Belconnen Lakeview Pty Ltd v Maya Krishna Goundar
[2016] ACTMC 10
•14 September 2016
MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
| Case Title: | Belconnen Lakeview Pty Ltd v Maya Krishna Goundar |
| Citation: | [2016] ACTMC 10 |
| Hearing Date(s): | 23 September 2015, 24 September 2015 & 24 March 2016 |
| DecisionDate: | 14 September 2016 |
| Before: | Magistrate Morrison |
| Decision: | See [180] – [181] |
| Category: | Principle judgment |
| Catchwords: | REAL PROPERTY – General principles – buyer and seller – construction of standard contract for sale of land – whether purported termination by seller valid – whether seller ready willing and able to complete – construction of clause 18.3 of standard contract – effect of failure to provide certificate under s119 of Unit Titles (Management) Act 2011 (ACT) – construction of clause 10.8 of standard contract – effect of settlement statement – construction of clause 19 of standard contract – whether expenses of resale recoverable when deposit greater than deficiency on resale – GST implications of breach of clause 24 of standard contract – whether buyer entitled to restitution as a result of Seller’s windfall gain AUSTRALIAN CONSUMER LAW – Application to contract for sale of land – absence of evidence of loss or damage – absence of evidence of reliance upon any representation |
Legislation Cited: | A New Tax System (Goods and Services Tax) Act 1999 (Cth) |
Cases Cited: | Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171 |
| Parties: | Belconnen Lakeview Pty Ltd (plaintiff) |
| Representation: | Counsel Solicitors Just Dispute Resolution (defendant) |
| File Number: | CS 677 of 2014 |
MAGISTRATE MORRISON:
The plaintiff is a property developer. It entered into 2 contracts with the defendant for the sale and purchase of 2 residential units in circumstances commonly described as “off the plan”. It is not in dispute that when the construction of the unit complex was finished the plaintiff called for the defendant to complete the contracts and the defendant did not do so. The plaintiff says he was bound to do so. The defendant says that he was not.
That simplified summary of what lies at the heart of the contest in these proceedings belies the complexity of the issues which were argued.
For convenience I refer to the parties as the Seller and Buyer, that being the descriptions given to them in the contracts.
The terms of the two contracts entered into were for the most part identical. No submissions were made to the effect that those parts of the contracts which differed affected the construction of the parts which did not, and where I refer simply to “the contract” I am referring to a part which is identical to both. Where the contracts are different I refer to the relevant specific contract.
The evidence closed on the last day of the hearing which was 24 March 2016. On that day I heard oral submissions from Mr Buckland for the Seller and Mr Webster for the Buyer. Because of time constraints I directed (without objection) that any submissions by the Seller in reply be made in writing by 20 April 2016. Written submissions in reply on behalf of the Seller were duly received. Subsequently my associate also received a document from Mr Webster headed “Defendant’s objections to Plaintiff’s Submissions in Reply”. No direction had been made for any further submission on behalf of the Buyer and no request had been made to relist the matter to seek leave for any further submission. In the circumstances I have not had regard to that document.
There was not much by way of dispute on the facts before me. It is not in dispute that the contracts were entered into and not completed. There is no material dispute around what took place by way of pre-completion exchanges between the parties.
The Buyer asserted several breaches of contract by the Seller. Much of the argument in submissions was directed to the question of whether, in the circumstances, the Seller was entitled to call upon Buyer (by way of notice to complete) to complete the contracts. The submissions identified questions of legal principle and of contract construction to be decided. They were questions which had earlier been identified in the course of an application for summary judgment.
On 4 September 2015 I handed down my decision on that application for summary judgment. I declined the application, in part because it raised significant and difficult questions on law around what circumstances disentitle a seller from serving notice to complete under the form of contract employed by the parties. An application for summary judgment was not the stage for determining such questions.
I identified the questions before me in my decision on the summary judgment application in these terms:
What is the proper construction of clause 18.3 of the contracts, and in particular:
(a)Is the presumed intention of the parties that the effect of the clause will be to reflect the common law in relation to the circumstances under which a seller is not entitled to issue a notice of complete?
(b)If not what meaning is to be given to the expressed requirement that the party serving the notice “not be in default” when read in conjunction with the requirement that the party be “ready willing and able to complete”?
(c)If so, what is the state of the common law in relation to circumstances under which a seller is not entitled to issue notice to complete, and in particular, where there is some breach by a seller, how serious must the breach be before a seller is disentitled to do so? Is the level of seriousness anything more than de minimis, is it at the level of a breach of a condition (as opposed to breach of a warranty) or is some other test to be applied?
(d)To the extent that it is necessary to do so, how is the Court to reconcile what appear to be different approaches to the question just posed in decisions such as McNally v Waitzer; Mulkearns v Chandos Developments Pty Ltd; Slarke v Ultima Constructions Pty Ltd; Alexus Pty Ltd v Pont Holdings Pty Ltd; Carrapetta v Rado and Neeta (Epping) Pty Ltd v Phillips.
The evidence and final submissions having now been received, it is convenient to start these reasons with my conclusions on the questions identified above. They affect much of what follows.
Clause 18.3 of the contract is in these terms:
18.3 At the time the Notice to Complete is served the party serving the Notice to Complete must:
18.3.1 not be in default; and
18.3.2 be ready willing and able to complete but for some default or
omission of the other party.
Both parties addressed submissions to the question identified in paragraph 9 above and in particular the meaning to be given to the expression “ready willing and able to complete” where it appears in clause 18.3. The Buyer pressed that a party in breach of any obligation whatsoever under a contract was not ready willing and able to complete. By way of alternate submission the Buyer said that, whatever meaning those words are given in clause 18.3.2, the additional express reference to “not be(ing) in default” in clause 18.3.1 gave the clause overall the more expansive meaning the defendant contended for in any event.
A useful starting point on the meaning of the expression ‘ready willing and able’ is the decision of Barwick CJ (with whom McTiernan agreed) in Mehmet v Benson (1965) 113 CLR 295. His Honour there expressed himself in these terms (citations omitted):
31. That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready and willing to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be granted specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance. ". . . A plaintiff in equity may even have actually broken his contract in the letter and yet succeed, if the substance remains"
32. The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations. Here the substantial thing for which the defendant bargained was the payment of the price: and, unless time be and remain of the essence, he obtains what he bargained for if by the decree he obtains his price with such ancillary orders as recompense him for the delay in its receipt. To order specific performance in this case would not involve the court in dispensing with anything for which the vendor essentially contracted. (at p308)
33. Of course, the plaintiff must not by his unreadiness or unwillingness to perform have disowned his obligation to do so, or abandoned his rights to the benefit of the contract. But it is the essential terms of the contract which he must be ready and willing to perform. He seeks a transfer of the interest in land, the subject of the contract: the counterpart obligation is the payment of the price.
…
The comments just referred to are plain enough. Default in performance of what is an inessential term does not establish that a party is not ready willing and able to perform the contract.
Mr Webster on behalf of the Buyer however referred to several decisions which he said supported his submission, indicating, as I understood the submission, that the law had moved on from Mehmet. My observations on those decisions follow.
In McNally v Waitzer [1981] 1 NSWLR 294, the New South Wales Court of Appeal dismissed an appeal from a decision at first instance that a vendor was not entitled to serve notice to complete. It is not easy to discern a common line of reasoning relied upon by both Reynolds and Hutley JJA (both of whom published reasons) for the vendor not being entitled to do so, at least not in terms of the nature or seriousness of any disqualifying breach by the vendor. The decision is the subject of observations by both Young CJ in Equity in New South Wales and Kourakis J in South Australia to which I refer later.
In Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171, Young J (as he then was) dealt with the question in these terms:
20. A party to a contract for the sale of land is only entitled to give a notice to complete if that party is ready, willing and able at the date when the notice is given to proceed to completion at the expiry of the notice: McNally v Waitzer [1981] 1 NSWLR 294; Caleo Bros Pty Ltd v Lyons Bros (Aust) Pty Ltd (1980) 1 BPR 9496, 9499. For brevity, I will use the term "readiness" to comprehend being ready, willing and able to complete.
21. What readiness means in this context is the same concept as readiness for the purpose of granting specific performance (McNally v Waitzer supra).
22. One must distinguish between essential and non-essential obligations. Lack of readiness to perform an essential obligation ordinarily leads to inability to give a notice to complete or to force specific performance. However, this is not ordinarily the case where the obligations concerned are inessential; see Measures Bros Ltd v Measures [1910] 2 Ch 248, 260-1; Dyster v Randall & Sons [1926] Ch 932 and Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604.
