A .TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576
The sellers WMC Resource Ltd (WMC) entered into an agreement in 1998 to sell its power generation assets to purchasers, TEC Desert Pty Ltd (TEC). The assets under this sale agreement included generators, electrical wires, transmissions and power stations. These assets were part of the company which produced power to mining companies in Western Australia (WA). The terms and conditions in the sale agreement only included chattels and fixtures and not land or real property.
Some of these assets were annexed to the land and thus the common law presumption applied where fixtures when annexed to land are classed as real property and thus, subject to stamp duty. However, the sales agreement had a clause whereby if the licenses were terminated; they would be bound to buy the fixtures from WMC.
Pursuant to the sales agreement, the Commissioner of State Revenue (Commissioner) argued that the sale was for chattels and land, which is caught by s 70(2).
The issues faced in the High Court were whether the chattels in the sale agreement were chattels or fixtures; and what constitutes chattels and fixtures in this case and whether the clause in the sale agreement regarding the license agreements, constitute a transfer of an interest in land.
The High Court overturned the Court of Appeal’s decision, reinstating the Supreme Court’s ruling that the sale agreement was for chattels or personalty and therefore, no duty was applicable on the sale. The court held that mining tenements were chattels and if mining tenements were held to be chattels then the power generation assets were held to be chattels too.
Mining tenements needs to be acknowledged as personal property and chattels and not real property and fixtures, because the intention on annexation is only temporary.
Contracts for sale of land must clearly outline what is considered a chattel and what is fixture to clear any ambiguity as no stamp duty if payable on chattels and it is important that chattels and fixtures and clearly labelled.
Facts
Zaccardi (purchaser) and Caunt (vendor) had reached an agreement for the purchase of land and were at the stage of signing the sale agreement. Both parties had solicitors and Caunt’s solicitor had drawn up the contract. Caunt signed their copies and were waiting for the executed copy of Zaccardi. Zaccardi returned the agreement but had amended clause 32. By now, Caunt had signed a copy with full clause 32 and Zaccardi signed the copy with amended clause 32.
The sale was not complete and Caunt issues a notice to complete and provided only 10 days which was not complied with and Caunt terminated the contract. Caunt then sold the property to another purchaser at a lower price and sued Zaccardi for the difference. Caunt succeeded at trial and Zaccardi appealed.
Issues
The issue in this case was whether there was a valid contract and whether the notice to complete issued by Caunt was valid. The “notice to complete” only had 10 days after service and the onus is on the party relying on the “notice to complete” to show that the time stipulation is reasonable.
Decision
The trail judge concluded that there was a contract but in the Court of Appeal, the appellant argued that there was no contract as the material facts in relation to clause 32 were different.
The High Court held that the “notice to complete” can be valid if it is less than 14 days as long as there are strong circumstances in existence to justify deviation from the normal 14 days notice. It was held that in this case, the “notice to complete” did not provide reasonable time.
Relevance to Conveyancers
Any amendments to a contract give rise to a new offer and there is no agreement until there is acceptance of the new offer, regardless of any previous offers and acceptances. The second relevance is in relation to “notice to complete” which should only be less than 14 days if there are strong circumstances and serving the “notice of complete” should also be considered.
Notice to Complete
At common law, time stipulations in contracts were always “of the essence” and upon breach of this time stipulation, the innocent party can terminate the contract and claim damages. When time is not of the essence and the delay in breach of contract does not amount to a serious breach of an intermediate term of a repudiation of the contract, an aggrieved party may nonetheless gain a right to terminate through the procedure of providing notice.
A notice to complete is simply a document that is sent by one party to a contract to another, asking that actions already agreed upon between the two be made within a specific time period. The defaulting party must be in breach of the contract and the time stipulated must be reasonable and the other requirements of the notice to complete must be met.
Use
The notice to complete must meet certain requirements before it is served. The notice must set a reasonable time for performance of the obligation. If the party in breach does not perform the obligation in question within the reasonable time specified in the notice, the aggrieved party may immediately terminate the contract.
A valid notice to perform a contract or contractual obligation must satisfy three requirements:
In addition, the party issuing the notice must be ready and willing to perform their contractual obligations at the time the notice is issued.
