Bridon Investments Pty Ltd & Ors v J. Boag & Son Brewing Ltd H9/1999 [2000] HCATrans 219 (12 May 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Hobart No H9 of 1999

B e t w e e n -

BRIDON INVESTMENTS PTY LTD, DONALD DOUGLAS GOUGH and BRIAN JOHN DOWNS

Applicants

and

J BOAG & SON BREWING LTD

Respondent

Application for special leave to appeal

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 12 MAY 2000, AT 9.32 AM

Copyright in the High Court of Australia

MR P.A. KEANE, QC: May it please the Court, I appear with my learned friend, MR H.A. WELD, for the applicants. (instructed by Piggott Wood & Baker)

MR A.M. BLOW, QC: May it please the Court, I appear with my learned friend, MR A.B. WALKER, for the respondent. (instructed by Dobson Mitchell & Allport)

HAYNE J: Yes, Mr Keane.

MR KEANE: Your Honours, the issue is whether the principles of the law of contract relating to election support the holding of the Full Court that a party is bound to complete a contract expressed to be subject to finance where, despite all reasonable efforts, finance is not obtainable and not obtained and that the contract is required to be completed because of an honest but erroneous statement to the other side that finance was available, that statement being corrected within four days and, in any event, before any detriment was suffered by the other party.

HAYNE J: That statement of the issue makes no mention of the time element in the finance condition. Is the time element in the finance condition important?

MR KEANE: Your Honour, it is our submission that it is critical to the divergence between the judgment of the Chief Justice at first instance and the decision on appeal. It is critical in this sense, that we can take your Honours to the reasons in the Full Court to page 55 of the record, paragraph 32, and your Honours will see that there Justice Underwood, with whom the other members of the Full Court agreed, sets out the passage from Lord Diplock's speech in Kammins Ballrooms v Zenith Investments where his Lordship stated the position:

If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner that is consistent only with his having chosen to rely on one of them the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did".

And statements to similar effect that if one knows that the events have occurred which give rise to a right either to rescind or to go on and then, with that knowledge, one goes on,are also contained in the passages above that.

HAYNE J: And do you accept those propositions?

MR KEANE: Not in the, with the greatest respect, mechanistic or mechanical way in which the Full Court has applied them. We need to take your Honours to paragraph 34 to show you that:

Application of the foregoing to the present appeal leads to the conclusion that on 19 February 1997 -

now, your Honours will understand that was the date on which finance was to obtained by.

HAYNE J: That is the 14-day period.

MR KEANE: That is the 14-day period and on that date the applicant's solicitors told the respondent's solicitors that finance was not available but, of course, on that date - - -

HAYNE J: But they sought to go on with the contract.

MR KEANE: They asked for an extension of time within which to get finance of a week. What they did not do - - -

HAYNE J: Yes, that is to say they did not choose then to exercise the right given them by the condition precedent to call the contract to an end.

MR KEANE: No, and nor did they exercise the alternative right to affirm the contract whether or not finance was available.

HAYNE J: What then were they doing? What is this uncomfortable halfway house they are trying to occupy?

MR KEANE: Your Honour, it is not an oddity. They were asking for an extension of a week within which to obtain finance. That extension was never expressly granted because on the 21st, Ms Nguyen, the solicitor for the applicant, advised Ms French, the solicitor for the respondent, that finance had been obtained. Now, within four days, on the 25th, that was corrected. Nothing had happened in the meantime. There had been no action to their detriment by the other side and the situation was, we would submit, that on the 19th there was no conduct amounting to an election either way. There was - - -

CALLINAN J: Mr Keane, but did they not discuss a date of settlement, when Ms Nguyen told the vendors' solicitors?

MR KEANE: That is right.

CALLINAN J: Well, why would that not add to the conduct on the 19th, and, taken with the conduct on the 19th, be regarded as an affirmation?

MR KEANE: Your Honour, that is precisely the point of our response to his Honour Justice Hayne's first question, because it is the timing that is critical and if we can ask your Honours' indulgence and just read the rest of paragraph 34 - - -

CALLINAN J: But if you could just answer my question first, Mr Keane.

