Kannane v Demian Developments Pty Ltd

[2005] NSWSC 1193

CITATION:	Kannane & Ors v Demian Developments P/L [2005] NSWSC 1193 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	27/10/05
JUDGMENT DATE :	25 November 2005
JUDGMENT OF:	Brereton J
DECISION:	See para 68

CATCHWORDS:	CONVEYANCING – Vendor and purchaser – sale of units in unregistered plan – where area of units stated in registered plan differs from area stated in contract plan due to inclusion in latter of wallspace – whether there was a variation or amendment of the strata plan on registration which substantially and detrimentally affected the property to an extent other than minor such as to give rise to a right of rescission under special condition - whether any right of rescission had lapsed – whether special condition implicitly excluded standard condition 28 – whether difference in statement of areas was an alteration to the plan – if so, whether it was other than minor – rule in Flight v Booth – whether there was a misdescription or error in the contract – whether it so affected the subject matter that it might reasonably be supposed that the purchaser might not have contracted at all - whether there was evidence of reliance – damages not awarded as damages do not exceed the deposits for which the vendor must give credit – circumstances do not point to it being unjust or inequitable to permit vendor to retain forfeited deposits.
LEGISLATION CITED:	Conveyancing Act, 1919 s 55(2)A
CASES CITED:	Abraham v Mallon (1975) 1 BPR 9157 Batey v Gifford (1997) 42 NSWLR 710 Edelan Pty Ltd v Forster Pastoral Pty Ltd (1985) 5 BPR 11 Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15 Fawcett v Holmes (1889) 42 Ch D 150 Flight v Booth (1834) 1 BingNC 370; 131 ER 1160 Hamilton v Munro, (1951) 51 SR (NSW) 250 Havyn Pty Ltd v Webster [2005] NSWCA 182 Howe v Smith (1884) 27 Ch D 89 Little v Piccin (1983) NSWConvR 55-152 Lucas & Tate (Investments) Pty Ltd v Victoria Securities Limited [1973] 2 NSWLR 268 Mallett v Jones [1959] VR 122 Ockenden v Henly (1858) EB&E 485, 492; 120 ER 590 Omar v El-Wakil [2002] 2 P&CR 36 Perrin v Reynolds (1996) 12 VLR 440 Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114 Shuttleworth v Clews [1910] 1 Ch 176 Sivakriskul v Vynotas Pty Ltd (VSC, 10 October 1996) Symes v Proprietors of Strata Plan No 31731 [2001] NSWSC 527 Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117
PARTIES:	John C Kannane (first plaintiff) Kerry Fahey (second plaintiff) Sue Ferguson (third plaintiff) Demian Developments Pty Limited ACN 082 158 003 (defendant)
FILE NUMBER(S):	SC 6158/04
COUNSEL:	MW Young (Plaintiffs) MK Condon (Defendant)
SOLICITORS:	James Dimitrious Solicitors & Attorneys (Plaintiffs) David Legal (Defendant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

25 November 2005

6158/04 John Charles Kannane & ors v Demian Developments Pty Limited

JUDGMENT

1 HIS HONOUR: The first plaintiff John Charles Kannane is the purchaser from the defendant Demian Developments Pty Limited as vendor under contract dated 26 April 2002 of Unit 812 in a multi-unit development at 16-20 Meredith Street, Bankstown. Mr Kannane is also the purchaser from Demian under contract dated 3 April 2002 of Unit 505 in the same development. The second plaintiff Kerry Ann Fahey is the purchaser from Demian under contract dated 29 April 2002 of Unit 601, and the third plaintiff Sue Ferguson is the purchaser from Demian under contract dated 21 March 2002 of Unit 706, in the same development. By summons filed on 17 November 2004, the purchasers claim declarations that they have validly rescinded their respective contracts, and alternatively return of the deposits to them under Conveyancing Act, s 55(2A). By cross-claim filed on 22 June 2005, the vendor claims declarations that it has validly terminated the contracts and forfeited the deposits, and damages for breach of contract.

2 The issues are, first, whether, as the purchasers contend, they were entitled to rescind the contracts by reason of the area of the units as described in the plan as registered being materially less than as appeared in the plan incorporated in the contract. If so, there is no question but that they have validly exercised any such right of rescission. If not, the purchasers accept that on their purported rescission, the vendor was entitled to terminate, and in that event there are issues, secondly, as to the quantum of damages, if any, to which is the vendor entitled for breach of contract, and thirdly, whether the purchasers should nonetheless have relief against forfeiture of the deposit under s 55(2A).

The contracts

3 With one exception, each of the contracts, which are generally in the form of the 2000 standard edition, is in identical form, save for the particulars relating to the individual unit the subject of each. In each contract, the particulars describe the property as “the land, the improvements, all fixtures and the inclusions, but not the exclusions”. The land is described as:

Unit X/16-20 Meredith Street, Bankstown

Unregistered plan: Lot X in an unregistered plan (copy attached) (clause 28)

4 No inclusions are denoted.

5 The selling price of Unit 812 was $335,500, and a 5% deposit of $16,775 was paid and is invested in a term deposit. The selling price of Unit 505 was $315,000, with a 5% deposit of $15,750 paid and invested in a term deposit.

