Exit Distraction Free Reading Mode
- Unreported Judgment
Gao v Shek QDC 179
DISTRICT COURT OF QUEENSLAND
Gao v Shek & Shiu  QDC 179
LAI WA SHIU
4271 of 2017; 1130 of 2018
District Court of Queensland
10 September 2019, ex tempore
9-10 September 2019
Porter QC DCJ
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON – PERFORMANCE – ELECTION AND RECISSION – where the parties entered into a contract for the sale of property – where the contract required the sellers to provide documentation regarding Tenancies disclosed in the contract – where the seller alleged that a Tenancy disclosed was terminated by an order of QCAT prior to settlement – where the buyers discovered an occupant in the property on the day of settlement – where the buyers proceeded to communicate their intention to attend settlement to the seller – where all parties attended settlement – where the seller did not provide documentation regarding the Tenancy disclosed in the contract at settlement – where the buyers did not complete for that failure – where the buyers subsequently purported to terminate the contract – whether the contract created an obligation to provide vacant possession – whether and when a right to election had arisen in respect of the failure to give vacant possession – whether the buyers had elected to affirm the contract despite the presence of the occupant – whether the buyers’ subsequent termination was valid
CONVEYANCING – FROM CONTRACT TO COMPLETION – POSSESSION – VACANT POSSESSION – where the subject of the contract was a residential dwelling – where an occupier remained in the property at the agreed time of settlement – whether the presence of the occupier substantially interfered with the buyers’ right to possession of a substantial part of the property – whether vacant possession was provided at the time of settlement
Champtaloup v Thomas  2 NSWLR 264
Davidson v Bucknell  1 Qd R 563
Galafassi v Kelly (2014) 87 NSWLR 119
Gray v Sirtex Medical Ltd  FCAFC 40
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (1993) 182 CLR 26
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
Tropical Traders Ltd v Goonan (1964) 111 CLR 41
L A Stephens for the plaintiff/respondent
J P Hastie for the defendants/applicants
AGC Lawyers for the plaintiff/respondent
Johnsons Solicitors for the defendants/applicants
- Mr Shek and Ms Shiu (the Buyers) contracted to buy a house at Clear Island Waters from Ms Gao for $1.63 million. Settlement was set for 26 September 2017. On that day, the Buyers purported to terminate the contract. Ms Gao disputed that the Buyers were entitled to terminate. She subsequently purported to terminate the contract herself, based on repudiatory conduct of the Buyers by, in her view, wrongly terminating the contract and refusing to settle. Ms Gao refused to return the deposit of $81,500. She subsequently resold the house for $1.5 million.
- In these proceedings, the Court must determine whether the Buyers validly terminated the contract. If they did, Ms Gao accepts that they are entitled to a return of the deposit. If they did not, the Buyers accept that Ms Gao is entitled to the major damages she claims, comprising the loss on resale, which is not in dispute, and some other undisputed amounts. There are some other items of costs claimed which remain in dispute.
- The validity of the respective terminations arise out of the undisputed fact that on the day of settlement, and the weeks leading up to settlement, a Mr Finerty was in occupation of the house (he was living there). I use the word “occupation”, as a descriptive term rather than in any legally technical manner.
- The Buyers submit that they were entitled to terminate the contract because of that circumstance, either because:
- (a)Ms Gao was required to provide certain documents relating to the tenancy of Mr Finerty at settlement under the contract, and failed to do so (this was the basis expressly relied upon to terminate the contract); or
- (b)If there was no such obligation, his occupancy not under a Tenancy as defined in the contract, meant that Ms Gao was unable to give vacant possession, as required by the contract.
- The proposition that they could rely on that second basis, notwithstanding it was not the basis given at the time for the termination of the contract by the Buyers, is uncontentious, and is supported by Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 370, 377.
- Ms Gao submits that the Buyers were not entitled to terminate the contract because:
- (a)First, Mr Finerty was not in occupation, pursuant to any relevant Tenancy under the contract, so there was no obligation to provide documents called for by the contract in relation to that Tenancy;
- (b)Second, Mr Finerty’s occupation did not mean that vacant possession could not be given; and
- (c)Third, if Mr Finerty’s occupation meant vacant possession could not be given, the Buyers, by calling for settlement with knowledge of his occupation, had elected to affirm the contract.
- The disputes between the parties gave rise to two separate proceedings. The Buyers filed an originating application, seeking declarations that they had validly terminated the contract, and that they were entitled to recover the deposit, as well as a money order for the payment of the deposit. Sometime later, Ms Gao brought proceedings by claim and statement of claim, seeking damages for breach of the contract. The proceedings were ordered to be heard together. They raise issues which are common, and the relief sought by each party in each proceeding is the relief which they claim to be entitled to, if the underlying common issues are resolved in their favour.
- With admirable cooperation, the parties were able to provide me with an agreed statement of facts, which I largely adopt. I have made some changes, which I consider to be uncontentious. The background facts are these.
- On 27 June 2017, the Buyers and Ms Gao entered into a contract of sale, whereby Ms Gao agreed to sell land at 17 Tortuga Place (named presumably after the island off the coast of Haiti, famous in popular culture for its place in the pirate history of the Caribbean). There was a residence located on the land (the House). The Buyers agreed to buy the House from Ms Gao for $1.63 million.
- The contract relevantly provided, by clause 5.3(1), as follows:
In exchange for payment of the Balance Purchase Price, the Seller must deliver to the Buyer at settlement:
(e) if there are tenancies:
(i) the Seller’s copy of any Tenancy agreements;
(ii) a notice to each Tenant advising of the sale in the form required by law; and
(iii) any notice required by law to transfer to the Buyer and Seller’s interest in any Bond; […]
- By clause 5.5, it provided:
On the Settlement Date, in exchange for the Balance Purchase Price, the Seller must give the Buyer vacant possession of the Land and the Improvements except for the Tenancies. Title to the Included Chattels passes at settlement.
