Eamon Pty Ltd, Rador Pty Ltd & Blackedged Pty Ltd v Sanwa Home Australia [1991] QSCFC 160

TRANSCRIPT OF PROCEEDINGS State Reporting Bureau, 4th Floor, The Law Courts, George Street, BRISBANE. Q. 4000 Tel. (07) 227.4360 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reportin Bureau.) REVISED COPIES ISSUED j Court Reporting Bureau j Date. /7//Z. //??/.■ I SUPREME COURT OF QUEENSLAND FULL COURT MCPHERSON SPJi/^ ' . MOYNIHAN J BYRNE J No 690 of 1991 EAMON PTY LTD First Plaintiff and RADOR PTY LTD Second Plaintiff and BLACKEDGED PTY LTD Third Plaintiff and SANWA HOMES AUSTRALIA (FORMERLY BELFIELD) PTY LTD Defendant BRISBANE ..DATE 11/12/91 JUDGMENT bO [1991] QSCFC 160 -- 1 of 19 -- 1 10 20 30 40 50 60 111291 JUDGMENT ' < t l MR JUSTICE McPHERSON: In my opinion, this appeal should be dismissed with costf-n I deliver my reasons. MR JUSTICE MOYNIHAN: I agree with the order proposed by the presiding Judge and I publish my reasons. 10 MR JUSTICE BYRNE: I agree with the SPJ. MR JUSTICE McPHERSON: The order of the Court is that the appeal is dismissed with costs including the costs of preparation of the appeal record. 30 40 ( 50 Govt. Printer, Qld. 2 -- 2 of 19 -- fc $ft A IN THE SUPREME COURT OF QUEENSLAND FULL COURT Writ No. 690 of 1991 EAMON PTY. LTD. (First Plaintiff) (First Respondent) - and - RADOR PTY. LTD. (Second Plaintiff) (Second Respondent) - and - BLACKEDGED PTY. LTD. (Third Plaintiff) (Third Respondent) - and - SANWA HOME AUSTRALIA (formerly BALFIELD PTY. LTD. (Defendant) (Appellant) McPHERSON SPJ MOYNIHAN J BYRNE J Reasons for judgment delivered by McPherson SPJ on 11th December, 1991. Moynihan & Byrne JJ agreeing with those reasons and with the order proposed. "APPEAL DISMISSED WITH COSTS INCLUDING THE COSTS OF PREPARATION OF THE APPEAL RECORD BOOK. " -- 3 of 19 -- IN THE SUPREME COURT OF QUEENSLAND FULL COURT No. 690 of 1991 Before the Full Court Mr Justice McPherson S.P.J. Mr Justice Moynihan Mr Justice Byrne BETWEEN: EAMON PTY LTD (First Plaintiff) - and - RADOR PTY LTD (Second Plaintiff) - and - BLACKEDGED PTY LTD (Third Plaintiff) - and - SANWA HOME AUSTRALIA (formerly BALFIELD PTY LTD (Defendant) First Respondent Second Respondent Third Respondent Appellant JUDGMENT - McPHERSON S.P.J. Delivered the Eleventh day of December 1991 CATCHWORDS Vendor and purchaser - Time of the essence - Conditions subsequent - Variation of contract - Parties acting in reliance on contract as varied - Whether purchaser entitled to rescind for non-timely performance of conditions. Counsel: Gotterson Q.C., with him Quinn, for appellant Keane Q.C., with him Applegarth, for respondents Solicitors: Gilshenan & Luton for the appellant Corrs Chambers Westgarth for the respondents Hearing Date: 27 November 1991 -- 4 of 19 -- IN THE SUPREME COURT OF QUEENSLAND FULL COURT No. 690 of 1991 BETWEEN: EAMON PTY. LTD. (First Plaintiff) - and - RADOR PTY. LTD. (Second Plaintiff) - and - BLACKEDGED PTY. LTD. (Third Plaintiff) - and - SANWA HOME AUSTRALIA (formerly BALFIELD PTY. LTD. (Defendant) First Respondent Second Respondent Third Respondent Appellant JUDGMENT - McPHERSON S.P.J. Delivered the Eleventh day of December 1991 This is an appeal against a decision of Robin A.J. in the Supreme Court in which his Honour gave judgment in favour of the plaintiff in an action for specific performance against the defendant . By three separate written contracts dated 23 June 1990, each plaintiff as vendor agreed to sell and transfer to the defendant as purchaser certain identified parcels of land at Labrador on the Gold Coast. The total purchase price was large, amounting in all to some $26,000,000 or more. The contracts were expressed to be interdependent, the date for settlement of all three of them being 29 March 1991. Time was in each case expressly made of the essence of the contract. -- 5 of 19 -- 2 Various steps were to be taken before the contracts could be brought to a state fit for completion. With the exception of a portion of Labrador Street, the land was zoned as Special Facilities (Tourist and Residential Resort) under the applicable town planning scheme. The intention was that it should by the date for completion be rezoned in accordance with terms and conditions set out in a document annexed to the contract. Accordingly, each contract in cl. 4(a) provided that it should be subject to and conditional upon the vendors obtaining by the date for completion approval for and gazettal of the appropriate rezoning. The clause went on to say that, if not so gazetted, "this