6 The selling price of Unit 601 was $320,000, and a 5% deposit in the sum of $16,000 was paid and is invested in a term deposit. The exception referred to above to the otherwise identical form of the contracts is that in the contract relating to Unit 601, a special condition provided that where the purchaser had paid less than 10% deposit on exchange, then in the event of default the vendor may demand and the purchaser must forthwith upon such demand pay to the vendor the balance of the 10% deposit, in addition to any other obligations to compensate the vendor for loss or damages as a result of the default.

7 The selling price of Unit 706 was $332,500, and a deposit bond issued by Dexta Corporation in the sum of $33,250 was provided.

8 In each contract, standard condition 10, entitled “Restrictions on Rights of Purchaser” provides that the purchaser cannot make a claim or requisition or rescind or terminate in respect of:-

10.1.3 A wall being or not being a party wall in any sense of that term or the property being affected by an easement for support or not having the benefit of an easement for support.

9 Standard condition 20.3 provides that an area, bearing or dimension in the contract is only approximate.

10 Standard condition 28 provides as follows:-

28 Unregistered Plans
28.1 This clause applies only if some of the land is described as a lot in an unregistered plan.
28.2 The vendor must do everything reasonable to have the plan registered within six months after the contract date, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation.
28.3 If the plan is not registered within that time and in that manner -
28.3.1 The purchaser can rescind; and
28.3.2 The vendor can rescind, but only if the vendor has complied with clause 28.2.
28.4 Either party can serve notice of the registration of the plan and every relevant lot and plan number.
28.5 The completion date becomes the later of the completion date and 21 days after service of the notice.
28.6 Clauses 28.2 and 28.3 apply to a plan that is to be registered before the plan is registered.

11 Additional condition 2 is as follows:-

2. Registration of Strata Plan
2.1 Completion of this contract is subject to and conditional on registration by the Registrar General of the Strata Plan.
2.2 The vendor must use all reasonable endeavours to procure the registration by the Registrar General of the Strata Plan which will be based on the attached plan.
2.3 The purchaser acknowledges that:-
2.3.1 The plan is provisional and subject to final approval by the vendor and any authority;
2.3.2 The vendor reserves the right in its reasonable discretion and without reference to the purchaser to vary or amend the Strata Plan and plan.
2.3.3 The vendor must not make any variations or amendments to the Strata Plan/plan which substantially and detrimentally directly affect the property to an extent which is other than minor unless the variation or amendment is required or made by an authority or the Registrar General.
2.3.4 If on registration of the Strata Plan/plan there are any variations or amendments which substantially and detrimentally affect the property to an extent which is other than minor, the purchaser may rescind this contract by written notice to vendor whereupon the provisions of clause 19 shall apply. In this additional condition 2.3.4 a “minor” variation or amendment includes a variation of the area of the property or the common property by not more than 5%.
2.3.5 The right of rescission under additional condition 2.3.4 must, to be effective, be exercised by the purchaser within fourteen days after the purchaser receives written notice from the vendor that the Strata Plan has been registered.
2.3.6 If the purchaser does not exercise the right of rescission under condition 2.3.4 within the time required under additional condition 2.3.5, the right of rescission conferred on the purchaser under additional condition 2.3.4 shall lapse and this contract shall remain binding in all respects.
2.4 If the Strata Plan is not registered within 24 months of the date of making this contract (hereafter called “the sunset date”) either party may rescind this contract in which event the provisions of clause 19 shall apply.
2.5 Notwithstanding any other provision in this contract, the purchaser acknowledges that prior to completion of this contract, the vendor may be required by the Registrar General or an authority to create easements and/or covenants or other restrictions on use affecting the land and/or the common property. The purchaser will not be any requisition, make any claim for compensation, rescind or terminate this contract in relation to such matters.
2.6 Completion of this contract is conditional upon due completion of the construction of the home unit building complex to the standard of finishes in a development of that kind but the purchaser shall not be entitled to delay completion for minor repairs (if any) which are required to be done but will accept the vendor undertaking on settlement to have the repairs (if any) rectified within a period of 21 days.

12 Each contract annexed a copy of the unregistered draft strata plan (“the Contract Plan”). The Contract Plan stated the total area of Unit 812 (including balcony and car park) to be 144.4 sqm; Unit 505 to be 128.5 sqm; Unit 601 to be 144.4 sqm; and Unit 706 to be 141 sqm. An annotation to the Contract Plan annexed to each contract recorded:

Dimensions are taken to the outer face perpendicular to or prolongation of the external walls at ground floor level.
Areas are approximate only and include courtyard, balconies, porches, garages and car spaces.
Unit entitlement is based on area alone.

