powerpoint for legalwise annual property seminar march 2016

Sunset clauses and quantification of damages

When may a Vendor rescind a contract?When is it appropriate to assess damages at a date other than the

date of breach?

Legalwise Second Annual Property Law Seminar9 March 2016

Laina ChanBarrister at Ninth Floor Wentworth Chambers

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S 66ZL Conveyancing Act 1919

(3) A vendor may rescind an off the plan contract under a sunset clause if the subject lot has not been created by the sunset date, but only if:(a) each purchaser under the contract, at any time after being served with the notice under subsection (4), consents in writing to the rescission, or(b) the vendor has obtained an order of the Supreme Court under this section permitting the vendor to rescind the contract under the sunset clause, or(c) the regulations otherwise permit the vendor to rescind the contract under the sunset clause.


(6) The Supreme Court may on the application of a vendor under an off the plan contract make an order permitting the vendor to rescind the contract under a sunset clause but only if the vendor satisfies the Court that making the order is just and equitable in all the circumstances.


(7) In determining whether it is just and equitable in all the circumstances the Court is to take the following into account:(a) the terms of the off the plan contract,(b) whether the vendor has acted unreasonably or in bad faith,(c) the reason for the delay in creating the subject lot,(d) the likely date on which the subject lot will be created,(e) whether the subject lot has increased in value,(f) the effect of the rescission on each purchaser,(g) any other matter that the Court considers to be relevant,(h) any other matter prescribed by the regulations.


• Regulations are currently silent• Ss 66ZL(7) is prescriptive.• In determining whether it is just and equitable

for the developer to rescind the contract and to illuminate the likely approach of the courts in relation to ss 66ZL, the following cases are instructive.

Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529

• ‘if the V shall be unable or unwilling to comply with or remove any objection or requisition which the purchaser has made and shall not waive within 14 days after the V has given him notice of intention to rescind this agreement, the V, whether he has or has not attempted to remove or comply with such objection or requisition, and notwithstanding any negotiation or litigation in respect thereof, and whether the P has or has not taken possession shall be entitled by notice in writing to rescind this agreement.’

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Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529

• original purpose - improper and extraneous purposes

• bona fides• reasonableness• not an arbitrary power

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Woolcott v Peggie (1889) 15 App Cas 42

• The vendor was entitled to rescind the contract, provided he acted in good faith.

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In re Jackson and Haden’s Contract [1906] 1 Ch 412

• something on the part of the vendor less than the law requires of him in such cases.

• may stop short of fraud • for example, a reckless disregard by the

vendor of his duty as to accuracy of statement when he is making a statement with a view to other people acting on it as correct

• look at circumstances as a whole

Selkirk v Romar Investments Ltd [1963] 3 All ER 994

• Clause 3(3) of the agreement conferred power on the vendor, if any requisition should be insisted on with which he should be unable or unwilling to comply, to rescind the contract by notice in writing.

Selkirk v Romar Investments Ltd [1963] 3 All ER 994

• A vendor's position, for this purpose, has to be ascertained as at the date when he enters into his contract

• not to be arbitrary or without reason• a vendor has to be reasonable: he does not

have to be beyond criticism before he can exercise his right to recission

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Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575

• cl 14 contained the usual provision allowing the vendors to give notice of intention to rescind if ‘unable or unwilling to comply with or remove any objection or requisition’ and to rescind if the purchaser did not waive the objection or requisition within fourteen days of the notice

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Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575

• begin with a contractual right to rescind, all the circumstances covered by clause 14 being present.

• onus on the P to convince the V that V may not use its contractual right

• take the circumstances of the case as a whole

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Burger King Corporation v Hungry Jack’s Pty Ltd (2001 69 NSWLR 558

• An action by Hungry Jack’s (franchisee) against Burger King (franchisor) for the latter’s alleged wrongful termination of an agreement made between them and its breach of certain terms alleged to have been implied in that agreement.

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Burger King Corporation v Hungry Jack’s Pty Ltd (2001 69 NSWLR 558

• general rescission clauses may not be used ‘for improper and extraneous purposes: Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd

• the Contract Review Act 1980, the Credit Act 1984 and s 51A of the Trade Practices Act 1974 (Cth)

• implied obligation of good faith and reasonableness

• disentitling conduct of vendorlaina chanbarrister

Tanwar v Cauchi (2003) 217 CLR 315

• The purchaser was unable to complete the contracts because of a delay in obtaining finance.

• Finance became available the following day. • The vendors were aware that the purchaser

then wished to complete the contracts but issued notices of termination.

