Acton Investments (ACT) Pty Limited and MOMAC 2 Pty Limited v Frank BATTICCOTTO, Luigi BATTICCOTTO and Sarina BATTICCOTTO
[2014] ACTSC 31
•28 February 2014
ACTON INVESTMENTS (ACT) PTY LIMITED AND MOMAC 2 PTY LIMITED v FRANK BATTICCOTTO, LUIGI BATTICCOTTO AND SARINA BATTICCOTTO
[2014] ACTSC 31 (28 February 2014)
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – Discharge, Breach and Defences to Action for Breach – Civil Law (Sale of Residential Property) Act 2003 (ACT), s 11(1)(i) provides that the Required Documents mentioned in s 11(1)(a) to (k) form part of the contract – Contract must incorporate Required Documents pursuant to s 11 – Failure to deliver the contract with all the Required Documents is a breach entitling the defendants to rescind
INTERPRETATION – General Rules of Construction of Instruments – Interpretation of Civil Law (Sale of Residential Property) Act 2003 (ACT) – Statute intended to reduce the incidence of gazumping by reducing the time between the oral offer and the signing of a binding contract
INTERPRETATION – General Rules of Construction of Instruments – Interpretation of Civil Law (Sale of Residential Property) Act 2003 (ACT), s 11(1)(i) – Interpretation of the phrase “forms part of” – Phrase “forms part of” means Required Documents are to be a physical part of the Contract – There must be a relevant physical connection between contractual provisions and the Required Documents – No particular form of attachment is required
INTERPRETATION – General Rules of Construction of Instruments – Interpretation of Civil Law (Sale of Residential Property) Act 2003 (ACT), ss 9 and 11 – Interpretation of the attach “attach” – s 11(1)(i) requires the Required Documents to be a physical part of the contract – No particular form of attachment is required – Documents do not need to be bound together in any way – Documents need only to be connected by being part of the whole document which is the contract
INTERPRETATION – General Rules of Construction of Instruments – Interpretation of Civil Law (Sale of Residential Property) Act 2003 (ACT), s 10 – This provision is not inconsistent with ss 9 and 11
Civil Law (Property) Act 2006 (ACT)), s 204
Civil Law (Sale of Residential Property) Act 2003 (ACT), ss 9, 10, 11(1)(i)
Legislation Act 2001 (ACT), s 138
Unit Titles Act 2001
Court Procedures Rules 2006 (ACT), s 100, r 102
Donald J Farrands, The Law of Options and other Pre-emptive Rights (Lawbook Co: Sydney, 2010)
Oxford English Dictionary, (v 7)
Macquarie Dictionary, 5th ed
Oxford English Dictionary, (v 1) 758-9
Carter’s Breach of Contract (LexisNexis Butterworths: Sydney, 2011)
ACA Developments Pty Ltd v Sullivan [2004] NSWSC 304
Attorney-General (NSW) v Brewery Employees Union of New South Wales (1908) 6 CLR 469
Austruc v ACA Developments Pty Ltd [2004] NSWSC 131
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Commissioner for Revenue (ACT) v Dataflex Pty Ltd (2011) 5 ACTLR 271
Consolidated Constructions Pty Ltd v Ettamogah Pub (Rouse Hill) [2004] NSWSC 110
Holland v Jones (1917) 23 CLR 149
R P Constructions Pty Ltd v D & M Williams (Unreported, Supreme Court of New South Wales, Giles J, 8 February 1989)
Walton Construction (Qld) Pty Ltd v Robert Salce [2008] QSC 235
Wright v TIL Services Pty Ltd (1956) SR(NSW) 413
Zurich Specialties London Ltd v Thiess Pty Ltd [2008] NSWSC 1010
No. SC 251 of 2011
Judge: Refshauge J
Supreme Court of the ACT
Date: 28 February 2014
IN THE SUPREME COURT OF THE )
) No. SC 251 of 2011
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:ACTON INVESTMENTS (ACT) PTY LIMITED
ACN 106 428 782
First Plaintiff
MOMAC 2 PTY LIMITED
ACN 127 069 897
Second Plaintiff
AND:FRANK BATTICCOTTO
First Defendant
LUIGI BATTICCOTTO
Second Defendant
SARINA BATTICCOTTO
Third Defendant
ORDER
Judge: Refshauge J
Date: 28 February 2014
Place: Canberra
THE COURT ORDERS THAT:
Judgment be entered for the defendants on the plaintiffs’ claim.
Judgment be entered for the defendants in the sum of $88,615.70 on their counterclaim.
The parties be heard as to costs.
On 26 June 2008, the defendants entered into a written document, described as a Put and Call Option Deed (the Deed), with the first plaintiff, the registered proprietor of certain land in the Australian Capital Territory, and with the second plaintiff, a developer of certain apartments constructed on the land; the Deed related to a specific apartment (the Apartment).
I shall refer to the relevant terms of the Deed later.
On or about 23 August 2010, the plaintiffs through their lawyers delivered to the defendants’ lawyers in purported compliance with the Put Option in the Deed an updated Contract for Sale of the Apartment (the Contract). The Contract provided for completion of the sale within ten days of the receipt of notification by the second plaintiffs’ lawyers to the defendants of the satisfaction of all the Conditions Precedent to Completion referred to in the Contract.
Ultimately, the date for completion of the Contract was set by agreement to be 15 October 2010. The defendants failed to complete on that day, or thereafter, despite receiving a Notice to Complete served on the defendants on or about 22 October 2010.
As a result, the plaintiffs served on the defendants a default notice provided for under the Contract requiring the defendants to pay an instalment of the deposit not yet paid, and to pay it by 8 November 2010.
The defendants did not complete the Contract nor pay the second and final outstanding deposit instalment.
The defendants served on the plaintiffs a Notice of Rescission of the Contract on 5 November 2010. The plaintiffs rejected that Notice.
As a result, by Originating Claim, the plaintiffs commenced these proceedings in this Court on 19 April 2011 for the unpaid deposit instalment and interest together with costs.
