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Zabart Pty Ltd v McKay

 

[2002] QCA 280

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO/S:

Court of Appeal

PROCEEDING:

Application for leave s 118 DCA (Civil)

ORIGINATING COURT:

District Court at Southport

DELIVERED ON:

9 August 2002

DELIVERED AT:

Brisbane

HEARING DATE:

2 April 2002

JUDGES:

Williams JA, Fryberg and Wilson JJ

Separate reasons for judgment of each member of the Court; Williams JA and Fryberg J concurring as to the orders made; Wilson J dissenting.

ORDERS:

  1. Application for leave to appeal granted.
  2. Appeal dismissed.
  3. That the applicants pay the respondents’ costs of the application and the appeal to be assessed.

CATCHWORDS:

CONVEYANCING – RELATIONSHIP OF VENDOR AND PURCHASER – BREACH OF CONTRACT – BREACH BY THE VENDOR: REMEDIES OF PURCHASER – RESCISSION – NON-COMPLIANCE WITH OBJECTIONS OR CONDITIONS - where parties inserted special condition that contract subject to and conditional upon a lease being renewed – where clause in standard form contract required copy of current leases to be provided to purchasers – whether vendors in breach by failing to provide purchasers with copy of lease expiring before completion date – whether clause inconsistent with special condition – whether purchasers entitled to terminate contract for breach and recover deposit

Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191 (FC), referred to

K L D E Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288, applied

Lysaght v Edwards (1876) 2 Ch D 499, applied

Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326, considered

Raffety v Schofield [1897] 1 Ch 937, applied

Re Copperart Pty Ltd (1995) 16 ACSR 351, referred to

Riddington v Pye (1989) 9 BPR 16,643, referred to

Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1, considered

COUNSEL:

G J Radcliff for the applicants

R Delgoda (sol) for the respondents

SOLICITORS:

Johnsons Solicitors for the applicants

Butts & Barkley for the respondents

[1] WILLIAMS JA: The contractual provisions relevant to the resolution of this matter are fully set out in the separate reasons for judgment of Fryberg J and Wilson J;  those reasons also outline all relevant facts. 

[2] I agree with Fryberg J that clause 33 is essentially concerned with leases caught by the expression “where the property is sold subject to any lease”.  The vendors (present respondents) were only obliged to deliver to the purchasers (present applicants) copies of those leases which met that description. 

[3] The Lease Schedule gave particulars of three leases, but it was conceded by counsel for the applicants that the second and third of the leases so particularised were not caught by clause 33.3 because each commenced subsequent to completion of the sale.

[4] The lease described as Lease 1 in the Schedule was due to expire on 1 October 2000, that is thirteen days prior to the date for completion of the contract for sale.  Strictly the property was not sold subject to that lease;  the term would have expired prior to completion.  That lease did contain a clause granting the lessee an option to renew for a period of two years but it is not clear from the material whether or not that option had been validly exercised as at the date of the contract, 14 August 2000.  In terms of that existing lease the option, to be valid, should have been exercised prior to the date of the contract.

[5] But what is important for present purposes is that the parties expressly dealt with Lease 1 by the insertion of Special Condition 5. 

[6] In those circumstances the old lease was irrelevant to the contract of sale.  It was not a lease caught by clause 33 because the sale was not subject to it.  The sale was clearly conditional upon a lease being executed complying with Special Condition 5, but that was a different matter.  The purported rescission of the contract by the applicants was not based on an alleged failure to comply with Special Condition 5.

[7] The only matter relied on by the applicants was the failure to deliver a copy of the lease designated number one in the Lease Schedule within seven days of 14 August 2000.  Given the construction of clause 33 which I prefer, there was no obligation on the respondents to do that. 

[8] It follows that the judgment appealed from was correct.

[9] The orders of the court should be:

(i) Application for leave to appeal granted;

(ii) Appeal dismissed;

(iii) Order that the applicants’ pay the respondents’ costs of and incidental to the application and appeal to be assessed.

