Interpretation of commercially inconsistent rights – Whether one right was qualified by the other
In this case, the New South Wales Court of Appeal considered the terms of a conditional contract for the sale of land, and whether the purchaser's 'step-in' right qualified the vendor's right to rescind.
The court held that the vendor's power of rescission was qualified by the purchaser's conflicting right to step-in, given the need to give efficacy to the purchaser's separately negotiated right and the impracticality arising from the alternative construction.
This case affirms that where a contract confers mutually destructive rights upon each party, it does not necessarily follow that the parties are taken to have agreed to a 'first past the post' regime.
Facts
The Environmental Protection Authority required the vendor, Pasminco, to remediate one of its significantly contaminated sites, which it acquired in 2014. Pasminco obtained approval from the Minister for Planning to remediate the site by constructing and maintaining a contaminant cell.
On 23 December 2015, the parties entered into a contract for the sale of land known as the 'Phase 2 Subdivision'. The clauses central to the litigation included the vendor's right to rescind in circumstances where the conditions precedent were not satisfied by the sunset date, and the purchaser's right to 'step-in' and assume responsibility for the conditions precedent if they remained unsatisfied by the sunset date.
In December 2016, the parties entered into an amending deed, which extended the sunset date to 30 June 2018 and conferred a further right on the purchaser, Greencapital, to 'step-in' and assume responsibility for the conditions precedent if they remained unsatisfied by the sunset date.
The conditions precedent were not satisfied by the sunset date. Pasminco purported to exercise its right to rescind on 1 July 2018 and again on 2 July 2018. Later, on 2 July 2018, and again on 3 July 2018, Greencapital purported to exercise its step-in right.
Separately, on 31 August 2018, an amendment to the relevant NSW remediation of land policy was made, so that the council was unable to consent to any significant development on the land unless adequate arrangements were in place for the perpetual care of the contaminant cell.
The trial judge dismissed the proceedings but made an interlocutory order restraining Pasminco from selling or otherwise dealing with the land. On the question of construction, the trial judge found that, given the irreconcilable nature of the parties' rights, they had agreed to a 'first past the post' regime, in which there was a 'race' between the parties to exercise their inconsistent rights first. His Honour also rejected the submission that the contract had been frustrated by the amendments to the policy, despite Pasminco's argument that they imposed radically different requirements from the obligations to which it was already subject.
Judgment
On appeal, Greencapital argued that Pasminco's right of rescission was qualified by its step-in right to achieve the conditions precedent. Pasminco sought to uphold the orders, on the basis that the contract had been frustrated.
The appeal was allowed for the following reasons:
- the efficacy of provisions in commercial contracts should not 'turn on the happenstance of which party achieves service first.' Accordingly, the court rejected Pasminco's submission that this was the parties' intention, finding that such a 'race' between the parties to exercise their rights would be uncommercial. Further, the court emphasised that the right conferred on Greencapital had been bargained for and included in the amending deed, and therefore could not be entirely destroyed by Pasminco's right of rescission;
- the court highlighted the contract's underlying purpose of being a conditional contract for the sale of land, to effect a transfer of title on satisfaction of the conditions precedent. This was a further reason why Greencapital's new right, which allowed it the opportunity to seek satisfaction of such conditions, should not be liable to destruction by Pasminco's power of rescission;
- the court relied on the orthodox approach to construction in circumstances where there are competing provisions: namely, the inconsistency is resolved on the basis that one provision qualifies the other, so that both are given meaning and effect; and
the court rejected Pasminco's submissions on frustration, finding that the amendment to the policy had not altered its obligations to remediate the land to such a degree that they were radically different from when the contract was entered into.