Northbound Property Group Pty Ltd v Carosi
[2013] QSC 159
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- Unreported Judgment
- Northbound Property Group Pty Ltd v Carosi[2013] QSC 159
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Northbound Property Group Pty Ltd v Carosi[2013] QSC 159
Northbound Property Group Pty Ltd v Carosi[2013] QSC 159
SUPREME COURT OF QUEENSLAND
CITATION: | Northbound Property Group Pty Ltd ACN 111 393 894 v Peter Carosi and Ors [2013] QSC 159 |
PARTIES: | NORTHBOUND PROPERTY GROUP PTY LTD ACN 111 393 894 |
FILE NO/S: | S178 /2013 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Rockhampton |
DELIVERED ON: | 19 June 2013 |
DELIVERED AT: | Supreme Court Rockhampton |
HEARING DATE: | 14 June 2013 |
JUDGE: | McMeekin J |
ORDER: |
|
CATCHWORDS: | CONTACT – DUE DILIGENCE – RIGHT TO TERMINATION – whether the applicant had advised the respondent of satisfaction as to due diligence – whether the contract was voidable Bellmere Park Pty Ltd v Benson [2007] QSC 11 Donaldson & anor v Bexton & Anor [2007] 1 Qd R 525 Gange v Sullivan (1966) 116 CLR 418 Gold Coast Waterways Authority v Salmead Pty Ltd [1997] 1 Qd R 346 Meehan v Jones (1982) 149 CLR 571 Mika Investments Pty Ltd v FKP Group Superannuation Fund Pty Ltd [2003] QSC 5 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 |
COUNSEL: | G Crow QC for the applicant C Coulsen for the respondents |
SOLICITORS: | Macrossan & Amiet for the applicant Lynch Morgan Lawyers for the respondents |
- The applicant seeks the return of a deposit paid of $150,000 in respect of the purchase of three pieces of vacant land situated at 34 Holland Street, Gladstone. The respondent vendors claim they are entitled to forfeit the deposit under the terms of the Contract.
- The dispute concerns the applicant’s exercise of certain rights in relation to a due diligence clause. The relevant provisions of the special conditions of the contract provided:
2.1This agreement is conditional upon the Buyer conducting investigations and enquiries (the enquiries) about the property and all related matters and being satisfied with the results of the enquiries including and without limitation;
- ….
- Zoning and lawful use of the property;
- ……
(l)Any other matter deemed by the Buyer to be relevant to the purchase.
…
2.4The Buyer will be allowed a period of 100 days from the date of this Contract in which to conduct the enquiries.
2.5If the Buyer is not satisfied with the results of the enquiries then the Buyer may, in its absolute discretion and without being required to give any reasons, deliver written notice to the Seller terminating this Contract at any time on or before 5.00pm on the date being 100 days from the date of this Contract.
In that event this agreement will be at an end, the deposit must be refunded to the Buyer and after that neither party will have any further claim, or action against the other apart from a claim based on a default by one party under the Contract prior to termination.”
2.6This clause has been inserted for the benefit of the Buyer and the Buyer may at any time by notice of writing to the Seller waive the benefit of this clause.
2.7If the Buyer fails to give written notice to the Seller or its solicitors that it is satisfied with the results of the enquiries or the written notice referred to in paragraph 2.5 by the time limitations referred to in that paragraph then the Seller may terminate this Contract and in that event this matter will be at an end and the deposit monies must be refunded to the Buyer and neither party will have any claim after that against the other apart from a claim based on the default by one party under the Contract prior to that termination.”
- It is common ground that the date for due diligence under the contract was extended to 28 September 2012. It is common ground that the extension meant that cl 2.5 should be read as meaning that the applicant could by written notice to the respondents terminate the Contract at any time on or before 5.00pm on 28 September 2012.
- The respondents point out that the clause obliged the applicant to act honestly and to take reasonable steps to satisfy itself: Meehan v Jones (1982) 149 CLR 571; Gold Coast Waterways Authority v Salmead Pty Ltd [1997] 1 Qd R 346. The respondents also point out that the contract was not subject to finance and there was no condition pertaining to development approvals or the obtaining of such approvals.
- The respondents claim that there is no evidence that the applicant in fact carried out any enquiries pursuant to Clause 2.1 of the Contract. I am not sure of the relevant point. The assertion is not quite accurate. In the letter of 14 September 2012 the applicant’s solicitors advised “to date our client has spent significant time and money on Due Diligence….”. This may well be hearsay but given that there has not been, so far as I am aware, any claim of any dishonesty on the part of the applicant I would not anticipate any direct evidence on the matter as it seems to be irrelevant to the issues raised.