[10] FRYBERG J:  I shall endeavour to minimise repetition of the facts set out in the reasons for judgment of Wilson J, which I have had the benefit of reading.  The result of the application depends upon the proper interpretation of cl 33.3 of the Standard Commercial Conditions - Commercial Land and Buildings (second edition) adopted by the Real Estate Institute of Queensland Limited and approved by the Queensland Law Society Incorporated.  That document comprises 12 pages of conditions and is intended to be used with the six pages of the Contract - Commercial Land and Buildings which has also been adopted by the Institute and approved by the Society. Since I have found the earlier parts of cl 33 of assistance in deciding the issue, I set them out:

33.1Vendor’s Statement

Where the Property is sold subject to any Lease or Service Contract, the Vendor states that, except as disclosed in this Contract, each of the following statements shall be accurate at the Date for Completion:

(a)the particulars in the Lease Schedule and the Service Contract Schedule are true and correct;

(b)that no circumstances exist as far as the Vendor is aware that would render any Lease liable to forfeiture nor has the Vendor agreed to a surrender of any Lease;

(c)that all Leases and Service Contracts have been disclosed to the Purchaser prior to execution of this Contract;

(d)the Vendor is not aware of any breach by the Vendor of any Lease or Service Contract;

(e)where any of the Leases are ‘existing retail shop leases’ or ‘retail shop leases’ within the meaning of section 5 of the Retail Shop Leases Act 1994 (‘Act’), the following further statement by the Vendor apply:

(i)as far as the Vendor is aware the Vendor has in all respects complied with the Act in relation to the Leases;

(ii)no Lease is subject to an existing or renewed retail tenancy dispute within the meaning of the Act;

(iii)there are no mediation agreements, Retail Shop Lease Tribunal proceedings or Orders in existence in respect of any Lease;

(iv)no tenant has notified the Vendor requesting the right to renew any Leases for a further period;

(v)no tenant has made a claim upon the Vendor to pay compensation for loss or damage suffered by the tenant by virtue of section 43 of the Act nor are there any circumstances existing to the Vendor’s knowledge which might give rise to a claim for such compensation.

33.2Inaccurate Statement

If a statement contained in clause 33.1 is not accurate then the Purchaser may terminate this Contract by notice in writing to the Vendor.”

[11] Clause 33 should be read as a whole.  When that is done, it is apparent that the leases referred to in cl 33.3 are those referred to in cl 33.1.  That is the natural construction of the words and it also conforms to the structure of the clause.  Clause 33.1 begins with the words “Where the property is sold subject to any lease”.  That is sufficient to make it plain that the clause refers to those leases to which the sale of the property is subject.  That is confirmed by the content of cl 33.1.  For example, it would be pointless to impose a requirement that particulars in the Lease Schedule be true and correct or that there be no circumstances existing which would render the lease liable to forfeiture, if the lease were not one to which the sale of the property were subject.

[12] “Lease” is defined in the interpretation clause[1] to mean “all leases, subleases, agreements for lease, agreements for subleases and tenancy agreements whether oral or in writing, and, as the context admits, licences and rights to occupy, and which are set out in the Lease Schedule.”  “Lease Schedule” is defined in the contract with which the standard conditions are intended to be used as meaning “the schedule called Leased [sic] Schedule in this Contract”.  One of the six pages of the contract is headed “Lease Schedule”; another is headed “Items Schedule”.  The former makes provision for particulars of leases to be inserted, including “Current Rental Per Annum”, “Current Lease Commencement Date” and “Current Lease Term”.[2]  No clause in the contract expressly provides that the land is sold subject to the leases in that schedule, but that is clearly implied by the entries in the “Items Schedule”.  That schedule identifies the parties and the date of the contract, particulars of the land sold, improvements included in sale, other chattels included in sale and whether the land is sold as freehold or leasehold.  It then makes provision to describe “Encumbrances”, followed by provision for “Leases and Service Contracts”.  Against the latter heading, someone, presumably the real estate agent who completed the form, inserted “See Lease Schedule and Service Contract Schedule”.

[13] Those definitions make the Lease Schedule relevant to cl 33; but the schedule’s relevance is not limited to that clause.  Clause 4 is as follows:

“The balance of the Purchase Price shall be paid on the Date for Completion in exchange for:

(a)possession of the Property (such possession to be vacant except for any Lease);”

[14] All of this reinforces the view that the form is designed to require particulars of any leases to which the sale was subject to be inserted in the schedule[3] and not to require the insertion of particulars of leases which have or will have expired by the date of completion of the contract of sale.  Indeed, to include the latter class of leases might have the unintended effect of causing a vendor to be in breach of cl 4(a).

