Christine Monzu as Trustee for Monzu Family Trust v Central City Ltd - [2007] WASC 60

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CHRISTINE MONZU as Trustee for MONZU FAMILY TRUST & ANOR -v- CENTRAL CITY LTD & ANOR [2007] WASC 60

CORAM: BLAXELL J

HEARD: 18 DECEMBER 2006

DELIVERED : 16 MARCH 2007

FILE NO/S: CIV 2299 of 2006

BETWEEN: CHRISTINE MONZU as Trustee for MONZU FAMILY TRUST
TERESA MERLO as Trustee for MERLO FAMILY TRUST
Plaintiffs
AND
CENTRAL CITY LTD (ACN 076 750 055)
First Defendant
REGISTRAR OF TITLES
Second Defendant

Catchwords:

Caveats - Application to extend operation of caveat - Purchase of "off the plan" strata title unit - Substantial reduction in size of unit during course of construction - Whether or not reduction in size caused by factors beyond vendor's control - Whether contract frustrated - Whether purchaser can claim specific performance subject to abatement of purchase price

Legislation:

Transfer of Land Act 1893 (WA), s 138C

Result:

Order extending operation of caveat

Category: B

Representation:

Counsel:

Plaintiffs:     Mr T M Hobday
First Defendant              :     Mr D K Barker
Second Defendant         :     No appearance

Solicitors:

Plaintiffs:     Lewis Blyth & Hooper
First Defendant              :     Chalmers Legal Studio
Second Defendant         :     No appearance

Case(s) referred to in judgment(s):

Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143
City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
King v Poggioli (1923) 32 CLR 222

BLAXELL J: This is an application under s 138C of the Transfer of Land Act 1893 (WA) ("the Act") to extend the operation of a caveat lodged by the plaintiffs against the title to a strata title unit ("Lot 50") of which the first defendant ("Central City") is the registered proprietor. Lot 50 comprises ground floor retail premises in a 17 storey development constructed by Central City in Barrack Street, Perth, known as "Barrack Plaza".
On 16 June 2003 the parties entered into a written agreement for the sale of Lot 50 by Central City to the plaintiffs "off the plan". At that time the parties anticipated that Lot 50 would have an area of 78 square metres.
During the course of construction, Lot 50 was reduced in size to 57 square metres as a result of the enlargement of an adjoining transformer room. There are issues between the parties as to whether or not the need for an enlarged transformer room came about as a result of Central City altering the electrical requirements for the whole development. There are also issues as to whether or not an enlargement of the transformer room could have been achieved without reducing the size of Lot 50.
These issues are complicated by the fact that at all material times the plaintiffs were directors and shareholders of the company which carried out the electrical work in the development and also advised Central City as to the requirements for additional transformer capacity.
Central City contends that it did not precipitate the need for additional transformer capacity, that this change in requirements was due to the actions of Western Power, and that there was no way of accommodating that change other than by reducing the size of Lot 50. Accordingly, it claims that the contract of sale has been frustrated, and that there is no serious question to be tried as to the existence of an ongoing agreement.
The plaintiffs on the other hand claim that they are entitled to specific performance of the contract with an appropriate abatement in the purchase price to reflect the reduction in the size of Lot 50.
In these circumstances the question to be determined is whether or not the plaintiffs' claim has, or may have, substance. This in turn depends upon whether or not there is a serious issue to be tried as to the claimed caveatable interest, and whether or not the balance of convenience favours an extension of the caveat (Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50).

