Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1989) 166 CLR 245 (17 March 1988)

HIGH COURT OF AUSTRALIA

SUNBIRD PLAZA PROPRIETARY LIMITED v. MALONEY and ANOTHER [1988] HCA 11; (1989) 166 CLR 245 F.C. 88/008

Vendor and Purchaser

High Court of Australia

Mason C.J.(1), Deane(2), Dawson(2), Toohey(2) and Gaudron(2) JJ.

CATCHWORDS

Vendor and Purchaser - Contract of sale of land - Balance of purchase price payable "upon settlement" - Purported rescission by purchaser - No settlement or conveyance - Guarantee of performance of contract - Whether accrued liability to make payment - Condition - Performance required prior to settlement - Whether actual date of settlement or date stipulated for settlement.

HEARING

Canberra, 1987, June 30; 1988, March 17. 17:3:1988

APPEAL from the Supreme Court of Queensland.

DECISION

MASON C.J. The facts of this matter are set out in the reasons for judgment prepared by Gaudron J.

2. I agree, for the reasons given by Gaudron J., that in the circumstances of the case the balance of the purchase price did not become a debt payable by Boheto Pty Ltd ("the purchaser") to the appellant vendor. The general rule, stated by Dixon J. in McDonald v. Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, at p 476, is that a vendor of land cannot sue for the price before the contract is completed by conveyance, unless the price is expressed to be payable on a fixed day, not being the day fixed for completion. Here the balance of the purchase price was payable "upon settlement". Settlement has not taken place and there has been no conveyance of the property sold. Once this is accepted, the appellant is faced with a daunting task in making good the submission that the respondent guarantors are liable under their joint and several guarantee to pay the balance of the purchase price and interest thereon, notwithstanding the absence of an accrued liability on the part of the purchaser to make the payment.

3. Discussion of the question must begin with the proposition, established by the cases on s.4 of the Statute of Frauds 1677 (U.K.) that a contract of guarantee is, subject to any qualifications made by the particular instrument, a collateral contract to answer for the debt, default or miscarriage of another who is or is contemplated to be or to become liable to the person to whom the guarantee is given: Re Conley; Ex parte the Trustee v. Barclays Bank, Ltd (1938) 2 All ER 127, at pp 130-131; Yeoman Credit Ltd v. Latter (1961) 1 WLR 828, at pp 830-831; (1961) 2 All ER 294, at p 296; Total Oil Products (Australia) Pty Ltd v. Robinson (1970) 1 NSWR 701, at p 703. Such a promise was required by s.4 of the Statute of Frauds to be evidenced in writing, unlike a contract of indemnity, which stands outside the statutory requirement: see Lakeman v. Mountstephen (1874) LR 7 HL 17, at pp 20-23. An indemnity is a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party: Yeoman, at pp.830-831; p.296 of All E.R.; Total Products, at p 703; Davys v. Buswell (1913) 2 KB 47, at pp 53-55.

4. In their endeavours to distinguish between a guarantee and an indemnity the courts have emphasized the difference between the guarantor's secondary liability and the indemnifier's primary liability: see, for example, the comments of Lord Esher M.R., in Baynton v. Morgan (1888) 22 QBD 74, at pp 77-78. There is an element of ambiguity in this distinction unless the reference to primary liability is understood to mean ultimate liability. Once default has occurred, the party having the benefit of the guarantee can call on the guarantor to honour his promise before calling on the principal contracting party to perform his obligation, but the guarantor, having honoured his promise, can hold the principal contracting party to account by virtue of the doctrine of subrogation. The distinction is also blurred by the different distinction which has been made in discussing breach of contract, notably by Lord Diplock in such cases as Lep Air Services Ltd v. Rolloswin Investments Ltd (reported sub nom Moschi v. Lep Air Services Ltd) (1973) AC 331, at pp 349-351, between the primary and secondary obligations of a party to a contract. And, just to add to the confusion, guarantees are sometimes expressed so as to impose a primary liability on the guarantor.

5. Because many guarantees are given in relation to the payment of debts, it is common to speak of the parties to the relationship as creditor, guarantor and principal debtor. However, the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee. Just as I may guarantee the payment of a debt so I may guarantee the performance of a contractual obligation which does not involve the payment of money.

6. So it is that a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.

7. In Moschi Lord Diplock stated (at p.348) that by the beginning of the nineteenth century the contractual promise of a guarantor to guarantee the performance by a debtor of his obligations to a creditor arising out of contract gave rise to an obligation on the part of the guarantor "to see to it that the debtor performed his own obligations to the creditor". According to his Lordship, it was because the guarantor's obligations took this form that the guarantor is not entitled to notice from the creditor of the debtor's default and that the creditor's cause of action against the guarantor arises at the moment of that default. This chain of reasoning led Lord Diplock to conclude (at p.348) that the obligation of the guarantor:

"... is not an obligation himself to pay a sum of

money to the creditor, but an obligation to see to

it that another person, the debtor, does something;

and that the creditor's remedy for the guarantor's

failure to perform it lies in damages for breach of

contract only."

Ltd v. Wright (1983) 2 NSWLR 348, at pp 350-352.

8. It may be that as a matter of history the view that the guarantor has an obligation "to see to it" that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor's default and why the creditor's cause of action arises on that default. But the view certainly does not accord with the nature of the guarantor's obligation as it is understood today. Rarely do guarantors have control of, or a capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation. It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise to "answer for" the debt or default of the debtor, is the true nature of the guarantor's obligation. And it may be doubted whether that view takes sufficient account of what has been said over the years in the long line of cases on s.4 of the Statute of Frauds.

9. The fact that at common law the creditor sued the guarantor in special assumpsit gives some support to the view that the guarantor's cause of action is for damages for breach of contract. However, the modern view that the guarantor promises to answer for the debtor's debt or default has led to the practice of suing the guarantor for the money sum which the debtor has failed to pay, a practice which may well have been adopted on the introduction of the Judicature Acts.

10. My own view of the matter accords with that expressed by Lord Reid in Moschi (at pp.344-345) where his Lordship rejected the notion that there was a common rule applicable to all guarantees and acknowledged that the parties are at liberty to make such agreement as they choose. There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor's obligation to pay arises on the debtor's failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.

11. It is significant that subsequently to Moschi the House of Lords in Hyundai Heavy Industries Co. Ltd v. Papadopoulos (1980) 1 WLR 1129; (1980) 2 All ER 29 affirmed a summary judgment given for the plaintiffs on a guarantee for the recovery of an instalment due but unpaid when the plaintiffs exercised a contractual power to terminate the principal contract. That contract was a contract to build and sell a ship, the buyer agreeing to pay by instalments. The first limb of the guarantee was expressed in these terms (at p.1151; p.46 of All E.R.):

"... we ... guarantee the payment in accordance

with the terms of the contract of all sums due or

to become due by the buyer to you under the

contract."

This, it was said, was a promise falling within the second class already mentioned. But the second limb of the guarantee continued (at p.1151; p.47 of All E.R.):

"... and in case the buyer is in default of any

such payment we will forthwith make the payment in

default on behalf of the buyer."

That was a conditional agreement to make any payment in default and fell within the first class of guarantee. Thus Hyundai Industries v. Papadopoulos demonstrates that some guarantees are enforceable otherwise than by an action for damages for breach of contract. Street J. expressed a similar view in Re Standard Insurance Co. Ltd (In Liquidation) and the Companies Act 1936 (1970) 1 NSWR 392, observing (at p 395):

"The terms of the guarantee given by Standard

extended to 'the due payment of all moneys which

shall become payable hereunder by way of principal

and interest by the borrower to you.' ... The

guarantor is both in terms and in substance sued

upon the obligation of the principal debtor, this

being the obligation the performance of which the

guarantor has underwritten by the guarantee. It is

the due fulfilment of this obligation that the

creditor is entitled to enforce against the

guarantor."