- There are essentially three issues:
- Did the applicant advise the respondent that it was satisfied as to due diligence by letter dated 14 September 2012 when the applicant’s solicitors wrote to the respondents’ solicitors in the following terms;
“We refer to the above matter and note that Due Diligence expires on 28 September 2012. In so far as the technical side of Due Diligence is concerned, our client has satisfied itself, however not withstanding, out client’s financier is now not willing to proceed without our client first obtaining a development approval.
As such, our client has instructed us to ask for you to ask for your client’s instructions as to whether or not your client will agree to an amendment being made to the Contract making it subject to the obtaining of development approval….”?
- Did the applicant notify the respondent prior to 5.00pm on 28 September 2012 that it had exercised its right to terminate the Contract pursuant to the due diligence clause in the Contract?
- If “no” to (b) did the applicant have the right to terminate the contract and claim a refund of the deposit after 5.00pm on 28 September 2012?
Subsequent Correspondence
- Following the letter of 14 September 2012 mentioned above there were “some further communications between the solicitors which did not result in an agreement being reached regarding the applicants proposal for further variation of the Contract conditions.”[1] That is the extent of the evidence.
- Then on 28 September 2012 the applicant’s solicitors wrote to the respondents’ solicitors advising:
“We hereby give notice that unless agreement can be reached in relation to the extension and amendment to the existing Contract then, our client cannot proceed further with the transaction with the contract in its current form. As we have previously advised, our client’s Due Diligence has revealed that it is not possible to proceed without the framework of the transaction being restructured in accordance with our client’s financier’s requirements……
As such if an agreement cannot be reached to the satisfaction of our clients financier then or client has no choice but to terminate the contract pursuant to the provisions of Special Conditions 2.5 of the contract and to request the deposit be refunded in full”.
- There then followed a set of nine propositions the first of which was that “Due Diligence which is said to expire today be extended to 22 October 2012” and the letter concluded:
“If the above is not acceptable to your client then would you please regard this letter as notice of termination of the Contract and would you please arrange for the deposit to be refunded to our client”.
- At 4.58pm on the 28 September 2012 the respondents’ solicitors responded to that letter by email in these terms:
“I am instructed that my clients will agree to the conditions in your letter of today 28 September 2012 with the variation of the date for the signing of the Amended Contract be no later than Thursday 4 October 2012 and the non-refundable deposit of $150,000 be released to the Seller on that day Thursday 4 October 2012”.
- By email of 5.04pm on 28 September the applicant’s solicitors responded:
“My clients cannot agree to this being finalised by the 4th and cannot agree to this becoming unconditional in so far as the release of the $150,000 is concerned until the 22 October. Given the time constraints my instructions are to terminate now and try and sort out the terms of a new contract next week. You’ll be receiving a formal letter of termination shortly.”
- A formal letter was then sent, again dated 28 September 2012, which read:
“In the absence of an agreement being reached in relation to the extension of time
For Due Diligence and an agreement in principal in relation to the amendment of the Contract we hereby give notice that our clients elects to terminate this Contract pursuant to Special Condition 2.5 of the Contract of Sale. Would you please arrange for the deposit to be refunded to our client.”
Effect of the correspondence of 14 September 2012
- The respondent submits that the effect of the correspondence of 14 September was to provide express notice that the due diligence condition had been satisfied. The effect then was that both parties were bound to the contract and the applicant was not entitled to terminate and recover its deposit.
- The respondents argue that:
- the words “[i]n so far as the technical side of due diligence is concerned, our client has satisfied itself…” are an express statement of satisfaction;
- the following words “our clients’ financier is now not willing to proceed without our client first obtaining a development approval” and the request that the respondents “agree to an amendment being made to the Contract making it subject to the obtaining of development approval” had nothing to do with the due diligence clause;
- the requirements of the applicant’s financier was not one of the matters that could be the subject of enquiry under the due diligence clause;
- while cl 2.1 (l) spoke of “any other matter deemed by the Buyer to be relevant to the purchase” that must be read in the light of the opening of words of cl 2.1 that is that the “investigations and enquiries” were to be “about the property and all related matters”. The attitude of the applicant’s financier was not one such matter.
- It seems plain that if the applicant had investigated the zoning and lawful use matters and decided that they were not satisfactory to their purposes then they would have been entitled to terminate the Contract. The respondents argue that what seems to have happened here is that the applicant looked at those matters and was satisfied but then found that their financier was not. That gave them no right to terminate.
- In construing the meaning of the terms of a contractual document, and in construing the statements by the parties, the test is what a reasonable person would have understood the words used to mean – the objective theory of contract applies. Of course the surrounding circumstances known to the parties and the purpose and object of the transaction are of significance and must be brought into account: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
- The applicant argues that the words used, in context, conveyed the meaning that it was not satisfied as to its enquiries – effectively that if the financier was not satisfied they could not be satisfied.
