Between: SARGENT
And: ASL DEVELOPMENTS LTD

Judges: McTiernan ACJ
Stephen J

Mason J

Subject References:
Contract
Real property
Rescission
Election

Judgment date: 25 October 1974

SYDNEY

Judgment by:
MASON J

Each of these three appeals from orders for specific performance made by the Supreme Court of New South Wales in favour of the respondent purchaser raises questions as to the validity of the exercise by a vendor of a contractual right of rescission conferred by a contract of sale of real property. In each instance the contract was in the form approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales (1965 edition) with certain additions and modifications. The contracts related to adjoining parcels of land in the vicinity of Castle Hill, near Sydney.

By the three contracts entered into in November-December 1969 the appellants Mrs. V. M. Sargent, Mr. and Mrs. C. T. Sargent and Mr. and Mrs. K. D. Turnbull agreed to sell to the respondent the land respectively owned by them. The purchase price payable under the contracts was $95,296, $50,281 and $86,000 respectively; in the case of the Turnbulls it was payable by instalments; in each case provision was made for payment of interest.

The contract of sale between Mrs. V. M. Sargent and the respondent was made on 6th November 1969; that between Mr. and Mrs. C. T. Sargent and the respondent on the same day; and that between Mr. and Mrs. K. D. Turnbull and the respondent on 24th December 1969.

Clause 16 in each contract was in the following form:

"Should it be established prior to completion that at the date of this Agreement the property was affected by any town and country planning scheme or interim development prepared or prescribed under the provisions of the State Planning Authority Act or Part XIIA of the Local Government Act 1919 as amended otherwise than as stated in the Fourth Schedule hereto or was affected by any Residential District Proclamation under Section 309 of the Local Government Act 1919, or by any existing proposals for re-alignment widening or siting of a road by any competent authority otherwise than as disclosed in the said Fourth Schedule, either party shall be entitled to rescind this Agreement by notice in writing to the other."

The 4th Sch. to the contract stated, "The property is affected as shown in the copy certificate under Section 342AS of the Local Government Act 1919 annexed hereto". Opposite the 4th Sch., in the margin, were the words "Delete if not applicable". No certificate was annexed to the contract.

At the times when the contracts were entered into and at all material times since then the lands the subject of the contracts were zoned as "Non-Urban Zone No. 1 (a) (County Green Belt)" under the Shire of Baulkham Hills Planning Scheme Ordinance made under Pt XIIA of the Local Government Act, 1919 (N.S.W.), as amended (and were affected by the County of Cumberland Planning Scheme).

The primary judge held that cl. 16 conferred on each vendor a right of rescission on the ground that the properties were affected by a town planning scheme otherwise than as stated in the 4th Sch. and in so doing followed a decision of the Court of Appeal in Wolczyk v Barr. ^[F67] However, he went on to hold that the appellants had waived their rights to rescind by acts affirming the contracts after they (and in the case of the Turnbulls, their solicitor) had acquired knowledge of the zoning of the land.

It was found that Mrs. Sargent and Mr. and Mrs. C. T. Sargent knew when they entered into the contracts that the lands were zoned as "rural and non-urban" or "non-urban" under the local planning scheme and that although this circumstance was not known to the Turnbulls in December 1969 their solicitor, Mr. C. R. Sweeting, was aware of it by reason of his receipt of a s. 342AS certificate from the Baulkham Hills Shire Council on or about 12th November 1969. He had obtained the certificate for the purposes of the contract. Why he failed to annex it to the contract is not clear. However, it was not until June and July 1972 that the appellants became aware, in consequence of legal advice, that the contracts gave them a right to rescind on account of the lands being affected by the local planning scheme.

The acquisition of this knowledge came about when a third party made an approach to some or all of the appellants. Mr. Turnbull on or about 28th April 1972 obtained legal advice to the effect that he was not entitled to avoid the contract. He then sought advice from other solicitors who on 7th July 1972 sent to the solicitors for the respondent a notice of rescission. His Honour found that it was not until 7th July 1972 or thereabouts that Mr. and Mrs. Turnbull were authoritatively informed and personally became aware that they had a right of rescission under the contracts. The other appellants obtained unfavourable advice from a solicitor, Mr. Cartwright, some few weeks before notices of rescission were sent on their behalf on 20th June 1972. However, in the meantime they were also advised that they were entitled to rescind. His Honour found that it was not until 20th June 1972 or thereabouts that Mrs. Sargent and Mr. and Mrs. C. T. Sargent were authoritatively informed and personally became aware that they had a right of rescission under the contracts.

