Ellabrook Pty Ltd v Permewan & Permewan [1997] QSC 195

· IN THE SUPREME COURT OF QUEENSLAND CATCHWORDS: Counsel: Solicitors: O.S. No. 5402 of 1997 IN THE MATTER of Section 129 of the Land Title Act 1994 - and- IN THE MATTER of Section 74 of the Property Law Act 1974 - and- IN THE MATTER of an application by ELLABROOK PTY LTD ACN 065 704 289 Applicant and JOHN PERMEW AN and PRUDENCE VERONICA PERNIEWAN Respondents REASONS FOR JUDGMENT - MUIR J. Judgment delivered 15 October 1997 Interests payable under a contract - nature of the election constituted by a notice to complete. Mr J Sullivan for the applicant. Mr J Crowley Q. C. for the respondent Baker Johnson for the applicant. Young, Shepherd and Associates for the respondent. -- 1 of 13 -- · IN THE SUPREME COURT OF QUEENSLAND O.S. No. 5402 of 1997 IN THE MATTER of Section 129 of the Land Title Act 1994 - and- IN THE MATTER of Section 74 of the Property Law Act 1974 - and- IN THE MA TTER of an application by ELLABROOK PTY LTD ACN 065 704 289 Applicant and JOHN PERlVIEW AN and PRUDENCE VERONICA PERMEWAN Respondents REASONS FOR JUDGMENT - MUIR J. Judgment delivered 15 October 1997 On 18 September 1997 Williams J. ordered, by consent, that a contract for the sale and purchase of land between the applicant purchaser and the respondent vendors dated 18 August 1994, as varied, be specifically performed in accordance with annexed minutes of order. The minutes of order fixed 20 October 1997 as the date for completion and required the applicant, on completion, to "tender the balance of the purchase price of$2,380,000 plus all interest payable under the contract as varied . ." In a letter dated 2 October 1997 (ex. 1) the solicitors for the respondents, inter alia, sought confirmation of the calculation of interest set out in a letter dated 22 September 1997 from the respondents' solicitors to the plaintiff" s solicitors. The applicant does not accept that method of calculation. Rather than put forward its own calculation and the reasons behind it to afford the -- 2 of 13 -- 2 respondents an opportunity of considering the merits of the applicant's position, the applicant brought this application before me. I will return to this matter when dealing with the question of costs. THE ISSUE TO BE DECIDED The respondents contend that interest is payable on the balance purchase price from 1 November 1995 to the date of settlement as follows- "1.11.95-11.12.96 $2,600,000 @ 10.5% (407 days) 304,205.33 12.12.96-1.1.97 $2,380,000 @ 12.25% (21 days) 16,762.63 2.1.97-1.9.97 $2,380,000 @ 11.75% (243 days) 186,050.51 2.9.97-7.10.97 $2,380,000 @ 11.25% (45 days) 33~720.74 $504,739.21 Plus $733.06 per day after 17.10.96" Mr Crowley QC, who appears for the respondents, submits that if one considers the terms of various deeds varying the contract and also correspondence exchanged between the solicitors for the parties which have a like effect, it will be seen that the parties agreed on payment of interest in accordance with the above calculation. Mr Sullivan, for the applicant, initially conceded that interest is payable at the rate of 10.5% per annum from a period 1 November 1995 to 31 January 1996 on the sum of $2,600,000 (which he calculated at $68,810.96) but submitted that that is the only interest specifically provided for by the contract or by any deed of variation or exchange of correspondence constituting a variation. He submitted that, having regard to the terms of the consent order, the respondents have a right to interest only if that interest is "payable under the contract as varied". He later conceded that interest was payable on $2,600,000 at the rate of 10.5% per annum from 1 November 1995 to 26 July 1996 inclusive. This concession was based on the acceptance of an -- 3 of 13 -- 3 agreement constituted by the respondents' solicitors' letter of27 June 1996 and the applicant's solicitors' letter of 3 July 1996. RELEVANT PROVISIONS OF THE CONTRACT The contract provided for a date of completion of 29 July 1995, a purchase price of $2,600,000 and a deposit of $20,000. The deposit of $20,000 was non-refundable. Clause 42B required payment of a further non-refundable deposit of $50,000 on or before 30 November 1994. Cl.11 provided- "11.1 Without derogating from the strict effect of clauses 3, 13 and 26 hereof, if any money (including the deposit) payable under or by virtue of the contract is not paid when payable such moneys shall bear interest from the due date for payment to the date of payment at the rate stated in Item P and if no other rate is so stated at the Contract Rate per annum simple interest which interest shall be paid contemporaneously with the balance of the purchase price. 