Bookben Pty Ltd v Diena Developments Pty Ltd
[2001] VSC 159
•25 May 2001
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
No. 7965 of 1998
| BOOKBEN PTY. LTD. | Plaintiff |
| v. | |
| DIENA DEVELOPMENTS PTY. LTD. | Defendant |
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JUDGE: | HARPER, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 8, 11-15, 18 DECEMBER 2000 | |
DATE OF JUDGMENT: | 25 MAY 2001 | |
CASE MAY BE CITED AS: | BOOKBEN PTY. LTD. v. DIENA DEVELOPMENTS | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 159 | |
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CATCHWORDS: Sale of Land – Contract – Special conditions – Sale of land with permit pending – Whether permit and plans as endorsed were "acceptable to the purchaser" – Rescission – Termination – Whether deposit should be retained by the vendor.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr. P. Bick QC with | Goldie Kelmann |
| For the Defendant | Mr. M. Dreyfus QC with Ms. R. Teicher | Julie Anne Laird, Lawyers |
HIS HONOUR:
In August 1997, the plaintiff (Bookben Pty. Ltd.) purchased the land known as 60 Wattletree Road, Armadale. It was, or at least was thought to be, ripe for development. Bookben shared this view. The then existing improvements were therefore demolished; and Bookben applied for permission to erect 28 units in their place. After being rejected by the responsible authority (the City of Stonnington) the application went before the Victorian Civil and Administrative Tribunal. The appeal succeeded, at least in part. On 21 July 1998, the Tribunal ordered that a permit be granted, albeit with conditions; and in addition the number of units (referred to in the Tribunal’s order as "attached houses"), incorporation of which was permitted in the development, was reduced from 28 to 27.
One of the conditions was that the building plans, showing a number of design features which the Tribunal was careful to specify in some detail, be approved by the responsible authority. On 31 July 1998, Bookben submitted plans which it doubtless hoped would satisfy those specifications. But it had already decided that, given its difficulties in obtaining a permit, it would sell the land, together with a permit, rather than itself proceed with its development. On 1 August an agent, the firm of Castran & Gilbert, was appointed. A week later, on 7 August, Mr. Denis Gilbert was provided with a copy of the VCAT decision as well as a set of the building plans prepared for the purposes of the town planning application. Next, a purchaser, the defendant Diena Developments Pty. Ltd., was found. On 10 August 1998, it executed a contract note. The purchase price was $2,470,000, with a deposit of $247,000. The latter was duly paid. Bookben executed the contract note on 12 August. Five days later, on 17 August, the permit was issued.
Given that, at the time the contract note was executed, the building plans had not received the required approval, it is not surprising that the purchaser was concerned to protect itself against the possibility that the responsible authority might approve plans which were unacceptable to Diena. Given also that the vendor was anxious, or at least content, to sell the property to Diena at the agreed price, it is not surprising that Bookben agreed to the inclusion in the contract note of special conditions designed to give the purchaser that protection. At all events the contract note, as executed by the parties, expressed itself to be "conditional upon the … special conditions" which are set out under that heading in the document itself. Under the sub-heading "Purchaser Obtaining Permit for Subdivision and Use and Development of the Land" appear four of those special conditions. I set them out in full (and exactly as they appear in the contract note) below:
"· The purchaser obtaining from the Responsible Authority a planning permit for the development of the land for the purpose of 27 attached houses, associated car parking and sub-division basically in accordance with the decision of VCAT dated 21 July 1998 on appeal No. 1998/011679.
·The planing permit must be on terms and conditions acceptable to the purchaser including open space contribution not exceeding 5% and development levy (if any) of an amount acceptable to the purchaser.
·The vendor obtaining and delivering to the purchaser endorsed plans in accordance with the decision of VCAT dated 21 July 1998 and those plans being acceptable to the purchaser.
·The vendor, within 7 days of the date of the contract, handing the purchaser a copy of a site analysis prepared as part of the permit application."
