Carmelita Paolucci v Makedyn Pty Ltd

Case •

[2020] NSWSC 1871

•

17 December 2020

No judgment structure available for this case.

Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: Carmelita Paolucci v Makedyn Pty Ltd [2020] NSWSC 1871
Hearing dates: 23, 24 and 25 November 2020
Date of orders: 17 December 2020
Decision date: 17 December 2020
Jurisdiction: Equity - Real Property List
Before: Rein J
Decision:

[86]-[87]

Catchwords:

BUILDING AND CONSTRUCTION — Contract – the Plaintiff (a landowner) and the Defendant (a developer) entered into a contractual arrangement by which the Plaintiff would sell her property to the Defendant for $3.5M of which $2.5M was payable in cash and which included an agreement that the Defendant would on completion of the development reconvey to the Plaintiff two lots (which later became three lots) with completed dwellings (a “House” and a “Duplex”) constructed on the lots (“the Reconveyance Contract”) – a “Sunset Clause” provided that the contract could be rescinded by either party “at any time” after 24 May 2017; registration of the relevant subdivision plans was achieved by May 2018. The parties then fell into a dispute concerning the dimensions of the residences required by the Reconveyance Contract to be constructed – issues which arose were: (1) whether the Defendant was in breach of the Reconveyance Contract in failing to complete the construction and reconveyance; (2) whether specific performance or an order for partial specific performance was available; (3) whether the Defendant had a contractual right of rescission pursuant to the Sunset Clause (cl 32.1.4 of the Reconveyance Contract); (4) whether the limitation on damages in cl 32 of the Reconveyance Contract was limited to rescission; (5) whether the reference in cl 30.1 of the Reconveyance Contract to 241.54m2 was a reference to the size of the Duplex or to the two residences forming part of the Duplex –Held: (1) the dimensions of 241.54m2 is a reference to the total area of the Duplex rather than a reference to each residence; (2) the Defendant was in breach of the requirement to provide a layout plan for the House and the Duplex but this breach was rectified in late 2018; (3) the Defendant was not otherwise in breach of the Reconveyance Contract. The long delay in registration of the relevant plans of subdivision was not the fault of the Defendant. The Defendant had not wilfully and deliberately failed to achieve completion of the contract and non-completion was a consequence of the dispute about dimensions; (4) the limitation on damages was not limited to rescission; (5) specific performance or partial specific performance not available because the Defendant by failing to complete was not in breach of the contract and is willing and able to complete the Reconveyance Contract.

LAND LAW — Conveyancing — Contract for sale — Rescission – The Defendant cross claimed seeking permission pursuant to s 66ZS(6) of the Conveyancing Act 1919 (NSW) (“the Conveyancing Act”) to rescind the Reconveyance Contract and later amended its cross claim to rely on s 66ZS which is the successor to s 66ZL (see s 66ZU).There were long delays in registration of the relevant plans of subdivision. The Reconveyance Contract contained a “Sunset Clause” which permitted either party to rescind if various “Conditional Matters” had not been achieved by a particular date, i.e. 24 May 2017 – Held: (1) cross claim dismissed – rescission by the Defendant should not be permitted pursuant to s 66ZS of the Conveyancing Act because it was not just and equitable to permit the Defendant to rescind.

EQUITY — Equitable remedies — Specific performance – whether an order for specific performance or partial specific performance was available – Held: specific performance or partial specific performance not available because the Defendant was not in breach of the contract and is willing and able to complete the Reconveyance Contract.

EVIDENCE — Privileges — Without prejudice privilege – whether without prejudice correspondence should be admitted – Held: (1) correspondence allowed into evidence – the status of the letter was doubtful but, in any event, if privileged a misleading impression would be created if that content was excluded.

Legislation Cited:

Australian Consumer Law (sch 2 of the Competition and Consumer Act 2010 (Cth))

Conveyancing Act 1919 (NSW)

Conveyancing Legislation Amendment Act 2018 (NSW)

Evidence Act 1995 (NSW)

Cases Cited:

Cherry v Steele-Park [2017] NSWCA 295

Classic Bet (NSW) Pty Ltd & anor v KRM (Vic) Pty Ltd & anor; Kay v KRM (Vic) Pty Ltd [2020] NSWCA 6

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

DGF Property Holdings Pty Limited v Di Federico; DGF Property Holdings Pty Limited v Butros [2018] NSWSC 344

Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640

Findex Group Ltd v Mckay [2020] FCAFC 182

Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407

Galafassi v Kelly [2014] NSWCA 190; (2014) 87 NSWLR 119

Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455

KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773

McIntosh v Dalwood [No 4] (1930) 30 SR (NSW) 415; (1930) 47 WN (NSW) 128

Silver Star Fashions Pty Ltd v Dal Broi [2018] NSWSC 1445

Soames v Edge (1860) John 669

Starline Drive-In Theatre Ltd v Federal Commissioner of Taxation (1964) 112 CLR 458

Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315

Wilson v Northampton & Banbury Junction Railway Company (1874) LR 9 Ch App 279

Wolverhampton Corporation v Emmons [1901] 1 KB 515

Wright v Carter (1923) 23 SR (SNW) 555

York House Pty Ltd v Federal Commissioner of Taxation (1930) 43 CLR 427

Texts Cited:

Carter, J, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018)

Davis, J.L.R (ed), Contract: General Principles: The Laws of Australia (Thomson Lawbook Co, 2006)

Heydon, J.D., Heydon on Contract (Thomson Reuters, 2019)

Northcote, George Russell, Fry on the Specific Performance of Contracts (Stevens and Sons, Ltd., London, 6th ed, 1921)

Category:Principal judgment
Parties: Carmelita Paolucci (Plaintiff)
Makedyn Pty Ltd (Defendant)
Representation:

Counsel:
Mr A Harding SC with Mr J Braithwaite (Plaintiff)
Mr Knackstredt (Defendant)

Solicitors:
Pikes & Verekers Lawyers (Plaintiff)
Macpherson Kelley Lawyers (Defendant)
File Number(s): 2019/187766
Publication restriction: Nil

Judgment

  1. Mrs Carmelita Paolucci (the Plaintiff, for whom Mr A Harding SC and Mr J Braithwaite appear) and her late husband owned a large block of land at Gregory Hills NSW on which site was located their family residence. The property known as 79 Turners Road was, together with an adjoining property owned by a Mr Peter Byrne in late 2013, identified as of interest to the Defendant, Makedyn Pty Ltd (“Makedyn”), by its director, Mr Joshua Vrsaljko. Makedyn sought to acquire the land to form part of a residential housing development (the Pioneer Rise Development) to be built in Gregory Hills. Mr J Knackstredt of Counsel appears for Makedyn.

  2. In broad outline an agreement was reached in May 2014 whereby Mr and Mrs Paolucci would grant an option to Makedyn to buy their property. Makedyn, if it exercised the option, would develop their property (and Mr Byrne’s property), subdivide the land and reconvey to Mr and Mrs Paolucci two lots, with, on one lot, a house (“the House”) and on the other a duplex (“the Duplex”) constructed. A similar arrangement for option purchase and Reconveyance was made with Mr Byrne.

  3. Mr Paolucci died in 2015 and I shall in the balance of these reasons refer only to Mrs Paolucci as she became the sole registered owner of the property before it was sold to Makedyn.

  4. Makedyn exercised the option given to it by Mrs Paolucci on 26 May 2015: see paragraph 44 of Mr Vrsaljko’s Affidavit of 9 January 2020 (CB2 48) and paragraph 9 of Mrs Paolucci’s Affidavit of 12 August 2019 (CB2 3). Mrs Paolucci and Makedyn as planned entered into both a Deed of Agreement dated 29 September 2015 (“the Deed of Agreement”) (CB2 963), a contract for the sale of land by Mrs Paolucci to Makedyn dated 29 September 2015 (CB2 773), and a contract of sale of two lots back to Mrs Paolucci dated 24 November 2015 and referred to by the parties as the “Reconveyance Contract” (CB3 1074). It was later agreed given the form of the plan approved that three lots rather than two were to be reconveyed (with no alteration in the total area).

  5. Disputes have arisen in relation to the Reconveyance Contract in which Makedyn is the vendor and Mrs Paolucci is the purchaser. The Reconveyance Contract by cl 33.1 notes that “the consideration for the sale/re-conveyance of the Lot has been provided by the Purchaser as part of the original sale of the Development Site to the Vendor” and the parties seem to agree that the Reconveyance Contract should not be viewed in isolation from the Deed of Agreement: see also cl 2.3 and cl 2.6 of the Deed of Agreement, paragraph 34 of the Defendant’s Opening Submissions (“DOS”), T264.29-34 and T302.18-22. The essential terms of the agreement contained in the Deed of Agreement were that Makedyn would pay Mrs Paolucci $3.5M for the land she owned with $2.5M of that amount paid in cash and $1M to be paid by provision of the lots with the House and the Duplex constructed upon them.

