Ellingen Pty Ltd v Top Gun Pty Ltd & Anor [1990] QSC 363

IN THE SUPREME COURT OF QUEENSLAND CHAMBERS No. 1293 of 1990 Before Mr. Justice Ambrose BETWEEN: AND: Counsel: Solicitors: ELLINGEN PTY. LTD. Plaintiff TOP GUN PTY. LTD. First Defendant RED RIVER LIMITED Second Defendant REASONS FOR JUDGMENT - B.W. AMBROSE J. Delivered the 17th day of October, 1990. Mr. D.B. Fraser for Applicant/Plaintiff Miss S. Kiefel Q.C. with Mr. P.D. McMurdo for Respondent/Defendant Henderson Trout for Applicant/Plaintiff Thynne & Macartney town agents for Primrose Couper Cronin Rudkin for Respondent/Defendant Hearing Date: 12th October, 1990 -- 1 of 7 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: ELLINGEN PTY. LTD. TOP GUN PTY. LTD. RED RIVER LIMITED No. 1293 of 1990 Plaintiff First Defendant Second Defendant REASONS FOR JUDGMENT - B.W. AMBROSE J. Delivered the 17th day of October, 1990. This is an application pursuant to R.S.C. 0. 18A for specific performance of a written contract for the sale by the plaintiff to the first defendant of land at West Burleigh on the Gold Coast for the price of $4.75 million. The application is opposed on behalf of the first defendant on the ground that it is the defendant's case that the plaintiff agreed to pay a commission to an agent of the defendant upon whose advice in connection with the defendant's acquisition of the plaintiff's land the defendant relied should the sale of land ev~ntuate. It is the case for the plaintiff that the defendant was well aware that the plaintiff had agreed to pay the defendant's agent commission upon the sale with a view apparently to relieving the defendant of the obligation of making that payment. On the other -- 2 of 7 -- 2 hand it is the.defendanl's contention that it had no knowledge whatever of this arrangement until after the contract of sale had been signed. It is common ground between the parties that, at a time when the defendant did have knowledge of the plaintiff's undertaking to pay the defendant's agent a commission, the defendant joined with the plaintiff in having a person appointed to determine whether or not an event had occurred, the occurrence of which would give the defendant a right to determine the contract. I refer to cl. 30(b) and (c) of the Special Conditions of the contract. It is conceded, on behalf of the plaintiff, that the material filed on behalf of the defendant upon this application raises a triable issue as to whether the plaintiff payed a secret commission to the defendant's agent. It is contended, however, on behalf of the plaintiff that when that fact came to the knowledge of the defendant, the defendant had an election either to affirm or to rescind the contract. It is contended that in joining with the plaintiff to have a person appointed to determine the existence of an event which if established, would give the defendant a right to rescind the contract on grounds quite unconnected with the question of payment of a secret commission to the plaintiff's agent, the defendant elected to be bound by the contract and, having · so elected, the contract remains on foot and the plaintiff is entitled to have it. specifically performed. It emerges that in fact each of the plaintiff and the defendant became liable to pay half the fees payable to the person who, pursuant to cl. 30 of the Special Conditions to the -- 3 of 7 -- 3 contract, determined the event to which I have referred. It is further contended therefore, on behalf of the plaintiff, that not merely did the defendant waive any rights that it might have to rescind the contract, but that it joined with the plaintiff in carrying out at least one of the terms of the contract between them which resulted in the plaintiff expending money to have determined whether or not an event had occurred which would give the defendant a right to rescind the contract. It is contended on behalf of the plaintiff that in the circumstances the defendant would be estopped from relying upon any inequitable conduct on the part of the plaintiff of the sort raised in opposition to the application for summary judgment to avoid the ordinary consequences of its breach of contract. One of those consequences would be to give the plaintiff a right to seek specific performance. For the defendant however it is claimed that specific performance is an equitable remedy and the court has a discretion as to wheth~r or not it will grant that remedy. The fact that the defendant may be prevented from rescinding the contract, by reason of its conduct in joining with the plaintiff in the performance of one of its terms after it had knowledge of the alleged secret commission paid by the plaintiff to its agent, does not prevent the defendant from opposing an order for specific performance. In Spry, Equitable Remedies (1st ed.) p. 159, it is observed:- "For whilst entitled to to perform obverse can it is always true that a defendant then equitable rescission will not be ordered the material contract in specie, theby no means be maintained; that is, it is -- 4 of 7 -- 4 by no means correct that a defendant who has lost his right to rescind will invariably be ordered to perform his