- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
M. S. Kelly & Ors v Arkdev Pty Ltd; A. R. Kelly and/or Nominees v Harling Queensland Pty Ltd  QSC 318
Michael Sean Kelly as trustee for the Sean Kelly Family Trust and antonius van den bosch, linda alice van den bosch, peter karl vandenbogert & christine louis vanderbogert as trustees for the van den bosch family trust
Arkdev Pty Ltd as trustee for the kelly family trust
Anthony Richard KELLY and/or Nominees
Harling Queensland Pty Ltd
ACN 068 605 210
28 October 2005
6-8 September 2005
In action S35/05:
1)the plaintiffs’ action be dismissed;
2)judgment on the counterclaim of the first defendant be given in favour of the first defendant against the plaintiff in the sum of $95,450;
3)the plaintiffs to pay the defendants’ costs of and incidental to the action (including reserved costs) to be assessed on the standard basis.
In action S50/05:
1)the plaintiff’s action be dismissed;
2)judgment for the defendant on its counterclaim for the sum of $10,450;
3)the plaintiff to pay the defendant’s costs of the action (including reserved costs) to be assessed on the standard basis.
CONTRACT – Specific Performance – whether the vendor validly terminated the contract with the purchaser – where the purchaser had no funds of its own to complete the sale – where the purchaser relied on the sale to subsequent purchasers – where the subsequent purchase contract was to be performed simultaneously.
CONTRACT – Rescission – whether the existence of the easement constitutes a defect in title – where the purchaser entered into the contract with knowledge of the easement – whether the vendor disentitled from rescinding the contract – whether the vendor unable to convey the land free of encumbrance
CONTRACT – Rescission – where the name of the vendor and the name of registered proprietor on the title deed are different – where discrepancy is of a minor nature – whether a transfer capable of immediate registration – whether vendor disentitled from rescinding the contract
CONTRACT – Rescission – where the constitution of the vendor requires every document to which the common seal is affixed to be executed by two directors – where directors executing the transfer on behalf of the vendor signed the contract not in each other’s presence – whether the manner of execution of the document invalidates its effect – whether the document incapable of immediate registration
Bullock v London General Omnibus Co (1907) 1 KB 264, cited.
Flight v Booth (1834) 1 Bing (NC) 370, cited.
Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd  Qd R 103, applied.
Sanderson v Blyth Theatre Co  2 KB 533, cited.
Tarbet Investments Pty Ltd v Overett  1 Qd R 280, cited.
Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1, cited.
Trade Practices Act 1974 (Cth), s 52.
Corporations Act 2001 (Cth), s 129.
Mr R. J. Clarke for the Plaintiff (S35/2005)
Mr G. Handran for the First Defendant (S35/2005) and the Plaintiff (S50/2005)
Mr D. J. Campbell SC for the Second Defendant (S35/2005) and the Defendant (S50/2005)
MS Kelly & Co Solicitors for the Plaintiff (S35/2005)
McKays Solicitors for the First Defendant (S35/2005) and the Plaintiff (S50/2005)
J K Smith for the Second Defendant (S35/2005) and the Defendant (S50/2005)
 This action concerns a block of land at Walkerston. Action S35 of 2005 is an action by subsequent purchasers for specific performance or damages against the primary purchaser. Damages are also claimed against the vendor under the provisions of the Trade Practices Act 1974 (Cth). The primary purchaser counterclaims against the plaintiffs for damages for breach of contract. Action S50 of 2005 is an action for specific performance by the purchaser against the vendor. The defendant vendor also counterclaims for damages for breach of contract. For completion, I should note that the vendor has resold the land under an executory contract.
 Because the principal actor for both the purchaser and subsequent purchasers is a Mr Kelly, and because this case involves two actions, it will be convenient if I refer throughout to the parties as the vendor, the purchaser and the subsequent purchasers.
 The subsequent purchasers’ action was first in time. In consequence, the subsequent purchasers conducted the case as if they were the plaintiff in the combined action. Despite this, the first issue to be determined in the action is whether the vendor validly terminated the contract with the purchaser. If it did, the subsequent purchasers’ action for specific performance must fail and their remedy must be confined to damages.
