Perri v Coolangatta Investments Pty Ltd

149 CLR 537
41 ALR 441

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(Judgment by: MASON J)

Between: PERRI
And: COOLANGATTA INVESTMENTS PTY LTD

Court:

Judges: Gibbs C.J.
Stephen J.

Mason J.Wilson J.
Brennan J.

Subject References:
Contract

Judgment date: 11 May 1982

Canberra

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Judgment by:
MASON J

By a contract dated 7 April 1978 the respondent agreed to sell and the appellants agreed to buy certain land at Cronulla near Sydney for the sum of $220,000 payable as to $22,000 by way of deposit on the signing of the contract and as to the balance on completion. The contract was in the Law Society and Real Estate Institute form (1972 copyright) with special conditions. It did not fix a time for completion. Special condition 6 provided:

"This Contract is entered into subject to Purchasers completing a sale of their property No. 9 Korokan Road, Lilli Pilli."

On 8 May 1978 the respondent's solicitors, who had furnished particulars of title on 10 April, informed the appellants' solicitors that the respondent was concerned at the delay because it wished to purchase another property. The appellants' solicitors replied stating that every endeavour was being made to sell the property at Lilli Pilli. On 15 May the respondent's solicitors spoke of terminating the contract and on 8 June they threatened to give a notice to complete, repeating their threat on 23 June. On 30 June a notice to complete was given. It has been treated as being ineffective.

On 17 July, following further correspondence and conversations between the solicitors, the respondent served a notice to complete the contract on 8 August 1978. On 10 August it purported to terminate the contract, relying on non-compliance with the notice. On 29 September the respondent commenced proceedings in the Supreme Court for a declaration that the contract had been effectively terminated on or about 10 August, a declaration that the deposit had been forfeited and an order for removal of a caveat that had been lodged on behalf of the appellants.

In February 1979 the appellants indicated that they were willing to complete the sale. Their change of attitude was due to the willingness of their bank to provide finance. Although at that time they had not succeeded in selling the house at Lilli Pilli, they indicated their willingness to waive special condition 6. The respondent continued to insist that it had validly terminated the contract. As it happened, the property at Lilli Pilli was subsequently sold, completion of the sale taking place on 13 June 1979. Before that sale was completed, on 21 March 1980, the appellants cross-claimed for specific performance of their contract with the respondent in the Supreme Court proceedings.

From the evidence given in the proceedings it appears that the house at Lilli Pilli was placed on the market in March 1978. The male appellant sought the advice of a number of agents who told him that the price which he wanted, $189,000, was the very top of the market. Nevertheless the property was advertised for sale in April and May 1978 for $189,000. On 24 May the male appellant advertised the property at $179,000. Later in July and August he reduced the price to $169,000. This continued to be the advertised price until January 1979. No offers to purchase were received and few people fully inspected the property. Later in 1978 a formal evaluation was obtained and the house was then advertised and later sold at $155,000.

At first instance Needham J. found that the male appellant was not a reliable witness. He further found that it was the male appellant who fixed the price and altered it from time to time. His Honour concluded that he did not act reasonably at all times and that it was unreasonable on his part not to reduce the price earlier than he had when no offers and few inspections arose, particularly when the respondent had expressed anxiety about lack of progress as early as May 1978. His Honour found that a reasonable time had expired by September 1978, that a notice to complete was unnecessary and that all the respondent needed to do after a reasonable time had expired was to avoid the contract. His Honour made a declaration that at the time of the commencement of the proceedings the contract was terminated and by consent ordered the return of the deposit to the appellants.

An appeal to the Court of Appeal was dismissed. Glass J.A. (with whom Reynolds J.A. agreed) held that equity follows the law in giving effect to a time stipulation in a non-promissory condition (Aberfoyle Plantations Ltd. v. Cheng (1960) AC 115, at p 126 ) and that the respondent was entitled to treat the contract as at an end upon the expiration of a reasonable time from the making of the contract, special condition 6 not having been fulfilled within that time. Mahoney J.A. though that the special condition was a condition in the classic sense, non-fulfilment giving rise to an option to terminate. His Honour concluded that, even if the respondent did not have an option to terminate for non-fulfilment of the condition, it was entitled to succeed because the appellants failed to complete within a reasonable time.

