Mackay v Dick Implied Term Breached by Vendor Appointing Settlement Date with Insufficient Time to Permit Valuation by Purchaser’s Financier
In Brightman & Ors v Royal Pines Projects Pty Ltd [2024] QSC 149 (11 July 2024), Applegarth J was called upon to address the issue whether the implied term of cooperation between contractual parties founded in Mackay v Dick (1881) 6 App Cas 251 was breached by a vendor by a notice appointing a settlement date which was given after registration of a plan, providing for settlement approximately 14 days thereafter. Applying the decision of Grieve v Enge [2006] QCA 213 – the facts in that case contrasting with those in the present to the extent that in that case there was a subject to finance clause – his Honour found a breach by the defendant vendor of such implied term, and made an order enjoining the defendant from terminating the contracts for want of completion on the appointed date. His Honour wrote:
[1] The applicants are buyers of building units in the respondent’s development at the Gold Coast. The applicants agreed in their respective contracts to buy an apartment “off the plan”. When they entered their contract, there was no opportunity for them or a valuer to inspect the property. It had yet to be built.
[2] The standard form of contract used by the respondent did not provide for the contract to be subject to finance. The terms of the contract envisaged, however, that the buyer would have a “financier”. Also, the use by an overwhelming majority of buyers in the property market of loans to finance their acquisitions is notorious. The respondent could not have been in any doubt at the time it entered into the contracts that practically all, if not all, of the applicants would need to obtain finance to complete their contracts when the development was finished and before the contracts were due to settle.
[3] With construction of the development being nearly finished, the applicants requested that a valuer inspect the premises in order to obtain finance to complete their purchase. The respondent failed to respond to the request so as to permit any valuer to do so. Instead, on 1 July 2024 it fixed the period allowed under the contract for settlement.
[4] A week after the request was first made to have a valuer inspect the now completed unit, and only after the request was repeated and these proceedings were commenced, the respondent, without admitting any obligation to permit access, proposed a protocol for each buyer’s valuer to obtain access.
[5] The applicants say that this offer comes too late in circumstances in which on 1 July the respondent gave notice requiring settlement next Tuesday, 16 July 2024.
[6] They say they have lost a week, and that by denying or delaying access, the respondent is in breach of its implied obligation to co-operate, and therefore cannot insist on a 16 July 2024 settlement.
[7] The applicants seek a declaration that by reason of the implication in the contract of a term requiring that each party co-operate to allow the other the benefit of the contract, the respondent is required to permit access to the property that is the subject of the contract by a valuer appointed by the buyer in sufficient time to provide a valuation advice in advance of completion.
[8] They seek other declarations and injunctive relief.
[9] The fifteen contracts are in materially identical terms. Each contract is for a lot in a new development called “Vantage View” at Benowa. The contracts were entered into between 21 January 2021 and 2 November 2023.
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The respondent’s position
[30] The respondent’s principal position disputes that its implied obligation to co-operate extends to permitting access to the property by a valuer appointed by the buyer. It submits that while such an obligation may apply where the contract is subject to finance, here the contract does not require the buyer to have the opportunity to obtain finance. The implied duty to co-operate is said to not extend to doing acts necessary for the buyer to utilise that opportunity.
[31] Because the further declaratory and other relief sought by the applicants is dependent upon obtaining the declaration sought by them in paragraph 1(a) about the duty to co-operate, the respondent submits that if the declaration in 1(a) is refused, then the other relief should be refused as a consequence.
[32] It denies that it is in breach.
[33] In the alternative, it contests that the consequence of any breach of its obligation to co-operate means that time ceases to be of the essence. Non-performance or breach by it of an obligation to do something within a reasonable time is submitted to not entail waiver of time being of the essence in respect of all contractual obligations.
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The duty issue
[35] There is no dispute that the contract includes terms implied by law, including a duty to co-operate so as to give the other party the benefit of the contract. This dispute concerns the content of that duty in this case.
[36] The issue is whether the contract, which does not contain a “subject to finance” clause or any express provision about the requested access, obliges the respondent to co-operate in the buyer obtaining finance to perform at completion by permitting the requested access. Is that part of the content of the implied duty, given the subject matter of the contract, its express terms and the circumstances that were known to the parties at the time the contract was entered into?
[37] The law of contract includes a general rule of construction that there is “an implied obligation on each party to do all that [is] reasonably necessary to secure performance of the contract”.1 Griffith CJ in Butt v M’Donald 2 referred to an implied duty to co-operate so as to give the other party “the benefit of the contract”. The duty is implied by law as a matter of necessity.
