Budiyanto v KPI 6 Pty Ltd

1. [1]

   These proceedings concern a contract for the sale of a lot in an unregistered strata plan to be created as part of a multi-level unit development in Merriville Road, Kellyville.

2. [2]

   The contract was entered into on 2 April 2014 between the plaintiffs as joint purchasers and the defendant as vendor. The dispute centres upon the provisions of the contract that deal with the deposit. The contract provided for a deposit of $38,500, being 10% of the purchase price of $385,000. The contract contemplates that the vendor might accept a bond as the deposit. That occurred in this case. The contract further provides that in certain circumstances the purchaser must provide a replacement for a deposit bond.

3. [3]

   The defendant claims to have validly terminated the contract on 25 October 2017 on the ground that the plaintiffs were in breach of essential terms of the contract in relation to the deposit bond and its replacement. The plaintiffs dispute the validity of the termination and claim that the contract remains on foot.

4. [4]

   The contract employs the 2005 edition of the Law Society of New South Wales/Real Estate Institute of New South Wales standard form, together with Additional Clauses. Clause 2 of the standard form, that would otherwise deal with the deposit, was deleted (see Additional Clause 18.1(a)). The deposit is instead dealt with in the Additional Clauses, notably cll 12, 13 and 14. These clauses are in the following terms:

5. [5]

   Additional Clause 13 applies because the vendor accepted a Bond (as defined) as the deposit. In particular, it appears that the vendor accepted a deposit guarantee issued on behalf of CBL Insurance Limited for a maximum amount of $38,500. The Bond was issued on 20 March 2014, and had an expiry date of 31 March 2017. In that regard, the Bond did not comply with Additional Clause 14.6 because the registration date was 31 March 2017 when the contract was entered into (see the definition of Registration Date).

6. [6]

   There is evidence that the Registration Date was subsequently extended to 15 January 2018. It is not clear when that occurred, other than that it was before 6 September 2017.

7. [7]

   The Registration Date can be extended in accordance with Additional Clause 3.5 which provides:

8. [8]

   On 6 September 2017 the solicitors for the vendor sent a letter to the solicitors for the purchasers in the following terms:

9. [9]

   The enclosed notice was in the following terms:

10. [10]

    It should be noted that an extension of the Registration Date to 7 May 2018 is contrary to Additional Clause 3.5(e) which prohibits extension of the Registration Date beyond 12 months from the original Registration Date of 31 March 2017.

11. [11]

    On 21 September 2017 the vendor’s solicitors sent an email to the purchasers’ solicitors in the following terms:

12. [12]

    This prompted the first plaintiff to instruct his solicitors to seek to have “the deadline pushed back” to the end of October. It appears that such a request was made to the vendor’s solicitors, who sent an email to the purchaser’s solicitors on 22 September 2017 in the following terms:

13. [13]

    On 9 October 2017 the first plaintiff instructed his solicitors to see if the vendor would accept, instead of cash, an extension of the bond until May 2018. The solicitor seems to have misinterpreted this request. Later on 9 October 2017 the purchasers’ solicitor sent an email to the vendor’s solicitors in the following terms:

14. [14]

    Still later on 9 October 2017 the vendor’s solicitors responded by email which included the following:

15. [15]

    At about 11am on 20 October 2017 the vendor’s solicitors sent an email to the purchasers’ solicitors in the following terms:

16. [16]

    About 5 minutes later the purchasers’ solicitors sent an email to the vendor’s solicitors in the following terms:

17. [17]

    No payment was made by the purchasers on 20 October 2017 even though no response had been received to the request for an extension of time.

18. [18]

    On 24 October 2017 at about 11:30am the vendor’s solicitors sent a response to the purchasers’ solicitors in the following terms:

19. [19]

    This email was forwarded to the first plaintiff at about 5pm on 24 October 2017. Shortly thereafter, the purchasers’ solicitors sent an email to the vendor’s solicitors in the following terms:

20. [20]

    On 25 October 2017 the vendor’s solicitors sent a reply in the following terms:

21. [21]

    The attached letter included the following:

22. [22]

    A Notice of Termination was enclosed with the letter. It was in the following terms:

23. [23]

    Later on 25 October 2017 the purchasers’ solicitors sent an email to the vendor’s solicitors in the following terms:

24. [24]

    There is evidence that the purchasers were by that time in the process of applying for a new deposit guarantee in the sum of $38,500. An incomplete application form for such was forwarded to the vendor’s solicitors shortly prior to 5pm on 25 October 2017.