23. There are some provisions in a contract which merely sound in damages and even a vendor in breach may still force completion. An example is Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395, 401. In that case the sale of a commercial property was subject to leases and the leases were not as disclosed in the contract. This was a matter which merely sounded in damages and did not prevent completion.
24. On the other hand, where there is a substantial defect and the purchaser is entitled to an abatement of the purchase price it is not open to the vendor to give a notice to complete or to force specific performance without at least offering compensation: see Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 9419, 9426, a case where the vendor was in breach of its duty to take reasonable care of the property between contract and completion. Other examples are cases where the vendor has promised to build a house on the property sold and there have been grave defects in the building; see Tildesley v Clarkson [1862] EngR 422; (1862) 30 Beav 419; 54 ER 951 and Doyle v East [1972] 1 WLR 1080.
25. In some cases this rule will be affected by clause 6 of the standard contract where there is an error or misdescription in the contract and the purchaser must claim compensation before completion or not at all: Abraham v Mallon (1975) 1 BPR 9157. The present clause purports to cover substantial errors and misdescriptions. However, it does not appear to me that clause 6 can apply in the instant case; indeed, the contrary has not been argued.
26. A vendor who is unable to fulfil a contract according to its tenor may be able to escape the consequences by seeking specific performance with compensation for deficiency. It is unnecessary to explore this in the present case as there was no mention of compensation in this sense either in the notice to complete or otherwise.
It is apparent that his Honour did not then see the conclusion in McNally as being contrary to the views he expressed.
In Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920, his Honour (by then Young CJ in Equity) was dealing with a contract for the purchase of a unit off the plan which expressly provided for the vendor to rectify building defects which came within what were defined by the contract as “Special Faults”. The contract provided that other defects could be rectified within a reasonable time after completion. The decision that the vendor was not entitled to serve a notice to complete turned on his Honour’s conclusion that at least one of the defects complained of was a Special Fault, and, as such, the vendor was obliged to remedy it before it could expect the purchaser to complete. I mention this decision only because it is to be referred to again later.
In Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132, Young CJ in Equity undertakes a closer analysis of the decision in McNally. After referring to the arguments put to him about the question of the nature or seriousness of a breach which would disqualify a party from serving a notice to complete, his Honour goes on to say:
40. Mr Gray's riposte to all this was that there was no distinction properly made between the various breaches of contract that a vendor might have committed when considering whether it was disqualified from issuing a notice to complete.
41. In McNally v Waitzer (supra) itself, Reynolds JA strongly suggested that what was required was that the vendor demonstrate at the material time that it was ready willing and able to proceed to completion. His judgment does not mention breaches. On the other hand, Hutley JA does appear to refer to breaches and his quotation from Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286, 299, confirms this. The writer of the headnote has picked up these words. The third Judge, Glass JA, agreed with both Reynolds JA and Hutley JA. He obviously could not have done so had there been a material difference between them. It seems to me that Hutley JA at p 304 makes it clear that he too is talking about readiness and willingness because he says, "Readiness and willingness is negatived by proof that the party seeking to enforce the contract has done something inconsistent with his obligations under the contract and which has not been or is incapable of rectification." He refers to Meagher Gummow and Lehane a paragraph that is now [20-115] of the fourth edition. This reference again seems to emphasise the readiness and willingness aspect, a matter which is not to be determined on whether or not there has been a breach of contract, at least unless the breach is substantial: Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295, 307-9.
42. Assuming that there was a breach and a continuing breach of covenant 7.1.1 of the lease, the vendor says that the tenant was quite content with the way things were and that in any event under clause 24.5 the obligation to pay damages remains notwithstanding completion. It of course also says that the roof was not in need of repair and was in good condition but on the facts, as I have said I prefer Mr Lyons' evidence and do not uphold that submission. The plaintiffs say that this was a substantial breach and it might be a very expensive substantial breach because if there were a heavy rainstorm and the roof failed to repel the rain, works of art inside the gallery might be irretrievably damaged. This point is taken, but there was no material to suggest that the rusted roof was in such a condition that there would be substantial ingress of water or that a tenant once he or she saw that water was coming in would leave material where it was to be ruined. In my view the breach, if it be a breach, of the lease, was not a substantial breach nor one which affected the vendor's readiness, willingness and ability to complete the contract. Accordingly it had no effect on the vendor's ability to give a notice to complete.And later:
44. The Court must take a commercially realistic view of the completion of contracts for the sale of land particularly contracts with respect to commercial developments. It would be quite opposed to the presumed intention of parties to a contract if settlement could be indefinitely delayed because of some minor problem with respect to the state of the building or other possible breach of an obligation to a third party which the vendor under the contract had promised to look after. It may be that the category of breaches which go to readiness, willingness and ability extend beyond matters of title or vacant possession, but this is certainly the main subject matter of such breaches. It is noteworthy that Mr Mulkearns said that he would have settled had some sum been set aside to cover the replacement of the roof, but he did not appear to be putting forward that view in August.
In Slarke v Ultima Constructions Pty Ltd [2005] ACTCA 1 the Australian Capital Territory Court of Appeal dealt with the terms of a standard contract which were relevantly identical to that in these proceedings. The Court referred to the conclusion of Connolly J at first instance that the plaintiff had not failed to comply with the contractual requirement for the installation of prime cost and further noted, without criticism, that his Honour had added “...that the requirement for their installation would not, in any event, have been an essential term of the contract”.
It was pressed on me in submissions that the decision in Carrapetta v Rado [2012] NSWCA 202 in particular was authority for the proposition that any breach of any term of a contract disentitled a party from serving a notice to complete and demonstrated that the party was not ready willing and able to complete the contract.
In Carrapetta, Barrett JA (with whom Beasley and Hoeben JJA agreed) had this to say about a party in breach serving notice making time of the essence, at [27]:
Case law thus makes it plain that the party seeking to make time of the essence must be an "innocent" party who is not "in default" or "in breach" and is "ready, willing and able" to proceed to completion in accordance with the contract. The underlying concept is that a party who gives a notice to complete and thereby calls on the other party to adhere to the contract must be in a state of both present and prospective adherence to the contract. When it is the vendor who serves the notice, he or she must be seen to be willing and able to perform, on the day the notice fixes for completion, the obligations that the vendor is required to perform on completion - predominantly, in a "cash on completion" case such as the present, the obligation of delivering a clear title in return for the money that the contract requires the purchaser to pay in cash on completion - and to have adopted up to the time of service of the notice a stance consistent with that future performance. If the vendor is in breach of contract when the notice is given, he or she is not in such a state of willingness and ability. Likewise, if the vendor has taken and made known an uncompromising stance that he or she will not deliver title on completion except in return for payment of a sum greater than that required by the contract, that vendor will be "in default" (or "in breach") and not be "innocent" or relevantly "ready, willing and able" because the unequivocal stance inconsistent with the contract bespeaks lack of adherence in the nature of anticipatory breach.
The case law referred to in his Honour’s reasons immediately before that statement included the decision of Young CJ in Equity in Malouf (referred to earlier), and a decision of Kourakis J in Kraguljac v A & B Property Developments (No 2) Pty Ltd [2012] SASC 1.
As already indicated the decision in Malouf turned on Young CJ’s conclusion that at least one of the defects complained of was a special fault which the vendor was obliged to remedy before it could expect the purchaser to complete. It does not support a conclusion that any breach of contract has that effect.
In Kraguljac, Kourakis J undertook a detailed analysis of the decision of Young CJ in Equity in Mulkearns and Alexus and the authorities referred to in them. He went on to say (citations omitted):
On appeal from the decision of Young CJ in Eq, in Chandos Developments Pty Ltd v Mulkearns, the New South Wales Court of Appeal left open the question whether a party was precluded from serving a notice to complete if he or she were in breach of any contractual obligation, or whether they were only so precluded if they were in a breach of an essential term or in breach in a substantial way. The analogy with suits for specific performance would suggest the latter. It is not necessary for me to finally resolve this question because, in my view the breach of A & B Property here was a substantial one.
Again the decision in Kraguljac does not support a conclusion that any breach by a party precludes it from serving a notice to complete.
