Scott v Ennis-Oakes

These proceedings concern a contract for the sale of land entered into on 9 June 2015 between the plaintiffs (Kylie and Bradley Scott) as purchasers and the defendant (Nicole Ennis-Oakes) as vendor. The land the subject of the contract was a lot in a proposed subdivision of the defendant’s property in Vicary Road, Terrigal. A draft plan of subdivision was attached to the contract.

The contract price for the land was $750,000. The contract provided for a deposit of $75,000, but the parties agreed instead that a deposit of $37,500 would be paid and released to the defendant.

The contract is in the standard Law Society/Real Estate Institute form (2014 Edition), supplemented by Additional Conditions the terms of which are to prevail in the event of inconsistency (see Additional Condition 32.2).

By Additional Condition 35, completion of the contract was to take place within 42 days from the date of the contract or 21 days of receipt by the purchasers’ solicitor of notice of registration of the plan of subdivision, whichever was the later.

Additional Conditions 36.2 to 36.4 provide:

Additional Condition 37 provides:

It appears that a development application in respect of the proposed subdivision had been lodged with Gosford City Council on 19 August 2014. A development approval was issued on 22 December 2015. However, the plan of subdivision was not registered within 12 months of the date of the contract; indeed it has never been registered.

There is little evidence before the Court to explain the reasons for the apparent delay. I note that a s 96 modification application (to reduce the width of access) was made on 16 June 2016 and approved on 17 August 2016. An application for a construction certificate for the civil works for the subdivision seems to have been made on 27 September 2016, but the fate of that application is unclear.

In any event, on 12 April 2017 the defendant’s conveyancer sent a notice to the plaintiffs which included the following:

On 15 May 2017 recently retained solicitors for the plaintiffs sent a letter to the defendant’s conveyancer which included the following:

I note in passing that s 66ZL had been introduced into the Conveyancing Act 1919 (NSW) on 24 November 2015 by the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW). The relevant transitional provisions operated to give the section retrospective application (see Silver Star Fashions Pty Ltd v Dal Broi (2018) 19 BPR 38,813; [2018] NSWSC 1445 at [5]).

On 14 June 2017 solicitors retained by the defendant sent a letter to the plaintiffs and their solicitors which included the following:

On 10 July 2017 the defendant’s solicitors sent a letter to the plaintiffs’ solicitors which included the following:

On 18 July 2017 the defendant’s solicitors sent a letter in response in which it was stated that the defendant did not accept that the contract was on foot. Arrangements were then made for the deposit (of $37,500) to be repaid to the plaintiffs. That amount (together with a small amount for landscaping costs that had been incurred by the plaintiffs) was transferred to an account held by the plaintiffs with Westpac Bank. However, in circumstances where the plaintiffs maintained that the contract was still on foot, the funds were transferred into a controlled monies account operated by the plaintiffs’ solicitors.

On 31 July 2017 the plaintiffs commenced these proceedings. By their Statement of Claim the plaintiffs sought orders in the nature of specific performance to compel the defendant to comply with her obligations under the contract, including by proceeding to bring about the registration of the plan of subdivision. On 3 October 2017 the defendant filed a Defence in the proceedings in which it was alleged, inter alia, that performance of the contract was impossible. The Defence did not include an allegation that the contract had been rescinded.

On 12 November 2017 the defendant entered into a Scheme of Arrangement Deed (“the Deed”) with Philnic Holdings Pty Ltd and Philip Oakes. Philnic Holdings Pty Ltd is the trustee of the Ennis-Oakes Family Trust. I infer that Philip Oakes is the defendant’s husband.

On 14 December 2017 the defendant’s solicitors sent a letter to the plaintiffs’ solicitors which enclosed a copy of the Deed. The letter stated that the defendant intended to rely upon Additional Condition 37(b) of the contract. It may be recalled that Additional Condition 37(b) refers to a party to the contract entering into a scheme for the benefit of creditors.

On 21 December 2017 the defendant’s solicitors sent a Notice of Rescission to the plaintiffs and their solicitors in which it was stated:

On 15 February 2018 the defendant filed an Amended Defence which included the allegation that the contract had been brought to an end on 20 [sic] December 2017 pursuant to Additional Condition 37.

The plaintiffs initially took issue with that allegation. By their Reply filed on 1 March 2018 they denied that the contract had been rescinded pursuant to Additional Condition 37, and said that the Deed was a sham. The plaintiffs maintained their claim for specific performance, although by their Amended Statement of Claim filed on 15 March 2018 they sought, in the alternative to specific performance, damages for breaches of the contract including of Additional Conditions 36.2 and 36.3.

