M and v Trading P/L v Shorecolt P/L

[2001] NSWSC 1166

Reported Decision: (2002) NSW ConvR 56-017

New South Wales

Supreme Court

CITATION:	M & V Trading P/L v Shorecolt P/L [2001] NSWSC 1166
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3841/01
HEARING DATE(S):	21 November 2001
JUDGMENT DATE:	14 December 2001
PARTIES :	M & V Trading Pty Limited (Plaintiff) v Shorecolt Pty Limited (Defendant)
JUDGMENT OF:	Davies AJ at 1

COUNSEL :	P - Mr R G Forster SC, Mr P P Strasser D - Mr M S Campbell
SOLICITORS:	P - Lang Gellert & Noonan D - Craig Milne & Company
CATCHWORDS:	Sale of land - whether vendor has provided "evidence of approval from ... Council for use of the premises as a Boarding House" - whether contract validly rescinded
LEGISLATION CITED:	Conveyancing Act 1919, s55(2A) Environmental Planning and Assessment Act 1979, s149 Land Tax Management Act 1956, s10Q
CASES CITED:	No cases cited
DECISION:	See paragraphs 30 and 31.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

DAVIES AJ

FRIDAY, 14 DECEMBER 2001


3841/01 - M & V TRADING PTY LIMITED
v
SHORECOLT PTY LIMITED

JUDGMENT

1 HIS HONOUR: The plaintiff, M & V Trading Pty Limited (“M & V”), seeks the return of a deposit of $145,000, paid under a contract for the sale and purchase of land. The return is sought on the basis that the plaintiff has validly rescinded the contract of sale. The plaintiff alternatively seeks an order for the repayment of the deposit under s 55(2A) of the Conveyancing Act, 1919. An order for interest is also sought.

2 In the proceedings, Mr R G Forster SC and Mr P P Strasser of counsel appeared for the plaintiff. Mr M S Campbell appeared for the defendant, Shorecolt Pty Limited (“Shorecolt”).

3 A property, known as the Montpelier Private Hotel in Elizabeth Bay Road, Elizabeth Bay, was put up for auction on 5 June 2001. Prior to the auction, the solicitors for M & V had written to the solicitors for Shorecolt making an offer of $2,700,000 subject to certain conditions. The offer was not accepted but most of the conditions were agreed to. It came to be understood by the auctioneer that, if a bid from M & V was successful, the agreed conditions would form part of the contract. M & V’s bid of $2,900,000 was the successful bid.

4 Subsequently, on 5 June 2001, a contract was executed. It described the property as “Commercial Premises – Private Hotel”. The price was $2,900,000, the deposit being $145,000. Attached to the contract was the letter from M & V’s solicitors to Shorecolt’s solicitors of 1 June 2001, showing the agreed conditions, two of which read as follows:-

“3. No adjustment for land tax as property has been represented to be a Boarding House

4. Contract to be subject to the vendor providing evidence of approval from South Sydney Council for use of the premises as a Boarding House”
Clause 59 of the contract provided that the parties acknowledged that the terms and conditions of the contract were amended in accordance with that letter.

5 Attached also to the contract was a Planning Certificate under s 149(2) of the Environmental Planning and Assessment Act, 1979. This Certificate was so general in its terms that it was uninformative in any relevant respect. It listed thirty State Environmental Planning Policies (“SEPPs”) as being applicable. Presumably SEPP No.10, which related to the retention of low-cost rental accommodation, was in fact relevant to the property.

6 The contract did not make explicit what use was permitted under the relevant planning policies. The contract described the premises as a private hotel. On the other hand, condition 4 required evidence of approval for use as a boarding house. The South Sydney Local Environmental Plan 1998 was tendered in evidence. This describes a “Private hotel” as an hotel which is used primarily for short-term residential purposes but is not a boarding house. “Boarding house” is defined as a building which is wholly or partly let in lodgings, which provides lodgers with a principal place of residence but is not a private hotel.

