Case: Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd [1972] HCA 36 ; (1972) 128 CLR 529 
Outcome: applied
Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd [1972] HCA 36 ; (1972) 128 CLR 529 dealt with cl 14 of the then standard contract for the sale of land in New South Wales, which was in the following terms: '14. If the Vendor shall be unable or unwilling to comply with or remove any objection or requisition which the Purchaser has made and shall not waive within fourteen days after the Vendor has given him notice of intention to rescind this Agreement, the Vendor, whether he has or has not attempted to remove or comply with such objection or requisition, and notwithstanding any negotiation or litigation in respect thereof, and whether the Purchaser has or has not taken possession shall be entitled by notice in writing to rescind this Agreement.' Barwick CJ held that there had been no requisitions within the meaning of the clause but said (at 538): 'If the matter be approached, as in my opinion it should not, by assuming that what the appellant had said in his "requisitions" 2 and 33 were requisitions within the meaning of cl. 14 of the contract, it ought, in my opinion, to be held that it would be unconscionable for the respondent to have attempted to exercise his powers under cl. 14, in the circumstances. I would have thought clearly it was so, because what he would be doing would be to deny to the purchaser the performance of an essential obligation which he had undertaken when entering into the contract with knowledge of the existence of the caveat. In this connexion I find no need to refer to decisions on the use of this type of clause in connexion with land under common law title. The title to this land is under the Real Property Act. The caveat was lodged and presumably notified before the sale was made. To allow the vendor to rescind in the circumstances would be to afford him the right, in substance, to say that the sale was in reality no sale at all: only a transaction conditional on his own willingness to perform.' McTiernan J agreed with the Chief Justice. Walsh J said (at 543): 'The principles by which limitations have been imposed upon the right of a vendor to exercise the power conferred by such a clause as cl. 14 are well known and they were of course recognized by the learned primary judge, who referred in his judgment to some of the authorities on this subject. But with due respect to his Honour I am of opinion that he did not give sufficient weight, in deciding whether the respondent did attempt to use the power arbitrarily or unreasonably, to some features of the case to which I shall now refer.' His Honour dealt with matters particular to the case and then said (at 546): 'I am of opinion that what the respondent could not do, if acting reasonably, was to exercise the power under cl. 14 to get rid of its contract with the appellant whilst the litigation with Doris Parkinson was still pending. The respondent was not engaged in that litigation because it had made the contract with the appellant. The case is not one in which the existence of that contract involved, or might involve, the respondent in expensive litigation of which otherwise it would have been free and which it was reasonable for it to avoid by exercising its power of rescission.' Gibbs J said (at 547): 'In my opinion, it was unreasonable for the respondent on 7th April 1971 to attempt to exercise the power of rescission given by cl. 14 of the contracts and the attempt was accordingly ineffectual. I concur with what my brother Walsh has said in his judgment in relation to this aspect of the case.' Stephen J said (at 549): 'Courts have approached the task of confining the operation of such clauses within what are regarded as proper limits in one or other of two ways; the vendor has been denied the right to rescind either upon the basis that, as a matter of construction, the circumstances of the particular case do not fall squarely within the terms of the clause or else because, although, on its proper construction, the clause applied, nevertheless, the vendor having attempted to use the rights conferred upon him for an improper purpose, he could not be permitted to rely upon its terms. In Webster's Conditions of Sale, 3rd ed., p. 356, the learned author concludes that: "It is not really a question of construction --the court interferes with the contract to prevent a fraud being committed." It perhaps matters little which of these two approaches be preferred; there may, on analysis, be no very clear distinction between them. I do not propose in this judgment to adhere to any clear distinction between the two approaches.' After reviewing the authorities, his Honour said (at 554 555): 'It cannot be, consistently with the authorities to which I have already referred, that a vendor may, in such circumstances, take advantage of what it believes to be only a passing cloud which the purchaser has pointed out must be, and which both parties believe will be, removed and, while proceeding in fact to have it removed, declare that it constitutes such an obstacle in fulfilling its contractual obligations as to entitle it to have recourse to cl. 14. To do so is to employ the clause for a purpose quite foreign to that which the courts have regarded as its true function.' 173 There was further discussion of cl 14 in Pierce Bell Sales Pty Ltd v Frazer [1973] HCA 13 ; (1973) 130 CLR 575. Barwick J, after referring to the decision in Godfrey Constructions , said (at 587): 'Broadly it may be said that the vendor will not be allowed to use his contractual right if it would be unconscionable in the circumstances to do so.' Later he said (at 588): 'According to my view of the contract between the parties, the obligation to transfer to the appellant the fee simple in the land was central and fundamental to their bargain. It must be a relatively rare case, in my opinion, in which cl. 14 can conscionably be used to avoid performance of such an obligation.' Gibbs J cited with approval the following passage from Viscount Radcliffe in Selkirk v Romar Investments Ltd ([1963] 1 WLR 1415 at 1422 1423) (at 590): 'Thus, it has been said that a vendor, in seeking to rescind, must not act arbitrarily, or capriciously, or unreasonably. Much less can he act in bad faith. He may not use the power of rescission to get out of a sale 'brevi manu', since by doing so he makes a nullity of the whole elaborate and protracted transaction. Above all, perhaps, he must not be guilty of 'recklessness' in entering into his contract, a term frequently resorted to in discussions of the legal principle and which their Lordships understand to connote an unacceptable indifference to the situation of a purchaser who is allowed to enter into a contract with the expectation of obtaining a title which the vendor has no reasonable anticipation of being able to deliver.'