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[2024] QSC 96
A buyer’s nominee sought the return of a deposit upon purporting to terminate a contract of sale for land. The contract of sale was a standard form contract approved by the Queensland Law Society (“QLS”) and Real Estate Institute of Queensland (“REIQ”) for the sale of commercial land and buildings, supplemented by a number of special conditions. The contract of sale had been formed pursuant to the terms of a Put and Call Option Deed negotiated between the buyer and the sellers, with the buyer’s nominee becoming the “buyer” for the purpose of the contract of sale. Among the many issues considered in this case, was the proper construction of standard-form clauses relating to the right of termination and the return of the deposit where there was a proposal to locate transport infrastructure on the land the subject of a contract of sale. Justice Applegarth held that the buyer’s nominee lawfully terminated the contract of sale and was entitled to the return of the deposit. Declaratory and other relief was granted accordingly.
Applegarth J
21 May 2024
Background
The defendants (the “sellers”) own a potential development site (the “land”). [1]. The sellers negotiated a “Put and Call Option Deed” with a buyer (the “Put and Call Option Deed”). [1]. The Put and Call Option Deed provided that if, after a specified period, the buyer gave notice that a due diligence condition had either been satisfied or waived, then a period of 12 months started when the buyer was entitled to exercise a call option. [2]. An initial security deposit of $2,000 was payable by the buyer to the sellers prior to execution of the Put and Call Option Deed and a further security deposit of $273,000 was payable by the buyer to the sellers on the date the buyer notified the sellers of the satisfaction or waiver of the due diligence condition. [3]. The total security deposit paid by the buyer to the sellers pursuant to the Put and Call Option Deed was $275,000. [4].
If the buyer exercised its call option, then a standard-form contract of sale for commercial land and buildings as approved by the QLS and REIQ (and annexed as a schedule to the Put and Call Option Deed) was deemed to be formed, take effect between the sellers and the buyer or the buyer’s nominee and the total security deposit of $275,000 was deemed to be the deposit under the contract of sale (the “deposit”). [4], [45]. The buyer exercised its call option and nominated another entity, the plaintiff, as the buyer (the “buyer’s nominee”). [6]. Relevantly, if, at the contract date, there was a proposal to locate transport infrastructure on the land which had not been disclosed in the contract of sale, the buyer’s nominee was entitled to terminate on or before settlement. [5].
The buyer, the buyer’s nominee and the sellers exchanged correspondence in relation to a transport infrastructure project which had not been disclosed in the contract of sale: see [6]–[10]. Relevantly, the buyer advised the sellers that, as a result of the transport infrastructure project, the contract of sale, once formed, could be terminated under cl 21.1(b) and the deposit would become refundable to the buyer’s nominee pursuant to cl 3.5. [6]. The buyer exercised its call option. [10]. The buyer’s nominee then wrote to the sellers stating that the contract of sale would be terminated with effect on a specified date unless a variation was negotiated. [10]. A variation could not be negotiated and the buyer’s nominee caused caveats to be lodged over the land. [11]–[12]. The clauses in the contract of sale of most significance to the dispute were cll 3.5 and 21.1(b) which provide as follows:
“3.DEPOSIT
3.5If this Contract is terminated pursuant to the provisions of [clause] … 20.1 … the Deposit and other moneys paid under this Contract shall be refunded to the Buyer[‘s Nominee] by the Seller[s] or the Deposit Holder as the case may be but without interest, costs or damages and the same shall be accepted by the Buyer[‘s nominee] in full and final satisfaction of all claims.” [48].
“21. PROPERTY ADVERSELY AFFECTED
21.1 If at the Contract Date:
(a)…
(b)the Land is affected by a proposal of any competent authority to alter the dimensions of any Transport Infrastructure or locate Transport Infrastructure on the Land …”. [49].
Whether the deposit should be refunded on a proper construction of cll 3.5 and 21.1(b)
Justice Applegarth summarised the principles governing contractual interpretation: see [54]–[57]. Whilst the sellers pointed to a special condition to suggest that the relevant parties had agreed that the deposit would become refundable only “as a result of the [s]eller’s breach”, this was not supported by the text of the contract of sale which expressly provided for a refund of the deposit if the contract was terminated pursuant to cl 21.1. [74]; cf [64]–[72]. The sellers argued that this construction of the text was inconsistent with the commercial purpose of the transaction as recorded in the Put and Call Option Deed and the contract of sale: see [78]–[89]. This argument was rejected. [90]. Justice Applegarth held that if the buyer’s nominee was entitled to terminate pursuant to the contract of sale for non-disclosure of the transport infrastructure project, the deposit was refundable. [90].
Whether the buyer’s nominee made an election between inconsistent rights
The sellers raised defences of election and waiver: see [99]–[141]. One of the arguments relied on by the sellers was that by entering into the contract of sale knowing of the transport infrastructure project, the buyer’s nominee made an election between inconsistent rights and could not exercise the right to terminate under cl 21.1. [109]–[113], [119]. Justice Applegarth rejected this argument. [119]–[123]. Until the contract of sale had been formed, the buyer’s nominee had no rights under the contract of sale. [119]. The fact that the buyer’s nominee knew about the transport infrastructure project was of no moment. [121]. There was no election between inconsistent rights in circumstances where the rights under the contract of sale only came into existence after this fact. [121]. The fact that the buyer’s nominee took steps to progress a development application and lodge caveats did not assist the case for the sellers. [124]–[128]. It was held that the sellers had not made out the defence of election. [132].
Whether the buyer’s nominee waived its right to terminate the contract of sale
Justice Applegarth summarised the principles in relation to the doctrine of waiver which applies where there is a clear and unequivocal “intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right”: see [133]–[135]. Although a waiver differs from an election, the circumstances which supported the conclusion that there had been no election between inconsistent rights led his Honour to the similar conclusion that there was no “clear and unequivocal act … by which [the buyer’s nominee] unilaterally renounced, released, or abandoned its right to terminate”. [136]. When the contract of sale had been formed, the buyer’s nominee had made clear that the right to terminate pursuant to cl 21.1 was reserved. [137]. The buyer’s nominee progressing the development application and lodging caveats did not assist the case for the sellers. [137]. It was held that the sellers had not made out the defence of waiver. [140].
Whether the equitable lien in favour of the buyer’s nominee extended to interest and costs
Justice Applegarth carefully considered the authorities concerning the lien recognised in equity to the extent of any deposit paid by a purchaser of land: see [144]–[158]. Whilst there was no doubt that the buyer’s nominee held an equitable lien to the extent of the deposit, what was in dispute was the argument advanced by the buyer’s nominee that the equitable lien extended to interest and costs. [142]–[143]. This argument was rejected: see [159]–[167]. The contract of sale expressly provided that if the buyer’s nominee was entitled to a refund of the deposit, it must be refunded “but without interest, costs or damages”. [163]. Though it was observed that the position could be different in the absence of such an express stipulation, for example, a mortgage typically secures costs including the costs of proceedings to recover a security. [165]. It was held that the equitable lien in favour of the buyer’s nominee only extended to the amount of the deposit. [167].
Disposition
In the result, declaratory and other relief was granted accordingly. [168]–[170].
D Kerr