Supreme Court New South Wales Medium Neutral Citation: Lianghong Mei v West Apartments Pty Ltd [2011] NSWSC 662 Hearing dates: 27 June 2011 Decision date: 27 June 2011 Jurisdiction: Equity Division Before: Gzell J Decision: Separate question answered no if the breach was the reason for, or materially contributed to, the strata plan not being registered by the Registration Date. Catchwords: CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - either party might rescind contract for sale of unregistered lot if strata plan not registered by a Registration Date - vendor to use reasonable endeavours to have strata plan registered by Registration Date - separate question whether vendor entitled to rescind notwithstanding any breach of the obligation to use reasonable endeavours - whether to be construed so that non-registration alone entitled vendor to rescind - no mention of causal connection of breach to non-registration - whether question had to be answered in the affirmative Cases Cited: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 North v Marina [2003] NSWSC 64 Munro v Bodrex Pty Ltd [2002] NSWSC 122 Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 Mackay v Dick (1881) 6 App Cas 251 at 263 Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267 Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924 Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 Category: Principal judgment Parties: Lianghong Mei (Plaintiff) West Apartments Pty Ltd (Defendant) Representation: Counsel JC Kelly SC (Plaintiff) E White (Defendant) Solicitors Legal Point Lawyers & Attorneys (Plaintiff) Blackstone Waterhouse Lawyers (Defendant) File Number(s): 2011/77942 Judgment 1Lianghong Mei, the Plaintiff entered into an "off-the-plan" contract with the Defendant, West Apartments Pty Ltd, to purchase an as yet unregistered lot in a yet to be constructed strata unit development. The contract contained the following provision: "3.1 Registration of the Strata Plan (a) The Vendor must use all reasonable endeavours to have the Strata Plan registered by the Registration Date. (b) If this has not occurred by the Registration Date either party can rescind this contract. The right ceases once the Strata Plan is registered." 2The Strata Plan was not registered by the Registration Date and West Apartments purported to rescind the contract under clause 3.1(b). 3On 20 April 2011 Windeyer AJ ordered a separate question to be first determined in these terms: "Whether the right to rescind under clause 3.1(b) of the contract for sale of land between the Plaintiff as Purchaser and the Defendant as Vendor dated 8 May 2009 may be exercised notwithstanding any breach by the Defendant of the obligation in clause 3.1(a) to use all reasonable endeavours to have the Strata Plan registered by the Registration Date". 4West Apartments raises two arguments as to why the question should be answered in the affirmative. First, there is an argument as to the proper construction of clause 3.1(b). Secondly, there is the argument that not all breaches of the reasonable endeavours provision in clause 3.1(a) disentitle West Apartments from exercising the right to rescind in clause 3.1(b). 5The construction argument proceeds thus: 6The right of rescission in clause 3.1(b) is not expressed to be conditional upon clause 3.1(a). Clause 3.1(b) says: "If this has not occurred by the Registration Date, either party can rescind the contract". The phrase, "If this has not occurred" in clause 3.1(b) refers to the non-occurrence of an event, namely the non-registration of the Strata Plan by the Registration Date, not the breach of an obligation, such as a breach of the obligation to use all reasonable endeavours to have the Strata Plan registered by the Registration Date. 7Clause 3.1(b) gives either party to the contract the right to rescind "If this ha s not happened". It was submitted that it could hardly be supposed that the purchaser should lose the right of rescission in clause 3.1(b) if the vendor breached the obligation to use all reasonable endeavours. 8Printed clause 28 is, it was submitted, an example of a clause in the contract where the parties intended to make compliance with an obligation to use reasonable endeavours a pre-condition to the exercise of a right of rescission and differentiated between the position of the party who had the obligation and the party who did not. 9Thus, it was submitted, clause 28.2 requires the vendor to "do everything necessary to have the plan registered within 6 months" and clause 28.3.1 stipulates that if the plan is not registered within that time and in that manner, the purchaser can rescind while clause 28.3.2 stipulates that the vendor can rescind, but only if the vendor has complied with clause 28.2. 10The submission continued that had it been the intention of the parties that clause 3.1(b) should operate in a manner that made compliance with clause 3.1(a) a condition of any exercise of the right of rescission by the vendor, the contract would have contained similar provisions to clause 28 and differentiated between the position of the vendor and that of the purchaser. 