Supreme Court New South Wales

• Medium Neutral Citation: Cong Xu v Austino Property Development Pty Ltd [2013] NSWSC 1177
• Hearing dates: 19 August 2013
• Decision date: 27 August 2013
• Jurisdiction: Equity Division
• Before: Darke J

Decision

(1) Declare that the plaintiff validly rescinded the Contract for Sale of Land made on 26 May 2011 between the plaintiff as purchaser and the defendant as vendor in respect of the land described as Lot 1/15 Borrodale Road, Kingsford, by Notice of Rescission dated 8 October 2012.

(2) Declare that the plaintiff is entitled, pursuant to the contract, to a refund of the deposit monies paid by the plaintiff in the sum of $126,000, together with all interest earned on those monies.

(3) Order that within seven days the defendant authorise the agent holding the deposit monies as stakeholder, known as Property Square Realty, to release the deposit monies and all interest earned thereon to the plaintiff.

(4) The parties have liberty to apply in respect of any issues arising out of the declaration and order (2) and (3) above.

(5) Order that the defendant's Statement of Cross Claim be dismissed.

(6) Order that the defendant pay the plaintiff's costs of the proceedings.

• Catchwords: CONVEYANCING - Non-compliance with condition - purchaser's remedies - rescission - pursuant to condition giving right to rescind - loss of right - election between inconsistent rights - whether entry into negotiations for early occupation of property was conduct inconsistent with the right to rescind; CONTRACTS - general contractual principles - election - loss of right to rescind - whether entry into negotiations for early occupation of property was conduct inconsistent with the right to rescind a contract for the sale of land
• Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570; Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; Sargent v ASL Developments Ltd (1974) 131 CLR 634; Zucker v Straightlace Pty (1986) 11 NSWLR 87
• Category: Principal judgment
• Parties: Cong Xu (Plaintiff); Austino Property Development Pty Ltd (Defendant)
• Representation: Counsel: J Darams (Plaintiff); E White (Defendant); Solicitors: James Tuite & Associates Lawyers (Plaintiff); Legal Point Lawyers (Defendant)
• File Number(s): 2013/80287
• Publication restriction: Nil

Judgment

Introduction

1 This case concerns a contract for the sale for land between the plaintiff as purchaser and the defendant as vendor, entered into on 26 May 2011. The central issue is whether the plaintiff validly rescinded the contract by notice of rescission given on 8 October 2012. In purporting to rescind the contract the plaintiff relied upon Special Condition 40.1 of the contract which is in the following terms:

40.1 Completion of this Contract is conditional on the registration of the Strata Plan of Subdivision by the Registrar General. If the Strata Plan of Subdivision is not registered by 31 August 2012 then either party may by notice in writing to the other rescind this Contract.

2 There is no dispute that the relevant Strata Plan of Subdivision had not been registered by 31 August 2012, and that, accordingly, rights of rescission under SC 40.1 arose. However, the defendant contends that by reason of certain conduct on the part of the plaintiff, which took place in September and early October 2012, the plaintiff affirmed the contract and thereby made an election which precluded the plaintiff from rescinding on 8 October 2012.

3 The conduct said to amount to an affirmation of the contract was the participation of the plaintiff in negotiations with the defendant to take early occupation of the property the subject of the contract.

Facts

4 The evidence adduced at the hearing, which was not the subject of dispute, may be summarised as follows. The contract concerned land described as Lot1/15 Borrodale Road, Kingsford and, in particular, "Lot 1 in an unregistered plan which is part of Lot B Deposited Plan 312697 Part Folio B/312697." The lot was part of a five townhouse development. The purchase price was $1,260,000 and a deposit of $126,000 was paid by the plaintiff.

5 The deposit was in fact paid to a real estate agent known as Property Square Realty. It was pleaded by the plaintiff, and admitted by the defendant, that the deposit was paid to the defendant's agent as stakeholder. The agent is not a party to these proceedings.