obligations in specie." In Sydney Consumers' Milk etc. Ltd. v~ Hawkesbury Dairy etc. Ltd. (1931) 31 S-.R. (N.S.W.) 458 Long Innes J. considered a case somewhat similar to the present one. In that case a defendant with knowledge of the falsity of a representation that induced th~ making of a contract elected to affirm it. Upon the hearing of an application to compel performance in specie of one of the terms of the contract which had been at least partially executed, the defendant sought to tender evidence of fraud to oppose the order sought. The plaintiff objected to the relevance of·such evidence in the light of the defendant's election to affirm the contract. At p. 469 Long Innes J. observed:- " Assuming the independent equity to exist in the present case, it is still an elementary proposition that a plaintiff, having an equity, and coming into equity for equitable relief, must come with clean hands. Prima facie, therefore, unless the question is concluded by authority to the contrary, I think that the evidence in question would be admissible as relevant tq the question whether the Court should in this case exercise its discretionary power to grant equitable relief of the nature claimed." At p. 471 His Honour continued:- " On the other hand Pakenham Upper Fruit Co. Ltd. v. Crosby (35 C.L.R. 386) appears to me to be a decision directly in point. In that case the plaintiff claimed an injunction in effect to compel the performance in specie of an executed, and not executory, contract. Each of the five judges of the High Court held, first, that the contract was executed and not executory, and, secondly, that it was a case in which, in the exercise of its discretion, a Court of Equity should not grant relief approximate to specific performance but should leave the plaintiff to its remedy at law. Both on principle and authority, come to the conclusion that in therefore, I have cases where an -- 5 of 7 -- 5 injunction is sought to compel the performance in specie of an executed contract,· the Court has a discretion, and that the exercise of that discretion may be affected by considerations similar to those which affect the exercise of its discretion whenever it is asked to grant equitable relief." For the defendant it is contended also that the defendant was not obliged to make an election as soon as it learnt of the fact that the plaintiff had paid its agent a commission upon the sale of the land in question. It was asserted that the defendant was entitled to undertake another process to relieve it of its obligation as long as it did not clearly waive the right which the law gave it to rescind the contract. Reference was made to the observations of Kitto J. in Tropical Traders Ltd. v. Goonan (1963-64) 111 C.L.R. 41 at p. 55 where His Honour pointed out that the appellants granting of an extension of time under the contract there in issue far from constituting an election to affirm the contract was the announcement of an intention to refrain from electing either way until one or two events had occurred. His Honour observed:- "Not that election is a matter of intention. It is an effect which the law.annexes to conduct which would be justifiable only if an election had been made one way or the other." I have come to the conclusion on the material that tnere are three matters raised which militate against the granting of summary judgment for specific performance:- 1 . Whether the action of the defendant in. joining with the plaintiff in procur=¼ng the appointment of a person to determine whether or not an event specified in the contract as giving the defendant a right to determine it, did in fact exist amounts in law to an election to affirm the -- 6 of 7 -- 6 contract and waive any rig~ts which it might otherwise have to avoid the contract on the ground of the plaintiff's payment of a secret commission to the defendant's agent. 2. Whether the defendant's joining with the plaintiff in having a person appointed to make that determination which resulted in the plaintiff and the defendant each bearing part of the costs so involved had the effect of estopping the defendant from rescinding the contract. 3. Whether assuming that the defendant by its actions elected to affirm the contract or became estopped from rescinding it the defendant is nevertheless entitled to rely upon the action alleged against the plaintiff as preventing the plaintiff from coming with clean hands to seek the equitable relief of specific performance which is the subject of this application. I take the view that the defendant has shown issues or questions in dispute relevant to the plaintiff's claim against it for specific performance of the contract which ought be tried rather than be dealt with upon this application. I order that the defendant have leave to defend the action. I give the parties liberty to apply for directions as to the further conduct of this action and indicate that in the light of the rate at which interest will accrue on the outstanding purchase price payable under the contract should it be specifically enforceable that the action ought be set down for trial and disposed of in a speedy manner. -- 7 of 7 --