CONVEYANCING LECTURE ON 6 AUGUST 2007

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1 CONVEYANCING LECTURE ON 6 AUGUST 2007 Note: Students should read the Chapters in Lang & Skapinker and the cases referred to in the Guide. These notes are NOT a substitute for reading the text and considering the cases. Repudiation Skapinker 1 refers to three terms used to describe repudiation: anticipatory breach of contract renunciation repudiation Repudiation occurs when one party indicates an unwillingness to perform obligations under a contract. If the indication is of a failure to perform the whole contract then the requirement of seriousness referred to in Carter, Breach of Contract, 2 nd ed, para 701 is met. If the indication is only that part of the contract will not be performed, then it is necessary to consider whether the failure will be sufficiently serious to allow the innocent party to accept the repudiation and treat the contract as at an end. Skapinker 2 sets out four circumstances considered sufficient to amount to repudiation: denying the existence of a contract selling the property to another rendering completion impossible refusal to deliver an abstract or reply to proper and important requisitions 1 Paragraph [16.40] 2 Supra 2007 James Helman Page 1 of 18

2 refusal to perform a contract according to its terms and for example requiring it to be renegotiated. An unreasonable delay in completion has been held not to amount to repudiation as has a dispute concerning the interpretation of a contractual provision. The issue of repudiation was dealt with by the High Court in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. CP and L entered into a lease of premises in the shopping centre. The documents were signed and L (as lessee) entered into possession of the premises on 3 December L paid the costs and stamp duty on 3 January In March L s accountants wrote chasing a copy of the registered lease. While a reply was received the lease was not forthcoming. In August 1986 L s solicitors wrote requiring registration within 14 days. By 5 September the lease had not been received and L s solicitors wrote claiming that the failure by CP to respond adequately amounted to a repudiation of the implied undertaking by your client to secure registration of the lease within a reasonable period The trial judge found that the failure by CP to register the lease amounted to a repudiation. The Full Court of the Supreme Curt of Queensland disagreed and upheld CP s appeal. The High Court agreed with the trial judge s decision on repudiation. After dealing with the letter giving 14 days for registration and finding that repudiation could not be inferred from the failure to register within the 14 days set out in the letter, Brennan J said 3 : 3 See Skapinker p James Helman Page 2 of 18

3 The long and unexplained delay from March to September 1986 ending with a letter stating that the solicitors required further instructions with respect to completing what had been promised over five months earlier is sufficient foundation for the drawing of an inference of repudiation. In Foran v Wight (1989) 168 CLR 385 the High Court considered circumstances where a purchaser terminated a contract and claimed a return of the deposit. The vendor and purchaser had entered into a contract on 24 December 1982 with completion time of the essence on 22 June The vendor was to register a right of way to benefit the vendor prior to completion. On 20 June 1983 the vendor s solicitors advised the purchaser s solicitors that the matter could not be completed as the right of way had not been registered. In response to an inquiry by the vendor s solicitors as to a later settlement the purchaser s solicitor said: I cannot say anything in relation to that and will have to seek instructions. I can t enter into any further discussions in relation to settlement. The purchaser terminated the contract and claimed a return of the deposit. The vendor argued that he had validly terminated the contract after the purchaser s wrongful termination and had properly forfeited the deposit. Needham J found that the failure by the vendor to complete on an essential date amounted to a repudiation and the purchaser was entitled to terminate. The New South Wales Court of Appeal upheld the vendor s appeal but the purchaser successfully appealed to the High Court. Deane J considered the matter and said 4 : 4 Skapinker p James Helman Page 3 of 18