The appellants' case is directed at the Privy Council decision in Aberfoyle. The appellants invite us not to follow Aberfoyle or to distinguish it. Accordingly, it is convenient to begin by ascertaining what the case decided. By a conditional agreement made on 8 November 1955 the appellant agreed to sell a rubber estate of 1,336 acres. At the time the appellant had a good title to 1,154 acres only and it was negotiating to renew its leases to the remaining 182 acres, the seven leases to that area having previously expired. Clause 4 of the agreement provided:

"The purchase is conditional on the vendor obtaining . . . a renewal of the seven (7) leases . . . so as to be in a position to transfer the same to the purchaser and if . . . the vendor is unable to fulfil this condition this agreement shall become null and void and the vendor shall refund to the purchaser the . . . deposits already made. . . ."

The agreement stipulated that completion was to take place on or before 30 April 1956, a date which was subsequently extended by the purchaser to 31 May 1956. The condition was not fulfilled by 11 June 1956 when the purchaser brought an action claiming the return of the deposits paid. The Judicial Committee held that the condition in cl. 4 had to be performed at latest by 30 April 1956 or by the extended time granted by the purchaser and, accordingly, the respondent was entitled to the return of his deposits. Until the condition was fulfilled there was no contract of sale to be completed, and by fixing a date for completion the parties impliedly agreed that the contract must have become absolute through performance of the condition by that date at the latest.

Lord Jenkins stated the relevant principles (1960) AC, at pp 124-125 :

"(i)

Where a conditional contract of sale fixes a date for the completion of the sale, then the condition must be fulfilled by that date;

(ii)

where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time;

(iii)

where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles."

Lord Jenkins (1960) AC, at p 126 went on to say ". . . that the reason for taking the date fixed for completion by a conditional contract of sale as the date by which the condition is to be fulfilled . . . " is ". . . that until the condition is fulfilled there is no contract of sale to be completed, and accordingly, that by fixing a date for completion the parties must by implication be regarded as having agreed that the contract must have become absolute through performance of the condition by that date at latest." According to his Lordship the same result ensued when the contract fixed a date for performance on the part of the purchaser of his part of the bargain by payment of the purchase money.

One question provoked by Lord Jenkins' choice of language is whether he was referring to a condition precedent to the formation of a contract or a condition precedent to the formation of a contract or a condition precedent to the duty to perform obligations imposed by a contract. The passage which I have just quoted perhaps suggests that he was thinking of a conditional contract in the sense that there was a condition precedent to completion. So does the passage where his Lordship, discussing the respondent's argument, noted that it stressed that the vendor's obligation to sell and the purchaser's obligation to buy were expressed to be subject to the condition (1960) AC, at p 128 . However, he then stated that it "was a condition precedent on the fulfilment of which the formation of a binding contract of sale between the parties was made to depend". And, when discussing the consequences of the appellant's argument, he said (1960) AC, at p 130 :

"The purchaser would have been obliged to perform his part of the bargain on or before April 30, 1956, by paying the balance of the purchase-money before there was any binding contract, and with no assurance that a binding contract would ever emerge."

He concluded the discussion by stating:

"It is unnecessary to enlarge on the confusion which would thus have resulted in the event of the agreement ultimately being avoided for non-fulfilment of the condition."

The same tendency to hover between two different concepts is evident in the judgment of Maugham J. in In re Sandwell Park Colliery Co.; Field v. The Company (1929) 1 Ch 277 , a decision on which Lord Jenkins relied heavily. Maugham J. spoke of the condition there as one "upon which the validity of the contract as one sale depends" (1929) 1 Ch, at p 282 , saying "the very existence of the mutual obligations is dependent on the performance of the condition", and later described it as "a condition precedent to the validity of a contract for sale of land" (1929) 1 Ch, at p 283 .

In this situation the area in which Aberfoyle stands as an authority should be closely circumscribed. I am not disposed to regard it as having authority beyond its own facts or as expressing any general principle applying to conditions other than non-promissory conditions which are precedent to the formation of a contract. It has been pointed out that judges have displayed much ingenuity in distinguishing Aberfoyle.