The defendants filed a Notice of Intention to Respond under s 100 of the Court Procedures Rules 2006 (ACT). As they were entitled to do, they did not at that time file a defence but no defence was filed within the twenty-eight days after service of the Originating Claim on the defendants, as required by r 102. As a result, the plaintiffs applied for, and were granted, default judgment. Default judgment was entered on 4 July 2011.
On 7 November 2011, however, the default judgment was set aside and the defendants were let in to defend.
A defence and counterclaim was filed on 25 November 2011. In the defence, the defendants claimed that the Deed required the plaintiffs to provide them with a contract that complied with s 11(1)(i) of the Civil Law (Sale of Residential Property) Act 2003 (ACT) (the Residential Sale Act) and that the Contract did not do so, for reasons set out in the defence.
The counterclaim effectively sought the return of the first deposit instalment because, it alleged, neither the Put Option nor the Call Option in the Deed had been exercised before the expiry date of those options and, therefore, under the Deed, the deposit and interest on it was claimed to be refundable.
In a reply and defence to the counterclaim, the plaintiffs denied the claimed defects in the Contract and denied that the Put Option in the Deed had not been validly exercised, denied that they had breached a condition of the Contract that applied by virtue of s 11(1)(i) of the Residential Sale Act and denied that the defendants had an entitlement to rescind the Contract.
In answer to the counterclaim, the plaintiffs denied a number of the allegations in it, admitting certain of them and claimed that the Contract was binding on the defendants.
The focus of these proceedings was on the Contract and what was required, if anything, to be attached to it in order that it be a valid Contract.
Thus, the parties articulated the question to be answered in these proceedings as being
Do s 9, 10 and 11 of the [Residential Sale Act] require that a seller attach to the sale contract a current copy of the certificate of title for the land being sold for the contract to be enforceable if the certificate of title is otherwise available for inspection.
The Legislation
Sections 9, 10 and 11 of the Residential Sale Act are in the following terms:
9Meaning of required documents
(1)For this part, the required documents, in relation to a sale of residential property, are a copy of the proposed contract for the sale of the property (other than the excluded particulars) including the following documents:
(a)a copy of the Crown lease;
(b)a copy of the current edition of the certificate of title;
(c)a copy of the deposited plan;
(d)a copy of any encumbrance that is shown on the certificate of title (for example, a restrictive covenant or an easement);
NoteAn example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).
(e)if there is an encumbrance that is not shown on the certificate of title—a statement about the encumbrance that complies with the requirements (if any) prescribed under the regulations;
(f)a copy of the lease conveyancing inquiry documents for the property;
(g)for a unit, a copy of—
(i)if there is a registered units plan—
(A) the registered units plan; and
(B)a unit title certificate for the unit dated not earlier than 3 months before the day the property was first advertised or offered for sale or listed by an agent; and
(ii)if there is no registered units plan—a plan showing the proposed location and dimensions of the unit in relation to other units and the common property; and
(iii)the current edition of the certificate of title for the common property;
(h)for each residence covered by the proposed contract, a copy of each of the following:
(i)the building conveyancing inquiry documents for the residence;
(ii)the energy efficiency rating statement (if any) required under section 23;
(iii)a building and compliance inspection report from an inspection carried out not earlier than 3 months before the day the property was first advertised or offered for sale or listed by an agent (and, if the seller has obtained 2 or more reports in that period, each report);
(iv)if the residence has been occupied—a pest inspection report from an inspection carried out not earlier than 3 months before the day the property was first advertised or offered for sale or listed by an agent (and, if the seller has obtained 2 or more reports in the 6 months before that date, each report);
(v)for a residence that is a class A unit—the minutes of meetings of the owner’s corporation, and the executive committee, held in the 2 years before the day the property was first advertised or offered for sale or listed with an agent;
(i)if there are premises covered by the proposed contract and there is a current asbestos assessment report for the premises (or some or all of them)—a copy of each current asbestos assessment report;
(j)if there are premises covered by the proposed contract, but there is no current asbestos assessment report for the premises (or any of them), or, if a current asbestos assessment report for the premises (or any of them) exists but the seller cannot, after taking reasonable steps, find or get the report—an asbestos advice;
(k)any other document prescribed by regulation.
(2)However—
(a)the building conveyancing inquiry documents and building and compliance inspection report are not required for—
(i)a class A unit; or
(ii)a residence that has not previously been occupied or sold as a dwelling; or
(iii)a residence that is to be erected or developed before completion of the sale (an off-the-plan purchase); and
(b)a pest inspection report is not required for a class A unit; and
(c)a document mentioned in subsection (1) is not required if the seller cannot obtain the document after taking all reasonable steps to obtain it; and
(d)for a sale of vacant land under a developer’s holding lease, the required documents are—
(i)a copy of the holding lease; and
(ii)a copy of the development conditions or, if they are not finalised, the draft development conditions for the lease.
(3)The statement and reports mentioned in subsection (1) (h) (iii) and (iv) must have been prepared by someone who—
(a)is not—
(i)a family member of the seller (or the seller’s agent or lawyer); or
(ii)a member of a firm that the seller (or the seller’s agent or lawyer), or a family member of the seller (or the seller’s agent or lawyer), is a member of; or
(iii)someone else carrying on a business if the seller (or the seller’s agent or lawyer), or a family member of the seller (or the seller’s agent or lawyer), has a direct or indirect right to participate in the profits of the business; and
(b)has the professional indemnity insurance (if any) required by regulation.
(4)In this section:
asbestos advice—see the Dangerous Substances Act 2004, section 47J.
asbestos assessment report, for premises—see the Dangerous Substances Act 2004, section 47K.
current asbestos assessment report, for premises, means an asbestos assessment report for the premises if the premises have not been changed, since the report was made, in a way that would affect the accuracy of the report.
excluded particulars, in relation to a proposed contract for the sale of residential property, means—
(a)the name and address of, and contact details for, the buyer; and
(b)the name and address of, and contact details for, the buyer’s lawyer; and
(c)the purchase price; and
(d)the date of the contract; and
(e)a description of any furnishings or goods to be included in the sale of the property.
premises includes land or a structure and any part of an area of land or a structure.