11.2 Any judgment for any such money shall likewise bear interest from the date of judgment until the date of payment." Item P did not specify an interest rate. THE HISTORY OF CONTRACTUAL VARIATIONS By an exchange ofletters dated 29 November 1994 between the parties' solicitors the contract was varied to provide that the payment of the further deposit of $50,000 be made by payment of$10,000 on or before 30 January 1995 and by a balance payment of $40,000 on or before 31 March 1995. The effect of the variation was to waive any right to payment of the $50,000 deposit on 30 November 1994. By a deed dated 26 June 1995 the parties agreed to extend the time for completion from 29 July 1995 to 31 October 1995. The deed inserted a new cl.42D which provided for payment of a further non-refundable deposit of $1 00,000 on or before 29 July 1995. In a deed dated 3 August 1995 it was recited- -- 4 of 13 -- 4 "c. The purchaser was unable to pay the vendor the further deposit of $100,000 by 29 July 1995 and the parties wish to extend the date for payment of the further deposit until 1 September 1995." The deed extended the time for payment of the sum of $100,000 until 1 September 1995 "with time in all respects to remain of the essence of the property contract". By deed dated 15 September 1995 it was provided- "1. The parties hereby extend the date for payment of the further deposit of $100,000 to be paid pursuant to c1.42D of the property contract until 15 September 1995 with time in all respects to remain of the essence of the property contract." By deed dated 25 October 1995 it was agreed to extend the date for completion of the contract from 31 October 1995 to 4 December 1995. It was further provided that- "l.1 The purchaser will pay to the vendor interest at the rate of 10.5% per annum calculated on a daily balance on the sum of $2,600,000 for the period 1 November 1995 to 4 December 1995 inclusive." A deed dated 11 December 1995 provided- "In consideration of the purchaser agreeing to perform the following conditions .. the vendor agrees to extend the date for completion of the property contract from 4 December 1995 to 3 1 January 1996 with time to remain in all respects of the essence of the property contract. 1. Condition precedent 1.1 The purchaser will pay on completion to the vendor interest at the rate of 10.5% per annum calculated on a daily balance on the sum of$2,600,000 for the period 1 November 1995 to 31 January 1996 inclusive." A further deed for extension of time for completion was recorded in a deed dated 7 February 1996. That deed, which extended the time for completion to 2 April 1996, made no reference to the payment of interest. It provided, inter alia- "1.1 The parties agree that a new clause 42E is to be inserted in the property contract as follows: '42E. On or before 2.30 pm Friday 9 February 1996 the purchaser will -- 5 of 13 -- 5 pay to the vendor, in addition to the initial deposit, and the further deposits payable under clauses 42A, 42B, 42C and 42D respectively, a further deposit by a bank cheque of$50,000 which is to be non-refundable. The further deposit will become the property of the vendor, subject to the provisions of clause 45 hereof" The applicant failed to settle on 2 April 1996 and the respondent by letter from its solicitors on that date to the applicant's solicitors purported to terminate the contract. There was then correspondence in which the applicant's solicitors contended that the contract was an installment contract. In an exchange of correspondence between the parties' solicitors on 3 May 1996 the parties agreed that the respondents would not serve a notice of termination in reliance on the applicant's failure to comply with the notice served on the applicant by the respondents under s.72 of the Property Law Act until after 5.00 p.m. Friday 10 May 1996 on the assurance of the applicant that it would not take any point concerning delay on the part of the respondents in electing to terminate the contract at a time earlier than 5.00 p.m. on 10 May 1996. By letter dated 15 May 1996 from the respondents' solicitors to the applicant's solicitors the date the subject of the arrangement just discussed was extended to 24 May 1996. There appears to have been no waiver in any of this correspondence to the respondents' rights under the contract except to the extent expressly stated in the correspondence. Discussions then took place between the respondents and a representative of the applicant under which a further such extension was granted to 26 July 1996. Mr Shepard's affidavit, filed 13 March 1997 para.31, deposes to such agreement but does not state whether the conditions sought to be imposed