New South Wales Supreme Court CITATION : O'Sullivan & Anor v Great Wall Resources Pty Ltd [2006] NSWSC 1268 HEARING DATE(S) : 23 November 2006 JUDGMENT DATE : 24 November 2006 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Orders for specific performance and inquiry as to damages. CATCHWORDS : CONTRACT – CONSTRUCTION – REPUDIATION – Whether contract executed – whether plaintiffs insisted on erroneous construction – whether plaintiffs entitled to specific performance. LEGISLATION CITED : Conveyancing Act 1919 (NSW) – s.55(2A) DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 Fitzgerald v Masters (1956) 95 CLR 420 CASES CITED : Green v Sommerville (1979) 141 CLR 594 Holland v Wiltshire (1954) 90 CLR 409 Ryder v Frohlich [2004] NSWCA 472 Summers v Commonwealth (1918) 25 CLR 144 Stephen O'Sullivan – First Plaintiff PARTIES : Norella O'Sullivan – Second Plaintiff Great Wall Resources Pty Ltd – Defendant FILE NUMBER(S) : SC 1314/06 COUNSEL : T.H. Barrett – Plaintiffs D.A. Smallbone – Defendant SOLICITORS : Russell McLelland Brown – Plaintiffs Hennikers – Defendant 1314/06 O'Sullivan & Anor v Great Wall Resources Pty Ltd JUDGMENT 24 November, 2006 Introduction and issues 1 The Plaintiffs seek specific performance of a contract for the sale to them of a parcel of vacant land at Yallah and an inquiry as to damages for the Defendant's alleged breach of contract in failing to complete the contract and for breach of warranty. 2 The Defendant, by its Defence and Cross Claim, says: – it did not execute the contract; – the contract was not exchanged; – the Plaintiffs failed to pay the deposit as required by the contract; – the Defendant validly rescinded the contract for the Plaintiffs' failure to pay the deposit; – the Plaintiffs repudiated the contract by insisting on performance in a manner inconsistent with the contract; – the Defendant validly rescinded the contract for the Plaintiffs' repudiation; – the parties have abandoned the contract by both insisting on performance inconsistent with the terms of the contract; – the Plaintiffs are liable to pay to the Defendant the deposit due under the contract. 3 In response to the last claim, the Plaintiffs, by an amendment to their Summons allowed by consent, say that if they are liable to pay the deposit to the Defendant, they should be relieved of that liability under s.55(2A) of the Conveyancing Act 1919 (NSW). 4 I will deal with each of the contentions of the Defendant in turn. Whether the Defendant executed the contract 5 The sole director of the Defendant is Mr Francesco Capocchiano. The Defendant's solicitor acting on the transaction was Mr Vic Cuoco, a partner of the firm of Verekers at the firm's Wollongong office. Mr Cuoco has given evidence that on 27 May 2003 he wrote to Mr Capocchiano advising that he had received instructions from a real estate agent, LeServe McGrath Real Estate, for the sale of the subject land to the Plaintiffs, and requesting Mr Capocchiano to attend at his office to execute the vendor's copy of the contract. The letter is in evidence. There is no suggestion that Mr Capocchiano did not receive it. 6 Mr Cuoco says that on 12 June 2003 Mr Capocchiano came to his office. Mr Cuoco says that he explained to Mr Capocchiano the provisions of the contract. He says that Mr Capocchiano signed the contract on behalf of the Defendant in his presence. 7 On 16 June 2003, Mr Cuoco wrote to Mr Capocchiano confirming that contracts for the sale of the land to the Plaintiffs had been exchanged, confirming the purchase price, and confirming also the amount which the Defendant was entitled to receive from the sale. 8 There is no evidence that Mr Capocchiano did not receive that letter or that he protested to Mr Cuoco that he had not signed any contract for the sale of the land to the Plaintiffs. It was not until 14 December 2005 that the Defendant first asserted that Mr Capocchiano had never signed the contract. 9 In paragraph 4 of his affidavit dated 6 April 2006, Mr Capocchiano says that the signature on the vendor's counterpart of the contract is not his signature. In opening the Defendant's case Mr Smallbone of Counsel, who appears for the Defendant, on instructions conceded that the signature on the vendor's counterpart of the contract was, indeed, the signature of Mr Capocchiano. All that Mr Capocchiano says in his affidavit otherwise is that he has "no knowledge" of the contract. 10 Mr Cuoco was cross examined as to credit. Nothing emerged which raised the slightest doubt as to his evidence. It is supported by contemporaneous correspondence with Mr Capocchiano, by Mr Capocchiano's failure to protest about execution of the contract for more than two years, and by Mr Capocchiano's concession that the signature on the vendor's counterpart of the contract is his signature. 