contract shall be at an end" and all money paid by the purchaser should be refunded in full . In addition, the land to be transferred included part of Labrador Street, which was an existing dedicated highway vested in the Crown. Permanent closure and rezoning of that part of the road was envisaged by the parties. Clause 5 of the relevant contract accordingly declared the contract to be subject to and conditional upon the vendors obtaining by the date of completion (a) the permanent closure of a defined part of Labrador Street; and (b) its gazettal to the same zone as the balance of the land sold. The parties expressly acknowledged that the road formed part of the property sold, and that it was deemed to have been permanently closed once its closure was approved by the Governor in Council and notified in the Gazette. Finally, one or more of the parcels was the site of a public house, known as the Grand Hotel, and other buildings. The intention was that these structures should be demolished and -- 6 of 19 -- 3 removed prior to the completion date. Hence, cl. 26(d)(i) provided that the relevant contract was subject to and conditional upon the vendors demolishing and removing the hotel improvements before the completion date, although not before 31 December 1989, which was called "the demolition completion date". However, by cl. 26(d)(ii) the purchaser could, if it wished, give notice that it did not want the hotel removed : cl. 26(d)(ii); failing this, "the vendors shall proceed to demolish the hotel improvements". By cl. 26(e) the cost of demolition was to be borne by the purchaser, and was to be paid on satisfactory completion of the works to the vendors by the purchaser on completion of the contract. As often happens in transactions like these, matters did not go precisely according to plan. As the time for completion approached, arrangements to ensure that the conditions were fulfilled were proceeding satisfactorily, but it appeared increasingly doubtful if the conditions would be satisfied by the stipulated date. For its part, the attitude of the defendant from an early stage was, to adopt the term used by the learned trial judge, "ambivalent". The defendant is a wholly owned subsidiary of a Japanese corporation, Sanwa Homes Inc., and, although possessed of ample financial resources, problems arose with the transmission of large sums of money from Japan. The Bank of Japan imposed restrictions on transfer of funds abroad making it difficult for the purchaser to provide the purchase moneys required in Australia for settlement of the contracts at due date. -- 7 of 19 -- 4 Completion was, as I have said, due on 29 March 1991. On 8 March 1991, solicitors for the purchaser wrote to solicitors for the vendors proposing a variation of the contracts, to which a reply was returned on the same day. With some, but for the most part, immaterial amendments, the vendors' proposal was accepted. Although expressed in terms that the vendors "will agree" to variation of the contracts, it was acknowledged by the parties, both in the pleadings and at the trial, that by 11 March 1991 the contract variations had been finally agreed upon. There is no dispute about this aspect of the matter. So far as material for present purposes, the terms of the agreed variation of 8 March were as follows : "1. Your clients are to satisfy the purchaser's solicitors that the vendors have attended to and finalised all outstanding matters within their control in relation to the rezoning of the subject properties and the road closure by 5 p.m. the 28th day of March, 1991. This will include the payment of all monies required by the relevant government departments including the purchase price of that part of Labrador Street to be closed and the payment of all relevant fees . 2. Once the matters referred to in Item 1 have been attended to you are to provide us with a notification of the same and also provide letters from the Local Government Department and the Land Administration Commission confirming that all matters relating to rezoning and road closure within the control of the vendors have been attended to and finalised. 3. Upon receipt by us of the notification referred to in Item 2 Sanwa will have fourteen days within which to [reasonably] satisfy itself that the material provided by you in connection with the obligation of the vendors under Item 1 satisfies Item 1. Sanwa will then notify the vendors of its attitude under this item by a further notice through this firm to yourselves within the said period of fourteen days. 4. Completion of the contract will occur sixty days from the date on which we give you the notice v. V -- 8 of 19 -- 5 under Item 3 confirming Sanwa's satisfaction with the matters referred to therein. 