11It was submitted that clause 3.1(b) is a "sunset clause" that entitles either party to bring the contract to an end after a certain date so long as the Strata Plan remains unregistered. 12If West Apartments did fail to use all reasonable endeavours to have the Strata Plan registered by the Registration Date, it was submitted that Lianghong Mei's remedy was damages. Printed condition clause 19.2.3 provides that: "Normally, if a party exercises a right to rescind expressly given by this contract ... a party can claim damages, costs or expenses arising out of a breach of this contract." 13Lianghong Mei responded to these arguments in this way: 14The active part of clause 3.1(a) is the "use of reasonable endeavours". To submit that the word "this" in clause 3.1(b) refers only to the registration of the Strata Plan as opposed to the "use of all reasonable endeavours to have the Strata Plan registered" is in conflict with the doctrine of interpreting terms in a manner by which a reasonable person in the parties' position would have understood it to mean in the circumstances and context in question. 15Reference was made to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40];179: "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". 16It was submitted on behalf of Lianghong Mei that it could not be disputed that clause 3.1(a) places an obligation on West Apartments to do something. The separate question is whether in the circumstance of West Apartments doing nothing (or, alternatively, something sufficiently limited to amount to a breach of that clause) can it still rely on clause 3.1(b) to rescind? 17Whatever obligation clause 3.1(b) imposes on West Apartments, it does require the defendant to do something it was submitted and, accordingly, if the word "this" was replaced in clause 3.1(b), it should read as follows: "If the Vendor has used all reasonable endeavours to have the Strata Plan registered by the Registration Date and registration has not occurred by the Registration Date either party can rescind this contract." 18The argument continued that if the contract was intended to be constructed in the manner submitted by West Apartments, it could simply have been written: "If registration has not occurred by the Registration Date either party can rescind this contract." 19West Apartments drafted the contract. It is West Apartment's document. It was submitted that if it intended the meaning of clause 3.1(b) to be as it submitted it should have drafted the clause such that the meaning was clear. 20Lianghong Mei submitted that the construction that includes the full content of clause 3.1(a), especially the active part of the clause, is the correct and ordinary meaning of the clause and it is clearly open to be interpreted in that fashion. 21Lianghong Mei submitted that clause 3.1(b) was certainly open to be so construed, and if there was any ambiguity about its construction, Lianghong Mei is entitled to rely upon the doctrine of contra proferentem and have a construction applied that will avoid consequences that might be capricious, unreasonable, inconvenient or unjust. Lianghong Mei relied upon the decision in North v Marina [2003] NSWSC 64 at [56]-[78]. 22It was submitted that the construction submitted by Lianghong Mei accords with an ordinary and sensible interpretation of both parts of clause 3.1. If West Apartments having used all reasonable endeavours is unable to register the Strata Plan by the Registration Date, then it might elect to rescind the contract. 23At the same time, both parties might waive the opportunity to rescind and elect to keep the contract on foot such that registration should be effected within a reasonable time thereafter. 24It was submitted that it does not follow that Lianghong Mei loses his right to rescind in circumstances where West Apartments has not used all reasonable endeavours. The two sub-clauses, properly construed, simply mean that provided West Apartments has used all reasonable endeavours but is unable to effect registration by the deadline, either party can elect to rescind. It is open to Lianghong Mei to elect to rescind whether or not West Apartments has used all reasonable endeavours, if the deadline passes without registration. 25Lianghong Mei responded to the submission that clause 3.1(a) was not rendered useless because he could rely on printed clause 19 of the contract. The relevant part of clause 19 states: "Normally, if a party exercises a right to rescind expressly given by this contract or any legislation: 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses." 26It was submitted that the problem with West Apartment's argument that Lianghong Mei's only remedy is damages under printed clause 19 is that that clause only provides a remedy if a party is in breach of the contract. West Apartment's construction presupposes it has breached the contract and that breach can only be a breach of clause 3.1(a). 