6 The contract is in the form of the 2005 edition of the standard form, as supplemented and amended by a number of Special Conditions. Special Condition 38.1 provided:

The completion date shall be no later than 3.30pm on the later of:

(i) 42 days from the date of this Contract;

(ii) 21 days from the date of the Vendor notifying the Purchaser in writing of the registration of the Strata Plan of Subdivision by the Registrar General; or

(iii) 21 days from the date of the Vendor provides [sic] to the Purchaser an occupation certificate.

7 Special Condition 40.2 provided that, notwithstanding the time limit for registration of the Strata Plan of Subdivision referred to in SC 40.1, the vendor had an entitlement to extend the time limit by the number of days the Vendor was delayed, by reason of certain events, in completing the Development or causing registration of the Strata Plan of Subdivision. Under SC 40.2 the parties agreed that the Vendor's architect would be the sole determiner of the Vendor's entitlement to extensions of time, that the Vendor's architect would act as an expert and not as arbitrator, and that his decision would be final and binding on the parties.

8 Clause 18 of the contract governs possession of the property by the purchaser prior to completion of the contract, but applies only if the vendor gives such possession to the purchaser (see clause 18.1).

9 Clause 19 of the contract provides: -

19.1. if this contract expressly gives a right to rescind, the party can exercise the right -

19.1.1 only by serving a notice before completion; and

19.1.2 in spite of any making of a claim or requisition, any attempt to satisfy a claim or requisition, any arbitration, litigation, mediation or negotiation or any giving or taking of possession.

10 As noted earlier, the Strata Plan of Subdivision was not registered by 31 August 2012 and the parties henceforth had rights of rescission pursuant to SC 40.1.

11 On 24 September 2012 the vendor's solicitor sent a letter by facsimile to the purchaser's solicitor enclosing an Occupation Certificate (which incorrectly described the land the subject of the contract). The letter contained the following statement:

Our client expects to finalise the registration of the Strata Plan within four weeks.

12 On 25 September 2012 the purchaser's solicitor, who is not the plaintiff's solicitor in this litigation, replied to the letter dated 24 September 2012. The reply, also sent by facsimile, contained the following statement:

Please advise the licence fee if our client would like to move in the property before the settlement.

13 The plaintiff and members of his family inspected the property in the afternoon of 25 September 2012 in the company of Cheng Yi Lin, a real estate agent employed by Property Square Realty. On that occasion, and also in a number of earlier conversations with Cheng Yi Lin, the plaintiff expressed his keenness to move into the property as soon as possible.

14 The vendor's solicitor replied to the 25 September 2012 letter by facsimile on 2 October 2012, advising that the vendor was agreeable to granting occupation of the property prior to settlement for a fee of $140 per week and payment of legal costs for the preparation and execution of a Licence Agreement. The purchaser's solicitors were requested to obtain their client's instructions.

15 On 3 October 2012 the purchaser's solicitor replied by facsimile, stating that she was instructed that the purchaser would occupy the property before settlement and agree to pay a licence fee of $140 per week and the legal costs for the preparation of the Licence Agreement. Requests were made for the Licence Agreement to be provided for execution, and an Occupation Certificate, amended to correctly describe the property, to be provided "before our client occupy the property". The facsimile concluded:

Our client intends to move in the property on 5 October 2012 and please advise the procedure for collecting the keys.

16 The plaintiff and members of his family conducted a "defects inspection" of the property in the afternoon of 3 October 2012, in the company of Cheng Yi Lin. During this inspection a number of photographs were taken, some of which appear to show defects of a relatively minor nature. The precise nature and extent of any defects, and the plaintiff's assessment of them, were not the subject of submissions.

