Bruce v Baju Henley Square Pty Ltd - [2016] SASCFC 149

Supreme Court of South Australia
(Full Court)
BRUCE v BAJU HENLEY SQUARE PTY LTD
[2016] SASCFC 149
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Hinton)
22 December 2016
CONVEYANCING - BREACH OF CONTRACT FOR SALE AND REMEDIES - VENDOR'S REMEDIES - SPECIFIC PERFORMANCE
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS
Appeal against judgment ordering specific performance and dismissing cross-action for declaration of valid termination.
The appellant entered into a contract with the respondent to purchase an apartment in an apartment building to be constructed. It was a term of the contract that the vendor could vary the size of the apartment by not more than 5 per cent. The appellant claimed, and the respondent denied, that by virtue of the attachment of a concept plan to the contract it was a term of the contract that the area of the apartment would be 130 square metres.
The appellant purported to terminate the contract on the ground that the apartment as constructed was only 122 square metres. The respondent brought an action for specific performance and the appellant brought a cross-action seeking a declaration of valid termination.
The trial Judge upheld the respondent’s claim and dismissed the appellant’s cross-claim.
Held (dismissing the appeal):
1. The Judge correctly held that the provision permitting the respondent to vary the area by not more than 5 per cent was a promissory term and not a condition precedent (at [43] per Blue J, Kourakis CJ agreeing, Hinton J not deciding).
2. The Judge correctly held that it was not a term of the contract that the area of the apartment be 130 square metres (at [52] per Blue J, Kourakis CJ agreeing, at [165] per Hinton J).
3. The Judge erred in holding that, if it was a term of the contract that the area of the apartment was to be 130 square metres, it could not be determined on the materials before the Judge how the area was to be measured or what was the relevant area. The area of the apartment as constructed was to be measured in accordance with s 19(4) of the Community Titles Act 1996 (at [60] per Blue J, Kourakis CJ agreeing, Hinton J at [177] dissenting) and extended to the edges of the balcony slab (at [65] per Blue J, Kourakis CJ agreeing, at [211] per Hinton J) and the area was 123.8 square metres.
4. The Judge erred in holding that, if the respondent had breached the contract, the breach would not have been sufficiently serious to justify termination (at [65] per Blue J, Kourakis CJ agreeing, Hinton J not deciding).
Acts Interpretation Act 1915 (SA) s 10A; Community Titles Act 1996 (SA) s 3, s 7, s 9, s 10, s 14, s 19, s 22, s 23, s 28, s 75, s…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] SASCFC 149
Decision Date: 22 December 2016

CaseChat Overview and Summary

This case concerned an appeal from a decision of the Supreme Court of South Australia regarding a contract for the sale of an off-the-plan apartment. The appellant, Mr Bruce, had entered into a contract with the respondent developer, Baju Henley Square Pty Ltd, for the purchase of Lot 221 in a proposed apartment building. Mr Bruce sought to terminate the contract, alleging that the completed apartment was not of the area he had contracted to purchase. Baju, in turn, sought specific performance of the contract. The appeal focused on Mr Bruce's first notice of termination, which was based on an alleged breach of an area condition.

The central legal issues before the court were whether a concept drawing indicating an area of 130 square metres for Lot 221 formed part of the contract and was a promissory term, and if so, whether the actual constructed area of Lot 221 was less than that promised and exceeded any permitted variation tolerance. A further issue was the method by which the area of Lot 221 was to be calculated, with Mr Bruce advocating for the application of section 19(4) of the *Community Titles Act 1996* (SA) (the CTA method), and Baju arguing for the use of the Property Council of Australia Ltd guidelines (the PCA method).

The Full Court of the Supreme Court of South Australia, comprising Kourakis CJ, Blue and Hinton JJ, determined that the concept drawing was not of contractual effect and therefore not a promissory term. Furthermore, the court found that the method of determining the area contemplated by the contract was not the CTA method. The court also accepted Baju's argument that even if the CTA method were applicable, the area of Lot 221 did not exceed the variation tolerance. Consequently, the court concluded that Mr Bruce had not established a breach of contract that would justify his termination.

The appeal was dismissed. The court found that the trial judge had erred in concluding that any breach was insubstantial, but this error did not lead to a different outcome as the primary grounds of appeal were not established.