In Carrapetta the Court of Appeal was dealing with a sale and purchase where the vendor’s solicitors had delivered a pre-completion “settlement statement” containing a calculation of interest. It was conceded for the purposes of the hearing at first instance that the amount so referred to was greater than that to which the vendor was entitled under the contract. The vendor had subsequently served a notice to complete. After analysis of the relevance and significance of a settlement statement, the Court observed that “(t)he notice to complete her solicitors served, unlike the notice in the Neeta (Epping) Pty Ltd case, did not refer to any interest component or imply a willingness to complete only if interest not properly payable was in fact paid.”
The Court went on to refer to as “correct” the primary judge’s conclusion that the notice to complete did not require anything more than what the contract required and that the vendor was not (thereby) in default when the notice was served.
It will be apparent from what I have set out above that the New South Wales Court of Appeal in Carrapetta did not have to decide the question of the nature or seriousness of a breach which would disentitle a vendor from serving a notice to complete. The broad observations made in that decision as set out in paragraph 24 above must be read against that background. In addition, as I have already noted, the case law quoted in Carrapetta as a basis for those broad observations does not support a conclusion that their Honours were intending as a statement of principle to do away with any distinction between breaches of essential and non-essential terms in the determination of whether a party in breach may serve a notice to complete.
For the reasons I have set out, the authorities relied upon by Mr Webster do not persuade me that any breach by a vendor means that it is not ready willing and able to complete a contract and the submission to that effect is rejected.
That conclusion naturally leads to another question. Unfortunately the authorities do not speak with one voice in describing the extent or nature of a breach which will disentitle a party from giving notice to complete.
In Mehmet, Barwick CJ relevantly referred to “the substantial thing for which the parties contract” and “essential obligations”. In Alexus, Young J speaks of distinguishing between “essential and inessential obligations” and of breaches “which merely sounded in damages”, although in Mulkearns he went on to say “[i]t may be that the category of breaches which go to readiness, willingness and ability extend beyond matters of title or vacant possession” – an expression which hints at leaving open the possibility that something less than breach of an essential obligation may be enough to disentitle a party in default from serving a notice to complete. In Slarke v Ultima Constructions Pty Limited [2004] ACTSC 29 Connolly J referred to the relevant provision as not being “an essential term of the contract”.
The weight of the authorities favour an approach that it is only the breach of an essential term which disentitles a party from giving notice to complete and I adopt that approach. To the extent that something less than such a breach may have a disentitling effect I make some observations about that later in these reasons.
The conclusion just does not entirely dispose of the questions identified above, but those that remain can be disposed of shortly.
Mr Webster is correct in pointing out that the contract requires that a party serving a notice to complete must be both not in default and ready willing and able to complete. His submission, as I understand it, is that even if the term “ready willing and able to complete” is construed as not disqualifying a Seller who is in breach of a non-essential term of the contract from serving notice to complete, the additional words used by way of “not be in default” expand the meaning of the clause such that any breach by the Seller will have a disqualifying effect.
The submission must be rejected. As the cases to which I have referred amply demonstrate, the references to a party being ready willing and able to complete a contract and not being in breach of that contract are often used together in the authorities to embody a single proposition – that being to describe the circumstances under which the party, as a matter of principle, may or may not, by service of a notice to complete, require the other party to complete its side of the agreed bargain.
Against the background of that usage the objective approach to the task of construing the terms of a contract strongly supports a conclusion that the parties intended clause 18.3 of the contract to embody the common law principle just referred to, and to do no more than that.
That conclusion is reinforced by several factors.
One is that the clause appears in a standard form contract prepared by the Law Society of the Australian Capital Territory. The document is professionally drawn, is comprehensive and is used generally in real estate transactions in the Territory. Under such circumstances there is a legitimate predisposition to conclude that the draftsman intended the words used to be construed in the light of the relevant judicial considerations of them – see Ferris v Plaister (1994) 34 NSWLR 474.
Another factor supporting my conclusion is that to interpret clause 18.3 otherwise would be to take a commercially unrealistic view of the contract and the presumed intention of the parties about delay in settlement because of minor problems – see the comments of Young CJ in Equity in Mulkearns. That is another way of expressing the well known principle that, if more than one meaning is possible on the facts, the one that avoids capricious, unreasonable, inconvenient or unjust consequences will be preferred - see Australian Broadcasting Commission v Australian Performing Rights Association (1973) 129 CLR 99.
Having dealt with that aspect of the argument before me I turn to consider the other arguments.
In final submissions Mr Buckland for the Seller said that the Seller’s claim was that the case was a straightforward one of breach of contract. He submits that the Seller and the Buyer entered into a binding contract, that the Buyer failed to complete the contract as required and that it was lawfully terminated by the Seller.
The Buyer’s reasons for asserting that the Seller was not entitled to call for completion were narrowed during the course of the hearing and ultimately were condensed by Mr Webster for the Buyer at page 85 of the transcript of 24 March 2016. As described there the bases for the Seller not being so entitled are asserted to be:
(a)The Seller’s failure to provide s119 certificates (meaning certificates under s119 of Unit Titles (Management) Act 2011 (ACT);
(b)The Seller’s incorrect assertions about adjustments on settlement [at p. 85 it says ‘failure to correctly indicate the basis of calculations of adjustments due on settlement’];
(c)The Seller’s failure to comply with GST provisions in the contracts;
(d)A change in the unit entitlements.
The Seller as plaintiff bears the onus of proof but it is convenient to proceed by way of addressing the four bases identified by Mr Webster.
Failure to provide s119 certificate
Mr Webster referred in submissions to the various ways in which he said that the material which the solicitors for the Seller provided in purported compliance with s119 of the Unit Titles (Management) Act 2011 (ACT), (formerly s75 of the Unit Titles Act 2001 (ACT)) did not meet the requirements of that section. I think it is fair to say that it is accepted by the Seller that the requirements of s119 have not been fully met – or more accurately that the requirements of the determination by the Minister setting out the information to be provided for the purposes of s119 have not been fully met.
Mr Webster points out that clause C10.8 of the contract is in the following terms (transcript page 87, 24 March 2016):
If clause (c) 10.1 applies, that is that if at the date of the contract the unit plan has not been registered … the Seller must give to the buyer a section 75 certificate at the Buyer's expense at least seven days before completion.
It is not in dispute that clause C10.1 applied. “Completion” is defined in clause 1.1 of the contract to mean the date when the contract is completed.
The evidence establishes that the documents which were given to the Buyer in purported compliance with clause C10.8 were given on or about 27 June 2013.
The notices to complete were dated 23 September 2013 and called for completion on 11 October 2013.
Mr Webster’s submission, as I understand it, is that the Seller never having given the Buyer a certificate which fully and properly complied with the requirements of s119, it was not open to the Seller to require completion of the contract at any time until it had done so. It follows, according to that submission, that the notices to complete were invalid.
In support of that submission Mr Webster relies upon the decision of Connolly J at first instance in Slarke v Ultima Constructions Pty Limited [2004] ACTSC 29. In Slarke, a notice to complete had been given requiring completion on a date which was within 7 days of the delivery of a certificate under s75 of the Unit Titles Act 2001. That notice to complete was not relied upon and a later notice delivered. It was therefore not necessary for his Honour to make any formal findings about the first notice but he did comment in his reasons that “[t]he s75 certificate having only been served on 23 February 2004, the buyer did not have to complete until seven days after service”.
The reasons for Connolly J’s decision in Slarke do not set out the wording of the relevant clause in the contract which was the subject of the dispute before him, and no submissions were made on behalf of the Seller about any relevant distinction. The way in which his Honour expressed himself however hinted at there being a difference between what was before him and the relevant clause before me, and enquiries of the parties after the close of submission revealed that to be the case. The parties’ lawyers have been less than diligent. The Buyer’s lawyer ought not to have referred to the decision as authority for the proposition put forward without bringing to the attention of the Court that the terms of the contract were relevantly and materially different. The Seller’s counsel was under a duty to bring that difference to the Court’s attention.
The contract before Connolly J in Slarke contained a provision that the seller was required to serve a s75 certificate at least 7 days before completion and went on to say that “[t]he Buyer does not have to complete earlier than 7 days after service” of that certificate. In Slarke, the seller had served a s75 certificate and a notice to complete requiring completion before the end of the 7 day period after service of the certificate. His Honour concluded, unsurprisingly, that the buyer was not in breach of any obligation because it did not have to complete until 7 days after service of the certificate. In reaching that conclusion he was giving effect to what the parties had expressly agreed in the contract.
No such provision appears in the contract entered into between the parties before me. The decision of Connolly J in Slarke is not authority for the proposition that a failure to deliver a relevant certificate of itself disentitles a party from serving a notice to complete.
