New South Wales Supreme Court CITATION : James Maxwell Cockburn & Ors v Key Urban Pty Limited (formerly known as Beachblast Holdings Pty Ltd) [2009] NSWSC 458 HEARING DATE(S) : 08.04.09 JUDGMENT DATE : 29 May 2009 JUDGMENT OF : Nicholas J DECISION : par 49 CATCHWORDS : CONTRACTS – contract for sale of property – vendor's notice to extend time for completion – notice wrongly stating date for completion – whether notice effective – whether purchasers' conduct waived right to rescind – no question of general principle CATEGORY : Principal judgment Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 251 ALR 322 CASES CITED : Mannai Ltd v Eagle Star Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 The Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 James Maxwell Cockburn – first plaintiff Judith Ann Cockburn – second plaintiff Tracey Ann Lambert – third plaintiff Jacqueline Mills – fourth plaintiff PARTIES : Karen Lea Cockburn – fifth plaintiff Christian Fabian Vodicka – sixth plaintiff Albert Edward Massey - seventh plaintiff Edita Massey – eighth plaintiff Key Urban Pty Ltd - defendant FILE NUMBER(S) : SC 2630/08 COUNSEL : J Darvall - plaintiffs D Robinson SC - defendant SOLICITORS : Meehans Solicitors - plaintiffs Holding Redlich - defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Nicholas J 29 May 2009 2630/08 James Maxwell Cockburn & Ors v Key Urban Pty Limited (formerly known as Beachblast Holdings Pty Ltd) JUDGMENT 1 His Honour: By summons filed 5 May 2008 the plaintiff purchasers seek a declaration that notices served to extend time for completion purportedly under cl 45 of their contracts with the defendant vendor are invalid. The plaintiffs also seek a declaration that the contracts were validly rescinded pursuant to notices dated 7 December 2007, and that they are entitled to a return of the deposits paid by them. They also seek orders to give effect to the declarations. 2 The defendant (the vendor), formerly known as Beachblast Holdings Pty Ltd, is the developer of home units at Warby Street, Campbelltown. 3 On 1 October 2004 the first to fifth plaintiffs (the purchasers) entered into a contract with the vendor for the sale and purchase of unit 9 in the development for the price of $305,000, and paid a deposit in the sum of $15,250. On the same day they entered into a similar contract with the vendor for the purchase of unit 10 for the price of $295,000, and paid a deposit in the sum of $14,750. 4 On 5 October 2004 the sixth plaintiff entered into separate similar contracts with the vendor for the purchase of unit 11 for the price of $280,000, and of unit 14 for the price of $290,000, and paid deposits in the sum of $14,000, and $14,500, respectively. 5 On 22 October 2004 the seventh and eighth plaintiffs entered into separate similar contracts with the vendor for the purchase of unit 38 for the price of $337,000, and of unit 48 for the price of $330,000, and paid deposits in the sum of $16,850, and $16,500, respectively. 6 For convenience it was agreed that the questions of the validity of the vendor's certificate under cl 45 of the contract for the purchase of unit 9 (the certificate), and of the validity of the purchasers' rescission of 7 March 2007 should proceed first as their determination would govern the outcome of similar questions under the other contracts. 7 The principal question raised by the purchasers in these proceedings was whether the certificate, reasonably understood, complied with the requirements of cl 45.3 of the contract and was effective to extend the date for completion. If, as the purchasers contended, the certificate was invalid, there had been no extension of the stipulated date for completion, 1 October 2007, which entitled them to rescind the contract by their notice of 7 December 2007. 8 The vendor opposed the purchasers' claims on the ground that the certificate was valid, alternatively, that, in the circumstances, the purchasers had waived the right to rescind and remained bound by the contract. 9 It was common ground, that absent extension, the date for completion was 1 October 2007 failing which the purchasers then had the right to rescind. 10 Relevantly, the contract provided: "28.2 The vendor must do everything reasonable to have the plan registered within 6 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. 45 COMPLETION … 45.2 Clause 28.2 is amended from "6 months" to "36 months". 45.3 Despite Clause 45.2, the Vendor may extend the date in 45.2 by each day that the Vendor or it's [sic] builders have been delayed in completing the construction by reason of: (i) inclement weather or conditions resulting from inclement weather (ii) any civil commotion, combination of workman strikes, lock-outs of industrial disputes affecting the progress of the works or affecting the manufacture or supply of materials for construction or fit out of the property. (iii) Any matter beyond control of the Vendor. (iv) Any delay in any approval required for the construction of the units by any Government Agency 45.4 The Vendor is the sole determination of the Vendor's entitlement to extensions of time under Clause 45.3 45.5 A Certificate by the Vendor in relation to extensions of time under Clause 45.3 is final, conclusive and binding on the parties". 