8. Time shall remain of the essence." Approaching these terms in the manner contended for by the purchaser, each of paras. 1 and 2 is to be viewed as a condition of the variation and to be fulfilled as such. Thus, in terms of para. 1 the purchaser's solicitors were by 5 p.m. on 28 March 1991 to be satisfied that the vendors had attended to and finalised "all outstanding matters within their control" in relation to the rezoning and the road closure. By para. 2, notification and letters confirming those matters were to be provided. By cl. 3, Sanwa was to have 14 days from such notification within which to satisfy itself that the material provided under para. 1 fulfilled its requirements and to notify its attitude to the vendors. Finally, by cl. 4 completion of the contract was to take place within 60 days of the notification given under para. 3 of the variation agreement. The parties to the litigation now agree that, in the events that happened, the effect of this provision would have been to fix the date for completion at or about 10 or 11 June 1991. On behalf of the purchaser the fundamental contention is that the conditions specified in paras. 1 and 3 of the variation agreement were not fulfilled, with the consequence that the purchaser became entitled, and by letter dated 12 June 1991 from its solicitors elected, to determine the contract. Whether that is so depends in the first place on the proper interpretation of paras. 1 and 3 of the variation considered in the context of what was done in purported reliance on those provisions. -- 9 of 19 -- 6 His Honour construed para. 1 as requiring that the solicitors for the vendors should be honestly satisfied of ■ the matters identified in that paragraph of the variation agreement. Having arrived at that conclusion, he was not persuaded that the vendors had proved that Mr Rudkin of the firm of solicitors then acting for the vendors was not honestly so satisfied. By contrast, he held that para. 3 of the variation agreement required that Sanwa be not only honestly but also reasonably satisfied of the matters in para. 1. The word "reasonably" did not appear in the original proposal conveyed by the purchaser' s solicitors on 8 March 1991. It was introduced by the response of the same date from the vendors' solicitors. In terms, the response selected as the place for insertion of the word "reasonably" a point in para. 3 that might perhaps not have been completely appropriate; but the meaning is clear, and the parties are at one in reading para. 3 as incorporating the word "reasonably ” at about the point at which it appears in square brackets in the passage set out above. His Honour found that Sanwa had not acted reasonably in adopting and communicating its attitude of non-satisfaction with the matters specified in para. 1 . This finding was challenged by the purchaser on appeal. The decision of Sanwa to that effect was embodied in a resolution adopted at a meeting of directors of that corporation held in Tokyo on 9 April 1991. On that occasion the directors, who had previously received Mr Rudkin's advice, also had before them a letter from Mr Peter Bell, a town planning and development consultant, and a further letter of advice from Messrs. Gilshenan & Luton, who had by then replaced -- 10 of 19 -- 7 Mr Rudkin's firm as solicitors for the purchaser. Communication was maintained with Mr Rudkin by telephone, although his function at that stage was limited to receiving an account of what was taking place. Mr Bell ' s letter set out in some detail the matters that remained capable of impeding fulfilment of the conditions. His Honour described the letter as dealing "in a theoretical way with everything which might go wrong for the rezoning application pending final approval by the Governor in Council and its gazettal". Mr Bell also gave evidence at the trial. His testimony was viewed by the learned trial judge as "disclosing no reason to think that any misfortune might befall the application in respect of the plaintiff's land...". Support for this assessment is seen in a report dated 11 May 1990 (ex. 108) from Mr Bell, in which he concluded that the proposed development "does comply with the Council's requirement and was capable of implementation in that form ...". In the face of that