by the letter from the respondents' solicitors to the applicant's solicitors dated 27 June 1996 were agreed. The applicant conceded, in an outline of submissions delivered when this matter was mentioned on 10 October, that the terms contained in the letter of27 June were accepted by the applicant's solicitor's letter of 3 JUly. -- 6 of 13 -- 6 In a "without prejudice" letter dated 27 June 1996 the respondents' solicitors proposed an extension of time for completion to 26 July 1996 upon terms and conditions which included- "2. That your client will be required upon finalisation of the transaction to pay on the date of finalisation interest at the rate of 10.5% per annum calculated on a daily basis on the sum of $2,600,000 for the period 1st November 1995 to the 26th July 1996 inclusive." The letter stated- " .. our clients .. will grant your clients one further indulgence until Friday the 26th July 1996 to complete the transaction. This indulgence is that our client will not deliver to your client a notice of termination. This indulgence will only be granted upon your client's acceptance of the following conditions:-" (emphasis supplied) The following matters and the exchanges of correspondence then took place. The exchanges of correspondence referred to were between the parties' solicitors and, for the sake of brevity, I will refer only to the date of the letter the addressor and the part of the letter which is of immediate relevance. Respondents' solicitors 29 July 1996- "We have been instructed by our clients to extend further indulgence to your client, in that our clients will not deliver to your client a notice of termination until after 3.00 p.m. on Friday 2nd August 1996. We advise that this indulgence is granted subject to the conditions which your client has previously agreed to, and which were contained in our letter of the 27th June, 1996." Respondents' solicitors 2 August 1996- "We refer to our telephonic conversation with Ms English of today' s date, and confirm that our clients are prepared to grant an indulgence to your client until 3.00 p.rn. 12th August, 1996, whereby our clients will not deliver, until after that time, a notice of termination. Our clients' indulgence is given on the same terms and conditions as our correspondence to you of the 27th June 1996." The respondents' solicitors 9 August 1996 is a letter in virtually identical terms to those -- 7 of 13 -- 7 of the letter of2 August 1996 except that it referred to "Mr Adam Thatcher" and to a completion date of 15 August 1996. Applicant's solicitors 13 August 1996- "Further to your facsimiles of 2 and 9 August 1996, we advise that our client is prepared and able to settle this matter on Friday 30 August on the following terms and conditions: , 1. The balance of purchase price plus interest up to the date of settlement will be paid; 2. Your outstanding costs of$14,129.00 will be paid; and 3. The joint venture will permit your clients' children to remain in possession of the house. We are instructed that Mr Permewan only required additional consideration in the event that interest would not be paid while the funds were left in by the vendors. Given that our client is prepared to pay interest to the date of settlement, we understand that this proposal should meet with your client's approval." Respondents' solicitors 15 August 1996- "We refer to your facsimile transmission to our office of the 13 th August 1996, and advise that our clients will grant a further indulgence to your client until the 30th August 1996, upon the terms as specified in our letter to you on the 26th June 1996, with the dates that are referred to therein extended to the 30th August 1996. This indulgence is also granted upon the basis that your client will comply with all the terms and conditions of previous extensions and deeds." Respondents' solicitors 18 October 1996- "We enclose herewith by way of service, our clients' notice of completion. The service of the enclosed notice should not be seen as a waiver of in any manner of our clients' right to terminate the contract for the breach which we had referred to in our letter of 2nd April 1996, if it is determined that the contract was not an instalment contract." The enclosed notice to complete called for completion on or before 19 November 1996. -- 8 of 13 -- 8 Respondents' solicitors 11 November 1996 enclosing notice to complete under s.72 of the Property Law Act, asserting default in payment of an installment due and payable on 2 May 1996 and requiring payment of the sum of $2,686,043 (being the amount of such installment) within 30 days. Respondents' solicitors 11 December 1996 giving notice of termination of the