12. The appellant's argument is that the respondent guarantors were promising to pay a sum of money if the purchaser did not complete the contract. The terms of the guarantee do not support the argument. The respondents guaranteed "THE PERFORMANCE ... OF ALL THE TERMS AND CONDITIONS of the Contract including the payment of all moneys payable ... by the ... Purchaser". The respondents' promise was that the purchaser would perform its contractual obligations including the payment of all moneys payable under the contract. The promise falls within the second class discussed above, except, perhaps, in so far as the promise relates specifically to the payment of all moneys payable. In that respect the promise might well fall within the first category. Accordingly, if the balance of the purchase price had become payable, and had not been paid by the purchaser, the vendor might well have been entitled to sue the respondents for a liquidated amount, rather than claim damages for breach of contract. As it is, the balance of the purchase price did not become payable.

13. The appellant contends that this interpretation of the guarantee fails to give effect to the purpose which the guarantee must be taken to have served. The object of the guarantee was, so the argument runs, to enable the vendor to recover the price irrespective of the position between the vendor and the purchaser. The short answer is that the terms of the contract of sale, the guarantee and the matrix of circumstances in which the contract was entered into do not support this sweeping assertion. As we have seen, the terms of the guarantee are specific and clear upon this point. The respondents guaranteed performance of the terms and conditions of the contract, "including the payment of all moneys payable" under the contract. No doubt a promise by a purchaser to pay the balance of the purchase price "upon settlement" gives less protection to a vendor than a promise to pay on a date fixed for settlement. But this circumstance cannot justify reading the promise to pay "upon settlement" of the associated guarantee otherwise than according to its terms.

14. The appellant points to recent English decisions which appear to establish that in some circumstances a guarantor may be liable for the payment of instalments by the debtor which would have been recoverable by the debtor, had he paid them, from the creditor by way of relief against forfeiture: see Hyundai Shipbuilding & Heavy Industries Co. Ltd v. Pournaras (1978) 2 Lloyd's Rep 502, at p 508; Hyundai Industries v. Papadopoulos, at pp 1142-1143, 1152; pp 40-41, 47-48 of All ER These decisions turn on the terms of particular transactions and the circumstances in which they were entered into. They are not decisions which can influence the construction of the respondents' guarantee in this case.

15. The appellant also cites Ross v. Gilmer & Gilmer (1932) NZLR 507 and Western Dominion Investment Co. Ltd v. MacMillan (1925) 2 DLR 442. Ross is plainly distinguishable on the ground that the guarantor who was held liable had guaranteed the punctual payment of all purchase moneys, such moneys having become payable pursuant to a default provision in the contract, there being default on the part of the purchaser in the payment of an instalment. Likewise, in Western Dominion Investment, where the guarantors were also held liable, the purchase price was held to be a debt due by the purchaser under the contract of sale (at pp.444-445, 447). Accordingly, neither Ross nor Western Dominion Investment has any relevance to this case.

16. The appellant's submission that the judgment which it obtained at first instance can be supported as an award of damages for breach of contract encounters several difficulties. First, the appellant's claim was never litigated as an action for damages. It was argued and dealt with as a claim for the balance of the purchase price and interest. Secondly, so long as the order for specific performance remained on foot, the appellant was unable to bring the contract to an end. Thirdly, it has not been established that, even if it could bring the contract to an end, the appellant took the necessary steps to do so. And, finally, in order to succeed in an action for damages, the appellant must show that the contract is at an end. These points, with the exception of the first, require some elaboration.

17. There is a line of English authority to support the proposition that a plaintiff who has obtained an uncompleted order for specific performance cannot accept the defendant's subsequent repudiation of the contract and treat it as at an end: Halkett v. Earl of Dudley (1907) 1 Ch 590, at p 601; Johnson v. Agnew (1980) AC 367, at pp 393-394; Austins of East Ham Ltd v. Macey (1941) Ch 338; and see Sudagar Singh v. Nazeer (1979) Ch 474, at p 480. These decisions and the proposition for which they stand have been strongly criticized: see Meagher, Gummow & Lehane, Equity - Doctrines & Remedies, 2nd ed., 1984, par.2053, at pp.504-507; but see Jackson, "Chimerical Heresies" (1981) 97 Law Quarterly Review 26. The criticism rests largely on the reasoning in the judgment of Gibbs, Mason and Jacobs JJ. in Ogle v. Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444. There the Court refused to follow Public Trustee v. Pearlberg (1940) 2 KB 1 which held that a party who has commenced proceedings for specific performance cannot be allowed to rescind without first discontinuing his action for specific performance.

18. Gibbs, Mason and Jacobs JJ. said (at pp.460-461):

"Legal rights are not affected at law by the mere

existence of an action for specific performance

though they are affected by the election involved

in its institution. However, in equity a party

would not in certain circumstances have been

allowed to rescind a contract if his action for

specific performance was still pending. That is

the effect of the decision in Warde v. Dixon (1858)

28 L J Ch 315. It is a very understandable rule

of equity ..."

Later, with reference to the rule established by Public Trustee v. Pearlberg, their Honours said (at p 461):

"But is this a rule applicable to all cases where

an action for specific performance is or has been

pending? ... It seems to us that it is not. If a

party has by his conduct shown and continues to

show an intention never to complete the contract,

especially where his conduct by express act or by

implication is not consistent with an intention to

perform the contract pursuant to any judgment for

specific performance, then it must be open to a

vendor to rescind even if there is current an

action for specific performance. If there is a

further breach of an essential term or some further

conduct amounting to a repudiation while the action

for specific performance is pending, the existence

of the action will not then prevent the vendor

electing to rescind ..."

19. These comments fall distinctly short of overruling the much earlier decision of this Court in Facey v. Rawsthorne [1925] HCA 10; (1925) 35 CLR 566. There Higgins J. (at p 588) expressly accepted the statement of Parker J. in Halkett v. Earl of Dudley (at p 601) that "after a decree of specific performance, a defendant purchaser cannot repudiate ... the contract without the leave of the Court". Knox C.J. and Isaacs J. acquiesced in accepting the propriety of the procedure adopted in that case, namely, an application to the court for leave to repudiate, a decree for specific performance having been made previously. In more recent decisions in New South Wales it has been accepted that the leave of the court is necessary for rescission after an order for specific performance: JAG Investment Pty Ltd v. Strati (1981) 2 NSWLR 600; Stevter Holdings Pty Ltd v. Katra Constructions Pty Ltd (1975) 1 NSWLR 459. In the light of the existing authorities, particularly Facey v. Rawsthorne, there being no argument challenging their correctness, we should continue to apply the proposition that rescission after an order for specific performance requires the leave of the court or, more appropriately, the vacation of the order. These authorities proceed on the footing that once a plaintiff has obtained an order for specific performance of a contract, he cannot be permitted to act inconsistently by rescinding it so long as the defendant is required by order of the court to complete the contract.

20. The consequence is that the appellant cannot rely on having brought the contract of sale to an end by accepting a repudiation by the purchaser. And, even if the appellant might have brought the contract to an end in this way without the leave of the court or without vacating the order for specific performance, the evidence does not warrant a finding that the appellant has done so.

