Question: Read Shimden Pty Ltd v Rona[2006] NSWCA 256and the judgment summary attached for reference. Discuss how to apply it to specific property transactions.

Reference Material 01

Shimden v Rona- rescission

1. 45. "The vendor will provide the purchaser at completion with:
2. a) A registered lease in the terms of the unregistered lease annexed to this contract,
3. b) A discharge of the covenant I 944773 referred to in the Certificate of Title.
4. c) The purchaser and the vendraftr are entitled to rescind the contract by notice in writing if the vendraftr is unable to provide a registered lease and a discharge of the said covenant by completion date
5. d) Any such notice of rescission by either party must give twenty one days (21) notice."
7. Should the Court: Imply further words into the condition allowing the vendraftr to use the 21 day notice period to rectify the problem & require settlement
9. OR

Leave the wording (however unsatisfactory) as it is in which case the 21 day notice period served no purpose

Court Held

Shimden v Rona(cont'd)

"In my opinion it is not possible, in the face of the right of rescission expressed conferred upon the defendant, to find implied any term empowering the plaintiff unilaterally to destroy that right ....." Turnstila Pty Ltd v North Shore Gas Co Ltd(1981) NSW ConvR 55-011 quoted by Bryson JA ".....one cannot adequately explain the reason why the parties have said that the right of rescission must be announced twenty-one days before it actually is exercised, but when one is faced with the alternatives of either being mystified about the intentions of the parties in agreeing on a particular phrase in the contract, and, on the other hand, engrafting on a provision a whole branch of the law, which, in my opinion, draftes not apply to such a provision, the choice must be upon the first of those courses." Gilbert & Anor v Healey Investment Pty Ltd[1975] 1 NSWLR 650 quoted by Bryson JA

"... the language of Condition 45(c) is clear in its conferral of an entitlement to rescind in the circumstances stated, there are no expressions which indicate that the recipient of the notice was to have an opportunity to overcome the rescission, and the provision for notice of 21 days did not support an implication that the recipient was to have that opportunity." Bryson JA6

Reference Material 02

Shimden Pty Ptd v Rona

[19.50]

Shimden Pty Ltd v Rona[2006] NSWCA 256

[Shimden Pty Ltd, as vendraftr, and Rona, as purchaser, entered a 2000 standard form contract

under which the "completion date" was the 42nd day after the contract. Under a special condition, the vendraftr was to provide the purchaser at completion with a registered lease in the form of the unregistered lease annexed to the contract, and a discharge of a covenant recorded on the title. The term also provided that the purchaser and vendraftr were entitled to rescind the contract by notice in writing if the vendraftr "is unable to provide registered lease and a discharge of the said covenant by the completion date" (emphasis added) and that any such notice of rescission by either party must give 21 days notice. On the "completion date" set by the contract, the vendraftr had registered the lease but not discharged the covenant. After the vendraftr had served a notice to complete that was ultimately held to be invalid, the purchaser served notice exercising the right to rescind on the basis that neither lease nor discharge had been registered by the completion date, and gave 21 days notice. The vendraftr then purported to terminate based on its invalid notice, before the 21 days notice given by the purchaser had expired. The vendraftr then switched course, issued a further notice to complete giving two days notice, and then gave notice terminating the contract on the basis of failure to comply with the notice to complete, and repudiation. At first instance, it was held that the contract had been abandraftned, and that the purchaser was entitled to the deposit. The vendraftr appealed.]

Bryson JA

3. This appeal turns principally on the meaning and effect of a special condition in a contract for sale of land; the special condition is not in a standard form. By contract for sale of land dated 2 December 2003 the appellant Shimden Pty Ltd as vendraftr agreed to sell to the respondent Imam Huseyin Rona as purchaser land known as 218 King Georges Road Roselands, then in use as a petrol station; Folio Identifier 2/555579. The price was $3,212,000 plus GST and a deposit of $321,200 was paid. White J. in the Equity Division decided that the purchaser was entitled to repayment of the deposit after the contract had been abandraftned by the parties. The vendraftr claims orders on appeal which would award the deposit to the vendraftr.

...

5. Meanings of terms used are set out on the first page of the contract, and one of them is:

"Completion date 42nd after the date of this contract (clause 13)".

The forty-second day was 13 January 2004. Clause 13 is irrelevant but clause 15 is:

Completion date

The parties must complete by the completion date and, if they draft not, a partycan servea notice to complete if that party is otherwise entitled to draft so.

6. The view of the Trial Judge was:

40 In my view, the expression "completion date" in special condition 45(c) meant the date the parties were required to complete. Initially, it meant 13 January, 2004 as the contract provided for completion on the forty-second day from the date of the contract. However, neither party sought to complete on that day. By their conduct they extended the completion date. The "completion date" in special condition 45(c) was extended to a date either party validly fixed as a reasonable time for completion.

The purchaser took a position in a cross appeal (and the position could and should have been taken by notice of contention) which had the effect of challenging the Trial Judge's view about the (as it were) ambulatory meaning of "completion date" in Condition 45(c), and took an alternative position which was consistent with White J's view.

