Supreme Court New South Wales Medium Neutral Citation: Yogesh Enterprises Pty Ltd v Jury & Anor [2011] NSWSC 131 Decision date: 09 March 2011 Jurisdiction: Equity Division Before: Sackar J Decision: Declaration made in accordance with paragraphs 1 and 2 of the Plaintiffs summons; Defendants to pay the Plaintiff an amount of interest on the deposit; Defendants cross summons to be dismissed; Defendants to pay the Plaintiffs costs of the proceedings Catchwords: Rescission - election Cases Cited: Sargent v ASL Developments Limited (1974) 131 CLR 634 Commonwealth v Verwayen (1990) 170 CLR Tropical Traders Limited v Goonan (1964) 111 CLR 41 Agricultural and Rural Finance Pty Limited (2008) 238 CLR 570 O'Connor v S P Bray (1936) 6 SR (NSW) Smits v Roach (2006) 227 CLR 423 Texts Cited: Corbin "Conditions in the Law of Contract" (1919) 28 Yale LJ 739 Category: Principal judgment Parties: Yogesh Enterprises Pty Ltd (Plaintiff and cross Defendant) David Michael Jury (first Defendant and Cross Claimant) Jamel Jury (second Defendant and Cross Claimant) Representation: Counsel: J Darvall (Plaintiff) S Wells (Defendants) Solicitors: Macree Law (Plaintiff) Lazarus Legal Group (Defendants) File Number(s): 2010/002738821 Judgment 1This matter was commenced by summons dated 18 August 2010. In that summons the Plaintiff seeks a declaration that a contract it entered on 8 June 2010 for the purchase of certain land at Unanderra was validly rescinded pursuant to a notice of rescission dated 21 July 2010. A further declaration seeks a return of the deposit paid with interest. 2On 13 October 2010 the Defendants issued a cross summons in which they seek a declaration that the relevant contract has not been validly rescinded. Alternatively the Defendants seek a declaration that the cross defendant is in breach of the contract. Damages (or equitable damages) are sought in the alternative and there was a claim for specific performance. I was told at the hearing that specific performance was no longer pressed. BACKGROUND 3On 8 June 2010 the Plaintiff as purchaser and the Defendants as vendors exchanged contracts for the sale of land being a freehold service station at 38-40 Princes Highway Unanderra [1]. The purchase price for the property was $1.4 million and upon exchange the Plaintiff paid a deposit of $70,000 (5%). This left a balance payable of $1.33 million at settlement. 4The contract included a special condition as follows: "Conditions 33. This contract is conditional upon the Purchaser obtaining an environmental site report satisfactory to the NAB in respect of the use of the site as service station for the retail supply of Petroleum Products."[2] 5In addition the contract also included clause 29, which provided relevantly the following: 29 Conditional Contract 29.1 This clause applies only if a provision says this contract or completion is conditional on an event. 29.2 If the time for the event to happen is not stated, the time is 42 days after the contract date. 29.3... 29.4... 29.5... 29.6... 29.7 If the parties can lawfully complete without the event happening- 29.7.1 If the event does not happen within the time for it to happen, a party who has the benefit of the provision can rescind within 7 days after the end of that time. 29.7.2 If the event involves an approval and an application for the approval is refused, a party who has the benefit of the provision can rescind within 7 days after either party serves notice of the refusal. 6After exchange of contracts requisitions were requested and some were provided. 7Although there is no direct evidence it appears that Yogesh put a proposal to NAB for finance to purchase the land the subject of the contract. 8Yogesh has since 2006 leased the property from the vendors. The lease is not due to expire until 2012. A service station has been conducted it seems on the site for some time by Yogesh and others. [3] 9At some point in June (the evidence is silent as to precisely when but perhaps either just before or just after the exchange of contracts) [4] Yogesh retained a company called Aargus Australia ("Aargus") to provide a site assessment report for NAB to consider in support of the proposal by Yogesh. The Aargus report bears a date 23 June but it may not have been provided to NAB until 30 June. Nothing turns on this. 10The report which runs for some 45 pages sets out a detailed analysis, for example of soil on the site, and raises concerns about possible contamination of the land as a result of its use in relation to the storage of petroleum products. [5] 11On 13 July 2010, having received and considered the environmental site report and a valuation report, [6] the National Australia Bank sent a letter to Yogesh. The letter in part states: "The above reports have highlighted some areas of concern relating to the continuance use of the site as a service station for the retail supply of petroleum products. The primary areas of concern relate to the contamination/environmental issues identified by the above reports. Once the concerns listed in the Environmental Site Assessment report have been addressed, the Bank is prepared to review your proposal." [7] 12Although again there is no direct evidence, I infer Yogesh was in receipt of the NAB letter by at least 14 July. Its solicitor Mr Basil Macree of Macree Law ("Macree") who gave evidence before me accepted he had it by 14 or 15 July. [8] 13On 15 July 2010 Macree sent a letter to Messrs Navado, solicitors, ("Navado") who were acting for the Defendants referring to its previous letter of 18 June and requiring an urgent response in relation to the request for requisitions. [9] The letter also enclosed a "stamped Transfer." 