New South Wales Supreme Court CITATION : K & K Real Estate Pty Ltd v Adellos Pty Ltd (in liquidation) [2010] NSWSC 1212 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 18.10.2010, 19.10.2010 JUDGMENT DATE : 22 October 2010 JURISDICTION : Equity Division JUDGMENT OF : Hamilton AJ DECISION : Claim for specific performance refused. CATCHWORDS : EQUITY [397] – Equitable remedies – Specific performance – The jurisdiction in general – General principles – Enforcement by purchaser LEGISLATION CITED : Conveyancing Act 1919, s 55(2A) CATEGORY : Principal judgment Foran v Wight (1989) 168 CLR 385 Halkidis v Bugeia [1974] 1 NSWLR 423 Havyn Pty Ltd v Webster (2005) 12 BPR 22,837 Jones v Barkley (1781) 2 Dougl 684; 99 ER 434 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 CASES CITED : McNally v Waitzer [1981] 1 NSWLR 294 Nassif v Caminer (2009) 74 NSWLR 276 O'Connor v SP Bray Ltd (1936) 36 SR(NSW) 248 One Spencer St Pty Ltd v Maryland International Pty Ltd [2005] NSWSC 275 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 Sargent v ASL Developments Ltd (1974) 131 CLR 634 TEXTS CITED : John S Ewart, Waiver Distributed, Cambridge: Harvard University Press (1917) 100 John A Riordan (ed), The Laws of Australia, Law Book Co, Contract: General Principles at [7.6.1260], [7.6.1270] and [7.6.1290] Plaintiff - K & K Real Estate Pty Ltd ACN 002 532 078 PARTIES : First Defendant - Adellos Pty Ltd (in liquidation) ACN 002 869 874 Second Defendant - LA Concrete Pty Ltd ACN 002 780 038 FILE NUMBER(S) : SC 2010/260515 COUNSEL : Plaintiff – Mr RS Angyal SC Defendants – Mr CRC Newlinds SC with Mr PT Newton SOLICITORS : Plaintiff – Colin Biggers & Paisley Defendants – ERA Legal, Commercial, Insolvency & Litigation Lawyers - 13 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON AJ FRIDAY 22 OCTOBER 2010 2010/260515 K & K Real Estate Pty Ltd ACN 002 532 078 v Adellos Pty Ltd (in liquidation) ACN 002 869 874 and LA Concrete Pty Ltd ACN 002 780 038 JUDGMENT 1 HIS HONOUR: This is essentially a suit for specific performance of a contract for the sale of land. By a contract in the standard form the defendants on 14 December 2009 sold to the plaintiff land known as 1005 Cobbitty Road, Oran Park being the land in Folio Identifiers 293/708154A and 293/708154B for the price of $5,600,000. The land was and is vacant land. The plaintiff paid a deposit of $560,000. The date for completion provided for by the contract was 25 January 2010. 2 The contract by clause 9.1 provides that if the purchaser does not comply with the contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice and can keep the deposit. Clause 21.6 provides that the time by which something must be done is fixed and not essential. Clause 34.1 provides that should completion not occur by the completion date then either party should be entitled to serve a notice to complete requiring completion on a date not less than 14 days from the date of service. After service of such a notice the time allowed for completion shall be of the essence of the contract. Clause 34.2 provides that should the purchaser not complete by the completion date without default by the vendors then the vendors are entitled to recover from the purchaser interest on the balance of purchase of money at the rate of 10% per annum calculated from the original completion date to the actual date of completion. Clause 51 provides that if the vendor delays completion then no interest will run until after the vendor has given the purchaser five business days' notice that the vendor is ready to settle. 3 There were and are on Folio Identifier 293/708154A two caveats, one by Robert Kusic, who is now deceased, and one by Michael Gregory Jones. Mr Kusic's caveat claims an interest under an unregistered mortgage. Mr Jones is the liquidator of the first defendant, which is now in liquidation, and his caveat is in respect of his interest as liquidator. 4 On Wednesday 20 January 2010 the plaintiff's solicitor, Chris Rumore, informed the defendants' solicitors that the plaintiff would not be in a position to complete on Monday 25 January 2010. Settlement did not take place on that day and neither side attended at any appointment to settle. 5 On Wednesday 27 January 2010 the vendors served on the plaintiff a notice to complete. In it it is stated that they are ready willing and able to complete; that the purchaser is required to complete by 3pm on 12 February 2010 and in this respect time is now of the essence of the contract; and that unless the purchaser completes within the time specified the deposit will be forfeited and the vendors will be entitled to terminate the contract. 