  6. Key dates in the history of the matter are:

  1. Makedyn was incorporated in March 2014.

  2. On 30 May 2014 the Call Option Deed was entered into between Makedyn and Mr and Mrs Paolucci (“the Call Option Deed”).

  3. A Development Application was lodged by Makedyn on 18 March 2015 in relation to Stages 1 to 4 of the development.

  4. On 29 September 2015 Makedyn exercised its option under the Call Option Deed. On the same day the Deed of Agreement between Mrs Paolucci and Makedyn was executed (see CB2 963-990) and the Conveyancing Contract was entered into (see CB2 773-962).

  5. On 23 November 2015 Camden Council approved the applications for Stages 1 to 4 (see CB3 1042).

  6. On 24 November 2015 the Reconveyance Contract was entered into (see CB3 1074-1152).

  7. The Deposited Plan which included Lot 201 was registered on 16 January 2018.

  8. The Deposited Plan which included Lots 149 and 150 was registered on 24 May 2018.

  1. “Lot 149” and “Lot 150” are the two lots that were originally envisaged as one lot (Lot 1393) on which the Duplex would be constructed. “Lot 201” (formerly Lot 1391) is the lot on which the House was to be constructed. Each of the lots is now approximately 250m2 in size. There is no issue that under the Reconveyance Contract three rather than two lots are the lots to be conveyed to Mrs Paolucci (namely Lots 149, 150 and 201) and that the Duplex is to be constructed on Lots 149 and 150. Agreement has been reached that rather than a duplex what should be constructed are two separate dwellings, i.e. one on Lot 149 and one on Lot 150.

  2. It will be observed that a great deal of time passed between lodgement of the Development Application in March 2015 and registration of the Deposited Plan on 24 May 2018. Makedyn’s explanations for delay were based on problems that it had with Council, problems relating to asbestos found on site and problems with drainage due to significant groundwater issues. Mr Andrew Halmarick, a surveyor and the director of Craig & Rhodes Pty Ltd (an engineering, surveying, planning and project management firm engaged by Makedyn as project manager of the development), gave evidence on behalf of Makedyn (the Affidavit of 20 December 2019) explaining how these matters delayed the approvals. Brief cross examination did nothing to undermine his evidence.

  3. Originally in these proceedings Mrs Paolucci contended that Makedyn had breached its obligations by failing to achieve registration by May 2018 but during closing submissions Mr Harding withdrew any assertion that the delays in obtaining registration prior to May 2018 were the fault of Makedyn: see T269.3-7. The focus in these proceedings thus shifted to the period from May 2018 to date, although Mrs Paolucci does complain of an ongoing failure to supply layout plans for the dwellings which were supposed to have been annexed to the Reconveyance Contract and were not in fact annexed.

  4. I shall endeavour to summarise the history from May 2018 onwards:

  1. On 20 September 2018 Mrs Paolucci’s solicitors, Pikes & Verekers Lawyers (“Pikes”), wrote to the solicitors for Makedyn, Macpherson Kelley Lawyers (“MKL”) asking MKL to advise when Makedyn intended to commence erection of the Duplex on Lots 149 and 150 – requesting provision of full particulars to enable Pikes to obtain valuations for stamp duty purposes, expected completion date and the expected date of release of a temporary easement burdening Lot 201 (see CB4 2277). The easement had been imposed by Council to enable rubbish bin collection trucks to turn around during construction of the dwellings on the other lots: see CB4 2593-2594 and 2599. The letter advised that Mrs Paolucci would accept Lots 149 and 150 (replacing the previous single lot) “provided the common wall of the duplex houses stands on the boundary of Lots 149 and 150” (CB4 2277). The letter also sought details in respect of an easement on Lot 149 in favour of Lot 150.

  2. On 8 October 2018 Mr Vrsaljko and Mrs Paolucci’s daughter Yvonne Paolucci (“Yvonne”) had a discussion about the lots. Mr Vrsaljko raised the possibility that instead of the Duplex Makedyn could construct two separate dwellings. Yvonne expressed interest in this proposal.

  3. On 9 October 2018 Mr Vrsaljko sent an email to Yvonne which attached the proposed layout for the House (Lot 201) and the Duplex (Lots 149 and 150) (see CB4 2279-2285). The dwellings on Lots 149 and 150 were shown as separate dwellings rather than as a duplex, each had a floor space of 151.73m2 and the House on Lot 201 was shown as a residence with 152.2m2.

  4. On 11 October 2018 Mr Vrsaljko sent a text message enquiring whether Yvonne had received the plan (see Exhibit B). Yvonne replied:

“Yes. I think you need to go back and read the contract about m2 of houses”.

  1. On 11 October 2018 Pikes wrote to MKL asserting that the Reconveyance Contract called for a house of 241.54m2 and two three bedroom residences each of 241.54m2 (CB4 2279A).

  2. On 15 November 2018 Pikes wrote to MKL again complaining about the lack of information from Makedyn concerning the proposed dwellings and the absence of progress in the construction and completion of them (CB4 2286). The letter also sought documents relating to the delays in registration of the plans of a subdivision.

  3. On 5 December 2018 MKL responded to Pikes. The letter asserted that contractually it was the lots which had to be 241.5m2 not the dwellings: CB4 2295. It gave an explanation for the delays. The letter enclosed plans for the dwellings and said:

“We are instructed that Our Client will agree to construct three (3) free standing dwellings (Dwellings), being:

1. One (1) x four bedroom free standing house on lot 201; and

2. One (1) x three bedroom free standing house on lot 149;

3. One (1) x three bedroom free standing house on lot 1150.

We enclose proposed house plans and designs (Plans) for the Dwellings. Please advise if Your Client is agreeable to the Plans so that Our Client may proceed with the relevant applications to the Council for the construction of the Dwellings.”

I should note that the passage quoted above was objected to by the Defendant on the basis that it was in effect part of a without prejudice offer. I indicated a preliminary view which was not further contested that that portion should be redacted, but on further consideration I think it should not be excluded because its status is doubtful and because even if it is a without prejudice offer a misleading impression would be created if that content was excluded particularly since the Plaintiff sought to tender, and I allowed into evidence, Pike’s letter of 11 October 2018. Further, Mrs Paolucci claims that she accepted at least the plans for the House and the letter was relied on the POS at paragraph 117. I will, therefore, in accordance with s 131(2)(g) of the Evidence Act 1995 (NSW) admit it: see Galafassi v Kelly [2014] NSWCA 190; (2014) 87 NSWLR 119 at [135]-[143].

The plans which were included with that letter showed for Lot 201 a dwelling of 242.6m2 (CB4 2301-2302) and for Lots 149 and 150 a dwelling of 151.73m2 each (CB4 2299-2301 and 2303-2304). The dwelling for Lot 201 was a two storey dwelling (with all four bedrooms located on the second storey) and those for Lots 149 and 150 were single storey on each.

The letter also said (at CB4 2297):

“Our client remains committed to complying with its obligations under the Contract and completing the construction of the Dwellings without further delay.”

  1. Shortly after the 5 December 2018 letter, Mr Vrsaljko telephoned Yvonne and she said to him words to the following effect (CB2 57):

“Yvonne Paolucci:   “We’re not happy. We’re not happy with the size of the houses that were going to be a duplex, they’re too small. We are okay with the house.”

Mr Vrsaljko:    “That was what was agreed. You can’t fit 480m2 on your block of land.”

Yvonne Paolucci:    “Don’t care. We’re not happy.”

Yvonne Paolucci then hung up.”

  1. On 21 December 2018 Pikes sent a letter to MKL (CB4 2308) referring to their letter of 15 November 2018, noting that they had not received a response and asking MKL to advise when they might expect to receive the requested information.

  2. In December 2018 Mr Vrsaljko had a conversation with Yvonne in which he said “I want to sort this out” and Yvonne said “No. We’re going to Court”: CB2 57.

  3. On 22 January 2019 Mr Vrsaljko, Mrs Paolucci and Yvonne happened to meet at the site. Mr Vrsaljko’s version of the conversation is as follows (see CB2 57 at paragraph 113):

“Mr Vrsaljko:   “I have always said to you that the duplex would be 26 squares for both dwellings.”

Yvonne Paolucci:    “Well, you can read that clause either way.”

Mr Vrsaljko:   “The intention was always to deliver a duplex of 26 squares for both dwellings.”

Yvonne Paolucci:   “All these other houses have started but ours hasn’t.”

Mr Vrsaljko:   “I’ve been trying to work out a plan with you since October. If we had agreed on plans back in October it would be almost finished by now.”

Mrs Paolucci:      “I want to sort it out now and move on.”

Mr Vrsaljko:      “Why don’t we sit down and work out a deal.”

Mrs Paolucci:   “We don’t have time today, I have a doctor’s appointment, but I am back soon in Sydney for another doctor’s appointment.””