14The next day, 16 July 2010, at approximately 11.19am Macree sent a facsimile in which he forwarded settlement figures for a proposed settlement on Monday 19 July and requested cheque details. The question of outstanding requisitions was again agitated. [10] 15A further facsimile was sent by Macree at approximately 2.25pm on 16 July again requesting replies to previous requests for requisitions and suggesting that settlement of the purchase take place on Monday 19 July at 2pm. Details of the place for settlement were also requested. The letter warned that delay in providing cheque directions might make it impossible to settle on Monday 19. [11] 16Later in the afternoon of 16 July a Mr Andrew Zada, a paralegal employed by Navado, had a telephone conversation with Mr Basil Macree. There is no dispute that such a conversation took place. Further there is no dispute that in the course of the conversation Mr Macree indicated that: "the National is not satisfied." [12] What is in dispute is what is also said to have occurred during this conversation. Mr Macree says that after he indicated that the NAB was not satisfied he said "what difference is that to you if they settle." [13] 17Mr Zada attributes a substantially different remark to Mr Macree. He asserts that after he asked Mr Macree whether the National Australia Bank was satisfied Mr Macree responded: "No in fact the National is not satisfied but we are settling anyway." [14] Mr Zada says he made a contemporaneous electronic file note of the conversation. A copy of his electronic file is annexed to his affidavit of 14 October 2010 and marked "D." That electronic file note reads as follows: "call to bm, advised him that I will prepare and send figures for a settlement on tuesday cause it is likely to settle on mondy 19. he said that was fine. I then said can you confirm contract is unconditional with re nab report, he said no in fact it is not but we are settling anyway." [15] 18Both Mr Macree and Mr Zada gave evidence before me. It was put to Mr Macree that he was mistaken in relation to his recollection of the conversation and that the version asserted by Mr Zada was correct. He rejected that proposition. [16] Likewise it was put to Mr Zada that his recollection was faulty and he rejected that suggestion. [17] 19On the afternoon of 16 July at approximately 4.16pm Mr Zada sent an email to a Mr Malcolm Ayoub. It reads as follows: "I have spoken with Basil. I have asked him if the NAB was satisfied, he said no in fact the NAB is not satisfied but we are settling, that is the main thing? Are you ok with this? We are aiming for a Tuesday settlement. He has sent figures for the Monday, I will amend them and send them to you for your approval. Do we know if the bank is ready?" [18] 20On 19 July Mr Peter Zada the principal of Navado sent a letter to Macree confirming that settlement was scheduled for 11am on Thursday 22 July. It attached amended figures for the settlement. [1] There is no evidence before me as to why or when the settlement date was changed. 21On 21 July Mr Zada again sent a letter to Macree indicating directions as to the payment of various monies upon settlement. 22However, by letter dated 21 July the Plaintiff through its solicitor Mr Macree served a document described as a Notice of Rescission of Contract. The notice asserted that the contract was conditional upon an environmental site report that was satisfactory to NAB being obtained and that the report that was obtained was not satisfactory to the bank. It then concluded: "5. the purchaser hereby rescinds the contract pursuant to Clause 29 of the contract." [20] 23On about 5 August Navado sent a notice to complete to Macree. [21] The notice set out in some considerable detail the alleged course of dealing between the parties from the date of exchange through to the service of the purported rescission. It also set out in some detail Mr Andrew Zada's version of the conversation, which he says took place between himself and Mr Macree on 16 July. Paragraph 13 of the Notice to Complete contends that by reason of the conduct as set out "the Purchaser had elected to proceed with the contract." [22] 24From about 13 August Navado wrote numerous letters indicating that their clients regarded the sale as still on foot and asserting that they remained ready, willing and able to complete the sale. No response of any substance was received from Macree. 