New South Wales Supreme Court CITATION : BBK Development Corporation v Luedi [2004] NSWSC 622 HEARING DATE(S) : 31/5/04 - 1/6/04 JUDGMENT DATE : 23 July 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Vendor elected to keep contract on foot. Specific performance ordered. CATCHWORDS : CONVEYANCING - RELATIONSHIP OF VENDOR AND PURCHASER - contractual right to rescission arises through non-registration of plan of subdivision - whether vendor elected to keep contract on foot after right of rescission arose LEGISLATION CITED : Conveyancing Act 1919 Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien (1981) 5 ACLR 673 Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 Cave v Cave (1880) 15 Ch D 639 Dillon v Gange (1941) 64 CLR 253 Re Hampshire Land Co [1896] 2 Ch 743 CASES CITED : Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 JC Houghton & Co Pty Ltd v Nothard, Lowe & Wills Ltd [1928] AC 1 Re Marseilles Extension Railway Company; Ex parte Credit Foncier and Mobilier of England (1871) 7 LR Ch App 161 Newsholme Brothers v Road Transport & General Insurance Co [1929] 2 KB 356 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87 Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd (1979) 144 CLR 596 PARTIES : BBK Development Corporation Pty Limited - Plaintiff Marcus Luedi as Executor of the Estate of the Late John Lehman - Defendant FILE NUMBER(S) : SC 2234/04 COUNSEL : B Coles QC; D Pritchard - Plaintiff P W Taylor SC; P Blackburn-Hart - Defendant SOLICITORS : Fishburn Watson O'Brien - Plaintiff MBT Lawyers - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J 23 JULY 2004 2234/04 BBK DEVELOPMENT CORPORATION PTY LIMITED v MARCUS LUEDI AS EXECUTOR OF THE ESTATE OF THE LATE JOHN LEHMAN JUDGMENT HIS HONOUR: Nature of the Case 1 The plaintiff is the purchaser under a Contract for Sale of Land. It seeks specific performance of that contract, or alternatively a declaration that the land the subject of the contract is held on constructive trust for it, or alternatively equitable compensation for expenditure it has made on the land and for the increase in the land's value arising from its activities concerning the land. Factual Circumstances Leading to the Dispute 2 The late Johan Lehman ("Mr Lehman") owned a parcel of 3.88 hectares of land on the outskirts of Woolgoolga. Woolgoolga is located 26 kilometres north of Coffs Harbour. 3 In January 2002 he approached Mr Lamont, a town planner and surveyor in Coffs Harbour, who carries on his practice through a company, Resource Design & Management Pty Limited ("RDM"). Mr Lehman told Mr Lamont that he was interested in subdividing off part of his land to sell, and keeping part of the land on which his house was erected. Mr Lamont advised him that it would be more attractive to prospective purchasers if he had a plan prepared showing potential lots into which the land could be subdivided. Mr Lehman instructed Mr Lamont to prepare such a plan. Mr Lamont did so, producing a plan dated 18 June 2002 which showed the land Mr Lehman wished to sell, subdivided into 30 lots. 4 On 20 December 2002 the Coffs Harbour City Council granted development approval number 1660/02, which approved an application lodged by RDM for the subdivision of Mr Lehman's land into two lots, one of 600 square metres (which contained Mr Lehman's house), the other of 3.28 hectares. 5 On 11 February 2003 Mr Lehman entered a contract with BBK Development Corporation Pty Limited ("BBK") for the sale to BBK of the 3.28 hectare lot. At that time the subdivision, which the Council had approved the previous December, had not been registered. Indeed, the subdivision could not be registered because it was a condition of the Council's development approval that the subdivision be provided with underground electricity and telephone services, and that curbing, guttering, shoulder widening, drainage and sealing of a road which ran past Mr Lehman's house be carried out. The conditions of approval stated that the Council would not release the linen plan until it was satisfied about the arrangements for the electricity and telephone cables, and until either the roadworks were complete or Council were satisfied about arrangements for their completion. Council had not been satisfied about those matters as at 11 February 2003. 6 The Contract for Sale of Land described the land being sold as Lot 193, in an unregistered plan which was attached to the contract. In those circumstances, the following provisions of the contract applied. "28.2 The vendor must do everything reasonable to have the plan registered within six months after the 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. 28.3 If the plan is not registered within that time and in that manner - 28.3.1 the purchaser can rescind , and 28.3.2 the vendor can rescind , but only if the vendor has complied with clause 28.2." 7 The contract also contained the following special conditions: "47. The purchaser will prior to completion in a proper and workmanlike manner · Construct all roadworks required under development approval number 1660/02. · Undertake engineering survey and design for sewer. Prepare engineering design plans for approval by Coffs Harbour City Council. Arrange for the construction of the works. · Connect the existing house to the new sewer main. Hereinafter referred to as "purchaser's works" . The purchaser must start its works within 21 days of exchange of contracts. The vendor will carry out all other works and pay all other money required by DA 1660/02 … 49. The vendor allows the purchaser to submit its development application with Coffs Harbour City Council at its expense & will sign all necessary documents to allow this to happen." 