10Proposed contract etc to be available for inspection
(1)A seller of residential property commits an offence if all the required documents are not available for inspection by a prospective buyer (or an agent for a prospective buyer) at all reasonable times when an offer to buy the property may be made to the seller.
Maximum penalty: 10 penalty units.
(2)Subsection (1) does not apply in relation to a failure by a seller to make all the required documents available for inspection by a prospective buyer if—
(a)the seller engaged a lawyer to prepare the proposed contract for the sale of the property; and
(b)the lawyer did not give the seller the required documents to which the failure relates; and
(c)the seller believed on reasonable grounds that he or she had received all the required documents; and
(d)the seller made all the required documents given to the seller by the lawyer available for inspection in accordance with subsection (1).
(3)An offence against this section is a strict liability offence.
11Certain conditions to be included in contract
(1)A contract for the sale of residential property must include conditions to the following effect:
(a)except as disclosed in the contract—
(i)the property is sold free of encumbrances other than the encumbrances shown on the certificate of title; and
(ii)the buyer is entitled to vacant possession on completion of the contract;
(b)if, before completion of the contract, the buyer becomes aware of a breach of a condition mentioned in paragraph (a), the buyer may—
(i)rescind the contract; or
(ii)complete the contract and claim damages;
(c)except as disclosed in the contract, there are no unapproved structures;
(d)if, before completion of the contract, the buyer becomes aware of an unapproved structure that is not disclosed in the contract, the buyer may—
(i)ask the seller to arrange for the structure to be approved before completion of the contract; and
(ii)if the structure is not approved before completion—rescind the contract, or complete the contract and claim damages.
(e)the buyer may not make any requisitions on the title to the property;
(f)the seller warrants that, at the date the contract is made—
(i)the seller will, at the time of completion, be able to complete the contract; and
(ii)the seller has no knowledge of any unsatisfied judgments, orders or writs affecting the property; and
(iii)the seller has no knowledge of any current or threatened claims, notices or proceedings that may lead to a judgment, order or writ affecting the property;
(g)the seller warrants that, at the date the contract is completed—
(i)the seller will be, or will be able to be, the registered proprietor of the territory lease relating to the property (if any); and
(ii)there are no unsatisfied judgments, orders or writs affecting the property; and
(iii)the seller has no knowledge of any current or threatened claims, notices or proceedings that may lead to a judgment, order or writ affecting the property;
(h)if, before completion of the contract, the buyer becomes aware of an error in the description of the property the buyer may—
(i)ask the seller to arrange for the error to be corrected before completion of the contract; and
(ii)if the error is not corrected before completion—
(A)for an error that is material—rescind the contract, or complete the contract and claim damages; and
(B)for an error that is not material—complete the contract and claim damages;
(i)the required documents mentioned in section 9 (1) (a) to (k) for the sale form part of the contract.
(2)However, the conditions mentioned in subsection (1) (f) (ii) and (iii) and (g) (i), (ii) and (iii) are not required to be included in a contract if the property is being sold—
(a)by a mortgagee in possession of the property, or exercising a power of sale; or
(b)by a registered or official trustee, or the official receiver, under the Bankruptcy Act 1966 (Cwlth); or
(c)under a court order.
(3)If a contract for the sale of residential property is entered into and the contract does not include a condition required under subsection (1) to be included in the contract, the condition is taken to be included in the contract.
The factual background
The facts in the proceedings were not generally in dispute. It is, however, desirable to set out certain of the factual background to the issue in the proceedings.
On 1 May 2008, the first and second defendants agreed with an agent of the plaintiffs to buy the Apartment, described as Unit 911 of “The Apartments” in New Acton Tower, Canberra City. The title to the Apartment was described as “Unit 127 in Unit Plan 3488 of Block 3 Section 24 Division of City”. Subsequently, it was agreed that the parties would enter into the Deed instead of proceeding directly to purchase of the Apartment.
On 22 September 2008, the Deed was executed by the plaintiffs and the defendants.
Attached to the Deed was a draft of a contract for the sale and purchase of the Apartment (the Annexed Contract). It appeared to be based on the standard Contract for Sale of a Residential Unit issued by the Law Society of the Australian Capital Territory (the standard Law Society Contract). Special Conditions in addition to the printed terms were added to it. The parties, their lawyers, the agent, the price and the deposit were all set out in the Schedule to the Annexed Contract. The date for completion was set out in special condition 35 to the Annexed Contract, which relevantly provided
Date for Completion
Completion of this Contract is to occur within 10 days of the receipt of written notification from the Developer’s Solicitor to the Buyer of the satisfaction of all of the Condition Precedent to Completion.
“Condition Precedent to Completion” was defined to mean “the issue of all necessary approvals for occupation and use of the Unit as a residential unit”.
The Deed provided that, on the date of the Deed, the Deposit was to be paid to the Stakeholder referred to in the Annexed Contract, being, curiously, not a legal person, but the plaintiffs’ lawyer’s Trust Account.
There was some ambiguity about the payment of the deposit, for special condition 40.2 in the Annexed Contract permitted the deposit, of 10% of the purchase price, to be paid, not in entirety on the date of the Deed, but by instalments, as to 5% of the purchase price by cash, cheque or Bank Guarantee on the date of the Annexed Contract and as to 5% of the purchase price (if not already paid) by cash or bank cheque on the Date for Completion. It would appear that the provisions of the Annexed Contract would not apply until it was executed, which it never was. Even though it would appear that the Deed applied, the parties approached the payment of the deposit as if the Annexed Contract applied.
The parties seemed to resolve this ambiguity by the delivery by the defendants, to the plaintiffs, on or about the date of the Deed, a Bank Guarantee for 5% of the purchase price, dated 18 September 2008.
The Deed granted the plaintiffs a Put Option. A Put Option has been defined by Donald J Farrands, The Law of Options and other Pre-emptive Rights (Lawbook Co: Sydney, 2010) at 16 as follows:
Under a ‘put’ option one party (the grantor) grants to another party (the grantee) who owns an asset (who gives consideration for the grant or it is given under seal) the right to require the first person to acquire the asset.
