Clarke v Mariotis
[2009] VSC 279
•15 July 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5792 of 2009
| CHRISTINE ANNE CLARKE | Plaintiff |
| v | |
| JIM MARIOTIS | Defendant |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 April 2009 | |
DATE OF JUDGMENT: | 15 July 2009 | |
CASE MAY BE CITED AS: | Clarke v Mariotis | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 279 | |
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PROPERTY LAW – Vendor and purchaser summons – Special condition in contract of sale gave purchaser right to rescind if building report shows major structural defect – Report revealed drainage problems and corrosion in columns commenced – Whether contract validly rescinded – Property Law Act 1958, s 49(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P P Bravender-Coyle | Mingos Kay Lawyers |
| For the Defendant | Mr W F Rimmer | John Bennison |
HIS HONOUR:
The plaintiff in this application under s 49(1) of the Property Law Act 1958 was the purchaser from the defendant, under a contract of sale dated 22 December 2008, of 3A Braeside Avenue, Camberwell being the land more particularly described in certificate of title volume 10985 folio 272 for a price of $715,000 payable as to $71,500 by way of deposit on 23 December 2008 and the balance on 27 February 2009. A residential dwelling was located on the land. The contract included the following special condition:
“18This sale is subject to the purchaser obtaining a building report within 3 days of the purchaser signing this contract. If the report shows a major structural defect the purchaser may end this contract but only if the purchaser serves written notice on the vendor together with a copy of the report within 7 days of the purchaser signing this contract. All monies must be immediately refunded to the purchaser if the contract is ended.”
The plaintiff duly paid the deposit and retained solicitors to act for her on the purchase.
The plaintiff also retained Engel Homes Pty Ltd to provide a pre-purchase residential inspection report. A director, Werner Engel, carried out an inspection of the property on 22 December. On the following day Engel Homes Pty Ltd gave the plaintiff a written residential inspection report prepared by Mr Engel. The report runs to 24 pages and includes certain passages to which reference must be made. Commencing on page 2 the following is stated -
“INSPECTION SUMMARY
3A Braeside Avenue, Camberwell Vic 3124
This townhouse/site requires remedial work to prevent water from the front, or building in front, from seeping under the rear building. This is a major concern as long term serious damage could occur to 3A. The remaining items listed in this report are fairly typical for the type and age of building, and which should form part of an ongoing maintenance and rectification program. Refer to pages 15, 16, and 17 for detailed notes, which should be carefully read in conjunction with the ratings on each page of the checklists, as well as other information enclosed, and if you require further information, please feel free to contact me.”
Then followed a series of “checklists” running over 12 pages against some of which a reference number was written. The checklists were followed by a series of notes each of which had one of the reference numbers. It is necessary to refer to two of the reference items, numbers 1 and 12. Reference item 1 appeared alongside an item in the first of the checklists headed “Site Details”, and reference item 12 appeared alongside an item in the third checklist headed “Residence Exterior – Subfloor”. I set out each in turn.
First, under Site Details the following are the first two items:
Rating
Reference
SITE DETAILS
Level/slope Fall/Front →RearC/A
1
Drainage: Front/Side N S E W
Rear/Side N S E W
A/A
In the above the words “Fall/Front →Rear” were written in hand, the strokes through the letters N,S,W and N,S,E respectively were made in hand, and the rating (C/A and A/A) and reference number were written in hand. Earlier in the report it was stated that the letter “A” indicated “No Visible Problem” while the letter “C” indicated “Serious Problem”.
Secondly, under “Subfloor” the following item (among others) appeared:
Rating
Reference
Dampness
C
12
The letter “C” and the reference number 12 were written in hand.
Reference notes 1 and 12 stated as follows:
“1With the front of the site falling towards this townhouse, it would be advisable to further investigate the site/building drainage to establish the reason for water seeping under this building. Water seeping under will cause seasonal movement and cracking, rusting in the steel columns supporting the rear first floor structure, and cause general deterioration in the base brickwork. Dry conditions under the building will also minimise the attraction of termites.