  1. A meeting was scheduled for Mr Vrsaljko to meet with Mrs Paolucci and another of her daughters but that meeting was cancelled. Mr Vrsaljko, in his Affidavit of 9 January 2020, said that in a text message Yvonne cancelled the meeting on the basis that Mrs Paolucci was unwell and did not wish to travel to Sydney: see CB2 57 at paragraph 114. However, Mrs Paolucci in her Affidavit of 2 March 2020 says that it was cancelled due to her daughter Isabella Paolucci’s work commitments and that it was never rescheduled: see CB2 13 at paragraph 20.

  2. On 13 February 2019 Pikes sent a letter to MKL (CB4 2309) enclosing valuations prepared in respect of Lots 149, 150 and 201 and asking MKL to “confirm when the contracts and transfers have been stamped.”

  3. On 21 February 2019 MKL replied confirming they had submitted the valuations to Revenue NSW for assessment and requesting Pikes advise whether their client was agreeable to the house plans and designs attached to MKL’s letter of 5 December 2018 (CB4 2310).

  4. On 26 February 2019 Pikes emailed MKL noting that they had been advised that, following a chance meeting between Mrs Paolucci and Mr Vrsaljko, a without prejudice meeting had been proposed for the parties to discuss the matter (CB4 2313).

  5. On 13 March 2019 Pikes sent a letter to MKL (CB4 2315) responding to the 5 December 2018 letter and stating that that letter “proceeds upon an erroneous construction of the contract. It wrongly asserts that the measurement of 241.54m2 referred to in the contract is a reference to lot size rather than floor space.”

  1. On 17 June 2019, Mrs Paolucci commenced these proceedings by Statement of Claim seeking a declaration that Makedyn had failed to use its reasonable endeavours to satisfy the Conditional Matters set out in cl 31.1 of the Reconveyance Contract (see [21] below), an order for specific performance and damages pursuant to s 236 of the Australian Consumer Law (sch 2 of the Competition and Consumer Act 2010 (Cth)) for misleading and deceptive conduct in relation to the easement. There was no reference to the issue of dimensions of the Duplex.

  2. In her Second Further Amended Statement of Claim (“FASTOCL”) Mrs Paolucci claims that Makedyn is in breach of cl 2.1 of the Deed of Agreement because it has failed to construct the dwellings in accordance with the Construction Approval and failed to reconvey to Mrs Paolucci (or her nominee) title to Lots 149, 150 and Lot 201 and, is in breach of the Reconveyance Contract for Sale by failing to satisfy the Conditional Matters in cl 31.1. Mrs Paolucci also seeks a declaration that “Duplex” means a residential dwelling divided into two (2) three (3) bedroom residences, each of no less than 241.54m2 in area. She also seeks an order that Makedyn specifically perform and carry into effect its obligations under cl 2.1 of the Deed of Agreement and the Reconveyance Contract:

“a. in whole, by using its reasonable endeavours to satisfy the Conditional Matters set out in cl 31.1 of the [Reconveyance Contract], and thereafter constructing and completing the Dwellings in accordance with the Construction Approval, those Dwellings being relevantly the Duplex and the House, and thereafter conveying to the plaintiff or her nominee title to lot 201 in Deposited Plan 1229172 and lots 149 and 150 in Deposited Plan 1228259; or alternatively:

b. in part, by conveying to the plaintiff or her nominee title to lot 201 in Deposited Plan 1229172 and lots 149 and 150 in Deposited Plan 1228259 as vacant land.”

Makedyn, in the Amended Defence to the FASTOCL, denies Mrs Paolucci is entitled to the relief claimed and further says that, in any event, its total liability to Mrs Paolucci is limited to the amount of $1M by cl 32.2 of the Reconveyance Contract (see [21] below).

  1. By its letter of 16 October 2019 Makedyn indicated for the first time that it wished to rescind the Reconveyance Contract.

  2. Makedyn by its Further Amended Statement of Cross Claim (“Cross Claim”) seeks an order pursuant to s 66ZL(6) of the Conveyancing Act 1919 (NSW) (“the Conveyancing Act”) (as previously in force), or in the alternative s 66ZS(6) (as currently in force), that it be permitted to rescind the Reconveyance Contract, with the effect of bringing to an end any co-extensive obligations between Makedyn and Mrs Paolucci.

  3. It is clear that the view was taken by Makedyn (or those advising it) that the Reconveyance Contract required each of the lots to be 241.54m2 rather the dwellings or the residence: see the letter of 5 December 2018 at CB4 2295. That position has not been maintained in these proceedings.

  4. It will be observed that what was offered by Makedyn in December 2018 was a two storey house of 241.6m2 and two single storey residences each 151.73m2 with a total of approximately 303m2. What was offered was thus more than the 241.54m2 total for the two dwellings forming the Duplex (on the construction advanced by Makedyn) but not 483.08m2 as demanded by Mrs Paolucci.

  5. The questions which arise are:

  1. Is Makedyn entitled to rescind the Reconveyance Contract but for s 66ZS of the Conveyancing Act (this raises not only a question of construction, but also election)?

  2. If the answer to (1) is yes, are the conditions for rescission under s 66ZS met?

  3. Is Makedyn required to build two residences that have an internal size of 241.54m2 each or is the 241.54m2 the size of the dwelling? I shall refer to this as “the Dimensions Issue”. A subsidiary question is whether the Court should receive two letters in evidence that were sent prior to the entry into the Deed of Agreement and Reconveyance Contract.

  4. Should the Court order specific performance of the Reconveyance Contract?

  5. Can an order for partial performance be ordered?

  6. Is the limitation contained in clause 32.2 only relevant to rescission for failure to meet the date referred to as the Sunset Date in the Reconveyance Contract (i.e. 24 May 2017)?

  7. Was Makedyn required to use its best endeavours to achieve completion of the works and the issue of an occupation certificate after the Sunset Date?

  1. The provisions of s 66ZS of the Conveyancing Act are in the following terms:

“66ZS Rescission under sunset clauses

(1) In this section—

subject lot means the residential lot being sold under an off the plan contract.

sunset clause means a provision of an off the plan contract that provides for the contract to be rescinded if the sunset event does not occur by the sunset date.

sunset date means the date set out in the off the plan contract as the latest date (subject to any extension provided for in the contract) by which the sunset event must occur.

sunset event means the creation of the subject lot, the issue of the occupation certificate in relation to the subject lot or another event prescribed by the regulations.

(2) For the purposes of this section—

(a) rescind includes terminate or otherwise bring to an end, and

(b) a lot is created when the plan creating the lot becomes a registered plan.

(3) A vendor may rescind an off the plan contract under a sunset clause, but only if—

(a) each purchaser under the contract, at any time after being served with the notice under subsection (4), consents in writing to the rescission, or

(b) the vendor has obtained an order of the Supreme Court under this section permitting the vendor to rescind the contract under the sunset clause, or

(c) the regulations otherwise permit the vendor to rescind the contract under the sunset clause.

(4) It is a term of an off the plan contract that a vendor who is proposing to rescind the contract under a sunset clause must serve each purchaser under the contract notice in writing at least 28 days before the proposed rescission that specifies why the vendor is proposing to rescind the contract and the reason for the sunset event not occurring by the sunset date.

(5) A sunset clause cannot automatically rescind an off the plan contract and, if it purports to do so, it is to be read as if it instead permits the contract to be rescinded on or after the sunset date in accordance with this section.

(6) The Supreme Court may, on the application of a vendor under an off the plan contract, make an order permitting the vendor to rescind the contract under a sunset clause, but only if the vendor satisfies the Court that making the order is just and equitable in all the circumstances.

(7) In determining whether it is just and equitable in all the circumstances, the Court is to take the following into account—

(a) the terms of the off the plan contract,

(b) whether the vendor has acted unreasonably or in bad faith,

(c) the reason for the sunset event not occurring by the sunset date,

(d) the likely date on which the sunset event will occur,

(e) whether the subject lot has increased in value,

(f) the effect of the rescission on each purchaser,

(g) any other matter the Court considers to be relevant,

(h) any other matter prescribed by the regulations.

(8) The vendor is liable to pay the costs of a purchaser in relation to the proceedings for an order under this section unless the vendor satisfies the Court the purchaser unreasonably withheld consent to the rescission of the off the plan contract under the sunset clause.

(9) Notice may be served on a purchaser by serving it on a person who is authorised under the off the plan contract as a representative of the purchaser.

(10) A provision in an off the plan contract has no effect to the extent that it is inconsistent with this section.

(11) Nothing in this section limits—

(a) the Court’s power to award damages against the vendor if an order permitting the vendor to rescind the contract under a sunset clause is made under subsection (6), or

(b) any right that a purchaser may have to rescind an off the plan contract under a sunset clause.”

  1. Section 66ZU(3) provides that s 66ZS applies to a contract whether made before or after the substitution of this Division by the Conveyancing Legislation Amendment Act 2018 (NSW) and so Makedyn’s case for rescission now must be based on s 66ZS.

  2. The following provisions of the Deed of Agreement (CB2 963) are relevant:

“1. DEFINITIONS & INTERPRETATION

1.1 Definitions

… Dwellings means the Duplex to be constructed on one of the Lots and the House to be constructed on the other Lots to be re-conveyed to Paolucci.