The factual background

On 8 September 2006 the plaintiffs lodged caveat No J9078883C against the land known as:
"Lot 50 on Strata Plan 45238 and being the whole of the land in Certificate of Title Volume 2630 Folio 875."
The caveat claimed an estate or interest in fee simple as purchaser by virtue of a contract of sale made on 18 June 2003 between Central City as vendor and the plaintiffs as purchaser.
The contract of sale provided for a purchase price of $365,000 payable by way of a deposit of $5000 and the balance upon settlement. Settlement was to take place 14 days after the issue of a duplicate certificate of title by the Department of Land Administration.
At the date of the contract of sale the strata title unit sold was still to be constructed. Accordingly, the contract included numerous conditions governing the construction of the total development which included the following:
"3.5.1It may be necessary for us to make some variation to the Detailed Plans and the General Specifications after you enter into this Agreement if:-
3.5.1.1a relevant authority imposes conditions on us which requires us to do so; or
3.5.1.2it becomes necessary by reason of the requirements or the practical methods of construction either by (without limitation) the dictates of good building practice or the availability of materials; or
3.5.1.3we consider it will enhance Barrack Plaza, or the Apartment; or
3.5.1.4some matter arises which we could not have reasonably foreseen.
3.5.2If we make such variation then we will ensure that no variation will materially alter or affect the use and enjoyment of the Apartment by you.
3.5.3So long as we construct Barrack Plaza substantially in accordance with the Detailed Plans and the General Specifications with such variations permitted by this Condition 3.5 then we shall have fulfilled our obligations to you.
3.5.4No variations to the Detailed Plans, the General Specifications or of Barrack Plaza will invalidate this Agreement or give you any claim for a reduction of the purchase price or claim for compensation or the right to delay settlement.
3.5.5You shall not be entitled to make any objection requisition or claim for reduction of the purchase price, by reason of any change to the Strata Plan ultimately registered by us pursuant to a variation permitted by this Condition 3.5.
3.5.6We shall not be obliged to enter into any supplementary agreement with you if we vary the Detailed Plans or the General Specifications in any way whatsoever.
3.5.7In the event of any variation to the Detailed Plans, the General Specifications or Barrack Plaza being made in accordance with this Agreement, the Apartment as described in the Offer and Acceptance shall be subject to such variation.
...
7.2.1No objection shall be taken requisition made or compensation claimed by reason that:
...
7.2.1.6the alteration in the size of the Apartment from that shown on the proposed Strata Plan so long as it does not differ in the area by 5% more or 5% less than the area shown on the Strata Plan."
At all material times the plaintiffs in their personal capacities were directors and shareholders in a family company conducting business as MME Electrical Consultants ("MME") which had been engaged by Central City to provide consultation in respect of all electrical requirements for the proposed development of "Barrack Plaza". MME was also the subcontractor engaged by the builder of Barrack Plaza to install electrical components within the building.
In October 2002 MME provided Central City with a calculation of "electrical maximum demand" which included single phase power supply to 141 apartments. This resulted in a "recommended maximum demand figure of 1243 amps per phase" which on the basis of Western Power's then requirements necessitated only a single transformer. (Western Power had in fact provided MME with a plan dated 12 July 2002 setting out the dimensions of the room that was required to accommodate this single transformer.)
The transformer necessarily had to be accommodated on the ground floor of the development, and at the date of the contract of sale the plans depicted it as being immediately adjacent to and partially projecting into Lot 50. On the opposite side of the transformer room was a fire pump room alongside the driveway into the car park of the development.