25. [25]

    On 27 October 2017 the purchasers paid a total sum of $38,500 into the trust account of the vendor’s solicitors.

Contentions of the parties

1. [26]

   The plaintiffs submitted that the purported extension of the Registration Date on 6 September 2017 to 7 May 2018 was of no effect because Additional Clause 3.5(e) precluded any extension beyond 31 March 2018. It was submitted that even if there was a valid extension to 31 March 2018 such that the purchasers were required to arrange a replacement for the bond, the purchasers were not in breach of the contract in any essential respect on 25 October 2017 when the vendor purported to terminate the contract. In summary, the purchasers submitted that:

2. [27]

   The vendor accepted that the Notice of Termination incorrectly referred to Additional Clause 14.3 making time of the essence for completion of the contract. It was submitted, correctly, that it nonetheless remained open to the vendor to justify the termination of the contract on any ground that was valid at the time of the termination (see Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377-8).

3. [28]

   The vendor submitted that as the expiry date of the Bond provided in March 2014 (being 31 March 2017) was at all times contrary to the essential term set forth in Additional Clause 14.6, the vendor was entitled to terminate the contract. The vendor did not expressly address the argument put against it that it could not terminate for that breach because it subsequently affirmed the contract.

4. [29]

   The vendor submitted that it validly extended the Registration Date on 6 September 2017 to 31 March 2018, and the purchasers were thus obliged under Additional Clause 14.3(a) to replace the Bond within 10 business days. It was submitted that the purchasers failed to do so within that time, and failed to do so at any time up to the time of service of the Notice of Termination. The vendor contended that the importance of the obligation under Additional Clause 14.3, particularly when read in conjunction with Additional Clause 14.6, was such that it was an essential term or condition of the contract, the breach of which gave rise to a right to terminate. It was also contended that the provision of a deposit was an essential term of the contract.

5. [30]

   The vendor took issue with the contention that the contract was varied as set forth in the 24 October 2017 email. The vendor also submitted that no estoppel arose in the circumstances. It was submitted that there was nothing unconscionable about its termination of the contract, particularly having regard to the failure by the purchasers to provide a replacement for the Bond by the agreed extended date of 20 October 2017.

Determination

1. [31]

   It is clear that the notice served by the vendor on 6 September 2017 was not effective to extend the Registration Date to 7 May 2018. Additional Clause 3.5(e) plainly prohibits any extension beyond 31 March 2018. A question then arises as to whether the notice was nonetheless effective to extend the date to 31 March 2018.

2. [32]

   In my opinion it was not so effective. Additional Clause 3.5 enables the vendor, on one or more occasions, to extend the Registration Date by a day for each day construction of the building is delayed by an Event of Delay (as defined). The relevant notice to be served on the purchaser pursuant to Additional Clause 3.5(a) must specify the “number of days”. Additional Clause 3.5(b) then operates to automatically extend the Registration Date by “that number of days”. It is evidently intended that the “number of days” specified in the notice will be the number of days by which the Registration Date is to be extended. The number of days the building has been delayed by an Event of Delay is to be determined by the architect or project manager in accordance with Additional Clause 3.5(c). That sets a limit upon the number of days by which the vendor can extend the Registration Date. That limit is itself subject to the limit imposed by Additional Clause 3.5(e), which operates notwithstanding anything in the preceding parts of the Additional Clause 3.5. Constrained by those limits, the vendor can serve a notice under Additional Clause 3.5(a) that has the effect of automatically extending the Registration Date by the number of days specified in the notice. I do not think that the language of Additional Clause 3.5, in particular Additional Clause 3.5(b), allows a notice that specifies a number of days to be read as if it specified a different number of days so as to avoid an impermissible extension. The Registration Date thus remained 15 January 2018.