- For the purposes of clause 5.3(1)(e) and 5.5 of the contract:
- (a)The settlement date was 26 September 2017; and
- (b)Under the heading “Tenancies” in the Reference Schedule to the contract the following was specified:
Tenants name: Mr Peter Bond Bond Brothers Contracting Pty Ltd, Mr Greg Finerty
Term and options: month-to-month lease
Starting date of term: 10 June 2016
Ending date of term: 10 July 2017
Rent: $1195/ week
Bond: 4 weeks
- Clause 1.1(1) provides: “Terms in bold in the Reference Schedule have the meanings shown opposite them.”
- The word “Tenancies” is in bold in the Reference Schedule. The word “Tenancies” where it appears in clause 5.3(1)(e) and 5.5 is with a capital T. By this, I might say, clumsy device, that which appears under their heading “Tenancies” in the Reference Schedule defines the content of the word where it appears in clauses 5.3(1)(e) and 5.5.
- Clause 5.3(1)(e)(i) promiscuously throws in the expression “Tenancy agreements”. That is not defined, but it seems to me an obvious reading of the contract that the Tenancy agreements referred to in 5.3(1)(e)(i) are agreements for the Tenancies identified in the Reference Schedule.
- Next to the heading “Tenancies” and the entries thereunder in the Reference Schedule, the following words appear: “If the property is sold with vacant possession from settlement, insert ‘Nil’. Otherwise complete details from Residential Tenancy Agreement.”
- In “Residential Tenancy Agreement” a new phrase is, again, introduced without being defined but which on a plain reading of the contract must refer to the agreement that gives rise to the Tenancies identified under the heading “Tenancies” in the Reference Schedule.
- It was common ground that despite three separate entities being identified under the heading “Tenants name”, the true position was that the tenant under the existing Residential Tenancy Agreement (RTA) was the company Bond Brothers Contracting Pty Ltd (Bond Brothers), a company associated with the named Mr Bond. To the extent that was not common ground, it is in my view indisputable on the face of the RTA that the tenant was Bond Brothers. Mr Bond is not mentioned at all. Mr Finerty appears in Addendum A to the RTA, where he is identified not as a tenant or an additional tenant, but as a person authorised to reside on the premises. Both he and a Ms Murata are identified as such persons.
- It seems to me that on the proper construction of the contract (bearing in mind the contract’s reference to the RTA), the fact that Mr Finerty appears under the subheading “Tenants name” cannot be effective to create a separate legal tenancy for the purposes of that clause in the face of the RTA which identifies only Bond Brothers as the tenant. That is the Tenancy which is called up by the Reference Schedule.
- It is unclear on the evidence why Mr Finerty was occupying a property leased formally to Bond Brothers, but he was. What is clear and important is that he occupied the House with the permission of the tenant and the consent of Ms Gao. It is not clear whether he had a sub-lease or merely a license. Whether he did or not ultimately is irrelevant, it seems to me.
- I note that here because, ultimately, the legal position is that the Tenancy provided for in the Reference Schedule was terminated by an order of the Queensland Civil and Administrative Tribunal (QCAT) which means that regardless of whether Mr Finerty held a sub-lease or a license, the right to occupy on that basis under the authority of the Tenant expired before settlement.
- The contract also provided, by clause 8.3(1), relevantly that:
The Seller must use the Property reasonably until settlement. The Seller must not do anything regarding the Property or the Tenancies that may significantly alter them or result in later expense for the Buyer.
- Clause 9 deals with default. Clause 9.1 provides:
Seller and Buyer May Affirm or Terminate
Without limiting any other right or remedy of the parties, including those under this contract or any right of common law, if the Seller or Buyer, as the case may be, fails to comply within an Essential Term, or makes a fundamental breach of an intermediate term, the Seller (in the case of the Buyer’s default) or the Buyer (in the case of the Seller’s default) may affirm or terminate this contract.
- The phrase “Essential Term” is defined in clause 1.1(2), relevantly, to include:
- (a)The Buyer’s obligation to pay the Balance Purchase Price;
- (b)The Seller’s obligation to provide, if there are Tenancies, a notice to each Tenant advising of the sale in the form required by law and any notice required by law to transfer to the Buyer the Seller’s interest in any Bond (see clause 5.3(1)(e) above); and
- (c)The Seller’s obligation in clause 5.5 to provide: “[…] in exchange of the Balance Purchase Price, […] vacant possession of the Land […] except for the Tenancies.”
- On 28 July 2017, the Buyers paid the initial deposit of $10,000 as called for by the contract. On the same day, the contract became unconditional, because the Buyers obtained satisfactory building and inspection reports and satisfactory finance, such that the conditions ordinarily seen in these contracts making the sale subject to finance and satisfactory report were met. Nothing contentious arises out of any of that. Accordingly, on 29 July 2017, the Buyers paid the balance deposit of $71,500, bringing the total deposit to $81,500, a great deal less than the traditional 10 per cent as seems to be common these days.
- Following the contract becoming unconditional, it is uncontentious that the effect of the contract was that the settlement date was set at 26 September 2017.
Events following the contract becoming unconditional
- The parties expressly agreed the following two facts:
- (a)On 28 July 2017, Ms Gao instructed Mr Loxton, her agent, to evict Mr Finerty from the House due to non-payment of rent; and
- (b)On the same day, Mr Loxton gave Mr Finerty a notice to leave. That is, a Form 12 under the Residential Tenancies and Rooming Accommodation Act 2008 (Qld), directing him to vacate by 5 August 2017.