His Honour held that the knowledge obtained by Mr. Sweeting in consequence of his receipt of the s. 342AS certificate was deemed to be the knowledge of his clients. He went on to hold that acts affirming the contracts, committed when the appellants had knowledge of the facts giving rise to a right of rescission, although they were unaware of the existence of a right to rescind, were sufficient to constitute a waiver.

I turn now to the subsequent acts upon which his Honour relied. After the contracts were exchanged, payments were made by the respondent of interest (and in the case of the Turnbulls, of instalments of purchase price) as provided for in the contracts. In the case of Mrs. Sargent and Mr. and Mrs. C. T. Sargent, small additional amounts were paid in respect of increased rates levied upon the properties, these payments being made at the request of the appellants in accordance with special conditions in the contracts.

The respondent prepared forms of application under the Real Property Act, 1900, as amended, to bring the lands within the provisions of that Act. Forms of application were signed by each of the appellants and they were lodged by the respondent with the Registrar-General. The appellants were aware that the respondent took these steps in reliance on its rights under the contracts.

On 17th December 1971 Mr. and Mrs. Turnbull mortgaged the contract of sale and the land to Associated Securities Ltd and gave notices under s. 12 of the Conveyancing Act, 1919, as amended, so as to assign their rights under the contract of sale. Subsequently, by a document dated 4th February 1972, Mr. and Mrs. Turnbull authorized Associated Securities Ltd to receive payments from the respondent under the contract of sale. The company received such payments from time to time and applied them in partial satisfaction of liability under the mortgage.

The first question is whether Wolczyk v Barr, ^[F68] a decision to which I was a party, was correctly decided. It is an important question as is evident from the many cases which have come before the courts in consequence of vendors exercising the right to rescind which, according to that decision, is conferred by cl. 16 when a s. 342AS certificate is not annexed to the standard form of contract and no steps are taken to complete the 4th Sch. Having considered the question afresh in the light of the argument advanced in this appeal, I see no reason to depart from the conclusion then reached.

The standard form of contract makes provision in the schedule by means of annexing the statutory certificate or otherwise for indicating whether the property is affected by planning schemes and road proposals, and, if so, in what respects, with the consequence that either party will have a right to rescind in the event that there is a discrepancy between what is stated or disclosed, or what appears, in the schedule and the actual state of affairs as they are established to exist. Whether the right of rescission is confined to discrepancies between what is stated or disclosed in a certificate and the actual state of affairs or extends to the case in which the parties have omitted to attach the statutory certificate and fill in a schedule depends not so much on one's view of what is fair and reasonable as upon the language of cl. 16 and the purpose which it serves.

The right to rescind is expressed to arise, not when there is a discrepancy between the certificate and the state of affairs as they are established to exist, but when the property is relevantly affected "otherwise than as stated" or "disclosed" in the 4th Sch. If no statement or disclosure is made in an annexed certificate or in the schedule and the property is relevantly affected, it may with accuracy be said that the property is affected otherwise than as stated or disclosed. I do not doubt that in a different context the words in question could be so read as to presuppose the existence of a statement in the schedule as an indispensable condition of the operation of the clause. However, this is not the significance that I would ordinarily attribute to them.

Nor is there anything in the purpose which in my view underlies the clause that circumscribes the right of rescission which it confers. If, as I apprehend, the purpose of the clause is to protect each party against the consequences which may flow from a discrepancy between the town planning characteristics of the property as they are established to exist and as they appear from the contract, this supplies no reason for adopting the respondent's construction in preference to that which I favour. It would have the effect of limiting the protection thereby conferred, but this is as much an argument against, as an argument for, the respondent's submission.

An attempt was made to draw a distinction between "stated" and "disclosed" and to say that the latter word, unlike the former, imports a positive obligation to disclose. The result, so it was urged, would be that in the absence of a certificate attached to the schedule a party would have a right to rescind if the property were affected by road proposals, but not if the property were affected only by a planning scheme or interim development. The slight difference in the language of the two parts of cl. 16 does not in my view justify such a marked difference in their operation. Indeed, for present purposes I am not inclined to draw any distinction between the two words. Certainly no distinction was drawn in Wolozyk v Barr ^[F69] where the Court in its judgment referred to the words in the second part of the clause, although it was in fact a case which arose under the first part of the clause. Nor do I think that anything turns on the words "Should it be established". They mean no more than "Should it be ascertained".