8 The plan subdividing Mr Lehman's land into two lots was not registered by 11 August 2003, six months after the date of exchange of contracts. BBK does not assert that Mr Lehman failed to comply with his obligations under clause 28.2 of the contract. Thus, it is common ground that Mr Lehman became entitled to rescind the contract on 11 August 2003. 9 Mr Lehman died on 20 September 2003, without having exercised his right of rescission. Probate of his estate was granted to his executor on 24 October 2003. On 31 October 2003 his executor purported to rescind the contract on the ground that the plan of subdivision had not been registered within six months after the contract date. 10 BBK seeks an order for specific performance of the contract for sale. It contends that, by his actions after 11 August 2003, Mr Lehman elected not to rescind the contract, and hence that by 31 October 2003 it was no longer open to Mr Lehman's executor to rescind the contract. The first issue arising in this case is whether that contention of BBK is correct. Deciding that question requires one to examine more closely the dealings of both Mr Lehman and BBK concerning the land, after the contract was entered. The Various Subdivision Proposals 11 BBK has two directors, Mr Barry France and Mr Barry Mann. Before BBK entered the contract with Mr Lehman to purchase Lot 193 Mr France had seen Mr Lamont's plan showing the subdivision of Lot 193 into 30 lots. BBK engaged RDM to act for it in carrying through the subdivision of Lot 193. 12 The subdivision of Lot 193 occurred in stages. On 10 April 2003, BBK lodged with the Council a development application for subdivision of Lot 193 into five residential lots, plus a residue lot. The Council gave notice that it consented to that development application on 22 August 2003. 13 The second stage of the subdivision involved the creation of twelve residential lots, plus a residue lot. BBK's application for that subdivision was lodged with the Council on 26 August 2003. 14 The third and final stage of the subdivision involved dividing the residue lot created by the second subdivision into thirteen residential lots. BBK lodged an application for consent to that subdivision on 9 September 2003. Neither the second nor the third of BBK's subdivision applications had been determined by the time Mr Lehman's executor purported to terminate the Contract for Sale. Execution of BBK's Second Subdivision Application 15 One of the actions of Mr Lehman which BBK contends is, or is part of, an election by Mr Lehman to keep the contract on foot is execution of his consent on the development application form relating to BBK's second subdivision. That form contains the signature of Mr Lehman beneath the words "as the owner of the above property, I consent to this application". Immediately below Mr Lehman's signature on that form is printed his name, and the date "25.08.2003". That printing is in the handwriting of Mr Lamont. 16 The application was signed on behalf of BBK by both Mr Mann, and Mr France. Each of those men dated the form 25 August 2003, immediately below his own signature. 17 There is an issue of fact about when Mr Lehman's signature was placed on that form. Mr Mann gives evidence that when he signed the form, it had not been signed by Mr Lehman. Mr France gives evidence that when he signed the form, it had not been signed by Mr Lehman. A Council receipt, for the fee for lodgement of the application, was issued at 1:56pm on 26 August 2003. 18 There is no evidence of anyone witnessing Mr Lehman's signature on the application form on 25 August 2003. Neither is there evidence of the precise steps gone through to collect the documents required to be lodged with the Council concerning the second subdivision application, and to actually lodge them, or of who carried through those steps. 19 Mr Mann was not shaken in cross-examination, concerning his evidence that when he signed the form, it had not been signed by Mr Lehman. He gave evidence about himself and Mr France going to Mr Lamont's office on 25 August 2003, and being surprised and angry that there was no signature on the form from Mr Lehman, and that he and Mr France asked Mr Lamont to get it signed and get it lodged. They were angry, he said, because they had been told a number of times that the documents for the second stage of BBK's subdivision were fully complete and ready for lodgement, and they found that that was not so because Mr Lehman's signature was not on the document. I accept that evidence. 20 Mr France likewise gives evidence that he remembers that the form was not signed, and that he remembers that he was annoyed that it was not signed. I also accept that evidence. 21 Mr Lamont gave evidence, with some uncertainty, that Mr Lehman had signed other documents connected with obtaining subdivision approval in Mr Lamont's office. Concerning the document dated 25 August 2003, his response to the suggestion that Mr Lehman signed the document before 25 August 2003 was "he possibly did". 