6 On 28 January the plaintiff's solicitor by letter advised that the notice to complete was rejected as being defective and having been issued when the vendors were not in a position to issue a notice to complete. On the same day the plaintiff's solicitors wrote seeking an extension of time for settlement. The principal reason advanced was that the funding from the plaintiff's bank had been delayed by reason of the non settlement of sales of certain properties in Queensland. The extension sought was for 9 months. This was on the basis that the deposit be released forthwith; interest be paid on the balance of purchase monies quarterly in advance; the notice to complete should be withdrawn; and these matters if agreed should be incorporated in a deed of variation of contract. 7 By email on Wednesday 3 February 2010 the defendants' solicitor responded that "the Vendors neither accept nor reject" the plaintiff's proposal but would submit a counter proposal then under preparation. He noted a requirement that the plaintiff satisfy the vendors as to its ability to complete. It was stated that the proposal would follow not that day but most likely later that week. On Tuesday 9 February 2010 the plaintiff's solicitor wrote that they were still awaiting the counter proposal. 8 Nobody attended to settle the contract on 12 February 2010 nor was there any reference to settlement on that date contained in correspondence between the parties. 9 On 15 February 2010 the defendants' solicitor wrote to the plaintiff a letter which has played a central part in the argument of this case. I set out significant parts of that letter. "We refer to the above and, in particular, to your "without prejudice" correspondence dated 28 January 2010. We note that the aforesaid correspondence sought to explain your client's failure to complete on 25 January 2010 and made a proposal to extend the completion date for nine months on certain terms and conditions. Those providing instructions on behalf of our clients have now conferred and considered your client's proposal. It has been resolved to reject the proposal, as it is not acceptable in its present form. However, our clients would be prepared to entertain a similar proposal (summarised below), provided certain preconditions are met namely:- That the Purchaser is able to satisfy the Vendors as to its financial position and its ability to complete; and That the Vendors are given security over such assets as the Purchaser relies upon to demonstrate the viability of its financial position. Provided those conditions are met to the Vendors' complete satisfaction, the Vendors would be prepared to agree to extend the date for completion further, on the following terms and conditions". There follow in seven numbered paragraphs the defendants' terms and conditions. The letter continues: "For the avoidance of any doubt, the Vendors shall not be legally bound, and the Contract shall not be varied, until the parties are in full agreement as to each term of the variation, and a Deed of the nature referred to in numbered paragraph 7 (and any collateral Deed or other instrument) is properly executed by those to be bound. Would you kindly seek instructions as to the terms set out above. We look forward to hearing from you shortly and, in any event, by close of business on Thursday, 18 February 2010 . In the meantime the Vendors reserve all of their rights, including their rights, arising pursuant to the Contract, at law and in equity." 10 A copy of this letter was also sent to Suzanne Agius at Blake Dawson, who were acting for the Kusic estate. Ms Agius on 15 February 2010 sent to the defendants' solicitor an email as follows: "In view of the fact that your client is entitled under the contract to terminate and retain the deposit and inter alia, sue to recover any deficiency on a subsequent resale, could you please provide us with reasons why your client is proposing to agree to forfeit that entitlement and instead postpone settlement by a further six months?" 11 On 16 February 2010 the defendants' solicitor sent to the plaintiff's solicitor an email containing the following: "My clients regard themselves as entitled to terminate the contact [sic] forthwith and reserve their rights to take this action without any further notice should the matter not proceed satisfactorily." 12 On Friday 26 February 2010 the plaintiff responded to the defendants' proposal set out in [9] above. The plaintiff rejected the defendants' proposal and put a counter proposal. 13 Negotiations proceeded to and fro at a very leisurely pace. The plaintiff's solicitor put a further proposition to the defendants' solicitor on 5 July 2010 but the defendants on 8 July 2010 served a notice of termination of contract relying on the plaintiff's failure to complete on 12 February 2010. The plaintiff's solicitor rejected the notice of termination as invalid. The defendants on 9 July 2010 resold the land to Dandaloo Pty Limited at a slightly higher price. That contract was also advantageous to the defendants in that there was no agent and therefore no commission payable. These proceedings were commenced on 5 August 2010. 