MR KEANE: Sorry, your Honour.

CALLINAN J: Why cannot the two pieces of conduct taken together cumulatively be regarded as an affirmation or, if you like, a waiver?

MR KEANE: Your Honour, because the position is this: that on the 19th there was no election one way or the other, there was knowledge of the facts giving rise to a right to determine, then there was thereafter at no stage a choice communicated to go on without finance. What there was on the 21st was an indication that finance had been obtained and discussion about a settlement date. Now that conduct might well be consistent with an election to go on and an abandonment, but what it is not, and what the Chief Justice found, was that it was not an intentional abandonment, because it was made under the erroneous belief that the finance was available, and this - - -

HAYNE J: Can you explain to me what is meant by "not an intentional abandonment, because it was made under mistake". That is a concept that I find some difficulty with.

MR KEANE: Your Honour, can we seek to do it in this way, and it comes back to your Honour's first question: it is at the time at which the conduct said to constitute the binding election that one must look at the state of mind of the elector and it is not to the point, in our respectful submission, to say that at a time past the situation was that finance was known not to be available when one is asking whether one should hold the party to a binding election made when, at the time that conduct occurs, the party is mistaken as to the fact.

CALLINAN J: But Ms Nguyen was not mistaken as to the fact. Mr Triscott had told her that finance was available, when in fact it was not; it was obviously because of the $70,000 difference.

MR KEANE: He told her it was available and he told her that she could tell the other side.

CALLINAN J: Why is not your client bound by what she did; it was all left to her, was it not?

MR KEANE: But, your Honour, that is, with respect, the question - whether a party is bound by a conduct which is based on an erroneous understanding of the position and, your Honours, that is why we need to take your Honours for a moment - - -

HAYNE J: The error of understanding being not an error of understanding by the solicitor concerned about what she was told or permitted to convey, but an error found where?

CALLINAN J: It is Mr Triscott's error, if anything, if he did make the unqualified statement that was attributed to him.

MR KEANE: Generating an erroneous belief on her part the finance was available on the footing of a commitment from the financier, and, your Honours, the distinction is this, and the timing is critical. The relevant time is the time at which the act, and the time at which to gauge the state of mind of the elector, to decide whether the elector is bound, your Honour, by an intentional abandonment of the right to rescind - - -

CALLINAN J: Mr Keane, it is a very unattractive proposition because practically everybody leaves these matters, I would think, to their solicitors and their solicitors will, in the usual course or very frequently, communicate what the proposed financier and will be the conduit pipe for all of the relevant communications and it would mean that the other parties could not deal in confidence with the solicitors.

MR KEANE: Well, your Honour, with respect, we would rather see it the other way because this is a case where there was plainly never a choice communicated to proceed without finance. Thus there was never an abandonment of that. That is to say, there was never an abandonment of the right to terminate for want of finance. What there was was an erroneous statement made in circumstances where there is a clear finding of fact but it was corrected before any conduct on the other side to the detriment, and we take the force of what your Honour says.

Our position would be unattractive if it were a case where there were anything in the conduct of the other side that, in reliance on the statement, they had acted in any way to their detriment. If that were the case, your Honours, we would accept that the appropriate situation, the appropriate conclusion, would be there would be an estoppel. We would be held, stopped by the position indicated by the solicitor on behalf of the client in reliance on which the other side acted to their detriment. But, with respect, because that is not the issue, the issue is whether there is a binding election and there is no detriment, the question is then whether the conditions of a binding election are satisfied; that is to say, unequivocal conduct, abandoning the right intentionally.

HAYNE J: And the right, relevantly, is what?

MR KEANE: Is the right to determine for non-fulfilment of the condition as to finance.

HAYNE J: Or is the right simply to terminate the contract? That is, has there not been an unequivocal communication to the opposite party of an intention to proceed.

MR KEANE: That is what the Full Court have found and it consists of an indication that finance has been obtained and discussion about a settlement date.