4 In the present case, the unequivocal and unqualified advice that the vendors would not complete the contract until after the stipulated date was in response to a request by the purchasers solicitors to the vendors solicitors to nominate a time for completion on that day. The purchasers acted on the faith of that intimation that performance within the stipulated time would be futile and was unnecessary. They ceased their efforts to arrange finance with the consequence that they were neither ready nor able to complete the purchase within the time allowed by the contract. In these circumstances, the law will not allow the vendor s to depart from the state of affairs upon the basis of which they had, by their conduct, induced the purchasers to act Rescission Before discussing rescission and its possibilities, it is necessary to clear up the distinction between rescission and termination. Rescission operates to put the parties back where they were before the contract was entered into. Termination occurs where one party is in default under the contract and the other party terminates the contract for that breach. Termination carries with it the right to damages for breach of contract. Under the general law The grounds for rescission under general law are mental incapacity, duress, misrepresentation, failure of consideration and undue influence. In my years of practice I have only once attempted to work out whether a purchaser client could argue that she should be allowed to rescind a contract for lack of capacity. While we were able to find a treating psychiatrist who was prepared to say that our client didn t have capacity at the time he saw her, he was not able to say that she didn t have capacity at the time she signed the contract. As one of the firms solicitors had discussed the contract with her before she signed, and found her to be quite understanding of the transaction, it was a forlorn hope and we prevailed on her to complete, not fail to complete and risk a termination James Helman Page 4 of 18

5 Rescission brevi manu Where a vendor does not have the title promised to a purchaser the purchaser is said to have a right to rescind brevi manu (forthwith). There is no requirement to wait until the vendor fails to deliver title before rescinding. Skapinker 5 points out that there is an inconsistency in the language. As a vendor has an obligation to deliver the contracted title, a failure to do so is a breach of contract for which termination is available, not rescission. The issues are dealt with by Skapinker at [16.30] on page 507. Rescission under Contract Clause 7 allows the vendor to rescind where claims by the purchaser exceed 5% of the purchase price. (This clause is often varied by special conditions and care should be taken before relying on it.) Clause 8 of the Contract allows the vendor to rescind if the vendor is unable or unwilling to comply with a requisition. We have dealt with this in an earlier lecture but please read the clause again and the earlier notes. Clause 19 sets out what is to happen in the event of a valid rescission. Rescission under the Conveyancing Act 1919 The Conveyancing Act in section 66U allows a purchaser to rescind a contract with in the cooling off period where no section 66W certificate waiving the period has been given prior to exchange. 5 Page James Helman Page 5 of 18

6 Similarly, section 66L allows a purchaser to rescind where a property is substantially damaged after exchange and before risk has passed to the purchaser. Rescission under Conveyancing (Sale of Land) Regulation 2005 Clause 19 of the Regulation sets out the circumstances in which a purchaser can rescind a contract for: failure to attach prescribed documents; a breach of warranty (Part 1 of Schedule 3) Termination for breach Clause 9 of the Standard contract provides for the vendor to be able to terminate the contract if the purchaser fails to comply with the contract or any provision in an essential respect. The clause sets out the rights of the vendor in these circumstances. There is no similar contractual provision for failure by the vendor to complete or comply with the terms of the contract. The vendor s rights should be carefully considered. They are to terminate the contract and: keep any deposit paid up to 10%; recover any unpaid deposit up to 10% subject to the decision in Luong Dinh Luu v Sovereign Developments Pty Ltd and 2 Ors [2006] NSWCA 40 referred to in the notes on Deposit and Duty of Care Pending Completion (Lecture 3 on 27 November 2006). sue the purchaser for any loss on resale where the property has been resold by the vendor within 12 months after the date of termination; or sue for damages James Helman Page 6 of 18

7 Where a vendor elects to sue for damages it is difficult to claim losses arising out of the monies that would have been available from the sale not being available. The issue is dealt with in Carpenter v McGrath (1996) 40 NSWLR 39. Equitable remedies Specific performance While it is common to talk about obtaining an order for specific performance by one party against another, the reality is that it is difficult for a court to order parties to comply with the terms of a contract if they are unable to do so. If a vendor is unwilling, as opposed to unable, to complete a sale, then consideration must be given to whether it is better to seek an order for specific performance or terminate for the vendor s breach and sue for damages. If the property is so unusual, or the price so advantageous, that damages would not be a satisfactory remedy for a purchaser, then specific performance may be a better option. A vendor seeking specific performance faces a greater problem if the purchaser claims that there are no funds available to complete and the purchaser has no ability to raise the funds. The principles as to how a court should exercise it s discretion are set out in the High Court decision of Mehmet v Benson (1965) 113 CLR 295 abstracted in Skapinker at page 547. In Ng v Chong [2005] NSWSC 278 (31 March 2005) 6 the Supreme Court considered the validity of a notice to complete and the subsequent issue of an order for specific performance. The Judge found that as the notice 6 Referred to in Lecture 9 at page James Helman Page 7 of 18