Duplex means a residential dwelling divided into two (2) three (3) bedroom residences on the one lot of no less than 241.54m2.

House a four (4) bedroom freestanding residential dwelling of no less than 241.54m2).

Inclusions Schedule means the inclusions and finishes to be made/added to the Dwellings as part of the Works.

Layout Plans means the Internal and external layout of the Dwellings,

Lots means the two (2) lots in the Residential Subdivision of no less than 350m2 to be transferred to Paolucci…

2. Promise

2.1 The Developer agrees to do the following:

(a) Undertake a Residential Subdivision of the Property;

(b) To construct and complete the Dwellings in accordance with the Construction Approval; and

(c) Upon the completion of the Works and the Residential Subdivision to reconvey to Paolucci (or their nominee) title to (two) 2 Lots in the Residential Subdivision.

2.2 On or before the Developer becoming the registered proprietor of the Property the parties will negotiate in good faith and agree the following:

(a) the location of two (2) Lots in the Residential Subdivision to be transferred as part of the re-conveyance to Paolucci;

(b) the design and style of the Dwellings to be constructed by the Developer; and

(c) the Inclusions and Layout Plans for the Dwellings to be constructed by the Developer.

In the event that the parties do not reach agreement on any of the above matters, the Developer shall be entitled to determine any of the matters not agreed at their absolute discretion.

2.3 On the date of the Developer becoming the registered proprietor of the Property, the Developer and Paolucci must enter into the Sale Contracts for the sale of the two (2) Lots in the form annexed hereto and marked A. The Sale Contracts must be properly executed by Paolucci and delivered to the Developer’s solicitors on or before the date of this Deed.

2.5 The Sale Contract will be completed by the Developer or the Developer’s solicitor who are authorised to:

(a) insert where appropriate in the Sale Contract the proposed lots in the Residential Subdivision to be re-conveyed to Paolucci, the Layout Plans, Inclusion List for the Dwelling to be constructed by the Developer, the Prescribed Documents and any other information necessary to complete the Sale Contract; and

(b) date and exchange of the Sale Contract.”

  1. The following provisions of the Reconveyance Contract (CB3 1074) are relevant:

“29 Conditional Contract

29.4   …If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen…

30.   DEFINITIONS

30.1   The following words shall have the following meaning:

… Dwellings means the Duplex and House to be constructed on the Lots as part of the Works.

Duplex means a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot of no less than 241.54m2.

House a four (4) bedroom freestanding residential dwelling of no less than 241.54m2 .

Guarantee means an unconditional bank guarantee in the form acceptable to the purchaser provided by a bank conducting retail business in Australia in the sum of $1,000,000.00 which secures the vendor’s obligations under this Contract for Sale.

Inclusions Schedule means the inclusions and finishes to be made/added to the Dwelling as part of the Works which is or will be set out in Annexure C.

Interest Rate means ten precent (10%) per annum,

Layout Plans means the internal and external layout of the Dwelling (with or without changes as permitted under this Agreement) which is or will be set out in Annexure B.

Lots means the unregistered Lots referred to in the front page of this Agreement…

31.   CONDITIONAL CONTRACT & GUARANTEE

31.1   Completion subject to conditions

The Lots are sold subject to and conditional upon:

(a) the Vendor obtaining consent to the registration of the Plan by Council and other proper authorities; and

(b) the registration of the Plan by the Registrar General.

(c) the completion of Works; and

(d) the issue of an Occupation Certificate,

called the “Conditional Matters”

31.2   Guarantee

In support of the Vendor’s obligations with respect to the Conditional Matters the Vendor will provide the Guarantee on or by the date of this Agreement.

32.   SUNSET DATE & COMPLETION DATE

32.1   Sunset Date

32.1.1   The Vendor will use its reasonable endeavors to ensure that the Conditional Matters are completed within eighteen (18) months of the date of this Agreement (the “Sunset Date”).

32.1.4 In the event the preconditions specified in 31.1 are not met by the Sunset Date or, within such further period as may be agreed by the parties, then either party may at any time thereafter serve written notice to the other party or their solicitor rescinding this Agreement whereupon the provisions of Clause 32.2 of this Agreement shall apply.

32.2 In the event that the Contract is rescinded in accordance with Clause 32.1.4 the Purchaser shall be entitled to call upon the Guarantee forthwith. The Purchaser acknowledges that, other than its entitlement to call upon the Guarantee, the Vendor will not be liable to the Purchaser for any direct, indirect or consequential damages including loss of profits, revenue or data arising out of or in relation to the rescission of this Agreement pursuant to Clause 32.1.4 or any breach of any express of implied term of this Agreement or breach of any express or implied warranty or condition (other than non excludable statutory warranties and conditions under the Competition and Consumer Act (Cth) 2010. The Vendor’s liability to the Purchaser in respect of any loss or damage (including consequential or indirect loss or damage) which may be suffered or incurred or which may arise directly or indirectly in respect of this Agreement shall be, in aggregate, limited to an amount equal to the Guarantee.

32.3 Completion

The Completion Date shall take place on the later of either: -

(a) fourteen (14) days from the date on which the Vendor or the Vendor’s Solicitors give written notice to the Purchaser or Purchaser’s Solicitors that the conditions referred to in Clause 31.1 have been completed;

(b) thirty five (35) days from the making of this Agreement.

33 PURCHASE PRICE

33.1 The parties acknowledge that the consideration for the sale/re-conveyance of the Lot has been provided by the Purchaser as part of the original sale of the Development Site to the Vendor …

35. CONSTRUCTION

35.1 Construction

Before completion the Vendor must procure:

(a) the construction of the Dwelling in a proper and workmanlike manner;

(b) that the lay out of the Dwelling is substantially as that depicted in the Layout Plan;

(c) finishing of the Dwelling will be substantially as specified in the Inclusions Schedule;

(d) installation of the items will be substantially as specified in the Inclusions Schedule; and

(e) the Works have an appropriate policy of Home Warranty Building Insurance (which shall be incorporated in this Agreement upon issue and form Annexure E).

35.2 Alterations

The Vendor can without being required to give any notice to the Pruchaser:

(a) alter any manner of the finish as specified to be finished in the Inclusions Schedule to a manner of finish of at least equivalent quality;

(b) alter any manner of item to be installed as specified in the Inclusions Schedule with an item of at least equivalent quality;

(c) make constructions amendments to the Works, provided:

(i) the amendments are to meet, or as a consequence of meeting, the requirements of Council;

(ii) to substitute materials of at least equivalent quality if those materials are difficult to obtain;

(iii) as required for the proper constructions of the Dwellings; or

(iv) as desired by the Vendor from time to time, acting reasonably.”

  1. Annexure B “Construction Approval” and Annexure D “Layout Plan” to the Reconveyance Contract were left blank.

  2. I received detailed written opening submissions from Counsel for Mrs Paolucci (“POS”) and from Makedyn (“DOS”) and oral submissions from counsel at the close of the case: T257-303. The Plaintiff gave evidence as did her daughter Yvonne and both were cross examined. The Defendant called Mr Vrsaljko and Mr Halmarick in its case and both were cross examined. A joint expert report dated 19 November 2020 was received from the Plaintiff’s expert (Mr Kent Wood) and the Defendant’s expert (Mr Brett Davis) (“the Valuation Joint Report” at CB2 62A). Neither Mr Wood nor Mr Davis were cross examined on the Valuation Joint Report or their earlier reports: i.e. Mr Wood’s Valuation Report of 16 March 2020 and his Supplementary Report of 29 May 2020 and Mr Davis’ Valuation Report of 5 December 2019 and his Supplementary Report of 21 May 2020.

  3. In large measure there were very few factual issues to be resolved, and their significance is limited:

  1. Did Mr Vrsaljko know that Yvonne had a power of attorney from her mother?

  2. Why did Makedyn fail to provide a layout plan for both the House and the Duplex until October 2018?

  3. Did Mrs Paolucci approve of the plan attached to the 5 December 2018 letter for the House which was a two storey dwelling with no bedroom downstairs?

  4. Does Mrs Paolucci really intend to live in the House given that it does not have a bedroom downstairs and she has to have a bedroom downstairs?

  5. Did Makedyn elect not to exercise its rights under cl 32.1.4?

  6. Did Mr Vrsaljko say that the Duplex should be 26 squares (which equates to 241.54m2)?

  1. Mrs Paolucci who is 86 years of age and whose first language is Italian gave her evidence with the assistance of an interpreter. Her memory of past events was limited but there were questions concerning discussions in 2013 and 2014 so that is hardly surprising. Yvonne was, as Mr Harding submitted at T271.46, forthright and I would add that her demeanour in the witness box was consistent with her rather testy conversations with Mr Vrsaljko and her readiness to involve lawyers as a response to communication from Mr Vrsaljko: see Exhibit B and see [10(5)] and [10(10)] above.