25On 30 November 2010 Navado served what was described as the "second and final notice to complete" directly upon Yogesh Enterprises Pty Ltd. The notice contains materials additional to the first notice to complete. It basically sets out the alleged history of dealings between the parties following the first notice to complete of 5 August. Paragraph 29 of that notice warned that failure to comply will result in forfeiture of the deposit and termination of the contract. THE ISSUES 26There are two substantive issues in the case. 27The first is whether condition 33 of the contract of sale has been engaged and if so when the contract could have been lawfully rescinded. This question involves a consideration of whether the relevant event upon which the contract was said to be conditional was one contemplated by clause 29.7.1 or clause 29.7.2. 28The second is whether, notwithstanding the right to rescind being lawfully available, the Plaintiff has by its conduct elected irrevocably to affirm the contract such as to put it in breach in not completing the sale. Hence it would in that event forfeit its deposit. THE CONTENTIONS OF THE PARTIES 29It was accepted by both parties that by reason of condition 33 the contract was a conditional contract for the purposes of clause 29. 30It was contended by the Plaintiff that the NAB letter was clearly an indication by it that as at 13 July by reason of the site report and the concerns raised therein it was not relevantly satisfied and would thereby defer further consideration of the proposal until those concerns had been addressed. Condition 33 was therefore engaged. The Plaintiff further contended that pursuant to clause 29.2 in the case of a conditional contract where no time was stated for the happening of an event (such as the one described in condition 33) a right to rescind arose on the part of the Plaintiff if the event did not happen within the "time for it to happen." That time was 42 days after the date of the contract by reason of cl.29.2. The 42 days did not expire until 20 July (42 days after the 8 June) and therefore the Plaintiff had no right to rescind until then and thereafter had to do so within 7 days. It did so lawfully therefore on 21 July. 31The Defendants contended that Condition 33 was not engaged but in any event the NAB letter should be regarded as a refusal of an approval as contemplated by cl. 29.7.2. As the Plaintiff was aware of the "refusal" (namely the letter from NAB of 13 July) from 13 or 14 July it had a right to rescind on and from 14 July. It however lost its right to rescind because in full knowledge of its right it conducted itself (between the 14 and 16 July) in such a way as to affirm the contract. Its position should be regarded as irrevocable in that regard. THE LEGAL PRINCIPLES 32Although the Defendants in written outline refer to the notion of waiver, Justice Mason (as he then was), in Sargent v ASL [23] makes the following observation: "Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude him from exercising a legal right which he possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel), which may come into operation and in the differing concepts which each doctrine has at times thought to embrace. As Lord Wright observed in Ross T Smyth & Co Ltd v TD Bailey, Son & Co (86) "waiver" is a vague term used in many senses." It may signify the legal grounds on which a person is precluded from asserting one legal right when he is entitled to alternative rights inconsistent with each other. The loss of the right in such a case is, as Lord Diplock said in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (87), "better categorised as 'election' rather than as 'waiver.'" Or it may mean the legal grounds on which a person is precluded from raising a particular defence to claim a right against him - the very situation which arose in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd. It will make for greater certainty [therefore] if the present cases are regarded as cases of election. A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performing creates a right of election." [24] 33For the doctrine of election to operate 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 that he possesses. [25] The elector must at least know of the material facts that give rise to those legal rights as between which an election can be made. Without that knowledge the doctrine of election will not be available to make irrevocable his choice of one particular right although in appropriate circumstances an estoppel may still arise which produces the very consequence without any such requirement of knowledge on the part of the party who is estopped. [26] I should observe that no species of estoppel is relied upon by the Defendants in this case. 34Importantly however for there to be an election there must be two inconsistent rights between which choice can be made. This necessitates that rights coexist such that they conflict with one