An incorrect settlement statement may not undermine the validity of a notice to complete

In brief - Notice to complete still valid even though interest calculation wrong

In a NSW Court of Appeal decision handed down on 3 July 2012 in Carrapetta v Rado [2012] NSWCA 202, the court held that an erroneous settlement statement issued on behalf of the vendor did not undermine the validity of the notice to complete.

Although the settlement figures were calculated incorrectly due to an erroneous interpretation of the interest clause under the contract, the court held that this did not constitute a breach of any identifiable provision of the contract as it did no more than make an unenforceable demand.

Handwritten amendment to interest payable under special condition of contract

Rado, the purchasers had entered into a standard form contract with Carrapetta, the vendor of a property at Mosman in Sydney. The contract included special condition 34(b), which provided that if the contract is not completed by the completion date, being 1 December 2011, the purchaser will be liable to pay interest on the balance of purchase monies calculated at the rate of 12% per annum.

The form of specific condition 34(b) referred to the 12% in two places, however both of the exchanged contracts had handwritten alterations, amending 12% to 8%.

Vendor serves notice to complete and purchaser challenges its validity

The purchasers wished to delay settlement and the vendors refused. On 1 December, the purchasers wrote to the vendor's solicitors and confirmed that settlement "will not be occurring today" and that they "anticipate settlement to occur within the next 14 days as required". On the same day, the vendor's solicitors served a notice to complete.

By 14 December the matter remained unsettled. The vendor's solicitor issued another letter confirming settlement on 16 December and enclosed an erroneous settlement statement which designated interest payable calculated at 12%. In a letter dated 15 December, the purchaser's solicitors wrote the vendor's solicitor to challenge the validity of the "purported" notice to complete.

When is a notice to complete invalid?

A notice to complete will be rendered invalid if the issuer is "in default" or "in breach" or not "innocent" or not "ready, willing and able" at the time the notice was given. The submission by the purchasers was that notice was invalid because the interest, calculated by the vendor at 12%, was inconsistent with the terms of the contract, namely 8%.

Incorrect settlement statement does not breach any provision of the contract

In assessing the validity of the notice, Barrett JA considered the effect of a settlement statement and found that the submission by one party entails no more than a mere request or confirmation of the figures and calculation set out in the statement. This view affirms that courts should be slow to conclude that a party who delivers a settlement statement intends to adopt a particular construction of a contract unequivocally to the exclusion of other possibilities.

Although the settlement statement was in fact incorrect, the court found that it did not constitute a breach of any identifiable provision of the contract as it did no more than make an unenforceable demand, which did not undermine the validity of the notice to complete.

Further, since the purchasers' solicitors had not communicated the incorrect nature of the interest calculations before the service, they could not rely on the miscalculation to challenge the validity of the notice.

It is important to note that the court found that at all relevant times the vendor was ready, willing and able to complete the contract according to its terms and therefore was more inclined to find the notice to complete valid.

Wrong calculation on settlement statement needs to be addressed before completion

This decision clarifies that a purpose of a settlement statement issued by one party is to request confirmation that the receiving party agrees with the calculations set out in the statement. Therefore, a erroneous calculation on a settlement statement must be addressed prior to the completion and cannot itself render a notice to complete invalid.

Parties to a contract for sale must ensure that they are ready, willing and able to complete when they issue the notice to complete and remain so until completion.