- I comment that the person to be evicted, as a matter of strict law, was Bond Brothers. Subject to that note, the above matters can be taken as having happened.
- Despite the notice to leave, Mr Finerty remained in possession of the House. On 18 August, Mr Loxton, on behalf of Ms Gao, filed an application in QCAT. The QCAT application stated that it was made on an urgent basis and named Mr Bond, Bond Brothers, Mr Finerty and Ms Murata as the respondents. The application noted that Mr Finerty and Ms Murata were resident in the House. One could imagine the relevant Act would require this identification on such an application. The application sought an order in the following terms:
To order the tenant Bond Brothers Contracting Pty Ltd represented by Mr. Peter Bond and the persons authorised by him to reside on the premises, Gregory William Finerty & Chika Murata, to vacate the property at 17 Tortuga Place, Clear Island Waters as soon as possible […].
- The application stated that the reasons for seeking those orders were, amongst other things, the new owner’s intention to take possession of the property on 25 August, (which was incorrect but I am willing to assume was a misunderstanding or error), and Mr Finerty’s refusal to move out. The application also stated that the new owner will have to find alternative accommodation and can charge the current owner for this.
- The hearing in QCAT took place on 18 September 2017 and orders were made on that date. The applicant was identified as Mr Loxton. The terms of the orders are relevant:
(1) The Residential tenancy agreement between the parties be terminated as from midnight on 25.09.2017 on the grounds of failure to leave.
(2) A Warrant of Possession to issue authorising a police officer to enter the premises […].
(3) The warrant take effect on 26.09.2017 and remain in effect for 14 days, to expire at 6:00pm on 09.10.2017.
(4) The Warrant to be executed as soon as reasonably practicable after taking effect.
(5) Entry under the warrant shall only be between the hours of 8:00 am and 6:00 pm.
- Although the learned member made the order on 18 September 2017 the termination only took effect on midnight on 25 September 2017. Settlement was due on 26 September 2017.
- On settlement day the following material matters occurred. At 11.07 am Mr Hsieh of Johnsons, solicitors for the Buyers, sent an email to Mr Ng of AGC Lawyers, the solicitors for Ms Gao, relevantly in the following terms:
We refer to this matter and your facsimile yesterday.
We note that despite our clients’ requests your client has failed to provide our client with the tenancy agreement and all documents relating to the tenancy on the property. Can you please request your client to urgent [sic] forward copies of tenancy agreements/ledgers/entry reports by return.
We have been advised by our client that the tenant has been 10 weeks in arrears for the rentals and your client has commenced proceedings against the tenant for unpaid rental and is in the process of reclaiming possession of the property. Your client has failed to advise our client.
We note that pursuant to standard condition 8.3(2) the seller must promptly upon receiving any notice, proceedings or order that affects the Property, give a copy to the Buyer. Your client has failed to advise our client that the tenant is 10 weeks in arrears of its rental and is in the process of being evicted. Please urgently forward the necessary documents for our client’s consideration.
We consider the above to be intermediate terms of the Contract and your client is currently in breach of intermediate terms. We reserve our clients’ rights.
- Mr Ng responded to Mr Hsieh at 12.36 pm. He said as follows:
We refer to your email below.
We attach a copy of the QCAT decision regarding the proceedings between the managing agent and tenant.
Our client requires your clients to affect settlement by 4:00 PM today in accordance with the Contract.
- Attached to that email was a copy of the QCAT decision given on 18 September 2017. It seems to be uncontentious and, to the extent it is, I find that this is the first time that a copy of that decision was provided to Mr Shek or his solicitors. What happens next has to be put in the context of Mr Shek’s dealings with Mr Finerty leading up to 26 September 2017.
Mr Shek’s previous dealings with Mr Finerty
- Mr Shek’s state of mind, and in particular, his knowledge of facts related to Mr Finerty’s occupation are important to resolving the questions of election which arise. Mr Shek presumably is agent for Ms Shiu and no suggestion was made that she has a separate position. Mr Shek gave evidence by affidavit, which was not challenged in cross-examination, of the following interactions with Mr Finerty.
- On 15 September 2015 (I presume this is a typographical error and should refer to 15 September 2017 that is, days before the QCAT hearing on 18 September 2017), Mr Shek says he had a conversation with Mr Finerty wherein Mr Finerty told him that Ms Gao had commenced proceedings in QCAT and that those proceedings arose as a consequence of a dispute between Mr Bond and Ms Gao. Mr Shek’s evidence is that Mr Finerty asked whether Mr Shek would be inclined to keep him and his partner as tenants after settlement of purchase of the House.
- Mr Shek said that he responded that he would consider Mr Finerty’s proposal and get back to him, and he would attend the House on the day of settlement to inspect. Mr Shek says that in that conversation he never said he would agree to have Mr Finerty as a tenant after settlement. He also said that at that stage he was unsure whether Mr Finerty had any right to stay after settlement under the terms of any existing tenancy agreement between him and Ms Gao. I am not sure whether that evidence is strictly relevant to anything, but I note that it was given without objection.
- His next dealing with Mr Finerty was on 21 September 2017, some six days after his last discussion, when he says Mr Finerty called him. Mr Finerty told him that the QCAT proceeding had been commenced because of non-payment of 10 weeks’ rent (something that he was not told on the previous occasion) and that an order had been made in QCAT terminating the tenancy agreement with Ms Gao and evicting him from the House. Mr Finerty again requested Mr Shek consider having him as a tenant after settlement occurred.