 By a contract dated 7 June 2004, the vendor sold the land to the purchaser for a consideration of $350,000. No deposit was paid. The land was a block of vacant freehold land in relation to which the purchaser intended to obtain various approvals for a subdivision and then sell the land at a profit. Time was of the essence of the contract.
 The land was registered at the time in the name of “Harling Queensland Pty Ltd A.C.N. 068 605 210”. This should be compared with the vendors actual name, which was “Harling (Qld) Pty Ltd A.C.N. 068 605 210”. This difference was one of the points taken by the purchaser and subsequent purchaser with which I will deal later.
 By a series of special conditions listed in annexure “A” the contract was conditional on the purchaser being satisfied that the proposed use of the land for subdivision and the conditions imposed by the council for such use were acceptable.
 The contract provided for the insertion of any title encumbrances to which the contract was subject in the schedule on the front page. None were noted.
 At all relevant times the land was subject to an easement in favour of the Mackay City Council. The easement extended through the centre of the land. The land was a rectangular shaped block and adjoined a similarly shaped but smaller block fronting Kelly’s Road. The smaller block had been subdivided into a number of allotments either side of Dalton Street which ran through the centre of the parcel. The easement on the subject land was an extension of Dalton Street through the centre of the subject block.
 The purchaser had no funds of its own to complete the sale. It relied on the sale to the subsequent purchasers being completed simultaneously in order to affect settlement with the vendor.
 The subsequent sale was by a contract dated 19 January 2005 and was for a consideration of $550,000 plus GST. Time was also of the essence of this contract. A deposit of $25,000 was paid under that contract. Later, the contract price was varied in a way that is relevant only to damages and which is discussed under that heading. In the contract for the subsequent sale the item marked “Encumbrances” was also left blank.
 The special conditions of the subsequent sale made the contract subject to due diligence by 31 January 2005 and required the subsequent purchasers to accept a transfer from the vendor to the purchaser at settlement. On 9 February 2005, Mr Sean Kelly wrote to the solicitor for the purchaser confirming that the subsequent purchasers had completed their due diligence inquiries and were satisfied with the results.
 The settlement date was Monday, 28 February 2005.
 On Monday, 21 February 2005, Mr Van Den Bosch, one of the subsequent purchasers first raised the issue of finance with his bank manager, Mr Radke. Mr Van Den Bosch did not visit the bank for the first time on that subject until Friday 25 February 2005. Not surprisingly, Mr Radke could not produce a cheque for settlement on the next working day, 28 February 2005. The facility sought was $210,000.
 Mr Van den Bosch gave evidence that he could have obtained his share of the settlement money at short notice without the assistance of the new facility but did not. It appeared that he expected that the settlement date would be flexible and an extension granted.
 Mr Van Den Bosch was aware of an easement over the land, but perhaps not the details of it. Matters relating to the contract were left by him to Mr Sean Kelly who was the other active partner and a solicitor in his own practice. As late as the morning of settlement, Mr Kelly told Mr Van Den Bosch that he had not yet looked at the contract. While that might seem unlikely in view of the letter of 9 February confirming the completion of due diligence inquiries, Mr Kelly himself, confirmed that he really only gave close attention to the contract and its terms on the settlement day.
 Mr Sean Kelly also said he was able to provide enough money from his own funds to meet his share of the settlement price but apart from offering Mr Anthony Kelly a personal cheque so that he could complete the purchase contract from the vendor, took no steps to obtain bank cheques. The vendor would not accept Mr Sean Kelly’s personal cheque in satisfaction of the purchase price. It was not obliged to.
 Despite the evidence of both Mr Sean Kelly and Mr Van Den Bosch concerning their access to sufficient funds to settle the subsequent purchase, neither took any steps on 28 February to obtain bank cheques for settlement. At 9:32 a.m. on that day Mr Kelly gave notice to the solicitor for the purchaser that the subsequent purchasers may require a few days to arrange funds.
 As a result of the purchaser failing to settle his contract with the vendor on the due date the vendor purported to terminate the contract by letter from its solicitor dated 1 March 2005. On the same day, the solicitor for the purchaser purported to rescind the contract for the sale to the subsequent purchasers.
 The solicitors for the subsequent purchasers responded on the same day, rejecting the purchaser’s right to rescind and referring to the existence of the easement and the difference between the vendor’s name and the name on the certificate of title.