8 to complete was invalid and therefore could not be relied upon by the vendor defendant, that it was proper to order specific performance. He also considered the question of delay on the part of the plaintiffs and found that there was no unreasonable delay In the circumstances of this case, I am of the view that the plaintiffs were not under an obligation to declare their attitude to the validity of the notice to complete. They could not be said to have been put to an election by the service of an arguably invalid notice to complete, nor could their silence in the circumstances have been taken to be unequivocal: see Spencer Bower III.4.5. There were no facts or circumstances in the light of which the silence could be taken to amount to the representation alleged. As the plaintiffs wished to complete the contract, they were entitled to attempt to complete within the time specified by the notice to complete, but equally entitled to rely upon the invalidity of the notice to complete, if the occasion arose. There was no misrepresentation by silence in this case. I am equally of the view that it is not established that there was any agreement or understanding between the plaintiffs and the defendant that any defect in the notice to complete would never be relied on by the plaintiffs if the occasion arose. The plaintiffs are therefore not estopped from relying on the defects in the notice to complete. DID THE PLAINTIFFS REPUDIATE THE CONTRACT? 43 As to issue (5), the repudiatory acts alleged are set out in par 18 of the amended defence. Essentially, they are failures by the plaintiffs to do acts necessary for the conduct of the conveyancing transaction or the completion of the contract until late in the day. This line of defence was but faintly argued. In my view, it is quite clear that none of those acts, separately or together, could amount to a repudiation of the contract able to be accepted by the defendant. 7 Paragraph James Helman Page 8 of 18

9 HAS THE CONTRACT BEEN VALIDLY TERMINATED? 44 As to issue (6), by reason of the invalidity of the notice to complete, the contract has not been validly terminated. LACHES ACQUIESCENCE AND DELAY 45 Issue (7) raises the question as to whether, if the contract has not been validly terminated, the court ought refuse specific performance having regard to the plaintiffs laches, acquiescence and delay. Laches is pleaded in a half hearted and imprecise fashion in par 21 of the amended defence. Essentially, what is relied on is delay in commencing proceedings. The events between the purported termination of the contract and the commencement of the proceedings are shortly set out in [14] above. They do not in my view constitute laches. The delay was not undue and the defendant was not prejudiced. REMEDIES 46 Issues (8) and (9) concern remedies. There is no reason why the plaintiffs should not have specific performance, so there is no question of damages as an alternative under s 68 of the Supreme Court Act As the contract has not been validly terminated, the matters agitated under issue (9) do not arise. Injunctions The Supreme Court in its equitable jurisdiction always has the power to grant injunctions in appropriate cases. The granting of an injunction is always discretionary and it must appear to the court to be just or convenient to do so. While the need for an injunction doesn t often arise in conveyancing transactions, it may be appropriate where it is anticipated that a vendor might do something that will alter the nature of the property sold, or seek to convey the land to some other person contrary to the contract entered into with the purchaser James Helman Page 9 of 18