Failure to comply with the notice does not of itself give the aggrieved party a right to terminate the contract, if the time specified in the notice is not reasonable and the notice does not communicate its consequences. Whether the time for performance specified in a notice is reasonable will depend on the circumstances of the case. Thus, a notice which does not satisfy the three requirements listed above will not be effective. The notice must be served in accordance with those terms of the contract dealing with the service of documents or notices.
Advantages and Disadvantages
One advantage of serving each other with a notice to complete in a commercial contract is the opportunity it gives for the contract termination. In a commercial contract like purchase of a land, parties involved have a concurrent and mutual duty to complete the contract. In most cases where the land sale contact is evident the vendor is always obligated to provide the tittle of the land while land purchaser is obligated to pay for the land. Since each of this conditions are conditional and rely upon the performance of each other, failure by any party with the use of notice to complete allow the parties to terminate the tender.
A notice to complete gives assurance to both sides and this can be one of the points of interest. If time is of the quintessence, the lamenting party realizes that if the other party is at default and a notice is served, then the agreement can be ended and the lamenting party will have the capacity to sue for harms and have any stores discounted to them. Conviction likewise supports the defaulting party, as they realize that the other party can’t just end the agreement without serving a notice and this will give the defaulting party time to cure the rupture.
A notice to complete may also be to the vendor’s advantage. This advantage to the vendor is always reinforced by the provisions of clause 15. Section 13 adopts the equitable construction of time stipulation. The effect of this statutory provision is that unless the contract expressly or impliedly makes time for performance of the relevant obligation an essential term, it is not possible for a party not in default to terminate for mere delay in performance. The vendor will always be given opportunity to proceed with land sale in various cases where a mere delay is witnessed. It also evident that in most of the cases the vendor is able to resale the land to a third party even when land purchaser had already paid a deposit. This opportunity granted to the vendor is always disadvantageous to the land purchaser.
Disadvantages
The advantages and disadvantages of the notice to complete in most of the occasions is experienced by one of the parties involve in land sale contract. In case one party breach the contract the claiming party with the help of a notice to complete can be advantaged. For instance in a case where the vendor is not able to meet the deadline, land purchase can serve the vendor with a notice to complete and get back the deposit with proper justifications and evidence. In this case scenario the land purchaser is advantaged while the vendor is disadvantaged.
There are outcomes of an end of an agreement upon resistance with a notice to complete and the results can influence both sides. The agreement will be conveyed to an end as respects to any future execution, each party will be released from their exhibitions of the agreement, the agreement stops to be the wellspring of commitments to execution the principle substance of the understandings and the guiltless party will be qualifies for recoup harms against the other party for rupture of agreement and the other party is subject to pay harms. The Contract covers both merchant’s rights and commitments and buyer’s default and plainly sets out the results upon rupture by both party and what steps should be taken.
It can be contended that a notice to complete contains the risk of end of the agreement and this is not a common understanding between the two parties as just a single party has the ability to end and this will dependably abandon one party with a misfortune. This is usually experienced by land purchasers who occasionally loose deposit to the land owner.
Course of events can be another issue with a notice to complete. It can be a hindrance for one party and be preference for the lamenting party, on the off chance that it is utilized sensibly and with thought. In Smilie, a correct timetable for settlement was given and the court held that in spite of the fact that there are a few occurrences where time is an essential component of a business exchange, however in land bargains this thought, down to the latest possible time, is not as squeezing, and along these lines there is some room in the law with respect to a notice to finish.
Common thread
The common thread between these two cases is the remoteness of contractual damages. In both of these cases, the parties involved suffered loss due to time and breach of contract by the other party. The law on remoteness of damages is based on the judgments in Hadley. The generally accepted test for remoteness has been whether the loss claimed is of a kind or type which it would have been within the reasonable contemplation of the parties at the time that the contract was made as being not unlikely to result. The case of Transfield called into question whether that was the correct test.
Although the test for remoteness of contractual damages was first laid down in 1854 and it is one of the most familiar decisions, but it was questioned in 2008. The test or remoteness was defined in the later decision by appearing to introduce a requirement that a defaulting party not only contemplated but also assumed responsibility for the damage resulting from its breach of contract.
The Rule in Hadley v Baxendale
This rule is considered to have two limbs; the first limb is concerned with ‘general damages’ which are losses that flow naturally from the breach of a contract. The second limb is concerned with ‘special damages’ which are damages of an exceptional nature and are “only recoverable where the defendant had prior knowledge of the likelihood that the loss would be suffered.”