11 By letter of 30 March 2007 the vendor informed the purchasers' conveyancers that it was arranging refinancing to enable completion of the project. It advised that, under cl 45.3(iii) and 45.4, it would be claiming "… an extension of time from August 25th 2006 to when the building works recommence". 12 On or about 27 August 2007 the purchasers' solicitors received from the vendor's solicitors a letter from them to the purchasers dated 20 August 2007 and the certificate, which was a document entitled "Vendor's certificate under clause 45 of the contract" dated 21 August 2007. 13 The letter to the purchasers included: "Please find enclosed by way of service a Notice under special condition 45.3 of the Contact for Sale extending the date by which the Contract for Sale must be completed from 1 October 2007 to 31 March 2009. As you will be aware, construction has been stalled on the development for some time now. This delay has occurred because the finance company providing the funds for construction of the development has entered into external administration and therefore, has been unable to continue providing finance to Beachblast for the construction. Fortunately, Beachblast has now secured alternate funds for the project and construction is due to recommence within the next 10 weeks. In the enclosed Notice, the new date by which your contract must be completed is 31 March 2009. After consulting with the building company and the financiers, Beachblast does not envisage that the project will take this long to complete. However, it is a requirement of the new financier that an additional period is added to any sunset date to allow for any unforseen circumstances." 14 The relevant provisions of the certificate were the following: "2. The Vendor and the Builder have been delayed in completing the construction of the Development, including the Property, from 10 October 2006 to date, due to matters beyond the control of the Vendor. In particular, the Development Financer ceased provision of funds to the Vendor to enable the construction of the Development to continue beyond 10 October 2006. The Development Financier was subsequently placed into external administration. The Vendor has been required to source alternate funds to enable the completion of the Development. 3. The Vendor has determined that the delay referred to in numbered paragraph 2 of this certificate entitles it to extend time under clause 45.3(iii) of the Contract. 4. Pursuant to clause 45.3(iii) of the Contact, the Vendor hereby extends the date in clause 45.2 of the Contract to 31 March 2009. 5. The Vendor is presently sourcing alternate funds and expects these funds to be available in 8 weeks and the Builder will then be able to recommence the construction of the Development. 6. The Vendor may have cause to further extend the date in clause 45.2 of the Contract. If so, a further Certificate under clause 45 of the Contact will be served on you." 15 By their letter of 7 December 2007 to the vendor's solicitors, the purchasers' solicitors disputed the validity of the certificate on grounds that it was inconsistent with the terms of cl 45.3 of the contract, and that the claim that the delays had been caused by reasons beyond the control of the vendor was not accepted. It continued: "Your notice claims you have been delayed from 10 October 2006 to the date of the notice 20 August 2007 being 314 days, yet your notice seeks to extend the contract by 548 days. This is not consistent with the rights granted to extend under clause 45.3 and as such invalidates the notice. As the notice is invalid the plan registration date has not been extended and the date for registration at this time remains 1st October 2007. The purchaser now exercised their rights pursuant to clause 28.3 to rescind this contract of sale dated 1st October 2004." Demand was made for the release of the deposit. 16 In their letter of 20 December 2007 to the purchasers' solicitors the vendor's solicitors denied entitlement to rescind. They also said: "Whilst our client appreciates that the registration of the plan can only be delayed by each day that it or its builders have been delayed in completing the construction by any of the matters specified in special condition 45.3, in circumstances where the delay is ongoing, there is nothing in special condition 45 which prohibits our client from prospectively anticipating when the delay will cease. That is, in issuing a certificate, our client is entitled to take into consideration the expected length of a continuing delay. In any event, the certificate at the least extends time from 10 October 2006 until 21 August 2007, which we calculate to be 316 days inclusive of 21 August 2007. As a result, the notice on any view is effective in extending the date for the registration of the plan under clause 28, as modified by clause 45, from 1 October 2007 under 11 August 2008, which is 316 days." 17 In their letter of 5 February 2008 to the vendor's solicitors the purchasers' solicitors repeated denial of the validity of the certificate, and the demand for the release of the deposit. 