another at the relevant point in time. As Brennan J observes in Commonwealth v Verwayen: [27] "As a right is waived only when the time comes for its existence and the party for whose sole benefit it has been introduced knowingly abstains from exercising it, a mere intention not to exercise a right is not immediately effective to divest or sterilise it." [28] 35Brennan J's comments draw attention to the temporal component of inconsistent rights - that is, one cannot prematurely 'waive' [29] a right through electing an inconsistent right until the precise moment that that second inconsistent right materialises. Put another way by Stephen J in Sargent v ASL: [30] "The doctrine [of election as between two inconsistent rights] only applies if the rights are inconsistent with one another and it is this concurrent existence of inconsistent rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as the two remain in existence." [31] 36For an election there need be no actual subjective intention to elect. However if knowingly made an election cannot be withdrawn. [32] 37Essential to the making of an election is communication to the party affected by words or conduct of the choice. So words or conduct that do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract. An election takes place only when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other. [33] 38The central issue in many instances is whether there has in fact been an election made or one merely foreshadowed. It is not unsurprising given the irrevocable position the elector may be faced with that the Court will require conduct that expresses or reasonably implies a sufficiently unequivocal intention. [34] But the result must be one that accords with the demands of justice. As Jordan CJ observed in O'Connor v S P Bray : "Where a person is liable to be deprived of one of two alternative rights by the mere fact of intimating his choice of the other or by some other act falling short of obtaining satisfaction he is commonly said to be put to his election and the act which brings about the deprivation is said to be an act of election. It is obviously disadvantageous to a person who has alternative rights that he should be put to his election in this sense. The authorities show that he is not placed in this dilemma unless there is something in the nature of the rights or in the circumstances of the case which makes it inevitable or necessary in the interests of justice that the choice when made should be irrevocable." [35] DISCUSSION 39I have already observed contracts were exchanged on 8 June. 40Mr Macree was clearly aware of condition 33 and the attitude of NAB to the Environmental Site Assessment Report by at least 14 or perhaps 15 of July. That knowledge is undoubtedly to be attributed to Yogesh. [36] 41There is little doubt that between 15 and 16 July the Plaintiff through its solicitor behaved as if it was going to complete the purchase. Settlement figures were provided together with persistent requests for the answer to requisitions, a suggestion of a settlement date and the provision of a stamped transfer. This in my view is only consistent with performance of the contract. 42The afternoon of 16 July is of course when the disputed conversation is alleged to have taken place between Mr Macree and Mr Andrew Zada. I have had the benefit of hearing from Mr Macree and from Mr Zada on that issue and both were briefly cross-examined. Mr Macree has no contemporaneous note of his conversation with Mr Zada but asserts he was prompted to give consideration to those events within a relatively short period of time after they allegedly occurred in part because of the detail of the allegations set out in the first notice to complete dated 5 August. On the other hand, Mr Zada, although not a lawyer took a contemporaneous and indeed careful note of what he recalls Mr Macree saying. The critical part of that conversation includes the word "but we are settling anyway". 43On the question of the disputed conversation, I am firmly of the view that Mr Macree did utter the words attributed to him by Mr Andrew Zada. I consider that by reason of the contemporaneous materials the probabilities strongly favour the version of that conversation as recounted by Mr Zada and I so find. That of course is not an end of the matter. The relevance of these remarks along with the other conduct will need to be determined by what if any right to rescind the Plaintiff then had open to it at that time. 44Notwithstanding the position of NAB, Mr Macree in his conversation on 16 July with Mr Zada said that his client wanted to complete the purchase. I consider that that conduct should be seen as relevantly unequivocal, but again that is not an end of the matter. 