22 Mr Lamont's office was in Coffs Harbour. Mr Lehman was a patient in the Bellingen River District Hospital continually from 7 August 2003 until 15 September 2003. Mr Lamont gives evidence that he did not go to any hospital to get Mr Lehman's signature on the document, and did not give instructions to anyone else in the office to see Mr Lehman in hospital. Mr Lamont does not remember any incident in which Mr France or Mr Mann were angry with him, or made any complaint to him. 23 One of Mr Lamont's employees, Mr Walker, gives evidence of going to Mr Lehman's home in mid to late July 2003 or early August 2003, and getting him to sign a document for a development application. He is not able to identify with certainty which was the document which Mr Lehman signed on that occasion, however. He recalls, however, that the development application which was signed on that occasion was blank at the time. 24 There is a prima facie presumption that documents are made on the date they bear: Dillon v Gange (1941) 64 CLR 253 at 261 per Starke J, 264-5 per Williams J; Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien (1981) 5 ACLR 673 at 683 per Tadgell J. 25 In all these circumstances, and notwithstanding the gaps in the evidence which I have referred to at para [18] above, I find it is more likely than not that Mr Lehman's signature was placed on the form on 25 August 2003. 26 Before there can be an election, there must be "both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between two inconsistent rights which he possesses" (per Stephen J, Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 642. As to the knowledge: "… An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made; without that knowledge the doctrine of election will not be available to make irrevocable his choice of one particular right …" (ibid) 27 In the present case no submission was made that Mr Lehman did not have, on 25 August 2003, knowledge that the circumstances for exercise of the right of rescission had arisen. No doubt this was because RDM had an ongoing retainer from Mr Lehman to act in connection with his subdivision and knew of the non-registration of the plan, and perhaps also because Mr Lehman's solicitor, Mr Walsh, knew of it. 28 As to the words or conduct required for an election: "The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other … However, less unequivocal conduct, only providing some evidence of an election, may suffice if coupled with actual knowledge of the right of election … There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of another inconsistent right … For an election there need be no actual, subjective intention to elect … an election is the effect which law attributes to conduct justifiable only if such an election has been made." ( Sargent v ASL Developments Ltd at 646 (citations omitted)). The conduct of Mr Lehman in consenting to BBK's second subdivision application was something he was required to do by his express obligation under clause 49 of the Contract for Sale, to sign all necessary documents to allow BBK's development application "to happen" . It is also something he was required to do by the implied obligation in the Contract for Sale to do all such things as are necessary on his part to enable the other party to have the benefit of the contract: Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. 29 In Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39, Deane, Toohey, Gaudron and McHugh JJ said that: "A party can only be held to have elected 'if he has so communicated his election to the other party in clear and unequivocal terms': The 'Kanchenjunga' [1990] 1 Lloyds Rep 391 at p398 per Lord Goff of Chieveley". Their Honours, at 41, approved the following statement from Spencer Bower and Turner , The Law Relating to Estoppel By Representation , 3rd edition (1977), page 313: "It is of the essence of election that the party electing shall be 'confronted' with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice." 30 As Young J pointed out in Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87 at 95, the legal requirement that an election must be communicated to the other party to be effective, uses the word "communicated" in a "special sense … that is, that it must come to the other party's attention whether from the electing party or not that the election has been made." 31 Mr Lehman's signing of the consent, and making it available to BBK are actions which would be justifiable on his part only if he were choosing to keep the contract on foot, rather than to rescind it. Execution of the application was necessary before BBK's second subdivision application could proceed. Once the document was executed and handed over to BBK, BBK was in a position (as it did the next day) to lodge it with the Council, and thereby set in train the entire process of the Council giving consideration to, and perhaps eventually granting, BBK's second subdivision application. Signing the consent and handing it over is an action calculated to cause BBK to incur further expenditure, and take further steps to advance the subdivision. Signing the consent and handing it over suffice to constitute an election on Mr Lehman's part to keep the contract on foot. 32 An allegation admitted on the pleadings is that "on or about 26 August 2003 [BBK], by its agent RDM, lodged the Application with Council for the proposed 13 lot further residential subdivision by [BBK] of part of lot 193." 