contract. ANALYSIS OF DEEDS OF VARIATION There were only two deeds of variation which made express provision for payment of interest. The 25 October 1995 deed provided for interest at 10.5% per annum on $2,600,000 from 1 November 1995 to 4 December 1995. The 11 December 1995 deed provided for interest at 10.5% per annum on $2,600,000 from 1 November 1995 to 31 January 1996. In both cases an extension was given to a particular date and express provision was made for payment of interest from 1 November 1995 to the extended date for completion. The interest provided for by the deeds of variation is thus interest from 1 November 1995 to 31 January 1996. The 7 February 1996 deed extended the completion date to 2 April 1996. No interest under cl.l1.1 of the contract would thus accrue before 2 April 1996. PROVISION FOR INTEREST IN THE CORRESPONDENCE Mr Sullivan contended that the Notice to Complete given on 18 October 1996 constituted an election to continue under the contract which resulted in the loss of the right to rely on any default existing at the date of giving the notice. He relied on Wendt v. Bruce (1931) 45 CLR 245 as authority for this proposition. The submission misstates the nature and effect of a notice to complete. It also misunderstands the consequences of an election. In Ciavarella v. Balmer (1983) 153 CLR at 438 it was said in the judgment of the Court at 446 that- "We agree with the view expressed by Glass J.A. in the Court of Appeal that the -- 9 of 13 -- 9 effect of a valid notice to complete once the purchaser fails to complete, is to establish the existence of an essential breach, the breach which preceded the giving of the notice being non-essential. The function of the notice is to fix a reasonable time for completion so that non-compliance with its requirements evidences a fundamental breach or renunciation (see Louinder v. Leis (1982) 149 CLR 509). The effect of the notice is not to convert a non-essential term into an essential term. In this respect what is important for present purposes is that the notice requires completion of the contract, notwithstanding that the object of the party issuing the notice is to place himself in a position in which he can terminate the contract in the event of non-compliance with the requirements of the notice, should he choose to do so. Obviously the issue of the notice to complete cannot amount to an election to affirm the contract precluding rescission for subsequent non-compliance with the notice. Ifit were otherwise the party not in breach would be unable to make time of the essence, even though it be an essential pre-requisite to later rescission. The point is that it is the failure of the party in breach to complete in accordance with the innocent party's insistence on completion as expressed in his valid notice to complete that brings into existence the innocent party's right to terminate the contract. And to call upon a party who has committed a non-essential breach to complete the contract cannot constitute an election to affirm the contract which precludes subsequent rescission for a fundamental breach arising after the party in breach is called upon to complete - see the discussion by Fullagar J in Carr v. J.A. Berriman Pty. Ltd. (1953) 89 CLR 327 at pp.348-350 - or precludes the giving of a notice to complete." It may be seen that the effect of the election constituted by the giving ofthe notice to complete is to keep the contract on foot and to prevent reliance on a prior breach as a ground of rescission. The prior breach, however, remains and the innocent party is entitled to recover any damages flowing from it. See also Neeta (Epping) Pty Ltd v. Phillips (1974) 131 CLR 286; Louinder v. Leis (supra) at 526 and 533; and Ogle v. Comboyuro Investments Pty. Ltd (1976) 136 CLR 444 at 458-459. Wendt v. Bruce (supra) does not advance the applicant's argument. It concerned the loss by the innocent party of its right to rescind through having elected to affirm the contract by the giving of a notice of complete. However Gavan Duffy C.l and Starke l in their joint judgment observed that if the innocent party failed to terminate for breach " ... he might stand to the contract reserving to himself the right to bring action for such damage as he might have sustained - that is, to treat the breach, as the books say, as a breach of warranty sounding in damages only." -- 10 of 13 -- 10 The last extension of time granted by the respondents was to 30 September 1996. After that date, the applicant was in breach of its obligation to settle under the contract. For the reasons given above, the giving of the notice to complete did not prevent the obligation on the part of the