In a letter dated 7 August 1998, Diena sought to persuade Bookben, as its vendor, to add another term. As put forward in the letter, the proposed addition read as follows:
"Within the later of 30 days of the date of the contract of sale or 7 days after the site analysis has been handed to the purchaser, the purchaser being satisfied in its absolute discretion that the City of Stonnington will allow changes to the internal layouts and ceiling heights of the attached houses."
Bookben would have none of this. Mr. Simon Gurevich, one of Bookben's directors, in a document headed "outline of evidence" which formed part of his evidence in chief, swore that he "refused to allow" the inclusion of this term. What was being offered for sale, said Mr. Gurevich, was "the land together with a permit in the terms of the [VCAT] decision and I did not want the proposed purchaser to have any dealings with Stonnington with a view to altering the plans or the condition of the permit." Mr. Gurevich's view prevailed. The term put forward by Diena did not find its way into the contract note.
Subject to the fulfilment of the special conditions which were included in that document, and of the terms of the contract generally, settlement (and with it payment of the balance of the purchase price) was to take place on 10 November 1998. But in fact it never did. On Monday 19 October, the purchaser through its solicitor wrote to the vendor. It claimed in its letter (which was transmitted by fax), that "the special condition … relating to a permit for subdivision and development of the land is not satisfied." Diena, the letter continued, therefore "terminates the contract of sale". By a second letter forwarded (again by fax) the following day to Bookben's solicitors, the purchaser's solicitor demanded a refund of the deposit before noon on Wednesday 21 October.
Far from being accommodated, this demand was on 26 October met by a notice of rescission issued on Bookben's behalf. Thus has battle been joined. The plaintiff's writ was issued on 30 November 1998. Much in the accompanying statement of claim is uncontroversial. The first of the special conditions is alleged, but no reference is made to the others. In its defence, Diena pleads the third of the special conditions as well as another, not yet mentioned in this judgment, which appears in the contract note under the sub-heading "Conditions for Benefit of Purchaser". This provides that "All special conditions in this letter of offer … are for the benefit of the purchaser and may be waived by the purchaser at any time, in writing." Otherwise, it appears from the pleadings that the issue is whether or not Diena as the purchaser was entitled to terminate. The plaintiff as disappointed vendor asserts that it was not, and that the notice of termination of 19 October amounted to a repudiation which Bookben has accepted. The contract being for this reason at an end, Bookben is (as it claims) entitled both to retain the deposit and recover damages.
By contrast, the defendant purchaser asserts that it did not and does not accept the plans that (to adapt the words of the third of the special conditions) the vendor "obtained and delivered". Particulars are given, in a schedule to the defence, of the deficiencies which, according to its lights, Diena discerned in those plans. According to the purchaser, the third of the special conditions is therefore not satisfied. Neither is the second. The planning permit was not – or so the purchaser alleges – "on terms and conditions acceptable to" it. Particulars are given in the same schedule. That being so, its right to terminate is (according to Diena) clear. The relevant special conditions are unequivocal in saying as much.
The defendant has also counterclaimed. It alleges that, because the special conditions were not fulfilled, it had a right to bring the contract to an end; having exercised that right, the contract was thereupon validly terminated; and it follows that there has been a total failure of consideration - with the further consequence that the deposit must be returned. The counterclaim also seeks compensation for borrowing costs incurred by the purchaser in raising the relevant deposit moneys.
Various amended pleadings have been filed. It is unnecessary to deal with all of them in detail, and in any event it is probably more helpful at this point to return to the narrative. It will be remembered that on 31 July the vendor, Bookben, had submitted to the City of Stonnington plans which, it hoped, would satisfy the conditions required by VCAT. Doubtless they were the plans which were initially shown to representatives of Diena, the then prospective purchaser. They were seen by Mr. Keith Ding, one of Diena's directors, and by Mr. John Hazen, a director of a company called Metrobuild Pty. Ltd. That company manages projects for other companies, including Diena. It fulfilled that role in relation to 60 Wattletree Road.
