FEDERAL COURT OF AUSTRALIA

Coles Supermarkets Australia Pty Ltd v FKP Limited [2011] FCA 266

THE COURT ORDERS THAT:

1.    Upon registration of a transfer of the land described in Certificates of Title Volume 11006 Folio 407 and Volume 10118 Folios 556 and 557 in favour of Coles Group Property Developments Limited pursuant to the Contract of Sale dated 23 December 2010 and marked as exhibit “JM-4” to the affidavit of John Mengolian, paragraph 3 of the Orders of the Court made on 19 February 2009 be vacated.

2.    Within three (3) business days of the registration of the transfer of the land referred to in paragraph 1 of the Orders, the parties advise the Court of the registration of the transfer.

3.    There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

introduction

1    On 29 July 2008, Coles Supermarkets Australia Pty Ltd (ABN 45 004 189 708) (Coles) commenced proceedings against the first applicant (FKP) and the second applicant, FKP Lifestyle Pty Ltd (Lifestyle). The issue in the proceeding concerned a letter of offer from Coles to FKP dated 22 December 2006 (the Offer Letter) to lease from Lifestyle a supermarket (the Supermarket) at a proposed retail development at Tarneit, in the State of Victoria (the Property).

2    In the proceeding, Coles sought:

1.    a declaration that FKP and Lifestyle had engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TPA);

2.    damages pursuant to s 82 of the TPA;

3.    specific performance of the Offer Letter;

4.    alternatively, damages in respect of breach of the Offer Letter.

3    The trial on the issue of liability was held on 12, 13 and 14 November 2008. On 18 December 2008 reasons for decision for were delivered: Coles Supermarkets Australia Pty Ltd v FKP Limited [2008] FCA 1915. The Court held a binding contract existed between Coles and Lifestyle comprised of the Offer Letter, Coles’ standard agreement for lease and lease attached to the Offer Letter and development plans dated 19 November 2007 prepared by i2C Design and Management Pty Ltd (the Lease Agreement). Final Orders were not made on that day.

4    Parties were directed to file agreed minutes of Orders for the further conduct of the proceeding and, if no agreement could be reached, to file a joint statement identifying points of agreement, points of disagreement, and their respective positions on those points of disagreement. The parties could not reach agreement and the proceeding was listed for hearing on 16 February 2009.

5    At that hearing, Coles sought an order for specific performance of the Lease Agreement. Lifestyle neither consented to nor opposed an order for specific performance of the Lease Agreement against Lifestyle. On 19 February 2009, further reasons for decision were delivered: Coles Supermarkets Australia Pty Ltd v FKP Limited (No 2) [2009] FCA 150. On that day, the following declaration and Orders were made:

THE COURT DECLARES THAT:

1.    The Applicant has a binding agreement with the Second Respondent that is comprised by the letter dated 22 December 2006 from Coles Group Ltd to the First Respondent (Offer letter), the Coles standard agreement for lease and the Coles standard lease annexed to the Offer Letter, and the Final Development Plans dated 19 November 2007 prepared by i2C Design & Management Pty Ltd.

THE COURT ORDERS THAT:

2.    The Application is dismissed as against the First Respondent.

3.    The Second Respondent specifically perform and carry into execution the agreement that is comprised by the letter dated 22 December 2006 from Coles Group Ltd to the First Respondent, the Coles standard agreement for lease and the Coles standard leased annexed to the Offer Letter, and the Final Development Plans dated 19 November 2007 prepared by i2C Design & Management Pty Ltd a copy of which was provided to the solicitors for the Second Respondent on 16 February 2009 in accordance with the Orders made by The Honourable Justice Gordon on that day.

4.    The Second Respondent pay 75% of the costs of the Applicant in the proceeding including any reserved costs.

5.    No other order as to costs.

6    By way of Notice of Motion filed 21 March 2011, Coles and Lifestyle seek by consent the following replacement orders for paragraph [3] of the orders made on 19 February 2008 (the Replacement Orders):

1.    Upon registration of a transfer of the land described in Certificates of Title Volume 11006 Folio 407 and Volume 10118 Folios 556 and 557 in favour of Coles Group Property Developments Limited pursuant to the Contract of Sale dated 23 December 2010 and marked as exhibit “JM-4” to the affidavit of John Mengolian, paragraph 3 of the Orders of the Court made on 19 February 2009 be vacated.

2.    There be no order as to costs

events since february 2008

7    Before any development of the Supermarket could commence, the Property required rezoning from a Farming 1 Zone to a Business 1 Zone or another zone that would permit the construction of a shopping centre as contemplated by the Lease Agreement. The Property was not rezoned until 12 August 2010.