18 The vendor adheres to the validity of the certificate, and has not released the deposit. The validity issue 19 The crucial question is whether the certificate given by the vendor to the purchasers purportedly under the contractual right under cl 45.3 to extend the time for completion was effective to do so. Its validity turns upon its proper construction. The relevant principles are well known. 20 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 the High Court of Australia said (p 179): "40 This Court, in Pacific Carriers Ltd v BNP Paribas [6], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction[7]." 21 In Mannai Ltd v Eagle Star Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 Lord Steyn said (p 771): "In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language …" 22 His Lordship held that the construction of unilateral contractual notices must be approached objectively and said (p 767): "The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene." He identified the test as follows (p 772): "Like Lord Hoffmann I would hold that the correct test for the validity of a notice is that posed by Goulding J. in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444, viz. "Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?"" and said (p 773): "That test can only be satisfied where the reasonable recipient could be left in no doubt whatever. It is in accord with business common sense that in cases where that simple and straightforward test is satisfied the notices should be treated as valid." 23 It was common ground that under cl 45.3 the time by which the vendor may extend the date for completion is to be calculated with reference to the period of actual delay in completing the construction by reason of the matters specified in sub-pars (i) to (iv). It was accepted that as at 21 August 2007, the date of the certificate, the actual delay from 10 October 2006 was 314 days, whereas, in terms, the extension claimed was to 31 March 2009, a period of 548 days. 24 For the purchasers it was submitted that the meaning conveyed by the certificate to a reasonable recipient was stated in clear and unambiguous terms in cl 4 which said: "Pursuant to clause 45.3(iii) of the Contract, the Vendor hereby extends the date of the Contract to 31 March 2009." 25 It was put that these words, either alone or in context, stated the vendor's claim to a contractual entitlement to an extension of time for completion to 31 March 2009. As such, the claim was not one referable to actual delay and, hence, was unauthorised by cl 45.3, and rendered the certificate ineffective. 26 In response, the vendor submitted that a reasonable recipient familiar with cl 45.3 would understand the claim for extension to be based on actual delay to 21 August 2007 and, therefore, the certificate was effective to extend time for the period of actual delay. It was put that such understanding would be derived from the statements in cl 2 and cl 3 that there had been delay in completing the construction from 10 October 2006 to date (21 August 2007) due to matters beyond the control of the vendor which the vendor had determined entitled it to extend time under cl 45.3(iii) of the contract. As I understood it, the vendor submitted that such a recipient would know that it was not open to the vendor to claim an extension of time referable to anticipated future delay and would, therefore, treat cl 4 as uncontractual and ignore it. Alternatively, it was put that it was sufficiently clear from cl 2 and cl 3 that the vendor had made a determination under cl 45.3(iii) of entitlement to an extension of time to 21 August 2007 with regard to actual delay and hence the certificate was valid. In short, the submission was that the effect of cl 4, read with cl 2 and cl 3, would not mislead so as to render the certificate invalid. 27 As the principles to which I referred require, the meaning of the terms of the certificate is to be determined by what a reasonable recipient in the position of the purchasers would have understood them to mean. It is an objective exercise which takes into account the relevant contextual scene. 28 I accept the vendor's submission that the terms of par 5 and par 6 of the certificate are irrelevant to the validity issue. 29 In my opinion, the reasonable recipient would not be troubled by any ambiguity in cl 2, cl 3 and cl 4 when read together, because there is none. In my opinion the only sense in which cl 4 would be understood is that the extension of the date for completion as determined by the vendor in the circumstances described in cl 2 and cl 3 was to 31 March 2009. Clause 3 would be understood as a statement that the vendor had determined its entitlement to an extension of time, and cl 4 as the unqualified specification of the date to which time was to be extended. The ordinary language of cl 2, cl 3 and cl 4 makes plain that cl 4 is the operative statement in which the extended date for completion is stipulated. The terms of these clauses are sufficiently precise and certain as to inform the purchasers that the claim was for an extension to the date specified, and that they should act accordingly. 