10 Examples of matters where injunctions have been granted are set out in Skapinker at [17.45] at page 563. Relief against forfeiture of a deposit Equity has always distinguished between penalties and liquidated damages. Equity will refuse to allow a penalty to be enforced but will allow liquidated damages to be recovered. Historically courts have not regarded the forfeiture of a deposit of ten percent in a contract for the sale of land as a penalty, even where this amount is large and exceeds the loss a vendor would suffer by the purchaser s failure to complete. The issue was recently considered in Luong Dinh Luu v Sovereign Developments Pty Ltd and 2 Ors [2006] NSWCA 40. In that case the contract had been altered on the front page to show the deposit as much less than ten percent. The Court of Appeal found that a clause allowing the vendor to sue the purchaser (and a guarantor) for an amount to take the deposit up to ten percent imposed a penalty and was not enforceable. The decision has a good summary of the law concerning deposits and the concept of penalties as they relate to contracts for the sale of land. This matter also came before the Court in Ianello v Sharpe [2007] NSWCA 61. I have discussed this case in Lecture 3 at pages 8-10 and suggest you refresh your memory on this issue. Relief against forfeiture of interests in land In circumstances where a purchaser fails to complete the vendor may terminate the contract and the purchaser thereby forfeits the equitable interest as purchaser in the land. The principles are best illustrated by looking at two High Court cases. In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 77 ALJR 1853 the High Court dealt with an appeal from the New South Wales Court of Appeal. Tanwar had 2007 James Helman Page 10 of 18

11 contracted to purchase three adjoining parcels of land from the vendors. After significant delay and deeds extending the time for completion a time was set that was of the essence. Funds from a second mortgagee that were to arrive from Singapore on the completion date did not arrive although the solicitor for the second mortgagee attended at the aborted settlement to advise that the funds would be available the next day. The funds did arrive the next morning but the vendor terminated the contracts. The purchaser claimed relief against forfeiture and specific performance. The purchaser was unsuccessful in the Supreme Court and in the Court of Appeal. The purchaser argued that it was unconscientious of the vendors to plead the essential time stipulation and its breach as founding the purported termination of the contract. The High Court dismissed the appeal and held that 8 : The language of the deeds and the history of negotiations confirmed that the time stipulation was one that both sides consciously entered into. Having bound themselves to conform to such a clear stipulation, the vendors had a legal right to terminate the sale once the purchasers defaulted. The conditions for a grant of relief were absent. A court will be reluctant to relieve against loss in relation to a contract for sale validly rescinded by the vendor for breach of an essential condition. In certain cases, a court may relieve a defaulting purchaser against forfeiture where time is of the essence. The purchaser must show exceptional circumstances to attract the intervention of equity. The circumstances must be such that it is necessary to intervene to relieve against unconscientious conduct by the vendors to terminate the sale and to take advantage of the forfeiture. Equity may intervene in circumstances where the default was caused by fraud, accident, mistake or surprise. In the case of accident, a purchaser must establish that the accident was such as to render it unconscionable or inequitable for the vendor to rely on its legal rights. Equity, however, will not relieve where the possibility 8 Headnote page James Helman Page 11 of 18

12 of the accident may fairly be considered to have been within the contemplation of the contracting parties. The failure to settle in the present case could not be said to have been an unforeseen event, even though it was unintended and undesired. The purchasers were well aware of the strict provisions of the deeds. Securing finance from a foreign lender at the eleventh hour did not constitute an accident for the purposes of equity. Further, the sale was a substantial commercial transaction and the purchaser a development company with access to legal advice. It could not be said that the purchaser was specifically vulnerable or that there was any unconscientious conduct by the vendors. Decision of the Court of Appeal affirmed. The plaintiff (Tanwar) lost. In Romanos v Pentagold Investments Pty Ltd [2003] HCA 58, (2003) 77 ALJR 1882, the High Court delivered a judgement on the same day as Tanwar. The matters had been heard together as they involved appeals on similar questions. In Romanos the appellant/vendor agreed to sell three adjoining parcels to the respondent. Each contract provided for payment of a ten percent deposit but that deposit was to be paid as to one-tenth on exchange and as to nine-tenths when the purchaser received development consent to the development proposed for the lots. The contract provided that the purchaser was to advise the vendor immediately approval was received. The purchaser received approval on 1 December but did not tell the vendor or pay the balance of the deposit. On 19 December without any prior notice to the purchaser requesting payment of the deposit, the vendor terminated the contract. The further deposit was paid the next day. The purchaser argued that it was unconscientious for the vendor to terminate. Windeyer J refused the order for specific performance but ordered the return of the deposits. The Court of Appeal by a majority ordered specific performance James Helman Page 12 of 18