12Very damp/wet conditions under the building is a major concern as this dampness is already starting to cause rust in the base of the steel posts supporting the first floor structure, and will cause deterioration and spalling in the base brickwork in time. The reason for this dampness requires further investigation, particularly of the front townhouse, by a licensed plumber.”
On 24 December 2008 the plaintiff gave the report to her solicitor who, on the same day, advised the defendant’s solicitor of the report and that the plaintiff elected to end the contract, and forwarded a copy by facsimile to the defendant’s solicitor. In a covering letter the plaintiff’s solicitor stated that:
“Further to today’s telephone conversation we confirm that our client is hereby exercising her rights to end the Contract herein dated 22/12/08 on the basis of an unsatisfactory building inspection report [noted as herewith]. Those rights of withdrawal are exercised pursuant to Special Condition 18 of the Contract.
Please ensure that the deposit monies of $71,500 which have been paid to the Agent are refunded to our client immediately, given the holiday period is upon us.”
On 5 January 2009 the plaintiff’s solicitor wrote to the defendant’s agent, Jellis Craig, with a copy to the defendant’s solicitor, requesting the immediate return of the deposit.
On 7 January 2009 the plaintiff’s solicitor wrote to the defendant’s solicitor enclosing a Notice of Default by way of service; he also sent a copy of the Notice to the defendant and his agent. The Notice alleged that the defendant was in default by failing to refund the deposit and gave the defendant notice that unless the deposit together with penalty interest and costs of $550 plus GST was not paid within 14 days the plaintiff shall without in any way limiting any of her other rights or remedies against the defendant proceed to exercise her rights under Table A.
The defendant’s solicitor responded with an email on 7 January 2009 in which he acknowledged receipt of the Notice of Default and stated:
“The Vendor denies being in default. The deposit is not refundable as the Purchaser has no right to avoid the contract.
Your Notice seems to purport to state the deposit is refundable because the Purchaser alleges receiving an ‘unsatisfactory’ building report.
The contract gives the Purchaser no such right.
There has been no allegation of a ‘major structural defect’ in the building and one is not evidenced by the building report provided.
The Vendor accepts that the report notes several minor issues and accepts that the purchaser may have become unnecessarily alarmed.
The Vendor will not therefore at this time treat the Purchaser’s actions as a repudiation of the contract, but reserves his rights to do so.
As I am instructed the selling agent has informed your client that the water leak from the adjoining property was identified and rectified by the builder of the property as soon as the issue was raised.
A water leak from an adjoining property which had made the sub-floor area of the subject property damp does not constitute a major structural defect.”
On 27 February 2009 the defendant’s solicitor sent a letter by facsimile to the plaintiff’s solicitor in which he stated that settlement was due that day, that he had not received a transfer of land for signing so he had prepared a transfer which the defendant had signed and a copy of which he enclosed, and he proposed settling at 3.00 pm that afternoon. He stated that the defendant rejected the plaintiff’s claim to be entitled to avoid the contract and remained ready, able and willing to settle.
Settlement did not take place on 27 February. Rather, the plaintiff’s solicitor wrote advising that proceedings would be issued and served on 2 March 2009.
As it transpired, the originating motion by which the plaintiff commenced this proceeding was filed on 6 April 2009. The relief sought is:
(a)A declaration that pursuant to Special Condition 18 the plaintiff has validly ended the contract of sale.
(b)A declaration that the plaintiff is entitled to a refund of the deposit of $71,500.
(c)An order that the defendant pay the plaintiff the deposit of $71,500 plus interest and costs incurred in relation to the contract of sale.
(d)An order that the defendant pay the plaintiff’s costs of the proceeding.
The evidence was contained in affidavits sworn by the plaintiff, her solicitor and Engel and filed on the plaintiff’s behalf. There was no cross-examination and no affidavit was filed on behalf of the defendant.
In his affidavit Engel, after referring to his report and quoting two passages, namely the first sentence in the passage quoted at [3] above, and the whole of Note 1 set out at [7] above, said that “Unless rectification works are carried out on this problem, the property shall be left with major structural defects”.