33 When BBK obtained the executed application form for the second stage of its subdivision, bearing Mr Lehman's signature, this is a sufficient communication of his election to keep the contract on foot. Execution and Delivery of Documents on 12 September 2003 34 Mr Anthony Walsh was the solicitor acting for Mr Lehman concerning the sale of the property to BBK. He also acted for BBK in that transaction. By 4 September 2003 documents necessary to effect the subdivision of Mr Lehman's land into two lots were ready. Those documents were a linen plan, and an instrument under section 88B Conveyancing Act 1919, creating an easement to drain sewage over lot 193, for the benefit of lot 192, and a restrictive covenant imposed on lot 193 for the benefit of lot 192. There was also drawn up, by 4 September 2003, a transfer from Mr Lehman to BBK. That transfer was only partly filled out – it identified Mr Lehman as transferor, and BBK as transferee, it stated the consideration as being $440,000, and identified the land being transferred as "Part lot 19/800222 now being the whole of the land folio identifier [blank]". In other words, it was a transfer intended to be completed once the subdivision was registered, and separate titles had issued for the two lots in it. 35 On 4 September 2003 Mr Walsh and Mr Lamont both went to visit Mr Lehman at the Bellingen Hospital, taking with them the linen plan, the section 88B instrument and the transfer. On that occasion, Mr Lehman refused to sign the documents, saying he would not sign anything unless the doctor said it was OK for him to do so. Mr Walsh telephoned Doctor O'Callaghan, the geriatrician attending to Mr Lehman, and obtained his permission for the documents to be signed. 36 On 12 September 2003 Mr Walsh visited Mr Lehman again, at Bellingen Hospital. They had a conversation to the following effect: WALSH: "You realise that the contract has gone past the time allowed for registration of the plan of subdivision and you may be able to end the contract and not sell to the purchasers?" LEHMAN: "I don't want to do that, I just want to sell it and I want to sell the house block as well." WALSH: "We'll worry about the house block after we finalise the deal with the purchasers." Mr Lehman then signed the linen plan, the section 88B instrument, and the transfer, and gave them to Mr Walsh. 37 Later on 12 September 2003, Mr Walsh wrote to RDM, enclosing the executed linen plan and section 88B instrument, saying that he understood that RDM would be attending to electronic registration of the plan, and that Mr Walsh would forward the certificate of title directly to the LTO to facilitate registration. 38 BBK contends that Mr Lehman's execution of the linen plan and section 88B instrument, and Mr Walsh's delivery of those documents to RDM, constituted a separate act of election on Mr Lehman's part. BBK further contends that, in receiving the section 88B instrument and linen plan, RDM was acting as BBK's agent. 39 By the time he signed the linen plan and section 88B instrument Mr Lehman had, as a result of the advice Mr Walsh had just given him, actual knowledge that he might have a right of rescission. However, because of the qualified terms in which Mr Walsh's advice was given ("… you may be able to end the contract and not sell to the purchasers") it could not be said he had actual knowledge that he really did have a right of rescission. A sufficient reason why execution of the linen plan and section 88B instrument is not an election, is that I do not accept that the execution of the linen plan and section 88B instrument is conduct justifiable only if Mr Lehman had made an election to keep his contract with BBK on foot, rather than rescind it. Execution of those documents was something which needed to be done to carry through the subdivision which council had approved on 20 December 2002. Mr Lehman had an obligation, under his contract with BBK to sell one of the lots in that subdivision to BBK, to take steps to carry the subdivision through, so that he could perform his contract with BBK. However, even if the contract with BBK was at an end, it would still be perfectly open to him to take the steps which were involved in seeing his own subdivision through. The Plaintiff's Application to Amend 40 In the course of argument, the plaintiff sought leave to amend its Statement of Claim by adding the following paragraphs: "12A. Alternatively to paragraphs 10 to 12, on a date unknown to the plaintiff but prior to 25 August 2003, Mr Lehman executed his consent on the Application. 12B. On or about 25 August 2003, Mr Lehman, by his agent, RDM, delivered the executed Application to the plaintiff for the plaintiff's execution of the Application which execution by the plaintiff occurred on or about 25 August 2003. 12C. Further and alternatively to paragraphs 10 to 12B, on or about 26 August 2003, Mr Lehman, by his agent, RDM, lodged the Application with Council for the proposed 13 lot further residential subdivision by the plaintiff of part of Lot 193. 