14 The plaintiff contends that there are six bases on which the contract was not validly terminated by the defendants and is therefore available to be specifically enforced in its favour. (1) The defendants were not in a position to say with certainty that they were ready willing and able to perform the contract on 27 January 2010 when they served the notice to complete. 15 In this regard the defendants rely on what was said by Street CJ in Eq in Halkidis v Bugeia [1974] 1 NSWLR 423 at 427: "The vendors were not in a position, had it become necessary so to do, to comply with certainty with their obligation to provide vacant possession on completion." 16 The plaintiff cites this passage as authority for the proposition that a party giving a notice to complete must be in a position to comply with certainty with its obligations on completion. There is no doubt that when a party gives notice to complete it must be ready, willing and able itself to complete at the specified time and that it bears the onus of establishing this proposition: see McNally v Waitzer [1981] 1 NSWLR 294 per Reynolds JA at 296. However, so far as I have been able to perceive, the words "with certainty" appear in the authorities only in the one instance cited above. In my view, the words "with certainty" are not part of the correct proposition: the relevant party certainly bears the onus of proof but has to show only on the balance of probabilities that it will be able to complete at the time fixed for completion. 17 The use by Street CJ in Eq of the words "with certainty" arises out of the circumstances of that case. There, there was a tenant entitled to notice if he was to be removed from the property. The tenant had indicated that he would leave, but no notice had been given to him. If he reneged on his agreement he would remain in the property on the day on which vacant possession needed to be given and there would be no way of removing him. It is for this reason that the learned Judge said that it was not shown "with certainty" that the plaintiff could give vacant possession on the relevant day. 18 That factual situation is different from the circumstances of this case. Here it is contended by the plaintiff that the defendants could not show as at 27 January 2010 that they could have the Kusic caveat removed by 12 February 2010. It is true that there was a dispute as to the amount owing under the Kusic mortgage and the situation was complicated by the fact that there was ultimately more than one claimant interested in the proceeds of the Kusic mortgage. However, Mr Jones, as liquidator of the first defendant, deposed that he was prepared to put up the maximum amount claimed to be owing in order to procure the removal of the caveat. 19 Although no application had been made to this Court as at 27 January 2010 for an order for the withdrawal of the caveat, such application could in the absence of agreement have been made to the Duty Judge in this Division and determined quickly. There is little if any doubt that this Court would, in face of the availability of monies to meet the Kusic claim, have in short order ordered the withdrawal of the caveat. If their destination were disputed, the Court would have ordered the monies to be placed somewhere secure and have given directions for the determination of any disputed questions. If the monies were available, and there is no dispute they were, it is highly probable that the removal of the caveat could have been procured. 20 In these circumstances, I am of the view that the defendants have established in the requisite way that as at 27 January 2010 they were ready, willing and able to complete the contract on 12 February 2010. 21 I should add that it would be a source of great inconvenience if parties were required to discharge encumbrances or obtain orders for the withdrawal of caveats before giving notices to complete if they can establish on the probabilities that they will be able to do so by the relevant time. (2) The notice to complete was ineffective because the defendants were in breach of the contract at the time it was given. 22 The defendants were said to be in breach because they were not and would not be in a position to give good title because of the Kusic caveat. Attention was also drawn to the Jones caveat and the fact that transfers and a discharge of mortgage had not been prepared. 23 The situation as to the Kusic caveat is dealt with under heading (1) above. The Jones caveat could be withdrawn at any time and would be withdrawn by Mr Jones. Equally the relevant transfers and discharge of mortgage could easily be prepared before the time appointed for settlement on 12 February 2010. 