21. Loss of bargain damages are recoverable only if the contract is at an end. Once termination due to the defendant's wrongful conduct is established the plaintiff is entitled to damages for loss of bargain: Dominion Coal Co. Ltd v. Dominion Iron & Steel Co. Ltd (1909) AC 293, at p 311. Barwick C.J. suggested in Ogle, at p 450, that termination is not an essential element in an action for loss of bargain damages, except in the case of anticipatory breach, but the preponderant opinion in Australia and England is against his view: see Ogle, at p.458, per Gibbs, Mason and Jacobs JJ.; Progressive Mailing House Pty Ltd v. Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, at p 31, per Mason J. (with whom Wilson and Deane JJ. agreed generally, and Dawson J. agreed); Photo Production Ltd v. Securicor Ltd [1980] UKHL 2; (1980) AC 827, at pp 844-845, 849.

22. It is impossible to see how loss of bargain damages, had they been recoverable, would have equalled the amount of the judgment awarded to the appellant at first instance. As the appellant would have retained the property, its loss of profit would not have equalled the purchase price less the deposit which had been paid, this amount being the foundation of the judgment awarded by the primary judge. The value of the property would certainly have exceeded the amount of the deposit so that the profit element would have been a lesser amount than the balance of the purchase price.

23. However, this conclusion does not in itself justify judgment for the respondents in the action. There was a claim for damages, though it was not litigated. The respondents argue that they are entitled to judgment on the ground that letters of notice given by the purchaser on 25 June 1982 validly terminated the contract, notwithstanding that the ground assigned in the notice, the appellant's failure to comply with sub-ss.(1), (2) and (3) of s.49 of the Building Units and Group Titles Act 1980 (Q.) was held as between the appellant and the purchaser to be without substance in the appellant's action for specific performance. The respondents, not being parties to that action, are not bound by the finding that the purchaser did not validly terminate the contract for sale.

24. The respondents submit that the purchaser's termination was effective because the appellant was in breach of its obligations under cll.4 and 5(b) of the contract. For the reasons given by Gaudron J. I agree that the appellant was not in actual breach of cll.4 or 5(b) of the contract.

25. There remains for consideration the question whether the purchaser's termination of the contract can be sustained on the footing that the appellant's failure to bring about an appropriate amendment to the by-laws of the body corporate, so as to secure to the purchaser on or before 25 June 1982 the exclusive use of the relevant car parking space, amounted to an anticipatory breach by the appellant of its obligation under cl.3(a) to settle by that date. Clause 4 required the vendor to bring about such an amendment to the by-laws "prior to settlement". The date fixed by the contract for settlement was 25 June 1982, time being, as cl.10 provided, "of the essence" in this respect. A resolution providing for an appropriate amendment of the by-laws was passed on or before 25 June, but it was not lodged for registration until 29 June and was not registered until 13 July 1982. An amendment to the by-laws is of no effect until registered: s.30(3) of the Building Units and Group Titles Act.

26. Shepherd v. Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance. This Court applied the principle of Shepherd v. Felt & Textiles to a case of anticipatory breach arising from the vendor's inability to complete a contract for the sale of conditional leases: Rawson v. Hobbs [1961] HCA 72; (1961) 107 CLR 466, at pp 480, 491. And subsequently the Court treated the principle as capable of having application to anticipatory breach arising from repudiation and renunciation: D.TR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) [1978] HCA 12; 138 CLR 423, at pp 431-433. We are not concerned with earlier and inconsistent English decisions on the question. It is sufficient to note that in Universal Cargo Carriers Corporation v. Citati (1957) 2 QB 401 Devlin J. (at pp 443-446) expounded the principles as this Court has expressed them, observing (at p 446) that a party who has terminated on an incorrect ground can justify his termination if the other party had "become wholly and finally disabled" from performance at the time "at which the inability must exist".

27. But it does not follow that a party who attempts to terminate on an incorrect ground can always support his termination by reference to an anticipatory breach by the other party existing at the time of termination. The circumstances in which the attempted termination takes place may be such as to amount to a repudiation or at least to an absence of readiness and willingness to perform the contract on the part of the party seeking to terminate the contract: see the discussion in D.T.R. Nominees, at pp.433-434. This was not the case in Rawson v. Hobbs or D.TR Nominees.

28. In Brien v. Dwyer [1978] HCA 50; (1978) 141 CLR 378 Jacobs J. considered (at p 403) that in some circumstances a party would not be entitled to rescind under this principle for breach of an essential condition which has been cured before the party became aware of it. His Honour was dealing specifically with the late payment of a deposit under a contract for the sale of real estate which made the payment of the deposit on the signing of the contract an essential condition. The purchaser subsequently purported to terminate the contract on a ground which could not be sustained, without being aware at that time that the deposit which had then been paid had been paid late. Jacobs J. thought that it was unfair or inequitable that a party could terminate the contract for breach of an essential condition, when at the time of discovery of the breach that party was obtaining all that he was entitled to get under the contract (at p.404). However, Jacobs J. was in dissent, the majority of the Court (Barwick C.J., Gibbs, Stephen and Aickin JJ.) holding that the termination was effective because the deposit was paid late. See also Streatfield v. Winchcombe Carson Trustee (Canberra) (1981) 1 NSWLR 519, at p 523, where Wootten J., though expressing his preference for the approach taken by Jacobs J., followed the majority decision.

29. I doubt whether it is entirely accurate to speak of the breach as one which is "cured" in cases of this class. The fact is that the breach is remedied in the sense that the substantial obligation, payment of the deposit has been performed. Nonetheless the party has performed the obligation in such a way as to commit a breach of an essential condition of the contract. The question then is whether a court in such a situation will relieve against the innocent party's right to terminate for breach of essential condition. Legione v. Hateley [1983] HCA 11; (1983) 152 CLR 406 establishes that in exceptional circumstances the Court will grant relief against forfeiture for unconscionable conduct. There may be other situations in which the breach of a term expressed to be an essential condition is so trivial and insignificant that an attempt to take advantage of it for the purpose of terminating the contract would violate the dictates of fair dealing or would amount to unconscionable or inequitable conduct and give rise to a case for relief. That is a complex question. It would involve an examination of such cases as Panchaud Freres S.A v. Et. General Grain Co. (1970) 1 Lloyd's Rep 53 and Berg v. Vanden (1977) 1 Lloyd's Rep 499. But as things stand, especially as the question has not been debated in argument, we should apply Brien v. Dwyer and approach the matter on the footing that an anticipatory breach by the vendor would have supported the purchaser's termination on 25 June 1982.

30. Anticipatory breach may occur by reason of repudiation or renunciation of contractual obligations or by reason of inability to perform them. Here the respondents argue that the appellant was unable to procure registration of the amended by-laws on or before 25 June and that this inability amounts to an anticipatory breach. But, as we have already seen, the obligation to amend the by-laws under cl.4 was to be performed "prior to settlement", not before the date fixed for settlement by the contract. The existence of an anticipatory breach for inability to perform is accordingly to be determined at settlement, whenever that takes place, not at the date fixed for settlement. The purchaser, by terminating the contract on 25 June on an unsustainable ground and not attending on settlement on that day, effectively ensured that 25 June was not the day of settlement, thereby bringing about a situation in which the appellant had more time in which to perform its obligation to secure registration of the altered by-laws. By its own act in refusing to attend on settlement the purchaser deprived itself of the right to terminate for breach of cl.4. On this aspect of the case I agree with the reasoning of Connolly J. and that of McPherson J., speaking for the Full Court of the Supreme Court of Queensland in Dainford Ltd v. Juana Pty Ltd (1986) 1 QdR. 396. This conclusion is reinforced by the comment of Devlin J. in Citati, at p 446, to which I referred earlier, namely, that the party asserting termination must show that the other party was "wholly and finally disabled" from performance on the date "at which the inability must exist". That was the date of settlement, not the date fixed for settlement. Accordingly, the termination by the purchaser cannot be justified on the ground of anticipatory breach.