HAYNE J: What then is the point of principle or novel principle that now is said to arise?

MR KEANE: That contrary to the conclusion expressed in paragraph 34, in which Justice Underwood reasoned that since finance had not been obtained by 19 February and the applicant knew on that date that finance had not been obtained, and thus there was a right to rescind, the circumstance that when the conduct which is held to amount to the election, the circumstance that that was conduct which occurred in error is irrelevant because the state of mind, the mental element of the election - election consisting of a mental element and conduct to the other side - the state of mind was affected by error when it occurred, error inconsistent with an intention to abandon the right to determine the contract for want of finance.

HAYNE J: That is to say that the uncommunicated subjective intention or state of mind is a factor of relevance in determining election.

MR KEANE: Yes, your Honour. The state of mind, the knowledge - - -

HAYNE J: The uncommunicated subjective state of mind.

MR KEANE: Indeed, your Honour, and can we take your Honour to some - - -

HAYNE J: Can you point to any authority which says that uncommunicated subjective state of mind bears upon election in a contractual context?

MR KEANE: Your Honour, I cannot point to an authority which uses that language. I can point, your Honour, to a lot of authority which is distinctly to the effect that the knowledge of the party sought to be held to an election is to be determined at the date of the conduct relied on.

HAYNE J: Yes.

MR KEANE: I think your Honours have been given a copy of a decision which was not on our list. It is a decision of Lord Parker, Justice Parker as his Lordship then was, in Matthews v Smallwood (1910) 1 Ch 777. The relevant passage is at page 786. It is in the full paragraph of text on that page, the first full paragraph, and it commences at about point 4 of the page towards the end of the line:

Waiver of a right of re-entry can only occur where the lessor, with knowledge of the facts upon which his right to re-enter arises, does some unequivocal act recognizing the continued existence of the lease. It is not enough that he should do the act which recognizes, or appears to recognize, the continued existence of the lease, unless, at the time when the act is done -

obviously, your Honours, we underline "at the time when the act is done" -

he has knowledge -

we would submit that has to be accurate knowledge -

of the facts under which, or from which, his right of entry arose.

His lordship went on to - - -

HAYNE J: Is this the principle for which you contend?

MR KEANE: Your Honour, we submit it is support for the proposition for which we contend.

HAYNE J: And applying this principle to the facts of this case, why is it not the position that at the 19th or 18th, depending on how you count the time, when the 14 days had expired, the purchaser knew that finance not then being in place, the purchaser had the opportunity to rescind and the purchaser chose not to do so.

MR KEANE: Because, your Honour, the purchaser is not bound to elect at once.

HAYNE J: Is that a submission to the effect that time - 14 days - is not of the essence?

MR KEANE: No, your Honour, it is not. The situation that arose on the 19th was one where there was an entitlement to rescind. It is well established - Sargent v ASL, the judgment of Justice Mason, amongst others - that where a party by reason of the circumstances under the contract obtains a right to terminate the contract, the party is not bound to exercise it at once. The party may wait and exercise it at a later time. Because the party may wait and exercise that right at a later time, either to go on or to rescind, the situation is that the party may then be affected, when the party comes to make its choice, by a change in the state of that party's knowledge. And that is what has occurred here. On the 21st, Ms Nguyen believed that finance was available. On the 19th, everyone knew that it was not. When the conduct on the 21st, which is relied upon occurred, that conduct was conduct which was affected by, or informed by, her erroneous belief, and that was a state of knowledge different from that which obtained on the 19th. And, your Honours, that this is relevant, apart from the passage in Lord Parker's judgment which we have given your Honours, could we also give your Honours reference to the decision or dicta in this Court's decision in Immer v The Uniting Church in Australia Property Trust [1993] HCA 27; 182 CLR 26 at 41. Your Honours, it is on our list. It is in the first paragraph on the page. It records the argument put by Immer:

that on 26 June 1989 it was not aware of the facts giving rise to its right to rescind the agreement because it did not know that the -

relevant fact giving that right had not occurred:

The answer to this submission is that the evidence does not support a conclusion that Immer was unaware of the fact giving rise to the right to rescind under cl.7 of the deed, that is to say, the fact that "approval" had not been "granted by 1.4.89".