The decision of the ACT Court of Appeal in Slarke v Ultima Constructions Pty Ltd [2005] ACTCA 1 hints at what might be seen as a broader approach by virtue of its references to the decisions of McClelland J in Jillinda Pty Ltd v McCourt (1983) NSW Conv R 55-145 and of Cohen J in Doyle v Howey (1990) NSW Conv R 55-545; but that does not change the fact that the contract under consideration contained the express completion deferring provision referred to above.
To the extent that any further consideration of the decisions in Jillanda and Doyle is required, they appear to proceed on the basis of either or both that:
(a)the proper construction of the relevant contract meant that buyer’s obligation to complete was conditional upon seller’s provision of a certificate at least 7 days beforehand; or
(b)the failure to deliver was a breach which disqualified the seller from service a notice to complete.
Insofar as the first of those propositions is concerned, the decision of McClelland J (as published in the NSW Conveyancing Reports) does not disclose the reasoning behind his conclusion about the reciprocal completion obligations – that is that the buyer’s completion obligation is conditional upon the seller’s obligation to provide a certificate. The reasons do not reproduce the entire contract and so it is difficult to make any assessment of the basis for that conclusion. The notion of some reciprocal completion obligation was not argued before me, and in any event, it must be borne in mind that in Jillinda his Honour was dealing with a pre-existing building and with the failure to provide any certificate dealing with the matters provided for in the relevant legislation in the State of New South Wales. That is to be contrasted with the present case where the evidence establishes that some, but not all of the information required was provided.
Insofar as the second of those propositions is concerned, it is apparent from his Honour’s reasons that McLelland J in Jillinda did not undertake any analysis of whether the breach was substantial or of an essential term. He appears to have proceeded on the basis that any breach of any obligation by the seller disqualified her from giving notice to complete. For the reasons given earlier I have reached a different conclusion in relation to the contract in these proceedings.
As indicated earlier it is accepted by the Seller that the requirements of the determination by the Minister setting out the information to be provided for the purposes of s119 have not been fully met. It follows that the Seller was in breach of the requirements of clause C10.8 of the contract.
In the circumstances however the breach by the Seller was not a breach of an essential term of the contract. Even approaching the matter on the basis that something less than breach of an essential term is capable of disentitling the vendor from issuing a notice to complete I am not persuaded that the nature and seriousness of the breach of clause C10.8 in this case is such as to produce that effect.
The failure to correctly indicate the basis of calculations for adjustments to be made on settlement
Mr Webster’s submissions under this heading, as I understand them, are these:
(a)The letters from the Seller’s solicitor to the Buyer care of his solicitor dated 23 June 2013 incorrectly stated the date from which adjustments were to be made as 24 June 2013;
(b)The error works against the Buyer in that it requires him to pay more by way of his share of adjustable items than the terms of the contracts require;
(c)In serving each of the notices to complete, the Seller was therefore calling for the Buyer to perform an obligation not provided for in the contract;
(d)The notices to complete were therefore invalid.
It was not argued before me that the adjustment date referred to in those letters was correct. I proceed on the basis that it was incorrect – that is that it did not reflect what the contracts provided for.
Mr Webster relied upon the decision in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286.
In Neeta (Epping) Barwick CJ (with whom Jacobs and Stephen JJ agreed) had concluded that an untenable demand for the payment of interest invalidated a notice to complete.
The facts before the Court in Neeta (Epping) were described in the reasons of Barwick CJ in these terms at 301–302:
By the notice the vendor made the assertion that she was ready and willing to complete but at the same time by a second clause claimed the interest from the purchaser as a condition of completion. If that requirement was not met by the named time and day then, said the vendor, she would forfeit the deposit and sue for breach of contract etc. She plainly showed thereby that she was not willing to complete in accordance with the terms of the agreement.
I pause to observe that the communication which is the subject of the Buyer’s submission was not a notice to complete. The significance of what are commonly called “settlement statements” was the subject of some analysis and comment in the reasons of Barrett JA, (with whom Beazley JA and Hoeben JA agreed) in Carrapetta.
The letters referred to by Mr Webster in submissions are part of annexures B and N to the affidavit of Mr Del Rio sworn 18 September 2015. They are headed in each case “Settlement Notification”. They are not the notices to complete relied upon by the Seller and they are not in the usual form of a settlement statement in that they do not set out any figures by way of calculations of adjustments. Nevertheless the observations in Carrapetta about settlement statements are useful.
In Carrapetta (at paragraph 57 of the reasons of Barrett JA) his Honour, after referring to the decision of Sir Nicholas Browne-Wilkinson V-C in Carne v Debono [1988] 1 WLR 1107, said:
On this view, submission of a settlement statement by one party entails no more than a request for confirmation (or otherwise) that the receiving party agrees with the calculation set out in the statement.
His Honour went on to distinguish the decisions of the English Court of Appeal in Oakglade Investments Ltd v Dhand [2012] EWCA Civ 286 and Neeta (Epping), saying apropos of the latter:
The notice to complete her solicitors served, unlike the notice in the Neeta (Epping) Pty Ltd case did not refer to any interest component or imply a willingness to complete only if interest not properly payable was in fact paid.
The decision in Neeta (Epping) can similarly be distinguished on the facts before me.
The notices to complete in this case make no reference to any date for adjustments and no reference to the letters which are the subject of the submissions.
In any event, the letters themselves do not contain any calculation of figures for adjustments or make any demand for payment of any specified balance purchase price based on any calculation. The letters do say that delay in settlement “will make your client liable for penalties in accordance with the terms of the Contract” but then go on to refer to the adjustment date, and add the words “which is obviously to the benefit of your client”. That last statement makes it clear that, far from intending to make an untenable demand for moneys not properly payable under the contract, the Seller’s solicitors have made a miscalculation of the date upon which adjustments were required, and thought they had selected a date earlier than it should have been, and thus to the Buyer’s advantage.
In the end result my conclusion is that whatever the effect of the letters of 23 June 2013 might have been they do not invalidate the notices to complete.
Failure to comply with GST provisions
Some not insignificant part of the Buyer’s submissions was directed towards the effect of the contract provisions dealing with GST. It is not in dispute that the way in which the contract was completed engages the application of clause 24.5 of the standard conditions which is in the following terms:
If this Contract says the Buyer and Seller agree that the margin scheme applies to the supply of the Property … the Seller warrants that it can use the margin scheme and promises that it will.
The margin scheme can only be applied if the supply is a taxable supply. It is not in dispute that the supply under the relevant contracts is a taxable supply. In simple terms the application of the margin scheme results in the Seller paying GST only on the difference between the sale price and the acquisition cost or value, depending upon the date of acquisition and sale and subject to various conditions.
It is important to note at the outset that the structure of the legislation, A New Tax System (Goods and Services Tax) Act 1999 (Cth), is such that the liability to pay GST falls on the supplier – that is the Seller and not the Buyer. The application of the margin scheme affects only the extent of the Seller’s GST liability. There is no relevant legislative requirement obliging the Buyer to pay GST nor any contract provision under which an amount equal to any GST liability of the Seller is passed on to the Buyer.
The sale and purchase was never completed and so the occasion for the application of the margin scheme did not arise. The background to the GST circumstances applying to the subject transaction is complicated, but it is not in dispute that the margin scheme could not be applied to the supply if the sale and purchase had been completed.
It is not in dispute that the Seller was thereby in breach of the warranty in standard condition 24.5.
It is not in dispute that the breach of warranty had no direct impact on the Buyer by way of imposing upon him any additional cost or other burden. There was testimony before me which suggests that there may be a net benefit to the Seller as a result of the non-application of the margin scheme, having regard to its ability to thereby claim input tax credits for construction costs and the like. The evidence was very imprecise. I am however prepared to accept for present purposes that it is more likely than not that there would be some net benefit to the Seller. Whilst I did receive evidence as to when the Seller became aware of the circumstances surrounding its GST position, there is no suggestion that the Seller deceitfully gave and breached the warranty in the contract with the intent or for the purpose of any such gain.
Mr Webster’s submission, as I understand it, is to the following effect:
(a)The net GST benefit to the Seller amounts to a windfall gain;
(b)There was no disclosure of that windfall gain to the Buyer nor any attempt by the Seller to renegotiate the contract to give the Buyer any benefit of it;
(c)That conduct by the Seller would disqualify it from seeking any equitable relief against the Buyer because it does not come to the court “with clean hands”;
(d)The concept of a party being ready willing and able to complete for the purposes of clause 18.3 of the contract involves the same considerations as the application of equitable principles. It follows that the notices to complete from the Seller (being a party not coming to the court with clean hands) are invalid and/or cannot be relied upon.