- The arguments of the respondents are not without force. As I remarked in the course of argument the words used in the letter, written by an experienced solicitor, are remarkably inapt in seeking to convey the meaning that the applicant was not satisfied with its due diligence enquiries, if that was the meaning intended to be conveyed.
- Against the applicant’s position too is the fact that there is no statement in the letter to the effect that if the respondents were not prepared to agree to the amendments that the applicant proposed to the contract then the contract was terminated pursuant to cl 2.5. That is there was no express reservation of the right given by cl 2.5 which would have made the meaning of the disputed sentence much clearer.
- However it seems to me that taken in context the words are ambiguous, at best for the respondent, and that ambiguity should be resolved in favour of the party to whom the contract has given the right to decide to affirm or terminate.
- First, I note that the crucial sentence which is in issue was preceded by the sentence which reads “[w]e refer to the above matter and note that Due Diligence expires on 28 September 2012”. It seems to me that there was little point to making that reference if the intention of the immediately following sentence was to say we are now satisfied under that clause. Taken in context the implication is that the solicitors were noting that their client had 14 more days before the due diligence period expired.
- Secondly, the balance of the letter only makes sense if it be assumed that the applicant was not satisfied as to its enquiries. There was no point to the applicant saying “yes this contract is now unconditional and is proceeding but we would like to renegotiate fundamental terms”. I am confident that the respondents did not read the letter as an affirmation of satisfaction.
- While the subjective understanding of the parties is not the test it seems from the subsequent correspondence that both parties proceeded on the basis that the applicant intended by its letter to preserve its rights under cl 2.5. It would appear that a claim to the contrary was not made by the respondents until some time after 28 September 2012 and perhaps well after.[2]
- Finally, it is well accepted that unequivocal words or conduct are required to bind a party to a contract to an election where he or she is faced with two alternative but inconsistent legal rights (in this case to decide to terminate the contract or to elect to affirm it) and where the other party is in breach: Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 646 per Stephen J. Absent that degree of certainty the party with the decision will not be bound.
- I appreciate that the situation here is distinct from the situation in Sargent. The respondents were not a defaulting party. But where there is ambiguity in the words used it seems to me there is more justice in construing the ambiguity in favour of the party given that right under the Contract.
- To the contention that the respondents were left up in the air about their position under the contract the answer with respect was clear. If the respondents were in doubt as to the meaning and effect of the letter of 14 September 2012 it is a doubt that could easily have been removed by enquiry. The context of the correspondence on that date and subsequent dates was plainly that the applicant was considering whether the contract would proceed whereas, on the respondents’ interpretation of events, they had no choice about that matter, unless of course they gave up their very substantial deposit.
- Hence I conclude that the applicant did not by its letter of 14 September 2012 advise that it was satisfied as to its enquiries under the due diligence clause and it remained open to the applicant to terminate the contract if it remained unsatisfied as to its due diligence enquiries up to 5.00pm on 28 September 2012.
Effect of the Correspondence of 28 September 2012
- The parties are agreed, assuming there had been no expression of satisfaction of the enquiries under the Due Diligence clause, that the applicant had until 5.00pm on 28 September 2012 to terminate the Contract under the Special Conditions.
- The parties are further agreed that prior to 5pm on that date the applicant’s solicitors wrote a letter in which they advised that if the respondents were not prepared to agree to the applicant’s proposals “then our client has no choice but to terminate the contract pursuant to the provisions of Special Condition 2.5 of the Contract and to request the deposit be refunded in full” and, after setting out their proposals stated “if the above is not acceptable to your client then would you please regard this letter as notice of termination of the contract and would you please arrange for the deposit to be refunded to our client”.
- The respondents advised prior to 5.00pm that those conditions that had been proposed were not acceptable to them. In my view the plain effect of the applicant’s solicitor’s first letter of 28 September was that the contract came to an end upon that advice of non-acceptance of the proposal.
- It is true that the applicant’s solicitors seemed to be oblivious of the significance of the 5 o’clock deadline and it is true that they then spoke in terms of a subsequent determination as the respondents contend. But that cannot undo the effect of what had gone before.
Voidable?
- If I am not right in that analysis there remains the issue of whether, despite the passing of the 5 o’clock deadline, the contract was voidable at the option of either party.
- The applicant argues that that is the effect of the decisions of the High Court in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441, and Gange v Sullivan (1966) 116 CLR 418 at 422. It refers to Donaldson & anor v Bexton & Anor [2007] 1 Qd R 525 as demonstrating the applicability of the principles espoused in those cases to a situation akin to that here.
- The respondents argue that the Contract properly construed does not give to the applicant the option once the 5 o’clock deadline passed.
- In my view the applicant’s submissions are correct, subject to there being no countervailing provisions in the Contract.