That being the date on which the inconsistent rights arose. Their Honours go on to say:

Nonetheless, Immer's mistaken belief that the approval of the City Council had been given at some subsequent time is, as will be seen, relevant to the question whether it lost the right to rescind the deed by reason of an election to affirm it.

And their Honours conclude their discussion at page 43 in the first full paragraph of text on the page where they hold that Immer was not confronted with the need to make an election at the time that it sent the relevant letter.

HAYNE J: Here where the solicitor concerned asks for an extension of time, is there any conclusion open except that the solicitor well knew that the time for choice had arrived?

MR KEANE: Quite, your Honour. But in asking for an extension, they are indicating an intention not to go on without finance, but they are indicating that they wish the other side to agree with them to allow an extension to see if finance can be obtained, for the obvious reason that if it cannot be obtained, then the contract will be rescinded, because it is distinctly inconsistent with any suggestion of a willingness to go on, abandoning the right to rescind in the absence of finance.

I note the lights - it is our submission, with respect, that the fair result, the attractive result, to take up your honour Justice Callinan's language, is that estoppel doctrines grounded on reliance to detriment should govern the situation where the other party has been induced, in any way, to the act to its detriment.

CALLINAN J: But, Mr Keane, do you say that in order for the doctrine of waiver or election to operate there must be some act to the detriment of the person to whom the waiver - - -

MR KEANE: No, there has to be an act of unequivocal adoption of the contract, but it has to be - there are two aspects, your Honour, and I have noticed the red light has gone on, may I conclude?

HAYNE J: Of course.

MR KEANE: There has to be as well, the two elements consistently asserted: knowledge or the relevant state of mind, we say, at the time of the conduct being the unequivocal conduct affirming the contract.

CALLINAN J: Well, could I put this to you. I know time is up, but there would be no doubt that when the communication was made to, was it Ms French, whoever the person was in the other office, the communication that was made by Ms Nguyen was unequivocal. You do not accept that it was?

MR KEANE: Your Honour, we accept that it was this: we accept that it was finance is available and there was a discussion about a settlement date.

CALLINAN J: Well, if you look at pages 29 and 30 of the record, which record the conversations, it seems to me that those communications are capable of constituting an unequivocal election or an unequivocal communication that finance has been approved, that the contract will be settled; the only matter remaining is the actual date. Now, you have that, and then you have got this passage in the judgment of Chief Justice Gibbs and Justice Murphy in Legione v Hateley [1983] HCA 11; 152 CLR 406 at page 421. Their Honours adopt with approval something that was said in a 1976 case:

"The solicitor is to be regarded as the alter ego of the client and the rights of the other party to the contract cannot be made to depend upon the diligence or lack of diligence exhibited by the solicitor in his dealings with his client".

In other words, these solicitors' acts bind the client.

MR KEANE: Quite, your Honour, and may we say we unequivocally - to use the hackneyed expression - accept what your Honour puts to us, but the other side of that coin is that the solicitor's error is also the client's error.

HAYNE J: But she made no error.

MR KEANE: Well, she did, with respect; she was told that finance was available and that she could tell the other side about that.

CALLINAN J: Well, that is why the rights might be against Mr Triscott; or might have been, I do not know.

MR KEANE: Might have been or might be not, but, on any view, there was an honest but erroneous expectation that the finance would be provided. That is putting it at the very highest for the other side.

HAYNE J: Yes.

MR KEANE: And to come back to your Honour Justice Callinan's question, accepting all that your Honour said, there still needs to be, at the time that the conduct of the solicitor which binds the client occurs, relevantly a state of mind to intentionally abandon the right to rescind and, in our respectful submission, this case neatly raises that question, neatly raises that issue, in circumstances where, in our respectful submission, the law of contract in relation to contracts for the sale of land would be distinctly improved by a ruling by this Court that parties cannot indulge in gotchas.