31. The ultimate question for consideration is: what form of order should the Court now make? I have already referred to the appellant's outstanding claim for damages. That alone requires that the matter be remitted to the Supreme Court. But there are two other possibilities to be mentioned. First, the appellant may decide that specific performance is no longer possible, that the order for specific performance should be vacated, that it should seek to have the proceedings against the purchaser brought on again with the present proceedings or to join the purchaser as an additional defendant in the present proceedings so that it might seek damages against the purchaser as well as the existing defendants: see The Judicature Act 1876 (Q.), s.4(8); see also Johnson v. Agnew, at p 394. Alternatively, the appellant may decide to take steps which might entitle it to maintain against the respondents an action on the guarantee for the balance of the purchase price as a debt then due and payable. If the appellant were to tender to the purchaser a registrable transfer of the unit, the purchaser might then come under a liability to pay the balance of the purchase price. And in that situation, in the event of non-payment by the purchaser, the respondents would come under a like liability. It would be a mistake to frame an order disposing of the issues argued in the present case without taking into account this possibility. An order finally disposing of the case should be moulded in such a way as to determine, as far as possible, the entirety of the controversy between the parties. However, in the absence of argument upon the questions just raised, it would be inappropriate for this Court to make any declaration as to the rights of the appellant against the respondents. In all the circumstances it is preferable that we should allow the appeal and remit the matter to the Full Court of the Supreme Court to be dealt with in accordance with the judgment of this Court and on the footing that it will be in a position to frame a declaration, if it be appropriate, and an order, after hearing argument from the parties: see Rawson v. Hobbs, at p 485.

32. I would set aside the judgment of the Full Court of the Supreme Court except to the extent that that judgment set aside the judgment of the trial judge. I would remit the matter to the Full Court to be dealt with in accordance with the judgment of this Court. In view of the fact that the appellant has failed on the main point of the appeal to this Court but has succeeded in having the judgment of the Full Court set aside, there should be no order as to the costs in this Court. The costs of the proceedings in the Supreme Court can be left to be dealt with by the Full Court.

DEANE J. I agree with the judgment of the Chief Justice.

DAWSON J. I agree with the Chief Justice.

TOOHEY J. I have read the judgment of Mason C.J. I agree with his Honour's reasons and with the orders he proposes.

GAUDRON J. Under a contract of sale made 27 May 1981, Sunbird Plaza Pty. Ltd. ("the appellant") agreed to sell and Boheto Pty. Ltd. ("the purchaser") agreed to purchase a home unit on the Gold Coast for the sum of $148,500.00. A deposit of $14,850.00 was paid on exchange of contracts, and the balance purchase price was payable on settlement. No settlement has yet taken place.

2. Annexed to the contract of sale was a guarantee executed by Cyril Gardner Maloney and Margaret Mary Cussan ("the respondents") by which they jointly and severally guaranteed:

"... THE PERFORMANCE BY the said abovementioned

Purchaser OF ALL THE TERMS AND CONDITIONS of the

Contract including the payment of all moneys

payable hereunder by the said abovementioned

Purchaser".

3. Clause 3(a) of the contract of sale between the appellant and the purchaser provided that:

"Settlement shall take place within 14 days after

notice from the Vendor or its Solicitors to be

(sic) Purchaser or his Solicitors that the relevant

Building Unit Plan has been registered at the Real

Property Office, Brisbane ..."

Clause 10 provided that "Time shall be of the essence of this Contract".

4. The Building Unit Plan was registered on 10 June 1982. The purchaser's solicitors were so advised on 11 June 1982 and were informed that settlement was due within fourteen days. By letters and notice dated 24 June 1982 and received by the appellant's solicitor on 25 June 1982, the purchaser gave notice stating that it thereby "voided" the contract. The appellant elected to treat the contract as still on foot and instituted proceedings against the purchaser for specific performance in the Supreme Court of Queensland. An order for specific performance was made. As at the time of the hearing of this appeal that order had not been complied with, and no application had been made by the appellant for its discharge.

5. The question which arises on this appeal is whether the appellant is entitled to look to the respondents as guarantors for payment of the money payable by the purchaser to complete the contract. To this end the appellant commenced proceedings in the Supreme Court of Queensland. At first instance Connolly J. found for the appellant and entered judgment in its favour in the sum of $224,167.01. The judgment sum was made up of the balance purchase price payable under the contract ($133,650.00), interest thereon at the rate of $58.59 per day from 26 June 1982 - the day following the day on which settlement should have taken place in accordance with the contract - and an amount of $6,673.00 for rates, levies and stamp duty on the contract. Although it is not expressly so stated in his Honour's reasons for judgment, it would seem that the inclusion of interest in the judgment sum was made by reference to the terms of the order for specific performance, which in turn gave effect to the provisions of cl.7 of the contract which provided for interest on the balance of the purchase price at the rate of sixteen per centum from the date provided for payment by cl.3 until the date of payment. That judgment was set aside on appeal by the Full Court of the Supreme Court of Queensland (Kelly S.P.J., Matthews and Shepherdson JJ.) and in lieu it was ordered that the respondents (defendants in the action) have judgment in the action. From that judgment and order the present appeal is brought.

6. In the Full Court Kelly S.P.J., with whom Matthews J. agreed, held that the appellant was only entitled to recover damages from the respondents for breach of their contract of guarantee. His Honour further held that damages were not recoverable whilst the contract between the purchaser and the appellant remained on foot. Shepherdson J. was of the view that the respondents were obliged by their guarantee to pay the balance purchase price if the purchaser failed to do so. However, his Honour found that the purchaser had rescinded the contract and accordingly no moneys were payable.

7. In this Court the primary argument advanced on behalf of the appellant was that the balance purchase price was a debt payable by the purchaser notwithstanding that the contract had not been completed by conveyance and that the respondents' guarantee required them to discharge the indebtedness of the purchaser. Alternatively, it was argued that under the guarantee the respondents assumed a liability to pay the balance purchase price if the purchaser failed to do so. Finally, it was submitted that a claim for damages based on breach of the guarantee would lead to the same judgment as was entered at trial.

8. The appellant's primary argument may be disposed of shortly. Under the contract of sale the purchaser agreed to pay the balance purchase price "upon settlement". A contractual provision in that form would normally be expected to attract the operation of the general rule that a vendor of land is not entitled to sue for the purchase price payable under a contract which has not been completed by conveyance. The general rule may be excluded by a contrary intention expressed in the contract. In McDonald v. Dennys Lascelles Ltd. [1933] HCA 25; (1933) 48 CLR 457, the position was put by Dixon J. as follows (at p 476):

"The general rule, however, that in an executory

contract for the sale of land the vendor cannot sue

for the price is excluded whenever a contrary

intention is shown by the express terms of the

contract. And it seems established by authority

that a contrary intention is sufficiently shown in

all cases in which by the express terms of the

contract the purchase money or any part thereof is

made payable on a fixed day, not being the agreed

day for the completion of the contract by

conveyance. In all such cases the purchase money

or such part thereof becomes, on the day so fixed

for its payment, a debt immediately recoverable by

the vendor irrespective of the question whether a

conveyance has been executed and notwithstanding

the fact that the purchaser may have repudiated his

contract."