3. [33]

   If that is correct, Additional Clause 14.3(a) did not operate, upon service of the notice on 6 September 2017, to require the purchasers to provide the vendor with a replacement Bond within 10 business days.

4. [34]

   However, the purchasers were in breach of the contract because the expiry date of the Bond that was provided in March 2014 was not in accordance with Additional Clause 14.6 and the purchasers failed to replace the Bond after its expiry (on 31 March 2017) as required by Additional Clause 14.3(b).

5. [35]

   The breach of Additional Clause 14.6 was a breach of an essential term, giving rise to a right in the vendor to terminate the contract. I agree that this right to terminate was lost because the vendor subsequently elected to affirm the contract by extending the Registration Date to 15 January 2018. As noted earlier, the evidence does not establish when that occurred.

6. [36]

   Unlike a number of the provisions within the Additional Clauses, the obligations contained within Additional Clause 14.3 for replacement of a Bond are not expressed to be essential terms. Moreover, the obligations within Additional Clause 14.3 are required to be discharged within certain periods of time. Clause 21.6 of the contract provides that subject to any other provision of the contract, the time by which something must be done is fixed but not essential. I do not accept the submission made by the vendor that Additional Clause 14.3, in conjunction with Additional Clause 14.6, made time of the essence for the replacement of the Bond. It seems to have been suggested that the essentiality referred to in Additional Clause 14.6 was effectively imported into Additional Clause 14.3. However, the provisions deal with different subjects. The former is concerned with the duration of a Bond that is accepted or a replacement Bond that is put in its place, whereas the latter is concerned with the circumstances in which, and the time within which, a replacement Bond must be provided by the purchaser. In these circumstances, it is my opinion that whilst a failure by the purchaser to replace a Bond as required by Additional Clause 14.3(b) is a breach of contract, it does not amount to a breach of the contract in an essential respect such as would give the vendor a right to terminate.

7. [37]

   The vendor, if not itself in default, could have issued a notice to perform so as to fix a further time for the performance of the obligation, and make performance within that time essential. In Louinder v Leis (1982) 149 CLR 509 Mason J (with whom Stephen J agreed and Gibbs CJ and Wilson J generally agreed) referred (at 523) to the joint judgment of Barwick CJ and Jacobs J in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 299 where their Honours said:

8. [38]

   The notion of a notice to perform was later discussed by Mahoney JA in Gustin v Taajamba Pty Ltd (1988) 4 BPR 97,274. After referring to Neeta (Epping) Pty Ltd v Phillips (supra) and Louinder v Leis (supra), Mahoney JA stated:

9. [39]

   The vendor did not take that course. The vendor appears to have assumed, contrary to my conclusion concerning Additional Clause 14.3, that the failure of the purchasers since 31 March 2017 to replace the Bond amounted to breach of an essential term of the contract in respect of which time was of the essence. That stance is made clear by the terms of the vendor’s solicitor’s email of 21 September 2017. The email contained a demand that “the 10% deposit, being the sum of $38,500” be paid by no later than 28 September 2017. However, the email cannot be regarded as (and it was not suggested to be) a notice to perform in respect of the obligation to replace the Bond. I note further that by Additional Clause 14.1 that obligation is able to be satisfied by means of cash, bank cheque or replacement bond. It was not open to the vendor to insist upon a cash deposit.

10. [40]

    The purchasers’ solicitors did not take issue with the contention that the purchasers were in breach of an essential term. They requested more time for the making of a cash deposit, and the vendor agreed to extend the time in that regard to 20 October 2017. Nonetheless, effective steps were not taken to fix that date for performance of the obligation to replace the Bond, and make performance by that date essential. That is the position even if, contrary to the view earlier expressed, the Registration Date had been extended to 31 March 2018 such that an obligation to replace the Bond had arisen under Additional Clause 14.3(a).