evidence, it is scarcely possible to sustain the challenge to his Honour's finding in this particular; but the proposition presented, and rejected, in the court below was pursued on appeal. In essence it is that, confronted on 9 April with the array of advice received from Mr Bell and the solicitors and others, the directors had acted with perfect reasonableness in declaring themselves not satisfied in terms of para. 3 with the matters specified in para. 1 of the variation agreement. But that, as his Honour perceived, was not the end of the matter. While accepting that the directors had acted rationally in deciding as they did, it did not follow that they -- 11 of 19 -- 8 had also acted "reasonably". The question at issue was one to be determined in an objective sense, which was not concluded in favour of the plaintiff simply by showing that the directors of Sanwa had received and acted upon advice that was presented to them. It was never contended at the trial that Mr Rudkin's opinion, although honestly entertained, was also reasonably held; and, as his Honour observed, a requirement of reasonableness is not met simply by uncritically adopting the state of mind of another whose only obligation is to act honestly. The logic of his Honour's reasoning on this point seems to me to be beyond reproach. To the extent that the question is one of fact, which it very largely is, I see no proper basis for interfering with the finding that Sanwa did not act reasonably in arriving on 9 April 1991 at its decision in relation to para. 1 of the variation agreement. Even if a contrary conclusion were sustainable, the difficulties confronting the purchaser on appeal would in any event not be removed. The submission on its behalf is that the operation of the variation superimposed on the contract by the agreement made on 8 March 1991 was itself always dependent upon Sanwa's arriving at and expressing the requisite state of satisfaction within the time limited under para. 3. If, acting reasonably, Sanwa was not satisfied, and duly notified its attitude to that effect, then (so it was submitted) there arose in favour of the purchaser a right or option to determine the contract, which right they elected to exercise by the letter dated 12 June 1991 from their solicitors. -- 12 of 19 -- 9 I am bound to say that I consider this interpretation of the terms of the variation agreement and its effect to be wholly untenable. It involves as its foundation the acceptance of a conclusion that, despite the agreed variation, the parties throughout intended to maintain 29 March 1991 as the date for completion of the contracts, as well as to preserve the requirement that time should continue to be of the essence of all the obligations of the parties with respect to that date. The strength of the submission to this effect is said to lie in the circumstance that the original completion date of 29 March 1991 was never expressly expunged from the contracts whether by the variation agreement or otherwise. There are, as Mr Keane Q.C. for the vendors pointed out, several answers to this submission. In the first place, although not expressly eliminated from or struck out of the contracts by the variation agreement of 8 March 1990, it is plain that the original completion date cannot stand with the provisions of the variation agreement. The former provided for completion on 29 March 1991; the latter in para. 4 provides for completion at 60 days from the date on which notification was given under para. 3 confirming Sanwa's satisfaction on the matters in para. 1 . The provision in para. 4 is thus inconsistent with the earlier provision. One of the two provisions must give way, and, according to accepted principles of interpretation, it is the earlier provision that must do so. In response to this it is said that the provision in para. 4 of the variation requiring completion within 60 days was designed to cater for the specific case where Sanwa notified its attitude -- 13 of 19 -- as one of satisfaction, and not as here where it was one of non-satisfaction or dissatisfaction with the arrangements- made by the vendors for fulfilment of the conditions. So much may be accepted. But it does not follow that in those circumstances the parties are thrown back to the original completion date of 29 March 1991. To adopt that conclusion would have extraordinary consequences. In particular, it would run counter to well settled rules regulating the exercise of a power to rescind or determine a contract for