9. It is unnecessary in the present case to consider the nature of the debt thus recoverable, and the precise circumstances in which a debt thus recovered may be retained by a vendor who does not give a conveyance of the property: see McDonald v. Dennys Lascelles Ltd., at pp 477-478; Automatic Fire Sprinklers Pty. Ltd. v. Watson [1946] HCA 25; (1946) 72 CLR 435, at pp 464-465 and Legione v. Hateley [1983] HCA 11; (1983) 152 CLR 406, at pp 456 and 458.

10. It was argued on behalf of the appellant that cl.3(c) of the contract made it clear that the purchaser, although entitled to a transfer, was not entitled to a conveyance. This being so, the argument ran, the contract evinced an intention that the balance purchase price was recoverable as a debt as and from the time fixed by the contract for settlement.

11. Even if it be correct that the purchaser is not entitled to a conveyance, that does not alter the fact that under the contract the balance purchase money is payable "upon settlement", and not upon the date fixed by the contract for settlement. It is not to the point (if it be the case) that as at the date fixed by the contract for settlement, the appellant had done everything on its part necessary for settlement to take place, for the contract makes it clear that settlement can only take place with the active participation of the purchaser. For example, by cl.3(c), if the Certificate of Title is unavailable then the purchaser is to accept an undertaking that the Certificate will be produced to permit registration of the Memorandum of Transfer, and by cl.3(g) the purchaser is required to produce a copy of notice "completed in every respect in accordance with the requirements of ... Section 53(2)(a) (of the Building Units and Group Titles Act 1980 (Q.)) and duly executed by the Purchaser". Settlement, quite plainly, did not occur. The balance purchase price thus did not become a debt payable by the purchaser to the appellant, and as such, payable by the respondents pursuant to their guarantee.

12. The argument that the respondents themselves became liable to pay the balance purchase price was made by reference to what was claimed to be the nature of the guarantee having regard to its commercial purpose. In this context it was submitted that the obligation arising under a guarantee is not merely an obligation to pay damages in the event of breach, but may encompass an obligation to perform the contractual terms guaranteed.

13. Certain statements can be found in the decided cases suggesting that the obligation of a guarantor is to discharge the primary obligation of the party guaranteed. In Hyundai Heavy Industries Co. Ltd. v. Papadopoulos (1980) 1 WLR 1129, at pp 1142-1143; (1980) 2 All ER 29, at p 40, Lord Edmund-Davies adopted as correct a statement by Roskill L.J. in Hyundai Shipbuilding & Heavy Industries Co. Ltd. v. Pournaras (1978) 2 Lloyd's Rep 502, at p 508 in relation to a guarantee of payment of instalments due under a ship-building contract that the object of the guarantee there under consideration was:

"to enable the yard to recover from the guarantors

the amount due irrespective of the position between

yard and buyers, so that the yard gets its money

from the guarantors without difficulty if the yard

cannot get it from the buyers".

See per Lord Fraser of Tullybelton (at p.1152; p.47 of All E.R.) where the statement of Roskill L.J. was also adopted as correct.

14. In Neptune Oil Co. Pty. Ltd. v. Fowler (1963) 63 SR(NSW) 530, it was said in relation to an action on a guarantee for payment of money lent by a money-lender who was subject to the provisions of the Moneylenders and Infants Loans Act 1941 (N.S.W.) (at pp.535-536):

"It is submitted that this is an action to

enforce a guarantee and not for the recovery of

money lent. We do not think there is any substance

in this submission. The very object of requiring

the guarantee in the first place was to ensure that

the plaintiff, if it could not recover the money

lent from the principal debtor, would be able to

recover it from the guarantor. Although the action

is to enforce a guarantee it is nevertheless for

the recovery of the money lent."

15. Where there is a guarantee of payment of a debt there will commonly be an exact correspondence between the obligation of the guarantor and the obligation of the principal debtor. In those circumstances it is appropriate to speak of the guarantor's obligation as an obligation to discharge the primary obligation of the party guaranteed. But even if there is an exact correspondence, that correspondence is not the result of any meaning attributed in law to the word "guarantee". Nor is it the result of legal conception as to the nature of a guarantee. The correspondence, if it exists, derives from the terms of the contract of guarantee. The position is as stated by Lord Reid in Lep Air Services Ltd. v. Rolloswin Investments Ltd. (reported sub nom Moschi v. Lep Air Services Ltd.) (1973) AC 331, at pp 344-345:

"I would not proceed by saying this is a contract

of guarantee and there is a general rule applicable

to all guarantees. Parties are free to make any

agreement they like and we must I think determine

just what this agreement means.

With regard to making good to the creditor

payments of instalments by the principal debtor

there are at least two possible forms of agreement.

A person might undertake no more than that if the

principal debtor fails to pay any instalment he

will pay it. ...

On the other hand, the guarantor's obligation

might be of a different kind. He might undertake

that the principal debtor will carry out his

contract. Then if at any time and for any reason

the principal debtor acts or fails to act as

required by his contract, he not only breaks his

own contract but he also puts the guarantor in

breach of his contract of guarantee. Then the

creditor can sue the guarantor, not for the unpaid

instalment but for damages. His contract being

that the principal debtor would carry out the

principal contract, the damages payable by the

guarantor must then be the loss suffered by the

creditor due to the principal debtor having failed

to do what the guarantor undertook that he would

do."

16. The appellant relied on Ross v. Gilmer and Gilmer (1932) NZLR 507 and Western Dominion Investment Company Ltd. v. MacMillan (1925) 2 DLR 442 as examples of guarantees which were worded in similar terms to the guarantee presently under consideration and which were held to oblige the guarantors to make payments of purchase moneys payable under contracts for the sale of land.

17. In Gilmer the contract was an instalment contract. The vendor was not the registered owner of the land. The contract specified a fixed date for completion by conveyance. That date was fixed by reference to the time at which the vendor would himself take title. The contract further provided that all purchase moneys should become immediately due and payable in the event of default being made in the payment of any instalment. Default occurred. As the purchase moneys became a debt payable on default the question was not whether the guarantee obliged the guarantor to discharge the purchaser's contractual obligation, but whether the guarantor was liable under the terms of the guarantee to make payment in respect of the unpaid debt of the purchaser. The case therefore is of no assistance to the appellant.

18. The decision in Western Dominion Investment is also of no assistance to the appellant. That case concerned the assignment by an unpaid vendor company of its contractual rights under an instalment contract for sale to a third party. The directors of the vendor company gave their "joint and several personal convenants for the due fulfilment by the purchaser named in the said agreement of the covenants on his part therein expressed or implied" (p.443). It is not clear from the report of the case, either at first instance or on appeal ((1925) 4 D.L.R. 562), as to what terms were contained in the agreement for sale. However, it is clear from the report of the case at first instance (p.444) that the unpaid instalment was treated as a debt due and payable by the purchaser. Moreover, the guarantee itself was construed, not as a promise to perform the contractual obligations of the purchaser, but as a promise to pay the principal debt: see the report at first instance, at p.445.

19. The decisions in Gilmer and Western Dominion Investment recognized in clear terms that the question of the effect of the guarantees there in question was to be answered by the construction of the guarantees given. So it is in the present case.