11. [41]

    It follows from the above that the failure of the purchasers to replace the Bond by 20 October 2017 (or indeed at any time since that date) was not a breach of the contract in an essential respect. Neither is it correct to say more broadly that the provision of a deposit was an essential term of the contract. In circumstances where cl 2 of the standard form was deleted and the vendor accepted a Bond as the deposit, the position is governed by the terms of Additional Clauses 13 and 14. Additional Clause 13.2(a) requires the deposit to be paid on completion, failing which the purchaser is then in breach of an essential term of the contract (see Additional Clause 13.2(b)(i)). Additional Clause 14 then deals with the circumstances in which the purchaser must arrange for the replacement of a Bond.

12. [42]

    For the above reasons, it is my opinion that the vendor did not have the right to terminate the contract on 25 October 2017. The Notice of Termination served on that day was not effective to bring the contract to an end.

13. [43]

    I should add that the vendor served a further Notice of Termination on 16 January 2018. This notice, which was said to have been given “without any admissions as to the validity of that earlier notice”, recited additional defaults under the contract, being a breach of Additional Clause 14.6 and failure to remedy the defaults “within the extended timeframes as agreed in writing”. I did not understand the vendor to rely upon the second Notice of Termination, or submit that if the termination on 25 October 2017 was invalid the contract was nonetheless validly terminated on 16 January 2018.

14. [44]

    It is not necessary to consider the plaintiff’s further arguments:

15. [45]

    As to (a): The purchasers were in default of the contract in September 2017. The vendor asserted that by failing to replace the Bond the purchasers were in breach of an essential term of the contract. There were then negotiations concerning the date by which the purchasers had to rectify the situation. The vendor agreed that the purchasers could have until 20 October 2017. On that day the purchasers’ solicitor enquired whether another Bond could be issued and, if not, requested an extension to mid-November.

16. [46]

    The vendor’s solicitor’s email of 24 October 2017 indicated that the vendor was prepared to allow the purchasers more time to rectify the situation, upon certain conditions, including that the purchasers could have until 15 November 2017 to pay the deposit in cash.

17. [47]

    Even if the 24 October 2017 email is regarded as an acceptance of an offer made in the email of 20 October 2017, I do not think that a binding variation of the contract was effected. The purchasers did not provide any consideration for the vendor’s promises. The promises were given in response to requests made by the purchasers entirely for their own benefit. In essence, the 24 October 2017 email was no more than a statement of the vendor’s position in relation to the rectification of the purchaser’s default under the contract. Accordingly, had it been necessary to do so, I would not have concluded that the contract had been varied so as to include the terms of the 24 October 2017 email.

18. [48]

    As to (b): Each plaintiff gave evidence in the following terms:

19. [49]

    This evidence was not challenged. I am prepared to accept that as at 20 October 2017 there was at least $38,500 in joint accounts held by the plaintiffs. Further, as noted earlier, there is evidence that by 25 October 2017 the plaintiffs were in the process of applying for a new deposit guarantee. However, the evidence given by the plaintiffs fails in my view to establish with sufficient clarity what they relied upon and how their reliance operated to their detriment. The third sentence of the evidence quoted above is ambiguous. It is not clearly related to the contents of the 24 October 2017 email. In these circumstances, I would not have been prepared to conclude that the plaintiffs relied on the contents of that email (including its penultimate paragraph) and as a result failed to make a cash deposit prior to the vendor terminating the contract. Had it been necessary to do so, I would not have been satisfied that the plaintiffs had made out an estoppel that would preclude the vendor from asserting that it validly terminated the contract.

Conclusion

1. [50]

   The plaintiffs have succeeded in establishing that the termination of the contract by the vendor on 25 October 2017 was invalid. The contract remains on foot. Declarations to that effect should be made.

2. [51]

   It follows that it is also unnecessary to consider the plaintiffs’ alternative claim under s 55(2A) of the Conveyancing Act 1919 (NSW) for the return of the deposit that was paid on 27 October 2017.

3. [52]

   It was agreed that the plaintiffs’ claim for specific performance of the contract (which was added by amendment to the Summons at the hearing, in view of the registration of the Strata Plan on 31 May 2018) would be dealt with in a later hearing if necessary. It should be noted that the defendant has reserved its position in relation to the costs of the specific performance claim.

4. [53]

   However, as the plaintiffs have succeeded on the matters the subject of the hearing, it is appropriate that the defendant should pay the plaintiffs’ costs of the proceedings to date.