The decision of this Court in Maynard v. Goode (1926) 37 CLR 529 and that of the Court of Appeal in Property and Bloodstock Ltd. v. Emerton (1968) Ch 94 are illustrations of a different approach. In Maynard it was held that the term "providing that the transfer of purchaser's block goes through in reasonable time" in a contract for the sale of a block of land was a condition subsequent, not a condition precedent. In Property and Bloodstock the contract contained a condition which made the sale subject to the vendor obtaining the consent of the landlord to the assignment of the lease to the purchaser, the residue of the lease being the subject of the sale. The Court decided that the landlord's consent to the assignment of the lease was no more than a mere matter of title, the contract being an unconditional contract of sale. Danckwerts L.J. expressed doubt as to the correctness of the Privy Council's characterization of the condition in Aberfoyle (1968) Ch, at p 116 .

This divergence in approach calls for some discussion of the nature of conditions generally and of the characteristics of special condition 6 in particular. There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.

Conditions precedent within the first category may produce different consequences. In most cases, but perhaps not in all, a party may be able to withdraw from the transaction before fulfilment of the condition. But in each class of case, the transaction creates no enforceable rights in respect of the subject matter of the transaction unless the condition is fulfilled because , until the occurrence of that event, there can be no binding contract. There is also a problem in classifying a transaction which imposes an obligation on a party not to do anything which will prevent fulfilment of the condition. Even if it is to be placed in the first category, that consisting of conditional contracts - and I have some difficulty in placing it there - it yields no enforceable rights with respect to the subject matter of the transaction unless and until the contract is fulfilled, though the obligation not to prevent fulfilment of the condition will be enforceable in the event of its breach.

Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.

In the present case it is the language of special condition 6 alone which supports this result. By relating the condition to entry into the contract the clause seems to suggest that the formation or existence of the contract itself is dependent upon completion of the sale of the Lilli Pilli property. But the condition is capable of being read as a provision which conditions the performance of the obligations of one or both parties on fulfilment of the condition and the tradition in this Court is to so construe provisions of this kind - see Maynard (1926) 37 CLR 529 ; Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 , at p 443 ; Brien v. Dwyer (1978) 141 CLR 378 , at pp 393, 397-398 . Moreover, it is clear enough that the condition was inserted for the protection of the purchasers, to guard against the possibility that they would lack adequate finance. It was certainly not inserted for the protection of the vendor. Consequently, it is a condition which may possibly be capable of waiver by the purchasers, though this is not a point which needs to be decided.

In the Court of Appeal, Mahoney J.A. thought that special condition 6 was not devoid of a promissory element. It relates to an event the occurrence of which, though not probably in the control of the purchasers, is closely affected by their actions and efforts. It would be absurd to suggest that the parties contemplated that the purchasers could refrain from making any effort to sell. That would be to give the purchasers what in substance amounted to an option to withdraw. I am therefore inclined to read the clause as imposing an implied obligation on the purchasers to make all reasonable efforts to sell the Lilli Pilli property.

The conclusion to be drawn then is that the clause expresses a condition which is precedent to the appellants' duty to perform the contract, non-fulfilment of which entitles them to terminate the contract, rather than as a condition precedent to the formation of the contract. Instead of saying that the condition contains a promissory element I should prefer to say that the promise is the subject of an implied term which is associated with the condition, though perhaps not forming part of it.

It seems that in the courts below the parties were united in the view that the vendor, as well as the purchasers, could terminate for non-fulfilment of the condition. On the other hand, as I have said, the clause was inserted for the protection of the appellants and it is probably unnecessary to concede to the respondent for its protection an equivalent right to terminate for non-fulfilment of the condition. It seems to be sufficiently protected by relying on its rights to insist on completion of the contract within a reasonable time and by taking such action as it may in that event. Even so, the fact that the clause draws no distinction between the parties and is not expressed to condition only the purchasers' obligation to complete, together with their implied obligation to make all reasonable efforts to sell the Lilli Pilli property, provide strong ground for thinking that the respondent as well as the appellants had a right to terminate on non-fulfilment of the condition. This does not necessarily deny a right in the appellants to waive the benefit of the clause, the respondent's right of termination for breach, like the appellants', subsisting so long as there is no waiver by the appellant.

The provision is not one which on non-fulfilment works a termination of the contract of its own force without notice. If the clause were a self-executing provision its operation might cause very great confusion. It is preferable to view it as a provision which entitles the party to terminate by notice in the event of non-fulfilment, so that it has an operation similar to that of the clause discussed in Gundowda (1950) 81 CLR, at pp 440-442 . The consequence is that, if on non-fulfilment neither party exercises the right to terminate, the contract continues on foot.