- There are four things to observe about the terms of the Contract. The first is that the settlement date was fixed as 30 days “after the Buyer gives notice of having conducted satisfactory Due Diligence enquiries” (cl 4.1).
- Secondly, there is no statement in the Special Conditions that upon the lapsing of the 100 day period provided for in cl 2.4, in which the applicant was allowed to make enquiries under cl 2.1, that the applicant was deemed to be satisfied with its enquiries. Thus absent a statement by the applicant that it was satisfied with its due diligence enquiries there could not be a settlement date.
- Thirdly, by cl 2.7 the parties provided for the position of the Seller upon the Buyer failing to give written notice within the 100 day period allowed for the making of its enquiries. It said nothing about the position of the Buyer. The effect of cl 2.7 was to give to the Seller the option of crystallising its position under the contract by terminating it but on the condition that it then refund the deposit monies.
- Fourthly, under cl 2.6 the Buyer was given the right to waive the benefit of the clause “at any time”. The applicant points out that the clause does not read “at any time until the lapsing of the 100 day period” or some similar words.
- The applicant argues, and I think accurately, that the contract contemplated that while it gave to the seller the ability to bring the contract to an end at the end of the period identified in cl 2.4, so that it had the same right as the buyer, there was no term of the contract that altered the general law that would apply to the position where the buyer failed to give the written notice within the 100 days.
- The position under the general law is that the contract is voidable at the option of either party provided it was not in default where the period for fulfilment of a condition has passed: Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153.
- In Mika Investments Pty Ltd v FKP Group Superannuation Fund Pty Ltd [2003] QSC 5 Muir J dealt with a contract containing the following Special Condition:
“This Contract is subject to and conditional upon the Purchaser being satisfied with Due Diligence investigations with relevant authorities within 14 days from the date hereof. Should the purchaser not be satisfied with the Due Diligence investigations then this contract will be at an end and all deposit monies will be refunded to the purchaser”.
- The clause there was different in some respects to the clause here in that it was expressed to take effect automatically at the end of the prescribed period by reference to the purchaser’s state of mind and there was no provision for the giving of notice. However as His Honour pointed out:
“The authorities suggest, however, that such a condition does not result in the contract coming to an end at the expiration of the prescribed period. Rather, each party, if not in breach, has a right of termination unless the purchaser has waived the benefit of the relevant clause.”[3]
- Similarly in Donaldson v Bexton (supra) the vendors had agreed to sell to the purchasers vacant land subject to a special condition that the contract was dependent upon the purchaser entering into a binding and enforceable contract, on terms satisfactory to them, for the sale of other property owned by them within 30 days from the date of contract. The condition provided that failing that event occurring then the contract would be at an end. The date passed without the purchaser having entered into such a contract for the sale of its other land. Time was of the essence. The court considered the position of the parties in the period where fulfilment of the condition had passed. The court held (Jerrard and Keane JJA, Phillip McMurdo J (dissenting)) that not withstanding the words used by the parties the authorities have established that in such a circumstance the contract is voidable at the option of either party provided it is not in default.
- White JA came to the same view in Bellmere Park Pty Ltd v Benson [2007] QSC 11. That case concerned a special condition in the following terms:
“A due diligence period of 120 days from the date of contract to enable us to investigate with the State Government and the Caboolture Shire Council to ascertain the liability of the proposed use of the site. Contract to become unconditional at the end of due diligence of 120 days”.
- Within the designated period the purchaser’s solicitors wrote advising that their client was satisfied in respect of its due diligence investigations and that the contract had become unconditional. Thus White JA’s comments on the position of the parties at the end of the due diligence period was obiter. Nonetheless her Honour considered the position and her remarks are consistent with the view I have come to:
“At the end of the 120 days, provided the purchaser had not waived the benefit of the Special Conditions within that period and had not notified satisfaction, the Contract was voidable at the option of either party provided that that party was not relevantly in default”.[4]
- Hence the position here was that at 5 o’clock on 28 September if it be assumed that the applicant had not notified that it was not satisfied with its enquiries under the due diligence clause the contract then became voidable at the option of either party. The applicant exercised its right to terminate the Contract in its response to the email at 5.04pm.
- I do not regard Clause 2.7 of the Special Conditions as evincing any contrary intent.
Conclusion
- I make the following declarations and orders:
a)A declaration that the applicant validly terminated the contract dated 10 May 2012 for the purchase of 34 Holland Street, Gladstone in the State of Queensland on 28 September 2012;
b)A declaration that the applicant became entitled to be repaid the deposit paid under the said contract on 28 September 2012;
c)An order that the respondents pay to the applicant the said deposit together with all interest earned on the deposit within 7 days hereof.
- The applicant should have its costs.