Registration, rescission, repudiation and termination

13 By letter from the vendor’s solicitors to the purchasers’ solicitors dated 23 September 2004, the vendor gave notice that the plan had been registered, and provided a copy of the plan. The lot numbers changed in the registered plan, and a schedule setting out which lot in the registered plan corresponded to the original unit numbers was forwarded by the vendor’s solicitors to the purchasers’ solicitors on 28 September 2004.

14 The registered plan stated a total area for each of the relevant lots, which when compared with the areas stated in the contract plan revealed discrepancies as set out in the following table:

Unit No	Area stated in Contract Plan (m2)	Lot No	Area stated in Registered Plan (m2)	Difference (m2)	Difference (%)
812	144.4	84	131	13.4	9.28
505	128.5	41	120	8.5	6.22
601	144.4	49	131	13.4	9.28
706	141	66	128	13.0	9.22

15 On 8 October 2004, 15 days after the purchasers received written notice that the strata plan had been registered, their solicitors sent to the vendor’s solicitors letters which purported to rescind the contract under additional condition 2.3.4, on account of the discrepancy in area.

16 The vendor’s solicitors responded on the same day, denying the right to rescind and enclosing a certificate and tabulation by Stratasurv which apparently showed that there was no discrepancy of significance. By further letters dated 14 October 2004, the vendor’s solicitors asserted that there had been no variation or amendment of the plan, and sought an urgent response as to whether the purchasers persisted with their purported rescission, foreshadowing that, if so, it would be treated as a wrongful repudiation and the vendor would terminate.

17 The purchasers’ solicitors replied, by letters dated 20 October 2004, maintaining their rescission and calling for return of the deposits.

18 On 22 October 2004, by letters from its solicitors to the purchasers’ solicitors, the vendor served notices asserting that the purported notices of rescission were wrongful repudiations of each relevant contract, and purporting to accept those repudiations and to terminate the contracts, reserving all rights under the contracts resulting from the purchasers’ breach, and forfeiting the deposits.

19 After the purported terminations, Unit 601 was resold by the vendor on 9 March 2005 for $320,000. That sale was completed on 29 April 2005. On 16 March 2005, Unit 812 was resold by the vendor, for $335,000.

Were the purchasers entitled to rescind?

20 The purchasers contend that they were entitled to rescind pursuant to additional condition 2.3.4, or alternatively pursuant to standard condition 28, or alternatively at common law pursuant to the rule in Flight v Booth.

21 Mr Swan, the surveyor who prepared the registered plan, has explained that his calculations (and those in the registered plan) measure each unit as constructed taking the far perimeter to be the internal faces of the walls. Thus the areas measured by him and included in the registered plan do not include the areas occupied by external or dividing walls. He also analysed how the areas in the contract plan had been calculated, and concluded that they had been calculated by measuring the area which had as its far perimeter the centre line of each dividing wall and the external face of any external wall. He found that there were no variations to the footprint of the individual units between the contract plan and the registered plan which could not be explained by normal construction tolerances, and that (comparing like with like so far as methods of measurements were concerned) in none of the units did the area differ by more than 5%. These conclusions were not challenged, and I accept them. In other words, the areas stated in the Contract Plan included wallspace, being the whole of the floor space occupied by external walls and that occupied by the closer half of each internal dividing wall; whereas the areas stated in the Registered Plan did not. The difference between the statements of area in the Contract Plan and those in the registered plan was that wallspace.

22 In considering whether the plaintiffs were entitled to rescind on any of the bases that they advance, it is important to understand the role of the references to “area” in the Contract Plan. In turn, this directs attention to the subject matter of the sale, and its description in the contract.

23 The subject matter of the sale was the proposed strata lot described in the contract plan, more or less and with such variations and amendments which the vendor might make, provided that if the variations and amendments were substantial and detrimental there was a right of rescission, but the permitted variations not giving rise to a right of rescission included a variation of area by not more than 5%.

24 The subject matter of the sale was a proposed strata lot. A strata lot comprises one or more cubic spaces, the base of each being designated as one lot or part of one lot on the floor plan forming part of the strata plan, and being cubic space the base of whose vertical boundaries is as delineated on the sheet of the floor plan and which has horizontal boundaries as ascertained under Strata Schemes (Freehold Development) Act 1973, s 5(2). By virtue of s 5(2), if the base of any wall corresponds substantially with a line on a floor plan, the boundary of the relevant cubic space is the “inner surface” of that wall. Generally speaking, walls which coincide with the boundaries of a strata lot are common property, and the lot boundaries are their inner (from the perspective of the relevant lot) surfaces are [Symes v Proprietors of Strata Plan No 31731 [2001] NSWSC 527, [25]-[26]]. It follows that the wallspace which accounts for the difference in the statements of area between the contract plan and the registered plan would not in any event form part of the strata lot.