 The actions for specific performance by the subsequent purchasers and purchaser followed.
 The purchaser and subsequent purchasers relied on three arguments to support the submission that the vendor was disentitled to rescind because it was itself in breach of contract. The first was the existence of the easement. The second was the discrepancy between the name of the vendor and the name on the certificate of title. The third was the fact that the directors who executed the transfer on behalf of the vendor did not sign in each other’s presence.
 By the date of settlement, the Mackay City Council had approved a plan of subdivision of the land. The plan is part of Exhibit 1. It shows a subdivision of 24 allotments on either side of a cul de sac. The road corresponds in position and width to the easement. The cul de sac finishes approximately 30 metres from the eastern end of the block. A pathway extends from the end of the cul de sac to the adjacent block of land. The draft drainage plans prepared on behalf of purchaser show that the drainage for the subject land would be placed under the road and the path and by that route take water off the land. The approved plan of subdivision does not show the easement. Mr Perkins, an engineer, explained this by saying that when the plan of subdivision was registered and the works carried out, the area covered by the road and the path would be transferred to the council. The drainage works would be under the road and path and the easement would be extinguished because of the merger of the dominant and servient tenements in relation to all but a tiny part of the easement abutting the path. That part of the easement would no longer be necessary because the drainage system would then be under the path.
 Prima facie, the existence of the easement at settlement had no practical adverse impact on the land. At worst it appears to have had a minimal impact on the two lots at the eastern end of the subdivision and shown on the plan as lots 22 and 23. Even that seemed unlikely in view of Mr Perkins explanation.
 The lack of material impact of the easement on the land or its value is reflected in the fact that in the letter of 1 March 2005 from the subsequent purchasers’ solicitor to the purchaser’s solicitor responding to the purported termination of the contract for the on-sale, despite raising the existence of the easement as a matter disentitling the purchaser to rescind, the subsequent purchasers nominated a settlement date of 3 March. On that date the subsequent purchasers tendered bank cheques in purported settlement without any abatement of price to account for the defect in title represented by the easement.
 Mr Anthony Kelly, the purchaser, always knew of the presence of the easement. At the time he executed the contract to purchase the land from the vendor his understanding was that the easement was in place and that it was necessary for it to remain in place if he was to get the development approval. Mr Anthony Kelly’s sole interest in the land was as a block he could on-sell at a profit once he had development approval from the Mackay City Council for the subdivision.
 In his oral evidence Mr Sean Kelly agreed that he was seeking specific performance on the original contractual terms with the easement still in place. Mr Kelly went on to say that the easement had an effect on some of the subsequent purchasers’ plans but gave no example of how the easement could affect such plans. Having regard to the shape of the land, the position of the easement, the approved plan of subdivision, the position of the road in that plan and the absence of any evidence as to how the subdivision might otherwise have been configured, I am satisfied that the only practical effect of the easement was the possibility of minimal impact on the proposed lots 22 and 23 to which I have earlier referred.
 Having regard to the due diligence conducted by Mr Sean Kelly and his satisfaction with the outcome, I am satisfied that he was aware of the existence of the easement and of the inability of the vendor to have it removed except in the process of subdivision. In relation to the latter finding I am also taking into account Mr Sean Kelly’s stated experience in property subdivision.
 On the other side of the equation, apart from the non specific comment by Mr Sean Kelly to the effect that the easement might have limited the opportunity for subdivision, there is no evidence of any adverse impact on the value of the land caused by the presence of the easement.
 In Liverpool Holdings Limited v Gordon Lynton Car Sales Pty Ltd  Qd R 103 the Full Court applied the principle, enunciated in Flight v Booth (1834) 1 Bing (NC) 370; 131 ER 1160, to a case concerned with the right of a party to rescind a contract because of the existence of an undisclosed easement over the land. The effect of the decision is accurately conveyed by the headnote as follows:
“Where in a contract for the sale of land, the vendor, having originally promised to convey the land free of encumbrance, can at settlement only convey the land affected by an easement in favour of another person, the test as to whether in such circumstances the purchaser may rescind the contract by reason of the existence of the easement depends on whether, in the event of the contract being performed , the purchaser would essentially be obtaining that for which he bargained, or whether the purchaser would be obtaining something so materially altered in character as to be in substance a different thing from that for which he contracted.”