I accept the evidence of Messrs. Ding and Hazen that from the first both had reservations about the plans. In the words of Mr. Hazen, as recorded in his "outline of evidence" (which, as with Mr. Gurevich and each other witness for whom such an "outline" was prepared, formed part of his evidence in chief) "[t]he internal layouts were not acceptable, some ceiling heights were inadequate and levels were not shown adequately."
The latter problem arose from the fact that the levels were surveyed before the demolition of the then existing improvements. During demolition, some excavation occurred. Hence the levels were altered; hence also the necessity for the plans to reflect the new reality.
The purchaser's response to these issues was swift. Within two days of the contract coming into existence it took its concerns to the City of Stonnington. A meeting between Mr. Hazen, the purchaser's architect (Mr. Con Bahramis) and its town planning adviser (Ms. Amanda Ring) on the one hand and two Council officers (Ms. Jane Sharp and Ms. Gillian Manangas), on the other, took place on 14 August. At this meeting Diena sought to ascertain the Council's likely attitude to "changes to the levels which were to be made prior to the issue of the permit, which were to be handled by the vendor": see Mr. Hazen's "outline of evidence". Mr. Hazen continued:
"Also we discussed other internal changes the defendant proposed to make subsequent to permit. The Council officers said they would be willing to consider such changes."
Mr. Ding gave evidence to like effect. In his "outline of evidence" he said:
"The purpose of this meeting [of 14 August 1998] was to ascertain the Council attitude to a change of levels prior to the issue of the permit to the plaintiff. We also indicated that we wished to make internal changes to the plans subsequent to the permit and the endorsed plans being issued. The Council officers said they would be willing to consider such changes."
Again, I accept this evidence. It establishes that the purchaser was quick to raise with Council not only the question of the levels but also the possibility of other changes to the internal design of the units. Given the fact that the issue of the relevant planning permit was then imminent – it occurred three days later, on 17 August – it is not surprising that Diena sought, and the Council agreed to participate in, discussions about these matters even after the permit had been granted.
The purchaser then took its concerns to the vendor. A meeting called at the instigation of Diena was held on 18 August, only six days after the parties made their contract and four days after the meeting between the purchaser and the responsible authority. In attendance on 18 August were Messrs. Ding, Hazen and Bahramis (representing Diena) and (representing Bookben) Messrs. Gurevitch and Davidson (the last being Mr. John Davidson, the vendor's architect). The agent who arranged the sale (Mr. Denis Gilbert) was also present. One topic of discussion at the meeting was the height of the ceilings, which the purchaser wanted to be increased from eight feet six inches to nine feet. Associated with this was the question of the levels. Mr. Davidson saw no problem with either issue. At the trial, he gave evidence (which I accept) that he subsequently "revised the levels to achieve the ceiling height [Mr.] Ding had requested [and] … submitted the revised plans to the City of Stonnington for approval." The submission was effected on 27 August. Approval was granted on 3 September 1998.
The plaintiff nevertheless argues that the defendant must now accept the plans as so endorsed. According to this argument, the two special conditions upon which the defendant particularly relies (i.e. those to the effect that the permit and the plans must be "acceptable to the purchaser") "were satisfied on or about 4 September 1998": see the plaintiff's further amended reply dated 12 December 2000. The plaintiff contends that on that day it delivered to the purchaser plans which were not only duly endorsed by the City of Stonnington, but which also formed part of a permit that was on terms that were either acceptable to Diena or, being reasonable, ought to have been so. Indeed, Bookben asserts, Diena did accept them. For one thing, the plans incorporated all the changes that Diena had put forward at the 18 August meeting; and those changes were comprehensive. For another, the purchaser proceeded - after it became aware of the Council's endorsement – as if the contract was on foot. Finally, the further amended reply pleads that Diena "was only entitled to terminate the contract in reliance on the two [special] conditions … where the defendant had acted honestly and reasonably".