17 On the same day the vendor's solicitors sent a further facsimile, enclosing a form of Licence Agreement and an invoice for legal costs. It was stated that the vendor was attending to the amendment of the Occupation Certificate. The recitals to the Licence Agreement (in which the vendor was described as the licensor and the purchaser as the licensee) stated that the parties had agreed that the licensee will take possession of the property pending settlement of the sale on the following terms and conditions. Those conditions included the following:

1. The licensor grants the licensee a licence to occupy the property as a residence at a weekly licence fee of $140 from the agreed date of occupation being 3 October 2012 until settlement or the due date for settlement of the contract for sale or upon vacation of the property by the licensee following termination or rescission of the contract or termination of this agreement whichever occurs first.

2. In the event that settlement of the contract is not effected on or before the due date due to the default of the purchaser and the licensee continues in occupation of the property, then on and from the due date for settlement until settlement or upon vacation of the property by the licensee following termination or rescission of the contract or the termination of this agreement the licence fee will be increased $550 per week.

3. This agreement does not create the relationship of landlord and tenant between the parties. In the event of the termination or rescission of the contract to purchase the property or the breach by the licensee of any of the provisions hereof the licensor shall be entitled to serve a notice of termination of the licence on the licensee or the solicitor or conveyancer of the licensee requiring the licensee to vacate the property within 48 hours of service of the notice and the licensor may immediately re-enter and re-take possession of the property at the expiration of the notice period...

18 On 4 October 2012 the solicitors for the purchaser sent a facsimile to the solicitors for the vendor. Reference was made in the facsimile to a conversation on the previous day between the respective solicitors in relation to the Licence Agreement. It was then stated that:

We are advised that the Vendor agreed to the payment of licence fees and the legal costs for the preparation of Licence Agreement on settlement. The intended occupation date is 5 October 2012 subject to the acceptance of both parties.

We are further informed that the typo in the Occupation Certificate will be fixed and the amended Occupation Certificate will be forwarded to us shortly.

We are also informed that the estimated registration of strata plan will be completed around the end of October.

19 As noted earlier, on 8 October 2012 the plaintiff gave notice of rescission of the contract. The rescission was effected by way of letter and accompanying Notice of Rescission sent by facsimile by the plaintiff's solicitor to the defendant's solicitor. The notice stated that the rescission was "pursuant to Clause 40.1 of the contract and the provisions of Clause 19 of the Contract thereof shall apply."

20 The defendant disputed the validity of the rescission. By letter dated 11 October 2012 to the plaintiff's solicitors, the defendant's solicitors stated, inter alia:

By the purchaser's behaviour since 31 August 2012, up to and including your letter of 4 October 2012, together with the express intention that the purchaser take up occupation of the property under licence on 5 October 2012, in circumstances where the purchaser was on notice that the estimated registration of the Strata Plan will be completed around the end of October (2012), the purchaser has either waived his rights (if any) in relation to the requirement for registration of the Strata Plan by 31 August 2012 or is estopped from now asserting such rights. In these circumstances the purchaser is required to give reasonable notice to the vendor of an alternate date by which the Strata Plan must be registered and to make time for registration of the essence. The purchaser failed to do so.

Further, Clause 40.2 envisages that a number events listed therein may impact upon the registration date of 31 August 2012, up to a maximum of 12 months as provided by Clause 40.3. We are in the process of verification from the vendor's architect the number of days the vendor was delayed in securing registration of the Strata Plan by virtue of the events listed in Clause 40.2.

Although not effective to rescind the contract, the Notice does indicate that your client does not intend to perform the contract according to its terms. Accordingly, your client's Notice is capable of amounting to a repudiation of the Contract which the vendor may elect to accept as bringing the Contract to an end. The Vendor reserves its rights in this respect.

21 On 16 October 2012, the defendant's solicitors wrote to the plaintiff's solicitors and advised that "pursuant to Clause 40.2 of the Contract for Sale of Land ('the Contract'), the vendor gives the purchaser notice to extend the registration date of the Strata Plan of Subdivision under Clause 40.1, from 31 August 2012 to 30 April 2013."

22 Enclosed with that letter was a certificate from the vendor's architect concerning the delays experienced by the vendor. The architect's certificate was dated 12 October 2012.