The plaintiffs (called, in the Deed, “the Project Participants”) were, under the Deed, able to exercise the Put Option as follows:
7.1 How the Project Participants Exercise the Put Option
The Project Participants may exercise the Put Option by delivering the following items to the Buyer’s Solicitor during the Put Option Period (and time is of the essence):
(a)an option notice in the form of Annexure A completed and executed by the Project Participants or the Project Participants’ Solicitor and dated with the date it is delivered to the Buyer’s Solicitor;
(b)the Contract in duplicate completed with the details of the Buyer or the Buyer’s Nominee, dated with the date it is delivered to the Buyer’s Solicitor and signed by the Project Participants; and
(c)if the option notice and/or the Contract is/are executed under power of attorney, a copy of the registered power of attorney.
The defendants were required by the Deed to respond as follows:
7.2If the Project Participants exercise the Put Option the Buyer must within 3 Business Days after the Buyer’s Solicitor receives the items in clause 7.1, sign one counterpart of the Contract and deliver it to the Project Participants’ Solicitor. If the Contract is signed by the Buyer under power of attorney, the Buyer must also deliver a copy of the registered power of attorney.
The effect of the exercise of the put option was set out in the Deed to be as follows:
8If the Put Option is exercised under this Deed, then from the date the Put Option is exercised the Project Participants are bound to sell and the Buyer is bound to buy the Land on the terms set out in the Contract. The Contract is binding on the Project Participants and the Buyer even if the Buyer does not comply with the provisions of clause 7.2.
The Deed also contemplated that the plaintiffs might “update” the Annexed Contract, providing in clause 12
If the Project Participants’ Solicitor delivers to the Buyer’s Solicitor an updated version of the Contract (or any annexures or schedules to it) before the Put Option or the Call Option is exercised, then the Buyer and the Buyer’s Nominee acknowledges and agrees the updated version of the Contract (or any annexure or schedule to it) replaces the Contract in Annexure A (or any annexure or schedule to it) for the purposes of this Deed.
The Annexed Contract had attached to it a large number of documents. The second page of the Annexed Contract, being part of the printed terms of the standard Law Society Contract, was headed “Required Documents” (Residential Properties Only)” and stated
The following marked documents are attached as required by the Property Act and form part of this Contract. The Buyer acknowledges that by execution of this Contract the Buyer certifies in writing that the Buyer received the marked documents prior to entering into this Contract.
There was then a list of documents, beside each item of which was a box. In the Annexed Contract eight such boxes were completed with an “x” and a document, of the description set out adjacent to each box so completed, appeared to be attached.
Thus, for example, the box next to “Crown Lease of the Land” in the list was completed with an “x” and there was attached a copy of Crown Lease for Block 3 Section 24 Division of City (the Land) granted to the first plaintiff.
On 18 August 2009, the plaintiffs’ lawyers delivered to the defendants’ lawyers a set of revised special conditions to the Annexed Contract and other documentation required. It was said to have been forwarded because of “recent changes to the Unit Titles Act 2001” and the plaintiffs’ lawyers requested the defendants’ lawyers to remove the current pages and substitute those forwarded to them, to re-constitute the Annexed Contract. A copy of these documents were not separately in evidence before me, but it appears that they had already been inserted into the Annexed Contract which was in evidence, since the copy of the Annexed Contract had attached a copy of Unit Plan No 3488 which related to the Apartment.
On 23 August 2010, the plaintiffs’ lawyers then wrote to the defendants’ lawyers enclosing a document in the form of the updated Annexed Contract, which was identical to the Contract, and advising that the Certificate of Compliance was likely to issue in the next two or three months and inviting them to advise their clients in order that they may be ready to complete the Contract. It was common ground that the document submitted did not have attached, nor was it accompanied by, a current edition of the Certificate of Title.
On 14 September 2010, the plaintiffs’ lawyers wrote to the defendants’ lawyers advising that all Conditions Precedent to Completion had been satisfied and that certain conveyancing information would shortly be forwarded.
On 15 September 2010, the plaintiffs’ lawyers wrote to the defendants’ lawyers enclosing a Put Option Notice, the Contract in duplicate, a Transfer and copy of the registered Powers of Attorney, under which each of the plaintiffs had given authority to named individuals to execute the Contract and the Transfer instrument.
A copy of the Contract was not in evidence, but it was agreed that it was in the form of the Annexed Contract, save that the current edition of the Certificate of Title was not annexed. It was also not provided with it in any form.
A letter two days later forwarded body corporate information, being what was described as a “Unit Title Certificate”.
There was further correspondence preparatory to settlement to which I do not need specifically to refer.
On 22 October 2010, the sale having not been completed, the plaintiffs’ lawyers served a Notice to Complete on the defendants’ lawyers.
On 5 November 2010, the defendants’ lawyers served a Notice of Rescission on the plaintiffs’ lawyers. The letter asserted that the plaintiffs were in breach of an essential term of the Contract, described in the Notice of Rescission as follows:
a.the Contract purporting to sell the Unit did not contain the ‘required documents’ pursuant to section 9(1)(b) of the [Residential Sale Act], in that a copy of a current edition of the Certificate of Title was not included in the Contract; and
b.such a failure renders the Contract voidable for a breach of a fundamental condition.
In a letter dated 8 November 2010, the plaintiffs’ lawyers stated that the plaintiffs rejected the Notice of Rescission on the basis that the defendants had “no legal basis” to serve it. On 16 November 2010, they demanded payment of the balance of the deposit.
The issue in the proceedings
In the submissions of Mr P Walker, counsel for the plaintiffs, he identified the issue to be determined by the Court as to
whether the contract for sale that was served on the Batticcottos on 15 September 2010 was valid
The submissions of Mr C Erskine SC submitted that
The case turns on one simple proposition: do ss 9, 10 and 11 of the Civil Law (Sale of Residential Property) Act 2003 (ACT) (the Act) require that a seller attach to the sale contract the required documents under s 9 – or, as the plaintiff contends, is it enough that the documents be available for inspection at the sellers’ solicitors’ offices?