Orders

Orders of the court

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Background

Background to the litigation

The issues on appeal are as follows.1.Was the Area Condition a condition precedent to settlement or alternatively a promissory term comprising a promise by Baju?2.Was the 130 sqm Term a term of the Contract?3. If so, what is the area of Lot 221 as constructed and in particular:(a) is the area to be measured applying the PCA guidelines or subsection 19(4) of the Act?(b) does Lot 221 extend to the western and northern edges of the balcony slab or to the eastern and southern edges of the balcony glass balustrades on those sides?4.If the Contract was breached by Baju, did the breach justify termination by Mr Bruce?Background Baju was the developer of the H2O Apartments proposed to be constructed at 348 Seaview Road, Henley Beach. In or before November 2009, Baju engaged Loucas Zahos to prepare architectural plans and specifications for the Development. Loucas Zahos prepared a set of A0 size architectural plans (the A0 plans). Baju prepared a proposed Scheme Description which described the development and embodied the A0 plans (the Scheme Description). The ground floor of the Development was to comprise eight retail lots. The first and second floors were each to comprise eight residential lots and the third floor was to comprise seven residential lots. Proposed Lot 221 was the second floor lot in the north western corner of the Development overlooking Seaview Road. There were two underground floors comprising carparks and each residential unit was to be allocated a carpark or carparks. Baju also engaged Loucas Zahos to prepare concept plans for each residential apartment for marketing purposes. The Concept Plan for proposed Lot 221 contained in the heading “2.21 Area Total: 130 sqm”. It contained a plan showing the internal layout of the unit comprising three bedrooms, two bathrooms, a kitchen, a lounge/dining room, a spa, an entry/court, an atrium and a balcony. It contained a table showing dimensions of the bedrooms, kitchen, lounge/dining room and balcony. It contained an outline plan showing the location of the proposed lot as the north western apartment out of the eight strata lots on the second floor. It contained a Disclaimer including the words “Illustrations, photos and CAD images are indicative only and do not represent the final outcomes of this project.” Baju prepared a standard form contract comprising the standard REI Schedule with typed variables (other than name and address of purchaser, lot number, number of carparks and amount of price and deposit); the standard REI Residential Contract “Terms and Conditions” (the Terms & Conditions); a 14 page attachment entitled “Special Conditions” (the Attachment); and five Annexures to the Attachment. Annexure A was entitled “Architect’s Plan” and comprised an A4 size version of the A0 plans (the A4 plans). Annexure C was entitled “Schedule of Finishes, Fixtures and Fittings”. Annexure D was entitled “Indicative Scheme Decsription [sic]” and comprised the Scheme Description. The subject matter of the contract was termed “the Purchaser’s Lot”.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The Judge erred in concluding that any breach was insubstantial. This ground of appeal is established.Conclusion I would dismiss the appeal.HINTON J:Introduction In March 2010, Craig Bruce, the appellant, entered into a contract with Baju Henley Square Pty Ltd (Baju) for the sale and purchase, “off the plan”, of community Lot 221 being a yet-to-be-constructed apartment in a building located at Henley Beach to be known as the H2O Apartments. Construction was undertaken during 2011. On 19 December 2011, Mr Bruce was advised that construction of Lot 221 had reached practical completion. Settlement was then set for 15 February 2012. It did not eventuate. Rather, Mr Bruce served a notice of termination upon Baju. That notice purported to terminate the contract because, in effect, Mr Bruce considered that he did not stand to get what he had agreed to pay for, namely, an apartment with an area of no less than 123.5 m2. Baju responded by serving a notice to complete upon Mr Bruce, nominating a fresh settlement date of 13 March 2012. Again Mr Bruce did not settle. Instead he served a second notice of termination upon Baju which purported to terminate the contract on the grounds that relevant development approvals had not been obtained by the nominated date. Faced with the notices of termination, Baju instituted proceedings seeking an order for specific performance. In this Court Mr Bruce did not dispute that Baju was ready, willing and able to deliver title on both 15 February 2012 and 13 March 2012, and remained ready, willing and able to do so throughout the proceedings. Rather by cross-claim he sought declarations that Baju had breached the area condition contained in the contract, which was subject of the first notice of termination, and the approvals condition contained in the contract, which was subject of the second notice, with the consequence that he was entitled to an order for the return of his deposit plus interest, or, alternately, damages for breach of contract. It followed that the outcome of the trial in this Court turned on the question of whether either of the notices issued by Mr Bruce had validly terminated the contract. The trial Judge held that neither did. Mr Bruce now appeals. The appeal is confined to the trial Judge’s treatment of the first notice of termination. Accordingly, nothing more need be said regarding the second notice and hereafter any reference to ‘the notice’ is to be taken as a reference to the first notice of termination unless otherwise indicated. Success on appeal depended upon establishing that a concept drawing referring to Lot 221 as having an area of 130 m2 comprised part of the contract and was promissory in effect, and that the area of Lot 221 as built was not only less than the promised 130 m2, but exceeded the permitted variation tolerance of 5% as contained in special condition 4.4.1. This latter point necessitated identification of the approach to be applied in calculating the area of Lot 221 contemplated by the contract. The parties offered two alternatives; Mr Bruce argued that the area of the lot should be calculated in accordance with s 19(4) of the Community Titles Act 1996 (SA) (the CTA method), in which case, where the boundary of the lot was comprised of a wall or fence, the boundary was taken as the inner surface of such wall or fence. Baju submitted that the boundary was to be determined in accordance with the Property Council of Australia Ltd guidelines entitled, “Method of Measurement for Residential Property” (the PCA method), in which case, if the boundary was comprised of a shared wall, area was to be measured from the centre line of the wall, and if it was an external wall, from the external finish of the dominant portion of the wall. It is immediately apparent that the PCA method will produce a result as to area for a given building greater than that arrived at if area was calculated in accordance with the CTA method.

