Farah Construction Pty Ltd v J Cranny & Son Pty Ltd and Another [2002] NSWSC 364

Reported Decision : (2003) NSW ConvR 56-028

New South Wales Supreme Court

CITATION : Farah Construction Pty Ltd v J Cranny & Son Pty Ltd and Another [2002] NSWSC 364 FILE NUMBER(S) : SC 2209/01 HEARING DATE(S) : 22/04/02 JUDGMENT DATE : 30 April 2002

Farah Construction Pty Ltd - Plaintiff PARTIES : J Cranny & Sons Pty Ltd - 1st Defendant M J Davis Valuations Pty Ltd - 2nd Defendant JUDGMENT OF : Gzell J

COUNSEL : W Hodgekiss for the Plaintiff P Clay for the Defendants SOLICITORS : D C Balog & Associates Solicitors Butler Law Group Solicitors CATCHWORDS : Contracts - promise to negotiate in good faith - rejection of offer - failure to make counter-offer - no breach of duty - whether promise illusory and unenforceable CASES CITED : Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 DECISION : See par 21 and 22

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

30 APRIL 2002

2209/01 FARAH CONSTRUCTION PTY LTD v J CRANNY & SONS PTY LTD AND ANOTHER JUDGMENT 1 The plaintiff purchased a property in Byer Street, Enfield adjoining that of the defendant. The plaintiff was granted approval by Burwood Council to develop its property together with the property adjoining on the other side to that of the defendant. There was a factory building on the defendant's land. The defendant took proceedings against the plaintiff in the Land and Environment Court to restrain it from demolishing any part of the dividing wall between the two properties. The parties entered into terms of settlement on 25 January 2000 whereby the defendant undertook to ensure vacant possession of its factory and the plaintiff undertook, at its expense, to obtain all necessary consents and to demolish the factory on the defendant's land. Clauses 8 and 9 of the terms of settlement was in the following terms: "8 Cranny shall in good faith enter into negotiations with Farah for the sale to Farah of the property. 9 Each of the parties shall do all things reasonably required to give effect to this agreement." 2 In these proceedings the plaintiff claims a declaration that the defendant is in the breach of the terms of settlement and seeks damages or equitable compensation for that breach. An invoice from TMR Demolition & Excavation to the plaintiff was in evidence. I find that the plaintiff paid $28,000 to demolish the factory on the defendant's site and to remove the rubbish therefrom. 3 Farah George Elias, the sole director and secretary of the plaintiff, swore a number of affidavits. Peter Howard Cranny, a director of the defendant, swore affidavits. Both were cross-examined. Little turns on the oral evidence because the history of negotiations is set out in the correspondence passing between the parties and their legal advisors. 4 In cross-examination, Mr Cranny said that he had told Mr Elias at the time of the Land and Environment Court proceedings that the best offer he had received for the property was $650,000 subject to an option to enable the proposed purchaser to look into the viability of the site. On 2 February 2000 the plaintiff wrote to the defendant re-iterating an offer made on 24 January 2000 to match the $650,000 subject to a 12 month option, and asking the defendant to cause its solicitors to prepare a contract for sale of the land. 5 On 7 March 2000, Mr Cranny wrote to the plaintiff enclosing a preliminary study of the development potential of the defendant's land prepared by J P McManus & Associates on 3 March 2000 and stated that the defendant was prepared to negotiate as soon as the site was cleared. 6 On 26 April 2000 the solicitors for the defendant wrote to the plaintiff stating that the defendant had obtained advice as to the market value of the property and offering to sell at $1.25 million. In cross-examination, Mr Cranny said that Mr McManus put an approximate figure in excess of $1 million on the land and he, Mr Cranny, set the initial price. 7 On 4 May the plaintiff responded as follows: "We received from your office by fax on the 26th April 2000 a one page letter which purports to be an offer for sale made in accordance with clause 8 of the parties ( sic ) agreement "to negotiate in good faith" as set out in paragraph 8 of the Terms of Settlement in the Land & Environment Court dated the 25th January 2000. The letter is marked "without prejudice" and purports to submit an offer for sale of the property by your client for a purported sale price of $1,250,000.00. We note for the record that it is now more than three (3) months since the terms of settlement were agreed and this is the first time we have received any such correspondence or purported negotiations from you ( sic ) client. We submit that this "offer" is not in accordance with the terms of our agreement with your client in paragraph 8 "to negotiate in good faith" and is declined. Should your client contend to the contrary that this offer is "in good faith" we shall be pleased to receive copies of any documentation, advises ( sic ) or information supporting that contention and the calculation of the offer to us including the following: 1. Market value assessments or appraisals 2. Development Plans or proposals for the property 3. Consultants ( sic ) reports on the property 4. Reports of any meeting by your client or consultants with Burwood Council 5. Notes of any discussions regarding saleability of the property 6. Offers for purchase by any third parties."