Diena takes a somewhat different view of the facts, and a very different view of the legal conclusions which those facts sustain. As I understand its position, it is inclined to accept (although it has not done so explicitly) that all the changes specifically put forward by it on 18 August were included in the amended plans subsequently lodged by the plaintiff with the Council for endorsement. But Diena nevertheless asserts that the meeting of 18 August was neither by design nor in fact one at which it put to Bookben as vendor its (that is, Diena's) final position in relation to the plans. According to Diena, the opposite is true. Thus Mr. Hazen gave evidence that he told the meeting that "we were looking to revise internal layouts which would be the subject of further negotiation with the Council."
Diena's position is as one would expect. After all, the events with which we are now concerned occurred as early as 18 August. Diena had first seen these plans, which were for the construction of 27 attached houses at the upper end of the market – no minor project - less than three weeks before. They had not then received Council's imprimatur and in fact were never in the end approved in their then form. The contract itself, including its special conditions, was only six days old. Although the vendor still had the carriage of the application for endorsement, it was the purchaser which would be required to construct the project in accordance with the plans as endorsed, or as modified by agreement with the responsible authority. Necessarily, the parties at the 18 August meeting had different interests in relation to the plans; and the vendor was in no sense the purchaser's agent for the purpose of advancing the case for the endorsement of any particular set of plans. On the contrary, the prospect of haggling over amendments filled Bookben with dismay. Both parties anticipated (Bookben, as I say, with considerable distaste) what was on any view a real possibility – that Diena would seek to negotiate directly with Council about its (as then unformulated) desires for the plans.
In those circumstances, it is (according to the defendant) hardly surprising that it refrained from putting to the plaintiff, on 18 August, its final position in relation to the plans. Indeed, prudence demanded (a) that it reserve a detailed exposition of its position on the plans until either its examination of them was complete or the stage at which any negotiations had reached indicated that such exposition was appropriate; and (b) that that exposition be reserved for the Council to the exclusion of (a hostile) Bookben.
I accept the evidence of Messrs. Hazen and Ding as put forward in their evidence in chief. It is confirmed by what followed. Mr. Bahramis continued to work on the plans. Messrs. Ding, Hazen and Gilbert continued to discuss them with him. The Council did indeed consider amendments put forward by the purchaser. It continued to do so even after the plans were endorsed on 3 September. This annoyed the vendor to such an extent that it wrote to the City of Stonnington on 8 October. It did not then claim, as it does now, that the contract became unconditional on or about 4 September 1998. To the contrary, it asserted that it was the "sole proprietor of the land in 60 Wattletree Road, Armadale." The letter also said:
"It came to our attention that a third party is negotiating with the Town Planning Department of Stonnington City Council in order to modify or amend the [relevant] permit … Bookben Pty. Ltd. has neither requested any amendments to the above town planning permit nor authorised any third party to act on its behalf in order to obtain any such amendments. Consequently we request the … Council to cease any negotiations with any third party on matters relating to the … permit."
In the written outlines of their evidence Bookben's witnesses indirectly deny Mr. Hazen's reference, which he says was made at the 18 August meeting, to "further negotiations with the Council". According to both Mr. Gurevich and Mr. Davidson the defendant was concerned about the results of a survey of the site and about ceiling heights and (as Mr. Gurevitch said in his evidence) "raised no other objections or concerns". A more positive denial was made by Mr. Davidson during his cross-examination:
"QDid anyone on the defendant's side … suggest that there might be or would be other changes required?
ANo.
QWas any reference made by any such person to changes they required to make the apartments more marketable?
ANo.
QDid anyone on their side say anything to the effect that they would have further discussions themselves with the Council?
A.No.
QDid anyone on their side say that they had already been to the Council to discuss the possibility of making changes to the building?
AThere was no talk at all of the Stonnington Council at that meeting. It was just the issues relating to ceiling height and the levels of the ground.
QWas anything said about any intention to revise internal layouts for the apartments.
ANo."
To the extent that this is inconsistent with the defendant's position, I do not accept it. In my opinion, nothing which occurred before 4 September 1998 had the effect in law of "satisfying" (to adapt the plaintiff's further amended reply) the special conditions in question on the basis that the plans endorsed the day before were (to quote from the further amended reply) "acceptable to the purchaser". Clearly they were not. In this context, the following passage from the cross-examination of Mr. Gurevich is relevant:
"QMr. Ding did not say to you at the meeting that the purchaser was happy with the plans, did he?