As to the application of equitable principles generally, in his reasons in Mehmet Barwick CJ (with whom McTiernan agreed) referred to the equitable remedy of specific performance in these terms:
The question of whether or not the plaintiff has been and is ready willing and able to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations. Here the substantial thing for which the defendant bargained was the payment of the price: and, unless time be and remains of the essence, he obtains what he bargained for if by the decree he obtains his price with such ancillary orders as recompense him for the delay in its receipt. To order specific performance in this case would not involve the court in dispensing with anything for which the vendor essentially contracted.
In McNally, Hutley JA made reference to equitable principles in this manner:
The requirement that the party giving the notice to complete should be ready, willing and able has obviously been derived from traditional equity pleading of a suit for specific performance and should be given a similar meaning.
The submission can be disposed of shortly.
To the extent that it is directed to pressing that the provenance in equitable principles of the expression “ready willing and able” affects the meaning to be given to that expression, the authorities referred to and the conclusion reached earlier in these reasons take that into account.
To the extent however, that the submission is directed towards some other consideration of the application of equitable principles (beyond the meaning to be given to “ready willing and able”) it is irrelevant because the plaintiff’s claim is not for any form of equitable relief.
Despite having reached that conclusion there are some observations to be made on the nature and extent of the breach by the Seller on the facts before me.
It is inherent in Mr Webster’s submissions that the Buyer would have “overpaid” for the properties (if completion had taken place) given the changed approach to GST. That submission must be rejected. It suggests an approach to the setting of the sale price which is not made out by the evidence or ordinary experience.
I do accept that the evidence points to the liability for GST and access to credits for items which are input taxed for GST purposes being taken into account in determining the level of profit in the project and therefore they have an indirect effect on the asking prices of units for sale purposes.
As a matter of common sense however it does not follow that if profit increases because a cost component has decreased (including because of different GST treatment) then the purchaser has overpaid for what he has agreed to buy. If that proposition is accepted, a purchaser of a unit “off the plan” might be said to “overpay” if any estimated cost in a development project came in under budget and some pro-rata portion of the reduction in cost was not passed on to him or her. Stated in that way the flaw in the principle behind the submission is obvious.
The contract in this case was a fixed price contract for the purchase of an interest in a property to be constructed by the Seller. No GST would be payable by the Buyer under any circumstances, whether the margin scheme was applied or not. There is no loss or damage suffered by the purchaser because it did not apply.
As indicated earlier there is no suggestion that the Seller deceitfully gave and breached the warranty in the contract with the intent or for the purpose of any gain.
In the circumstances the breach by the Seller was not a breach of an essential term of the contract. Even approaching the matter on the basis that something less than breach of an essential term is capable of disentitling the Seller from issuing a notice to complete I am not persuaded that the nature and seriousness of the breach of clause 24.5 in this case is such as to produce that effect.
Change in unit entitlements
The Buyer’s submissions under this heading call for consideration of s11 of the Civil Law (Sale of Residential Property) Act 2003 (ACT) (“CLSRP Act”) and clause 16 of the contract.
Section 11(1)(h) provides for the following condition to appear in every contract for the sale of residential property, (and vide s11(3) such a condition is taken to be included if it does not):
[I]f, 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;
Clause 16 of the contract is in the following terms:
16.1Subject to the Property Act, the Buyer will be entitled to compensation on Completion (and the Price will be reduced accordingly) for an error of any kind or misdescription if the Buyer makes a claim for compensation before Completion.
16.2This clause applies even if the Buyer did not take notice of or rely on anything in this Contract containing or giving rise to the error or misdescription.
16.3The Buyer is not entitled to compensation to the extent the Buyer knew the true position before the Date of this Contract.
Clause 17 of the contract then goes on to deal with claims for compensation under the contract, including claims under clause 16. Importantly, it provides that, to make a claim “the buyer must give notice to the seller before Completion specifying the amount claimed ....”
Mr Webster’s submissions, as I understand them are to the following effect:
(a)The difference between the unit entitlements mentioned in the contract and those assigned to the relevant units upon registration of the plan constitutes an error or misdescription for the purposes of clause 16;
(b)By virtue of clause 16.2, the provisions of clause 16 apply “even if the buyer did not take notice of or rely on anything in (the) contract containing or giving rise to the error or misdescription”;
(c)The Seller accepts that the obligations under s11 of the CLSRP Act are incorporated into the contract by virtue of clause 16;
(d)The Buyer acknowledges that no notice of a claim for compensation was given under clause 17 but says that despite that he had a right to rescind under section 11(1)(h)(ii)(a) of the CLSRP Act;
(e)Because the Buyer had that right to rescind, the Seller would not have been entitled to a remedy of specific performance against the Buyer;
(f)Whether or not the Buyer had a right to rescind under s11 of the CLSRP Act, he also had a right to rescind at common law based upon Flight v Booth principles [(1834) 1 Bing (NC) 370]; and
(g)It follows that, in either case, the Seller was not ready willing and able to complete and was not entitled to give notice to complete to the Buyer.
By way of response the Seller’s submissions, as I understand them, are to the following effect:
(a)The purpose of clause C10.2 is apparent on its face in imposing an obligation on the Seller to attach a copy of the proposed units plan or a sketch plan “showing the location and dimensions of the Unit sufficient to enable the Buyer to determine the location and dimensions of the Unit in relation to other units and the Common Property in the proposed development”;
(b)There is no obligation upon the Vendor either in the contract or under any legislation to disclose the unit entitlement prior to entering into the contract;
(c)Clause 29 of the special conditions expressly deals with unit entitlements. It provides, in effect, that unit entitlements will be in accordance with the allocation approved by the relevant authority and that the Buyer cannot make any objection, requisition, or claim or delay completion or rescind or terminate the contract “in respect of any matter in this special condition 29”;
(d)Characterising the Budget documents attached to the contract as a schedule of unit entitlements “is at odds with the contracts”. Those documents were provided only to satisfy the Seller’s obligations under s260(2)(c) of the Civil Law (Property) Act 2006 (ACT) (“CLPA”);
(e)The authorities relied upon by the Seller from other jurisdictions can be distinguished by the particular legislative schemes operating in those jurisdictions which have no equivalent in the ACT;
(f)In any event, and even if a material error or misdescription existed, the terms of the CLSRP Act take precedence over the contract and no notice was given by the Purchaser under s11(1)(h)(ii)(A). Accordingly the Vendor had no right to rescind;
(g)Even if the Buyer had a right to rescind, that right does not affect the Seller’s right to give a notice to complete under the contract.
The written submissions by Mr Buckland on behalf of the Seller start with the premise I have referred to in paragraph 100(a) and 100(b) above about the purpose of clause C10.2 and the obligation, or perhaps more accurately absence of obligation, to disclose unit entitlements to the Buyer. A question arises as to whether that premise is correct. I have concluded that I do not need to decide the question for reasons I will come to shortly, but I make some observations on it in any event:
(a)The question arises from whether the qualifying words shown italicised in paragraph 100 above (“showing the location ...” etc) apply to both the “proposed Units Plan” and the “sketch plan” immediately preceding or only to the latter;
(b)“Units Plan” is defined to mean “all the documents relating to the subdivision of the Land registered as the Units Plan for the Unit under the Land Titles (Unit Titles) Act 1970”;
(c)I did not receive submissions on the meaning to be given to the expression “proposed Units Plan” but logically the words should be given a meaning indicating all the documents proposed to be so registered;
(d)I did not receive evidence or submissions as to what documents are actually required to be presented for registration for that purpose, but I would be very surprised if they did not as a matter of necessity meet the requirement in the qualifying words - that is that they did not show the location and dimensions of the unit sufficient to enable the Buyer to determine the location and dimensions of the Unit in relation to other units and the Common Property in the proposed development;
(e)If that is the case there is an obvious argument in favour of the qualifying words applying only to any sketch plan and not also to a proposed units plan. That argument, if accepted, leads to a conclusion that clause C10.2 requires the Vendor to attach either:
i.the proposed Units Plan – comprising all of the documents proposed to be registered as defined;
OR
ii.a sketch plan showing the location and dimensions of the unit sufficient to enable the Buyer to determine the location and dimensions of the Unit in relation to other units and the Common Property in the proposed development.