12D. Further and alternatively to paragraphs 10 to 12C, at all material times Anthony Walsh, solicitor, was the solicitor for and agent of Mr Lehman and the plaintiff in respect of the Contract. 12E. On or about 12 September 2003, Mr Lehman, with knowledge of the ability to rescind the Contract, communicated his election to affirm the Contract to Mr Walsh. 12F. The communication of his election to affirm the Contract to Mr Walsh constituted a communication of election to the plaintiff." It sought a further amendment which, in substance, alleged that the matters pleaded in paragraphs 12A to 12C, and further and alternatively, the matters referred to in paragraphs 12D to 12F were steps taken by Mr Lehman after 11 August 2003 which amounted to an election on his part to proceed with the contract. Those amendments were applied for after the defendant had, in its address, pointed out that some of the submissions which the plaintiff had made went beyond the case which had been pleaded. 41 The defendant opposed leave being granted to the plaintiff to amend its Statement of Claim. 42 The amendments in paragraphs 12A and 12B allege factual circumstances which I have found not to exist. That in itself is not a sufficient reason for disallowing them, as a Court of Appeal might take a different view of the facts to that which I have taken. More significant is that the allegations in paragraphs 12A to 12C involves a factual allegation that, in connection with the Application, RDM was acting as Mr Lehman's agent. That is a factual allegation which had not been made in the original Statement of Claim. Indeed, paragraph 11 of the Statement of Claim had alleged that RDM was acting as BBK's agent, when Mr Lehman delivered the application to it, and paragraph 12 of the Statement of Claim alleged that RDM was acting as BBK's agent when it lodged the application with the Council. The question of whether RDM was at that time also Mr Lehman's agent is a factual matter which could conceivably have been affected by evidence, if it had been raised before the evidence closed. For that reason I do not allow the amendments contained in the proposed paragraphs 12A to 12C inclusive. 43 The allegations in paragraphs 12D to 12F are ones which depend upon a proposition that Mr Walsh, in talking with Mr Lehman on 12 September 2003, was acting as the agent of BBK, and hence that Mr Lehman's statement to him should be treated as a statement made to BBK. The law concerning whether, when a person occupies two capacities and acquires knowledge in one of those capacities, that knowledge is regarded as being also acquired by him in his other capacity, is complex. It depends in part upon whether that person ("the double agent") has an obligation to one of his principals to acquire information, whether he has an obligation to his other principal to pass on the information he so acquires or already has, and on whether the double agent is, in the particular transaction, acting in breach of his duty to one of his principals, to such an extent that knowledge he has or acquires should not be treated as being available to, or acquired on behalf of, that principal: Re Hampshire Land Co [1896] 2 Ch 743; JC Houghton & Co Pty Ltd v Nothard, Lowe & Wills Ltd [1928] AC 1; Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250; Re Marseilles Extension Railway Company; Ex parte Credit Foncier and Mobilier of England (1871) 7 LR Ch App 161 at 169; Cave v Cave (1880) 15 Ch D 639 at 643 – 645; Newsholme Brothers v Road Transport & General Insurance Co [1929] 2 KB 356 at 374-5; Dal Pont, The Law of Agency (Butterworths Australia, 2001) paras [22.43] - [22.56]. That the allegation opens up this new field of factual investigation is a sufficient reason for not permitting it to be raised when the evidence is complete. I decline to allow the addition of the proposed new paragraphs 12D to 12F. It follows that the consequential amendments are also disallowed. The Alternative Claims 44 It follows from my upholding the plaintiff's argument that there has been an election not to exercise a right of rescission by Mr Lehman's actions of 25 August 2003, that the purported rescission by Mr Lehman's executor is ineffective. In those circumstances there is no need to consider BBK's alternative arguments that, if the rescission was effective, it should be entitled to equitable compensation. Orders 45 BBK has asserted, and proved, that it is ready, willing and able to complete the contract. It was not challenged in that assertion. There should be an order for specific performance of the contract. 46 The orders of the Court are: 1. Declare that the agreement for sale of land dated 11 February 2003 between the plaintiff as purchaser and the Late John Lehman as vendor for the sale and purchase of all that land now contained in Folio Identifier 193/1059641 remains on foot. 2. Order that the defendant specifically perform the said contract for sale and carry it into execution. 3. Grant liberty to the plaintiff to apply for further orders concerning the manner of specifically performing the said contract. 4. Order the defendant to pay the plaintiff's costs of these proceedings. ********** Last Modified: 07/26/2004 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. 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