  2. Mr Harding contended that Mr Vrsaljko was an unreliable witness whose evidence I should not accept unless it was corroborated or against his interest because he failed to answer questions directly, had a propensity to volunteer self-serving and non-responsive answers, proffered a lack of recollection of a number of matters not favourable to his case and yet said he could recall other matters, including the substance of conversations long ago: see T270.38-45.

  3. Whilst I agree that Mr Vrsaljko was not an impressive witness and he seemed very vague on a number of matters, the area of factual dispute was very limited and I do not think he was shown to be a dishonest witness. Indeed on one of the few factual matters in dispute ([24(6)]) I think his version is corroborated.

  4. In relation to [24(1)] I am not persuaded that Mr Vrsaljko did know Yvonne had a power of attorney from her mother but it is not now disputed that she did and it is not disputed Yvonne did say that she was “ok” with the House plans. Mr Vrsaljko did say in his affidavit that he understood that Yvonne was authorised to speak on behalf of her mother and although he sought to resile from that in cross examination, I think it is clear that he understood that Yvonne was so authorised. He did not at any time seek clarification from Mrs Paolucci or her solicitors as to her wishes in respect of the House independent of what he had been told by Yvonne.

  1. In relation to [24(2)] and [24(4)] Yvonne did indicate approval of the plan for the House and Mrs Paolucci has not sought to challenge her daughter’s authority to communicate acceptance of the plan, indeed the Plaintiff’s submissions are to the effect that Makedyn should have proceeded to build the House in accordance with those plans. Whilst I have difficulty in accepting that Mrs Paolucci (an 86 year old lady with a walking frame) really intends to live in the House when constructed (see T100-101) and that Yvonne to that end intends to do the work of turning the living room on the ground floor into a bedroom which would be accessible to Mrs Paolucci because she would not be able to reach the bedrooms located upstairs (see T130.35 to T133.9), it does not affect the contractual position – the Plaintiff is contractually entitled to a House in accordance with the plans provided by Makedyn and approved by Yvonne and not departed from by the Plaintiff whether she lives in it or not, and to the other two dwellings comprising the Duplex.

  2. In relation to [24(2)] Makedyn has failed to provide any convincing explanation for its failure to provide a layout plan before October 2018 (see T178.37-T179.34 and T182.24-T183.25). For reasons which I will explain, however, I am not persuaded that the delay has had any significant effect on the outcome.

  3. On the issue of election the cross examination of Mr Vrsaljko did not address that issue. I will deal with the issue of election separately below.

  4. I have referred to the fact that these plans sent by Mr Vrsaljko in October 2018 show a double storey building for the House of 152.2m2 and two separate single storey buildings of 151.73m2 for the two residences in lieu of the Duplex. Mr Vrsaljko explained that the dimensions of the House were intended to reflect the fact that his Duplex plans allowed for larger dimensions than what was required by the Reconveyance Contract. The total square metres for all these buildings offered was approximately 455m2 in comparison to the contractual 483.08m2 (on the interpretation of the Duplex clause advanced by Makedyn in these proceedings).

  5. It will be observed that the December plans showed dimensions of 242m2 for the House and dimensions of 151m2 for each of the dwellings making up the Duplex – i.e. a total of 303m2 for what was the Duplex – i.e. more than the 241m2 which Makedyn contends is the total required for both the dwellings but less than the 483.08m2 which Mrs Paolucci asserts are the dimensions required by the Reconveyance Contract. The difference between Mrs Paolucci’s 483.08m2 for the Duplex and Makedyn’s 303m2 for the Duplex is 180m2.

  6. On the issue of [24(6)] I think Mr Vrsaljko’s version is corroborated because it is most likely Mrs Paolucci or her husband who gave Pike’s the reference to 26 squares when Pikes wrote to ensure that the reference by MKL to “26sqm” in the draft contract was corrected to 26 squares: see the 15 April 2014 letter at CB2 351 (“the April 2014 Letter”). That Mr Vrsaljko did refer to 26 squares (which equates to 241.54m2) is said to be relevant to the issue of construction of the definition of Duplex, a matter dealt with later in these reasons.

  7. I have referred to Mrs Paolucci’s abandonment of any case based on Makedyn’s failure to obtain registration before May 2018. There can be no doubt that since December 2018 the parties have been unable to agree on the dimensions of the Duplex. The Plaintiff’s submissions sought to blame Makedyn for having failed to build the House notwithstanding the issue relating to the Duplex and even seemed to assert that Makedyn should have gone ahead and built the Duplex to the specifications it contended were correct notwithstanding the Plaintiff’s claim that the dwellings so constructed would have constituted a breach of the Reconveyance Contract: see T268.25-41.

  8. In my view Makedyn cannot be criticised for not building the Duplex whilst Mrs Paolucci was insisting that the dimensions should be 241.54m2 for each dwelling, i.e. 483.08m2 in total. Whilst it is unfortunate that no declaratory relief was sought by Makedyn that remedy was equally open to Mrs Paolucci and it is noteworthy that when she commenced these proceedings she did not raise the issue of the dimensions of the Duplex but rather mounted a case based on Makedyn’s failure to obtain registration before May 2018. In relation to the failure to build the House the position is less clear but on balance I do not think that Makedyn acted unreasonably in holding off building the House whilst the Duplex issue was not determined. The Reconveyance Contract called for all three lots with dwellings to be delivered and delivery of the House on Lot 201 would have amounted to only partial performance and indeed Mrs Paolucci’s case is that the failure to build both the House and the Duplex constituted breach of the Reconveyance Contract – there was no alternative case pleaded based solely on the failure to build the House. If Makedyn was found to be correct in its contentions about the dimensions it would have been deprived of the opportunity of having construction proceed simultaneously on all three lots, which would appear to be desirable from a practical and economic point of view.

  9. I accept the Plaintiff’s contention that Makedyn breached its obligations to provide layout plans for the House and the Duplex well before October 2018 and at the latest within a few weeks of May 2018 but as I have pointed out the issue of the dimensions of the Duplex was a serious matter which needed to be addressed. The dimensions utilised by Makedyn would have been known earlier than October 2018 but an alternative plan for siting – i.e. separate buildings rather than a duplex – was put forward in October 2018 and accepted and in December 2018 Makedyn sent plans for the House which were accepted and for the two separate dwellings which were not accepted solely because of the Dimensions Issue. It is not clear how earlier receipt of the plans would have reduced the time for resolution of the issue since the Dimensions Issue was not even raised by Mrs Paolucci when the proceedings were commenced in June 2019.

  10. It is apparent that both Mrs Paolucci and Makedyn would prefer to avoid any further dealings with each other. This can be seen not only in the fact that Makedyn seeks to be able to rescind the Reconveyance Contract but also in the fact that all of the open offers made on behalf of the parties during the course of the hearing (see T43.48, T61.5, T71.29, T207.14, T257.34, T258.40-259.6 and T259.20) involved rescission in some form (and see also T154.26-34 and T274.49-275.1). Obviously, none of the offers made by each party to the other were accepted.

  11. Both parties sought through their submissions to attack the bona fides of the other and each accused the other of seeking to maximise their profits. They both accused the other of not being willing to complete the contract: see DOS at paragraph 61 and POS at paragraph 148. The Plaintiff described the Defendant as having “seized” upon the Dimensions Issue as a means to avoid its obligations (see T268.12, and see the POS at paragraph 215) and the Defendant attacked the Plaintiff (or more accurately Yvonne) for being unhelpful and obstructive on the issue of dimensions and asserted that the Plaintiff was in breach of her obligations to ensure a result: see the DOS at paragraphs 36, 41, 44 and 49.

  12. I shall now deal with the issues identified in [17(1)] to [17(7)] above but in a different order.

The Dimensions Issue

  1. The critical matter in dispute between the parties is the meaning to be attributed to “Duplex”. Makedyn contends that it is that issue which has precluded it from completing the construction work on Lots 149 and 150 and in reality Lot 201 as well since the Reconveyance Contract required delivery of all three lots with dwellings constructed and construction of only Lot 201 could not have constituted performance of the Reconveyance Contract.

  2. Duplex is defined in the Reconveyance Contract (cl 30.1) as “a residential dwelling divided into two (2) three (3) bedroom residences on the one lot of no less than 241.54m2”. House is defined as “a four (4) bedroom freestanding residential dwelling of no less than 241.54m2.”

  3. The definition of Duplex is open to three interpretations:

  1. The residential dwelling (i.e. the entire Duplex) must be no less than 241.54m2;

  2. Each of the two three bedroom residences which make up the Duplex must be no less than 241.54m2 (and therefore the Duplex must be no less than 483.08m2 in total);

  3. The lot on which the Duplex must be constructed is to be no less than 241.54m2.

  1. Neither Mrs Paolucci nor Makedyn assert that meaning (3) is correct. Nor does either party assert that the clause is void for uncertainty. There was agreement that the definition is poorly worded and ambiguous.

  2. Mrs Paolucci asserts the second meaning is correct. Mr Harding, in support that interpretation contends:

  1. That the construction is “most consistent with a natural reading of the relevant clauses” and draws attention to the fact that the size is closer in the sentence to the word “residences” than to “residential dwelling”: see paragraphs 177 to 178 of the POS.

