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[2023] QSC 30
In this judgment, Freeburn J considered the interpretation of a clause that required the buyer of a property to enter into a deed of covenant with the local Council, in circumstances where the seller did not comply with its obligation to provide a draft deed until the day of settlement.
Freeburn J
24 February 2023
The applicant, Evangelista Pty Ltd (“Evangelista”), owns a property at Ocean Street, Maroochydore. [3]. In 1991, the then-owners of the property entered into a licence with the Sunshine Coast Regional Council (“Council”), which granted reciprocal rights of access to their properties. [6]. Significantly, the licence contained a condition that each party obtain a covenant from any purchaser in favour of the other party that the purchaser would recognise and be bound by the licence, and obtain the same covenant from any subsequent purchaser. [7]. At the time it purchased the property, Evangelista granted such a covenant. [8].
In 2022, Evangelista entered into a contract to sell the property to Eleven 17 Ocean Street Pty Ltd (“Eleven 17”). [9]. The contract contained provisions that time was of the essence and that Evangelista was required to co-operate so that Eleven 17 could receive what it bargained for under the contract. [15]–[16]. Importantly, special condition 5 related to Evangelista’s covenants in respect of the licence, and had two separate limbs:
a)an obligation on Eleven 17 to enter into a deed of covenant with the Council on or before settlement. [37]. Justice Freeburn considered this to be a positive obligation; [37] and
b)an agreement that the deed of covenant was to be prepared by Evangelista’s solicitors. [34]–[35].
After executing the contract, neither party mentioned the requirements of special condition 5 until 6.06 pm on the evening before the contract was due to settle, when it was raised by the solicitors for Eleven 17. [20]. A deed of covenant was not provided by the solicitors for Evangelista until 11.14 am on the day of settlement. [22]. Eleven 17 had difficulties in obtaining both its directors’ signatures on the deed of covenant. [23]–[24].
Consequently, Evangelista wrote to Eleven 17, stating that if Eleven 17 did not settle on that day, it would be in default. [25]. Eleven 17’s solicitors responded, purporting to terminate the contract “as a consequence of the seller’s failure to comply with Special Condition 5”. [26]. After further discussions, Evangelista’s solicitors ultimately wrote to Eleven 17’s solicitors, advising that their client had elected to terminate the contract and declaring that the deposits were forfeited. [32].
Justice Freeburn held that draft deed circulated by Evangelista’s solicitors complied with the requirements of the second limb of special condition 5. [49]. Eleven 17 contended, however, that the deed was nevertheless prepared and circulated too late. [51]. As to this, Freeburn J held that it should be implied that Evangelista’s solicitors were required to circulate the draft deed within a reasonable time. [51]. As they only circulated it on the day of settlement, they failed to do so. [52]. Accordingly, it was in breach of the second limb of special condition 5. [53].
However, Freeburn J did not consider this breach to be a breach of a “time was of the essence” provision of the contract. [56]. Unlike the first limb of special condition 5, his Honour considered that the requirement in the second limb was not essential, but instead was a machinery provision. [61]–[62]. Further, it did not include any specification as to the time for Evangelista’s solicitors to produce the draft deed. [63]. His Honour therefore concluded that time was of the essence for the first limb of special condition 5, but not the second. [64].
Eleven 17 further submitted that it was prevented from complying with its obligations under the first limb of special condition 5 by Evangelista’s failure to comply with its obligations under the second limb. [69]. Justice Freeburn had some difficulties with this argument, and observed that special condition 5 required Eleven 17 to take reasonable steps to enter into the deed with the Council. [76]. Although his Honour accepted that the failure of solicitors to prepare a draft deed could in some circumstances prevent the opposite party from proceeding, this was not established on the evidence here. [77]. Further, his Honour was not satisfied that there was any evidence that Eleven 17 took any steps to comply with its obligations prior to the evening before settlement. [77]. In circumstances where the deed of covenant was simple, with prescribed terms, Freeburn J concluded that Eleven 17 was not prevented from complying with its obligations under special condition 5. [78]–[79].
Justice Freeburn ultimately concluded that at the time it purported to terminate the contract, Eleven 17 was in breach of the contract and did not have a right to terminate it. [80]. Accordingly, its purported termination was a wrongful repudiation which was accepted by Evangelista which in turn elected to terminate the contract. [80]. His Honour therefore made the declarations sought by Evangelista. [81].
M Paterson