Implicit in the respondent's argument is the notion that it would be unfair to concede the existence of a right to rescind to either party merely because the parties omitted to make a statement or disclosure in the 4th Sch. of the kind which the standard form of contract contemplated would be made. It should not be overlooked that there will be other cases in which a property is relevantly affected in a manner not contemplated by one of the parties and yet the 4th Sch. is inadvertently left blank. It would be equally unfair to deny the clause an operation in these circumstances.

I would reject, therefore, the notion that the clause is no more than a "mutual mistake" clause. Likewise, it is implicit in what I have said that I would reject the submission that the court will read the contract as though there was annexed to it a certificate accurately stating the manner in which the property was relevantly affected for the purposes of cl. 16. There are cases in which the court has overlooked the failure of an agent to attach a document to a contract on the ground that there has been an omission to carry out an act merely ministerial in character. See Macrory v Scott; ^[F70] Bosaid v Andry, ^[F71] but they are cases in which it was shown that the parties intended to annex documents which were in existence.

The clause, as I read it, confers on each party a right to rescind at any time before completion unless the manner in which the property is relevantly affected is accurately stated or disclosed in the schedule. Once this is accepted it provides an answer to the respondent's submission that to rescind merely because the certificate was not attached was arbitrary and unreasonable and therefore was not authorized by cl. 16. Whether the principle that a unilateral right of rescission by a vendor must not be arbitrary and unreasonable is confined to clauses which commonly confer a right to rescind on a vendor who is unwilling or unable to comply with requisitions and objections made by a purchaser (see Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd) ^[F72] or is of more general application need not be answered here. If, in accordance with the view which I have expressed, cl. 16 confers on either party a right to rescind in the circumstances already discussed, there can be no basis for making an implication which, in the absence of other conduct disentitling, would preclude an exercise of the right.

However, there are convincing reasons for concluding, as did the primary judge, that the appellants were precluded by their subsequent acts from exercising the right of rescission. Although in these cases it is perhaps not of much importance whether one ascribes this result to the doctrines of election, waiver or estoppel, in my view the three cases may be conveniently and securely regarded as instances of election.

Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude him from exercising a legal right which he possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel) which may come into operation and in the differing concepts which each doctrine has at times been thought to embrace.

As Lord Wright observed in Ross T. Smyth & Co Ltd v T. D. Bailey, Son & Co, ^[F73] "'waiver' is a vague term used in many senses". It may signify the legal grounds on which a person is precluded from asserting one legal right when he is entitled to alternative rights inconsistent with each other. The loss of the right in such a case is, as Lord Diplock said in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd, ^[F74] "better categorized as `election' rather than as `waiver' ". Or it may mean the legal grounds on which a person is precluded from raising a particular defence to a claim against him - the very situation which arose in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd. ^[F75]

Likewise with "estoppel". It may signify common law estoppel by representation or that kind of estoppel which Jordan C.J. in Franklin v Manufacturers Mutual Insurance Ltd, ^[F76] described as "estoppel based merely on one's own acts", or the species of quasi-estoppel referred to by Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd. ^[F77]

It will make for greater certainty, therefore, if the present cases are regarded as cases of election. A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election.

Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made and it is accepted that once an election is made it cannot be retracted (R. v Paulson; ^[F78] Tropical Traders Ltd v Goonan ^[F79] ). No doubt this rule has been adopted in the interests of certainty and because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations.

A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other (Tropical Traders Ltd v Goonan ^[F80] ). So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract.

The central problem in these cases lies in ascertaining what in the eye of the law are the elements essential to the making of a binding election, in particular whether knowledge of the existence of the alternative right is a prerequisite in the party against whom election is alleged. The question is complicated because in some instances election may take place as a matter of conscious choice with knowledge of the existence of the alternative right and in other cases it may occur when the law attributes the character of an election to the conduct of a party.

Lord Blackburn said in Kandall v Hamilton, ^[F81] "there cannot be election until there is knowledge of the right to elect". The rule then enunciated has been applied so as to preserve to an injured worker his statutory option to claim compensation under Workers' Compensation Acts or to sue for damages at common law when he has received workers' compensation in ignorance of his alternative remedy (Young v Bristol Aeroplane Co Ltd; ^[F82] O'Connor v S.P. Bray Ltd; ^[F83] Dey v Victorian Railways Commissioners ^[F84] ). However, as between lessor and lessee it has been said that election may take place in the absence of knowledge on the part of the person electing of the existence of the alternative right, so long as he has knowledge of the facts giving rise to the existence of that right. Thus, a lessor by accepting rent with knowledge of a breach of covenant by the lessee may elect to affirm the lease though unaware that the breach entitled him to forfeit the lease (Matthews v Smallwood; ^[F85] Fuller's Theatre and Vaudeville Co Ltd v Rofe ^[F86] ). In Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd ^[F87] conflicting opinions were expressed as to the necessity for the existence of knowledge of the right to object that there had been a non-compliance with the statute in a case which was not so much a case of election as a suggested case of waiver of a defence.