In any event as I have said I have concluded that I do not need to decide the question in the case before me. The argument before me is based upon the proper construction and application of clause 16 of the contract and s11 of the CLSRP Act. The Buyer’s submissions abandoned any argument based upon any representations and whether any representations had been relied upon, and indeed, I received no evidence from the Buyer as to the latter.
“(E)rror or misdescription” is the expression used in clause 16 of the Contract. “(A)n error in the description of the property” is the expression used in s11 of the CLSRP Act.
In neither case does there appear to be any reason to read down the expression to apply only to information obliged to be disclosed. The focus of the enquiry, at least in the first instance, should be whether what is referred to in the contract is properly an “error or misdescription” (for the purposes clause 16 of the contract) or “an error in the description of the property” (for the purposes of the CLSRP Act) rather than whether there was an obligation to disclosure that which is referred to.
To put the matter another way there is no reason to approach what is capable of constituting an “error or misdescription” or “an error in the description of the property” as being only something about which information is obliged to be disclosed.
There is however a difficulty for the Buyer even if it is accepted that what appears in the contract about unit entitlements amounts to both or either of an error or misdescription and an error in the description of the property.
The primary submission on behalf of the Buyer relied upon the Buyer having a right to rescind under s11(1)(h)(ii)(a) of the CLSRP Act. The express provisions of s11 do not give the Buyer that right in this case because there is no evidence that the Buyer became aware of the alleged error in the description of the property and asked the Seller to correct it before completion.
Insofar as clause 16 of the contract is concerned, it entitles a buyer to compensation for error or misdescription only if the buyer makes a claim for compensation before Completion, and again there is no evidence that the Buyer made any such claim.
Mr Webster’s submissions somewhat ingeniously attempted to combine the effect of s11 of the CLSRP Act and that part of clause 16 of the contract which said that it applied even if the Buyer did not take notice of or rely on anything in this Contract containing or giving rise to the error or misdescription.
He relied at least in part upon what was put before me by way of an agreed fact set out in the document received as exhibit D2.
The effect of what was put into evidence is that the Buyer agreed that clause 16 of the contract incorporated the requirements of s11(1)(h)(ii)(A) of the CLSRP Act by use of the words “Subject to the Property Act”.
There are several observations to be made about that aspect of the submission.
The first is that a conceptual difficulty arises with the effect to be given to agreement by parties to a contract that a particular legislative requirement is incorporated in a contract by use of certain words in a clause of the contract. The conceptual difficulty arises because of the objective theory of contract construction but is probably more apparent than real in the present circumstances.
Section 11 of the CLSRP Act provides for the condition set out in s11(1)(h) to appear in every contract and that it is taken (vide section 11(3)) to be included if it does not. The contract is to be read therefore as if the contents of s11(1)(h) appeared as a condition of the contract. Reading the contract in that way, and even allowing for clause 16.2 to have some continuing effect, does not take away from the requirement in s11(1)(h)(i) that a pre-condition to any right to rescind is that the Buyer was aware of the alleged error in the description of the property and asked the Seller to correct it before completion.
In addition, even allowing for the contents of clause 16.2 of the contract to have some effect on rights and obligations under s11 of the CLSRP Act cannot produce the outcome pressed for by the Buyer. Clause 16.2 provides that clause 16 “applies even if the Buyer did not take notice of or rely on anything in this Contract containing or giving rise to the error or misdescription”, but clause 16 is clearly only triggered “if the Buyer makes a claim for compensation before Completion”. Clause 16.2 is not to be read as qualifying clause 16.1 but rather as removing the need for a claimant to prove either taking notice of or relying upon the alleged error or misdescription.
The absence of any evidence of the Buyer making any claim for compensation renders irrelevant the submission relying upon clause 16 regardless of the precise extent of its application when read in conjunction with s11 of the CLSRP Act.
In the end result, and accepting for present purposes (without deciding) that the information in the documents attached to the contract about unit entitlements amounted to an error in the description of the property for the purposes of s11(1)(h) of the CLSRP Act, and an error or misdescription for the purposes of clause 16 of the contract, no right to rescind arose under the CLSRP Act so at to disentitle the purchaser from giving notices to complete.
I turn to the Buyer’s submission that he had a right to rescind at common law based on Flight v Booth principles.
In Kannane and Ors v Demian Developments Pty Ltd [2005] NSWSC 1193 [38], Brereton J described the rule in Flight v Booth in these terms –
[the rule] holds that where a misdescription in a contract although not proceeding from fraud is material and substantial, so far affecting the subject matter of the contract that it may reasonably be supposed that but for the misdescription the purchaser might never had entered into the contract at all, the contract is avoided and the purchaser may rescind, it being considered that the purchaser has not acquired the thing which was really the subject of the sale [Flight v Booth [1834] EngR 1087; (1834) 1 BingNC 370; 131 ER 1160; [1824-34] AllER Rep 43, 46].
He went on to add at [39]:
This is so, notwithstanding that a contract may provide that no error of description should annul the sale but if pointed out before completion compensation should be allowed [Fawcett v Holmes (1889) 42 Ch D 150].
A question arises as to whether there is room for the operation of the rule in Flight v Booth where, as here, the specific issue is addressed both by s11 of the CLSRP Act and clause 17 of the contract. It is not necessary to decide that question. To the extent that the information in the documents attached to the contract about unit entitlements amounted to an error in the description of the property I am not persuaded that it is “material and substantial” and “so far affecting the subject matter of the contract that it may reasonably be supposed that but for the misdescription the purchaser might never had entered into the contract at all”.
In the course of submissions on the application of the rule in Flight v Booth I was also referred to the decision of Rares J in Madison Constructions Pty Ltd v Empire Building Group (ACT) Pty Ltd [2012] FCA 381. I have read the reasons for that decision. I cannot see how the decision assists the Buyer’s submissions.
The Seller as plaintiff bears the onus of proof on its claim. I am satisfied that the evidence establishes that the Seller was both not in default and was ready willing and able to complete as I have found those expressions are to be construed for the purposes of the contracts entered into. None of the arguments raised by the Buyer persuade me otherwise for the reasons given.
I am satisfied that the notices to complete were valid. Again none of the arguments raised by the Buyer persuade me otherwise for the reasons given.
The Buyer concedes that completion did not take place and that, if I found that the notices to complete were validly issued that he is liable for damages (transcript page 77, 24 March 2016).
The counterclaim by the Buyer must be addressed but it is convenient to deal first with the assessment of the Seller’s damages.
The contracts relevantly deal with Seller’s rights on termination in these terms:
19.1If the Buyer does not comply with a Notice to Complete or a Default Notice or is otherwise in breach of an essential term then the Seller may by notice served on the Buyer terminate and may then keep, or recover and keep, the Deposit (except so much of it as exceeds 10% of the Price) and either:
19.1.1sue the Buyer for breach; or
19.1.2resell the Property and any deficiency arising on the resale and all expenses of and incidental to the resale or attempted resale and the Buyer’s default are recoverable by the Seller from the Buyer as liquidated damages provided the Seller has entered into a contract for the resale of the Property within 12 months of termination.
The Seller filed an originating claim on 13 June 2014 and an amended originating claim on 23 October 2014. It appears that the latter followed the re-sale of the subject units. In its amended originating claim the Seller sought both orders for payment of the unpaid balance of the deposit on each unit and damages. The amended statement of claim refers to clause 19.1 of the contracts and reiterates claims for both recovery of the balance of the deposit (paragraphs 13 and 34) and the shortfall on resale (paragraphs 22 and 40). The claim includes a claim for rates, land tax and other expenses from the date on which completion should have taken place and the date of resale, and resale expenses and interest (paragraphs 22 and 40).
I have treated the Seller’s claim for recovery of shortfall on resale as being under clause 19.1.2 of the contracts. I note that the first part of clause 19.1 provides that, in addition to the recovery options set out in subclauses 19.1.1 and 19.1.2, the Seller “may ..... keep, or recover and keep, the Deposit....”. I have treated the Seller’s claim for recovery of the balance deposit as being pursuant to that provision of clause 19.1, read in conjunction with the payment obligation in special condition 30.2.