Additional condition 2

25 Additional condition 2.3.2 authorised the vendor in its reasonable discretion and without reference to the purchaser to vary or amend the strata plan, although additional condition 2.3.3 restricted the vendor’s discretion to variations or amendments which did not substantially and detrimentally directly affect the property to an extent which is other than minor (unless required or made by the Council or the Registrar General).

26 The right of rescission under clause 2.3.4 arises only if on registration of the plan there are any variations or amendments which substantially and detrimentally affect the property to an extent which is other than minor. In each case, the only relevant amendment was that the stated area was changed. However, the actual area was not changed. The unit boundaries according to the plan were not moved or adjusted at all. The only difference was that area stated was calculated by excluding rather than including wallspace. To my mind, this discrepancy in the stated area was not a variation or amendment of the plan which substantially and detrimentally affected any of the relevant units. The contract plan stated the area including wallspace, and the registered plan stated the area excluding wallspace. That is not an amendment or variation of the plan. The basis on which area was measured in the contract plan (as including external walls) was disclosed in the annotation to that plan. In my opinion the plan was unamended, and the units remained quite unchanged. Accordingly, in my opinion, no right of rescission under clause 2.3.4 arose.

27 If any right of rescission arose under clause 2.3.4, it had to be exercised within fourteen days of receipt of notice that the strata plan had been registered. It was purportedly exercised on the fifteenth day. When it had not been exercised by the fourteenth day, pursuant to clause 2.3.6, the right of rescission lapsed and the contract remained binding in all respects. Accordingly, any right to rescind under clause 2.3.4 had lapsed before it was purportedly exercised.

28 It is beside the point that when originally refuting the purported exercise of the right of rescission, the vendor did not rely on its being out of time. There is no suggestion of any waiver or estoppel, and in those circumstances it matters not that the circumstance that the right of rescission had lapsed was not raised at the outset.

29 Accordingly, the purchasers were not entitled to rescind under clause 2.3.4: there was no such variation or amendment substantially and detrimentally affecting the property as could found a right of rescission, and even if there was, the right had lapsed before it was purportedly exercised.

Standard condition 28

30 As to rescission under standard condition 28, the first question is whether that condition 28 remained part of the contract. In favour of the view that it did is the reference to “clause 28” in the particulars of land sold, and the circumstance that there is no express exclusion of it. However, there are significant contraindications. First, the subject matter of standard condition 28.2 is also addressed by additional conditional 2.2, but excluding the time limit referred to in 28.2 (of six months). Secondly, as clause 2.4 makes clear that the time limit under additional condition 2 is 24 months (rather than the six months referred to in clause 28.2), the reference in clause 28.2 to a period of six months, which is inconsistent with the 24 months referred to in additional condition 2, is supportive of the view that the right to rescind under 28.3 has been excluded by additional condition 2. Thirdly, the right of rescission conferred by clause 28.3 is also the subject of additional condition 2.3.4, but the right is conferred in different terms with different triggering requirements. Fourthly, whereas standard condition 28.4 envisages that either party might serve notice of registration of the plan, additional condition 2.3.5 envisages that it will be the vendor that does so. Fifthly, additional condition 1 makes provision for the “completion date” in terms which cover the field otherwise addressed by standard condition 28.5. Sixthly, clause 2.3.6 provides that if the right of rescission under the additional condition is not exercised, that right shall lapse “and this contract shall remain binding in all respects”. This must mean, notwithstanding any matter by reason of which the purchaser might otherwise have been entitled to rescind under clause 2.3.4.

31 Although standard condition 28 has not be explicitly deleted from the contract, it is clear from additional condition 2 that the parties intended the additional condition, and not standard condition 28, to govern the registration of the strata plan and the rights attendant thereon. Additional condition 2, in my opinion, covers that field to the exclusion of standard condition 28. Standard condition 28 has been implicitly excluded.

32 On the assumption, however, that standard condition 28 is not excluded, the next question is whether its requirements are satisfied. It gives the purchaser a right to rescind if the plan is not registered “within that time and in that manner”, which by reference back to clause 28.2 means within six months after the contract date, and with or without any minor alteration validly required or made under legislation. By clause 28.6 that right to rescind applies to a plan that is to be registered “before the plan is registered”. This seems to mean that the right to rescind applies only up to the time of registration, which is understandable, in the sense that a vendor would not wish to permit a purchaser to wait and see, but then rescind after registration had been achieved. But while this makes sense in respect of the time of registration, it less clearly does so in respect of the manner of registration. A purchaser would ordinarily not discover whether the plan had been registered “with or without any minor alteration”, until after the plan has been registered.

33 Clause 28.6 was intended to limit and not to extend the operation of clause 28.3: it refers to clauses 28.2 and 28.3, and clause 28.2 could only conceivably operate before registration. Despite the difficulties with its application to manner as distinct from time of registration, the better view is that clause 28.6 means that the right to rescind under clause 28.3 cannot be exercised after the plan is registered. If what is registered is not the plan (with or without any minor alteration) then the purchaser will still have a right of rescission, because “the plan” will still not have been registered; something else will.