It is the plaintiff's evidence that in November 2003 Central City advised MME that the building design had been altered, in that "it was now proposed that 79 apartments within the proposed building were now to have three phase power supply air conditioner units rather than single phase power supply air conditioner units". This had the effect of increasing the power requirements for the total development, which when recalculated, necessitated a second electrical transformer.
MME was involved in recalculating the electrical requirements of the total development and also liaised with Western Power in respect of the specifications for the additional transformer. As a result, MME itself prepared a plan which showed an expansion of the transformer room into Lot 50 so as to reduce the latter's size from 75 square metres to 57 square metres.
It is also apparent from the materials before me that when Western Power advised its requirements in respect of the additional power load, it was no longer of the view that the originally calculated load of 1243 amps per phase could have been met by a single transformer. On 31 August 2004 when setting out its requirements for the additional transformer it stated that:
" ... If the maximum demand was to be reduced below 1200A, then supply could be guaranteed from a 'single transformer'."
On 8 October 2004 the plaintiffs wrote to Central city pointing out that Lot 50 had been reduced in size from 75 square metres to 57 square metres "due to the transformer compound modification". This letter went on to state:
"There has not been any written notifications of the alterations nor have we agreed with the alterations that have been drafted on the current architectural drawings. There has been discussion with your office with respect to the alterations and the possibility in re‑locating the fire control room elsewhere to minimize the [loss] of sq [meterage] as detailed on the architectural drgs.
I have had no response nor resolution on what you are proposing to do as a compromise or compensation of the loss of area on what was contractually accepted on the purchase contract.
We need to discuss the above urgently prior to further progress on the construction of the tenancy."
Central City did not respond to this letter, and the plaintiffs took no further step by way of clarifying how settlement would be affected by the reduced size of Lot 50.
By letter dated 1 June 2006 Central City advised the plaintiffs that Barrack Plaza was nearing practical completion and that settlement could shortly take place. The plaintiffs' solicitors responded to the effect that they were entitled to a reduction in purchase price by reason of the area of Lot 50 being less than that set out in the proposed strata plan.
Central City nevertheless required that the plaintiffs complete the sale by payment of the full purchase price. When this did not occur Central City served a notice of default dated 24 August 2006 stating that the contract would be terminated and the deposit forfeited if the same did not proceed..
On 30 August 2006 the plaintiffs themselves served a notice requiring Central City to remedy the following default:
"1.your failure to create a strata lot that is consistent with the property described in the Contract;
2.effecting a variation from the property described in the Contract which materially alters and affects its use and enjoyment, in breach of clause 3.5.2 of the Contract, or alternatively;
3.your failure to agree to pay pro rata compensation at settlement in the sum of $92,467."
By letter dated 14 September 2006 Central City's solicitors purported to return the deposit and advised the plaintiffs that:
" ... our client was required by the dictates of good building practice to erect a transformer for the supply of electricity to the whole of Barrack Plaza within the confines of Lot 50, in order to complete the entire project ... As a result of this variation the area of Lot 50 was materially altered. In light of this fact the contract is automatically brought to an end."