Counsel for the respondent objected to this evidence on the basis that Special Condition 18 required that the alleged defect appear on the face of the report. That is, the question for determination turned on the construction of the report, and on that issue evidence to supplement the report was not admissible. On the other hand, counsel for the plaintiff submitted that the evidence was admissible, on the basis that it was an expert opinion as to whether the matters identified in the report showed a major structural defect. That, he submitted, was a matter appropriate for expert evidence. I refer to this issue below.
Submissions
Plaintiff
At the outset counsel for the plaintiff identified the questions arising as being whether:
(a)any of the defects referred to in Engel’s report was “a major structural defect”;
(b)as the defendant contends, Special Condition 18 required the report to use the words “a major structural defect” in relation to a particular matter.
His submissions on these matters, to which I refer below, were to be understood in the light of the evident purpose of Special Condition 18 which was to save the plaintiff from having to complete the purchase if the building report showed a major structural defect in the building on the property. For, without the benefit of Special Condition 18, a defect in quality in the building would, at least in the ordinary case, not entitle the purchaser to withdraw from the contract; see, for instance, Long v Worona Pty Ltd[1]. The purpose of Special Condition 18 being thus understood, it was not to be read and applied in any narrow way, but, consistently with its terms, in a manner to effectuate its purpose.
[1](1973) 1 BPR 9109.
As to (a), counsel drew a distinction between the word “shows” in Special Condition 18 and the word “states”. Special Condition 18 required only that the report “show” a major structural defect; it did not require that the report expressly describe a defect as being a major structural defect. In developing his submission counsel referred to the range of meanings of the verb “show” in The Shorter Oxford Dictionary, viz.: “To make known by statement or argument. 1 To point out, reveal, make known; to make evident or clear, explain, expound”. The Macquarie Dictionary similarly defined the word “show”.
Counsel also referred to the consideration by the House of Lords in Jones v Director of Public Prosecutions[2] of the meaning of the word “show” in the expression “tending to show” in s 1(f) of the Criminal Evidence Act 1898 (U.K.). Viscount Simonds (at 659) said of the word “show” that
[2][1962] AC 635.
“primarily it may mean a visual demonstration, but in relation to the giving of oral evidence it can only mean ‘make known’. The issue, then, is whether the challenged questions made known anything to the jury which they did not know before.”
At 663 Lord Reid said that:
“In my judgment, ‘tends to show’ means tends to suggest to the jury.”
And further, at 664:
“If the obvious purpose of this proviso is to protect the accused from possible prejudice, as I think it is, then ‘show’ must mean ‘reveal’, because it is only a revelation of something new which could cause such prejudice.”
Counsel submitted that the word “shows” was used in Special Condition 18 in the sense of “make known”, “suggest” or “reveal” as distinct from meaning that the defect must in express terms be described as “a major structural defect”. Thus understood, he submitted that the report did show a major structural defect.
As to (b), counsel submitted that:
(a) whether the report must actually use the words “a major structural defect” turns on the proper construction of Special Condition 18,
(b) properly construed Special Condition 18 did not so require, and
(c) it was sufficient if the report, properly understood, “showed” a defect of that nature.
In developing these submissions, counsel referred to cases which, although decided in different contexts, dealt with questions involving the character of defects in buildings; see Brachmanis v Columbus Property Developments Pty Ltd[3] (whether defects were a “Major Defect” as defined in a contract of sale, one such meaning being “a fault or defect in the property which: (a) is structural”) and Fair Trading Administration Corporation v Owners Corporation[4] (whether defects in building “major structural defects” within the meaning of building insurance policy).
[3][2001] NSWSC 163.
[4][2002] NSWSC 624.
Counsel then identified three issues to be addressed. They were as follows.