30 The relevant contextual scene included the letter of 20 August 2007 with which the certificate was served. Had the purchasers any doubt about the vendor's meaning it would have been dispelled upon reading it. The letter twice asserted that the certificate operated to extend the date for completion to 31 March 2009, thereby putting beyond rational argument the meaning the vendor intended to be given to it. 31 It follows, in my opinion, that the vendor's submissions must be rejected, and the purchasers' challenge to the validity of the certificate should be upheld. Accordingly, I find that, as the claimed extended date to 31 March 2009 was not calculated by reference to actual delay, the certificate was not authorised by cl 45.3, and was ineffective to extend the date for completion of the contract. As agreed, the same conclusion applies to the certificates issued purportedly under the other contracts with which the parties were concerned. The waiver issue 32 The vendor contended that if the certificate was invalid, some of the plaintiffs had waived their right to rescind the contract under cl 28.3 by the letter of 7 December 2007. In short, it asserted that, since the commencement of these proceedings, the first to sixth plaintiffs had marketed, and had issued contracts for the sale of, units through a real estate agent which amounted to conduct inconsistent with their claim for a declaration that their contracts with the vendor had been rescinded. In submissions waiver was used in a sense synonymous with election, the vendor's case being that in the circumstances there had been an election between inconsistent rights. 33 It is common ground that contracts had been issued by the first to fifth plaintiffs in respect of units 9 and 10, and by the sixth plaintiff in respect of units 11 and 14. Accordingly, waiver is raised against the first to sixth plaintiffs (the plaintiffs), but not against the seventh and eighth plaintiffs. 34 The following undisputed evidence was relied upon. 35 On 25 March 2009 the units were advertised for sale in the newspaper "Camden Advocate" by Century 21 Premier Realty, a real estate agent (the agent). The proprietor of the business name "Century 21 Premier Realty" is Trentsha Pty Ltd, of which the first and second plaintiffs are directors. These plaintiffs are also licensed real estate agents. The units were also advertised for sale on the Century 21 Premier Realty website, and enquiries were invited to be directed to the first plaintiff. 36 By letter of 27 March 2009, under the hand of the first plaintiff, the agent sent to its solicitors a document entitled "Sales Advice" for each of units 9, 10 and 14. The document included particulars of the vendor and the price, but the space for details of the purchaser was left blank. 37 On 1 April 2009, in response to the website advertisement, one Mr David Albanese visited the agent's office, and there had a conversation with the first plaintiff about units 9, 10, 11 and 14. The first plaintiff advised him, inter alia, of the listing prices and possible rental yield of the units. He also gave Mr Albanese a copy of floor plans for the units, and a form of contract for each. 38 The evidence of the first plaintiff, which I accept, was that he arranged the marketing of the units in March 2009 out of concern that the court would rule against the purchasers on the rescission question. Apart from those given to Mr Albanese, no contracts had been issued. No contracts, including those given to Mr Albanese, had been exchanged. 39 The contracts are in common form. The descriptions of the vendor, the agent, and solicitors, and of the property are included. No details of purchaser, price or deposit are included. Conditions 18 and 20 include a statement that the purchaser acknowledges that the vendor is not the registered proprietor of the property. Condition 61 provides: "The purchaser acknowledges at the time of entering into this Contract, the Vendor is not the current registered proprietor of the property, but will be the registered proprietor prior to the date of settlement." 40 The form of contract is unsigned by either vendor or purchaser. 41 The vendor submitted that, in the circumstances, the plaintiffs' stance was that they retained a title to the units sufficient to convey good title when called upon to do so and, thereby, they had effectively renounced the rights claimed in these proceedings, and should be precluded from claiming that rescission was effective. Support was sought from the statement in The Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394 of Mason CJ (p 406-107): "According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right: Craine v. Colonial Mutual Fire Insurance Co. Ltd. [1920] HCA 64; (1920) 28 CLR 305 at p 326; Grundt v. Great Boulder Pty. Gold Mines Ltd. [1937] HCA 58; (1937) 59 CLR 641 at p 658. However, the better view is that, apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another, such as the right to insist on performance of a contract and the right to rescind for essential breach: see Kammins, at p 883. This category of waiver is an example of the doctrine of election." 