27In my view, Lianghong Mei's submissions with respect to the construction of clause 3.1(b) are to be preferred to those of West Apartments. To limit the word "this" in clause 3.1(b) to the non-registration of the Strata Plan is to ignore the key element in clause 3.1(a), to use reasonable endeavours to have the Strata Plan registered. 28In submitting that a party in breach cannot rely upon that breach to exercise a right to rescind, reference was made to Munro v Bodrex Pty Ltd [2002] NSWSC 122 where Bryson J dealt with an "off-the-plan" contract and a "sunset clause" in the following terms: "37.2 The vendor undertakes to use its reasonable endeavours to have the Strata Plan, registered. However, in the event that the Strata Plan is not registered by the expiration of the period specified in Schedule 1, then either party may, by notice in writing to the other, rescind this contract and the provisions of clause 19 will apply". 29What his Honour said at [49] was as follows: "Restrictions on exercise of rights of rescission recurringly come under consideration in contracts for the sale "Off-the-Plan" of dwellings in proposed strata developments. The contractual terms are the primary source of any supposed restriction, and an apparent right of rescission may be restricted by implied terms to be discerned on the whole view of the parties' contract, or by the application to them of implications arising under general contract law of kinds illustrated by the following passage in Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1393 [36]. "The law already implies an obligation by the respondents to do all such things as are necessary on their part to enable Peters WA to have the benefit of those licence arrangements Butt v McDonald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608. It is not now necessary to consider the basis of the implication. The law also implies a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in Art. 5 Shepherd v Felt & Textile Australia Ltd (1931) 45 CLR 359 at 378." 30West Apartments does not dispute this proposition. It says, needless to say, there is an abundance of authority for the proposition that the law implies an obligation on a party to a contract to do all such things as are necessary on its part to enable the other party to have the benefit of the contract, including a negative covenant not to hinder or prevent the fulfilment of the purpose of an express promise including Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at [36]; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608 and Mackay v Dick (1881) 6 App Cas 251 at 263. 31West Apartments goes on to say that there are also numerous instances where those principles have been applied in cases concerning the exercise of rights of rescission including Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267 at 279-280; Munro v Bodrex Pty Ltd [2002] NSWSC 122 and Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924. 32As a matter of jurisprudence, West Apartments submits, the authorities trace back to the principle that a party to a contract is not entitled, as against the other party, to rely upon an event that results from its own wrongful act: Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 34C-E and Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 440-443. 33What West Apartments relies upon is the need for causation as was recognised by McLelland CJ in Eq in Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 34C-E: "There is a further difficulty with both these submissions. Compliance with the express obligation imposed on the defendant to "apply for the said consent within twenty-four (24) hours of the date of this contract" is not, by the terms of special condition 28, made a condition of the exercise by the defendant of the right of rescission conferred by that provision, nor should there be any implication to that effect. It is only if noncompliance with that obligation had a sufficient causal relationship with the defendant's failure to obtain the requisite consent within the fourteen day period that the defendant would be precluded from exercising the right of rescission arising by virtue of that failure, in accordance with the principle to be later discussed. If that failure would have occurred in any event, non-compliance with the obligation would not affect the defendant's right of rescission." 