[38] The issue is one of contractual interpretation. Therefore, I must disregard the respondent’s alleged motivation in failing to permit and delaying the requested access, thereby frustrating the buyers’ completion of their contracts, placing the buyers at risk of being unable to complete on 16 July, having their deposits forfeited, and enabling the respondent to re-sell the properties in a market that has risen since the contracts were entered into.
The law
[39] The implied duty to do all that is reasonably necessary to secure performance of a contract, like the “implied duty to co-operate”, is often said to be a term implied by law, rather than implied as a matter of fact so as to give business efficacy to the contract. On one view, the implied term is not a rule of law but a general rule of construction. On this view, the duty exists unless it is excluded because the proper construction of the contract requires it to be excluded.
[40] The leading case of Mackay v Dick 3 has been cited with approval in numerous authorities.4 In Mackay v Dick Lord Blackburn referred to the construction of the contract that “each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect”.5 Mason J (as his Honour then was) in Secured Income referred to the general rule of construction and also to an implied duty to co-operate.6 The implied duty draws upon what was said by Griffith CJ in Butt v M’Donald :7
It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.
[41] That obligation may entail an obligation to do something or an obligation to refrain from conduct that will prevent, delay or hamper performance of the contract. As the New South Wales Court of Appeal observed in Australis Media Holdings Pty Ltd v Telstra Corporation Ltd :8
Duties to co-operate are found expressed in positive and negative terms.
[42] Griffith CJ in Marshall v Colonial Bank of Australasia Ltd stated:9
All contractual relations impose upon the parties a mutual obligation that neither shall do anything which is calculated to hamper the other in the performance of the contract on his part.
[43] The Court in Australis referred to these positive and negative obligations as either legal duties created by construction, rules of law or implied terms. It noted that an alternative analysis drawn from authorities such as Southern Foundries (1926) Ltd v Shirlaw 10 is to treat conduct that brings about the impossibility of performance as involving the breach of an express term.11 Lord Atkin in Southern Foundries (1926) Ltd v Shirlaw referred to conduct that can be said to amount to a party “of his own motion” bringing about the impossibility of performance being “in itself a breach”.
[44] Necessity will support a term implied by law where, absent the implication, “the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined”.12 In Barker the court observed that implications “which might be thought reasonable are not, on that account only, necessary”.13
[45] The duty to co-operate is not a duty to co-operate in bringing about something that is desirable but which the contract does not require.14 A contract may contemplate many benefits for the respective parties, but each “can only call on the other to provide, or co-operate in the providing of, benefits promised by that party”.15
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[61] In the commercial circumstances known to the parties at the time they contracted, procuring finance at settlement entailed, like practically every other buyer in the market, the opportunity to be extended finance upon a valuation that, in this case, could only be conducted once the unit was finished and able to be safely accessed by an appointed valuer.
[62] The applicants’ case derives support from the Court of Appeal’s decision in Grieve v Enge .18 As in this case, “obtaining finance was not necessary just to entitle [the buyer] to a ‘benefit’ under the contract”, it was “necessary to assume their very capacity to complete, and thereby obtain the fundamental benefit of the contract”.19 de Jersey CJ (with whom McMurdo P and Helman J agreed) stated:
Obtaining finance was inextricably linked to the respondents’ performance of the central obligation, namely, payment of the purchase price.
[63] This engaged what was said by Mason J in Secured Income:20
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract.
[64] The necessity to obtain finance in order for a buyer to perform its fundamental obligation under the contract gives content to the seller’s duty to co-operate, namely allowing access to facilitate the preparation of a valuation to found the requisite finance. In Grieve such access was “essential to the [buyer’s] performance under the contract”, so it was something the seller was “by implication duty-bound to supply”.21
[65] The reasoning in Grieve on this point did not depend on the presence of a “subject to finance” clause. The reasoning applies with equal force to a contract like the current contract which expressly contemplates that the buyer has a financier, the buyer has an obligation to procure the finance necessary to complete, and has the benefit of a certain fixed period after registration and prior to settlement to obtain it.
[66] The applicants’ case does not depend on the existence of an explicit contractual promise that the buyer have the opportunity to obtain finance from a third party. It depends on identification of a contractual benefit and what the buyer necessarily must do to perform its fundamental obligation and obtain that benefit. To perform its obligation under the contract the buyer had to tender the settlement amount by obtaining the necessary finance. The contract and commercial reality contemplated that the finance would be obtained from a financier. The contract implicitly promised that the buyer would have the opportunity to obtain that finance, particularly during the full 14 days following the notice during which the buyer had to procure the necessary finance.