• Proceedings for specific performance.

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Tanwar v Cauchi (2003) 217 CLR 315

• the vendors had not caused or contributed in any significant way to the purchaser’s breach

• it was not unconscientious for them to exercise their contractual right to terminate the contracts.

• relief on the ground of accident was not available because the possibility of breach was reasonably within the contemplation of the purchaser.

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Ginger Development Enterprises Pty Ltd v Crown Developments (2003) 12 BPR 22,607

• special condition 30 referred to the ‘caveats’ that were on the title of the property.

• in the draft contract, special condition 55 referred to caveats the presence of which were to be acknowledged by the purchaser. However, special condition 55 had been deleted from the contract before exchange.

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Ginger Development Enterprises Pty Ltd v Crown Developments (2003) 12 BPR 22,607

• obligation on the part of the person giving the transfer to do all that was reasonable to ensure that the sale could proceed to completion.

• Vendor had issued lapsing notices.• Vendor should have sought an order under s

74MA of the RPA to prevent the lodgment of further successive caveats.

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Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190

• Clauses 28.2 and 28.3 of the Contract provided:• “28.2 The vendor must do everything reasonable to

have the plan registered within 6 months after the contract date …

• 28.3 If the plan is not registered within that time and in that manner –

• 28.3.1 the purchaser can rescind; and• 28.3.2 the vendor can rescind, but only if the vendor

has complied with clause 28.2.”laina chanbarrister

Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190

• Allegation that the Vendor had an ulterior motive

“as an excuse to enable themselves to get rid of the contract for some ulterior purpose, such as to obtain a higher price for the land from some other purchaser”

• The condition precedent to the right to rescind contained in cl 28.2 is a significant protection to the purchaser

• No need for equity to intervene.

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Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd (2013) 29 BCL 329

• Lesdor owned certain property. • It contracted with Cordon for Cordon to develop the

property. Cordon was responsible for obtaining all necessary approvals and for all construction costs, and was to be reimbursed its actual costs from a loan it had obtained to fund the development.

• Cordon’s profit was to be derived from the sale of certain units in the project to the extent the proceeds exceeded the development costs. Lesdor was entitled to retain the balance of the units.

• Works were allegedly defective and Lesdor refused to sign the strata plan

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• Lesdor repaid the loan out of another loan and purported to terminate the contract relying upon Cordon’s alleged renunciation in insisting on other than defect-free completion.

• Lesdor took possession of the units that would have gone to Cordon

• Cordon sued for damages for breach of contract.

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• It was appropriate to imply into the contract an obligation that the parties would act in good faith towards each other.

• No breach.• Obligation could not be inconsistent with the

terms of the contract.

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Johnson v Perez (1988) 166 CLR 351 at 355

• The normal measure is the contract price less the market price at the contractual time fixed for completion.

• If the market price at the time fixed for completion exceeds the contract price the vendor has not suffered any damage by the loss of the bargain: Carpenter v McGrath (1996) 40 NSWLR 39 at 59.

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HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 667

• Where there is no readily available market a later date may be appropriate.

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HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 657[36]

• A key qualification which prevents the ordinary rule from being inflexible is that the test does not depend upon the difference between price and market value but instead depends on the difference between price and real value or fair value or fair or real value or intrinsic value or true value or actual value or what the asset was truly worth or really worth or what would have been a fair price to be paid in the circumstances.

• The distinction is an old and fundamental one. laina chanbarrister

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 657-8 [37]

• Other reasons why the law does not limit recovery by reference to market value is that subject to mitigation issues, the plaintiff is ‘not bound to sell them’.

• Another is that there may not be a market or if for some other reason the plaintiff is “locked in” to holding the asset. In each of these circumstances, the plaintiff may not have acted unreasonably in retaining the asset.

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HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 657-8 [37]

• market value may be disregarded if they are ‘delusive or fictitious’ because they are the result of ‘a fraudulent prospectus, manipulation of the market or some other improper practice on the part of the defendant’

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HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 668

• The comparison of price and value at the date of acquisition (which was the date of loss in the instant case) as a test may produce a fair result ‘if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired)’

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Filmlock Pty Ltd v Nissi Investments Pty Ltd (No 2) [2013] NSWSC 959

• Damages assessed at date of resale rather than date of breach

• Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146 – appeal on quantum

• NSWSC erred in concluding that difference between price payable under sale contract and price realised under resale contract represented appropriate measure of damages

• In an appropriate case, damages could be quantified at a time other than the date of breach

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