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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.
24 February 2023
The applicant, Evangelista Pty Ltd (“Evangelista”), owns a property at Ocean Street, Maroochydore. . 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. . 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. . At the time it purchased the property, Evangelista granted such a covenant. .
In 2022, Evangelista entered into a contract to sell the property to Eleven 17 Ocean Street Pty Ltd (“Eleven 17”). . 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. –. 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. . Justice Freeburn considered this to be a positive obligation;  and
b)an agreement that the deed of covenant was to be prepared by Evangelista’s solicitors. –.
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. . A deed of covenant was not provided by the solicitors for Evangelista until 11.14 am on the day of settlement. . Eleven 17 had difficulties in obtaining both its directors’ signatures on the deed of covenant. –.
Consequently, Evangelista wrote to Eleven 17, stating that if Eleven 17 did not settle on that day, it would be in default. . Eleven 17’s solicitors responded, purporting to terminate the contract “as a consequence of the seller’s failure to comply with Special Condition 5”. . 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. .
Justice Freeburn held that draft deed circulated by Evangelista’s solicitors complied with the requirements of the second limb of special condition 5. . Eleven 17 contended, however, that the deed was nevertheless prepared and circulated too late. . 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. . As they only circulated it on the day of settlement, they failed to do so. . Accordingly, it was in breach of the second limb of special condition 5. .
However, Freeburn J did not consider this breach to be a breach of a “time was of the essence” provision of the contract. . 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. –. Further, it did not include any specification as to the time for Evangelista’s solicitors to produce the draft deed. . His Honour therefore concluded that time was of the essence for the first limb of special condition 5, but not the second. .
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. . 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. . 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. . 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. . 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. –.
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. . Accordingly, its purported termination was a wrongful repudiation which was accepted by Evangelista which in turn elected to terminate the contract. . His Honour therefore made the declarations sought by Evangelista. .