45The important question is from what source does the Plaintiff's right to rescind arise. If it is cl.29.7.1 that applies, the right did not arise until the expiration of 42 days, viz 20 July (cl.29.2). Therefore notwithstanding the otherwise unequivocal nature of the Plaintiff's conduct from the 14 to 16 July there did not exist at that time two inconsistent rights between which the Plaintiff could choose. If the appropriate clause however was cl.29.7.2 and the letter of the 13 July is seen as a refusal of an approval then a choice to rescind or not was open to be made on and from 14 July. 46Condition 33, which is descriptive of the relevant event, does not however speak in terms of an approval. It speaks only of a report satisfactory to NAB. If the parties wanted to agree to a condition which turned upon the Plaintiff obtaining an approval of some sort, for example for finance, it would have been an easy matter to have included such a condition. 47It can be said that the word "involves" in cl.29.7.2 is one of wide import. As a matter of commercial reality it may also be said that one of the reasons Yogesh procured the Aargus report was to assist it to obtain an approval for finance although there is of course no direct evidence of that. Secondly, and perhaps more importantly, the NAB letter does not in any event use the term "refusal." It does use the term proposal. The notion of refusal however in my mind must involve the notion of a rejection. [37] The NAB letter clearly does not reject the proposal but merely defers consideration of it until the concerns are addressed. 48The "event" as it were for the purposes of condition 33 is simply the obtaining of a report satisfactory to the NAB. That event in my opinion is not an event of a kind contemplated by clause 29.7.2, which requires something altogether different. The better view is that all the NAB letter purports to do is to indicate that a report has raised concerns that need to be addressed and that it by implication is not presently satisfied. The only sensible conclusion is that as there is no report satisfactory to NAB of the sort specified in accordance with condition 33. 49On that basis it follows that cl.29.7.2 is not as a matter of law the source of the right to rescind. In my view the source of contractual right to rescind stems from cl.29.7.1 which has the effect that the right to rescind arose pursuant to cl.29.2, 42 days after the date of the contract, viz 20 July. The Plaintiff did not as a matter of law therefore have as at the 14, 15 and /or 16 July any ability to choose between two inconsistent rights. 50The conduct over those days including the comment of Mr Macree on 16 July, which in my view would and should otherwise be regarded as sufficiently unequivocal in the sense used in the cases, is here of no legal consequence. The Plaintiff was in my view able lawfully to rescind the contract on 21 July and did so. CONCLUSION 51Accordingly I am of the view that the Plaintiff has made out a proper basis for the relief sought. This necessarily leads to the Defendants failing in their cross summons. 52I would therefore make the following orders: (a) I make a declaration in accordance with paragraph 1 of the Plaintiffs summons. (b) I make a declaration in accordance with paragraph 2 of the Plaintiffs summons. (c) I order that the Defendants pay the Plaintiff an amount of interest on the deposit (being 8.5% per annum of $16.30 per day from 21July 2010) (d) I dismiss the Defendants cross summons (e) I order the Defendants to pay the Plaintiff's costs of the proceedings. Endnotes (1) Courtbook pp 12 - 94. (2) CB p19. (3) Ex P1, p16. (4) T. 16, lines 25 -29. (5) Ex. P 1. (6) The valuation report is not in evidence before me. (7) CB p96. (8) T 17, lines 41 to 45. (9) CB p112. (10) CB p113. (11) CB p118. (12) Affidavit of Basel John Macree, 17 August 2010, para 8. (13) Affidavit of Basel John Macree, 17 August 2010, para 8. (14) Affidavit of Andrew Zada, 14 October 2010, para 7. (15) CB p119. (16) T22 line10. (17) T27 lines 2-4. (18) Affidavit of Andrew Zada , 14 October 2010, annexure E, CB 120. (19) Affidavit of Andrew Zada , 14 October 2010, annexure F, CB 121. (20) CB p100. (21) Affidavit of Andrew Zada, sworn 14 October 2010, para 12, Annexure H. (22) Notice to Complete, para 13. (23) Sargent v ASL Developments Limited (1974) 131 CLR 634 at 655. (24) Id at 655. (25) Sargent at 642. (26) Sargent at 642. (27) (1990) 170 CLR. (28) Id at p427. (29) Although the term 'waive' is said to be somewhat ambiguous and imprecise, it may be used for the sake of simplicity. As Corbin in "Conditions in the Law of Contract" (1919) 28 Yale LJ 739 at p754 outlines, waiver is "a word of indefinite connotation which like a cloak covers a multitude of sins." (30) (1974) 131 CLR. (31) Id at p641. (32) Sargent at pp647 & 656. (33) Tropical Traders Limited v. Goonan (1964) 111 CLR 41. (34) Agricultural and Rural Finance Pty Limited v. Gardiner Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 paras 56 - 57. (35) O'Connor v S P Bray (1936) 6 SR (NSW) at pp251-262. (36) Smits v Roach (2006) 227 CLR 423 paras 45-47. (37) Macquarie Dictionary, revised third edition 2001, at p1596. ********** 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. Decision last updated: 09 March 2011