HAYNE J: Well, your time really has expired, I think, Mr Keane, thank you. Yes, Mr Blow.

MR KEANE: Thank you, your Honour.

MR BLOW: Thank you, your Honour. Your Honours, in my submission, the central point in all of this is that Ms Nguyen made no error of fact. The facts as found by the Full Court appear in the judgment of his Honour Justice Underwood at paragraphs 3 to 13, pages 48 to 50 of the application book, and, in particular, in paragraph 10 on page 49 his Honour adopted, as part of the Full Court's findings of fact, a memorandum that Ms Nguyen wrote for her file, beginning at about line 40 on page 49, and in the bottom paragraph she wrote:

I asked Paul Triscott whether finance had been approved and he replied that it was.

This was on 21 February -

He said it was OK to let the vendors solicitors know that finance had been approved.

I called Brian Downs to let him know that finance had been approved but we were still waiting for Paul Triscott to get back to us on the exact figure.

It is clear from the findings as they appear in the judgment of Justice Underwood that it was found, firstly, that Miss Nguyen knew that the finance was not approved within the fourteen days provided for in the clause. That is to say, she knew that by 19 February, or by midnight on the night of 19 February, finance had not been approved. It is also clear from the passages I have just read out that she knew, as at 21 February, that some finance was approved but not how much. It is against that background that she made the phone call to the vendor's solicitors and said that finance had been approved.

CALLINAN J: Mr Blow, I mean, the finance clause itself is a little equivocal because I think it said up to a maximum of 800,000, did it not?

MR BLOW: It did, your Honour, and - - -

CALLINAN J: Well, it is a little unclear. It might have been that perhaps some amount less than the maximum might have been sufficient.

MR BLOW: That is a very interesting point, your Honour, but I submit that it makes no difference in this case because - - -

CALLINAN J: No, I suggest it might help you, in a sense, because finance less than $800,000 might be, on one view, finance that satisfied the description in the condition.

MR BLOW: Well, yes. Our fall-back argument at trial was - and I am content to adopt it now - one of our fall-back arguments at trial was that when finance was approved late it was all that the purchaser had applied for. The purchaser applied for finance for $800,000 or 70 per cent of valuation, whichever was the lower, and that is what the purchaser got, 70 per cent of valuation, that was the lower.

HAYNE J: But, as I understand it, the central point of the argument is that the communication after time expired was an election and if that was not the election the communication later that finance had been approved was the election. Is that so?

MR BLOW: Well, our central point is that the communication that finance had been approved amounted to an election. Time was of the essence of the "subject to finance" clause in accordance with Aberfoyle Plantations v Cheng. Miss Nguyen knew that the finance had not been approved within the 14 days - - -

HAYNE J: Yes, well, I think we need not trouble you further, Mr Blow.

MR BLOW: Thank you, your Honour.

HAYNE J: Mr Keane, is there anything you would wish to add?

MR KEANE: Your Honours, only this, that in relation to the suggestion that the Full Court set aside his Honour's finding that Miss Nguyen did not know that finance was not available, the Full Court did not do that. They recognised the submission but did not accept it and the position remains, so far as the facts are concerned, as found by his Honour the trial judge, in particular in the passage at page 35 of the application book, lines 28 to 37, where there is a distinct finding, not set aside on appeal, to the effect that when the applicant's solicitor advised the respondents on 21 February that finance was available, she was ignorant of the true facts.

HAYNE J: Yes.

MR KEANE: So that, there was not an intentional abandonment by reason of that error. Those are our submissions.

HAYNE J: Yes, thank you, Mr Keane.

We are not persuaded that an appeal in this matter would enjoy sufficient prospects of success to warrant a grant of leave. Accordingly, special leave will be refused.

You, I believe seek costs, do you, Mr Blow?

MR BLOW: Yes, your Honour.

HAYNE J: You cannot resist that, can you, Mr Keane?

MR KEANE: No, your Honour.

HAYNE J: Special leave will be refused with costs.

AT 10.02 AM THE MATTER WAS CONCLUDED