 The decision in Liverpool Holdings was applied by Williams AJ in Tarbet Investments v Overett  1 Qd R 280 where his Honour derived support for the same proposition from the decision of the Chief Justice in Travinto Nominees Pty Ltd v Vlattas (1979) 129 CLR 1.
 The effect of the authorities, as I understand them is that at the very least the defect in title must be one where the purchaser, had it been aware of the defect would not have entered into the contract either at all or on the same terms including as to price. Here, the purchaser is anxious to complete the contract on the original terms.
 In all the circumstances, I am not satisfied that the vendor was disentitled from rescinding the contract for failure by the purchaser to tender the purchase price despite not being able to convey title free of the easement. The fact that the purchaser entered into the contract in the full knowledge of the easement and the inability of the vendor to convey free of it merely confirms this conclusion.
 I am of the same opinion in relation to the subsequent purchasers. The subsequent purchasers were, and still are, anxious to settle the contract on the original terms despite the existence of the easement.
 No argument was advanced on behalf of the vendor concerning clause 7.5 of the contract which provides, relevantly:
“7.5(2)If there is… a mistake or omission in describing the Property or the Seller’s title to it which is immaterial or material, but the buyer elects to complete this contract, the buyer’s only remedy against the seller is for compensation, but only if claimed by the buyer in writing before settlement.”
 This seems to me to mirror the common law position as discussed above and confirms the acceptance by the contracting parties of those principles to the relevant contracts.
 Tarbet Investments (supra) at 25 is authority for the proposition that a defect in title may constitute an error or misdescription for the purposes of the clause.
The name of the vendor
 The second ground relied upon as disentitling the vendor from rescinding the contract is the difference between the name of the vendor and the name of the registered proprietor on the title deed.
 The proper name of the vendor is “Harling (Qld) Pty Ltd ACN 068 605 210.” The name of the registered proprietor on the title deed was “Harling Queensland Pty Ltd ACN 068 605 210.” It was submitted on behalf of the purchaser and subsequent purchasers that the execution of the transfer in the real name of the vendor meant that the transfer was not capable of immediate registration and thus did not satisfy the vendor’s obligation under clause 5.3(1)(b) of the contract.
 Evidence was led from two officers of the Titles Registration Office in Townsville, which office would have had the responsibility of registering the transfer had the contracts been completed.
 The effect of their evidence was that they had a discretion to accept a transfer for registration despite an error in the name of the vendor provided they were satisfied that the vendor and the registered proprietor were in fact the same. Where the discrepancy was between the use of a recognised abbreviation, such as “Qld” for “Queensland” and the ACN number of the party executing the transfer matched that of the registered proprietor, it would be unlikely that the transfer would be requisitioned. Neither of the officers called would themselves have taken any objection to the transfer in the form in which it was prepared. In the unlikely event that a requisition was issued, it would be answered by a statutory declaration by the vendor’s directors affirming the identity of the vendor and the registered proprietor.
 The evidence also disclosed that on 11 earlier occasions the same discrepancy had arisen in the name of the vendor and the transfers had all been registered without requisition.
 I am satisfied that the discrepancy in the names is of such minor importance that the transfer as provided prior to the settlement by the vendor was a transfer capable of immediate registration in terms of the contract.
Directors not signing together
 The third point argued by the purchaser and subsequent purchaser was that the transfer tendered by the vendor had been executed by Mr Stirling and Mrs Harris separately. Mr Stirling signed the document in Brisbane and affixed the company seal. Mrs Harris signed the document in Mackay in the office of Mackays solicitors. Mackays were the solicitors for the purchaser. The transfer was in Mackays possession for stamping prior to settlement. In providing the facility for Mrs Harris to execute the document, Mackays were acting as de facto agent for the vendor’s solicitor, not as solicitor for the purchaser. Any knowledge they thereby gained as to the manner of execution was not knowledge that can, in my view, be imputed to the purchaser. Thus, regardless of how the document was executed, the purchaser is protected by the provisions of s 129 of the Corporations Act 2001 (Cth).