20. The guarantee does not in terms oblige the respondents to pay the balance purchase price in the event of the purchaser's failure to complete the contract. In a context where, as here, the purchase price is payable by the purchaser upon settlement and is not recoverable as a debt prior to settlement, a promise of "performance by the ... purchaser of all the terms and conditions of the contract including the payment of all moneys payable ..." does not, standing alone, import an obligation that the respondents will themselves pay the balance purchase price if the purchaser fails to do so. Such an obligation, if it exists, must be spelt out from the word "guarantee" in its particular contractual setting. In my view, the contractual setting does not permit of such an exercise when regard is had to cl.11.

21. Clause 11 of the contract enabled the purchaser to nominate another purchaser in its place. If the nominee purchaser is a company the nomination must be accompanied by the guarantee of two or more directors "(i)n the form of the Guarantee set out in the Fourth Schedule of this Agreement", that is, in the form executed by the respondents. The clause then provided that upon nomination of another purchaser:

"... this Contract will continue in full force as

if made between the Vendor and the nominee PROVIDED

THAT the purchaser undertakes and guarantees the

due and punctual payment of all moneys payable

hereunder including but without limitation purchase

moneys, rates and other adjustments and moneys

payable pursuant to Clause 7 of this Agreement and

in the manner and at the times and places herein

provided AND ALSO the due and punctual performance

and observance by the nominee or nominees of each

and every of the terms conditions and agreements

hereof ..."

22. Clause 11 itself recognizes and points to the difference in form between the respondents' guarantee and the guarantee to come into operation in the event of the purchaser nominating another purchaser in its place. By that latter guarantee the would-be guarantor (the original purchaser) expressly "undertakes ... the due and punctual 1 payment of ... purchase moneys ... in the manner and at the times and places ... provided". In the light of that express undertaking in the form of guarantee incorporated into cl.11 there is no basis for reading into the quite differently worded guarantee given by the respondents an obligation on their part to pay the balance purchase price in the event of the purchaser's failure to do so in accordance with the contract.

23. As the balance purchase price was not recoverable from the respondents either by reason that it was a debt owed by the purchaser and covered by the guarantee or by reason that the respondents assumed an obligation to pay if the purchaser failed to make payment in accordance with the contract, I turn to consider the appellant's submission that a claim for damages based on the respondents' breach of their contract of guarantee would lead to the same judgment as was entered at trial. In this context it is relevant to note that the appellant's amended statement of claim included a claim for damages. However, it seems that both at first instance and in the Full Court the appellant argued its case on the basis of a contractual obligation on the part of the respondents to pay the balance purchase price, and not on the basis of their liability in damages for breach of contractual obligation to ensure that the purchaser would perform its obligations under the contract.

24. Assuming that the contract remains on foot, there can be no doubt that the respondents are in breach of their contract of guarantee. The purchaser did not discharge its obligation to settle in accordance with the contract and thereby put the respondents in breach of their guarantee.

25. Where, as here, a guarantor merely promises that another person will perform obligations under a contract, the damage flowing from the breach of the contract of guarantee must be the same as the damage flowing from the breach of the guaranteed obligation.

26. The damages which the law recognizes as flowing to and recoverable by a vendor of land for breach by a purchaser of his obligation to purchase are damages for loss of bargain and consequential loss. But there is no loss of bargain whilst the contract remains on foot. It is for this reason that a vendor must bring his contractual obligation to sell to an end before he can maintain an action for damages for loss of bargain: see Buchanan v. Byrnes [1906] HCA 21; (1906) 3 CLR 704, at p 715; Ogle v. Comboyuro Investments Pty. Ltd. [1976] HCA 21; (1976) 136 CLR 444, per Gibbs, Mason and Jacobs JJ., at p 458 and Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd. [1985] HCA 14; (1985) 157 CLR 17, per Mason J., at p 31 (Wilson and Deane JJ. agreeing generally and Dawson J. agreeing) but cf. Barwick C.J. in Ogle, at p.450, where it was suggested that termination is not an essential element of a claim for loss of bargain damages except in the case of anticipatory breach. The idea that termination of the contract is necessary before damages for loss of bargain can be obtained underlies the distinction made by Lord Diplock in Photo Production Ltd. v. Securicor Ltd. [1980] UKHL 2; (1980) AC 827, at p 849 between the "general" secondary obligation to pay damages arising from the breach of any contractual obligation and an "anticipatory" secondary obligation to pay damages which only arises on termination of the primary contractual obligations.

27. An "innocent" vendor may bring his contractual obligations to an end notwithstanding that he has obtained an order for specific performance, provided that the order is first vacated, for a contract for sale of land does not merge in a judgment for specific performance: Austins of East Ham Ltd. v. Macey (1941) Ch 338, at p 341; Johnson v. Agnew (1980) AC 367, at pp 393-394.

28. In the present case the appellant did not bring its contractual obligations to an end, and thus has not put itself in the position where its bargain has been lost so that damages for such are recoverable either from the purchaser or from the respondents as guarantors. Accordingly, in my view, it was correctly held by Kelly S.P.J. and Matthews J. that the appellant was not entitled to the judgment entered in its favour at first instance. It remains to be considered whether the respondents are entitled to judgment in the action as ordered by the Full Court of the Supreme Court of Queensland.

29. As previously noted, the appellant's statement of claim included a claim for damages. In this Court the appellant sought to rely upon that claim in the context of the argument advanced on its behalf that a claim for damages based on breach of the guarantee would lead to the same judgment as was entered at first instance. However, at no stage has the appellant sought to make a case in damages against the respondents. That case, as was recognized by Kelly S.P.J., is a case which may be put in the event that the appellant brings its contract with the purchaser to an end. That case not having been put, the mere failure of the appellant to sustain its verdict does not entitle the respondents to judgment in the action. It thus becomes necessary to consider whether they are entitled to judgment in the action by reason that the purchaser brought its contractual obligations to an end by its notice dated 24 June 1982 as was argued on behalf of the respondents.

30. The respondents' argument that the purchaser brought the contract to an end was made by reference to cll.4 and 5(b) of the contract for sale. Before turning to these provisions it is appropriate to note the relevant facts. By letters and notice dated 24 June 1982 and delivered to the appellant's solicitors on 25 June 1982, the purchaser notified the appellant's solicitor that it thereby "voided" the contract on the ground of the appellant's failure to comply with sub-ss.(1), (2) and (3) of s.49 of the Building Units and Group Titles Act. That particular ground was found against the purchaser in the proceedings for specific performance and is not now relied upon.

31. Although, by reason of the judgment given in the action by the appellant against the purchaser for specific performance, it is no longer open to the purchaser to claim that its contractual obligations were brought to an end, it was claimed on behalf of the respondents, and no contrary argument was put on behalf of the appellant, that as the respondents were not parties to that action, it is open to them to argue that the purchaser in fact brought its contractual obligations to an end.

32. It was contended on behalf of the respondents that although the purchaser was not entitled to terminate its contractual obligation on the ground specified in its notice of 24 June 1982, nonetheless the notice was effective to terminate its obligations because the appellant was then in breach of its obligations under cll.4 and 5(b) of the contract. It is not in dispute that if the appellant was then in breach of an obligation entitling the purchaser to bring its contractual obligations to an end, the notice effected that result notwithstanding that the purchaser did not know of or rely upon that breach: see Shepherd v. Felt and Textiles of Australia Ltd. [1931] HCA 21; (1931) 45 CLR 359.