13 The High Court allowed the vendor s appeal but did not order the return of the deposit. The Court by a majority held that nothing in the vendor s conduct caused a circumstance rendering it unconscientious for them to insist upon their legal rights to terminate the contracts. There was no suggestion that the purchaser was in any way disadvantaged. In a joint judgement of Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ, said 9 : Further, Brien is authority for the proposition that once there has arisen an entitlement to rescind for failure to pay the deposit, that entitlement may be exercised without the necessity that the purchaser first be given notice requiring payment to be made at a reasonable time. (Quoting from Windeyer) The difficulty with the present claim is that there are no established facts upon which the court can act. While I can assume that the value of the properties with development consent is greater than the purchase price under the contracts, there is no evidence to establish whether this is sufficient to amount to a windfall. There is no reason put forward for non-payment of the deposit. Thus the default may have arisen through inadvertence, or it may have been purposeful. In assessing the magnitude of the [purchasers ] losses against the gain of the [vendors] once again there is no quantification of the expenditure incurred by the [purchasers] in gaining development consent, although I infer the amount would not have been small. The fact that specific performance could be ordered and obtained, perhaps with some added compensation is not, in my view, itself sufficient. If it were then almost all claims for relief against forfeiture could succeed. It is impossible to eliminate from the equation the fact that what the vendors contracted for included the right to terminate. (The High Court continued) Thirdly, the decision in Tanwar indicates that equity does not intervene in such a case to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have 9 Page 1885 [20] 2007 James Helman Page 13 of 18

14 rendered the situation of one side more favourable than that of the other side. For example, there was no evidence given by the purchasers that they had been led by events in the period between 1 and 11 December 2000 to believe that the contracts were no longer liable to termination by the vendors. The Court allowed the appeal, refused specific performance and forfeited the deposit to the vendors. The issue has also been considered in the Supreme Court of Queensland decision of Fairmede Pty Ltd v Von Pein & Ors [2004] QSC 220 (5 August 2004). This case involved four contracts for the sale of land for $7.8 million. Contracts were exchanged containing a special condition as follows 10 : 9. Readiness for Settlement (a) The Buyer shall on, or before, 5.00pm on 2 June 2003, produce to the Seller a letter from their financier confirming that sufficient funding is available to enable the Buyer to complete the terms of this Contract. (b) In the event that the Buyer does not comply with part (a) of this clause the Seller shall immediately be entitled to terminate the Contract by notification in writing to the Buyer. The Buyer will immediately forfeit the deposit in Special Condition1(b)(3). Neither party shall have any further claim or action against the other party except for a claim based on default under the Contract prior to such termination. A letter as required by this clause was not provided and on 3 June 2003 the defendants (vendors) terminated the contracts. The plaintiff purchaser claimed specific performance and relief against forfeiture. After considering the evidence of all parties and determining that there was no basis for specific performance His Honour dealt with the issue of relief against forfeiture as follows 11 : 10 [4] page 2 11 [127] page James Helman Page 14 of 18

15 Relief from forfeiture [127] It was common ground that the principles set out in the majority judgment of the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359 ("Tanwar") had to be applied to determine whether the plaintiff was entitled to relief against forfeiture. [128] The relevant principles derived from the majority judgment at are: (a) Where accident and mistake are not involved, it is necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation. (b) Circumstances do not have to be exceptional before equity intervenes, but a court will be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract and the circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscientious conduct. (c) In circumstances where the conduct of a vendor had helped to lull the purchaser into the belief that the vendor would accept completion provided that it occurred within a few days of the stipulated time, then to relieve against forfeiture in those circumstances would be an exercise of the jurisdiction with respect to "surprise". [129] The facts which I have found in this matter do not bring the plaintiff within any of the categories where equity will intervene to relieve a party from the consequences of the breach of an obligation under a contract as a result of not performing the obligation in the time required by the contract, where time is of the essence of the contract. [130] The terms of each of the contracts specified the dates on which the obligations were to be performed. The defendants were under no obligation to communicate to the plaintiff, prior to exercising their rights to terminate the contracts, that they intended to hold the plaintiff to its bargain. The plaintiff sought to make much of the fact that the defendants had given their solicitors instructions that they required the time limits in the contracts to be observed, but had not conveyed that to the plaintiff. All the defendants were proposing to do was rely on the rights that the contracts gave them. It was not unconscientious for the defendants to have the intention on 2 June 2003 of terminating the contracts, if special condition 9(a) were not satisfied on that day, when they had not engaged in any conduct suggesting otherwise to the plaintiff. This is not a case where the inability of the plaintiff to comply with special condition 9(a) on the due date was caused or contributed to by the conduct of the defendants. [131] The plaintiff is not entitled to relief from forfeiture of the deposit James Helman Page 15 of 18