- Mr Shek says he responded he would consider it. He says that he did not say that he would agree to have Mr Finerty as a tenant after settlement. Mr Shek goes on to say, in effect, that he told Mr Finerty he would consider his request but only out of politeness. He did not want to have him as a tenant because he had found out there was a problem with the rent being paid and that that would have created difficulties with stamp duty concessions that he had obtained. He then says he had no further discussion with Mr Finerty after the 21 September conversation until he went to inspect the property on the day of settlement.
- Mr Finerty’s version of events is not before the court. Attempts were made to put that version before the court in hearsay documents. It was submitted that these documents should be admitted into evidence without Mr Finerty being called under section 92(2) of the Evidence Act 1977 (Qld). I rejected those arguments and gave reasons for doing so. Mr Stephens and his solicitors then tried to force Mr Finerty’s attendance within a reasonable time so the trial could proceed, which I specified as 10.00 am on the second day of trial. They were unable to serve a subpoena in time and Mr Finerty made clear that he would not cooperate. Understandably in those circumstances, no further attempt or application was made for his evidence to be given.
- I note, however, that even if such an attempt had been made, counsel indicated to me that Mr Finerty’s evidence-in-chief would only have extended to tendering a transcript of the QCAT proceedings. Having looked at that material, even if I was wrong about its admissibility, it really only contained conclusory statements about the purported agreement between Mr Shek and Mr Finerty contended for by Ms Gao.
- No challenge was made to Mr Shek’s version of events and, whether the abovementioned evidence was admitted or not, there seems to be no reason why I would not accept it. One can well imagine how Mr Finerty, with an interest in dissuading a tribunal from making an order which was plainly open to it, might have been tempted to over-egg the pudding a bit and present an optimistic view of his discussions with Mr Shek during the QCAT proceedings.
- In any event, Mr Finerty’s evidence was not before me. Mr Shek was not cross-examined and I accept his evidence. Mr Shek’s evidence, frankly, could have been much more self-serving than it was. I find the evidence inherently probable and Mr Stephens did not challenge it.
Settlement Day after 12.36 pm
- It will be recalled that I had dealt with the exchange of correspondence on the day of settlement up to the 12.36 pm email in which Ms Gao’s solicitors called on Mr Shek to effect settlement by 4.00 pm in accordance with the contract. At approximately 2.00 pm Mr Shek went to inspect the House, an action he claims to have foreshadowed, and he noticed that Mr Finerty was still in occupation. Mr Shek says he was concerned that Mr Finerty was still at the House and did not understand why he would be, given he had been told he would be evicted.
- I note at this point that, although Mr Hsieh had received a copy of the QCAT order, there is no basis to conclude that Mr Shek knew about it. Mr Shek, however, rang his solicitor to raise his concerns, and was told that if Mr Finerty remained in the House after settlement he would be left with the responsibility of having him evicted. Mr Shek was also told that Mr Hsieh, to better advise him, needed to see a copy of the tenancy agreement between Ms Finerty and Ms Gao and it would still be necessary to attend settlement to show that the Buyers were capable of completing settlement. The fact that I refer to this advice does not necessarily mean I am taking it into account in determining any particular issue.
- However, what is objectively clear is that as at approximately 2.00 pm on the day of settlement Mr Hsieh had a copy of the QCAT order and Mr Shek knew that Mr Finerty was still in the House. Mr Shek had been correctly told that if the contract settled with Mr Finerty in the House he would be left with the responsibility of having him evicted, something which would be objectively plain in any case.
- I also find that as at 2.00 pm Mr Hsieh had not been given a copy of the RTA with Bond Brothers, because I was shown no evidence that he had. Nor is there any evidence that Mr Hsieh had been given a copy of the QCAT application. Neither Mr Hsieh, as Mr Shek’s agent, nor Mr Shek himself had a copy of either of those documents. This might have given someone who merely had the eviction order cause for caution as to how to respond, bearing in mind that the QCAT order had ordered eviction of Mr Finerty but Mr Finerty had not seen fit to go. Mr Hsieh’s caution as to Mr Finerty’s status and Mr Shek’s rights was justified in those circumstances.
- We then come to what is relied on seemingly by the plaintiffs as the key document in the election argument. At 2.34 pm Mr Kong for the Buyers sent an email to Mr Ng in which he said: “We refer to this matter and advise to elect settlement to occur at 4:00 pm today.”
- I recall that that occurred in circumstances where Mr Hsieh had a copy of the QCAT decision, but Mr Ng had said he required settlement at 4.00 pm in accordance with the contract. As will be seen, this seems to be relied upon as the act comprising affirmation of the contract, relied on by Ms Gao.
- Twelve minutes later at 2.36 pm Mr Ng responded: “We are agreeable to change the settlement time to 4:00 PM today at our office. Time is to remain of the essence.”
- It is unclear why that is said to be a change in arrangements as Mr Hsieh had agreed with what Mr Ng had earlier proposed. In any event, nothing turns on it.
- At 4.00 pm on settlement day the parties, through their solicitors, and the Buyers’ finance agent attended at settlement to complete settlement of the contract. The Buyers’, through their solicitor, tendered cheques for the Balance Purchase Price under the contract and requested that Ms Gao provide copies of the documents referred to in clause 5.3(1)(e) of the contract, that is, the documents relating to Tenancies. Ms Gao did not provide copies of those documents. Mr Finerty, it is uncontentious, remained in occupation of the House as at 4.00 pm and at all times thereafter on the day of settlement.
- There does not seem to be any material disagreement about what happened at settlement.
- Mr Hsieh says that at about 4.15 pm, he called Mr Shek and told him Ms Gao had not provided the Tenancy documents. At that time Mr Shek told Mr Hsieh to terminate the contract.