Ratio Decidendi

Legal Principle Established

As to the fourth question, Mr Bruce contended that having regard to its prescriptive importance, special condition 4.4.1 was an essential term of the contract with the consequence that any breach justified termination. Baju contended that if there was a breach it amounted to a loss of area of .15 m2. Such breach could be regarded as insubstantial and, relying upon the authority of Tiplady v Gold Coast Carlton Pty Ltd, did not justify termination.[35] In Tiplady, Fitzgerald J stated: [36]It has been established by a long line of authority that a purchaser's right to rescind is limited to cases in which the difference between the property agreed to be transferred and the property which the vendor was able to transfer was substantial... Shortly stated, the test is whether the property which the purchaser would receive is substantially different from that which he contracted to buy.[35] (1984) 3 FCR 426.[36] Tiplady v Gold Coast Carlton Pty Ltd (1984) 3 FCR 426 at 445.Consideration Senior counsel for Mr Bruce candidly conceded that if the first of the four questions he posed[37] was answered adverse to Mr Bruce, or if the arguments raised in support of the Notice of Contention were accepted, Mr Bruce could not succeed.[38] Below I deal with the first two questions identified by senior counsel for Mr Bruce, and thereby the grounds of appeal to which they relate, in addition to the contentions advanced in the Notice of Contention. [37] Set out above at [111].[38] Appeal T32. For the reasons that follow I would answer the first two questions articulated by senior counsel adverse to Mr Bruce. In my view, the Drawing is not of promissory effect and the method of determining area contemplated by the contract is not the CTA method. I would also accept the argument made in support of the Notice of Contention that if the CTA method were the applicable method of determining area, then the area of Lot 221 does not exceed the variation tolerance. In my view, it is not necessary to deal with the third and fourth questions and the appeal grounds to which they relate. Is the Drawing of contractual effect? Immediately prior to the contract being received in evidence, senior counsel for Baju inquired as to the form in which the contract was to be received and, in particular, where in the contract the Drawing appeared.[39] Counsel for Mr Bruce made plain that he intended to ask questions on that topic. The trial Judge then admitted the document into evidence. [39] T65. In examination-in-chief Mr Bruce said that he had no recollection of where the Drawing featured amongst the documents that in combination comprised the contract.[40] Nor could he recall whether the contract was presented as a bundle or in individual parts.[41] He did say, however, that he had done nothing to disturb the order of the documents in the contract as they were provided to him.[42] With respect to the handwritten endorsement on the Drawing, Mr Bruce told how his wife had raised the question of whether wardrobes were included as part of the contract, to which the agent said yes. The agent proceeded to make a note on the Drawing to ensure this was achieved.[43] Mr Bruce said that the handwriting on the Drawing was not his wife’s nor his, but his initials did appear at bottom left.[44][40] T67.[41] T67.[42] T68.[43] T67.[44] T67.