Lords in Hadley v Baxendale
Although the House of Lords unanimously allowed the appeal, five Lords gave five judgments which are very broadly summarised here.
Lord Hoffman decided that the determining factor was whether or not the party in breach had agreed to assume responsibility for losses of the “type” claimed.
Lord Hope agreed that what mattered was whether the loss was the “type” of loss the party could reasonably be assumed to have taken responsibility for.
Lord Walker argued around commercial certainty and held that it was a question of what the contracting parties must be taken to have in mind having regard to the nature and object of the transaction.
Lord Rodger turned to what was in the ordinary contemplation of the parties and argued that recover was limited to losses which ‘generally happen in the ordinary course of things’ because the parties have no opportunity to provide for the unexpected. Here, the extreme volatility of the market meant that the loss could not be said to be ‘not unlikely’.
Baroness Hale expressed her doubts about Lord Hoffman who, she felt was adding ‘an interesting but noval dimension’ to the question of remoteness. Ultimately, she preferred Lord Rodger’s approach and with reluctance allowed the appeal.
The House of Lords reversed the Court of Appeal’s decision and came to a conclusion that something more than simple contemplation of a potential loss under the second limb of Hadley was needed.
Critical Analysis
The effect of the House of Lords judgment concerning the case of Transfield Shipping Inc v Mercator Shipping Inc [2008] (also referred to as The Achilleas) extends further to the line of conveyance law. The decisions in the case cast some doubt in some various land selling and purchase cases. Various fining from Transfield case are applicable in conveyance law which also involve commercial contracts. Various types of losses resulting from land selling contract breach are always not recoverable based on Transfield’s case which indicates that all losses arising from a commercial breach of contract are not recoverable even if the recovery is reasonable and can be foreseen. The transfield case outcome further indicates that if the parties involved in land sales transactions were not having any intention to breach the contract, the party in breach should assume the responsibility during the formation of the contract.
Even though the case of Transfield Shipping Inc v Mercator Shipping Inc [2008] (also referred to as The Achilleas) used in several court case ruling it is therefore not clear in conveyance. The outcome of the case requires the breaching party to always accepts and take the responsibility which not relevant to conveyance law. In conveyance the party in breach of the contract do not usually takes the liability of the damages claimed by the other party unless the claiming party can apply various evidence to the claim. The outcome of the Achilleas is the orthodox method of ruling in conveyance. The decision of the case resulted in to the application of the amalgam orthodox rule to remoteness which in some of the cases is applied in the court of law while passing judgment on land sale cases. The orthodox method of ruling works on the assumption of who should take responsibility of the damages resulting from a breach of commercial contract. Even though the method applies rare cases in conveyance law the case of Hadley v Baxendale make the good example where the method was tested.
In resulting cases, be that as it may, judges have been reluctant to consider the “presumption of duty” test as another test and to apply it but instead adhered to the approach set down in Hadley v Baxendale. For instance, in The Sylvia 37the actualities were somewhat not quite the same as in The Achilleas. Here it was the charterers who lost a sub-installation because of breach of agreement by the proprietors. The question was whether the point of confinement of obligation for late non-uniform was the invade period, as the nine day time frame in
The Achilleas. M/V Sylvia got kept by Port State Control because the proprietors were in break of due determination and maintenance commitments. The charterers had sub-sanctioned the vessel and inferable from the deferral caused by the detainment the vessel missed the scratching off date. The sub-charterers then utilized beneficiary scratching off alternative. The substitute installation was less beneficial to the charterers than the scratched off one. In this manner, the charterers guaranteed their misfortunes from the proprietors and the proprietors guaranteed that they were just at risk to pay misfortunes for invade period, in this way depending on The Achilleas.
References
Stamp Act 1921 (WA).
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) 2008
Hadley v Baxendale (1854) 9 Exch 341 and Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61.
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.
Smilie Pty Ltd v Bruce (1998) 8 BPR 15893 (Bryson J); affirmed (1998) 8 BPR 16273 (Court of Appeal).
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, Dean J and Dawson J.
Raineri v Miles [1980] AC 1050.
Legione v Hateley [1983] HCA 11
Louinder v Leis (1982) 149 CLR 509.
Mining Act 1974 (WA) s 114; Western Australia v Ward [2002] HCA 28.
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