34His Honour went on at 34E-G to say this: "The plaintiff's third submission is based on the proposition that in addition to the express obligation to apply for the requisite "consent" within twenty-four hours of the date of the contract, special condition 28 imposed on the defendant an implied obligation to take all reasonable steps available to him to obtain that "consent" within the stipulated fourteen day period. That proposition is undoubtedly correct: see, eg, Butts v O'Dwyer (1952) 87 CLR 267 at 279-280. If the failure by the defendant to obtain "consent" within the fourteen day period resulted from any default by him in the performance of either his express or implied obligations, then the defendant was not entitled to exercise the right of rescission of the contract otherwise available to him under special condition 28: see Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440-443 applying New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1. This is an application of the principle that a party to a contract is not entitled, as against the other party, to rely on an event resulting from the first party's wrongful act. The history of that principle was, in New Zealand Shipping Co (at 7-8 and 12), traced back to a passage in Coke Upon Littleton (at par 206b): see also Alghussein Establishment v Eton College [1988] 1 WLR 587 at 591-594." 35In Munro at [51] Bryson J said these principles applied to the right to rescind under a clause similar to clause 3.1(b). 36The need for a causal connection was also recognised by White J in Gauld in relation to provisions similar to clause 3.1. Clause 31.2 provided: "The vendor must: (a) use all reasonable endeavours to ensure that the Strata Plan is registered on or before the Sunset Date." 37Clause 31.3 was in these terms: "If the Strata Plan is not registered on or before the Sunset Date, then either party may rescind by serving a notice." 38His Honour said at [10]: "The plaintiffs contend that the vendor did not use all reasonable endeavours to ensure that the Strata Plan was registered on or before 31 December 2006. If the reason the Strata Plan was not registered by that date was that the vendor was in breach of clause 31.2(a), or if such a breach materially contributed to the Strata Plan's not being registered by that date, then the vendor was not entitled to rely on clause 31.3 ( Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 34; Masters v Belpate Pty Ltd [2001] NSWSC 169 at [58]-[66]; Munro v Bodrex Pty Ltd [2002] NSWSC 122 at [51]." 39It is common ground that West Apartments was not disbarred from rescinding the contract for sale under clause 3.1(b) if its breach of clause 3.1(a) was not the reason for, or did not materially contribute to, the Strata Plan not being registered. The question is what flows from that requirement? 40Lianghong Mei says that the causal connection must be presupposed in the question posed by Windeyer AJ because the question is based upon the proposition that notwithstanding a breach of clause 3.1(a) an answer should be given to the question whether clause 3.1(b) is available to West Apartments and that requires one to assume that a sufficient causal connection is assumed in the question. 41West Apartments says a causal connection to non-registration is clearly not included in the question on its face and there should be no implication of it. A causal connection is an essential ingredient and the question must be answered in the affirmative. 42It is clear that in posing the question, his Honour had in mind that an answer to it would dispose of the central issue in the proceedings. 43On 20 April 2011 when his Honour stated the separate question he noted that the parties agreed that if the separate question was answered in the affirmative, paragraphs 1, 2 and 3 of the summons should be dismissed. 44Paragraph 1 seeks a declaration that Lianghong Mei is entitled to have a contract for the sale of unregistered lot 82 made between West Apartments as vendor and Lianghong Mei as purchaser and dated 18 May 2009 specifically performed. 45Paragraph 2 seeks an order that West Apartments specifically perform the contract and paragraph 3 seeks as order that if West Apartments is in default of compliance with paragraph 2, a Registrar of the Court be empowered to execute all such instruments and do all such things in the name of and on behalf of West Apartments as may be necessary in order to specifically perform the contract and directions appointing the Registrar to so act. 46The only other relief sought by Lianghong Mei is damages. 47If there is no assumption of a causal connection to non-registration of the Strata Plan in the question posed by Windeyer AJ, paragraphs 1, 2 and 3 of the summons will not necessarily be dismissed. 48I agree with the submission on behalf of West Apartments that the separate question does not assume the causal connection necessary to be considered under the authorities set out above. 49On the other hand, it seems to me that the court ought to answer the question in such a way as will produce such finality as is possible. One way in which that might be done is for an answer in the negative to be given in this fashion: "No, if the breach by the Defendant of the obligation in clause 3.1(b) of the Contract for Sale was the reason for, or materially contributed to, the Strata Plan not being registered by the Registration Date" 50And I so answer the separate question in that fashion. 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: 29 June 2011