23 On 16 October 2012, the plaintiff's solicitors wrote to the defendant's solicitors, taking issue with their interpretation with of the contractual position. A refund of the deposit, together with interest, was demanded.

24 The defendant's solicitors wrote further letters to the plaintiff's solicitors on 19 October 2012 and 23 October 2012. In the first letter they requested the withdrawal of the Notice of Rescission (by 22 October 2012) failing which the vendor would treat the rescission as a repudiation of the contract. In their letter of 23 October 2012 the defendant's solicitors stated:

Given your client's attitude and his notification of failing to comply with the Contract we are instructed to accept your letter of 16 October 2012 as a repudiation of the Contract by your client.

We hereby notify you that our client has terminated the Contract and rely upon this letter as notification and service of the termination notice in accordance with Clause 9 of the Contract.

Pursuant to Clause 9 the vendor will now take steps to forfeit the deposit and reserves its right to claim damages pursuant to the Contract.

25 The Strata Plan of Subdivision (being SP 86876) was in fact registered on 7 November 2012.

The Dispute

26 By his Statement of Claim the plaintiff claims relief including declarations to the effect that he validly rescinded the contract on 8 October 2012, and is therefore entitled to a refund of the deposit together with interest, and an order directing the defendant to authorise the agent to release the deposit. There is also a claim for rectification to correct an error in the description of the vendor. The defendant consents to that rectification.

27 The defendant, by its defence, denies that the plaintiff validly rescinded the contract. It is contended that the plaintiff elected to affirm the contract after 31 August 2012 and thereby lost his right to rescind pursuant to SC 40.1. It is contended in the alternative that, as a result of the plaintiff's conduct, he lost his rights to rescind pursuant SC 40.1 without first serving notice upon the vendor and thereby "making time for completion essential, such time not to be less than 14 days after service of the notice to allow the defendant a reasonable period to perform its obligations under the Contract." The defendant also raised an estoppel in its Defence, but this was expressly abandoned at the hearing. It was accepted in submissions that any defence relying upon an extension of the time for the registration of the Strata Plan of Subdivision pursuant to SC 40.2 could not succeed unless the Court found that the plaintiff had affirmed the contract.

28 By its cross claim, the defendant seeks declaratory relief to the effect that it validly terminated the contract on 23 October 2012, and that the deposit has been forfeited to it. An order directing the plaintiff to authorise the agent to release the deposit is also sought.

29 Mr Darams of counsel, who appeared for the plaintiff, primarily submitted that the plaintiff did not lose his right to rescind under SC 40.1, which arose when the Strata Plan of Subdivision was not registered by 31 August 2012, by engaging in negotiations to take early possession of the property because that (indeed, even an actual taking of possession) was something that the contract expressly permitted him to do without losing any right to rescind. Clause 19.1.2 was relied on in this regard. Accordingly, it was submitted, there was no inconsistency between rights and thus no occasion for an election to be made. Mr Darams also submitted that, in any event, the plaintiff's conduct was not of such an unequivocal nature as is necessary for an election to be found.

30 Mr White of counsel, who appeared for the defendant, submitted that the plaintiff's participation in the negotiations constituted an affirmation of the contract because such negotiations could only be undertaken on the basis that the contract remained on foot. It was also contended that the taking of early occupation was a right that existed under the contract (pursuant to clause 18) and that the plaintiff's conduct in seeking to exercise that right was inconsistent with the exercise of the right of rescission. It was further contended that, absent the contract, there could not have been any negotiations for early occupation.

Relevant Principles

31 The relevant principles concerning election between inconsistent legal rights are stated in Sargent v ASL Developments Ltd (1974) 131 CLR 634. In particular, Stephen J stated at 641:

The doctrine of election as between two inconsistent legal rights is well established but certain of its features are not without their obscurities. The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence. As Williston points out (Contracts, 3rd ed, vol 5, par. 683) the doctrine is not out of harmony with the general rule that a binding surrender of a right requires a sealed release for consideration; by surrendering one right the elector thereby gains an advantage not previously enjoyed, the ability to exercise to the full the other, inconsistent right.