non-fulfilment of a condition on a date as to which time was originally of the essence. Once such a time has arrived and passed without an election to determine being made and communicated, the rule is that the power to do so is lost to a party who, before it is exercised, so conducts himself as to show that the contract is to be considered as continuing : see Mehmet v. Benson (1965) 113 C.L.R. 295, 302, where Barwick C.J. said: "if the party entitled to insist on the essential quality of the stipulated time leads the other party to understand that its essentiality is not being maintained, time will cease to be essential without some further circumstance, such as a proper notice in that behalf, apt to restore its essential quality. The loss of the essential quality of the time...may thus happen by the party entitled to rescind doing some act inconsistent with his insistence on the essential quality of time." See also Havenbar Ptv Ltd v. Butterfield (1974) 133 C.L.R. 449, 457-458. Of the application of those principles, the present transaction provides an ample illustration. Once 29 March 1991 had arrived and passed, the purchaser not only failed to take steps to communicate an election to rescind by reason of non-fulfilment of the original contractual conditions by the -- 14 of 19 -- specified completion date, but it continued to take affirmative and active steps that fully acknowledged the continuing existence of the contract. It was on that footing that the purchaser's solicitors proceeded to engage in correspondence and communications with the solicitors for the vendors. Likewise, the directors of Sanwa, acting under para. 3 of the variation agreements, purported on 9 April 1991 to arrive at and express their attitude on the subject of the contract and its fulfilment. They did so in reliance on para. 3 of the agreement of 8 March 1991, which operated as a variation of the original contracts. In doing so they recognised the continued existence of those contracts. Even as late as 11 April 1991, solicitors for the purchaser were writing to confirm their client's intention to issue a vendor and purchaser summons for determination of "the true position" under the contract, and at the same time expressly reserving the "rights of election" of the purchaser consequent upon non-fulfilment, as they asserted, of the conditions of the variation agreement. Conduct of that kind is consistent only with the assumption that the contracts as varied continued to exist, and it was inevitably so understood by the vendors and their solicitors. The purchaser's submission, in some incompletely expressed fashion, evidently claims to treat non-fulfilment of the original conditions in ell. 4(a), 5 and 26, as giving rise to an accrued right on its part to determine the contract in the event that the further conditions superimposed by paras. 1 and 3 of the variation agreement were not, to its or Sanwa's satisfaction, fulfilled by the dates specified in those provisions. But the -- 15 of 19 -- 12 case is not, like Tropical Traders Limited v. Goonan (1964) 111 C.L.R: 41, one in which a right to determine having accrued to a contracting party, he unilaterally suspends or defers the exercise of that right pending attempts by the defaulting party to remedy the position. Here, well before any right of that kind had accrued to the purchaser, and even before the date for fulfilment of the original conditions had arrived, the parties had agreed to vary the original contracts by substituting a new regime by which their rights would henceforth be governed. Quite apart from the impact on the original completion date of the purchaser's conduct on the essentiality of time for fulfilment of the conditions in ell. 4(a), 5 and 26, it was therefore not open to the purchaser to revert to the state of affairs that prevailed at 29 March 1991. By the time that date arrived the contractual obligations of the parties with respect to that date had already been altered by mutual agreement. Nor is it, in my opinion, possible for the purchaser to assert an independent right to determine the varied contract arising from failure to fulfil the conditions contained in paras. 