[15] Clause 33.3 requires the vendor to deliver “true copies of all Leases” within seven days of the date of the contract.  That is a relatively short time.  Obviously, this clause could not apply to leases created after the expiry of the seven-day period.  In my judgment it applies only to leases in existence on the date of the contract.  (The definition of “lease” includes agreements for leases in existence on that date.)  That interpretation is supported by the word “current” in the Lease Schedule.[4]  Such a result is not surprising.  Ordinarily, a lease made after the contract would diminish the title offered to the purchaser at settlement.  As between vendor and purchaser, a vendor has no right to deal with the land in this way.  He is but a trustee of the land pending the payment of the purchase price, albeit he is a trustee with his own interest, an interest recognised in his right to retain possession to secure payment of the price.[5]  Subject always to the terms of the contract, a vendor in possession:

“is not entitled to treat the estate as his own.  If he wilfully damages or injures it, he is liable to the purchaser; and more than that, he is liable if he does not take reasonable care of it.  So far he is treated in all respects as a trustee, subject of course to his right to being paid the purchase-money and his right to enforce his security against the estate.  With those exceptions, and his right to rents till the day for completion, he appears to me to have no other rights.”[6]

The corollary is that “as between vendor and purchaser generally the powers of the vendor to act as owner of the property, and (inter alia) to change tenants or holdings, are suspended pending completion of the purchase.”[7]  Ordinarily, therefore, there is no occasion for the creation of a lease after the contract date.  It is not surprising that standard terms and conditions should not cover that case.

[16] It is said that there is an advantage to a purchaser whose title will be subject to a lease, which happens to be in the same form as an expired lease, to be given a copy of the latter.  However, in the case where the former lease is not in existence at the date of the contract, cl 33 is a very indirect way of conferring the desired benefit, namely, a copy of the document which will constitute the diminution of the purchaser’s title.  Moreover, it may reasonably be asked: if that were the object, why was the right restricted to those cases where the diminution was constituted by a lease which resulted from the exercise of an option contained in a prior lease? There are other ways (for example, a deed of a grant) to create such an option.[8]  Even where an option is contained in a lease, there may be no necessity for a new lease to be in the same terms as the old, although it is common.  And an option may be granted for something other than a term of years - an option to purchase the reversion for example.  All these things could happen outside the seven-day period allowed by cl 33.  Why was no provision made for these cases?  I am not to be taken as saying that there is no way under existing conveyancing practice by which a copy of the document to which the purchaser’s title will be subject could be obtained.  I simply do not think the delivery of it to the purchaser is ordinarily required by cl 33 if it is not in existence on the date of the contract.

[17] That reasoning has particular point in the light of the facts of the present case. In October 2000, the purchasers (the applicants) contended that they were entitled to rely upon cl 33.3 in respect of all three “leases” referred to in the Lease Schedule. They recognised implicitly the difficulty of relying on cl 33.3(1) in relation to the leases described as lease 2 and lease 3, but claimed to be able to rely upon cl 33.3(2)(b).  In this Court, that claim was abandoned.  That concession was rightly made.  Copies of those leases were not, and could not have been, delivered pursuant to cl 33.3(1).  Consequently, cl 33.3(2)(b) could not have applied.  Why, it might be asked rhetorically, should lease 1 be in a different position?

[18] To this point, I have referred to cl 33.3 mainly in the context of the standard terms and conditions.  However the present contract contained more than those terms and conditions. What made it unusual were the special conditions. Two of them were as follows:

“4.This Contract is subject to and conditional upon Lease 2 in the Lease Schedule and Lease 3 in Annexure A being duly executed on or before the Date for Completion.

5.This Contract is subject to and conditional upon Lease 1 in the Lease Schedule being renewed for a further two year period (being from October 1, 2000 to September 20, 2002) prior to settlement.  Rental for the 12 months commencing October 1, 2000 shall be $880 (GST inclusive) per calendar month.  Rental for the 12 month period commencing October 1, 2001 shall be reviewed by CPI over the preceding year.”

Does the presence of these conditions make any difference to the interpretation of cl 33?

