this was not due to any unreasonable delay on the part of SPI in arranging for the necessary consents, in the performance of construction works or in the fabrication of the hoist. In December 1991 and January 1992 Rennew Constructions had done building work to enable the hoist to be installed. By the second week of February 1992 Hills and Willis Pty Ltd (HW) had made the hoist which was ready for delivery and installation. \HANTA PRISCA IMPORTS PTY LTD v ACTION MOTOR GROUP PTY LTD (Sheller JAB On 11 February 1992 Mr Sunman, SPI's solicitor, wrote to AMG enclosing a memorandum of lease and requested its execution and the payment of costs and disbursements and stamp duty. On 13 February 1992 SPI's controlling shareholder and principal, Mr McAuley, was arrested on serious drug charges. This event attracted publicity and came to the attention of AMG, Rennew and HW. Neither Rennew nor HW had been paid for their work. On 17 February 1992 HW wrote confining the amount of its invoice and additional costs incurred and stated that prior to delivery and erection of the system it required a written verification from SPI's solicitors that its payment conditions would be adhered to. Payment was not made nor was the verification provided. The lease documents were not signed. On 10 March 1992 Mr Sunman wrote to AMG stating: "Our client's mortgagees are anxious to have confirmation that the lease has been executed and finalised. Accordingly, we call upon you to execute and return the lease, together with the required cheques in payment of costs and stamp duty." On 16 March 1992 Mr Sunman wrote again to AMG as follows: "We note that no payment of rent for the month of March 1992 has been made by you to the head tenant Town and Country Living Pty Ltd, who in turn have not made payment to our client of that month's rent. It is noted that there is an ambiguity between the various tenancy documents relating to the month of March 1992 in that the head lease to Town and Country Living Pty Ltd expires on the Ist April 1992, your sub lease expired on the Ist March 1992 and our substitute lease purports to commence on the Ist March 1992. Agreement has been reached between ourselves and Town and Country Living that you may 'hold over' for the month of March 1992 and should therefore pay your rent to them for that month. The lease document which has been submitted to you should be altered by you to note the commencement date as being the Ist April 1992. The date previously submitted in the document was in order to prevent a situation arising whereby Town and County called upon you to vacate the premises at the termination of your sublease, which would result in you having to vacate the premises for the month of March 1992. We await the immediate payment of rent for the month of March 1992 and the early return of the executed lease document." On the same day Mr Sumnan told Mr Hunwick, AMG's managing director: "The rent is due on the first of the month, and we need the rent for the mortgage, can you see it is paid as soon as possible". INABILITY TO PERFORM Before Cole J, AMG set out to justify the notice of vacating premises on the ground that SPI had failed to build the hoist within a reasonable time which, it submitted, was, at the very latest, the day before that due for the execution of the new lease, namely 1 March 1992. As I have said his Honour found that there was no unreasonable delay on SPI's part before mid-February 1992. The judgment continued: "Nonetheless I am satisfied that as at mid February 1992 there were no arrangements in hand for payment for the hoist, and the hoist would not be installed until satisfactory payments arrangements were made. They were not made prior to 1 March 1992, or indeed at any time thereafter. The publication of 4 UNREPORTED JUDGMENTS the arrest and incarceration of Mr McAuley resulted in the hoist contractor not being willing to proceed with delivery and installation absent satisfactory arrangements for payment. The notice of intention to vacate given 20 March 1992 constitutes a clear statement of intention not to proceed with the obligation to take the lease contemplated by the agreement for lease, and constitutes a repudiation of it unless [SPI] was obliged to install, and [AMG] was entitled to require installation, of the hoist prior to executing the lease." His Honour found that the agreement required that the hoist be installed before the lease commenced. He said: "The substantial obligations upon [SPI] were to install the hoist and tender the lease. The substantial obligation on [AMG] was to execute the lease. [SPI] partially performed the first obligation in that it arranged for performance of some of the construction works, but by mid-February 1992 there was no prospect of the hoist being installed before 28 February 1992 because there were no arrangements in hand then, or indeed put in hand since, for payment for that work. [SPI] thus breached a serious and important obligation in the agreement for lease, which breach continued until the expiration of the period of operation for the agreement for lease." Time was not an essential term of the agreement for lease. Neither party was entitled to rescind for the other's failure to perform the obligations it had undertaken on or by a specified date; see generally per Fullagar J in Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 348-349. However Cole J treated the case not as one of mere delay in performance but as one in which SPI had been shown to be unable to perform a significant obligation under the agreement for lease "before it expired". His Honour was of opinion that AMG was entitled to have the hoist installed at least by 28 February 1992 before it was required to execute a lease for the ensuing four years. He referred to the concession made by SPI that CL4 of the agreement for lease was a clause of such significance that a refusal by SPI to perform its obligations thereunder would, all other requirements being satisfied, entitle AMG to treat the contract as being, at an end. He then said: "Upon the findings I have made, that seems to me to conclude the matter against [SPI]. This is not a case of mere delay in performance, although there was delay in circumstances which I have held to have been justified, or the responsibility of [AMG], until mid-February 1992. However, by then, there was an inability to perform a significant obligation under the agreement for lease before it expired. In my view the case is not really one dealing with delay in performance such as was considered in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 643. Rather it is in the non- performance of a significant obligation imposed by the agreement for lease for the non-performance of which, as [SPI] accepted, there