32 Mason J stated at 655:

A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election.

33 Further, at 656, his Honour stated:

A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other (Tropical Traders Ltd v Goonan (1964) 111 CLR 41). So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election of the contract.

34 Reference should also be made in this context to the joint judgment in Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26. At 39 their Honours stated that a party can only be held to have elected if he has so communicated his election in clear and unequivocal terms. Further, at 42, their Honours stated that:

As Spencer Bower and Turner point out in the passage quoted earlier, at the heart of election is the idea of confrontation which in turn produces the necessity of making a choice. But in a case such as the present one, the choice is not merely one of affirming the agreement; it involves as well the abandonment of the right to rescind. Abandonment is more readily inferred in some circumstances, for instance where the choice arises once and for all. Here, by reason of clause 7 of the deed, Immer was entitled at any time after 1 April 1989 to rescind the deed. There is of course a danger of circularity here because the Uniting Church says: "Yes, so long as Immer did not elect not to rescind." The point is that where the right to rescind is a continuing one it is not so readily concluded that the party entitled to rescind has abandoned that right completely as opposed to taking no action to exercise the right at the time in question.

35 More recently, the doctrine of election between inconsistent rights was the subject of discussion by the High Court in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570, especially at [56] - [58].

36 The question whether the plaintiff is taken to have exercised an election, in accordance with these principles, which would prevent him from exercising the right of rescission which arose under SC 40.1, is one of fact (see Zucker v Straightlace Pty (1986) 11 NSWLR 87 at 93).

Consideration

37 For the reasons which follow, it is my view that the plaintiff's conduct was not an affirmation of the contract which resulted in the plaintiff losing the right of rescission under SC 40.1. The plaintiff did not act in a manner that was inconsistent with the continued existence of the right such that he is taken to have abandoned it.

38 The right of rescission arose when the Strata Plan of Subdivision was not registered by 31 August 2012. The plaintiff was then faced with two inconsistent rights, namely, the right to rescind the contract and the right to affirm it and insist upon its future performance. However, the plaintiff's conduct in engaging in negotiations with a view to reaching an agreement for occupation of the property should not be regarded as an insistence upon future performance of the contract. The plaintiff, in so acting, was not asserting or exercising any right given under the contract. Whilst clause 18 of the contract contemplates that the vendor might give the purchaser possession of the property before completion, there is no obligation to do so, and the provisions of clause 18 only operate if the vendor actually gives possession to the purchaser.

39 Neither was the plaintiff demanding that the defendant comply with any of its obligations under the contract. It is true that on 3 October 2012 the plaintiff's solicitor requested that an amended Occupation Certificate be provided, but this was in the nature of a request that something be done as a condition of the plaintiff proceeding with the transaction the subject of the Licence Agreement. The defendant did not submit that the request for the amended Occupation Certificate should be regarded as a demand for performance of the contract for sale. This is not a case of affirmation occurring through an insistence upon performance of the contract.

40 It may be accepted that the existence of the contract formed the background or setting in which the negotiations proceeded, and that absent the contract, the negotiations would not have taken place. Furthermore, the existence of the contract was recognised in the negotiations, and specifically in the terms of the form of Licence Agreement prepared by the defendant's solicitor. However, the Licence Agreement also recognised that the contract might be terminated or rescinded in the future (see, for example, clauses 1, 2 and 3 set out at [17] above). I do not accept the defendant's submission that those general references to rescission should interpreted to exclude the right of rescission which had arisen under SC 40.1. Accordingly, the parties appear to have contemplated that, if the Licence Agreement was entered into and the plaintiff entered into possession, rights of rescission (including the right under SC 40.1) might nonetheless be exercised in the future. That situation is also provided for in clause 18.6 of the contract.