24 There was no relevant breach of contract on the defendants' part by reason of which it should be held that the notice to complete was ineffective. (3) The defendants intimated to the plaintiff that it need not complete on 12 February 2010 so that there was no breach on the plaintiff's part by its failure to do so. 25 It is said that this dispensation is to be inferred from the correspondence between the parties between 27 January and 12 February 2010. Reliance is placed particularly on the items of correspondence mentioned in [7] above and the lack of reference to settlement on 12 February 2010 noted in [8] above. 26 However, I am unable to derive from anything in this correspondence that the defendants intimated to the plaintiff that it need not complete the contract on 12 February 2010 as required by the notice or that it need not attend at that time. I am not prepared to hold that the defendants absolved the plaintiff from the requirement to complete on that day. (4) The defendants were not on 12 February 2010 ready, willing and able to complete the contract on their part. 27 The plaintiff refers to what was said in Foran v Wight (1989) 168 CLR 385 per Mason CJ at 396 and per Brennan J at 417. 28 It relies on the fact that the caveats were still on the title as at that date; there were no executed transfers available; there was no discharge of mortgage; and there were no settlement sheets. 29 The defendants' response is that, true it is that, whilst both parties were subject to mutually dependent and concurrent obligations at that time, the defendants were entitled to rely on what was said by Brennan J in Foran v Wight ibid: "But if one party intimates to the other that it useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance." His Honour quoted in this regard from what Lord Mansfield said in Jones v Barkley (1781) 2 Dougl 684 at 694; 99 ER 434 at 440 and by Dixon CJ in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 at 247. 30 There is no doubt that there was a telephone conversation on 20 January 2010 in which the plaintiff's solicitor informed Andrea Marrone in the defendants' solicitor's office that the plaintiff would not be in a position to complete on 25 January 2010. That conversation was confirmed in an email from Andrea Marrone to Chris Rumore on that day. There was no suggestion afterwards that the plaintiff would be able to complete on 25 January or on 12 February 2010; indeed it was confirmed in the plaintiff's solicitor's letter of 28 January 2010 referred to in [6] above that the plaintiff continued and would continue to lack funds to complete. 31 In these circumstances it is my view that the defendants were absolved from removing caveats and preparing transfers, discharge of mortgage and settlement sheets for use on 12 February 2010. It cannot be said that they were not ready, willing and able to complete on 12 February 2010. (5) Even if by reason of the plaintiff's failure to settle on 12 February 2010 the defendants became entitled to terminate the contract the defendants affirmed the contract by their letter of 15 February 2010 set out in [9] above. 32 This contention arises from the law relating to election. Concerning election the following propositions are contained in The Laws of Australia, Contract: General Principles at [7.6.1260], [7.6.1270] and [7.6.1290]. Election consists of a choice between rights that the promisee knows it possesses, and which are alternative, mutually exclusive and inconsistent. In the case of the termination of a contract, the right to terminate is forfeited if the promisee, by unequivocal words or conduct, evinces an intention to continue with performance. Whether or not a promisee's words or conduct constitute an election to continue with performance is a question of fact. Such words or conduct must be inconsistent with the right to terminate. See also Sargent v ASL Developments Ltd (1974) 131 CLR 634 per Stephen J at 641. An election once made cannot be reversed: see John S Ewart, Waiver Distributed (1917) 100: "In Comyn's Digest we read (Tit Election C2): 'If a man once determines his election it shall be determined forever.'" And see O'Connor v SP Bray Ltd (1936) 36 SR(NSW) 248 per Jordan CJ at 262. 33 The plaintiff relies on the letter of 15 February 2010 set out in [9], read overall, as an affirmation of the contract. It draws attention to the following features of the letter: absence at the beginning of the letter (or elsewhere) of an allegation that by reason of the plaintiff's non compliance with the notice to complete the defendants are entitled to terminate the contract; the announcement that although the plaintiff's proposal is rejected, the defendants are prepared to entertain a similar proposal on terms set out; the statement that "the Contract shall not be varied" until a deed of variation is executed (which assumes the continuation in force of the contract); and the absence from the last paragraph of any specific reservation to the defendants of the right to terminate. This contrasts with the specific formulation of the reservation of that right in the email of the following day set out in [11] above. Whilst