34 Accordingly, if, contrary to my view, clause 28 has not been excluded by additional condition 2, then a right of rescission is available if what has been registered is not “the plan with or without any minor alteration” but something else, namely the plan with an alteration which is other than minor.

35 The last question in respect of standard condition 28 is whether the plan was registered “with or without any minor alteration”. Whether a variation is for this purpose “minor” is a question of fact and degree [Edelan Pty Ltd v Forster Pastoral Pty Ltd (1985) 5 BPR 11,196, 11,202]. The test to be applied is analogous to that applied under the rule in Flight v Booth (1834) 1 BingNC 370; 131 ER 1160, namely, is the property materially or substantially different from that contracted to be purchased.

36 In my opinion, for reasons stated in respect of additional condition 2, the change in the stated area was not an alteration to the plan at all; but if it was, it is a minor one. Because no actual change to the area available for occupation is involved, I do not think it can be said to be material or substantial, or so far to affect the subject matter of the contract that it may reasonably be supposed that, but for the misstatement, the purchasers might never have entered into the contract at all.

37 Accordingly, in my opinion, the purchasers were not entitled to rescind under standard condition 28: it was implicitly excluded by additional condition 2, and even if it was not, the plan was registered without alteration, or at worst with only minor alteration.

Flight v Booth

38 The rule in Flight v Booth holds that where a misdescription in a contract although not proceeding from fraud is material and substantial, so far affecting the subject matter of the contract that it may reasonably be supposed that but for the misdescription the purchaser might never had entered into the contract at all, the contract is avoided and the purchaser may rescind, it being considered that the purchaser has not acquired the thing which was really the subject of the sale [Flight v Booth (1834) 1 BingNC 370; 131 ER 1160; [1824-34] AllER Rep 43, 46].

39 This is so, notwithstanding that a contract may provide that no error of description should annul the sale but if pointed out before completion compensation should be allowed [Fawcett v Holmes (1889) 42 Ch D 150]. In the latter case, Lord Esher MR explained the rule in these terms [at 157]:-

If the error is of such consequence that it may be reasonably supposed that but for the misdescription the purchaser would not have bought, the error is not within the condition. In each case therefore the question depends on the view of the court as to the importance of the misdescription. Is, then, the error in the present case such as to fall within the rule laid down by Tindal CJ. The subject matter here is “all that messuage or dwelling house situate in Teall Street, with the builder’s yard, stables, and premises, as lately in the occupation of G Fawcett”. Is the erroneous addition “and containing 1372 square yards” material to the substance of the contract? Looking at what was described to the purchaser did he get substantially what he contracted for? Did the misdescription go to the essence of the contract and materially alter the substance of it? I agree with Mr Justice North that it did not, and the misdescription is therefore within the condition, and the purchaser must complete with compensation. If there had been no compensation clause the court would have had to deal with the case according to the inherent powers of a court of equity, but here the case is within the terms of a contract into which the parties have entered, and the court must compel the purchaser to fulfil it.

40 In Hamilton v Munro, (1951) 51 SR(NSW) 250, Sugerman J said that where a misdescription of land the subject of a contract of sale arises out of the non-disclosure of a restrictive covenant substantially affecting the use of the land, the question whether the misdescription is in a material point, so that the purchaser is entitled to rescind the contract and is not obliged to resort to a compensation clause in it, is not determined by considering merely the effect of the covenant on the immediate use to which the purchaser intends to put the property, the matter for consideration being, so far as the materiality of the misdescription depends upon the effect of the covenant, its whole effect upon the ability of the purchaser to use and dispose of the land freely over his period of ownership. His Honour described the relevant general principle in the terms of the judgment of Tindall CJ in Flight v Booth, and said [at 254]:-

The rights to use and to alienate, subject only to the restrictions imposed by the general law, are elementary and important ingredients of ownership of an estate in fee simple. The purchaser of such an estate must be taken, unless the contrary appears, to contract for the acquisition of those rights and to expect to receive them. If the contract contains a clause of compensation, whether the purchaser must resort to that clause in respect of such restrictions on use as are here in question cannot depend solely upon the extent to which the restrictions interfere with the immediate use presently intended of the land in its present form.

41 Batey v Gifford (1997) 42 NSWLR 710 concerned a compensation clause that provided that no error or misdescription in the contract should annul the sale, but compensation if demanded or offered in writing before completion but not otherwise should be made or given. An s 149 certificate attached to the contract did not disclose a restriction on development which later became apparent. This was for relevant purposes a misrepresentation and an error for the purposes of the contract which, if material and relied upon, would have entitled the purchaser to rescind. Handley JA pointed out [at 717D] that such compensation clauses, applying to errors and misdescriptions which would have entitled the purchaser at law to rescind so as to restrict that right of rescission, were strictly construed and do not require the purchaser to accept without compensation something entirely different from what he had contracted to buy:-

As a general rule therefore, compensation clauses cover errors or misdescriptions, even a trivial kind, which would have entitled the purchaser to rescind at common law, but do not cover cases where the error or misdescription is so substantial that it “annuls” the sale in accordance with the rule in Flight v Booth .