arose an entitlement to treat the agreement for lease at an end. In my view [AMG] was entitled to have the hoist installed at least by 28 February 1992 before it was required to execute a lease for the ensuing four years." The obligations of the parties under the agreement for lease were clearly mutually dependent and concurrent. Implicit in such obligations were the readiness and willingness of each of the parties to perform concurrently. Readiness and willingness imports ability to perform; De Medina v Norman [1842] 9 M and W 820 at 827; 152 ER 347 at 350; Peter Turnbull and Co Pty Ltd v Mundus Trading (Australasia) Pty Ltd (1954) 90 CLR 235 at 253. SPI was pressing AMG by its solicitor's letters of 11 February and 10 and 16 March 1992 \HANTA PRISCA IMPORTS PTY LTD v ACTION MOTOR GROUP PTY LTD (Sheller JAB to execute and return the memorandum of lease with the required payments of costs and stamp duty. However SPI was itself unable to perform its concurrent obligation to cause the hoist to be installed. Indeed it made no offer to do so. With the greatest respect I do not agree that it was a term of the agreement for lease that the hoist be installed within the duration of the agreement. While I can see force in the matters Cole J mentions in support of this view, I think the better view is that the contract required that the hoist be installed within a reasonable time after 28 June 1991 and that the parties had agreed that a reasonable time was no later than 31 August 1991. As events turned out a reasonable time had not passed before mid-February 1992. SPI was bound to use its best endeavours. But otherwise no date was specified and the mere fact that one promise is given in consideration for the performance of another does not, in my opinion, establish some priority in performance. In a practical sense AMG would be concerned to ensure that SPI's obligation to install the hoist did not merge in the lease if executed. However continued non-performance of the term of a contract within a reasonable time may after a period of time and in particular circumstances evince an intention on behalf of the party in breach no longer to be bound by the contract or its inability to perform it. In Carr v JA Berriman Pty Ltd at 349 Fullagar J said: "Tn other words, the only legitimate inference might be that he is saying: 'Not only have I broken my contract by not doing the thing on the due day, but I am not going to do the thing at all', or 'I am not going to do the thing at all unless and until I find it convenient to do it'. In this way a right to rescind might arise which is not based on breach of the particular promise as such." SPI did not argue that "substantial incapacity... against doing in the future" what the contract required would not entitle AMG to terminate the contract. As Dixon CJ remarked in Rawson v Hobbs (1961) 107 CLR 466 at 481 "\.. it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his turn comes, simply because his incapacity to do so is not necessarily final or logically complete." In Universal Cargo Carriers Corp v Citati [1957] 1 QB 401 at 450 Devlin J spoke of an inability to perform a promise "within such a time as would not have frustrated the object of the venture." That inability must continue up to the time of purported termination based on it. SPI relied upon what was said by the English Court of Appeal in Johnstone v Milling [1886] LR 16 QBD 460. A lessor, who had covenanted with his lessee to rebuild the premises after the expiration of the first four years of the term upon a six months' notice from the lessee requiring him to do so, told the lessee during that period and before any notice was given that he would be unable to procure the money for rebuilding. In consequence the lessee exercised his right to determine the lease after four years but continued to occupy the premises for some time in the hope that the lessor would carry out the rebuilding work. The lessee sued to recover damages from the lessor for breach of his covenant and relied on the doctrine of anticipatory breach of contract. The Court of Appeal found that the lessor's statements with regard to his inability to find the money for rebuilding did not in the circumstances lead to the inference that it was his intention if required not to rebuild the premises; see 468, 471 and 474. The decision amounted to no more than the Court of Appeal's agreement with inferences drawn from the evidence by the judge who heard the case at first instance. In any event, as Dr Calter pointed out in Breach of Contract, 2nd ed, at para813, there must be doubts about the decision for two reasons. "First, a 6 UNREPORTED JUDGMENTS declaration of inability is now regarded as a sufficient refusal to perform. Secondly, even if there was no declaration of inability, it seems clear that the lessor was in fact unable to perform and inability in fact is a sufficient justification for termination on the ground of repudiation or anticipatory breach." In the present case Cole J found an inability to perform before 28 February 1992. His Honour was no doubt intending to refer to the last day of the month which was in fact 29 February, a Saturday. Subject to one matter the considerations that Cole J had in mind in reaching this conclusion continued until the date of the notice. The outstanding price owing to HW had not been paid. The written verification HW requested had not been provided by SPI's solicitors. The only solution SPI proffered was a proposal that rent payments be used to pay for the installation of the hoist. Cole J said: "There was also, at some unknown point of time, discussions between Mr Hills and Mr Sunman regarding a proposal that payment for the hoist be made out of future rental payments but nothing came of that." SPI's financial state and the need to sav the mortgagees demonstrate that this was not a viable proposal. Mr Sunman intimated as late as 16 March that SPI needed the rent for the mortgage. In truth, in my opinion, AMG was being asked to execute a lease pursuant to the agreement at a time when SPI was unable to perform a substantial and important concurrent obligation under the agreement and there was no sign that it would be able to do so within a reasonable period looked at in terms of commercial reality. This was the position when AMG gave SPI the notice of vacating premises. Accordingly AMG had not repudiated the agreement for lease but was entitled to terminate it. CONCLUSION I propose that the appeal be dismissed with costs. Appeal dismissed with costs. Counsel for the Appellant: DMJ Bennett QC and IM Wales Solicitors for the Appellant: Anthony Sunman and Co Counsel for the Respondent: GG Masterman QC and YF Holt Solicitors for the Respondent: Peter Cassimatis and Co