However, on 18 July 2019 (after the matter had been set down for hearing) the plaintiffs’ solicitors sent a letter to the defendant’s solicitors in the following terms:

The plaintiffs filed a Further Amended Statement of Claim on 21 August 2019. By that pleading the claim for specific performance was abandoned. As stated by counsel for the plaintiffs in his written submissions, this pleading reflected an acceptance by the plaintiffs of the validity of the claimed rescission. The only relief now sought was damages for breach of contract (plus interest and costs). The claimed loss was stated in the particulars to be the difference between the purchase price of the property and the market value of the property as at certain alternative dates.

At the commencement of the hearing, the plaintiffs were granted leave to file a Second Further Amended Statement of Claim which added allegations that the defendant repudiated the contract on 12 April 2017 and/or on 14 June 2017, added another alternative date for the purposes of calculation of the alleged loss, and deleted allegations of breaches of Additional Condition 36.3 and two alleged implied terms. As a result, the plaintiffs’ claims for damages rest upon an alleged breach of Additional Condition 36.2 and the alleged repudiations of the contract by the defendant in April and June 2017.

As is evident from the plaintiffs’ pleading, and as confirmed by the submissions of their counsel, the plaintiffs seek loss of bargain damages. That is to say, damages calculated to represent the difference between the market value of the subject matter of the contract and the price expressed in the contract.

The defendant submitted that the plaintiffs’ claim for loss of bargain damages was fundamentally misconceived. It was submitted, by reference to statements of principle made by the High Court of Australia, that even if any breach of contract or repudiation was found, loss of bargain damages are simply not available in circumstances where the plaintiffs did not exercise any right to terminate for breach or repudiation prior to the rescission of the contract by the defendant on 21 December 2017.

In response, the plaintiffs maintained that loss of bargain damages can be claimed even if the claimant has not terminated the contract for breach or repudiation. It was put that it is enough that the contract has come to an end, for whatever reason. It is thus said that loss of bargain damages are available in the present case where the contract has come to an end by the (admittedly effective) rescission on 21 December 2017. The plaintiffs further submitted that Condition 9 of the contract, which operates when there has been a rescission under Additional Condition 37, expressly preserves the right to claim damages arising from a breach of the contract. It was also stated that the opening words of Additional Condition 37 themselves indicated that any accrued rights would be preserved.

For the reasons which follow, it is my opinion that in the circumstances of this case there is no proper basis for the plaintiffs to claim loss of bargain damages. Such a claim seems to me to be precluded by the application of clear statements of principle made by the High Court of Australia and applied by the Court of Appeal.

In Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 the High Court held that a vendor under a contract for the sale of land who had initially sought specific performance of the contract was able to later rescind (terminate) the contract for further breach or repudiation and sue the purchaser for damages. Gibbs, Mason and Jacobs JJ, after referring to the judgment of Fullagar J in Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 349, stated at 458:

Barwick CJ stated at 450:

The view expressed by the Chief Justice that in the case of actual breach of a promise to complete a purchase it is not necessary, in order to claim loss of bargain damages, to rescind (terminate) the contract, has not been adopted. In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) stated at 260-1:

In Sunbird Plaza Pty Ltd v Maloney (supra), Gaudron J stated at 273:

In Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW [1999] NSWCA 125 Sheller JA (with whom Priestley and Stein JJA agreed) stated at [48] that:

His Honour referred to the speech of Lord Porter in Heyman v Darwins Ltd [1942] AC 356 at 399, and then to the parts of Sunbird Plaza Pty Ltd v Maloney (supra) that are extracted above. Sheller JA continued (at [51]):

By applying these principles to the present case it can be seen that any entitlement the plaintiffs had to terminate the contract due to wrongful conduct on the part of the defendant had not been exercised when the contract was rescinded under Additional Condition 37 on 21 December 2017. Accordingly, no cause of action for damages for loss of bargain had by that time accrued to the plaintiffs.

Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW (supra) was in this respect followed by Palmer J in McRoss Developments Pty Ltd v Caltex Petroleum Pty Ltd (2004) 11 BPR 21,615; [2004] NSWSC 183 at [53]-[54]. At [54] Palmer J stated:

Reference should also be made to the decision of Santow J (as his Honour then was) in Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 at 628 where his Honour stated that the claim for loss of bargain damages in that case presupposed both the defendant’s repudiation and the plaintiffs’ acceptance of the repudiation terminating the contract.

The principle that in order for loss of bargain damages to be recovered there must first be a termination of the contract for repudiation or breach is stated in J W Carter, Contract Law in Australia (Sixth Edition, 2013, LexisNexis Butterworths) at [36-14]; see also J D Heydon, Heydon on Contract (Lawbook Co., 2019) at [29.90].