7 The contract provided that the completion date was the 42nd day after the contract date. Forty-two days from 5 June 2001 was 17 July 2001.

8 Clause 19 of the printed conditions of the contract provided that, if the contract expressly gave a party a right to rescind, the party could exercise the right by serving a notice before completion and that, normally, if a party exercised its right to rescind, the deposit and other monies paid by the purchaser must be refunded. In my opinion, the effect of condition 4 of the letter of 1 June 2001 was to give the purchaser a right to rescind in the event of the vendor’s failure to comply with the condition.

9 Clause 29 of the printed conditions provided, inter alia:-

“29.1 This clause applies only if a provision says this contract or completion is conditional on an event.

29.2 If the time for the event to happen is not stated, the time is 42 days after the contract date.

…

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

29.5 A party can rescind under this clause only if the party has substantially complied with clause 29.4.

…

29.7 If the parties can lawfully complete without the event happening -

29.7.1 if the event does not happen within the time for it to happen, a party who has the benefit of the provision can rescind within 7 days after the end of that time; …
…
29.7.3 the completion date becomes the later of the completion date and 21 days after the earliest of -

· either party serving notice of the event happening;

· every party who has the benefit of the provision serving notice waiving the provision; or

· the end of the time for the event to happen.”

10 On 7 June 2001, Lang Gellert & Noonan wrote to Craig Milne & Company saying:-

“We are acting for the purchaser in relation to the above matter and note that the Contract was substantially amended on exchange which took place on Tuesday with the vendor’s agent. The Contract requires the vendor to provide evidence of approval by South Sydney Council as to the use of the premises as a Boarding House. We assume that a Licence specifying details of the rooms and the number of residents would be available. We would appreciate it if you could forward it to us as soon as possible.”

11 On 14 June 2001, Lang Gellert & Noonan made, inter alia, the following requisition:-

“7. Satisfactory evidence must be furnished that the vendor of the premises as specified in the Contract has been approved by the Local Council and/or relevant planning authority and is permitted to carry on the business of a licensed Boarding House.”

12 In a letter dated 29 June 2001, Craig Milne & Company responded:-

“… The vendor operates the business as an existing use.’
‘We confirm our telephone conversation that we never sighted your letter of 1 June, 2001 that was annexed to the contract. Accordingly the vendor did not receive any advice in relation thereto and we repeat our instructions that the business is operated in accordance with an existing use of the premises and there is no development approval.
We have accordingly written to the Council in relation to the operation of the business and await their response. We suggest that your client make its own enquiries in the meantime.”

13 On 11 July 2001, Lang Gellert & Noonan wrote to Craig Milne & Company asking:-

“Please provide us with the required approval from the Council no later than 2.30 pm on Monday 16th July 2001.”

14 On 16 July 2001, Craig Milne & Company wrote to Lang Gellert & Noonan enclosing two documents in response to the requisition. The first was said to be “evidence from South Sydney Council for use of the premises as a boarding house”. This document was a report of an inspection of the subject premises by an Environmental Health Officer. The form on which the report was completed listed four types of occupancies, including “Guest House” and “Private Hotel”, under the general heading “Boarding House (Class III)”. An “X” was placed adjacent to the general heading. I need not set out the details of the report. The most significant aspect was that the bedroom occupancy requirements were said to be unsatisfactory. Most rooms were occupied by two persons, whereas the maximum allowed was one.

15 In my opinion, that report of 16 July 2001 did not satisfy condition 4. The report was concerned, not with matters of planning, but with matters of health and safety.

16 The second document enclosed by Craig Milne & Company was a document headed, “Land and Property Information NSW”. It was a form filled in by Lang Gellert & Noonan seeking information as to land tax. The form described the property as a boarding house. There was on the form a stamp issued by the Chief Commissioner of State Revenue to the effect that, “The charge against the land referred in this certificate has been released”. The date of that stamp was 6 July 2001. The release of the charge had resulted from an application made to the Office of State Revenue by Craig Milne & Company, presumably seeking exemption from land tax on the ground that the premises were, in the terms of s 10Q of the Land Tax Management Act, 1956, “used and occupied primarily for low cost accommodation”. As the release shows, the Office of State Revenue accepted the evidence which Craig Milne & Company presented. I see no significance in this document. It did not comply with condition 4 of the letter of 1 June 2001.