1 and 3 of the variation agreement of 8 March 1991. Even if, contrary to the trial judge's findings on this point, Sanwa could be said to have been acting reasonably when on 9 April 1991 it expressed its non-satisfaction with the matters specified in para. 1 of that agreement, it thereby acquired no right to put an end to the contract. The variation agreement itself did not confer any such right, whether in express terms or otherwise. Such a right may sometimes be implied from the mere presence in a contract of the words "subject to ...": cf. Koikas v. Green Park Construction Ptv -- 16 of 19 -- 13 Ltd [1970] V.R. 142, 148-149. But no such words appear in the agreement of 8 March 1991. Indeed, none of the provisions of the first four paragraphs of that agreement is expressed in language appropriate to a contractual condition. The purchaser was given no right to determine the contract if the terms of the relevant paragraphs were not fulfilled. All of this serves to lend weight to Mr Keane's submission that the function of the variation agreement was not to enable the vendors to satisfy the special conditions of contract at or before the original date for completion of 29 March; but was designed to extend the time for completion in order to enable the purchaser to fulfil its part of the bargain by transmitting the necessary funds to Australia once the restrictions imposed by the Bank of Japan had been eased. In pursuit of that purpose, para. 4 of the variation agreement extended the time for settlement to 60 days after notification under para. 3 of Sanwa's satisfaction with the matters specified in para. 1. By virtue of para. 8 time was to remain of the essence of that date for completion, as well, no doubt, as of the other dates specified in the variation agreement. As it was, the provision in para. 4 failed to operate for the reason that Sanwa unjustifiably, as it turned out, expressed its attitude as one of non-satisfaction with respect to those matters. The case might be approached as one in which the purchaser may fairly be identified with Sanwa; and accordingly, as the party in default, the plaintiff would be disentitled from relying upon the inoperability of para. 4 as a basis for repudiating the contract of sale. But there is, in truth, no -- 17 of 19 -- 14 need to follow that path to a conclusion. There being in the events that have happened, now no contractually fixed date for completion, and no operative provision for arriving at any such date, the contracts have accordingly become "open" contracts in which the law implies an obligation on the part of vendors and purchaser to complete within a reasonable time. See Sandra Investments Ptv Ltd v. Booth (1983) 153 C.L.R. 153, 158-159, 164. This was the conclusion at which Robin A.J. arrived in his comprehensive and closely reasoned judgment in the case. In my respectful opinion, his Honour was correct in declaring that the contracts ought to be specifically performed and carried into execution. Until a date for completion is fixed pursuant to the decree, a final order for specific performance is inappropriate : Hasham v. Zenab [1960] A.C. 316, 329-330. To this end the formal judgment appropriately confers liberty to apply for further orders for the purpose of specifically performing the contract. In the meantime the vendors on 1 5 April 1991 succeeded in effecting closure of Labrador Street. At the trial they claimed to have secured the requisite rezoning of the subject land by virtue of Orders in Council dated 27 April 1991 and 11 June 1991. An attack on the legal validity of those instruments was rejected by his Honour. Likewise, it was said that by failing to demolish and remove the hotel buildings the vendors had evinced an unwillingness to perform the contracts. Their reluctance to do so is, however, excusable in the light of the purchaser's demonstrated unwillingness to complete the contracts by providing and paying the purchase moneys. The purchaser was consequently not itself in any position to -- 18 of 19 -- 15 determine the contract by reason of breach on the part of the purchaser : Ireland v. Leigh [1982] Qd.R. 145, 151-152; Seoacious v. Fabullas [1991] 1 Qd.R. 471, 479-480. But in any event these obligations, if that is what they really are, are expressed in ell. 4(a) and 26 in terms that require their performance either "by the date for completion" or "prior to completion" of the relevant contracts. Until, therefore, a fresh date for completion is fixed and has arrived, it is not in law possible for the purchaser to assert that the vendors are in breach, or that they are unwilling, unable, or not ready to perform the contracts in accordance with their terms : see Dainford v. Smith (1985) 155 C.L.R. 342, 365; Dainford v. Juana Ptv Ltd [1986] 1 Qd.R. 396, 401. I would accordingly dismiss the appeal with costs. -- 19 of 19 --