The written submissions in reply by the Seller refer to Wireton Holdings Pty Ltd v Price [2011] ACTSC 65. In Wireton, Higgins CJ was dealing with the termination of a contract in identical terms. His Honour was asked to decide whether the balance deposit was properly recoverable by a seller as well as any deficiency on re-sale without giving credit for that balance deposit. His Honour reviewed several authorities, including Taylor & Others v Raglan Developments Pty Ltd (1981) 2 NSWLR 117, and Carpenter and Anor v McGrath and Anor (1996) 40 NSWLR 39. His Honour referred to the decision of Hamilton J in Zografakis v McCarthy [2007] NSWSC 144 pointing out that, in that case, “(the) contract provided expressly that where the vendor elects to forfeit the deposit and resell the property, the deficiency on re-sale includes credit for the deposit kept or recovered after allowance of taxes, costs and expenses arising in consequence of the re-sale”.
His Honour continued:
72. Although cl 19.1 of this contract did not expressly so provide, in my view, it has the same effect. The deposit paid or recovered, had completion taken place, would be credited against the price payable. It follows that the deficiency on re-sale is not merely the difference in price (after costs and expenses) but the difference between the deposit paid and that deficiency. If the deficiency is less than the 10% deposit there is no additional sum payable under cl 19.2 but the deposit is and may lawfully be forfeited.
73. Insofar as the 10% deposit exceeds the deficiency, the surplus is not to be regarded as a penalty. That is the effect of Cloud Top Pty Limited and Anor v Toma Services Pty Limited and Anor (supra) and other cases cited on behalf of the plaintiff. Nevertheless, the plaintiff cannot have both the gross deficiency on re-sale and the 10% deposit.
Both arms of that principle in Wireton are relevant here. In the case of unit 221 the evidence demonstrates that the shortfall on resale is greater than the total deposit payable. In the case of unit 207 the evidence demonstrates that the total deposit payable exceeds the shortfall on resale.
In both cases, the Seller also claims what are described in the written submissions as “holding costs” and interest. The evidence establishes that the subsequent resales of units 207 and 211 took place within 12 months of termination. Insofar as the entitlement to recover beyond any resale shortfall is concerned the right to recovery is expressed in clause 19.1.2 as including “all expenses of and incidental to the resale or attempted resale and the Buyer’s default”.
In the case of unit 207, (where the total deposit payable exceeds the shortfall on resale) the Seller maintains an entitlement to recover “holding costs” in an amount of $3,082.74, in addition to what it says is the balance deposit payable.
On my reading of the decision in Wireton, and the authorities referred to in it, what is required to determine the Seller’s entitlements following breach and termination is a calculation of whether the deposit is more or less than what would otherwise be the Seller’s loss by calculation of any deficiency on resale and related expenses. In other words, relevant expenses are to be accounted for in the calculation of whether the loss (so calculated) exceeds the deposit, and may only be recovered where the loss does exceed it.
The contract price for unit 207 was $458,900.00. A part deposit of $22,945.00 was paid. The unit was resold for $432,000.00. The difference between the sale prices is $26,900.00. The total deposit payable was $45,890.00. That amount exceeds the sum of the difference in the sale prices and the “holding costs”.
It follows that, in relation to unit 207, the Seller is entitled to recover only the amount of the unpaid deposit.
In his submissions on behalf of the Buyer, Mr Webster argued that the balance deposit never became payable for either unit because of defective notification of the proposed settlement date, or perhaps more properly put as a defective attempt to rectify what was an error in an earlier communication specifying the settlement date.
The submission relies upon the combined effect of special conditions 30.2(iii), special condition 34.1, and a somewhat narrow reading of the definition of “Date for Completion” in special condition 54.1, together with what the Buyer says are the defects in giving notice.
The effect of the special conditions just referred to is that the balance deposit is payable on the Date for Completion as defined. That is a somewhat unusual provision but is clearly expressed in the contract.
The Buyer’s submission on this point can be disposed of shortly.
I mention for the record that there is no evidence of any objection having been raised by the Buyer about the notification of the proposed completion date or the obvious error in the day/date reference which was corrected shortly after the original communication was sent.
In support of his submission, Mr Webster relies upon the decisions of the NSW Supreme Court in Stephen Wayne Velik v Noreen Steingold [2012] NSWSC 860, and of the NSWCA in Stephen Wayne Velik v Noreen Steingold [2013] NSWCA 303. I cannot see that anything in the decision of the New South Wales Court of Appeal assists the Buyer’s argument. In the decision of Slattery J at first instance, his Honour dealt with an argument that the relevant Notice to Complete was not valid because it was based on a “Registration Notice” which had not been validly served. That argument is not raised before me. In the end result his Honour was not required to formally decide the question of the efficacy of the service of the Registration Notice, having accepted the defendants’ submission that the plaintiff’s conduct, in any event, amounted to an election and waiver.
Putting aside those observations, there are good reasons to reject the Buyer’s submission.
Even if the communication about which the Buyer now complains did not comply with the requirements of the contract, that communication is not what is relied upon by the Seller as constituting its notice to complete. That came some 3 months later.
To accept the Buyer’s submission is to give the definition of “Date for Completion” in the contract a construction that does not include the date when the parties were lawfully obliged to complete the contract under a valid notice to complete. To construe the definition in that way produces an absurd result and one that cannot have been contemplated by the parties at the time of contracting.
When the words used in the definition are, as they must be, given a construction which extends to the date for completion under a valid notice to complete, the argument that the balance deposit never became payable falls away.
To construe the definition in that way is also to read the deposit payment obligations in the contract consistently with the rights on termination given in clause 19.1. That is to say it is consistent with the right given to a seller under clause 19.1 (to recover and keep the deposit for the Buyer’s non-compliance with a notice to complete) that the definition of “Completion Date” be read so as to oblige the deposit to be paid when the Buyer was obliged to complete.
In the end result I am satisfied that the balance deposits did properly become payable under the contracts.
Mr Buckland for the Seller handed up documents headed “Plaintiff’s Schedule of Evidence” and “Interest Calculations”. Clearly they must be read subject to the concession made in the subsequent written submissions in reply as to the effect of the decision in Wireton. I accept the evidence about resale prices and expenses claimed, and which I refer to again later for other reasons.
I calculate the amount payable by the Buyer to the Seller as follows:
Unit 221
Balance deposit payable $23,195.00
Liquidated damages comprising:· deficiency on re-sale $7,510.00
· expenses of and incidental to the resale or
attempted resale and the Buyer’s default $3,999.54
Total – unit 221 $34,704.54
Unit 207
Balance deposit payable $22,945.00
Total - unit 207 $22,945.00
Total – units 211 and 207 $57,649.54
The Seller claims interest under rule 1619 of the Court Procedures Rules 2006. The claim for interest must take into account my decision on what is properly recoverable in relation to unit 207.
I allow interest on the aggregate of the balance of the two unpaid deposits (being an amount of $46,140.00) from 11 October 2013 to the date of judgment at $8497.00 calculated as 81 days at 6.75%; 546 days at 6.5%; 365 days at 6.0% and 76 days at 5.75%.
I allow interest on the shortfall on resale and expenses in relation to unit 221 (being an amount of $11,509.54) from 23 June 2014 to the date of judgment at $1591.00, being 372 days at 6.5%; 365 days at 6.0% and 76 days at 5.75%.
Total interest allowed is therefore $10,088.00.
I turn to consider what was referred to in submissions as the Buyer’s counterclaim or “offsetting claims”.
In his submissions Mr Webster says that the Buyer has three such claims summarised as follows:
(a)Restitution in relation to GST;
(b)Compensation under s11(1) of the Civil Law (Sale of Residential Property) Act 2003 in respect of the alteration of unit entitlements;
(c)Statutory relief under s30(1)(c) and (e) of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth) sch 2) for false and misleading representations as to the price of the land and of the unit entitlements.
As to the claim for restitution in relation to GST, Mr Webster relied upon the decision of the High Court in Roxborough v Rothmansof Pall Mall Australia Limited [2001] HCA 68.
That decision does not assist the Buyer on the facts in this case. In Roxborough, the decision of the majority Gleeson CJ, Gaudron and Hayne JJ, was based on a conclusion that the relevant tobacco tax was a distinct part of the consideration paid under the supply contracts. Their conclusion was based upon a failure of consideration under the supply contracts. It was referred to by their Honours in these terms: “the failure of the tax involved the failure of a severable part of the consideration for which the net total amounts shown on the invoices were paid”.
The GST payable by the Seller as a result of the non-application of the margin scheme was not a distinct part of the consideration paid under the contracts in this case.
