Eleven 17 Ocean Street Pty Ltd v Evangelista Pty Ltd; Eleven 17 Ocean Street Pty Ltd v TWM (QLD) Pty Ltd

This case concerned the sale of commercial property. The buyer purported to terminate on the day of settlement, on the alleged basis that a special condition – requiring the execution of a Deed of Covenant, concerning access rights – had not been complied with, because it had not been executed by a Council (which owned adjoining land). The primary judge found that this termination had been invalid. The Court of Appeal unanimously rejected an appeal by the buyer. The Court’s conclusion was informed by the fact that execution by Council was not necessary for the benefit of the access rights to be available to the buyer, because they were covenants which ran with the land.

Mullins P, Bond and Boddice JJA

25 August 2023

Background

The appellant, Eleven 17 Ocean Street Pty Ltd (“the buyer”) entered into two contracts to purchase commercial property in Maroochydore. [9]. The contracts were interdependent, such that a valid termination of one would be a valid termination of the other. [11]. Accordingly, the court focused only on the facts arising in relation to one of the contracts. [11].

On the day of settlement, the buyer failed to settle and instead purported to terminate the contract. [2]. At first instance the sellers were successful in obtaining declarations that the buyer’s termination was invalid, and that the deposits were forfeited to the sellers. [5]–[6].

In this judgment, the Court of Appeal considered an appeal by the buyer, which argued that it had been entitled to terminate on the day of settlement. [39]. The Court unanimously rejected the appeal, with reasons given by Bond JA (with whom Mullins P and Boddice JA agreed). [1], [66].

The apparent reason for termination

The contracts contained a special condition which required that, on or before settlement, the buyer was to enter into a “Deed of Covenant with the [Sunshine Coast Regional] Council” in the terms of a Licence Deed from 1991, which granted certain mutual rights of access to the owner of the subject property and the Council, which owned adjoining land. [20], [25]. The special condition provided that the Deed of Covenant was to be “prepared by the Seller’s Solicitors”. [25].

On the day before settlement, the buyer’s solicitor sent an email to the seller’s solicitor noting that the Deed of Covenant had not been provided. The buyer’s solicitor alleged that this Deed was of “fundamental importance and is the only way to secure my client’s access to the property through and over the council’s land” (“the misapprehension”). [27]. The following morning the seller’s solicitor provided a draft Deed of Covenant, which was subsequently executed by the buyer. [29], [31].

However, the buyer’s solicitor insisted that the buyer required the “security of having a finalised arrangement with the Sunshine Coast Regional Council in place prior to settlement”, and that it was the seller’s obligation to arrange execution by the Council. [31]. This was not able to be achieved on the day of settlement. Consequently, at 4.37 pm on the day of settlement, the buyer purported to give notice that it had terminated the contract of sale “as a consequence of the seller’s failure to comply with” the special condition. [34].

The Licence Deed covenants and the purpose of the special condition

Bond JA noted that the buyer’s solicitor had seemingly had a misapprehension about the operation of the law in relation to the ability of a successor in title to enforce access rights under the 1991 Licence Deed, and accordingly about the evident purpose of the special condition. [28].

His Honour noted that the access rights were intended to benefit the owners of the relevant land and not just the owners at the time of the Licence Deed. [28]. That intention was reinforced by s 53(1) of the Property Law Act 1974, which provides:

“A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and the covenantee’s successors in title and the persons deriving title under the covenantee or the covenantee’s successors in title, and shall have effect as if such successors and other persons were expressed.”

Further, the common law recognises that the benefit of such covenants, which touch and concern the land, run with the land and may be enforced against the original covenantors by a successor in title to the estate of the original covenantee (citing Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154). [28]. However, while the benefit of such covenants would run with the land (i.e. the buyer would have access over Council’s land), the burden would not (i.e. the Council being able to access the buyer’s land, after settlement). [28].

Viewed against that background, the purpose of the special condition was to ensure the burden of the covenants under the Licence Deed would also bind the buyer. In other words, the special condition conferred no benefit on the buyer; to the contrary, it would only subject the buyer to the burden of the covenants in the Licence Deed. [28].

His Honour noted that parties generally become bound by a deed when they execute and deliver it. [33]. Given the evident purpose of the special condition discussed above, the better construction of it was that the buyer would be regarded as having discharged its obligation to “enter into a Deed of Covenant with [the Council]” when the buyer had done that which was necessary to become immediately bound by the covenants contained in the deed. [33]. Here, the buyer’s conduct amounted to execution and unconditional delivery of the deed. [33].

In light of the above, it was not necessary for the Council to execute the Deed of Covenant in order for both the benefit and burden of the access rights (covenants) under the Licence Deed to be binding on both the buyer and Council. [33].

Even if the special condition did require execution by Council (which was not the better view), the seller could waive its right to insist on strict compliance with that obligation on or before settlement – which it had done in the circumstances. [33].

The appeal grounds

In light of the above, the two key appeal grounds can be addressed very briefly:

• First, the buyer contended that it was entitled to terminate because the seller had not prepared a deed which contained positive covenants by the Council, in alleged breach of the special condition. [41]. Bond JA considered that the special condition did not, on its proper construction, require this. In particular, this was informed by the considerations outlined earlier, which informed the purpose of the special condition – namely, that the benefit of the access covenants by Council would have passed to the buyer by operation of law, and so it was not necessary to have a Deed of Covenant which contained positive covenants by the Council. [46].
• Second, the buyer contended that it was entitled to terminate because the seller had not prepared the Deed of Covenant within a reasonable time. [48]. Bond JA rejected this argument, noting that the special condition did not specify any time within which the Deed was required to be prepared. [53]. The buyer could easily have drafted and entered into an appropriate deed if it was concerned by any delay. [53]. As noted earlier, the buyer in fact executed the Deed on the day of settlement, and this was sufficient for the purposes of the special condition. If execution by council had been required, the seller had waived this requirement and accepted that the buyer had adequately performed its obligations. [56].

Two other grounds of appeal were also dismissed for similar reasons. [59]–[63]. Accordingly, the appeal was dismissed. [64].

W Isdale of Counsel