11 Mr Capocchiano was not cross examined on his assertion in his affidavit that he had no knowledge of the contract until 2005. However, there is no rule of law compelling me to accept that statement, even though it is not challenged in cross examination, if all of the other evidence to the contrary is reliable and convincing. I am satisfied that the subject contract containing all of its terms was signed on behalf of the Defendant by Mr Capocchiano on 12 June 2003. Was the contract exchanged 12 The solicitors for the Plaintiffs, as purchasers under the contract, were also Messrs Verekers, but the solicitor acting was a Mr Schier, who was employed in the firm's Albion Park office. Mr Cuoco says that he received a copy of the contract executed by the Plaintiffs on 13 June 2003. He is not able to recall how he received it. He says that, in accordance with his usual practice, he would have instructed his assistant to send the vendor's executed counterpart of the contract to Mr Schier the same day. 13 There is no letter in Mr Cuoco's file forwarding to Mr Schier the vendor's counterpart by way of exchange. However, Mr Cuoco says that this is not unusual because the transaction was being conducted by two offices of his firm. Mr Smallbone submits that I should not be satisfied that "the ceremony" of exchange of contracts was duly performed. 14 The Plaintiffs have produced the contract signed by the Defendant. Mr Schier wrote to the Plaintiffs on 16 June 2003 advising, "We have now received the duly executed vendor's contract to complete the exchange. The contracts for sale are dated 13 June 2003 and are therefore now deemed to have been exchanged" . On the same day, Mr Cuoco wrote to the real estate agents confirming that "contracts have now been exchanged and dated 13th June 2003" . 15 No particular ceremony or ritual is required to be performed in order to exchange contracts in a conveyance. The exchange can take place by many different means. I am entirely satisfied by the contemporaneous correspondence that executed counterparts of the contract were exchanged between the parties' solicitors on 13 June 2003 so that the contract became binding. Did the Plaintiffs fail to pay the deposit 16 Clause 2.1 of the contract required the deposit of $48,000 to be paid to "the depositholder" . "The depositholder" is defined as "the vendor's agent" and the vendor's agent is named in the contract as "LeServe McGrath Real Estate" . Special Conditions 43 and 44 of the contract provide: "43. The Purchaser agrees to release the deposit paid herein to the vendor or as nominated by the vendors agent upon the Purchasers completion of their sale of 13 Candlebark Street Albion Park Rail. 44. The Vendor agrees to accept the sum of $1,000,00 from the Purchaser on exchange of contracts with the balance of the deposit to be paid on completion of the Purchaser's sale of their property located at 13 Candlebark Street, Albion Park." 17 On 4 May 2003 the Plaintiffs paid $1,000 as a holding deposit on the subject land. A sales trust account receipt was issued by LeServe McGrath Real Estate. The receipt stated that the money was received "on behalf of Higgins & LeServe" . This entry was made without reference to the Plaintiffs who had no knowledge of the fact that, on 26 March 2003, the Defendant had entered into a Put and Call Option Deed with Michel LeServe Holdings Pty Limited and Mr and Mrs Higgins. Under that Deed, Michel LeServe Holdings and Mr and Mrs Higgins had the right to require the Defendant to sell the subject land to their nominee at a price stipulated by them and the Defendant was to receive $400,000 for the land. 18 Michel LeServe Holdings Pty Limited is a company controlled by Mr Michel LeServe, who also controls the business of the real estate agents, LeServe McGrath Real Estate, who are named as the Defendant's agent in the contract. 19 After exchange of the contracts the Plaintiffs paid, on 12 July 2003, a sum of $34,637.29 on account of the deposit under the contract. A sales trust account receipt for that amount was issued by LeServe McGrath Real Estate. Without reference to the Plaintiffs, the sum was shown on the receipt as received "on behalf of Higgins & Michel LeServe Holdings Pty Limited" . 20 On 14 July 2003, the Plaintiffs paid a further sum of $7,577.71 on account of the deposit. Again without reference to the Plaintiffs, LeServe McGrath Real Estate issued a sales trust account receipt showing the money as received "on behalf of Higgins & LeServe" . 21 LeServe McGrath Real Estate was also the agent for the sale of the Plaintiffs' property, the settlement of which occurred on or about 14 July 2003. An accounting record of the real estate agent shows that $5,785 of the proceeds of that sale which were being held by the agent was transferred by book entry on account of the deposit payable under the subject contract. The entry is identified by the description "Higg" , which I take to be a reference to Higgins. 