This was translated in a letter from the plaintiffs’ lawyers to the defendants’ lawyers (to part of which I have already referred) as follows
Question to be answered by the Court
Do sections 9, 10 and 11 of the [Residential Sale Act] require that a seller attach to the sale contract a current copy of the certificate of title for the land being sold for the contract to be enforceable if the certificate of title is otherwise available for inspection.
Orders to be Made
If the answer to the question posed by the parties is ‘yes’ the Court should make the following orders.
1. There be judgement for the defendant on the plaintiff’s claim.
2. There be judgment for the defendant on the defendant’s counterclaim and the plaintiff to be ordered to return the bank guarantee for $70,000 held as part payment of the deposit for the property to the defendant.
3. The plaintiff pay the defendant’s costs.
If the answer to the question posed by the parties is ‘no’ then the Court should make the following orders.
1. There be judgment for the plaintiff on the plaintiff’s claim in the sum of $70,000 plus interest.
2. There be judgment for the plaintiff on the defendant’s counterclaim.
3. It is declared that the plaintiff is at liberty to exercise the bank guarantee for $70,000 held as part payment of the deposit for the property to the defendant.
In oral submissions, it was made clear that the question was not in the nature of a preliminary question but was, and was intended to be, the issue in the proceedings, the answer to which would determine the outcome.
Indeed, Mr Walker went so far as to say that if I found, for example, that the documents required by s 9(1)(a) to (k) of the Residential Sale Act (the Required Documents) could, rather than being actually attached to the Contract, accompany or be serially provided, but must be so delivered, as opposed to, for example, being available on request, then the answer to the question would be no and the orders would follow that answer, notwithstanding that this may mean that the Contract in this case may, in fact, have been able to be rescinded on what purported to be the exercise of the Put Option.
Mr Erskine did not take quite such a limited approach, submitting that the use of the word “attach” in the question did not mean that the Required Documents had actually to be stapled to the Contract to comply with the Residential Sale Act.
The oral exchange was as follows:
MR ERSKINE: ... I just, for the purpose of clarification, indicate that when we were having that interesting discussion about whether ‘attach’ includes the magic of a staple, I was trying to interpret the word ‘attach’, I wasn’t trying to change the way in which we’re arguing the case. It hadn’t occurred to me until the argument this afternoon that somebody would actually so far as to say if there isn’t a staple through the document you’re finished.
MR WALKER: I don’t necessarily mean a staple. It can be a staple, a bulldog clip, a piece of chewing gum, whatever you like, your Honour.
MR ERSKINE: That’s right.
HIS HONOUR: What happens if the contract is handed with one hand and then five minutes later the required documents are handed up?
MR ERSKINE: Your Honour is going to have to deal with that in the context of trying to interpret ‘attach’; that’s all I was trying to do in saying there is no magic necessarily to a staple.
I note, however, that the Notice of Rescission does not, in the description in it of the relevant breach, set out above (at [42]), refer to the current edition of the Certificate of Title not being “attached” but not being “included”.
Thus, while the question may have one focus, the asserted basis for the right of the defendants to rescind is slightly, perhaps materially, different.
The legislative formulations
Each of the three relevant sections in the Residential Sale Act use slightly different words when referring to the relationship between the subject Contract and the other of the Required Documents.
Thus, s 9 refers to “the proposed contract for the sale of the property ... including the following documents”. Section 10 refers to the Required Documents being “available for inspection by a prospective buyer”. Section 11 refers first to the fact that the “contract for the sale of residential property must include conditions to the following effect ... the required documents mentioned in section 9(1)(a) to (k) for the sale form part of the contract”.
These three formulations are not necessarily consistent and create some interesting challenges to interpretation.
Thus, s 9 is grammatically drafted to provide that a relevant contract must include the specified documents. That is a little odd, for it is defining “required documents”, but this makes the contract itself to be constituted by the contractual provisions plus the included documents specified in the section, being the Required Documents; together these must constitute the contract. That seems to me the natural interpretation. Thus, the Oxford English Dictionary (v 7) defines “including” to mean “[t]hat includes, shuts in, encloses, or comprises”. The latter word seeming to be the relevant one. It also defines “include” relevantly to mean “[t]o ... embrace, comprise, contain” as in “[t]o contain as a member of an aggregate, or a constituent part of a whole”.
For reasons I will mention below, I do not here address s 10.
As to s 11, it refers to a condition that the required documents as having to “form part of the contract”. I shall deal with this section first.
Section 11
This section raises some problems. As I have mentioned, s 11(1)(i) provides that
the contract for the sale of residential property must include conditions to the following effect
...
(i)the required documents mentioned in section 9(1)(a) to (k) for the sale form part of the contract.
This provision, as will be seen, is somewhat different to the other paragraphs in s 11(1) which are all terms that would ordinarily be expected to be in a contractual document.
While the form of paragraph (i) is in the same form as the other paragraphs, the meaning of it is clearly different, for the documents that are part of the contract by virtue of its operation are not of a contractual nature. They do not amount, expressly at least, to a warranty (such as paragraph (g)), they do make contractual provision for an eventuality that post-dates the contract (such as paragraph (b)), they do not forbid the taking of a step that otherwise would ordinarily be taken in such a transaction (such as paragraph (e)).
They simply make certain documents “form part of the contract”.
The phrase “form part of” has been considered in the context of multiple documents by McDougall J in the Supreme Court of New South Wales in a series of decisions of his Honour: Consolidated Constructions Pty Ltd v Ettamogah Pub (Rouse Hill) [2004] NSWSC 110; Austruc v ACA Developments Pty Ltd [2004] NSWSC 131 and ACA Developments Pty Ltd v Sullivan [2004] NSWSC 304.
In Consolidated Constructions Pty Ltd v Ettamogah Pub (Rouse Hill), his Honour had to construe a provision of legislation that exempted from the application of the legislation “a construction contract that forms part of a loan agreement”. His Honour said at [14]-[21]:
14 As a matter of ordinary English usage, something may be said to ‘form part of’ another if the first thing is included or incorporated within the second. The first thing may form part of the second as a result of some natural process or as a result of some artificial process (for example, a process of manufacture). In general terms, the words ‘forms part of’ seem to me to connote something akin to inclusion, as opposed to association. In a particular case, however, it may be difficult to discern the point at which association changes to inclusion: that is to say, the point at which one thing may be said to form part of, rather than merely to be associated with, another.