A No, he didn't say anything like that.
QAnd Mr. Hazen didn't say to you at that meeting that the purchaser was happy with the plans?
A That wasn't discussed, no."
In my opinion, contrary to the case pleaded by the plaintiff, the relevant special conditions were not satisfied on or about 4 September 1998, or at all. Nothing could be plainer than that the purchaser was never satisfied that the plans were suitable. The plans were the subject of negotiations commenced with the responsible authority very soon after the contract note was executed. To Bookben's annoyance, Diena continued those negotiations thereafter. Indeed, in a letter sent by fax to Bookben's solicitor on 8 October, Diena's solicitor advised that her client had arranged to meet with the Council the following afternoon. The letter contained a promise to notify the plaintiff "of the outcome immediately after the meeting".
A further meeting between representatives of the purchaser and representatives of the responsible authority was held on 12 October 1998. Messrs. Ding and Hazen were then, according to them, informed that revised plans which had been prepared by Mr. Bahramis were generally acceptable, but that the positioning of certain windows might cause a difficulty. On 16 October 1998 formal advice was received from the responsible authority to the effect that the position of the windows as shown on the latest revised plan was unacceptable. According to the purchaser, this triggered its letter to Bookben of 19 October in which it asserted that the contract was terminated.
Diena's case for the effective termination of the contract at this point is simple. The contract was conditional upon Bookben delivering to the purchaser endorsed plans which were acceptable to Diena. Endorsed plans were delivered. They were unacceptable. The purchaser was therefore entitled to bring the contract to an end.
I agree. The plaintiff asserts that the defendant failed to act honestly and reasonably. I disagree. The conclusion that Diena's concerns about the plans were genuine throughout is in my opinion, on the evidence before me, inevitable. Certainly, the relevant Council officers were prepared to treat them as reasonable. Not even the final sticking point, the positioning of certain windows, was rejected by the Council out of hand. It is true that, after considering the matter for some days, this issue was regarded by the responsible authority as taking the plans outside the boundaries set by VCAT. That might or might not have been beyond argument. There is, however, no evidence to suggest that the defendant in its drawings put the windows where it did as a device to ensure that its amended plans were rejected. There is, in short, no evidence of dishonesty. Nor is there evidence sufficient to satisfy me on the balance of probabilities that the defendant acted unreasonably. Rather, I am satisfied that Diena's conduct was reasonable throughout. In any event, in my opinion the better view is that in the circumstances of this case the defendant was not required to act reasonably, although it was required to act honestly. There is no basis for implying into this contract anything other than that Diena's rejection of the endorsed plans, if that is what the defendant decided to do, be honest.
The plaintiff, in opposing this conclusion, points to a possible motive in Diena to avoid its contractual obligations. There is before me evidence which indicates that the land at 60 Wattletree Road, Armadale was not as valuable as Diena thought it was when executing the contract note. In these circumstances it was, the plaintiff submits, fears of financial misadventure rather than concerns about the building plans that were the effective cause of Diena's decision to terminate the contract.
This part of the plaintiff's case has its basis in a valuation of the land carried out by a firm of valuers called Herron Todd White ("HTW"). The firm assessed the value of the development upon completion at $9,500,000, whereas earlier valuations by Castran & Gilbert varied between $10,275,000 and $9,646,000. Mr. Ding testified to his disappointment at the HTW figure, but swore that it did not affect the decision to terminate. Indeed, the defendant asserted that it was in a position to finance the development itself, and that the project remained financially viable even were HTW correct.
In the present context, reference to the chronology does not assist the plaintiff. It was on 12 October 1998 that the purchaser submitted the plans showing certain windows in the proposed development in a position which the City of Stonnington subsequently held to be beyond the boundaries of the permit to which VCAT had given its approval. Diena did not then know the result of the HTW valuation. That information was, as the plaintiff's own chronology accepts, received by the defendant on 15 October – three days after submission of the plans, one day before the purchaser learned of the Council's rejection of those plans, and four days before notice of termination was served. The important point, of course, is that on this evidence – which I accept – Diena put to the responsible authority, before notice from HTW, a version of the plans acceptable to Diena. It was after rejection of those plans that the purchaser decided that it had had enough.