As the contract does not fix a time for completion it would accord with general principle to say that completion must take place within a reasonable time. In this case what is a reasonable time for completion needs to be measured with special condition 6 in mind. The clause does not specify a time within which the Lilli Pilli property is to be sold. Accordingly, it contemplates that there should be such a sale within a reasonable time. But it seems obvious that the parties envisaged that in the ordinary course of events the sale of the Lilli Pilli property would be completed before the appellants could be called upon to complete the purchase of the subject property. The mutual intention was that the appellants could only be compelled to complete if they had received the proceeds of sale of the Lilli Pilli property. The consequence is that a reasonable time for completion must necessarily be somewhat longer than the reasonable time allowed for the purpose of fulfilment of special condition 6.

Was time of the essence in relation to that provision? The distinction between essential and non-essential terms is one which has been traditionally made for the purpose of determining whether breach of a term justifies rescission. It is a distinction which had particular importance for the exercise of the equitable jurisdiction to relieve against the consequence of strict adherence to time stipulations in contracts. Equity would relieve against rescission based on mere breach of a non-essential term not amounting to repudiation and would grant specific performance. Would equity likewise relieve against termination of a contract for non-fulfilment of a contractual condition? The answer must be "Yes", when the termination is based on breach of a non-essential term which does not amount to a repudiation of the contract.

The expression of a provision in the form of a condition precedent endows it with the character of essentiality. However, when the condition looks to the happening of an event within a reasonable time, it leaves open the question whether this character of essentiality attaches to the time within which the condition is to be fulfilled. Provisions requiring something to be done within a reasonable time are not considered to be essential unless expressly or impliedly made so. There is a natural reluctance on the part of courts to classify a provision which looks to the happening of an event within a reasonable time as one which makes time of the essence, more particularly when that time is implied and is not expressed. The reason is of course that it is undesirable that the rights of the parties should rest definitively and conclusively on the expiration of a reasonable time, a time notoriously difficult to predict. One object of the development of the requirement that a notice should be given fixing a reasonable time for performance as an essential preliminary to rescission is the perceived need to promote greater certainty and a better understanding by parties of their rights and obligations. There is no very strong ground for saying that the reasonable time contemplated by special condition 6 was of the essence. The clause itself contains no reference to time. This is not surprising because the time needed to complete the sale of real estate is particularly difficult to estimate. And there is nothing in the structure of the contract or in the relationship of the clause to the ultimate obligation to complete the purchase within a reasonable time, this time itself not being of the essence, to compel a different conclusion.

In many situations the giving of a notice relating to the non-fulfilment of a condition would serve little or no purpose, as, for example, when the happening of the event stands quite outside the control of the party to whom the notice is given. Aberfoyle itself was such a case. That is not so here. Although the happening of the event calls for the concurrence and co-operation of a buyer of the Lilli Pilli property, the willingness to sell and the efforts of the appellants were important contributing factors to the completion of the sale.

For this and other reasons earlier discussed Aberfoyle does not govern this case. In saying this I should not wish it to be thought that I am generally in favour of construing time stipulations in contractual conditions as non-essential. Far from it. Quite apart from Aberfoyle (1960) AC 115 itself, Gange v. Sullivan (1966) 116 CLR 418 and In re Longlands Farm (1968) 3 A11 ER 552 show us that conditions which stipulate the date by which an event is to conclude will commonly be regarded as making essential fulfilment by that date.

On the view which I take of this contract the respondent could not require the appellants to complete until a reasonable time had elapsed within which to complete the sale of the Lilli Pilli property. The primary judge found that a reasonable time had expired by September 1978, without making a specific finding on the question whether a reasonable time had elapsed by 17 July, when the second notice to complete was given requiring completion on 8 August 1978. It is, I think, implicit in his Honour's findings that he rejected the respondent's case that a reasonable time had elapsed by 17 July, a rejection with which I agree. Mahoney J.A. seems to have been in error in stating that the parties accepted that a reasonable time had so elapsed. But even if that were so the giving of a notice in relation to special condition 6 may well have been an essential preliminary for insistence on completion.

In the result my conclusion is that the respondent did not validly rescind the contract by its notice given on 10 August 1978 and I would therefore allow the appeal.