33. Clause 4 of the contract provided:

"CAR SPACE

4. The vendor will ensure that prior to

settlement the By-laws of the Body Corporate brought into existence upon the registration of the Building Units Plan will be so amended as to, inter alia, together with any notice required to be given pursuant to such By-Laws, grant to the proprietor for the time being of the said unit the exclusive use of the said unit (sic) the exclusive use for car parking and/or storage of that part of the common property outlined in BLUE on the plan in the CAR SPACE SCHEDULE hereto being the Ninth Schedule."

34. It seems from the judgment of Shepherdson J. in the Full Court that, although a resolution had been passed by 25 June 1982 to amend the by-laws, the amended by-laws were not registered until 13 July 1982. By s.30(3) of the Building Units and Group Titles Act an amendment to the by-laws has no effect until registered. Thus, as at the date fixed by the contract for settlement (25 June 1982) the by-laws had not been amended so as to give the purchaser exclusive use of the car space for which it contracted. It was argued on behalf of the respondents that the appellant's failure to have the by-laws amended by 25 June 1982 was a breach of an essential term, time having been made of the essence by cl.10, upon which the notice forwarded by the purchaser acted so as to bring the purchaser's contractual obligations to an end.

35. In Dainford Ltd. v. Smith [1985] HCA 23; (1985) 155 CLR 342 this Court considered a clause not relevantly different from cl.4 of the contract between the appellant and the purchaser. In that case Brennan J. (at p.365) said:

"The vendor's obligation was to ensure that a

by-law ... was brought into existence 'prior to

settlement'. 'Settlement' in the contract is used

to describe the event of settlement, not the date

fixed for settlement. For example, provision is

made for interest 'on late settlement'. The vendor

was not in breach of its obligation under cl.5(a)

of the contract unless, being called on by the

purchasers to settle, the relevant by-law was not

then in existence. The purchasers did not call on

the vendor to settle. They refused to settle on

the date fixed by the vendor's solicitors. It

follows that the vendor's failure to ensure that

the relevant by-law was brought into existence is

not an actual breach of its obligations under

cl.5(a)."

Mason J. (at p.353) agreed with his Honour's remarks on this aspect of the case.

36. Although there are some differences between the contract under consideration in Dainford Ltd. v. Smith and the present contract (including that in the present contract time was of the essence), cl.4 clearly operates by reference to the event of settlement and not the date fixed by the contract for settlement. There could be no actual breach of cl.4 without the purchaser having attended for settlement on 25 June 1982. Even had the purchaser so attended, perhaps no actual breach would have been established until it was clear that the provision could not be complied with on that day. Moreover it cannot be said that the appellant was in actual breach of its obligation under cl.4 merely because, as matters transpired, it is evident that the appellant was not in a position on 25 June 1982 to discharge its obligation. Nor did that inability constitute an actual breach of the appellant's obligation under cl.3(a) to settle by conveyance or transfer on 25 June 1982. The notice given by the purchaser's solicitors was a clear intimation that it was useless for the appellant to make a tender of settlement. The appellant was thereby freed of its obligation to make tender of settlement: see Mahoney v. Lindsay (1980) 55 ALJR 118; 33 ALR 601. Being freed of that obligation, the appellant could not commit an actual breach of it.

37. The respondents' argument that the appellant was in breach of cl.4 was made by reference to Hoad v. Swan [1920] HCA 50; (1920) 28 CLR 258, which also concerned a contract for the sale of land in which time was made essential. The fact that time was made essential does not convert a non-breach of cl.4, which operates by reference to the event of settlement, into a breach thereof. However, it does raise the question whether failure to comply with cl.4 on or before 25 June 1982 amounted to an anticipatory breach by the appellant of its obligation under cl.3(a) constituted by inability to settle by conveyance or transfer on 25 June 1982, that is, within fourteen days after notice of registration of the Building Unit Plan, which time was made essential by cl.10.

38. When time has been made of the essence, a clear inability or unwillingness to perform an obligation at the stipulated essential time is an anticipatory breach entitling an innocent party to bring his contractual obligations to an end. But may a party who purports to terminate on a ground which proves to be unavailable assert, by reference to the principle in Shepherd v. Felt and Textiles, that he has brought his contractual obligations to an end because, at the time when he gave notice relying on an alleged actual breach, there was an anticipatory breach in the sense of inability to perform the obligations made essential by the contract, even though he was not aware of it at the time? That question is further complicated if, as here, the breach is subsequently "cured".

39. In Brien v. Dwyer [1978] HCA 50; (1978) 141 CLR 378 Jacobs J. adverted to the consequence of the "curing" of the breach of an essential term, saying (at p 403):

"The question whether a party can rescind a

contract for a breach of an essential condition

which has been wholly cured before he is aware of

the breach has never, so far as I have been able to

discover, been the subject of judicial decision."

His Honour expressly recognized that that question might arise in application of the principle in Shepherd v. Felt and Textiles saying (at p 404) by reference to the facts in Panchaud Freres S.A. v. Etablissements General Grain Co. (1970) 1 Lloyd's Rep. 53:

"The facts in the present case would be closer to

the facts in the case to which I have referred if

the vendor had sought to rescind on another ground,

if the parties had been locked in dispute, and if

then the vendor had discovered that the deposit had

been paid late. The rule which in ordinary

circumstances operates quite fairly would seem to

me to operate unfairly if he should then be able to

rescind when at the time of his discovery of the

breach he can still get everything under his

bargain which he was entitled to have."

40. Despite the apparent unfairness of the consequence adverted to by Jacobs J., the question is, I think, to be ascertained by reference to the principle which underlies the decision in Shepherd v. Felt and Textiles. That principle is stated in Taylor and Another v. Oakes Roncoroni and Company (1922) 127 LT 267, at p 269; 27 Com. Cas. 261, at p 266 thus:

"It is a long established rule of law that a

contracting party, who, after he has become

entitled to refuse performance of his contractual

obligations, gives a wrong reason for his refusal,

does not thereby deprive himself of a justification

which in fact existed, whether he was aware of it

or not."

That statement was cited with approval by Dixon J. in Shepherd v. Felt and Textiles (at p 378).

41. In Taylor v. Oakes Roncoroni purchasers under a contract for sale of goods sought to bring their contractual obligations to an end on a ground which was not substantiated. Thereafter they attempted unsuccessfully to justify their action by reference to the sellers' inability to perform their contractual obligations. Nothwithstanding the generality of the principle he had earlier enunciated, Greer J., relying on Braithwaite v. Foreign Hardwood Company (1905) 2 KB 543, stated (at p 269 of LT; pp 265-266 of Com Cas):

"(The buyers are) not released from liability by

proving that if (they) had not repudiated the

contract, but called for its performance, the

(sellers) would have been unable or unwilling to

perform it ..."