42 However, his Honour found that there was no evidence that the purchaser relied upon the misrepresentation in the certificate. As a right of rescission arose only if the misstatement were material and relied upon, there was no right of rescission, and thus no right to compensation [at 719G]:-

Since he did not rely on the misrepresentation, he had no right of rescission, and therefore no right to compensation under cl.7.

43 Although there is a question whether there is room for the operation of the rule in Flight v Booth where the specific issue has been addressed by the parties in the contract, as it has here by additional condition 2, (and, in my opinion, the better view is that, in respect of matters covered by additional condition 2, the operation of Flight v Booth is excluded, or at least limited to the time for exercise of the right of rescission conferred by additional condition 2.3.4), it is unnecessary to resolve that issue because, insofar as there was any misdescription at all, it was not one which “in a material and substantial point” affected the subject matter of the contract such that it might reasonably be supposed that otherwise the purchasers might never have entered into the contracts at all. I do not think there was any error or misdescription: the contract plan accurately stated the area inclusive of wallspace and the annotation made reasonably clear that that was so, whereas the registered plan accurately stated the area exclusive of wallspace. The lots which would have been conveyed to the purchasers upon completion as comprised in the registered plan were exactly what they had contracted to purchase. The subject matter of the sale identified in the contracts is precisely what could and would have been conveyed

44 But if there were an “error” or “misdescription”, by reason of the contract plan stating an area larger than the strata unit would in fact comprise, because the wallspace would not be part of the unit but common property, there is nothing to suggest that it was material to the purchasers that they acquire title to the wall space, and that it would have made the slightest difference to them had they been told that the area measured in the contract plan included wall space. Indeed, the contrary is suggested, to some extent, by standard condition 10, which provides that the purchaser cannot make a claim or requisition or rescind or terminate in respect of a wall being or not being a party wall. In my opinion it may not reasonably be supposed that had the purchasers known that the measured area in the contract plan included not only external wall space (which was explicitly stated on the face of the contract plan), but also half the interior dividing walls, they might never have entered into the contract. The statement of area in the contract plan does not go to the essence of the contract and does not materially (if at all) alter the substance of the contract which was to convey a strata lot which, by definition, excludes boundary walls. Accordingly, in my opinion, the conditions for the operation of the rule in Flight v Booth are not satisfied.

45 Moreover, as in Batey v Gifford, there is no evidence at all that the purchasers relied upon the reference to area contained in the contract plan. This is not a case in which I am prepared to infer reliance in the absence of express evidence of it, because it is far from apparent that a difference in area to the extent that some was wall space would have made any difference to a purchaser’s decision. Accordingly, in the absence of such evidence and on the authority of Batey v Gifford, since the purchasers have not shown that they relied upon the misdescription (if it be that), they had no right of rescission.

46 Mr Young referred me to the decision of Nathan J in Sivakriskul v Vynotas Pty Ltd (VSC, 10 October 1996) in which his Honour, in rejecting a claim for return of the deposit by a purchaser of an apartment, who asserted that whereas the contract described the “gross floor area” as 123.7 sqm, she acquired only 112.0 sqm of “living space”, wall space forming the difference. Nathan J held that “gross floor area” included wall space. His Honour gave some emphasis to the inconvenience which would result if the walls were not owned by the purchaser, but whatever might be the position in Victoria, it is clear that, in New South Wales, prima facie the boundary walls are common property, and the lot extends only to the internal face of the wall.

47 Mr Young also referred to Perrin v Reynolds (1996) 12 VLR 440, in which a contract for the sale of land described by admeasurement, with a saving as to “a little more or less”, stated that “thereon were erected” certain buildings, and gave the price per foot. A boundary wall of part of the buildings was beyond the measurement given, and the certificate of title gave a less measurement than that in the contract. Title to the immediately adjoining land was in a third person. A wall of a building being on land outside of the title, his Honour held that such discrepancy could not be regarded as a misdescription within the compensation clause, with the consequence that there was an inability to make title to a material part of the premises sold. Accordingly, the purchaser was held entitled to a return of his deposit.

48 In the present case, there is no inability to make title to a material part of the subject matter of the sale. The subject matter of the sale is the proposed strata lot, which by definition does not include boundary walls but extends only to their inner service. Inability to convey title to the walls, as they are common property and not part of the lot, is not, in the context of a strata scheme in New South Wales, a defect in title to the lot.