  2. That construction is consistent with the lot size in the contract plan annexed to the Reconveyance Contract – i.e. Lot 1391 was to be 251m2 and Lot 1393 (for the Duplex) was to be 502m2.

  3. That this construction is consistent with Makedyn’s subsequent conduct in linking Lot 201 with the House and Lots 149 and 150 with the Duplex.

  1. Makedyn asserts the first meaning is correct. Mr Knackstredt in support of Makedyn’s interpretation contents that:

  1. Regard must be had to the definition of House. It would not make sense that there would be a freestanding house of 241.54m2 on one block and a duplex of 483.08m2 on the other two blocks. The fact that Lot 1393 was larger would mean that the Duplex would be able to have a larger garden area.

  2. If the total size of Lots 149 and 150 is approximately 500m2 (as was originally intended) then 483.08m2 of dwelling is a very high floor space ratio and would not have been permitted under the relevant control plan.

  3. The construction for which the Plaintiff contends lacks clarity because it is not clear what is being measured i.e. internal space or total floor area.

  1. The clause is obviously ambiguous. Insofar as Makedyn asserts that building a dwelling of 483.08m2 on what was approximately 500m2 block is prohibited by the relevant “Control Plan” (a copy of which is found at CB4 2753-3168) there is no clear proof that it would be and more importantly no evidence that Mrs Paolucci was aware of what the Control Plan provided: a necessary requirement if the Control Plan is to assist in construction of an ambiguous clause: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352. Makedyn’s subsequent conduct confirms that Makedyn understood that the Duplex was to be built on Lots 149 and 150, but I do not think that assists in determining what the words mean and, in any event, post contractual conduct is not admissible on the question of construction: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [10] and [306]-[335]. I do not think that there is any commercial or practical aspect of the type referred to in Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640 at 656-7 (per French CJ, Hayne, Crennan, and Kiefel JJ) that supports either of the two competing interpretations. Nor do I accept that the interpretation advanced by Makedyn offers any advantage of clarity over than asserted by Mrs Paolucci. Whilst it is true that the “241.54m2” figure is closer to residence in the sentence it is closer still to “Lot” yet neither side contends that the figure refers to lot size. So far as [45(2)] is concerned, Mr Knackstredt pointed out that the size of the lot is neutral because many houses have decent size gardens.

  2. Given that the parties have ruled out an interpretation that the lot size had to be 241.54m2, I think that the interpretation advanced by Makedyn is to be preferred. My reasons are these:

  1. Since the word residential dwelling singular is used and it is to be divided into two residences I would expect the word “each” to appear if the 241.54m2 was intended to describe the residences not the dwellings. The natural reading of the definition as between [43(1)] and [43(2)] above is of the residential dwelling.

  2. “House” and “Duplex” are both defined in cl 30.1 of the Reconveyance Contract. The definition of “House” is a freestanding dwelling of no less than 241.54m2 and it makes sense to read the dimensions in the definition of Duplex as also relating to the dwelling not the individual residences.

  3. The definition is a definition of “Duplex” not a definition of “the residences” – supporting the approach that it is the Duplex i.e. the whole building which is to be 241.54m2. “Duplex” and “residences” are not interchangeable.

  1. In reaching this view I place no reliance on the April 2014 Letter from Pikes to Makedyn’s former solicitors or an email from Pikes to Makedyn’s former solicitors dated 28 May 2014: Exhibit D. Mr Knackstredt sought to rely on the April 2014 Letter and Mr Harding opposed its reception upon the basis that pre-contractual correspondence was not admissible, relying on my decision in KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773 (and see Classic Bet (NSW) Pty Ltd & anor v KRM (Vic) Pty Ltd & anor; Kay v KRM (Vic) Pty Ltd [2020] NSWCA 6). I determined that I should admit the letter subject to objection and rule on its admissibility in these reasons. Against the possibility that it would be admitted Mr Harding tendered the email of 28 May 2014 which became Exhibit D. I should note that Exhibit D appears to be a response to the letter at CB2 368-369 and the email from Mr Adams (Makedyn’s then lawyer) of 29 May 2014 at CB2 373 and the Reconveyance Contract does not incorporate the Plaintiff’s proposed change of “each”.

  2. The April 2014 Letter contains an assertion by Mrs Paolucci’s solicitor that supports the construction which is advanced by Makedyn and I think that the email if admitted supports Makedyn’s interpretation as well given that the inclusion of the word “each” proposed by Pikes was not accepted and incorporated into the contract as signed. I note that the decision of the Court of Appeal in Cherry v Steele-Park [2017] NSWCA 295 might well support the receipt of the April 2014 Letter (and the email) on the approach taken by Leeming JA at [87]-[94] with whom Gleeson JA agreed (White JA did not agree on this point: see [146]-[159]). Whilst I am inclined to think the letters would probably fall within material permitted by the majority’s approach in Cherry, and Exhibit D may be admissible on a further basis of refusal to incorporate a term (see Codelfa (supra) at 352), given that I have reached a conclusion on the interpretation without recourse to two documents I need express no firm view on their admissibility.

  3. It follows that the plans for Lot 149 and 150 having an area each of 151.73m2 (i.e. a total of 303.46m2) comply with the requirements of the Reconveyance Contract.

The meaning of Clauses 32.1 and 32.2

  1. Clause 32.2 is found under the heading “Sunset Date & Completion Date” (CB2 984). Mr Harding contended that cl 32.2 was only dealing with rescission, but I do not accept that contention. Whilst it does seem at its commencement to be dealing only with the consequence of rescission, the words “or any breach of any express [or] implied term of this Agreement” onwards are not in any way limited. Indeed the words “in respect of any loss or damage” and “which may arise directly or indirectly in respect of this Agreement” cannot be constrained by an event of rescission based on the failure of the vendor to meet the conditions in cl 31.1. Mr Harding also asserted that the clause does not apply to a wilful or deliberate breach of the Reconveyance Contract by Makedyn and that Makedyn’s conduct did entail wilful and deliberate breach of the contract. Even assuming that contention is correct as a matter of interpretation of the clause, that Makedyn had deliberately and wilfully breached the contract was not pleaded as a response to the Amended Defence to the FASTOCL (and indeed the Plaintiff had objected to the Amended Defence on the basis that she would wish to mount such an argument: see T64.43 and T69.34-43). Given that Mrs Paolucci has accepted that the delays up to May 2018 are not attributable to any absence of reasonable endeavours by Makedyn, the only breaches with which the Court is concerned are those occurring since May 2018 and the only breach established was the failure to provide layout plans before October 2018 – which was rectified by October or at the latest by December 2018, a delay which has not been shown to have caused the failure to complete the construction. Mrs Paolucci has not established that Makedyn has deliberately and wilfully breached the Reconveyance Contract.

  2. Whilst on the subject of cl 32, it will be observed that cl 32.1 seeks to make the Reconveyance Contract conditional not only by in effect requiring there to be approval of the Council by the Sunset Date but also requiring matters within the control of Makedyn to be completed by that date. It is understandable that a developer would want to be sure that the plan of subdivision was approved before being locked in to complete construction and reconveyance but a clause which makes conditional matters within the control of the developer is surprising. The only antidote to that in this contract is the fact that the right of rescission was given to both Makedyn and Mrs Paolucci and if the right of rescission is exercised Mrs Paolucci is entitled to call upon the guarantee.

Reasonable Endeavours

  1. Mrs Paolucci perceived that Makedyn was contending that it was not required to achieve conditions 31.1(c) and (d) once the Sunset Date had passed. To the extent that the argument advanced was that once the Sunset Date had passed Makedyn was not required to establish that it had used reasonable endeavours after that date to rely on cl 32.1.4. Makedyn referred to authority to the effect that a general clause, i.e. cl 29.4, will not derogate from a specific clause, i.e. 32.1.4: see Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455 at 465-466 per Higgins J and Findex Group Ltd v Mckay [2020] FCAFC 182 per Markovic, Banks-Smith and Anderson JJ at [156]. I agree that cl 32.1.4 stands on its own in relation to rescission, but this would not relieve Makedyn from using reasonable endeavours to achieve the Conditional Matters whilst ever the Reconveyance Contract was still on foot after the Sunset Date.

Is Makedyn entitled to rescind the Reconveyance Contract?

  1. Makedyn contends that it has the contractual right to rescind because the words “at any time thereafter” mean just what they say and as and from 24 May 2017 the Sunset Date having been reached it was entitled to rescind if it had not achieved all of the four “conditional matters” by that date: see cl 32.1.4.

  2. Makedyn accepts that even if it has the contractual right to rescind it must apply to the Court for approval of such rescission pursuant to s 66ZS. It is clear too that it can only apply to rescind under s 66ZS if it has a right of rescission under the Reconveyance Contract (and which it has not lost): see DGF Property Holdings Pty Limited v Di Federico; DGF Property Holdings Pty Limited v Butros [2018] NSWSC 344 per Emmett AJA at [200] and see Silver Star Fashions Pty Ltd v Dal Broi [2018] NSWSC 1445 at [15]-[16] per Darke J.