[19] Special condition 5 made the sale subject to lease 1 being “renewed” on certain terms.  That was sufficient to prevent the purchasers from objecting at settlement to the existence of any lease on those terms, even if it was made between contract and conveyance.  It would not have mattered whether such a lease was the outcome of the exercise of an option in the existing lease or the result of a completely new agreement.[9]  “Renewed” implies that the substance of the new lease would, subject to special condition 5, be the same as the existing lease. That clause was inserted at the request and for the benefit of the purchasers.  It is difficult to imagine how they could have made such a request unless they were thoroughly familiar with the terms of the existing lease.  Be that as it may, it is also difficult to see how the condition could add to the obligation imposed by cl 33.3.  If the object had been for the purchasers to receive a copy of the lease as renewed, it would have been easy enough to have made appropriate provision.  One can understand that at some point the purchasers would have wished to see the new lease.  I cannot understand that they would have sought to achieve that objective by impliedly varying the meaning of cl 33 without varying its terms, nor do I think that was the effect of their insertion of special condition 5.

[20] For these reasons, no question of waiver or estoppel in relation to breach of cl 33 arose.  The vendors were not in breach of it.

[21] The applicants conceded that having regard to the circumstances and history of the case, the application stood or fell on cl 33. It is therefore unnecessary to consider the question of compliance by the vendors with cl 5.

[22] I would grant the application but dismiss the appeal.  The orders should be:

Application for leave to appeal granted.  Appeal dismissed.  Order that the applicants pay the respondents’ costs of and incidental to the application and appeal to be assessed.

[23] WILSON J: This is an application for leave to appeal from a decision of the District Court at Southport dismissing the plaintiff applicants’ claim for the return of the deposit paid under a contract for the sale of land and limiting their costs on the counterclaim for the deficiency upon resale (which was dismissed). The parties agreed that it would be necessary for the Court to consider the merits of the appeal in order to determine the leave application, and that if it were minded to grant leave, it should treat the application as the hearing of the appeal.

[24] The applicants were the purchasers and the respondents were the vendors of property at 48 George Street, Southport pursuant to a contract dated 14 August 2000. The purchase price was $235,000.00, a deposit of $10,000.00 being payable upon the formation of the contract. Settlement was to be 60 days from the date of the contract, both parties treating 13 October 2000 as the due date for settlement. On 11 October 2000 the applicants purported to terminate for breach by the respondents, with the result that settlement was not effected.

[25] The property had factory and residential components. Relevantly, there were three leases referred to in the contract –

a.Lease 1:  factory premises leased to Curtis McCormack trading as “Fineline Furniture” for one year from 1 October 1999;

b.Lease 2:  factory premises leased to Brad Purdon trading as “Signmark Signage Solutions” for three years from the date of settlement; and

c.Lease 3:  residential premises leased to David McKay for one year from the date of settlement.

[26]  The contract was in the standard form Contract Commercial Land and Buildings 2nd ed adopted by the REIQ and the Queensland Law Society Inc together with a number of special conditions.  Time was of the essence, unless otherwise provided:  clause 26 of the Standard Commercial Conditions.  Clause 33.3 of those Standard Commercial Conditions provided –

“Acceptance of Lease and Service Contract Terms

(1)Within 7 days of the date of this Contract the Vendor will deliver to the Purchaser or the Purchaser’s solicitor true copies of all Leases and Service Contracts together with a written statement that they constitute the whole of every agreement or arrangement with each of the tenants stated in those Leases or with each of the Service Contractors in those Service Contracts.

(2)If

(a)the Vendor does not deliver to the Purchaser or the Purchaser’s solicitor true copies of all Leases and Service Contracts pursuant to clause 33.3(1); or

(b)true copies of all Leases and Service Contracts have been delivered pursuant to clause 33.3(1) and the Purchaser is not satisfied with any of the terms and conditions of any Lease or Service Contract:

then in the case of clause 33.3(2)(a) the Purchaser shall be entitled to terminate this Contract by notice in writing to the Vendor or in the case of clause 33.3(2)(b) the Purchaser shall be entitled to terminate this Contract by written notice to the Vendor within 7 days from the date upon which all Leases and Service Contracts have been delivered.

(3)If the Purchaser does not give written notice to the Vendor pursuant to clause 33.3(2)(a) or 33.3(2)(b), the Purchaser agrees to be bound by the terms and conditions of each Lease and Service Contract disclosed by the Vendor in the Lease Schedule and the Service Contract Schedule from the Date for Completion as if the Purchaser were named as lessor in such Lease or as a contracting party in such Service Contract in substitution for the Vendor.”