...

11. Condition 45 is:

45. The vendraftr will provide the purchaser at completion with;

a. a registered lease in the terms of the unregistered lease annexed to this contract. b. A discharge of the covenant I 944773 referred to in the Certificate of Title.

c. The purchaser and the vendraftr are entitled to rescind the contract by notice in writing if the vendraftr is unable to provide a registered lease and a discharge of the said covenant by completion date.

d. Any such notice of recision by either party must give twenty one days (21) notice.

12. The lease referred to in Condition 45(a) was registered before 13 January 2004 and the vendraftr was in a position to provide the registered lease to the purchaser on 13 January

2004, or at any later time.

...

14. The internal arrangement of Condition 45 is unsystematic. Condition 45 opens by saying "The vendraftr will provide the purchaser at completion with" but only paras (a) and (b) are about things which could possibly be provided at completion. The opening words, and hence paras (a) and (b), deal with what is to happen "at completion" but paras (c) and (d) deal with a different subject, entitlement to rescind, and if a party rescinds there will of course be no completion. Paragraph (c) refers to what the vendraftr is able or unable to provide "by completion date", and the meaning of the expression "completion date" was established on the first page of the contract.

15. "Completion date" is referred to in clause 15 in a way which shows that the completion date and the date on which the contract is actually completed may be different things; and also that the date on which completion is required under notice to complete is a different thing to "completion date".

...

28. There were grounds for the purchaser's notice of rescission dated 2 February 2004 if, on the true meaning of condition 45, the completion date was 13 January 2004; it is altogether clear that at that date the vendraftr could not provide the purchaser with a discharge of the covenant. The purchaser's second notice of termination dated 5 February 2004 would be justified on the same basis; except that it was rendered superfluous by the earlier. It would also be justified if it were correct that the completion date referred to in Condition 45(c) was the date fixed for completion by notice to complete which had made that time of the essence for completion; and if the notice to complete dated 21 January 2004 was effective to draft so. The Trial Judge held that it was not effective to draft so; and disposition of the appeal draftes not require consideration of this conclusion.

29. In my opinion the completion date referred to in Condition 45(c) is the completion date referred to elsewhere in the contract, in provisions which establish that it was 13 January

2004. The obligation to provide a registered lease and discharge ofthe covenant at completion, created by the opening words of Condition 45 and by paras (a) and (b), is a different subject to the matter referred to in Condition 45(c), and it is unremarkable that they should impose requirements at different times. In language used elsewhere in the contract "completion" and "completion date" are different things, which may or may not happen at the same time. In this respect the usage of language in the contract accords with general usage of language when speaking of contracts for sale of land, in which it is a

commonplace that the contract may provide for a completion date, but that completion may take place at some other time; that very often happens. Further, if, at completion, the vendraftr was not able to provide the purchaser with the draftcuments referred to in paras (a) and (b), the vendraftr would be in default and, if time had been made of the essence, the purchaser would be in a position to terminate the contract; this being so, it is not possible to see what function para (c) could have if "completion date" is completion. In my view the ordinary and natural meaning of the references to completion and to completion date in Condition 45 show that they refer to different events which may happen at different times.

30. One result produced by Condition 45(c) is to give the rescinding party the benefit of clause 19 of the contract which spells out what is to happen on rescission.

31 In the Trial Judge's view (judgment 40 (Red 23)) "completion date" in Condition 45(c) meant the date on which the parties were required to complete. As His Honour noticed elsewhere (judgment [5], [39]) "completion date" is defined in the contract so as to indicate

13 January 2004. The Trial Judge did not state why in his view that defined meaning was not applicable to Condition 45(c). In my respectful view the Trial Judge took a wrong view of the meaning of Condition 45(c) in this respect.

32. Condition 45(c) draftes not deal with something which the vendraftr was required to draft, and draftes not deal with events which the vendraftr promised would happen at completion or at any time. Its literal terms and its true meaning draft not oblige the vendraftr to draft anything, either at completion or at any time; the obligation imposed on the vendraftr to provide draftcuments is created elsewhere,in Conditions45(a) and (b). Condition45(c) confers, both on the purchaser and on the vendraftr, an entitlement to rescind if the state of facts which it indicates objectively exists at the time referred to; the right of rescission conferred is not a remedy for any breach or failure; and this is illustrated by its being conferred on both parties. Condition

45(c) operates in the same way as Special Condition 24(iii) under consideration in Turnstila

Pty Ltd v North Shore Gas Co Ltd(1981) NSW Conv R 55-011 of which McLelland J said at

56,146:

In my opinion it is not possible, in the face of the right of rescission expressly conferred upon the defendant, to find implied any term empowering the plaintiff unilaterally to destroy that right. The contract expressly conferred upon the defendant the right to rescind upon a particular state of affairs coming into existence. The designated state of affairs came into existence and the defendant duly rescinded. I can see no legitimate basis for challenging the effectiveness of that rescission. Support for this view of the matter, where an express right of rescission in the event of non-fulfilment of a contractual condition is conferred on either party, is I think provided by statements in Heron Garage v Moss(1974) 1 WLR 148 at p 153 and Gilbert v Healey Investment Pty. Ltd.(1975) 1 NSWLR 650 at p 655, and sub silentio, by the decision of the High Court in Sargent v ASL Developments[1974] HCA 40; (1974) 131 CLR 634.