49 It follows that the first issue is resolved adversely to the purchasers. They were not entitled to rescind on any of the three bases advanced. There was no such variation or amendment substantially and detrimentally affecting the property as could found a right of rescission under clause 2.3.4, and even if there was, the right had lapsed before it was purportedly exercised. Standard condition 28 was implicitly excluded by additional condition 2, and even if it was not, the plan was registered without alteration, or at worst with only minor alteration. Even if Flight v Booth is available notwithstanding additional condition 2, there was no error or misdescription, but if there was it was not so material as to attract operation of the rule, and there was no evidence of reliance such as would be necessary to support a right of rescission.

50 It further follows that, as they conceded would be the consequence from such a finding, that the vendor was entitled to terminate and (subject to discretionary relief against forfeiture under s 55(2A)) forfeit the deposit.

Is the vendor entitled to damages?

51 Standard condition 9 (“Purchaser’s Default”) provides that after termination the vendor can keep or recover the deposit (to a maximum of 10% of the price), hold any other money paid by the purchaser as security for anything recoverable under clause 9, and:-

9.3 Sue the purchaser either -
9.3.1 where the vendor has resold the property under a contract made within twelve months after the termination, to recover -

· the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and

· the reasonable costs and expenses arising out of the purchaser’s non-compliance with this contract or the notice and of resale and any attempted resale; or

9.3.2 to recover damages for breach of contract.

52 Here, the vendor sues for damages for breach of contract under clause 9.3.2. In respect of Unit 812, the damages claimed (other than the forfeited deposit) are legal costs of $800. In respect of Unit 505, the damages claimed are also legal costs of $800. In respect of Unit 601, the vendor claims payment pursuant to the special condition to which I have referred of the balance deposit of $16,000 - being the difference between the 5% deposit and the 10% payable under the special condition - and $1,408 on account of legal costs of resale or alternatively $800 on the original sale. Finally, on Unit 706, the damages claimed are legal costs of $800.

53 In assessing the damages payable to the vendor for the purchasers’ default, credit must be given for the amount of the forfeited deposit [Ockenden v Henly (1858) EB&E 485, 492; 120 ER 590, 593; Howe v Smith (1884) 27 Ch D 89, 100, 104-105; Shuttleworth v Clews [1910] 1 Ch 176; Real Estate Securities Ltdv Kew Golf Links Estate Pty Ltd [1935] VLR 114, 124; Mallett v Jones [1959] VR 122, 132; Abraham v Mallon (1975) 1 BPR 9157; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117, 137; Little v Piccin (1983) NSWConvR ¶55-152].

54 There has been no deficiency on resale, save for $500 on the resale of Unit 812. While the vendors have been put to the additional costs which they claim as damages, on no view do they exceed the deposits. Accordingly, the vendor is not entitled to damages over and above forfeiture of the deposits.

55 In respect of Unit 601, however, in addition to forfeiting the 5% deposit paid, the vendor is entitled to recover the $16,000 under the special condition, which does not represent damages, but the balance of the 10% deposit.

Are the purchasers entitled to return of the deposit under s 55(2A)?

56 Conveyancing Act s 55(2A) provides as follows:

In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon.

57 The section confers on the court a discretion to order repayment of the deposit. Although the court does not lay down any “standard” test, the discretion to be exercised is that of a collegiate court and not at the whim of an individual judge and, to that extent, although the discretion must be exercised according to the facts of each individual case, the previous decisions of judges of the court provide guidance [Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15, 189, 15, 202; Havyn Pty Ltd v Webster [2005] NSWCA 182 [138]].

58 In Havyn v Webster, the Court of Appeal reviewed the court’s power under s 55(2A) and the considerations attending its exercise. Santow JA, with whom Tobias JA and Brownie AJA agreed, held that the section confers upon the court a statutory jurisdiction to return a forfeited deposit not previously available at common law or in equity to the same extent, and that it would be wrong to confine the exercise of the jurisdiction by analogy with principles relating to relief against penalties or forfeiture, the jurisdiction being a wide one on the words of which no limiting gloss should be placed. In particular, it is not necessary for an applicant to show special or exceptional circumstances before an order under s 55(2A) can be made.

59 But although the jurisdiction is wide, it is not unbounded and the court must consider the context of a deposit, and should not adopt an approach which weakens the proper function of a deposit as an earnest for performance, for which reason it was important for a court when considering the s 55(2A) discretion to consider the terms and conditions of the contract and the circumstances of the breach which gave rise to the forfeiture, and to be careful to avoid characterising a deposit as a windfall merely because it is forfeited. Thus his Honour accepted that a vendor who forfeited a deposit in strict enforcement of his legal rights was not to be deprived of it under s 55(2A) unless it was unjust and inequitable to permit him to retain it [Lucas & Tate (Investments) Pty Ltd v Victoria Securities Limited [1973] 2 NSWLR 268, 272; Havyn v Webster, [150]]. The court must bear in mind that the payment in question was, as a deposit, an earnest for performance, and accordingly there should not be relief simply because the contract does not proceed [Omar v El-Wakil [2002] 2 P&CR 36, 45-6; Havyn v Webster, [151]].