Even if it is assumed in favour of the plaintiffs that the conduct of the defendant was wrongful such that the plaintiffs could have terminated the contract, their failure to do so meant that the contract remained on foot for the benefit of both parties. Supervening circumstances then arose which operated to discharge the contract, namely, the circumstances underpinning the rescission on 21 December 2017 (see Peter Turnbull & Company Pty Ltd v Mundus Trading Company (Australasia) Pty Ltd (1954) 90 CLR 235 at 250-1 per Kitto J; cf the position in Tamanna v Zattere (2017) 18 BPR 37,139; [2017] NSWSC 1388 at [153]).

The provisions of Condition 19 apply upon a rescission of the contract under Additional Condition 37. Condition 19 (actually, clause 19) relevantly provides:

Clause 19.2.3 expressly enables a party to claim damages arising out of a breach of contract. However, clause 19.2.3 should not in my view be read as providing for a right to claim loss of bargain damages. The clause operates only where the contract has come to an end by the exercise of a right to rescind. “Rescind” is defined in clause 1 of the contract to mean rescission of the contract “from the beginning”. Clause 19.2.3 nevertheless allows claims for damages arising out of breaches of the contract. In my opinion, the clause operates to permit the pursuit for claims of damages that have accrued by the time of the rescission (see P J Butt, The Standard Contract for Sale of Land in New South Wales (Second Edition, 1998, LBC Information Services) at [19.2]).

Claims for damages for breach of contract accrue as soon as the breach occurs. Accordingly, where clause 19.2.3 operates, a party can make a claim to recover damages for losses that arise from a breach that occurred prior to the rescission. However, in accordance with the principles set out above, a claim for loss of bargain damages only accrues where the contract has been terminated due to the wrongful conduct of the defendant. Damages of that character do not fall within the ambit of clause 19.2.3.

In light of the conclusions I have reached above, it is not necessary to determine whether the defendant breached Additional Condition 36.2 or repudiated the contract as alleged. Had it been necessary, I would have concluded that no breach of Additional Condition 36.2 had been established on the evidence, but that the defendant’s purported rescission of the contract on 14 June 2017 pursuant to Additional Condition 36.2 amounted to a repudiation of the contract. I will briefly state why I would have reached those conclusions.

The plaintiffs did not identify with any particularity the respects in which the defendant failed to proceed towards lodgement of the plan of subdivision for registration “as soon as practicable and with due expedition” as required by Additional Condition 36.2. As noted earlier, very little evidence was adduced that might explain the reasons for the delay in achieving registration. Even allowing for the failure to call the defendant to give evidence, I do not think it is open to the Court to infer that the delay was the result of any breach of Additional Condition 36.2.

The plaintiffs’ submissions were in any case directed more to the proposition that by mid-2017 the defendant had abandoned any intention to perform the contract. In that regard, by 12 April 2017 the defendant was maintaining that conditions in the development approval had made the subdivision “untenable both as to cost and function” and was expressing an intention to rescind the contract. On 14 June 2017 the defendant in fact purported to rescind pursuant to Additional Condition 36.2.

In my view, by reason of the operation of s 66ZL of the Conveyancing Act, it was not open to the defendant to rescind the contract. There is no doubt that the contract for sale was an “off-the-plan contract” for the purposes of the section. Further, it seems to me that Additional Condition 36.2 was a “sunset clause” within the meaning of the section. It provided for the contract to be rescinded if the lot the subject of the contract was not created by 12 months after the date of the contract (that is, by 9 June 2016), and that date falls in my view within the statutory definition of “sunset date”. That definition should be read as providing that a sunset date is the latest date by which the subject lot must be created before the relevant right of rescission arises under the terms of the contract.

By reason of the operation of s 66ZL(3) the defendant could only rescind under Additional Condition 36.2 if she obtained either the consent of the plaintiffs to the rescission or an order from the Court permitting the rescission. There is no doubt that the defendant was aware of the provision by June 2017. In these circumstances, the defendant’s assertion at that time that the contract had been rescinded and her subsequent conduct in maintaining the validity of the rescission (at least until the filing of her Defence on 3 October 2017) was wrongful and evinced an intention to no longer be bound by the contract.

However, the plaintiffs did not elect to accept the repudiation and thereby terminate the contract. The plaintiffs instead elected to affirm the contract by commencing proceedings for specific performance on 31 July 2017. The contract remained on foot until it was rescinded by the defendant on 21 December 2017. The plaintiffs came to accept that this rescission was valid and effective to bring the contract to an end, and the case was conducted on that basis. There is no occasion for the Court to consider any questions concerning the validity of the rescission, and no need to proceed to any assessment of damages.

For the above reasons, the plaintiffs’ only remaining claim for relief, their claim for loss of bargain damages, fails. The proceedings must therefore be dismissed.

The Court will further order that the plaintiffs pay the defendant’s costs of the proceedings. Any application to vary the costs order may be made by Notice of Motion filed within 14 days in accordance with Uniform Civil Procedure Rules 2005 (NSW) r 36.16.