[27] Clause 5 of the Special Conditions provided –

“This Contract is subject to and conditional upon Lease 1 in the Lease Schedule being renewed for a further two year period (being from October 1, 2000 to September 30, 2000 2002) prior to settlement.  Rental for the 12 months commencing October 1, 2000 shall be $880 (GST inclusive) per calendar month.  Rental for the 12 month period commencing October 1, 2001 shall be reviewed by CPI over the preceding year.”

[28] Item 2 of the standard form contract provided –

“Where there is any discrepancy or inconsistency between a part of this Contract and any other part the following descending order of precedence of the parts shall apply to resolve the discrepancy or inconsistency:

(a)any Special Conditions;

(b)Items Schedule;

(c)Lease Schedule;

(d)Service Contract Schedule;

(e)Standard Commercial Conditions.”

[29] The dispute between the parties relates to the lease to Curtis McCormack. At the time the contract was made, there was a lease from the respondents in standard form Commercial Tenancy Agreement 1st edition revised adopted by the REIQ. It was for one year from 1 October 1999 to 30 September 2000, with an option to renew for a further two years. The rent was $750.00 per calendar month. There were two special conditions – one imposing an obligation on the respondents to erect a dividing wall and the other imposing an obligation on the tenant to pay GST if it were introduced. The option clause (clause 13) was in the following terms –

“13OPTION FOR FURTHER TENANCY

13.1If a further term has been inserted in Item 5 of the Reference Schedule and the Tenant:

(1)wishes to lease the premises for the further term;

(2)gives notice to that effect to the Landlord not less than 3 months before and not more than six months before the Term expires; and

(3)has not breached this Tenancy;

the Landlord must grant a further tenancy (“Further Tenancy”) to the Tenant on the same terms as this Tenancy except for the Rent.

13.2 (1)The Rent for the Further Tenancy will be an amount to be agreed between the Landlord and Tenant and failing agreement 3 months before the Term expires the market rent for the Premises determined by an independent qualified Valuer (acting as an expert) nominated by the president of the REIQ at the request of either party.

(2)The Valuer’s determination is final and binding on the parties.

(3) The Valuer’s costs must be paid by the Landlord and Tenant equally.  Either party may pay the Valuer’s costs and recover one-half of the amount paid from the other party. 

13.3Before transferring any interest in the Land, the Landlord must obtain a signed deed from the transferee containing covenants in favour of the Tenant that the transferee will be bound by the terms of this Lease and will not transfer its interest in the Land unless it obtains a similar deed from its transferee.

13.4.1This clause 13 will be omitted from the Further Tenancy.”

[30] The last date for the exercise of the option was 30 June 2000, and there was no evidence whether it was exercised within the prescribed time. Time being of the essence of an option, it could not be exercised out of time. Of course if it were not exercised within the prescribed time, the tenant could have made a counter offer (the option itself being an irrevocable offer), upon acceptance of which a fresh agreement for a new term would have come into existence: see Bradbrook & Croft, Commercial Tenancy Law in Australia, 2nd ed, Butterworths, para 14.9, pp 284-287; Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191 (FC) at 204 per Franklyn J; Re Copperart Pty Ltd (1995) 16 ACSR 351 at 356 per White J.

[31] The contract was made on 14 August 2000, and completion was due on 13 October 2000. The renewed lease was to commence on 1 October, before completion. It was implicit in clause 5 of the Special Conditions that the renewed lease was not yet in existence when the contract was made.

[32] In my view there was no necessary inconsistency between clause 33 of the Standard Commercial Conditions and clause 5 of the Special Conditions. Clause 33 provided a mechanism for the applicants to ascertain the terms of the existing lease. It was clearly in their interests to do so, since only limited information could be gleaned from the contract itself: the identity of the tenant, the use of the premises, their location, the area, the current rent, the commencement date of the current lease, the term of the current lease, and that there was a remaining option for 2 years were ascertainable from the lease schedule, and that the renewal was to be for two years (1 October 2000 - 30 September 2002), that the rent for the first 12 months was to be $880 (GST inclusive) per calendar month, and that the rent for the second 12 months was to be reviewed by CPI over the preceding year were apparent from clause 5 itself. The learned trial judge erred in his conclusion that (at paragraph [27])-

“..... Special Condition 33.3 of the contract was overridden by the Special Condition and the Schedule of Leases. It has no application.”