16 Statutory remedies Section 55 of the Conveyancing Act 1919 provides for two situations where a purchaser can recover a deposit from a vendor. The first is section 55(1) which applies where a contract will not be enforced against a purchaser because of some defect in the vendor s title but the purchaser is unable to terminate. The section is as follows: In every case where specific performance of a contract would not be enforced against the purchaser by the Court by reason of a defect in the vendor s title, but the purchaser is not entitled to rescind the contract, the purchaser shall nevertheless be entitled to recover his or her deposit and any instalments of purchase money he or she has paid, and be relieved from all liability under the contract whether at law or in equity, unless the contract discloses such defect and contains a stipulation precluding the purchaser from objecting thereto. This section applies in what Skapinker refers to as the stalemate situation. The contract will not be enforced against the purchaser because of some defect in the title, but the purchaser is not entitled to terminate. This section rarely applies, but if it does, it is not discretionary. Section 55(2A) is more frequently used. It says: In every case where the court refuses to grant specific performance of a contract, or in any proceedings for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit with or without interest thereon. There have been many cases where the effect of the section has been considered including Romanos. The return of a deposit was also considered in Tsekos and Anor v Finance Corporation of Australia Ltd [1982] 2 NSWLR 347. I dealt 2007 James Helman Page 16 of 18

17 with this case in Lecture 3 at page 11 and as with Ianello I suggest you revisit the notes on the application of s 55(2A). In Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 Street CJ in Eq considered the application of section 55(2A). The facts are set out in Skapinker as follows 12 : Lucas & Tait (Investments) ( L ) entered into a contract to purchase from Victoria Securities ( V ) land in the centre of Sydney, with a view to redeveloping the site and establishing on it the headquarters for its group of companies. When L learnt that the Sydney City Council had adopted an Action Plan which effectively prevented further development of the site, it unsuccessfully sought a declaration that the court would not order specific performance of the contract in favour of V and an order for the repayment of its deposit of $35, We deal here only with the question of the return of the deposit. In his judgement Street said 13 : It is one thing to recognise that there is a wide discretion conferred upon the court under this section; it is another thing to determine the guide lines for the exercise of that discretion. The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s. 55(2A) unless it is unjust and inequitable to permit him to retain it. Equity has always looked at disfavour upon penalties or stipulations which result in a party to a contract making a profit at the expense of a defaulting party. It is clear that where the court in its discretion refuses specific performance, whether or not it also orders repayment of the deposit under s. 55(2A), it will still remain open to the vendor to sue the defaulting purchaser and recover against him whatever damages may be due to the vendor at law in the event of the contract having gone off through the purchaser s breach. Just as the judges whose words I have quoted declined to put a limiting gloss upon the scope of the section, I decline to state my view upon where the boundaries of the discretion are to be drawn. Specific instances of its application are to be found in the cases. They all, however, come under the general category of circumstances in which the 12 Page Pages 272 and James Helman Page 17 of 18

18 court held it to be just and equitable to deny to the vendor the enjoyment of a forfeited deposit. At page 588 Skapinker sets out some circumstances in which the court has made orders for the return of the deposit James Helman Page 18 of 18