 In any event, the constitution of the vendor requires every document to which the common seal is affixed to be executed by two directors. It does not require the two directors to be present at the same time.
 I am not satisfied that the manner in which the document was executed invalidates its effect so as to render it a document incapable of immediate registration.
Trade Practices Act Claim
 The subsequent purchasers claim damages against the vendor and the purchaser for alleged misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The conduct complained of is alleged to consist of a positive representation contained in the head contract and a representation alleged to have been constituted by silence.
 The positive representation was a representation that the vendor would provide a transfer capable of immediate registration to convey title free of encumbrance.
 This representation is derived from the terms of the contract. It is, in effect, a representation that the vendor would comply with its contractual obligations. Since I have found that it has complied with its contractual obligations the representation cannot be misleading or deceptive.
 The representation by silence is a representation that the vendor would act reasonably towards the subsequent purchaser to ensure the subsequent purchaser had the benefit of the head contract and the subsequent contract.
 I am not satisfied that by saying nothing the vendor represents anything in the context of this case. Even if it did, it would be no more than that it would conform to its contractual obligations. On the findings I have made, it has done so. There is thus no merit in the Trade Practices Act claim.
The vendor’s claim for damages
 On the basis of my findings, the purchaser was in breach of an essential term of his contract in failing to settle on the due date. The vendor was entitled to terminate the contract and to claim damages for breach.
 Under clause 9.4 of the contract the vendor is entitled to claim as liquidated damages any expenses associated with the contract. In this case, the vendor claims the commission it is obliged to pay to its agent under the terms of the agent’s retainer. That amounts to $10,120.00. In addition, the vendor claims its solicitor’s conveyancing costs of $330.00. Both of these sums are expenses connected with the contract.
 Since, by the terms of the contract these amounts constitute agreed liquidated damages it is unnecessary to see whether, in fact, these amounts represent the actual loss suffered by the vendor under ordinary principles. In an ordinary stable property market they would represent a genuine pre-estimate of a vendor’s actual loss.
 Accordingly, I assess the vendor’s damages at $10,450.00. There is no evidence either sum making up this amount has actually been paid so it would be inappropriate to award interest.
The purchaser’s claim for damages
 The purchaser also claims damages against the subsequent purchasers. In the case of the purchaser the prima facie measure of loss is the difference between the price at which the purchaser was selling to the subsequent purchaser and the price at which the purchaser was buying from the vendor.
 The purchaser also claims conveyancing costs and other expenditure on obtaining the Council approval. I am not satisfied that these amounts are properly claimable. Had the contracts both been completed the purchaser would, in any event, have expended the amounts necessary to obtain Council approval and the solicitors’ costs for the conveyance. These would have come out of the gross profit on resale and are not amounts by which the purchaser is worse off by reason of the subsequent purchasers’ failure to perform the contract.
 The contract price between the vendor and the purchaser was $350,000. The varied purchase price between the purchaser and the subsequent purchaser was $450,000 plus GST. In addition to this sum, there was a further amount of $100,000 payable contingently. The contingency was that the purchaser would receive an additional $0.66 for each dollar the cost of storm water drainage was below $297,440 up to a maximum of $100,000. All these figures exclude GST.
 The contingent sum was related to the cost of storm water drainage for the proposed subdivision. In the original estimates by Connell Wagner, stormwater drainage was costed at $93,603.00 (excluding GST). Mr Perkins in a report dated 26 January 2005 for the subsequent purchasers doubted the adequacy of the drainage provided in the drawings prepared for the purchaser. In Mr Perkins opinion the true cost was likely to be $327,184 (including GST). When GST is taken out this equates to the figure of $297,440 referred to in the letter of 15 February.
 This amount was not explored at the hearing. Rather, another item under the heading “fill” in the same report was addressed.
 Mr Anthony Kelly had apparently obtained a quote to provide fill for the project at a rate of $10 per cubic metre. Mr Perkins gave evidence that this was not a commercial rate. Commercial rates were apparently between $15 and $20 per cubic metre. The quote did not confirm that any fill supplied would conform to engineering specifications. Mr Perkins doubted that the fill could be supplied at the price claimed and estimated that an additional $137,000 should be allowed for fill. The purchaser and subsequent purchasers to whom this topic was relevant appear to have treated the fill price as determinative of whether or not the purchaser would have received any part of the additional $100,000. This seems to me to be wrong. It is not what the contract as varied by the letter of 15 February 2005 says. The figures used in the letter correspond with the item to which the letter expressly refers whereas the figures in the letter appear to have no direct relationship with the cost of fill.