15 In legal usage, it is often asked whether certain terms form part of a contract. They may form part of it expressly: because they are expressly acknowledged by the parties to form part of the terms of their bargain. They may form part of it by incorporation: because the parties expressly, or by conduct, agree that they shall be incorporated into, and thereby form part of, their bargain. Or they may form part of it by implication: because they are implied in fact, or implied by law, or implied by statute, or implied by custom or usage. See, generally, Carter and Harland, Contract Law in Australia (Butterworths, 4th edition, 2002) Ch 6. But in each case, as in the world outside the area of legal usage, one thing – the term – is said to form part of the other – the contract – by, or as the outcome of, whatever is the relevant process.
16 In both ordinary English usage and legal usage, the words ‘forms part of’ therefore seem to indicate a relationship that is more than ancillary or associative. It is not enough to say only that the two things in question are in some way connected, for example because the one bears in some way on the other. The point at which connection becomes inclusion – at which the ancillary becomes integral – may not be easy to discern, and will in any event depend upon the facts of the particular case and the terms of the particular documents.
17 Counsel did not refer me to any decision on the meaning of ‘forms part of’. My own researches showed only one decision where the phrase had been considered – and in a radically different statutory environment, namely the Moratorium Act 1930 (NSW). In City Mutual Life Assurance Society Ltd v Smith [1932] HCA 62; (1932) 48 CLR 532, the High Court considered s 25(8) of the Moratorium Act, which was to the following effect:
(8) For the purposes of this section the expression ‘a mortgage of real property’ includes any mortgage where land forms part of the security.
18 Starke J, who with Evatt J constituted the majority, did not find it necessary to consider s 25(8) except to say, at 540, that it did not ‘enlarge the content of the expression ‘any mortgage of real property’.’ Dixon J, who dissented in the result, said, at 542, ‘that subs 8 should be interpreted as doing no more than so defining mortgage of real property that mortgages over that and other security would be included.’
19 Evatt J, at 545, construed sub s (8) as meaning that ‘if land forms any part of the security, the mortgage is dealt with by s 25.’ His Honour added, at 546, that the subsection ‘makes it clear that the possession of a right of recourse against the land in the event of default is, of itself, sufficient to disqualify the mortgagee from having recourse to the personal covenant of the mortgagor.’
20 It appears that Dixon and Evatt JJ took the words ‘forms part of’ at their ordinary English meaning. Although, as I have noted, the statutory context that their Honours were required to consider was radically different to that which I am required to consider, their Honours’ approach does suggest that, unless the context requires otherwise, the words ‘forms part of’ should be construed in accordance with what I have said in paras [14] to [16] above.
21 These considerations suggest to me that, for the purposes of s 7(2)(a) of the Act, a construction contract will not form part of a loan agreement unless, in some way, the former is included in, or incorporated into, the latter.
His Honour’s decision has been followed in Zurich Specialties London Ltd v Thiess Pty Ltd [2008] NSWSC 1010 and Walton Construction (Qld) Pty Ltd v Robert Salce [2008] QSC 235.
I respectfully adopt what his Honour said.
That, however, does not entirely end the matter for it has still to be decided what is the physical effect of including or incorporating the Required Documents (other than, of course, the part of the document setting out the ordinary contractual terms) into the Contract, to make them “form part of the contract”.
Extraneous material is often incorporated into a contract, such as by “incorporation by reference”. That is to say, the reference to such material may in appropriate cases make such material that is not physically part of the contract part of the contractual terms or give the material contractual force.
Legislation, such as regulations, may also use this device to make part of a regulation material that is not reproduced within it. See Wright v TIL Services Pty Ltd (1956) SR(NSW) 413 at 421-2.
Such incorporation by reference can in other circumstances include non-contractual or legislative material, of course, such as where reasons for a decision, such as of an arbitrator may make reference to extrinsic material so as to incorporate it into the reasons as part of the explanation for the decision. See R P Constructions Pty Ltd v D & M Williams (Unreported, Supreme Court of New South Wales, Giles J, 8 February 1989) at 7.
The difficulty I have with this approach as applied to this case is that none of the Required Documents, which do not include the contractual terms themselves, have any contractual force. While they have some explanatory and informative role, the documents are not reasons or explanations nor do they create contractual rights.
Mr Walker at one stage suggested, perhaps rather faintly, that there may, in fact, be a kind of contractual force in the inclusion of the Required Documents, suggesting that, for example, the pest report (s 9(1)(h)(iv) of the Residential Sale Act) may be a warranty that the premises are in the condition outlined in the report. Quite frankly, the wording of the legislation does not lend itself to such an interpretation and I do not accept that argument. Whether the report amounts to a representation which, if wrong, may be actionable is another, and irrelevant, matter entirely.
The difficulty of interpretation is compounded by s 11(3) which deems each of the conditions in s 11(1) to be included in the contract even if not so expressed. I initially thought that this could mean that the Required Documents could be, if not physically included, deemed to be included. I do not think that is correct.
The condition is that the relevant documents “form part of the contract”. That does not mean that if the documents are not physically part of the contract, they are deemed to be physically part of it; it means what it says, there is deemed, if not express, as a condition of the contract, that the Required Documents referred to in s 9(1)(a) to (k) form part of the contract.
It does not seem to me that this permits a failure to have the Required Documents form part of the contract (and I use those terms as neutrally as possible) to be rectified by some kind of deeming of them to be there. It would apply, for example, to override some collateral agreement between the parties inconsistent with the conditions.