In submissions Mr Webster referred to the testimony of Mr Gerard Ryan, which was in these terms (transcript page 65–66, 24 September 2015):
Question:Yes. So that is 9.2 million. Yes, so that is a total of 113.2 million dollars and then the total sale price is shown as approximately 150 million dollars. Now these sale prices, they were developed in about January 2010 and at that time, the state – do you understand that those sale prices would have included a GST component?
Answer:They would be the market price. Yes, so any GST associated with that would be included in that.
Question:Included in that. And the GST was going to be calculated on the basis of the margin scheme?---
Answer:That was the intention at the time, yes.
The testimony of Mr Ryan is that the price was the “market price” and that, self-evidently, the GST payable by the Seller in respect of the relevant supplies would be calculated having regard to the sale prices.
In the circumstances the Buyer’s claim for restitution must be rejected.
The Buyer’s claim under the Civil Law (Sale of Residential Property) Act 2003 is, as I understood the submission, based upon what is asserted to be an entitlement to damages under s11(1) of that Act. The relevant provision of the Act is set out above at paragraph 96.
Mr Webster did not in submissions particularise the part of s11 upon which the Seller relied in pressing this part of his claim, but I note that paragraphs 35 and 67 of the further amended defence and counterclaim filed on 23 March 2015 plead what is asserted to be the “difference” in the unit entitlements for each of the lots is a “material error in the description of the property”. That pleading appears in the document in the context of an assertion that by virtue of s11(1)(h)(ii)(A) of the Act, the Buyer had a right to rescind and therefore the Seller has suffered no loss attributable to the Seller.
For present purposes, I treat the submission about the “offsetting claim” as being based upon the same assertion – that is that what is pressed as the difference in the unit entitlements constitutes a material error in the description of the property. In submissions, Mr Webster presses that the change in unit entitlements equates to a reduction in value. He points to the difference between the contract prices and the resale prices as being evidence of that reduction in value.
I do not accept that the difference in resale prices is properly evidence of a reduction in value resulting from any difference in unit entitlements. There is simply no evidence upon which such a conclusion could be based. Many factors influence market price. The affidavit of Wayne Harriden sworn 17 September 2015 and his oral testimony dealt with some of them. Mr Harriden is not a valuer but he has extensive experience in the marketing of properties like the subject units. His evidence is that the market for residential apartments in the Territory declined steeply between 2013 and 2014 due to an oversupply of apartment stock. In his affidavit he deals with the steps taken to market the subject units after the contracts were terminated by the Seller and refers to comparative sales. He was cross examined. The cross examination did not touch on the question of any connection between the sale price or saleability of a unit and its unit entitlement.
The Seller has the onus of proving its case including the quantum of its claim for damages, but in the face of the evidence in the Seller’s case given by Mr Harriden an argument by the Buyer in submissions that the resale price was potentially affected in some unspecified way by a feature (being a different unit entitlement) about which no evidence is put before the Court is speculative and simply cannot succeed.
In the absence of such evidence, there are obvious conceptual difficulties with a counterclaim or “offsetting claim” based on a reduction in the value of a property when the Buyer has failed to complete the sale. The Buyer has not acquired the property and so has no argument that he has received something of lesser value than that for which he paid. There is no evidence that the shortfall on resale does not properly represent the Seller’s loss and damage.
The Buyers claim for compensation under the Civil Law (Sale of Residential Property) Act 2003 must also be rejected.
Lastly, the buyer claims statutory relief under s30(1)(c) and (e) of the Australian Consumer Law for false and misleading representations as to the price of the land and of the unit entitlements (transcript page 128, 24 March 2016):
… the sale of the units was in trade or commerce and it's my submission that section 237 of the Australian Consumer Law is enlivened because there was a breach of both section 30 subsection (1) of the Australian Consumer Law, in particular subparagraph (c), that is as to the price of the land because the GST component was not payable and (e) in relation to the characteristics of the land…
The relevant provisions of the Australian Consumer Law are these:
30 False or misleading representations about sale etc. of land
(1)A person must not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land:
…
(c) make a false or misleading representation concerning the price payable for the land; or
…
(e) make a false or misleading representation concerning the characteristics of the land;
…
(2)This section does not affect the application of any other provision of Part 2‑1 or this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land.
237 Compensation orders etc. on application by an injured person or the regulator
(1) A court may:
(a) on application of a person (the injured person) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:
(i) was engaged in a contravention of a provision of Chapter 2, 3 or 4; or
(ii) constitutes applying or relying on, or purporting to apply or rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term; or
(b) on the application of the regulator made on behalf of one or more such injured persons;
make such order or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.
Note 1: For applications for an order or orders under this subsection, see section 242.
Note 2: The orders that the court may make include all or any of the orders set out in section 243.
(2) The order must be an order that the court considers will:
(a) compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or
(b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.
(3)An application under subsection (1) may be made at any time within 6 years after the day on which:
(a) if subsection (1)(a)(i) applies—the cause of action that relates to the conduct referred to in that subsection accrued; or
(b) if subsection (1)(a)(ii) applies—the declaration referred to in that subsection is made.
243 Kinds of orders that may be made
Without limiting section 237(1), 238(1) or 239(1), the orders that a court may make under any of those sections against a person (the respondent) include all or any of the following:
(a) an order declaring the whole or any part of a contract made between the respondent and a person (the injured person) who suffered, or is likely to suffer, the loss or damage referred to in that section, or of a collateral arrangement relating to such a contract:
(i) to be void; and
(ii) if the court thinks fit—to have been void ab initio or void at all times on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);
(b) an order:
(i) varying such a contract or arrangement in such manner as is specified in the order; and
(ii) if the court thinks fit—declaring the contract or arrangement to have had effect as so varied on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);
(c) an order refusing to enforce any or all of the provisions of such a contract or arrangement;
(d) an order directing the respondent to refund money or return property to the injured person;
(e) except if the order is to be made under section 239(1)—an order directing the respondent to pay the injured person the amount of the loss or damage;
(f) an order directing the respondent, at his or her own expense, to repair, or provide parts for, goods that had been supplied by the respondent to the injured person;
(g) an order directing the respondent, at his or her own expense, to supply specified services to the injured person;
(h) an order, in relation to an instrument creating or transferring an interest in land, directing the respondent to execute an instrument that:
(i) varies, or has the effect of varying, the first mentioned instrument; or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first mentioned instrument.
I asked Mr Webster what he said was the loss or damage suffered or likely to be suffered so as to trigger the application of s237. In response he referred to the decision of the Federal Court in Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31.
Mr Webster went on to say (transcript page 130, 24 March 2016):
So if the contract was performed according to its terms he would have (a) overpaid because of the GST issue and (b) would have received property less in value because of the change in the unit entitlements to what he had bargained for. A higher price and a lower quality of the land.
It is certainly the case that in Demagogue v Ramensky the Full Court took a broad view of what constituted loss or damage “likely to be suffered” for the purposes of what was then s87 of the Trade Practices Act 1974 (Cth). Nevertheless the Court recognised the need to demonstrate causal connection, expressed by Gummow J as “Restraint upon what otherwise might be the reach of these provisions of the statute is, in any event, provided by the need to show causation.”
In Demagogue, the Court was dealing with a representation made about access to a unit within a proposed unit development. The representation was made before entry into the relevant contract and under circumstances where Spender J at first instance had accepted the buyers’ evidence that, but for the representation about access, they would not have entered into the contract. Clearly causation had been established.
The Buyer did not give evidence in the case before me and so I have no evidence as to the effect of any representation on his decision making. That is to say the evidence does not establish any reliance by him upon either of what are asserted to be the false and misleading representations. Even allowing for what is described by Gummow J in Demagogue as the “elasticity of the phrase “loss or damage”” in the legislation, the need to prove causation remains and is absent on the evidence before me.
As to the possibility, referred to earlier, that the resale price of the property may have been affected regardless of reliance by the Buyer, again there is no evidence of any such effect.
The Buyer’s claim for compensation under the Australian Consumer Law must also be rejected.
Having rejected the Buyer’s counterclaims, the appropriate order of the Court is for judgment for the Seller against the Buyer in an amount of $57,649.54 for claim and $10,088.00 for interest to the date of judgment making a total of $67,737.54.
I make a contingent order in relation to costs. The order is that the defendant pays the plaintiff’s costs. I further order that the costs order not take effect if either party notifies my Associate within 14 days that the matter is to be relisted for submissions seeking some different costs order.
I certify that the preceding one hundred and eighty one (181) paragraphs are a true copy of the reasons for decision of his Honour Magistrate P J Morrison.
Associate: Emma Buckland
Date: 14 September 2016
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