The first was whether a reasonable person having read the report would be able to conclude that it asserted, revealed or showed that there was “a major structural defect”. As to this, the report identified items as being a “Serious Problem”, and then stated the matters quoted at [3] and [7] above. A reasonable person would conclude that the report was asserting, revealing or showing:
(a) an identified defect,
(b) the identified defect was a structural defect, and
(c) the defect was major and not minor.
It is to be noted that for this purpose counsel’s submission was that on its proper construction Special Condition 18 included not merely a present defect but one that will arise in the future as a result of the presently identified circumstances. This would not mean a condition that would manifest itself in some prolonged period into the future, say 20 years on, but would include something likely to occur in a more immediate timeframe. In this respect, counsel relied on Engel’s impugned opinion that the property “shall be left with major structural defects”.
The second was whether the parties intended that the report must “state” that there is “a major structural defect”. It was submitted that Special Condition 18 did not so provide and no evidence had been adduced to establish that the parties so intended. The question was to be determined objectively on a consideration of the terms of Special Condition 18 understood in the context of the contract of sale.
The third was whether a term was to be implied in Special Condition 18 to the effect that the report must “state” that there is a major structural defect. Counsel submitted that no such implication could be made. The contract of sale, and Special Condition 18 in particular, embodied the parties’ agreement, and there was no evident lacuna, ambiguity or other insufficiency which could warrant the implication of the suggested term. Indeed, the word “states” is inconsistent with the word “shows”.
I should add that in the course of counsels’ submissions, I referred to the following definitions of words in the Concise Oxford Dictionary. “Defect” meant “a shortcoming, imperfection, or lack”. “Major”, as an adjective, meant, relevantly, “important, serious, or significant → greater or more important; main”. “Structural” meant “of, relating to, or forming part of a structure”. Both counsel accepted these defined meanings as appropriate to apply in the construction of Special Condition 18.
Defendant
At the outset, counsel for the defendant conceded that the plaintiff had validly rescinded the contract of sale if the report “shows a major structural defect”. Hence, the only issue was whether the report showed a major structural defect. That issue was to be determined on a consideration of Special Condition 18, properly construed, and the report but without evidence explanatory of the meaning and consequence of the matters stated therein. Hence, the defendant’s objection to Engel’s evidence referred to at [17] above.
Counsel submitted that the report, read on its face, did not show a “current major defect in the structure of the property”. Rather, it showed only that there was a problem with the condition of the site sloping towards the rear of the building which:
(a) is causing dampness or wetness to the building,
(b) is of serious concern,
(c) requires further investigation to determine the cause, and
(d) may cause future serious structural problems.
In developing his submissions, counsel accepted that the word “shows” was not to be equated in meaning to the word “states”. He accepted that the word “shows” is to be understood as the plaintiff’s counsel had contended. And, as mentioned, he accepted the dictionary definitions of “defect”, “major” and “structural” that I referred to in the course of argument, as appropriate in the construction of Special Condition 18. But, the critical question was what the report showed as a present structural defect. As to that, counsel submitted that the report addressed what could occur in the future rather than a present condition. This was seen in the expression “could occur” in the Inspection Summary quoted at [3] above, and the expression “will cause” in reference notes 1 and 12 quoted at [7] above. If they were present conditions, they would constitute major structural defects, but they were not present, they were in futuro.
Taking the point further, the report did not say that the present rusting was a major issue, indeed at this stage it may be a minor structural issue and readily treatable.
Decision
As indicated, there was no difference between counsel as to the meaning of the expression “major structural defect”. They accepted that it referred to a shortcoming, imperfection or lack of something that pertained to the structure and was important, serious or significant.
Without the defendant’s concession I would have construed the word “shows” as the plaintiff contended. That is, that it was not used in a sense equivalent to “states” thus requiring the use of the express words “a major structural defect” in relation to a stated condition or conditions. Not only does the word “shows” not bear that meaning, but its use in Special Condition 18 makes it clear that the word is to be understood in the dictionary definition of pointing out, revealing, making known. Thus understood, whether the report does show a major structural defect is to be ascertained upon a reading of the whole of the report in the context of the contract of sale. As to that, it is possible that in some situations a report such as Engel’s may require opinion evidence to render it understandable, but in the present case I regard the report as readily comprehensible without reference to the impugned evidence. In my view, the impugned evidence states that which is obvious on reading the report, that the seepage of water produces very damp and wet conditions under the building which if unchecked will have the consequences referred to in the report. Those consequences plainly are of or relate to the structure, that is the building erected on the site.