22 The Defendant contends that, first, the Plaintiffs were obliged, by Special Conditions 43 and 44, to pay the deposit directly to the Defendant and not to the Defendant's agent. Second, if the contract permitted payment of the deposit to the agent it was not paid to the agent, but rather was paid to Michel LeServe Holdings Pty Limited and Mr and Mrs Higgins. 23 I am unable to accept either contention. The Plaintiffs in fact delivered their payments totalling the deposit to the Defendant's agent nominated in the contract as required by Clause 2.1 of the contract. The receipts were issued by the real estate agents. The agents chose to place on the receipts, without reference to the Plaintiffs, that the money was received on behalf of third parties to whom, in their view, the money was accountable by the Defendant pursuant to the Deed of which the Plaintiffs were unaware. However, the Plaintiffs did all that they were obliged to do under the contract. They paid the deposit to the nominated agent for the Defendant. How that money was accounted as between the agent and the Defendant was not their concern. 24 Special Condition 43 of the contract does not alter this position. It simply provides that the agent, who has already received the deposit, will be entitled to account to the Defendant for it. The special condition does not require that the Plaintiffs do anything further than they have already done under Clause 2.1 in paying the deposit to the Defendant's agent. Accordingly, I hold that the Plaintiffs did not breach the deposit conditions of the contract and the Defendant was not entitled to rescind the contract on that ground. Repudiation 25 Special Condition 41 of the contract provides: "The vendor warrants that the right of way affecting the part of the land noted on title number A769744 will be extinguished prior to completion of the matter and in the event that the vendor fails to extinguish the said easement then the purchaser shall be at liberty to rescind to the contract whereby the provision of clause 19 hereof shall apply." 26 The Defendant says that the Plaintiffs insisted on a construction of Special Condition 41 which was wrong and insisted to such a degree as to evidence an intention to accept performance of the contract only in accordance with its erroneous construction so that the Plaintiffs repudiated the contract. The Defendant says that it has validly terminated the contract because of the Plaintiffs' wrongful repudiation. 27 It is to be noted that Special Condition 39 of the contract required completion within twenty-one days after notice from the vendor's solicitor of registration of a plan of subdivision. Notice was given on 8 December 2005. The parties agree that completion was due under Special Condition 39 on 29 December 2005. Time was not made of the essence in any respect under the contract. Special Condition 29 provided that time could be made of the essence by a fourteen day notice to complete. No such notice was given by either side. The assertions of the parties about the contract and their construction of it in their solicitors' correspondence have to be viewed against this background. 28 The Defendant says that the Plaintiffs insisted upon a construction of Special Condition 41 to the effect that it entitled the Plaintiffs to compel the Defendant to remove the right-of-way referred to and to proceed to completion. The Defendants say that, on the true construction of Special Condition 41, the Plaintiffs had only two rights if the Defendant failed to remove the right-of-way before completion, namely, to rescind the contract or to affirm the contract and proceed to completion as if the contract no longer contained Special Condition 41, that is, without the benefit of the Defendant's warranty as to removal of the right-of-way. 29 Although the Defendant's construction of Special Condition 41 is arguable, I do not think it is correct. In my opinion, affirmation of the contract by the Plaintiffs would be an affirmation of the entire contract, including Special Condition 41. All that would have happened by the affirmation is that the Plaintiffs would have lost the right to rescind conferred by Special Condition 41, but they would not lose any other rights conferred by the contract including the rights conferred by the warranty contained in Special Condition 41. 