42. The decisions in Taylor v. Oakes Roncoroni and Braithwaite are criticized in Carter, Breach of Contract (1984), at pars 920-929, as having "no rational legal justification" (see par.929). See also Dawson, "Waiver of Conditions Precedent on a Repudiation" (1980) 96 Law Quarterly Review 239. The decision in Braithwaite was said by Lord Sumner in British and Beningtons Ltd. v. N.W. Cachar Tea Co. and Others (1923) AC 48, at p 70 to be "not quite easy to understand". In Universal Cargo Carriers Corporation v. Citati (1957) 2 QB 401, at pp 445-446 Devlin J. adopted Lord Sumner's analysis of Braithwaite and held that a party to a contract who sought to terminate his contractual obligation for a wrong reason might thereafter justify his action on the basis of an anticipatory breach, at least if the other party had at the time when notice was given "become wholly and finally disabled" from performing his contractual obligations (see p.446). Whether such action may be justified on the basis of unwillingness to perform the contractual obligations may raise other considerations: see Afovos Shipping Co. S.A. v. Pagnan (1983) 1 WLR 195; (1983) 1 All ER 449, per Lord Diplock at p 203; p 455 of All ER

43. It is clear from Rawson v. Hobbs [1961] HCA 72; (1961) 107 CLR 466, in which Dixon C.J. (at pp 480-481) also adopted Lord Sumner's criticism of Braithwaite, that there is no absolute prohibition on a party to a contract relying on an anticipatory breach constituted by inability to perform to justify termination of his contractual obligations notwithstanding that he previously relied on an incorrect ground. In Rawson v. Hobbs a contract for sale of conditional leases provided that if the Minister should refuse consent to the necessary instrument of transfer then either the vendors or the purchasers might annul the contract by notice to the other. It was ascertained by the purchasers that the Minister's consent could not be given, and relying on the contract provision they gave notice annulling the contract. The notice expressed itself to be without prejudice to the other rights of the purchasers. It was held by Dixon C.J. (p.480) and Windeyer J. (p.491) that the contract only spoke to a refusal of consent to an actual instrument of transfer, and not to a future refusal. However, the notice was held effective to bring the purchasers' contractual obligations to an end on the basis of the vendors' inability to discharge their contractual obligations when the time for performance would arrive.

44. There is an apparent tension between the principle in Shepherd v. Felt and Textiles and the principle that an "innocent" party may rely on an anticipatory breach to bring his contractual obligations to an end. The latter principle was stated in the joint judgment of Stephen, Mason and Jacobs JJ. (Aickin J. agreeing) in D.T.R. Nominees Pty. Ltd. v. Mona Homes Pty. Ltd. [1978] HCA 12; (1978) 138 CLR 423, at p 433 as follows:

"A party in order to be entitled to rescind for

anticipatory breach must at the time of rescission

himself be willing to perform the contract on its

proper interpretation. Otherwise he is not an

innocent party, the common description of a party

entitled to rescind for anticipatory breach, and

indeed could profit from his misinterpretation of

the contract ..."

The tension appears to arise because notice based on a wrong ground may amount to repudiation or an absence of readiness or willingness to perform the terms of the contract, thus depriving the notifying party of his "innocent" status. However, not every notice based on a wrong ground has this effect. Rawson v. Hobbs and D.T.R. Nominees provide examples of notices which did not.

45. The question which arises when termination of contractual obligations is sought to be justified on the basis of anticipatory breach constituted by inability to perform the contract, if not relied upon at the time, is, as was explained by Dixon C.J. in Rawson v. Hobbs (at p 481), whether, up until the point when the party elects to treat himself as no longer bound, he is "ready and willing to proceed with the contract and, as and when the time comes to do his part, so far as it is of the essence, to perform the contract on his side" or, expressed in negative terms, whether that party was acting under "a substantial incapacity or definitive resolve or decision against doing in the future what the contract (required)". Because that factual question falls for determination by reference to the situation immediately prior to and not at the time of or subsequent to the giving of notice there is, in my view, no reason why the termination of contractual obligations may not be justified by reference to an anticipatory breach constituted by inability to perform, notwithstanding that it was neither known nor relied upon at the time, and notwithstanding that the breach is subsequently "cured".

46. To justify termination by a party of his contractual obligations by reference to an anticipatory breach constituted by an inability to perform if not known or relied upon at the time, it is necessary to establish, not only that up until the point of termination the terminating party was ready, willing and able to perform the contract on his part, but also that at that time the other party was wholly and finally disabled from performing its contractual obligations when the time for performance, so far as it is of the essence, should arrive. That total disability must be proved "in fact and not in supposition" - per Devlin J. in Citati at p.450.

47. In the present case there is no finding that the purchaser was ready and willing to perform the contract on its part prior to the giving of notice "voiding" the contract. Although it was found at first instance and by Shepherdson J. in the Full Court that as at 25 June 1982 the appellant had not ensured the amendment of the by-laws so as to provide for exclusive use of the car space, there is no finding as to whether at the time when the notice was received the appellant was wholly and finally disabled from performance on 25 June 1982 of its obligation under cl.4. For example, it may have been possible for the appellant to obtain registration of the amended by-laws in the time remaining on that day if it had sought so to do. The absence of findings on the above matters is not surprising, given that the respondents sought to make their case by reference to an actual breach of cl.4 and not by reference to anticipatory breach of cl.3(a). Given the way in which the case was conducted it is not appropriate for this Court to proceed to make its own findings of fact. Unless the respondents are otherwise entitled to their judgment in the action, this issue must be remitted to the Supreme Court of Queensland for determination.

48. The second and final matter which was advanced on behalf of the respondents as having brought the purchaser's obligations under its contract to an end was the appellant's alleged breach of cl.5(b).

49. Clause 5(b) provided:

"The vendor's solicitors shall deliver to the

Purchaser or the Purchasers Solicitors shortly

before the date of completion a Certificate of the

Body Corporate under Section 40(1)(c) of the

(Building Units and Group Titles) Act so that such

certificate shall be dated as close in time as

possible to the date of completion yet giving to

the Purchaser or the Purchasers Solicitors prior

to completion adequate notice of the contents

thereof. The said Certificate shall not in any

circumstances be dated more than fourteen (14) days

prior to the date of completion."

50. No such certificate was provided to the purchaser or its solicitor prior to 25 June 1982, the day fixed by the contract for settlement. The contract recognized that, notwithstanding that time was made of the essence, the contract might not be completed at the time stipulated by cl.3(a) for settlement. Thus in cl.7 it is provided:

"Should there be any delay in payment of the

balance of the purchase money or any instalment

thereof by virtue of default on the part of the

Purchaser then without prejudice to any other

rights of the vendor the Purchaser will pay to the

Vendor at completion a sum for liquidated damages

equivalent to interest at the rate of sixteen per

centum (16 %) per annum on the monies so owing from

the date for payment thereof until payment shall

have been made."

In cl.7 "completion" clearly referred to the act of settlement taking place as agreed between the appellant and the purchaser or their solicitors, notwithstanding that the date fixed by the contract for settlement had passed. Clause 5 was concerned with adjustment of outgoings referable to the unit. Those adjustments were to be made at completion. Settlement might, as was expressly contemplated by cl.7, take place after the date fixed by the contract for settlement. On the other hand, the parties might, by agreement, settle before the fixed date. In this context "date of completion" clearly means the date arranged between the parties or their solicitors as the date on which settlement will take place. There was no such arrangement. There was thus no breach of cl.5(b). It follows that the respondents are not entitled to judgment in the action on the basis that the purchaser brought its contractual obligations to an end by reason of a breach by the appellant of cl.5(b) of the contract.

51. In the light of the above conclusions I would allow the appeal, but only to the extent necessary to set aside the order of the Full Court that there be judgment in the action for the respondents (defendants). The matter should be remitted to the Supreme Court of Queensland to determine whether the contractual obligations of the purchaser were terminated by reason of anticipatory breach of cl.3(a), and in the event that they were not so terminated, to enable the appellant to take such further action as it may be advised in relation to its claim for damages. I would make no order as to costs.

ORDER

Appeal allowed. No order as to costs.

Judgment of the Full Court of the Supreme Court of

Queensland set aside except in so far as it sets aside the judgment of Connolly J. Remit the matter to the Full Court to be dealt with in accordance with the judgment of this Court.

Authorities Cited15

Referred to (15)