[67] Simply put, the contract required the buyer to obtain the finance to perform the buyer’s central obligation, namely payment of the purchase price. The duty to co-operate by acting in a way to allow the buyer to obtain finance and complete the contract entailed the same practical content as the same implied duty in Grieve. Expressed in negative terms it was to not hinder the buyer in obtaining the necessary finance. Expressed in practical terms it was, as in Grieve, to allow access for a valuation to obtain that finance.
Breach of the implied duty
[84] In fixing a settlement date of 16 July 2024 on 1 July 2024 in circumstances where a valuer was not able to access the property sooner than 8 July 2024 at the earliest, the respondent did not allow sufficient time or a reasonable time for the valuation to be completed and finance provided in reliance upon it for the purpose of settlement.
[85] The respondent’s conduct in not even responding to the buyer’s request for a week also did not permit access to be arranged in sufficient time prior to the date fixed by the respondent for settlement.
[86] The respondent’s unreasonable delay in responding to the buyers’ 1 July 2024 requests for access by valuers and its conduct in allowing the premises to be in a physical state where it was unsafe or impossible for a valuer to access the premises until after 8 July deprived the buyers of the opportunity to have a valuer’s inspection in the week of 1 July. It hindered them obtaining finance on the strength of a valuation of the completed property after access was granted and hindered their performance in being able to settle on 16 July.
[87] The respondent failed to provide access within a reasonable time of the request being received on 1 July 2024.
[88] The respondent contends that the situation is “a consequence of the applicants’ own fault in not taking steps to organise third party finance ahead of the need to settle”. But one can organise finance approval that is conditional upon an inspection and valuation of the property against which the finance is to be secured. No such inspection and valuation was made possible by the respondent until 8 July 2024.
[89] I conclude that the respondent breached the implied duty that I have found.
Consequences of breach
[90] The respondent’s breach has hindered or precluded the buyers from obtaining the finance required to complete on the appointed settlement date. Therefore, the respondent should not be entitled to rely upon its breach in asserting a breach or failure to perform by the buyer in not completing the contract on 16 July 2024.
[91] While some buyers were able to have valuers undertake inspections in the week commencing 8 July 2024, this is not to say that the delay in their doing so will not delay completion of the valuation reports, review of them by lenders, final approval of finance and the actual provision of finance for a settlement on Tuesday, 16 July 2024. I infer that it will.
[92] I accept the respondent’s submission that the breach does not mean that time ceases to be of the essence for all purposes. It does not entail waiver of time being of the essence in respect of all contractual obligations. It does, however, preclude the respondent from taking advantage of its breach by insisting upon performance of the buyer’s obligation at a settlement on 16 July 2024.
[93] This doctrine has been described as “the prevention principle”.23
[94] Applying that principle, the respondent should not be able to rely on any failure by a buyer to be in a position to settle on 16 July 2024. The respondent’s conduct in breach of contract has produced that situation and the respondent cannot take advantage of it by purporting to terminate the contract for failure to settle on that day.
[95] This is not to say that, once having allowed an appointed valuer a reasonable time to inspect the property to provide valuation advice for the purpose of the buyer’s completion of the contract, a new date for completion cannot be fixed by the seller, with time being of the essence.
[96] Therefore, I am not disposed to grant a declaration in the terms sought in paragraph 1(c) that would entitle the buyer to call for completion “on reasonable notice”. I will, however, hear from the parties about a form of order that addresses the process and timing for a new date for completion.
[97] For the moment I will make a declaration based upon my finding of breach and the prevention principle. There will be a declaration to the effect that the respondent is not entitled to call for completion of the contract on 16 July 2024.
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A link to the decision is here.
1 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 (Secured Income).
2 (1896) 7 QLJ 68 at 70 –71 .
3 (1881) 6 App Cas 251 .
4 See the numerous authorities cited in Heydon on Contract 2019, Lawbook Co [21.370], footnote 115.
5 Mackay v Dick at 263 .
6 Secured Income at 607.
7 (1896) 7 QLJ 68 at 70 –71 .
8 (1998) 43 NSWLR 104 at 123 (Australis).
9 (1904) 1 CLR 632 at 647 .
10 [1940] AC 701 at 713 .
11 At 123–124.
12 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 189 [29] (Barker).
13 Barker at 189.
14 Australis at 124.
15 At 125. See generally, Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126 at [49] –[52] .
16 Barker at 189 [29].
17 Butt v M’Donald at 70 –71 .
18 [2006] QCA 213 (Grieve).
19 At [34].
20 Secured Income at 607–608.
21 Grieve at [34].
22 [2019] VSC 685 (Mediratta).
23 Simcevski v Dixon [2017] VSC 197 at [62] –[63] and the authorities cited them including Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441.