 In the circumstances, the only evidence concerning the cost of drainage is that provided by Mr Perkins. In a later report annexed to his affidavit, Mr Perkins estimates that costs for this type of work have increased approximately 10% since January 2005. Since the work would have been done some time after settlement of the contract it is reasonable to assume that the amounts actually payable would be the cost at present rather than the cost as at January. The cost of stormwater drainage excluding GST would therefore be of the order of $327,000. If Mr Perkins figures are correct the purchaser would not have received any part of the additional $100,000. I accept this evidence.
 Mr Perkins figures are based on having to upgrade the drainage because the original drawings had not allowed for the upstream runoff. Mr Perkins considered the council was unlikely to approve the operational works without that flow being dealt with.
 This claim is for the loss of the opportunity to receive additional money from the sale rather than for any certain amount. Nonetheless, on the evidence I consider the likelihood of receiving any additional money to be slight. I assess the loss of the chance at 5% of the maximum or $5,000.
 The only other amount that is relevant is the amount of the damages payable by the purchaser to the vendor. This is a liability directly flowing from the subsequent purchasers’ breach of contract since it was always recognised that the purchaser was to settle his contract from the proceeds of the subsequent sale. Had the subsequent purchasers not failed to settle in accordance with their contract, the purchaser would not have defaulted in its contract with the vendor. The cheques requested from the subsequent purchasers prior to settlement reflected this reality. The fact that Mr Sean Kelly offered Mr Anthony Kelly his personal cheque to settle with the vender also reflects this. The subsequent contract also provided that the subsequent purchasers had to accept a transfer from the vendor to the purchaser at settlement. The subsequent contract was also expressed to be conditional on the contract between the purchaser and the vendor settling.
 In the circumstances I assess the purchaser’s damages as follows:
Contract price: 450,000
Less purchase from vendor: 350,000
Less deposit forfeited 25,000 (375,000)
Plus loss of chance to receive higher price 5,000
Plus damages payable to vendor 10,450
Total $ 90,450
 The purchaser should receive interest on the sum of $75,000 which it would have received at settlement from 28 February until now at a rate of 10%. This amounts to 8 months or a sum of $5,000. Interest is not payable on the loss of the chance because under the agreement the payment was not expected until about 12 months after settlement.
 For the reasons expressed herein I make the following orders:
In action S35/05:
1.I order that the plaintiffs’ action be dismissed.
2.I give judgment on the counterclaim of the first defendant in favour of the first defendant against the plaintiff in the sum of $95,450.
3.I order the plaintiffs to pay the defendants’ costs of and incidental to the action (including reserved costs) to be assessed on the standard basis.
In action S50/05:
1.I order that the plaintiff’s action be dismissed.
2.I give judgment for the defendant on the counterclaim for the sum of $10,450.
3.I order the plaintiff to pay the defendant’s costs of the action (including reserved costs) to be assessed on the standard basis.
 In my view the purchaser’s damages against the subsequent purchaser should not include the costs of its unsuccessful action against the vendor. Nor should a “Bullock” or a “Sanderson” order be made. The purchaser was not obliged to either commence or continue the action and having done so unsuccessfully should bear the usual consequence.
 The plan of subdivision is exhibit “MSK 10” to the affidavit of Michael Sean Kelly filed in S35 of 2005 on 31 August 2005.
 See letter from Mackays to MS Kelly & Co dated 22 February 2005 being part of Exhibit 1.
 See letter from Mackays to MS Kelly & Co dated 15 February 2005 being part of Exhibit 1.
 Bullock v London General Omnibus Co (1907) 1 KB 264.
 Sanderson v Blyth Theatre Co  2 KB 533.
- Published Case Name:
Kelly & Ors v Arkdev Pty Ltd; Kelly v Harling Queensland Pty Ltd
- Shortened Case Name:
Kelly v Arkdev Pty Ltd
 QSC 318
28 Oct 2005
- White Star Case:
No Litigation History