Whether in other situations it is the general rule that a person may be held to have elected with knowledge of the facts giving rise to the existence of the alternative right, though unaware of the existence of that right, has been the subject of controversy. Jordan C.J. thought that was the rule (O'Connor v S.P. Bray Ltd; ^[F88] reversed on other grounds ^[F89] ). On the other hand, in Coastal Estates Pty Ltd v Melevende; ^[F90] Herring C.J. drew a distinction between termination of a contract pursuant to a power thereby conferred and rescission for fraudulent misrepresentation. In the latter, but not in the former case, knowledge of the right, as well as of the facts, was in his opinion essential to the making of a binding election. In the same case, Sholl and Adam JJ. expressed the view that knowledge of the alternative right was essential to the making of a binding election in the absence of acts amounting to an estoppel. ^[F91]

In so saying their Honours were influenced by what this Court said in Elder's Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd ^[F92] where, having referred to the observations of Jordan C.J. in O'Connor v S.P. Bray Ltd, ^[F93] Rich A.C.J., Dixon and McTiernan JJ. drew a distinction "between cases where the party's conduct is unequivocal in its effect and cases where this conduct does not necessarily amount to a waiver but is merely some evidence that he has in fact elected to affirm". ^[F94] The instant case, they thought, was not in the first category and in the absence of knowledge that he had a right of election, no inference could be drawn that the plaintiff had made an actual election, although it was pointed out that his conduct was such that "it might be considered a natural inference, if he knew that he had a right of election, that he had resolved to affirm".

The Court did not give its assent to the general principle enunciated by Jordan C.J.; nor did it state positively that in those cases in which the party's conduct was unequivocal in its effect it constituted an election without knowledge of the alternative right. However, it conceded that "it may well be" the result where rights are exercised in virtue of an estate in property, or by virtue of a contract, and the rights so exercised were such as would not exist unless the estate or contract subsisted on foot. Although this concession does not amount to a final and authoritative expression of opinion, it does perhaps indicate a disposition to accept the proposition that in the circumstances mentioned knowledge of the existence of the alternative right, as distinct from knowledge of the facts giving rise to the right, is not essential to the making of a binding election.

For my part this proposition correctly states the law in its application to contracts as well as interests in property. If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected.

Whether any distinction should be drawn between this class of case and fraudulent misrepresentation, as Herring C.J. suggested, need not be determined. However, it should be kept firmly in mind that the doctrine of election is of general application and that no good purpose is to be served by drawing distinctions in its various applications unless considerations of justice make it necessary or expedient so to do.

Whether the knowledge of a solicitor is to be attributed to his client arises in the Turnbulls' case. As against a third party the law imputes to a principal knowledge gained by his agent in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal, under such circumstances that it is the duty of the agent to communicate it to the principal. In the words of James L.J. in Vane v Vane, ^[F95] "the actual knowledge of the agent through whom an estate is acquired is ... equivalent to the actual personal knowledge of the principal". In my view this principle applies to information acquired by a solicitor in the course of acting for his client in a conveyancing matter (Dixon v Winch ^[F96] ). The solicitor is to be regarded as the alter ego of the client and the rights of the other party to the contract cannot be made to depend upon the diligence or lack of diligence exhibited by the solicitor in his dealings with his client.

Consequently, as the information as to zoning which Mr. Sweeting acquired was within the ambit of his authority from the Turnbulls and as he was under a duty to communicate it to the Turnbulls once he received it, his knowledge is to be imputed to them.

Once this question is disposed of, the issue of election must be resolved adversely to the appellants. Their actions over a period of two and one half years in receiving the payment of interest and, in the case of the Turnbulls, instalments due under the contract and in calling on the respondent to pay rates were unequivocal actions, adverse to the respondent, justifiable only on the basis that the contracts were continuing on foot. At the time when these acts took place the Sargents had actual knowledge, and the Turnbulls had imputed knowledge, of the facts giving rise to a right of rescission.

The payment of interest, instalments of the purchase price and rates constituted a detriment suffered by the respondent which would in any event bring into play the doctrine of estoppel and provide an additional reason why in the circumstances of this case it was proper to conclude that the appellants made a binding election to affirm, though personally unaware of the existence of the right of rescission when the election was made.

In the result I would dismiss the appeals.