- Mr Ng’s version is not materially different. He says that the cheques were presented, Mr Hsieh told him that Mr Shek had inspected the property, there was a discussion about the chance of the settlement falling through. Then, Mr Ng requested the documents relating to the Tenancies. Mr Ng says he told Mr Hsieh that Ms Gao did not have to produce them because there was no Tenancy. He showed Mr Hsieh, again, a copy of the QCAT decision. He recalls Mr Hsieh, as he said in his affidavit, spoke to his clients by phone. Mr Ng, for his part, tried to get a hold of Ms Gao’s husband but it is not clear what happened about that. Mr Hsieh, says Mr Ng, returned from his phone call and left AGC Lawyers’ offices shortly afterwards at about 4.20 pm.
- At 4.53 pm the Buyers’ solicitors sent a letter to Ms Gao’s solicitors purporting to terminate the contract pursuant to clause 9.1. The basis for the termination relied upon was the failure to provide the documents comprising the Tenancy documents in breach of clause 5.3 of the contract.
Events after Settlement Day
- On 28 September 2017, Ms Gao, through her solicitor, wrote to the Buyers’ solicitor stating that the termination was invalid. Ms Gao rejected that there was a breach, because there was no tenancy at settlement date, and therefore no default in failing to tender the Tenancy documents. Ms Gao then resold the House for $1.5 million and settled that contract on 5 March 2018.
No obligation to provide Tenancy documents at settlement
- The first issue which arises in the proceedings is whether the termination by the Buyers was valid on the basis that Ms Gao was in breach of an essential term by not providing the Tenancy documents.
- The first issue to resolve is one I have already dealt with in these reasons. That is, whether the tenancy identified under the heading Tenancies in the Reference Schedule existed at the date of settlement. In my respectful view, it is plain that no such tenancy existed. The QCAT order on 18 September terminated the RTA between “the parties.” The parties to the QCAT proceeding included all those named in the Reference Schedule and Ms Murata.
- As a matter of strict law, it was probably irrelevant to include Mr Bond, Mr Finerty and Ms Murata, as they were not parties to the RTA for the reasons I have identified above at . But if they were, the QCAT order makes absolutely clear that the RTA terminated at midnight on 25 September. Thus, it seems to me that on the proper construction of the agreement, there was no Tenancy as defined in the contract in existence.
- In my view, once the Tenancy ceased to exist the obligation to provide any documents under clause 5.3(1)(e) also ceased to exist. Clause 5.3(1)(e) effectively provides that in exchange for payment of the Balance Purchase Price, the seller must deliver to the buyer at settlement, if there are Tenancies, the seller’s copy of any Tenancy agreements and so on. As I have explained the Tenancy was between Bond Brothers and the owner. That tenancy had ended, and therefore there was no obligation to provide any of the tenancy agreements.
- That would also seem to make sense because, for example, clause 5.3(1)(e)(ii) requires, if there are Tenancies, a notice be provided to each tenant advising of the sale in the form required by law. That would involve, if the Tenancy had been terminated, the seller/landlord acting inconsistently with determination of the Tenancy or the expiry of the Tenancy. Therefore, it does not seem to me that there is any reason why one would torture the provision into requiring notice of Tenancies that are mentioned if they no longer exist.
- That conclusion is reinforced by clause 5.5. This clause relevantly requires the buyer to be given vacant possession except for the Tenancies. Again, that requirement only makes sense in context where the Tenancies remain on foot. If they do not remain on foot, then there is no reason for the buyer to be taking vacant possession subject to them, because anybody in occupation will be a trespasser, as, in my view, was the case with Mr Finerty after the termination of the tenancy on the eve of settlement.
- Mr Stephens sought to persuade me that notwithstanding the Tenancies identified in the Reference Schedule being terminated, on the proper construction of clause 5.5 in the context of the contract as a whole, there was no obligation to give vacant possession. That argument seemed to proceed on the basis of the side note I referred to, which said: “If the property is sold with vacant possession from settlement, insert ‘Nil’. Otherwise complete details from Residential Tenancy Agreement.”
- His proposition was because the word “nil” was not inserted, the property was not sold with vacant possession from settlement. That is, it was sold on the basis that from settlement, the buyer would not get vacant possession. That argument cannot stand, it seems to me, on a fair reading of the contract as a whole. The purpose of clause 5.5 was to give the buyer an entitlement to vacant possession, except for occupation by another pursuant to an identified legal right notified to and accepted by the buyer – that is, the Tenancy relating to the person identified in the contract.
- It would be bizarre if the seller could avoid providing vacant possession in circumstances where the person in possession was a trespasser or the property was covered with rubbish or other items that made it impossible to make use of the House, just because there was a Tenancy identified and accepted under the contract which had in fact been terminated prior to settlement. I reject that argument.
Vacant possession not able to be given at settlement
- Mr Stephens contended, in reliance on Davidson v Bucknell  1 Qd R 563, that Mr Finerty being in possession did not comprise a failure to give vacant possession on the basis that a vendor only fails to give vacant possession if there is some impediment which substantially interferes with enjoyment of the right of possession of a substantial part of the property.
- It is not in dispute that this was a residential dwelling. Mr Finerty and his partner, it seems, were living in it. It seems to me impossible to reach any conclusion other than his presence would substantially interfere with the Buyer’s enjoyment of the right of possession of a substantial part of the House. They would have been bumping into each other in the kitchen.
- Mr Stephens, however, was not putting it in that way; his proposition was that there was no substantial interference because Mr Finerty’s presence was to be temporally fleeting. I do not accept that the evidence makes that out. There was an order for possession, which could be exercised by the police within 14 days. Whether or not the police would carry out that order is speculative. Further, Mr Finerty might have left quickly once his apparent, seemingly optimistic belief that he would be allowed to stay had been corrected; on the other hand, he might not have. On the facts, I cannot accept that the temporal interference with possession would have been fleeting.