Both provisions could be, and had to be, satisfied.

[33] The applicants and the respondents were in negotiation for the sale of the property from at least July 2000. It was at the request of the applicants that special conditions were inserted about the leases, including clause 5.  However, the applicants denied ever being shown the existing lease from the respondents to Curtis McCormack.  They denied knowledge of its contents (apart from information contained in the sale contract).

[34] On 13 September 2000 the solicitors for the applicants wrote to the solicitors for the respondents about difficulties they understood the respondents were having in obtaining agreements for leases in respect of Leases 2 and 3 in the contract. However, the problems in relation to those leases were resolved by 10 October 2000.

[35]  On 10 October 2000 the solicitors for the applicants wrote to the solicitors for the respondents in these terms –

“We refer to this matter and the writer’s telephone conversation with you yesterday afternoon when you indicated that you now expected to be able to obtain the Leases referred to in Lease 2 and 3 of the Lease Schedule to the Contract and a renewal of the Lease referred to in Lease 1 of that schedule.

We note that Standard Condition Clause 33.3 provides, inter alia, that your client will deliver within 7 days of the Contract date, true copies of all Leases, and if such are not delivered, or if delivered and the Purchaser is not satisfied with any of the terms and conditions of any Lease then the Purchaser is entitled to terminate the Contract by written notice to the vendor and in the case where the Purchaser is not satisfied with any of the terms and conditions of any lease, by notice within 7 days from the day upon which all Leases have been delivered.

We note that on 13th September, 2000, we wrote to you seeking urgent advices from you regarding Lease Nos. 2 and 3 and on 27th September, 2000 we again wrote to you confirming the position that the Purchasers were not only entitled to be provided with copies of Leases but also to be satisfied as to the terms and conditions of those Leases.

Settlement of the Contract is due this Friday 13th October, 2000 and pending compliance by your clients with the Contract and, in particular Standard Conditions Clause 33, our clients reserve all their rights.”

[36] On 10 October 2000 the tenant Curtis McCormack wrote to the respondents as follows –

“This correspondence is to confirm it has been agreed between us that my Option has been duly exercised and that I will be granted a further Tenancy on the same terms as the now-expired Commercial Tenancy Agreement, except for the Rent.

I confirm it has been agreed that the Rent for the further Tenancy will be $880.00 (GST inclusive) per calendar month, with Rent for the twelve months period commencing 1 October 2001 to be reviewed by CPI over the preceding year.

You have informed me that the Building has been sold, with settlement scheduled for Friday, 13 October 2000.

As requested, I return herewith an executed replacement Commercial Tenancy Agreement between myself as Tenant and your Purchasers as Landlords.

I look forward to receipt of my copy of the Commercial Tenancy Agreement as soon as possible following settlement.”

[37] The lease he enclosed was in the same form as that which had expired on 30 September 2000, except –

(i)the landlords were the applicants and not the respondents;

(ii)it was executed only by the tenant;

(iii)the term was two years from 1 October 2000 to 30 September 2002;

(iv)the rent was $880.00 per calendar month (GST inclusive), to be reviewed on 1 October 2001 under clause 3.3;

(v)it contained the following Special Conditions and Acknowledgement:

“1.The Tenant acknowledges as follows:

a)That this Agreement reflects the exercise of his Option as contained in his previous Tenancy of the premises the term of which expired/ended on 30 September 2000.

b)That Special Condition No. 1 of the previous Commercial Tenancy Agreement has been satisfied.”

(vi)it did not contain an option for renewal or a covenant to erect a dividing wall.

[38]  On the same day the solicitors for the respondents wrote to the solicitors for the applicants –

“… As is apparent from the Lease Schedule to the Contract, Lease No. 1 obviously expired on 30 September 2000.  To avoid the need for any Notice of Assignment under Clause 16.4 of the Contract, the Tenant (Curtis McCormack) has agreed to execute a new Lease (reflecting the exercise of his Option) on precisely the same terms and conditions as the expired Lease, save as specifically required for the benefit of your clients under Special Condition No. 5 of the Contract.

……….