41 The plaintiff's involvement in the negotiations cannot in my view be said to be conduct which is inconsistent with the future exercise of such rights. That conduct is not shown to be justifiable only on the basis that the plaintiff had elected to affirm the contract and abandon the right of rescission (see Sargent v ASL Developments Ltd (supra) at 656 per Mason J; Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (supra) at 42). In my view, the plaintiff did not lose his right of rescission, either at large or to the extent that the right would be exercisable only if some period of notice was first given to the defendant.

42 In addition to the above, it is my opinion that the terms of the contract stand in the way of a conclusion that the plaintiff's conduct in negotiating for early possession of the property prevented the plaintiff from validly exercising the right of rescission on 8 October 2012. Clauses 18 and 19 of the contract expressly contemplate that negotiations of that character might occur, and clause 19.1.2 provides that a party can exercise a right of rescission in spite of any negotiations, or indeed of any giving or taking of possession.

43 The defendant submitted that clause 19.1.2 should be construed in such a way as to restrict its application to conduct (such as the taking of possession or, in this case, negotiations for the taking of possession) which occurs before the right of rescission arises. However, the language of the provision does not suggest any such limitation. Furthermore, it is difficult to see why a clause, which is evidently designed to preclude the loss of rights of rescission, would be so restricted; the loss of a right of rescission is generally brought about by events occurring after the right has arisen.

44 It follows from the above that the plaintiff had not lost his right of rescission under SC 40.1 by the time he gave notice of the exercise of that right. The contract was validly rescinded by the plaintiff, and, in accordance with clause 19.2.1 of the contract, the deposit monies paid by the plaintiff under the contract must be refunded to the plaintiff. In addition, in accordance with SC 56.2, all interest which has accrued on the deposit monies must be paid to the plaintiff.

Relief

45 I will make a declaration that the plaintiff validly rescinded the contract for sale by the Notice of Rescission dated 8 October 2012. I will also make a declaration that the plaintiff is entitled to a refund of the deposit monies paid in the sum of $126,000, together with all interest earned on those monies.

46 I raised with counsel the fact that the agent (Property Square Realty) holding the deposit monies as stakeholder was not a party to the proceedings and hence not susceptible to an order that it pay the monies to the successful party. I was informed that the terms upon which the agent was holding the funds was such that an order directing the unsuccessful party to authorise the agent to release the funds would be sufficient in practical terms to ensure that the funds are paid to the successful party. I will make such an order, with liberty to apply in case any difficulties arise.

47 As for the rectification sought, the parties accept that the description of the vendor in the counterpart contract executed by the vendor is, as a result of error, incorrect. Nevertheless, in circumstances where: (a) the contract has been rescinded by the plaintiff, leaving only the refund of the deposit monies to occur; (b) there are no questions of antecedent breaches of contract; and (c) the identity of the vendor as the defendant is clear despite the erroneous description in one of the counterpart contracts, it seems to me that the proposed rectification lacks utility and should not therefore be made.

48 The defendant's cross claim will be dismissed and I will order that the defendant pay the plaintiff's costs of the proceedings.

49 I make the following orders:

(1) Declare that the plaintiff validly rescinded the Contract for Sale of Land made on 26 May 2011 between the plaintiff as purchaser and the defendant as vendor in respect of the land described as Lot 1/15 Borrodale Road, Kingsford, by Notice of Rescission dated 8 October 2012.

(2) Declare that the plaintiff is entitled, pursuant to the contract, to a refund of the deposit monies paid by the plaintiff in the sum of $126,000, together with all interest earned on those monies.

(3) Order that within seven days the defendant authorise the agent holding the deposit monies as stakeholder, known as Property Square Realty, to release the deposit monies and all interest earned thereon to the plaintiff.

(4) The parties have liberty to apply in respect of any issues arising out of the declaration and order (2) and (3) above.

(5) Order that the defendant's Statement of Cross Claim be dismissed.

(6) Order that the defendant pay the plaintiff's costs of the proceedings.

Decision last updated: 28 August 2013