- It seems to me that anything more than the most fleeting temporal interference will be sufficient to defeat Mr Stephens’ argument. That is particularly so where the dwelling in question is a residential building in which (subject to any limits under the contract) people expect to be able to live without interference. I reject the argument.
Mr Finerty was not a Tenant holding over
- It was also argued by Mr Stephens that I should find that, because Mr Finerty was described as a tenant under the definitions of Tenants in the Reference Schedule (but despite the termination of the contract), he remained a tenant holding over. Therefore, the seller could give the buyer possession, subject to Mr Finerty’s holding over.
- There are a couple of problems with that argument. Firstly, I can see no basis in law whatsoever for Mr Finerty to be anything other than, in effect, a trespasser. Secondly, if Mr Finerty was a tenant under a Tenancy, at the very least the sellers should have provided a notice advising of the sale in the form required by law under 5.3(1)(e)(ii). The failure to do so is exactly the basis upon which the Buyers terminated the contract.
- For those reasons, therefore, I conclude that while the Buyers were not entitled to demand the documents in relation to the Tenancies under 5.3(1)(e), that was because there was no Tenancy, and therefore, the buyer was entitled to demand and receive vacant possession. I also find that Mr Finerty’s presence meant that the seller was not offering vacant possession.
No election to affirm
- Thus, we come to what is really the substantive issue in the case. The Buyers were entitled to vacant possession. Ms Gao says they elected to settle on the basis that they took the property with Mr Finerty in it. The election is said to have arisen from the sending of an email at 2.34 pm on the day of settlement saying, with a perhaps infelicitous choice of words, that: “The Buyers advise to elect settlement to occur at 4.00 pm today.”
- The argument is quite a simple one, really. Mr Stephens’ argument is that, at the time that email was sent, Mr Shek and his solicitor advised to elect settlement to occur despite their corporate knowledge that:
- (a)Mr Finerty was in the House;
- (b)Mr Finerty was in possession in a way that made retaining vacant possession unlikely; and
- (c)There was no tenancy agreement in place.
- This argument is beguiling, but it does not seem to me to stand up to scrutiny.
- The first question is whether at the time that email was sent, a right to elect had arisen. Contrary to my initial view about this, Mr Hastie persuaded me that certainly at 2.34 pm it had not. As at 2.00 pm, while Mr Finerty was at the House, the time for giving vacant possession had not arisen. On one view of it, settlement could occur at any time up to 5.00 pm which meant that at approximately 2.00 pm (when Mr Shek became aware that Mr Finerty was at the House) there was up to three hours within which vacant possession could have been procured.
- The only way a right to terminate would have arisen at about that time (including 2.34 pm) is if the Buyers could conclude that there was anticipatory breach. Here, anticipatory breach is said to arise not from an evinced intention not to be bound by or to fulfil the terms of the contract but, rather, because of a factual inability to perform. In these circumstances, anticipatory breach has to be approached with some caution by the other party.
- Mr Hastie referred me to Galafassi v Kelly (2014) 87 NSWLR 119 at 133 where Gleeson JA, as his Honour then was, summarised the relevant principle in his usual clear way:
So far as factual inability to perform is concerned, what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether … it is well accepted that factual inability must be proved “in fact and not in supposition”.
- The position as at 2.00 pm (or, indeed, 2.34 pm) was that Mr Finerty was at the House, that Mr Finerty was subject to an order that he not be at the House and there was at least approximately two and a-half hours available to Ms Gao to procure his exit.
- It might seem that it was a bit unlikely that could be done, but there is very little evidence about what was required from Mr Finerty to get out. It would seem to me to be impossible to conclude on the basis of sparse evidence that Ms Gao, as at 2.34 pm, was wholly and finally disabled from providing vacant possession.
- The Buyers had to exercise particular caution. If the Buyers terminated the contract on the judgment that Ms Gao could not provide vacant possession and it turned out to be incorrect, then that termination would have been itself repudiatory conduct. This caution might well be the explanation for the strictness of the test in the sense that someone thinking of terminating for anticipatory breach on the basis of factual inability had better be pretty clear that the inability is proven.
- That has to be also looked at in context of the point that Mr Finerty and his partner could have substantially been removed or left the premises, perhaps not completely but in a way which allowed the Buyers to obtain vacant possession sufficiently in the way articulated in Bucknell.
- In my view, at 2.34 pm, in the circumstances of the evidence before me in this case, there was no repudiatory conduct which would have permitted the Buyers at that point to terminate the contract.
- This has the consequence that the email of 2.34 pm did not amount to affirmation of the contract and no other act was raised and, indeed, nothing else happened until the parties came together at settlement. At settlement one thing became clear and that is that, for whatever reason, the Buyers were terminating the contract. This obviously cannot possibly amount to affirmation despite their reliance on the wrong ground for termination.
- Let us say I am wrong about that. Let us say that a right to terminate or affirm the contract for repudiatory breach arising from factual inability to perform had arisen at 2.34 pm. Did the Buyers’ affirm the contract? I should say that that question also has to be assessed in the context that this was the day of settlement of the contract and that the QCAT order had not long been on Mr Hsieh’s desk.
- Affirmation requires two things. It requires knowledge of the facts giving rise to a right to terminate and unequivocal acts consistent only with the intention to affirm the contract. There is not much difficulty establishing acts amounting to an election where the election is to terminate. When you terminate, you do an act. Affirmation is a little more difficult because of the ambiguity that can arise from someone not doing something.