applicant to complete on the due date from arising. The correspondence between and including the letters of 27 June 1996 and 13 August 1996 did not go beyond a waiver of the right on the part of the respondents to give notice of termination before a specified date. It follows that the balance purchase price under the contract was payable on 30 September 1996 and was "not paid when payable" for the purposes of cl.11.1. The final matter to be addressed is the interest, if any, which accrued between 26 July 1996 (the date appointed for completion by exchange of letters including that from the respondents' solicitors of27 January 1996 and the letter from the applicant's solicitors of2 July 1996) and 18 October 1996. Mr Sullivan submits that the extensions oftime for completion, if of contractual force and not constituting waivers of prior breaches of contract by the applicant, were granted on terms that interest be paid on $2,600,000 from 1 November 1995 to 26 July 1996. He points to the fact that the respondents' solicitor's letter of27 June 1996 provided for interest on $2,600,000 "for the period 1st November 1995 to 26 July 1996 inclusive." He also points out that the respondents' solicitor's letters of29 July 1996 and 2 August 1996 do not refer specifically to interest but state that the indulgence granted by the respondents to the applicant is granted, in the case of the 29 July 1996 letter, "subject to the conditions ... contained in our letter of the 27th June 1996" and, in the case of the 2 August letter "on the same terms and conditions of our correspondence to you of the 27th June 1996." The respondents' solicitor's letter of9 August 1996 which refers to an extension of time to 15 August 1996 also refers to "the same terms and conditions as our correspondence to you of the 27th June 1996." -- 11 of 13 -- 11 The material exhibited shows that the terms contained in the respondents' solicitor's letters of29 July 1996, 2 August 1996 and 9 August 1996 were accepted either in writing or by conduct or by a combination of writing and conduct. If the letters are construed literally, Mr Sullivan's submissions have considerable force. However, looking at the chain of correspondence it seems reasonably clear that the intention of the parties was that interest would be paid to the due date fixed for completion, in each case on the assumption that completion would then take place. In their letter of 13 August 1996 the applicant's solicitors offered, on behalf of the applicant, to pay interest on the balance purchase price to the date of settlement. In these proceedings the respondents have not sought rectification and, accordingly, I am required to decide the question before me as one of contractual construction. In my view, the references in the letters of 29 July, 2 August and 9 August to an "indulgence on the same terms and conditions" or to "the conditions which our client has previously agreed to" are references to an extension of time on the basis of payment of interest from 1 November 1995 to the new date fixed for completion. When considering the terms of the letter of27 June to be imported into each extension it is clearly necessary to substitute the new date of completion for 26 July 1996 where express reference is made in the letter of 27 June to the time for completion. It is also necessary to substitute the new date for completion for "Friday 26 July" in para. 1 which prohibits service of "a notice of termination until after 3 p.m. Friday the 26th July, 1996." In paragraph 2 of the letter, which refers to the payment of interest for the period 1 November 1995 to 26 July, 1996 it is apparent that the role served by "26 July 1996" was the specification of the new completion date. That date needs to be changed to enable "the same terms and conditions" to apply. The applicant's argument is weaker in relation to the extension from 12 August 1996 to 30 August 1996. The applicant's solicitor's letter of 13 August 1996, as I have previously stated, -- 12 of 13 -- 12 offered to pay "interest up to the date of settlement". The letter in response of 15 August 1996 referred to the granting of "a further indulgence ... upon the terms as specified in our letter to you of the 26th June, 1996." CONCLUSION For the above reasons interest is payable by the applicant to the respondent as follows- On $2,600,000.00 at 10.5% per annum from l.1l.95 to 30.8.96 On $2,380,000.00 at the "contract rate" from 30.8.96 to the date of completion. As the applicant has failed in its application, which through its conduct may in any event have been made unnecessarily, it must pay the costs of and incidental to the application to be taxed. -- 13 of 13 --