This ambiguity then permits, perhaps requires, me to engage in a process of construction. That was outlined briefly in Commissioner for Revenue (ACT) v Dataflex Pty Ltd (2011) 5 ACTLR 271 at 278-9; [32]:
The first issue is to be resolved by ascertaining in an objective sense the intention of the parliament. The starting point is the text itself (Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 (Alcan) at [47]), although a decision on the meaning of the text begins with an examination of its context (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (“Project Blue Sky”) at [69]. “Context” is used in its widest sense to include such things as the existing state of the law and the mischief the statute was intended to remedy: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. That means that it is proper to have regard at the outset to extrinsic materials and not merely if the language is ambiguous. But historical considerations and extrinsic materials cannot displace the clear meaning of the text: Alcan. These principles of the common law are also reflected in the Legislation Act 2001 (ACT) (“Legislation Act”).
In particular, s 138 of the Legislation Act 2001 (ACT) permits reference to certain extrinsic material in order for “confirming or displacing the apparent meaning of the Act” or “finding the meaning of the Act in any other case”.
The Context of the Residential Sale Act
The Residential Sale Act established a regime for making and exchanging contracts for the sale of residential property in the Australian Capital Territory where no specific provisions had previously existed.
The Presentation Speech identified as an objective of the legislation to “reduce significantly the incidence of the unethical practice of gazumping”.
Gazumping was described in that Speech as follows:
Gazumping occurs when a seller breaks their promise to sell a property to a buyer after they’ve orally accepted the buyer’s offer. In other words, a buyer cannot be gazumped unless the seller has accepted the buyer’s offer, and the seller subsequently accepts a higher offer from another buyer. It is this practice that this bill aims to prevent.
The legislation did not create an offence but instead was said that it “addresses the clear factors in the sale process that lead to sellers being able to gazump”.
In particular, the Presentation Speech referred to the following:
Sellers of residential property will now be required to have a draft contract of sale prepared prior to listing the property on the market. Attached to this contract will be a number of due diligence documents and reports that will provide the buyer with all the information necessary to determine whether this is the property they wish to purchase.
Under the current process of the sale of residential property, the buyer conducts all the necessary inquiries concerning the property and also commissions certain inspection reports. The majority of these due diligence inquiries are conducted after an oral agreement to purchase the property has been concluded.
The time that it takes to conduct these searches and have a contract drafted opens a wide window of opportunity for gazumping to occur. Requiring the seller to have these documents available for a buyer to inspect from the time the property is first advertised for sale closes the window of opportunity.
The new process that the bill proposes bears some resemblance to the New South Wales system but differs in a very significant way. The New South Wales anti-gazumping legislation does not require inspection reports to be attached to the contract, as was noted by my colleague Mr Hargreaves in this Assembly some time ago. The New South Wales system has not been successful in reducing gazumping in that jurisdiction, and my government doesn't intend to make the same mistakes. The New South Wales system does not work because it fails to address the window of opportunity for gazumping to occur.
Buyers in New South Wales still have to undertake substantial due diligence inquiries before they can move to exchange, leaving the window open. Because this bill requires the seller to attach all the documents necessary to conduct an adequate level of due diligence on a property up front, the window of opportunity closes. Buyers and sellers will now be free to enter into binding written contracts as soon as an offer is accepted.
The Explanatory Statement was consistent with this approach. It referred to the following:
The Bill introduces four major reforms to address gazumping and improve consumer protection. The first reform requires sellers to have a contract of sale prepared prior to listing a property on the market. Attached to this contract will be a number of due diligence documents and reports
The Explanatory Statement, however, is not so specific when it outlines particular provisions. For example, in respect of cl 9 (which became s 9), it merely says
This clause details the documents that must be obtained and made available to the buyer for inspection before a residential property is offered for sale. This clause codifies the due diligence process currently undertaken by a prospective buyer of a residential property. The aim of this provision is to enhance consumer protection by arming buyers with all relevant information about the property they are intending to purchase at an early stage of the contractual process. This will eliminate one of the factors that contribute to the practice of gazumping by reducing the amount of time it takes to form a binding contract.
From these comments, I draw the following context of the relevant provision of the legislation:
1. It is designed to reduce gazumping.
2. It does this by reducing the time between oral offer and signing of a binding contract (being a written agreement or a note or memorandum in writing: s 204 of the Civil Law (Property) Act 2006 (ACT)).
3. The time is reduced by requiring a seller to procure certain documents and make certain searches and inquiries (s 9(1)(a) to (k) of the Residential Sale Act), namely the Required Documents.
4. These documents must then “form part of the contract”.
It seems to me that the critical element of this regime is the disclosure to the prospective buyer of the Required Documents which are the search and inquiry documents that are commonly required to be undertaken by buyers, or their lawyers, in conveyancing transactions. To disclose the conveyancing search and inquiry documents means that the prospective buyer does not have to undertake the work – and, more importantly, the time – to obtain them but can then peruse them to see that the title and condition of the premises to be purchased are in order; that the premises to be sold have the title the buyers expect to purchase and are in the condition they expect. All that prospective buyers need to do is to peruse the Required Documents or have their lawyer do so (or both) and, if all is in order, sign the contract within a day or a matter of days thereafter, thereby creating a binding agreement which will then provide them with complete protection against gazumping.
I also consider the practical context of such transactions. I believe that I can take judicial notice of two facts which I consider notorious. See Holland v Jones (1917) 23 CLR 149 at 153. The first is that prospective buyers of residential properties will rarely, if ever, take a lawyer with them when they inspect residential premises that they are interested in buying. Secondly, most inspections of such premises by prospective buyers will occur at the weekend.
Clearly the quickest and most efficient way to make the disclosure is to have the Required Documents physically with the contract, so that a prospective buyer can take possession of them at the weekend, and deliver them to their lawyer, as soon as they wish, during the ensuing week.
Whilst, of course, there are other possibilities, such as where the prospective buyer takes note of the name of the real estate agent or the prospective seller’s lawyer and advises their lawyer who makes contact and obtains the relevant documents, they would introduce an additional delay.
Conclusion on the meaning of “forms part of”
Given that the Required Documents are not contractual and are intended to constitute a disclosure in order to reduce the period between an oral offer being made for purchase of residential premises and the execution of a written contract, I conclude that “forms part of” means that these documents are to be physically part of the contract.