42 Reliance was also placed on the following passage in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 251 ALR 322: "58 The doctrine of election is long established at common law. As Jordan CJ pointed out in O'Connor v SP Bray Ltd [47] , "[s]ince the days of the Year Books it has been recognised that you cannot have the egg and the halfpenny too". If, then, something happens which gives rise to the existence of two alternative rights, and one of those rights is satisfied, the other is no longer available. A breach of contract by one party always gives the other party a right to recover damages for the breach. If serious, the breach will give the innocent party the right to treat the contract as at an end. But the innocent party need not accept the repudiatory breach and avoid the contract; the innocent party may choose to insist upon further performance. And as Craine v Colonial Mutual Fire Insurance Co Ltd [48] shows, the exercise, despite knowledge of a breach entitling one party to be discharged from its future performance, of rights available only if the contract subsists, will constitute an election to maintain the contract on foot." 43 It was put that the evidence established that the plaintiffs had elected to claim they had title to the units, and a right to sell them, which precluded them from pursuing an inconsistent claim for a declaration that the contracts had been rescinded. Although it was accepted that the plaintiffs had made no binding contract for the sale of the units, it was put that it was sufficient to constitute an election or waiver that, by the terms of the contracts, they had deliberately represented or held out they had, or would obtain, title to the units and thereby adopted a position inconsistent with their claim for rescission, and should not be permitted to pursue it. 44 The plaintiffs denied any occasion of election or waiver had been established. It was put that, as no contract had been exchanged, the relevant conduct amounted to no more than the making of representations as conveyed to Mr Albanese by the terms of the contracts which were given to him, which conduct was no basis for denying the claims for relief in these proceedings. 45 In my opinion, the vendor's claim must be rejected. As I understand the principles, the application of the doctrines of election and waiver is attracted in circumstances where a party is entitled to alternative rights inconsistent with one another. In my opinion such circumstances were not established, with the consequence that no question of election or waiver arose. 46 It was never the intention of the plaintiffs to abandon their claims in this Court. The marketing of the units, and the issuing of the contracts to Mr Albanese, gave rise to no binding obligation to sell any unit to a third party, or to the right to insist upon a sale. The conduct complained of went no further than representing to third parties that upon completion of any contract good title would be conveyed. As no contracts were exchanged, such conduct was without legal effect. 47 In my opinion, no question of the plaintiffs' right to insist upon rescission of a particular contract with the vendor arose until they had entered into a binding contract for the on-sale of the relevant unit or units with a third party. This did not occur. An occasion for choosing between inconsistent rights never arose. It follows that there was no arrangement which affected the relationship between the vendor and the plaintiffs under the contracts, or at all. Similarly, there was no arrangement with any party by which the plaintiffs were either bound, or entitled, to pursue a course inconsistent with their stance that the contracts with the vendor had been rescinded. In other words, it was not established that the plaintiffs were insisting upon a state of affairs which was inconsistent with their claim that the contracts with the vendor had been lawfully rescinded. 48 Accordingly, I hold that the plaintiffs' conduct in relation to the proposed sale of the units does not disentitle them to a declaration that the contracts were validly rescinded by the notice of 7 December 2007. Conclusion 49 In my opinion the plaintiffs are entitled to declarations in terms of each of prayers 1, 2 and 3 of the summons. 50 No submissions were made on the issue of interest on the deposit, or as to costs. My preliminary view is that the plaintiffs are entitled to an order in terms of par 5 of the summons, and to an order for costs on the usual basis. However if there is to be argument about the matter it is appropriate that the parties have the opportunity of putting further submissions if necessary. 51 I direct the plaintiffs to bring in short minutes to give effect to these conclusions. ********** 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.