- The relevant principles in this regard are set out at paragraphs  to  of Mr Hastie’s submission. He notes in particular that in order for an act to constitute affirmation of a contract, it must be consistent only with the continuance of the contract on foot. Mr Hastie goes on to quote Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656:
… words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract.
- Mr Hastie then to refers to Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (1993) 182 CLR 26 in relation to circumstances where there is ambiguity in the conduct said to found the affirmation. The point is well made by Glass JA in Champtaloup v Thomas  2 NSWLR 264 at 269 where his Honour said:
It is always necessary to examine the conduct relied upon as an affirmation in its particular evidentiary setting. The question must then be answered whether the party able to rescind has communicated to the other party an unequivocal election to affirm, ie, to renounce its rights to rescind. The materials upon which the decision is to be made will include any reservations which have also been communicated. The answer to be given is a decision of fact based on all the evidentiary data. There is no overriding principle of law that an act done under the contract will always communicate the decision to affirm regardless of the surrounding circumstances.
- The first thing I would observe is that this email was not an act done under the contract except in the most tangential way in that it involved agreeing to the proposal forcefully put by the defendants that settlement should occur at 4.00 pm on the day of settlement. For a party to call for settlement or to agree to settlement does not necessarily or at all communicate that they will definitely settle the contract. The purpose of a settlement is for each party to perform their mutual obligations identified by the contract at settlement.
- When a party agrees that they will settle, what they mean objectively is that they will attend at settlement for the purposes of performing the obligations called for under the settlement. That is exactly what the Buyers did. They went to settlement with their cheques. There is no suggestion they were not ready, willing and able to settle, and the question was, as it always was, would the seller be able to comply with the obligations called for at settlement under the contract.
- Having recognised that, I find it difficult to infer an unequivocal election to affirm the contract, despite the knowledge that Mr Finerty was at the House and that his tenancy had been terminated, simply because of the email at 2.34 pm. A fortiori when one looks at the overall circumstances. In that regard, I agree with and adopt Mr Hastie’s submissions at paragraphs  to .
- In particular, the email at 2.34 pm that is relied upon occurred in the following context:
- (a)The fact that Mr Finerty was at the House was an emerging issue, starting at 11.07 am, on the day of settlement. In the 11.07 am email, there were numerous concerns raised about what had occurred, and included a reservation of the purchaser’s rights.
- (b)In response to the 11.07 am email, Ms Gao’s solicitors responded at 12.36 pm in a way which did not engage with all of the issues and reiterated that the seller required settlement to occur in accordance with the contract at 4.00 pm. The confirmation email of 2.34 pm, as I have said, did no more than respond to the demand that settlement occur in the way that plainly is to be understood.
- As I have said, the email of 2.34 pm is equally consistent with the proposition that the Buyers would attend that settlement for the purposes of settling in accordance with the contract, and if that could not be done, they would, as they were entitled at all times, not complete the contract. To the extent that it is thought that the email of 2.34 pm communicated an intention to accept Mr Finerty as in occupation of the premises, it seems to me in the overall context of the day, that is not an unequivocal inference or even an obvious inference.
- It may be that Mr Hsieh was mistaken in this (although I note that his caution was justified as to the consequences of the eviction order, which he only received at 12.36 pm) but the attitude taken both before and after the 2.34 pm email was that the Buyers would only settle and only accept Mr Finerty if the Tenancy documents were provided is consistent with the inference that they would only accept Mr Finerty in accordance with the terms of the contract.
- The Buyers’ solicitors were mistaken, on my conclusion above, as to the basis upon which they were entitled to terminate. But both before and after the 2.34pm email, they evinced an intention to require the Tenancy documents, if they were going to accept Mr Finerty. This position is strongly, if not unequivocally, consistent with the Buyers’ being willing to settle the contract with Mr Finerty in occupation if that was consistent with their obligations under the contract. I am simply unable, in the factual context in which all of this occurred, to conclude that the two-line email at 2.34 pm unequivocally communicated an intention to affirm the contract even if Mr Finerty was not entitled to be in possession under the Tenancy or if the Buyers were not required to accept him in possession under the contract.
- Another thing that is missing is any discussion of Mr Finerty’s place in the settlement process. There is nothing at all surprising, in this factual context, about a party confronted with someone being in possession of the property on the day of settlement attending a settlement meeting to see whether settlement could occur in accordance with the contract.
- For that reason also I find that there was no election to affirm the contract and to accept Mr Finerty as tenant or in possession by the sending of the email at 2.34 pm, or indeed any other conduct on that day.
- A couple of other points should be noted. Mr Hastie did not push the proposition that I should infer there was no affirmation because neither Mr Shek nor his solicitor had adverted to the true legal right to terminate under clause 5.5. I think that concession was rightly made in the context of this particular case.
- In Sargent v ASL Developments Ltd, Stephen J addresses at some length the question of whether, for the purposes of an election at law, a party has to know both the facts that give rise to the right to elect and also that the legal right to elect attaches to those facts. His Honour’s analysis, with which McTiernan J agreed, was that where the legal right arises expressly under a contract a party can be taken to have elected, if they know the facts that give right to that legal right, whether they understand or advert to the legal right or not. His Honour left for another day the question of whether, in other circumstances, a party needed to know both the facts giving rise to the right to rescind or terminate as well as the legal right to do so attached to those facts.
- In this case Stephen J’s analysis seems to apply. The right to elect was in the contract and arose on the facts as known to Mr Shek. I expressly do not find that there was no election merely because Mr Shek and his solicitors were not conscious that the true basis was clause 5.5. However, I have already found there was no election to affirm in any event.
- Mr Hastie raised a third argument that, even if there was an affirmation at 2.34 pm, the failure to provide vacant possession before 5.00 pm was a further breach that gave rise to a right to rescind. I am not persuaded by that argument. Although it might be thought to be a continuing breach, there was a single contractual requirement, and that is that vacant possession be given at settlement.