I do not read the Residential Sale Act as requiring a particular method of attachment. The plain text does not refer to attachment, but there must be a relevant physical connection between the contractual provisions and the Required Documents. If that does not occur, the relevant disclosure is not made in accordance with what I see as the purpose of the legislation. That is to say, when a prospective buyer or their solicitor receives a contract, they will at the same time have possession of all of the conveyancing search and inquiry documents as well.
It simply does not make sense for them to be sent later on for the prospective buyers or for their lawyer to have to ask for them. That undermines the intention to reduce the time between when oral agreement on purchase is made and a binding agreement is made.
It is, so far as is relevant, also consistent with the statement made in the Standard Law Society Contract to which I have referred above (at [21]).
Does that mean that the conveyancing search and inquiry documents have to be attached?
“Attached” means, according to the Macquarie Dictionary, 5th ed, p 96 “[t]o fasten; affix; join; connect” or “to join in action or function”. That is similar to the fifth and sixth meanings assigned by the Oxford English Dictionary (v 1), 758-9.
Insofar as I have found that the Required Documents must physically form part of the Contract, it seems to me that they are therefore to be attached, that is to say at least connected. That could mean that they were handed over individually without, as the oral submissions indicated, a staple joining them, but connected by being part of the whole which is the contract – thus complying with s 9 that described the contract as “including” them.
It is for another day as to whether, for example, them being supplied serially would be sufficient, though, of course, the contract would not be complete until the last had been physically supplied.
Section 10
Reliance was placed by the plaintiffs on the reference in s 10 to the fact that it is an offence if all the required documents “are not available for inspection”.
That, however, does not seem to me to be relevant to the issue that I have to decide. This refers to a different situation: this refers to the seller ensuring that when prospective buyers are in a position to make an oral or written offer to buy, they must be able to inspect the whole of the contract, that is the contractual terms and the Required Documents.
That is a different issue. That does not assist, in my view, with the construction of ss 9 and 11. What the latter provisions concern is the contents of the contract so that when prospective buyers receive the contract, which they must sign if they wish to purchase, they will have at the same time all the necessary conveyancing search and inquiry documents, the Required Documents, so that a signature can be affixed promptly and a decision then made which is informed about the title and condition of the premises to be purchased.
There is, as seems to me appropriate and practical, a requirement in the Residential Sale Act for the prospective buyer to be given a contract (which must include the Required Documents) when they make an offer. One can conceive of the position where premises are more popular and sought after than was initially believed and there may be more prospective buyers inspecting them than the agent thought would happen. Were the agent to be required to provide a contract then and there to every prospective buyer and happened to run out because of the unexpected popularity, the seller would be rendered liable to criminal penalties, even though modest. That cannot have been intended.
So long as the agent had one copy of the contract, including the Required Documents, that could be inspected, the obligations of the section would be met and this would be fair and reasonable.
In my view s 10 does not impinge on, and more importantly, is not inconsistent with, the construction I have put on ss 9 and 11.
Remedy
The form of the question asked does not require me to make a finding about whether the defendants were entitled to rescind.
The defendants have put their case on two bases; they have argued that the Put Option was not exercised because the contract forwarded did not comply with the Residential Sale Act, or, alternatively, they could rescind because of that failure.
As to the first, I am not satisfied that it is clear that the Put Option has not been exercised. It seems to me that the requirement in the clause (see [27] above) was to send the contract (as defined in the Deed) annexed to the Deed. That appears to have been done. That the document sent as the contract did not comply with the Residential Sale Act may have other consequences, but may not affect the exercise of the Put Option.
Of course, the consequence of such exercise is that the defendants were then bound to sign the contract tendered. It might be argued that this meant that there was necessarily implied that the Contract tendered by the plaintiffs must comply with the Residential Sale Act. The conditions for the implication of such a term would seem to exist, namely that it be reasonable and equitable, necessary to give business efficacy to the contract, that it be so obvious that it “goes without saying; it is capable of clear expression; it must not contradict an express term”. See BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283.
It may be that such a construction would apply here. I did not, however, hear argument on the issue and I do not need to decide it.
The incorporation of the Required Documents is a condition of the contract. It is so specified in s 11 of the Residential Sale Act. I assume that the legislature chose that term deliberately.
As J W Carter points out in Carter’s Breach of Contract (LexisNexis Butterworths: Sydney, 2011) at p 157; [5-01]
The word ‘condition’ is the description applied to a contractual term any breach of which gives rise to a right to terminate the performance of the contract and to claim damages. It is a conclusion as to the legal effect of the contract, not the meaning of the term.
In Wallis v Pratt Fletcher Moulton LJ said conditions are terms:
... which go so directly to the substance of the contract or, in other words, are so essential to its very nature that their non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all.
A term may be a condition even though its breach is not, objectively, ‘a substantial failure to perform the contract at all’. Therefore, this description is not exhaustive.
Two other situations may be envisaged. A contractual term may be a condition because, irrespective of the objective seriousness of the likely consequences, any breach is accounted a serious matter by the parties, who regard any breach as a ‘substantial failure’ to perform. Alternatively, a term may be a condition for reasons of commercial convenience.
(Footnotes omitted)
While it may be argued that the failure to attach (in the sense used above) the current edition of the Certificate of Title seems not obviously a “substantial failure to perform the contract at all”, the legislature has, it seems, so considered it. It must be assumed that the legislature was using the term against the background of the law and so used with the legal meaning ascribed to it. See Attorney-General (NSW) v Brewery Employees Union of New South Wales (1908) 6 CLR 469 at 531.
In this event, it seems to me that the breach constituted by the plaintiffs’ failure to deliver a contract with all the Required Documents forming a part of it was a breach of a condition which entitled the defendants to rescind.
Conclusion
Accordingly, there should be judgment for the defendants on the claim by the plaintiffs and for the defendants on their counterclaim.
I will order accordingly.
I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Refshauge.
Associate:
Date: 28 February 2014
Counsel for the plaintiffs: Mr P Walker
Solicitor for the plaintiffs: Meyer Vandenberg
Counsel for the defendants: Mr C Erskine SC
Solicitor for the defendants: Leonie Kennedy & Associates
Date of hearing: 17 December 2012
Date of judgment: 28 February 2014
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