30 A party to a contract may demonstrate that he or she refuses to be bound further by that contract if he or she persistently maintains an untenable construction of the contract on a matter of essential substance: see, e.g. Summers v Commonwealth (1918) 25 CLR 144, at 152; Green v Sommerville (1979) 141 CLR 594, at 611. But it is a general principle of the law of contract that the Court will not readily infer from a party's insistence on a wrong construction of a contract that he or she is unwilling to perform it according to its true construction: see Green v Sommerville at p 611, per Mason J. 31 If a party to a contract clearly demonstrates that he or she will only perform the contract in accordance with an untenable construction that conduct is called a renunciation or repudiation of the contract. The innocent party is then put to an election whether to affirm the contract and claim damages or to terminate the contract. An election to terminate must be clear and unequivocal: see Holland v Wiltshire (1954) 90 CLR 409, at 413, 416, 419, 422; and, see generally, Ryder v Frohlich [2004] NSWCA 472, at paras 102-120 per McColl JA. 32 Mr Smallbone relies on a number of letters from the Plaintiffs' solicitors as demonstrating a persistent maintenance of an untenable construction of the contract, namely, the letters of 13 December, 14 December, two letters of 22 December 2005, and 3 April 2006. In the 3 April 2006 letter, the Plaintiffs' solicitors say: "If the transaction settles without your client complying with clause 41 and others to extinguish the right of way then our clients specifically reserve their rights against any and all parties to sue for damages with respect to such failure." Far from being an assertion of an untenable construction of the contract, this was an assertion of the correct construction. 33 The correspondence between the solicitors up to and including 22 December 2005 was, as a general description, argumentative and not all together consistent. Without intending disrespect, I think it fairly apparent that both parties' solicitors were themselves not entirely sure of the true construction and effect of Special Condition 41. 34 In the 13 December 2005 letter, the Plaintiffs' solicitor states: "Our client requires that the right-of-way be extinguished prior to completion" . That statement is consistent simply with an insistence by the Plaintiffs' solicitors that the Defendant perform the warranty in Special Condition 41 by the completion date. To the same effect are the statements in the letters of 14 and 22 December upon which the Defendant relies. 35 In short, bearing in mind that the Court does not lightly find an intention to renounce or repudiate a contract, I cannot conclude from the statements in the Plaintiffs' solicitor's letters, upon which the Defendant relies, that the Plaintiffs had demonstrated persistently an intention to require performance of the contract according to an untenable construction of Special Condition 41. For these reasons, I cannot find that the Plaintiffs at any time repudiated or renounced the contract. Abandonment 36 A contract is abandoned if the parties' actions demonstrate a common intention that the contract is not to be performed further: see, e.g. DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 at 434, Fitzgerald v Masters (1956) 95 CLR 420, at 432. 37 The correspondence between the parties from registration of the plan of subdivision in early December 2005 and commencement of these proceedings by the Plaintiffs in March 2006 demonstrates amply that, far from abandoning the contract, the Plaintiffs were insisting on its performance. By 3 April 2006 they were insisting on its performance according to its true construction. The defence of abandonment cannot succeed. Orders 38 In the result, all of the defences to the Plaintiffs' claims fail. There will be declarations as sought in paragraphs 1 and 2 of the Amended Summons, an order for specific performance as sought in paragraph 3, and an inquiry as to damages as sought in paragraph 3A. For the reasons I have given, the Defendant remains bound by the warranty contained in Special Condition 41 of the contract. Upon completion of the contract, the Plaintiffs will be entitled to damages from the Defendant for breach of that warranty. There will be a declaration in terms of paragraph 4A of the Amended Summons and an inquiry as to damages as sought in paragraph 4B. 39 The Defendant is not entitled to any payment by the Plaintiffs in respect of the deposit. The deposit has already been paid in full to the Defendant's agents in accordance with the terms of the contract. As I have said, how the agent accounts to the Defendant for that deposit is a matter between the agent and the Defendant and does not concern the Plaintiffs. The Defendant's Cross Claim will therefore be dismissed. 40 The costs should be paid in accordance with the usual rule and should follow the event. The Defendant will therefore pay the Plaintiffs' costs of the proceedings. I make orders in accordance with these reasons for judgment. – oOo – 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.