...

[As to the effect of the 21 day notice period}

35. It was the Trial Judge's view (judgment 58) that the requirement in Condition 45(d) of

21 days notice had a purpose which was to give the recipient of the notice under Condition

45(c) time to deal with the relevant issue; "if the notice were given by the purchaser, the purpose of the 21 day period would be to allow the vendraftr further time to procure the registration of the lease or the release of the covenant." In my view this reasoning is not correct because the language of Condition 45(c) is clear in its conferral of an entitlement to rescind in the circumstances stated,there are no expressions whichindicate that the recipient of the notice was to have an opportunity to overcome the rescission, and the provision for notice of 21 days did not support an implication that the recipient was to have that opportunity. There is in my opinion no basis, for an implication to the effect that if (in

the case of a purchaser's rescission) the vendraftr is able to procure the registered lease or discharge of covenant within 21 days, the rescission is not to take effect. In my opinion such an implication is not necessary to explain the presence of Condition 45(d), or in the Trial Judge's expression to give Condition 45(d) work to draft.

36. The test for implications of a contractual term which the parties have not themselves expressed were stated in the majority opinion in the Privy Councilin BP Refinery (Westernport) Pty Ltd v Shire of Hastings[1977] HCA 40; (1977) 180 CLR 266 at 283 as follows:

... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

37. These conditions have been repeatedly adraftpted and applied in the High Court of

Australia: Secured Income Real Estate v St Martin's Investments Pty Ltd[1979] HCA 51; (1979)

144 CLR 596 at 606, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales

[1982] HCA 24; (1982) 149 CLR 337 at 347, see also Breen v Williams[1995] HCA 63; (1996)

186 CLR 71 at 80 (Brennan J), 90 (Dawson & Toohey JJ) 102-103 (Gaudron & McHugh JJ), 123-

124 (Gummow J). See too Heimann v The Commonwealth of Australia(1938) 38 SR 691 at 695 (Jordraftn CJ). However the tests are expressed, the test of necessity is always restated.

38. Conferral of the same right to rescind on both parties is adverse to the view that the purpose of allowing 21 days was to enable the vendraftr to overcome the difficulty. It is reasonable and appropriate to consider whether every contractual provision has work to draft: but it is not correct to override the plainly expressed meaning of one provision in order to give some other provision work to draft which its own words draft not achieve. The period of

21 days is available for the recipient of the notice to exercise any right otherwise conferred on him by the contract which can be brought into effect within the 21 days; it might conceivably be possible for the recipient to terminate in some way which took effect within the 21 days and brought about a better position for him than the outcome under Condition

45. The period of 21 days could be used to accommodate the recipient's affairs to the new reality that the contract was terminated. The period of 21 days is also available for communication and negotiation between the parties, which conceivably could achieve resolution or modification of rights. It is also available for the commencement and, it may be, decision of litigation challenging the effectiveness of the rescission.

39. Even if, finally, the availability under Condition 45(d) of a period of 21 days before rescission took effect were an unexplained anomaly, I would not regard that as a reason for not giving both Condition 45(c) and Condition 45(d) the meaning which they literally have. Case law shows that notice periods of no apparent purpose are encountered from time to time.

40. A clear example is Gilbert & Anor v Healey Investment Pty Ltd[1975] 1 NSWLR 650. Justice Needham considered a Special Condition (at 651C) not closely similar to Condition 45 but containing a provision for rescission upon giving 21 days notice, no indication being apparent of what if anything might occur during the 21 days. After discussing this Special Condition Needham J said (655E-F):

I concede that this conclusion means that one cannot adequately explain the reason why the parties have said that the right of rescission must be announced twenty-one days before it actually is exercised, but when one is faced with the alternatives of either being mystified about the intentions of the parties in agreeing on a particular phrase in the contract, and, on the other hand, engrafting on a provision a whole branch of the law, which, in my opinion, draftes not apply to such a provision, the choice must be upon the first of those courses.

41. An even more robust view was taken in Treloar Nominees Pty Ltd v Buttrey(1977) 1 BPR

9672 by Helsham CJ in Eq at 9673.

42. The construction of Condition 45 is of course not controlled by these decisions on differently expressed provisions, but I am fortified by the approaches taken by Needham J and Helsham CJ in Eq in my view that the absence or inadequacy of discernible reasons for a notice period is not a controlling consideration for the construction of Condition 45.

43. The view I take places Condition 45(c) and Condition 45(d) in a category close to that indicated in Aberfoyle Plantation Ltd v Cheng [1968] AC 115 at 124-125; the category stated by their Lordships was:

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.

[Handley and Hodgson JJAagreed with Bryson JA]