Whether there is a serious issue to be tried

The only substantial issue of fact between the parties would seem to be the question whether the expansion of the transformer room could have been accommodated by some means other than a reduction in size of Lot 50. As to this, I understand the plaintiffs to say that room for the additional transformer could have been achieved by way of a reduction in the number of parking bays in the development.
However, it is obvious from the configuration of the surrounding area in the original plans of the development (as at the date of the contract of sale) that a solution as proposed by the plaintiffs would also have involved a relocation of the fire pump room. The materials before me do not really address the issue whether or not such a solution would have been feasible.
In any event, the evidence clearly shows that the expanded transformer room was constructed in accordance with an amended plan as recommended by MME. If any alternative solution had been viable, MME would surely have recommended this in light of its commonality of interest with the plaintiffs in respect of Lot 50. Accordingly, it seems to me that there is no serious issue to be tried as to the question whether or not increased transformer capacity could have been achieved without reduction in size of Lot 50.
The real question is the effect that the reduction in size has had upon the contract between the parties. The contract itself provided that a variation might become necessary for any of the reasons set out in sub‑condition 3.5.1 including that Central City "consider it will enhance Barrack Plaza". However, in such event, Central City was to ensure that:
" ... No variation will materially alter or affect the use and enjoyment of the apartment by you."
In the present instance, there can be little doubt that the reduction in size (in the order of 27 per cent) did materially alter and affect the use and enjoyment of Lot 50, and also resulted in its construction not being "substantially in accordance with the detailed plans ... " as per sub‑condition 3.5.3.
The provision in sub‑condition 3.5.4 that no variation was to result in any reduction in purchase price must obviously be construed reasonably, and cannot apply where the strata title unit as built is substantially less than that contracted for. This construction is consistent with sub‑condition 3.5.5 which expressly provides that there is no entitlement to a reduction in purchase price in respect of "a variation permitted by this condition 3.5".
Sub‑condition 3.5.6 provided that Central City was not obliged to enter into any "supplementary agreement" in the event of any variation. Nevertheless, this provision cannot prevent the operation of any principle of law or equity triggered by the circumstance that the size of the strata unit as constructed was substantially less than that contracted for.
Similarly, the provision in sub‑condition 7.2.1 to the effect that there could be no claim for compensation in the event of an alteration in the size of the apartment by more than 5 per cent has no bearing where the alteration in size is by 27 per cent. This provision in fact supports a construction that a variation in excess of 5 per cent could be the subject of such a claim.
It is against the background of these contractual provisions that the critical question of frustration must be considered. In Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, after noting (at 727) that "Frustration is not to be lightly invoked as the dissolvent of a contract.", Lord Radcliffe went on to state:
" ... frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
... special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for." (At 729.)
Similarly, Lord Reid (at 723 in Davis Contractors) described frustration as "the termination of the contract by operation of law on the emergence of a fundamentally different situation". Accordingly, the question whether or not a contract has been frustrated involves:
" ... a comparison between the contemplated situation, as revealed by the terms of the contract on its true construction, and the situation in fact resulting from the frustrating event. If they be "fundamentally different" the contract is frustrated subject, of course, to the frustrating event not being the fault of the party seeking to rely upon the doctrine." (Stephen J in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143, 160.)
This same approach to the issue of frustration was taken by a majority of the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981‑1982) 149 CLR 337 at 345, 360 and 378.
In the present instance the supervening event of a reduction in size of Lot 50 by 27 per cent certainly made performance of the contract substantially different, but it is perhaps a moot point whether it was "fundamentally different". In this regard, the reduction in size would not be sufficient to prevent Lot 50 being used for its intended commercial purpose (viz. as retail premises). Furthermore, the action of Central City in serving a notice of default and seeking to enforce the contract, although not resulting in any estoppel (there being no reliance or detriment in respect of the same), might be regarded as "a revealing testament" in support of the plaintiffs' case (City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140 [72]).
There is also the question whether the allegedly frustrating event was the "fault" of Central City in the sense that it was their upgrading of air‑conditioning requirements from single phase to three phase that brought about the need for the second transformer. This question also involves a consideration of the apparent change in Western Power's policy as to the maximum power outage allowed from a single transformer.
In the end, it is my view that the combination of these various issues means that the plaintiffs have an arguable case that the contract was not frustrated as a result of the reduction in size of Lot 50.
If the contract has not been frustrated, then the present situation is that it is still on foot because Central City took no further step by way of terminating the agreement following its notice of default dated 24 August 2006. For this reason alone, the plaintiffs can claim to have a caveatable interest in the property, and it is perhaps unnecessary to consider whether or not upon completion of the sale they would be entitled to an abatement of purchase price. Nevertheless, I will deal briefly with this latter issue.
It is significant that the plaintiffs at all material times have been ready, willing and able to settle the purchase subject to an appropriate abatement in purchase price to reflect the reduction in size of Lot 50. Given the nature of the detriment that has occurred to Lot 50 since the date of the contract of sale, the plaintiffs are arguably entitled to take this stance. As was stated by Starke J in King v Poggioli (1922‑1923) 32 CLR 222 at 248:
"An abatement in purchase‑money is intelligible if the property is diminished or deteriorated in value by reason of a breach of contract; but it is not intelligible, to my mind, if the abatement claim is made, not in respect of a diminution or deterioration in value of the property, but in respect of loss or damage, however sustained, arising from the breach of contract. In the latter case the party is left his remedy by counterclaim or cross‑action."

Alternatively, if the plaintiffs are not entitled to an abatement of purchase price, they may arguably claim specific performance combined with damages pursuant to s 25(10) of the Supreme Court Act 1935 which provides:
"In all cases in which the Court entertains an application for an injunction against a breach of any covenant contract or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant contract or agreement, the Court may, if it thinks fit, award damages to the party injured, either in addition to or in substitution for such injunction or specific performance, and such damages may be assessed in such manner as the Court directs: ... "
For all of the above reasons I am satisfied that the plaintiffs' claim may have substance. Central City has not raised any issue as to the balance of convenience, and it follows that there should be an order extending the operation of the caveat.