8    After rezoning, the Coles group of companies and the FKP group of companies commenced discussions about how best to deal with the Property to the commercial advantage of both of them. The result is that, subject to the Court making the Replacement Orders, Lifestyle will sell the Property to Coles Group Property Developments Limited (CGPD). On 23 December 2010, Lifestyle entered into a contract with CGPD for the sale of the Property (the Contract of Sale). Special Condition 15 of the Contract of Sale contained a number of conditions which are required to be met prior to settlement. One of the conditions is that Lifestyle make application to this Court for the Replacement Orders and orders substantially the same are made: Special Condition 15.6. The other Special Conditions may be put to one side. The evidence disclosed that the other Special Conditions had been satisfied.

legal principles

9    It is common ground that the following legal principles are to be applied:

1.    Coles and Lifestyle accept that they cannot deal with the Property inconsistently with the Specific Performance Order without first obtaining leave of the Court: Facey v Rawsthorn (1925) 35 CLR 566 at 588 and Sunbird Plaza Proprietary Limited v Maloney (1988) 166 CLR 245 at 259-260.

2.    The correct procedure is for the parties to apply in the proceeding in which the Specific Performance Orders were made for orders vacating them: Morrow v Tucker (No 2) [2006] NSWSC 1358 and the authorities cited.

10    In Morrow, Biscoe AJ referred to the summary of the relevant procedural and substantive principles in Fry on Specific Performance (6th ed, 1921) at pp 546-547 and in Jones and Goodhart on Specific Performance (2nd ed, 1996) at pp 256-257 and at pp 258-259 (omitting citations):

Alternative relief after judgment

A plaintiff who has obtained an uncompleted order for specific performance may be unable to enforce the order or may no longer wish to do so. This may happen, for example, in a purchaser’s action if the vendor’s title is shown on the inquiry as to title to be subject to a defect which the plaintiff is unwilling to waive; or if it becomes apparent that it will be impossible or not reasonably practicable to enforce the order against the defendant.

But the plaintiff (whether vendor or purchaser) is not entitled to put an end to the contract himself by treating the defendant’s continued non-performance as a repudiation of the contract and accepting the repudiation; he must apply to the court for an order discharging the contract. Although the contract continues to exist and is not merged in the order, it is the provisions of the order and not of the contract which regulate the working out or cancellation of the contract. Thus, after an order for specific performance has been made, the contract becomes due for completion at the time directed by the court and neither party can serve a completion notice purporting to make time of the essence, even if the conditions of sale applicable to the contract provide for such a notice. A plaintiff vendor who re-sells the property to a third party without first obtaining the discharge of the order is not entitled to damages for breach of the original contract or to retain the deposit paid under it.

The court will make an order for the discharge of the contract unless it would be unconscionable for the innocent party to exercise his legal right to treat himself as discharged by the other’s breach. If the ground of the application is that the vendor has failed to show a good title, the court may refuse to discharge the contract if the defect has been cured before the hearing of the application. If one party fails to comply with the directions of the court as to completion, the court will normally grant an application by the other party for the discharge of the contract.

(Emphasis added.)

analysis

11    In the present case, the parties by consent seek a replacement to the Specific Performance Order because Coles no longer wishes to complete the Lease Agreement. The procedure adopted is correct: Morrow and the authorities cited. The application to vary the Specific Performance Order should be by motion in the proceedings in which the Order was made.

12    Should the Replacement Orders be made? Instead of Coles leasing the Supermarket from Lifestyle pursuant to the Specific Performance Orders, Coles wants CGPD (a related entity) to purchase the Property. In those circumstances, I consider that it is appropriate to make the Replacement Orders sought by Coles and Lifestyle by consent.

13    Finally, the form of the Replacement Orders. I accept that it is appropriate to vacate the Specific Performance Order only upon registration of the transfer of the sale of the Property to protect Coles against the unlikely event that the Contract fails to settle. I note that the Date for Settlement is 31 March 2011 or 14 days after Special Conditions 15.1 to 15.4 (inclusive) and 15.6 are satisfied or waived or earlier by agreement. I direct that within 3 business days of the registration of the transfer, the parties inform the Court of that event.

orders

14    For those reasons, I would make the Replacement Orders by consent and direct the parties to inform the Court within 3 business days of the registration of the transfer of land referred to in paragraph 1 of the Replacement Orders.

Associate:

Dated:    24 March 2011