  3. Mrs Paolucci advances three reasons why Makedyn does not have a contractual right of rescission:

  1. In order to be able to exercise the right Makedyn must have used its reasonable endeavours to ensure that the Conditional Matters were met by the Sunset Date and Makedyn has not done so.

  1. Makedyn must use its reasonable endeavours to fulfil the Conditional Matters after the Sunset Date and it has not done so.

  2. The parties must be taken to have agreed to extend the Sunset Date as they were able to do so by cl 32.1.4.

  1. In relation to [57(1)] I have already referred to the fact that in final submissions Mrs Paolucci has eschewed any assertion that Makedyn failed to use reasonable endeavours up until May 2018 and the absence of any layout plans for the dwellings had no impact on the progress of approval of the registration of the subdivision or lots.

  2. In relation to [57(2)] I think that there are good reasons to think that Makedyn must use reasonable endeavours to complete the Conditional Matters whilst ever the Reconveyance Contract is on foot (see cl 29.4), but I am not persuaded that failure to do so is a reason why it cannot rely on a failure to have met requirements by the Sunset Date if it had made reasonable endeavours up to that date. Nor has it been established that it failed to use reasonable endeavours to achieve completion of the works or obtain an occupation certificate beyond its failure to supply plans for the House and Duplex prior to October 2018.

  3. On the question of whether the parties have agreed to extend the Sunset Date (i.e. [57(3)]) the Plaintiff drew attention to a number of matters supporting her contention that the Sunset Date had by agreement of the parties been extended. The Plaintiff relies on:

  1. the correspondence of 13 April and 26 May 2017: see CB3 1650 and 1755;

  2. the fact that Makedyn confirmed that it intended to convey the lots with three dwellings: see CB3 1930, 1988, 2000 and 2189-2211;

  3. the October and December 2018 letters; and

  4. the email of 21 February 2019 by which MKL advised they had submitted valuations to Revenue NSW for assessment: CB4 2310.

The Plaintiff claimed that the parties were operating upon a mutual understanding that the Reconveyance Contract was to be completed with Makedyn to construct the three dwellings and reconvey Lots 149, 150 and 201 to Mrs Paolucci.

  1. It seems clear that Makedyn was intending to complete the Reconveyance Contract but that does not mean that it had agreed to extend the Sunset Date, particularly since there was no express agreement and there is nothing to indicate to what date the parties were agreeing to extend the Sunset Clause. The Plaintiff’s contention that there was an extension until 16 October 2019 (see POS at paragraph 196) is not established.

  2. Some of the matters referred to in relation to the alleged agreement to extend the Sunset Date could also be relevant to election, but cl 32.2 does contain the phrase “at any time thereafter” which raises the question of whether as a matter of strict contractual principles there can be any election by reason of conduct consistent with the contract remaining on foot until some later time. Mr Knackstredt did refer to points which he submitted told against election (see T289-290), but neither in the POS nor in oral closing submissions on Mrs Paolucci’s behalf was the question of election addressed and election was not pleaded as an answer to Makedyn’s reliance on cl 32.1.4. Estoppel was pleaded but it was not taken up as an issue: see the POS at paragraphs 133 to 141.

  3. Issues of election are often not simple: see DGF (supra) at [249]-[250], and I would prefer not to express a firm view on this point and will presume in favour of Makedyn that it did not deprive itself of the right to rely on cl 32.1.4 as a matter of strict approach to the Reconveyance Contract.

  4. I proceed therefore on the basis that pursuant to the terms of the Reconveyance Contract Makedyn was entitled contractually to rescind at any time including as late as October 2019 and that an election depriving it of that right has not been established, however, I do regard its failure to rely on the clause at any time before October 2019 as a significant matter in relation to whether rescission should be permitted under s 66ZS.

Should Makedyn be permitted to rescind the Reconveyance Contract pursuant to s 66ZS?

  1. Section 66ZS(7)(a)-(h) lists the matters which the Court is to take into account. It needs to be borne in mind that the “Sunset Date” is defined more widely in s 66ZS (which introduces a definition of “Sunset Event”) than it was in s 66ZL, although much of what was said by Emmett AJA in DGF and by Darke J in Silver Star concerning s 66ZL would apply equally to s 66ZS. Section 66ZS(g) is of a very wide ambit. No regulations were relied on by Makedyn: see s 66ZS(h). I shall deal first with (a)-(f).

  2. I have set out the relevant terms of the Reconveyance Contract. That contract has to be viewed in the context of the Deed of Agreement which specified the consideration being paid to Mrs Paolucci. Mrs Paolucci has already received $2.5M.

  3. It is not established that Makedyn has acted in bad faith or that it has acted unreasonably. I have already dealt with why the contractual Sunset Date was not met. I have referred to Makedyn’s failure to provide the layout plans in a timely fashion but that breach was cured by December 2018.

  4. Mr Davis’ opinion is that Lots 149, 150 and 201 were each worth $225K in 2015 and are now worth $320K undeveloped. Mr Woods’ opinion is that the lots were worth $290K in 2015 and now worth $320K undeveloped: see the Valuation Joint Report at CB2 62C.

  5. I have earlier raised the question of whether cl 32.1.4 has the contractual effect for which Makedyn contends. As I have mentioned if it does not have that effect then s 66ZS is not available to Makedyn. If, however, as a matter of contractual interpretation Makedyn could rely on cl 32.1.4 to rescind:

  1. 2.5 years after the Sunset Date;

  2. after registration has been achieved;

  3. when all that remains to be done is for Makedyn to carry out its work and obtain an occupation certificate.

then this is a matter of significance in determining whether for the purposes of s 66ZS it would be just and equitable that Makedyn be allowed to take advantage of such a clause.

  1. As I have earlier noted to include in a Sunset Clause, as conditional matters, conditions which only the developer can perform, i.e. construction of the dwellings, is unduly advantageous to the developer.

  2. If the Reconveyance Contract is rescinded, Mrs Paolucci will not receive the three lots and will not receive her three dwellings. She will, however, be entitled to call on the $1M guarantee: see cl 32.2. That is very close to the value of the lots (i.e. $960K) which means that she would receive only $40K towards construction of the three dwellings.

  3. Turning now to other matters which I think need to be taken into account:

  1. Mrs Paolucci has had to wait a very considerable time to obtain completion of the Reconveyance Contract. She has not rescinded or sought to rescind the Reconveyance Contract at any time.

  2. Lots 149, 150 and 201 have been created: see Silver Star at [169]. This is also linked to point (4) below.

  3. Makedyn has had the benefit of the balance of the land and has been able to sell all other lots other than the lot or lots reconveyed to Mr Byrne.

  4. The remaining matters for completion are almost entirely within the hands of Makedyn. I say “almost” because of course there has been a dispute as to the dimensions of the Duplex but with this judgment that will be quelled and there is no reason why Makedyn cannot proceed to build the dwellings which it has contracted to build and transfer the three lots to the Plaintiff with those dwellings constructed and with occupation certificates. Mr Vrsaljko said it would take 12 to 16 weeks to obtain Council approval for the Duplex and that it would take six months to construct the House: see T246-248. Approval for the House which could be constructed as a complying development would take less time. The easement issue was resolved in November 2019. There is no evidence that Makedyn is unable or unwilling to ensure that the dwellings are constructed (contrary to Mrs Paolucci’s contention) and there is unchallenged evidence that in fact it is able and willing not only because Mr Vrsaljko says so (see T248.35-251.40) but because Mr Byrnes’ house has been erected and because no impediment to construction has been asserted or identified.

  5. Whilst I am conscious that both Makedyn and Mrs Paolucci would very much prefer to end their contractual relationship, they were not able to reach agreement on are terms for termination and Mrs Paolucci seeks primarily specific performance of the agreement and in the alternative partial performance and damages.

  6. It is true that Makedyn has chosen not to construct the House pending determination of the Dimensions Issue for the Duplex, and I have expressed my views on that, but I do not think it is a factor to support rescission by Makedyn.

  7. I do not think that the dispute in relation to the dimensions should be seen as a reason to support rescission. The definition is ambiguous and has led to a conflict which must be, and is now, resolved.

  8. The unimproved lots have, as of today, an agreed value of $320K each. Lots 201 with the two storey House has a current value of $680K and each of the two single storey dwellings have a current value of $560K on the smaller dimensions and $665K on the larger dimensions: see the Valuation Joint Report at CB2 62C.

  9. It is true that the Reconveyance Contract does give Mrs Paolucci the right to call on the guarantee if rescission is allowed and $1M would, if received in addition to the $2.5M she has already received, give her the $3.5M referred to in the Deed of Agreement. What it will not give her is three lots each with a dwelling upon it.

  10. Whilst it is true that derivation of a profit by a developer is not intended to be penalised by s 66ZL (and s 66ZS) (see DGF at [267]), to grant rescission here would relieve the developer of a promise to construct the three dwellings when it is on its own evidence able to do so.