We enclose herewith copies of the following:

1.The existing Tenancy Agreement between our clients and Mr McCormack (Lease 1), in respect of which we are instructed the Option has been duly exercised.

2.Copies of the three (3) fresh Leases to take effect from 1 October 2000 in relation to McCormack (Lease No. 1) and the date of settlement in the case of Purdon (Lease No. 2 – already executed) and McKay (Lease No. 3).

The existing Lease in favour of McCormack is being provided, simply so your clients can see for themselves that the new/replacement Lease is in precisely the same terms, save as required by Special Condition No. 5 of the Contract.

Please advise what documents (if any) your clients require us to obtain instructions about in terms of Clause 4(k) of the Contract…”.

[39]  The solicitors for the respondents prepared for settlement, returning the executed transfer documentation (presumably for stamping purposes) and submitting settlement figures under cover of letter dated 10 October 2000. Apparently that correspondence had not arrived by 11 October 2000 when the applicants’ solicitors sent a facsimile to the respondents’ solicitors in these terms –

“We refer to your facsimiles received yesterday afternoon and respond as follows:-

1.We have not received the executed Transfer documentation from you.

2.With respect to the Lease referred to as Lease 1 in the Lease Schedule, a true copy of that Lease together with the Statement required by Clause 33.3(1) was not delivered by the Vendor to the Purchaser or the Purchaser’s Solicitors within 7 days of the date of the Contract, i.e. by 21st August, 2000.  The copy of the Lease provided by you yesterday in respect of that tenancy confirms that the Lease terminated on 30th September, 2000 which is more than 5 weeks after the date upon which Clause 33.3(1) obliged your clients to provide our client with a true copy of that Lease, together with the required statement, and accordingly we do not understand the comment in paragraph 3 of your letter suggesting that the Lease to Curtis McCormack expired prior to the 7 day period referred to in Clause 33.3(1).

Accordingly, our clients hereby give written notice in accordance with Clause 33 that the Contract is hereby terminated and are entitled to a refund of the deposit paid and in this respect we request that your clients authorise the Agent to refund the deposit in full to our clients.

Further, and in the alternative, our clients are not satisfied with the Terms and Conditions of the Leases, in particular those relating to the tenant, Brad Purdon and the tenant, David McKay.

With respect to the former, the rental review provision in Special Condition Clause 2 is not acceptable and with respect to the latter, a fortnightly tenancy is not acceptable and not in accordance with the Contract.

Accordingly, further and in the alternative, our clients hereby give notice to your clients that they hereby terminate the Contract and claim to be entitled to a refund of the deposit in full and request that your clients authorize the Agent accordingly.

Finally, we have sent a copy of this letter to the Agent requesting the immediate release of the deposit monies to our clients.”

[40] The solicitors for the respondents replied the same day disputing the applicants’ right to rescind, and saying (inter alia) –

“With respect to Lease No. 1 (McCormack), if your clients are to complain (unreasonably, in our clients’ view) that the provision of a fresh executed Lease is surplus to contractual requirements and therefore somehow properly objectionable, then our clients rely upon Mr McCormack’s letter dated 10 October 2000 to our clients (the original of which has been given to you) as to fulfillment of Special Condition No. 5 of the Contract.  In the event this is your clients’ concern, please find enclosed a copy of the required Clause 16.4 Notice of Assignment (together with covering letter to the Tenant), the signed originals of which shall be available for delivery on settlement.”

[41]  In their Statement of Claim, the applicants alleged that they had been entitled to terminate under clause 33.2(a) or alternatively under clause 33.2(b). The respondents pleaded –

“The defendants claim that Special Condition 5 overrides Standard Condition 33.3(1) and such Special Condition was inserted into the Contract at the Plaintiffs instigation and for their benefit.  The Special Condition requires Lease No. 1 to be renewed (regardless of its terms and whether or not the Plaintiffs are satisfied).”

[42] The new lease proffered by the respondents on 10 October 2000 was a nullity. However, counsel for the applicants did not seek to make anything of that on the hearing of the application. He conceded that his clients' case rested on clause 33.

[43] On 11 October 2000, two days before completion was due, the applicants purported to terminate, in reliance on the respondents' breach of clause 33, ie their failure to provide a copy of the then current lease to Curtis McCormack by 21 August 2000. In my view  they were entitled to do so.