- If there was an election to affirm, the election must have been to settle with Mr Finerty in occupation. Nothing changed between the purported affirmation and when the termination occurred. Therefore, I am unpersuaded by that argument.
- In the event that I am wrong about all of this and the contract was affirmed such that there was no right to terminate and Ms Gao is entitled to a remedy, I should briefly deal with the three matters in dispute about the amount of her damages.
- The first point raised by Mr Hastie was that the deposit should be deducted from the amount which the vendor would otherwise be entitled to receive in damages. Mr Stephens did not cavil with that proposition.
- The second point is the question of the legal costs of the proceedings. Mr Hastie submitted that the costs of these proceedings were not recoverable as damages under clause 9.7. He pointed to Gray v Sirtex Medical Ltd  FCAFC 40 at  and . I accept the proposition that, at general law, legal costs for suing for damages are not included as damages of the breach. However, I disagree with his submission that clause 9.7 should be read in that way.
- Clause 9.7 provides that a seller may claim damages for any loss it suffers as a result of the buyer’s default, including its legal costs on an indemnity basis. First of all, that confers an express entitlement to recover legal costs on an indemnity basis as damages. The inclusion of that express provision in the context of the common law as identified correctly, in my respectful view, by Mr Hastie suggests to me that it was included specifically to exclude the application of that general law principle.
- Further, the clause identifies that damages are available for any loss as a result of the buyer’s default. That gives rise to a requirement to identify a causal link between a buyer’s default and its legal costs of suing to get a remedy as a result of the default. It seems to me that that calls for an analysis of causation.
- The first question is whether the legal costs of these proceedings were the result of the buyer’s default in the sense that, but for the default, would the costs have been incurred? The answer is plainly yes. The only reason the proceedings were brought was because of the buyer’s default. Therefore, but for the default, there would have been no legal case.
- The second question is whether, looking at the purpose and context of the causal phrase in the contract, the kind of loss that resulted but for the default falls within the kind of loss contemplated by the provision creating the causal link. It seems to me that the answer to that is plainly yes.
- The purpose of this provision seems to me to be to ensure that losses which flow to a seller from not having the contract settled, or otherwise performed, are to be recoverable. Legal costs for enforcing obligations or enforcing claims for damages, seem to be plainly within the contemplation of the provision.
- Mr Hastie also cavilled with the inclusion of certain items of repair costs that were undertaken before the contract was terminated. His argument was that such costs could not be properly claimed as damages because, if the contract had been performed according to its tender, they would not have had to have been paid for under the contract. That argument seems to me plainly to be right.
- That leaves the question of the interest. I agree with the propositions in paragraphs  and  of Mr Hastie’s outline:
63. Clause 9.9 of the Contract of Sale provides a contractual entitlement to interest “…on any amount payable under this contract which is not paid by the due date and on any judgement (sic) for money payable under this contract”.
64. The better view is that contractual interest is only payable on those amounts which the Vendor is entitled to recover under cl 9.6(1) of the Contract of Sale, that is, the deficiency on resale and the expenses connected with the resale. The other damages claimed by the Vendor could not be said to constitute “money payable under the contract” and, consequently, they cannot attract contractual interest. I also note that in any event there would have to have been a calculation of interests in accordance with those principles.
- However, my analysis of the disputed amounts claimed by Ms Gao is obiter dicta, because I have decided that:
- (a)The Buyers were entitled to vacant possession under the contract;
- (b)Mr Finerty’s presence meant the Buyers did not obtain vacant possession; and
- (c)The Buyers did not elect to affirm the contract, notwithstanding Mr Shek’s knowledge acquired at approximately 2.00 pm on the day of settlement that Mr Finerty was still there.
- Having heard the parties immediately after delivering these reasons, I have also determined questions of costs. Briefly, Mr Shek relied on three Calderbank offers: one made some two years ago before the filing of the evidence by Mr Shek on his dealings with Mr Finerty, one made last week on 5 September and one last week on 6 September. None of the offers contained any reasoning as to why they should be accepted. The earliest offer had little compromise in the sum proposed and I was not persuaded, given the circumstances of the proceedings at the time, that it was unreasonable for Ms Gao to reject it. The first offer last week has little by way of compromise, but the offer the next day compromised the deposit claim by $10,000 along with offering to bear costs. By that stage both parties should have been well aware of the forensic situation and have all but prepared for trial. To continue with the litigation at that point despite the offer is to take the chance of victory over the certainty of the settlement. It was unreasonable to refuse that offer given the outcome of the trial.
- Finally, I should make this comment. The parties were asked to deal with costs in the unexpected situation of having had reasons and judgment delivered immediately after the end of submissions. In that circumstance, the efficient and co-operative approach of counsel and solicitors to the costs issues is to be commended. It permitted the whole of the proceedings to be finally disposed of immediately and without further costs or delay.
- In the circumstances I make the following orders:
- (a)That the claim filed in file 1130 of 2018 be dismissed;
- (b)A declaration that, on 26 September 2017, the defendants/applicants, validly terminated the contract for the purchase of the House which the defendants/applicants and plaintiff/respondent had executed on 27 June 2017;
- (c)That plaintiff/respondent pay the defendants/applicants the sum of $81,500, along with interest in the amount of $8,740.60; and
- (d)That the plaintiff/respondent pay the defendants/applicants’ costs of both proceedings on a standard basis up to 5.00 pm on 6 September 2019 and thereafter on an indemnity basis.
- Published Case Name:
Gao v Shek & Shiu
- Shortened Case Name:
Gao v Shek
 QDC 179
10 Sep 2019