  1. In my view it would not be just and equitable to permit Makedyn to rescind. The main factors which lead me to that conclusion are:

  1. Rescission would prevent Mrs Paolucci from recovery of what she has been promised by the Reconveyance Contract, namely three lots with three dwellings – she would receive only $1M which is close to the value of the unimproved lots leaving almost nothing for construction costs.

  2. With determination of the Dimensions Issue there is no reason preventing Makedyn from completing the Reconveyance Contract.

  3. Makedyn has since the Sunset Date in May 2017 continued with the Reconveyance Contract, obtained registration of the lots by May 2018 and clearly indicated its intention to complete.

  4. The Sunset Clause included as Conditional Matters conditions that are within the control of Makedyn rather than, say, the Council.

  1. I would, however, have regarded as just and equitable rescission of the contract on the following terms:

  1. Conveyance of the three lots to Mrs Paolucci with no dwellings upon them.

  2. Mrs Paolucci being able to call on the guarantee for $1M (or an equivalent cash payment if that was preferable to Makedyn).

Mrs Paolucci offered on the final day of the three day hearing to resolve the matter on this basis at T258.41-T259.6 (with no order as to costs), but this offer was not accepted by Makedyn (see T259.20).

Specific Performance

  1. I note that:

  1. The plans for the House are said by Mrs Paolucci to have been approved. There has been no suggestion that there is any problem with the style, layout or design contained in the plans for the House forwarded with the letter of 5 December 2018.

  2. The only issue in relation to the plans for the two dwellings making up “the Duplex” by which the parties by agreement accept is to be two free standing single storey dwellings of equal size one on Lot 149 and one on Lot 150 is that of the dimensions. No issue of style, layout, design or other matter has been identified.

  3. I have concluded that the plans for Lots 149 and 150 on 5 December 2018 comply with the requirements of the Reconveyance Contract.

  4. The Reconveyance Contract by incorporation has a specification for inclusions: see CB3 1087 and see the Inclusion Schedule (Annexure C) at CB3 1099-1100 where the requirements are set out.

  5. The Deed of Agreement by cl 2.2 provided that the parties were, prior to Makedyn becoming the registered proprietor of the property in Gregory Hills, to “negotiate in good faith and agree” on various matters such as location of the lots, design and style of the dwellings, inclusions and layout plans and it provided that:

“In the event that the parties do not reach agreement on any of the above matters, the Developer shall be entitled to determine any of the matters not agreed at their absolute discretion.”

  1. Makedyn has possession of the lots on which construction is to take place (because it is the owner of those lots).

  2. Mrs Paolucci has an interest in seeing the dwellings constructed because her damages will be limited to $1M by reason of cl 32.2.

  3. Makedyn came to own the lots because Mrs Paolucci conveyed the larger parcel of land (of which the lots form but a part) to Makedyn.

  1. Makedyn does not say it cannot carry out the Reconveyance Contract – Mr Vrsaljko’s evidence is that once the Dimensions Issue is determined it can. Makedyn does say that it would prefer not to have to carry out the Reconveyance Contract, but no impediment to completion other than the Dimension Issue and the question of whether Yvonne’s approval was sufficient have been ventilated.

  2. It is Mrs Paolucci who contends, notwithstanding the fact that her primary relief is for specific performance, that it would be expedient for the Court to order partial performance, i.e. reconveyance of the lots and damages in lieu of the absence of construction: see T261. As Mr Knackstredt pointed out, the Court is not permitted to in effect rewrite the Reconveyance Contract that the parties entered into: see Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [37].

  3. Mrs Paolucci contends that it is open to the Court to order conveyance of the three lots and in addition to give her damages for the failure to build the three dwellings. Reference was made to George Russell Northcote, Fry on the Specific Performance of Contracts (Stevens and Sons, Ltd., London, 6th ed, 1921) at paragraph 850. I set out paragraph 850 of Fry which states the principles and summarises the case of Soames v Edge (1860) John 669:

“850. But whatever difficulties may have previously existed on this point, seem to have been removed by Lord Cairns’ Act (21 & 22 Vict. C. 27), and it may, it is conceived, be laid down, that wherever the thing which the Court cannot enforce is a condition inserted for the plaintiff’s benefit in respect of which the defendant is in default, and where the Court would, before the passing of the Act, have had jurisdiction to enforce the contract on the plaintiff’s waiver of the condition for his benefit, there the Court can now grant specific performance of the contract so far as it is enforceable specifically, and direct the defendant to pay damages (whether substantial or nominal) for his non-performance of the condition which the Court cannot specifically enforce. Thus, in Soames v Edge, the plaintiff had agreed to grant a lease to the defendant so soon as he should have built a new house on the land: and the defendant agreed to accept the lease when required and to build the new house: the plaintiff filed his bill praying specific performance of the contract to build and take the lease, also for damages, either in addition to or substitution for such relief: on demurrer the defendant urged that the Court could not execute the contract to build, that the lease was dependent on the house being built, that the plaintiff had not waived the condition, and consequently that Lord Cairns’ Act did not apply: this argument was repelled by Lord Hatherley (then a Vice-chancellor), who overruled the demurrer and held, that on the plaintiff’s waiver of the condition he should have had jurisdiction before the Act, and that therefore since the Act he could give relief as to part by way of specific performance, and as to the rest by way of damages.”

(Footnotes omitted).

  1. Reference was also made to other authorities in which the principle in Soames has been accepted: J. D. Heydon, Heydon on Contract (Thomson Reuters, 2019) at [29.80], Starline Drive-In Theatre Ltd v Federal Commissioner of Taxation (1964) 112 CLR 458, and Wright v Carter (1923) 23 SR (SNW) 555 at 568.

  2. The principle in Soames requires the plaintiff to waive a condition for his or her benefit, and here the condition is the construction of the three dwellings. It will be noted, however, that in Soames the defendant “urged that the Court could not execute the contract to build.” Makedyn does not assert that the Court cannot execute the Reconveyance Contract; rather it says that it can complete the Reconveyance Contract: see T248.35-251.40 and CB4 2291.

  3. It has been said that “the overriding principle governing the granting of a decree of specific performance is that an award of damages at common law would not provide sufficient compensation”: see J. L. R. Davis (ed), Contract: General Principles: The Laws of Australia (Thomson Lawbook Co, 2006) at [7.9.1420] citing Wilson v Northampton & Banbury Junction Railway Company (1874) LR 9 Ch App 279 per Lord Selborne LC at 284 and McIntosh v Dalwood [No 4] (1930) 30 SR (NSW) 415; (1930) 47 WN (NSW) 128 per Street CJ at 417. In Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018) Professor Carter at [39-02] notes that:

“Generally, specific performance is not ordered until a breach of contract has occurred. Since there is a remedy in damages it is only if that remedy is inadequate to protect the plaintiff that specific performance will be ordered.”

  1. A building contract is often given as an example of a contract in respect of which a Court will not grant a decree of specific performance but that is too broad a statement: see the discussion in Heydon on Contract at [27.600]-[27.650] and see York House Pty Ltd v Federal Commissioner of Taxation (1930) 43 CLR 427 at 437 per Knox CJ and Starke J and 439 per Isaacs J.

  2. In Wolverhampton Corporation v Emmons [1901] 1 KB 515 Romer LJ at 524-525 referred to an exception in regard to the general principle that the Court would not order specific performance of a building contract:

“It has…for some time been held that, in order to bring himself within [the] exception, a plaintiff must establish three things. The first is that the building work, of which he seeks to enforce the performance, is defined by the contract; that is to say, that the particulars of the work are so far definitely ascertained that the court can sufficiently see what it the exact nature of the work of which it is asked to order the performance. The second is that the plaintiff has substantial interest in having the contract performed, which is of such a nature that he cannot adequately be compensated for breach of the contract by damages. The third is that the defendant has by the contract obtained possession of the land on which the work is contracted to be done.”

  1. Whilst it would appear here that the three conditions are met, I will not express any final view on the matter because this issue was not addressed in the submissions of either party and, as I have said, I do not think that Makedyn has been shown to be in breach of the Reconveyance Contract by not having to date built the three dwellings.

  2. There being no current breach by Makedyn I decline therefore to make an order for specific performance or an order for partial performance. Nor is any order for damages appropriate.

Conclusion

  1. The consequence, therefore, is that the Plaintiff’s claim and the Defendant’s cross claim should both be dismissed.

  2. I will hear the parties on the issue of costs.

Amendments

10 March 2021 - Typographical error [10]

Decision last updated: 10 March 2021

Actions
Download as PDF Download as Word Document
Cases Citing This Decision

2

Paolucci v Makedyn Pty Ltd [2021] NSWCA 215
Ahmau Developments Pty Ltd v Preet [2025] NSWSC 604
Cases Cited

16

Statutory Material Cited

4

Cherry v Steele-Park [2017] NSWCA 295
Classic Bet (NSW) Pty Ltd v KRM (Vic) Pty Ltd; Kay v KRM (Vic) Pty Ltd [2020] NSWCA 6
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24