It is clear that the consequence of rusting – which has already commenced - in structural elements will cause deterioration and spalling in the base brickwork as the causative conditions continue to operate. The other consequences will also occur. Indeed, it may well be that the processes that will lead to their ultimate manifestation have commenced.
It may be, and I did not understand it to be disputed, that the cause of the water seepage and dampness, and even the present rusting, could be treated and removed, but there was no evidence as to that and I cannot speculate as to it. All I have is Special Condition 18 and Engel’s report.
The defendant’s submission involved the proposition that whatever condition the report showed, that condition was not “a major structural defect”. That was because the circumstances obtaining at the site were not shown by the report to then be “a major structural defect”, although that would at some time be the case if the water seepage/dampness problem remained. In other words, the report was to be so read and understood notwithstanding that the process of rusting had already commenced and which process, if unchecked, would cause “long term serious damage” which would constitute “a major structural defect”.
In my view, it is not an answer to the plaintiff’s case that steps may be taken to eradicate the water seepage/dampness problem. That is not the issue. Moreover, as I have said, I have no evidence on that matter beyond what is stated in the report which leaves some uncertainty. The issue is whether the report shows a major structural defect, and as to that I am satisfied that it does.
It is important to read the report as a whole. Doing so, the following is apparent. The seepage of water from the front building is causing very damp/wet conditions under the subject building. The damp/wet conditions will produce the effects referred to in the report. Those effects plainly are of or relate to the structure of the building and on any view would constitute a major structural defect within the meaning of Special Condition 18. As mentioned, the effect of rusting is now manifest. But, it is said, the other effects of seasonal movement and cracking, general deterioration and spalling in the base brickwork are not yet manifest. Does this mean, as the defendant contends, that there was not a present structural defect and, therefore, the report did not “show a major structural defect”? I think not. The difficulty confronting the defendant’s submission is that it separates the cause from the consequence and treats the cause as irrelevant unless the consequence has manifested itself. The cause is the presence of the very wet/damp conditions resulting from the unchecked seepage of water. The consequence is the predicted results that flow, as processes in nature, from the very damp/wet conditions under the subject building. Plainly the seepage of water on land and the diversion of water away from a building such as the subject domestic dwelling, is a matter of everyday good building practice, carried out in order to avoid consequences of the type referred to in the report. Consequences of that type are significant in terms of the structure of the building and may lead to the owner suffering substantial loss and damage. But Special Condition 18 is not concerned with the occurrence or extent of loss and damage. The suffering of loss and damage is not to the point. The point is whether the building report “shows a major structural defect”. I consider that “defect” in this sense is not confined to something that is or lies in a physical element of the subject building. The expression “major structural defect” is to be understood in the sense of encompassing an important, serious or significant but not minor shortcoming that is in or relates to the structure of the building. The building structure is, of course, founded in the ground and it is thus that immediately and directly the ground conditions relate to the building and may affect it adversely if by reason of the omission or failure of a drainage system, water seeps or flows under the building as in this case. In my view the seepage of water under the subject building producing the very wet/damp conditions and involving the consequences identified in the report is itself such as to constitute a major structural defect. For what it does is create circumstances, and set in train processes that will produce consequences significantly deleterious to the building itself. It is thus that the water seepage problem is an issue that requires immediate attention, as the report states.
In my view the report “shows a major structural defect” in and by reason of the seepage of water under the subject building, the result of a failure or omission of proper drainage, and the consequences resulted therefrom to the structure of the subject building.
For these reasons, the plaintiff validly rescinded the contract of sale and, in addition to a declaration to that effect, there will be an order for the repayment of the deposit with interest. I will hear counsel on the question of costs.
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