60 No evidence was given particular to the case or circumstances of any individual purchaser.

61 In the present case, the following considerations are pertinent:-

· So far (in respect of the two units which have been resold) there has been no deficiency of any significance on resale, the subsequent sales having been for the same price as the original sales. However, there has been delay, and in respect of the units not yet resold, assuming no deficiency upon resale, there will nonetheless be further delay in receiving the proceeds which, had the contracts been carried to completion, would have been received much earlier. In addition, although I have held that damages over and above forfeiture of the deposits are not recoverable because they do not exceed the deposit, the vendor has suffered the damage of the wasted costs of the original sales or alternatively the additional costs of the resales.

· There has been no windfall gain as a result of sales for a greater price than under the original contracts. The presence of such a windfall benefit arising from the purchaser’s default is often a relevant consideration in favour of return of the deposit. It is not present here.

62 For the purchasers, Mr Young submitted that a matter which might well attract the intervention of equity would be if the purchasers, having had a right to rescind under additional condition 2.3.4, were out of time by only one day in exercising that right. While I agree that that consideration might well be relevant if it applied, as I have concluded that the purchasers did not in fact have any such right of rescission, it does not carry weight.

63 Mr Young also submitted that it was relevant that the vendor had apparently misrepresented the size of the units. There was no evidence as to how the units had been advertised. In the contract plan, the areas and dimensions were explicitly described as “approximate”. The discrepancy was, as explained above, due to the circumstance that different things were measured. The contract plan stated that areas were measured as including external walls. The purchasers did not give evidence that they were in fact misled or deceived by the area and dimensions referred to in the contract plan. In the absence of evidence from them to that effect, I am not inclined to consider as deserving of weight any assertion that they were misled.

64 In those circumstances, the fact that the vendor has suffered some, albeit slight, damage from delay and additional costs weighs against return of the deposits. More importantly, the deposits have been forfeited in each case in accordance with the vendor’s legal rights, and there is no weighty factor which favours their return. No basis appears by reason of which it might be said to be unjust or inequitable to permit the vendor to retain them.

Conclusion

65 There was no such variation or amendment of the strata plan on registration which substantially and detrimentally affected the property to an extent other than minor as to give rise to a right of rescission under additional condition 2.3.4. In any event, any right of rescission to which such variation or amendment might have given rise was not exercised within time and lapsed. Additional condition 2 had the effect of excluding, at least in respect of matter which it covered, any right of rescission under standard condition 28. Moreover, any alteration to the plan involved was not other than minor, within standard condition 28.2, so that no right of rescission under standard condition 28 arose in any event. There was no misdescription or error in the contract, so far as area was concerned, but if there was it did not so affect the subject matter of the contract that it might reasonably be supposed that the purchaser might otherwise not have entered into the contract at all, and it did not go to the essence of the contract and materially alter its substance. Accordingly, the rule in Flight v Booth was not invoked; in any event, there was no evidence of reliance such as would have been necessary to establish a right of rescission. Accordingly the purchasers were not entitled to rescind.

66 It follows that the vendor was entitled to terminate each of the contracts and to forfeit each of the deposits. Because the damages do not exceed the deposits, for which the vendor must give credit, there is no occasion to award damages.

67 However, the circumstances that the vendor has suffered damage from delay, and some damages from the additional costs of resale, together with the function of a deposit as an earnest of performance, and the absence of any matter which would point to it being unjust or inequitable to permit the vendor to retain the forfeited deposits, requires the dismissal of the application for return of the deposits under s 55(2A).

68 I make the following orders:

1. Order that the summons be dismissed.

2. Declare that the cross-claimant Demian Developments Pty Ltd on 22 October 2004 validly terminated each of the following contracts:-

a. Contract for sale of land in respect of 812/16-20 Meredith Street, Bankstown to the first plaintiff/cross defendant John Charles Kannane dated 26 April, 2002;

b. Contract for sale of land in respect of 505/16-20 Meredith Street, Bankstown to the first plaintiff/cross defendant John Charles Kannane dated 30 April, 2002;

c. Contract for sale of land in respect of 601/16-20 Meredith Street, Bankstown to the second plaintiff/cross defendant dated 29 April, 2002;

d. Contract for sale of land in respect of 706/16-20 Meredith Street, Bankstown to the third plaintiff/cross defendant dated 1 May, 2002.

3. Declare that the cross claimant is entitled to the deposits paid under each of the contracts, together with interest accrued thereon.

4. Give judgment that the second cross defendant Kerry Ann Fahey pay to the cross claimant the sum of $17,600 (inclusive of interest).

5. Order that the plaintiffs’ pay the defendants costs of the proceedings including of the cross claim.

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