[44] The learned trial judge went on to find that the applicants were not entitled to terminate the contract because of waiver or estoppel. He said (at paragraph [27]):

“Furthermore, although the words ‘waiver’ and/or ‘estoppel’ do not appear in the defence of the self represented defendants, it is inherent in the letter of their then solicitors Exhibit BRK/EAS 21 that the plaintiff was acting unreasonably in attempting to invoke Condition 33.3 after having proceeded for a period of several months on a different basis of performance.  That was the gist of their letter.  Whether it is called ‘waiver’ or ‘estoppel’ does not much matter”.

[45] Neither waiver nor estoppel was pleaded by the respondents, who conducted their own defence. The trial lasted one day. During cross examination of Mr Kealley (the applicants' principal witness) by Mr McKay, the learned trial judge raised the issue of waiver (referring to the correspondence between the solicitors which I have set out). The applicants' counsel submitted (correctly) that it had not been pleaded and so was not relevant. Nevertheless, His Honour allowed the line of questioning to continue.  There was no application or invitation to amend the respondents' pleading. On the application to this Court, counsel for the applicants said that had the point been a live one on the pleadings, he would have called other witnesses; he acknowledged that in due course he had addressed on the point, but said that had simply been in an endeavour to do the best he could for his clients in the circumstances.

[46] There was some argument on the application for leave to appeal as to whether the effect of the applicants' solicitors' letter of 10 October 2000 was to waive the essentiality of time. Be that as it may, I would not be prepared to find that that correspondence precluded the applicants from relying on the respondents’ failure to comply with clause 33. I doubt that it could be classified as an unequivocal election to proceed with the contract - especially when it contained an express reservation of rights. In any event, as I say, waiver/estoppel was not pleaded and I would not entertain the point on appeal.

[47] It follows that the applicants are entitled to the return of the deposit.

[48] The counterclaim was dismissed with costs during the course of the trial because there was no evidence to support it. This was done at the initiative of the learned trial judge; counsel for the applicants had not asked for it to be dismissed. Subsequently His Honour restricted those costs to the preparation and filing of the answer, because no evidence had been called by either side on the issue. That no evidence was called by either side was a consequence of His Honour’s dismissing the counterclaim during the course of the trial. It took no account of costs incurred in preparing for trial on the counterclaim.  There was no basis for restricting the applicants’ costs of the counterclaim.

[49] I would grant the application for leave to appeal, allow the appeal, and set aside the orders made by the learned trial judge. I would substitute the following orders:

(i)an order declaring that the applicants were entitled to terminate the agreement on 11 October 2000;

(ii)an order declaring that the applicants are entitled to a refund of the deposit of $10,000.00 paid pursuant to the agreement;

(iii)an order that the sum of $10,000.00, together with accretions if any, be paid out of Court to the applicants;

(iv)an order that the respondents pay the applicants’ costs of and incidental to the claim and counterclaim to be assessed.

I would order the respondents to pay the applicants’ costs of and incidental to the application for leave to appeal and the appeal to be assessed.

Footnotes

[1] Clause 1.1(n).

[2] My emphasis.

[3] The headings and marginal notes reinforce this interpretation, but regard cannot be had to them for this purpose: cl 2.

[4] See para [12] above.

[5] KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 at p 296.

[6] Lysaght v Edwards (1876) 2 Ch D 499 at pp 507-508 per Jessel MR.

[7] Raffety v Schofield [1897] 1 Ch 937 at 945, applied Riddington v Pye (1989) 9 BPR 16,643.

[8] It is unnecessary to consider to what extent an option in a lease is to be regarded as a collateral covenant: compare Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326, Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1.

[9] The trial judge made no finding as to whether the option in lease 1 was exercised. If it mattered (and it probably does not), I would infer that it was not exercised. The time for exercising it had expired before the contract date. Had it been exercised, one would have expected special condition 5 to have assumed a different form. The terms of the letter of 10 October 2000 from the tenant to the vendors also suggest a new contract was made.

Close

Editorial Notes

  • Published Case Name:

    Zabart P/L & Anor v McKay & Anor

  • Shortened Case Name:

    Zabart Pty Ltd v McKay

  • MNC:

    [2002] QCA 280

  • Court:

    QCA

  • Judge(s):

    Williams JA, Fryberg J, Wilson J

  • Date:

    09 Aug 2002

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status