In my opinion, the evidence supports a finding that that decision was materially influenced by the unacceptability of the plans. This being so, it does not matter that the financial outlook may have changed in the meantime. The plans were unacceptable to the purchaser when the financial prospects were good. They remained unacceptable thereafter. As I have already observed, the contract is conditional upon the plans being acceptable to the purchaser. This condition not having been fulfilled, the purchaser was entitled to bring the contract to an end.
The plaintiff put forward a number of submissions, all of which ultimately ran into the difficulty that they could only succeed if the phrase "acceptable to the purchaser" in the special conditions was given a meaning other than that which it plainly has. I should, the plaintiff submitted, look at the surrounding circumstances. These would show that the parties "were very experienced property developers who well understood that the City of Stonnington could and would only permit minor amendments to the endorsed plans (not cutting across the VCAT decision in any manner) and that the question of what constituted such a minor amendment was determined by the judgment of the planning officer involved." All the more reason why the purchaser should not have foisted upon it plans which it did not want in lieu of other plans, acceptable to Diena, which an officious town planner employed by the responsible authority, taking a narrow view of things, declared were incompatible with the permit decreed by VCAT.
Bookben next contends that the plans in existence at the time of execution of the contract note, with some "minor" changes, must be taken as being acceptable to Diena. That cannot be right. Even if the purchaser had time, before execution, to decide whether it accepted the then existing plans, the contract gave it the right to reserve its decision to a subsequent date; and the evidence demonstrates beyond doubt that the purchaser had not in fact accepted the plans at the time the contract came into existence. I reject any suggestion that, in those circumstances, the law will deem acceptance, forcing the purchaser into a contract which in terms precludes that result.
An alternative argument, which as I understand the plaintiff's submissions is one upon which it relies, is that the defendant's dishonesty is evidenced by its submission of plans which the responsible authority held did not conform with the VCAT decision. This does not follow. There is no evidence that, in submitting the plans, the purchaser knew that they went beyond that which VCAT allowed. In any event, the relevant question is whether the endorsed plans were acceptable. I have no doubt of the honesty of Diena's assertion that they were not.
It is relevant at this point to note three undisputed facts. First, that a permit in accordance with the VCAT decision was issued on 17 August. Secondly, that modified plans were submitted by Bookben to the responsible authority on 27 August. Thirdly, that the amended plans, prepared not by the purchaser but by the vendor's architect, were endorsed by the Council on 3 September. In other words, plans may be amended after the issue of a permit, provided of course that no amendment takes them outside the permit's parameters.
In its final submissions, the plaintiff placed emphasis on the clause proposed by Diena and rejected by Bookben. That clause is reproduced in paragraph [4] above. The argument was that, as the evidence disclosed, "the permit was hard fought and won and he [Mr. Gurevich] did not want the purchaser upsetting the apple cart by negotiating direct with the City of Stonnington."
In Codelfa Construction Pty. Ltd. v. State Rail Authority of New South Wales[1], Mason, J. said (at 352-353):
"There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances."
[1](1982) 149 C.L.R. 337
It cannot be, however, that a clause omitted could negative the unambiguous terms of a clause included. The passage from the judgment of Mason, J. in Codelfa applies where, the parties having agreed to put aside a proposed clause, one party then seeks a construction of an ambiguous contractual provision which if adopted would return the proposed clause to the agreement. Here the defendant does not seek to have the omitted provision reinstated. It relies on the clauses which remain. These, as both parties submit, are relevantly unambiguous. The Codelfa point is not, therefore, one upon which the plaintiff can profitably rely.
For these reasons, the plaintiff's claim must be dismissed. For the same reasons, the defendant is entitled to judgment on its counterclaim. There will be an order that the deposit be returned to it.
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