that reservation would undoubtedly be inconsistent with an affirmation of the contract, the plaintiff says that the letter of 15 February 2010 operated as an affirmation which could not be reversed the following day. 34 It must at all times be borne in mind that the words or conduct of a promisee to constitute an affirmation must be unequivocal: see O'Connor v SP Bray Ltd supra per Jordan CJ at 260; Sargent v ASL supra. In my view the plaintiff's contention of affirmation by the letter of 15 February 2010 fails. There is force in the submissions put on the plaintiff's behalf but, on the overall reading, its terms are not sufficiently unequivocal to affirm the contract. The defendants say that they would "entertain" an application on certain terms to extend the time for completion. They do not unequivocally affirm that they will perform the contract. An application on agreeable terms never came. And the letter must be read in light of the reservation of rights at the end. Whilst there is a contrast between the terms of that reservation of rights and the clearer formulation in the email of 16 February 2010, it is not correct to say that the formulation in the letter of the 15th cannot be take to include the right to terminate. It would have been happier from the plaintiff's point of view if the more precise formulation of 16 February 2010 had been included in the letter of the 15th. However, that letter refers to rights arising "pursuant to the Contract". That was sufficient to encompass a right to terminate as a result of non compliance with a notice to complete given under the terms of the contract. 35 It was submitted on the plaintiff's behalf that the letter of 15 February 2010 is not relevantly distinguishable from the letter that was in One Spencer St Pty Ltd v Maryland International Pty Ltd [2005] NSWSC 275 held by White J to be an affirmation of the contract. There are two things to be said about this. The first thing is that the documents in each case must be construed in their own context; cases cannot stand as legal authority binding on the construction of documents in other cases. Secondly, in my view the letter in One Spencer St is significantly different in its terms from the letter under consideration. 36 In these circumstances, I am of the view that the letter of 15 February 2010 does not constitute an affirmation by the defendants of the contract. (6) If the contract were not affirmed as alleged in (5) above, the defendants affirmed the contract by engaging in protracted negotiations up to 5 July 2010 shortly before their notice of termination on 8 July 2010. 37 I see nothing in either the fact or the terms of the continuing lackadaisical correspondence relating to a possible postponement of a time for completion that would amount to an affirmation of the contract. The fact that the defendants were prepared to negotiate towards completion being postponed and the contract performed in accordance with that postponement if agreed to is not inconsistent with a right in the defendants to terminate the contract for non compliance with the notice to complete. 38 Although Mr Angyal of Senior Counsel has pressed the plaintiff's case with his usual clarity, for the above reasons the plaintiff's contention that the contract was not validly terminated by the defendants on 8 July 2010 fails. The contract is at an end and is not available to be specifically enforced in the plaintiff's favour. 39 If it does not obtain specific performance, the plaintiff claims a return of the deposit under s 55(2A) of the Conveyancing Act 1919. In that regard, I draw attention to the classic statement of Street CJ in Eq as to the basis on which this discretion should be exercised and in particular his Honour's statement that the return of a deposit should not be ordered unless its retention is "unjust and inequitable" in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at 272. And see Havyn Pty Ltd v Webster (2005) 12 BPR 22,837 at [145], [146], [173]; Nassif v Caminer (2009) 74 NSWLR 276 at [91]. I realise that the defendants have resold the land (although not at any great profit), but I do not see that there is justification for an order for return in the present case. That conclusion is reinforced by the fact that the defendants have indicated that, if allowed to retain the deposit, they will not seek an order for the payment of any interest or damages to which they might otherwise be entitled. 40 Short minutes should be brought in to give effect to this decision. The defendants can then raise the question of any incidental orders which they seek and any question as to costs can then be debated. ********** 25/10/2010 - Typographical errors. - Paragraph(s) Coversheet - "Era" corrected to "ERA". Para 13. Sentence 4. First word "the" corrected to "The". 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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