17 A third document which had been relied upon as evidence of the South Sydney Council’s approval of the use of the premises as a boarding house is the Planning Certificate included in the contract and its reference to SEPP No.10. In my opinion, there is nothing in that Certificate which could lead to the conclusion that the use of the property had planning approval.

18 On 5 July 2001, Lang Gellert & Noonan wrote to the South Sydney Council (“the Council”) as follows:-

“Having perused the file held by your Council there appears to be no development approval or evidence of existing use of right to conduct the above premises as a Boarding House, being so described in the purchase documentation. Would you kindly inform us as soon as possible whether the Council can be in the position to issue a certificate or confirmation that the aforesaid property is or can be conducted as a Boarding House as opposed to a Private Hotel, ON the evidence presently available in the matter.”

19 On 17 July 2001, the Area Planning Manager for the Council responded to Lang Gellert & Noonan as follows:-

“Councils Boarding House Register indicates that these premises have been operating, at least in part, a Boarding House. The premises are also understood to have in part operated as a Private Hotel since 1929 as advised by you.
These approvals appear to pre-date relevant planning instruments, and as such the premises could have existing use rights to continue its operating as such.
However, the Boarding House component of the premises would be subject to the provisions of SEPP No.10, and SEPP No.10 would apply regardless of the original approval status of the Boarding House.
It should be noted however that under the provisions of the Environmental Planning and Assessment Act, 1979 and requirements of SEPP No.10, any proposal to change use of the premises, or to discontinue the Boarding House use or additions or alterations to the premises would require a Development Application. Please note that the onus is upon the Applicant to demonstrate the existence of any past approvals and existing use rights to Council.”
(Emphasis Added)

20 Mr Campbell has relied upon the letter as proof that the Council approved the use of the premises. However, that letter does no more than make it plain that “the premises could have existing use rights”. The letter specifically noted that the onus was on “the Applicant”, presumably M & V, “to demonstrate the existence of any past approvals and existing use rights to Council”. The letter did not show that the Council approved the use of the premises as a boarding house, merely that its Register indicated that the premises had been operating, at least in part, as a boarding house and that it was understood that the premises had operated, in part, as a private hotel.

21 On 18 July 2001, Lang Gellert & Noonan wrote:-

“Please advise by return whether you [sic] client is able to provide any other material to satisfy the condition contained in paragraph 4 of our letter of 1st June 2001.”

22 On the same day, Craig Milne & Company wrote:-

“We are instructed to enclose Notice to Complete by way of service on the purchaser.”
The enclosed Notice required completion on or before 12.00 noon on 3 August 2001 and noted that time was of the essence.

23 On 23 July 2001, Lang Gellert & Noonan wrote, rescinding the contract:-

“The purchaser hereby rescinds the contract dated 5th June 2001 in reliance upon one or more of the following grounds, namely:-

1. The evidence relied upon by the vendor as constituting compliance with the said Condition, fails to meet the requirements of the Condition as evidence of approval from the South Sydney Council for the use of the premises as a Boarding House.

2. The failure of the vendor to provide the evidence required by the Condition within ‘a reasonable period’.

3. The failure of the vendor to provide the evidence required by the Condition within 42 days after the contract date and the entitlement of the purchaser to rescind pursuant to clause 29.7.1 of the contract.

4. The incapacity or inability of the vendor to provide the evidence required by the Condition within a reasonable period.
Please authorise the vendor’s agent to refund the deposit to our client within 7 days.”

24 On 26 July 2001, after the rescission of the contract and more than seven days after 17 July 2001, Craig Milne & Company wrote to Lang Gellert & Noonan enclosing a copy of the letter of 17 July 2001 from the Council to Lang Gellert & Noonan. The letter also enclosed a copy of the Council’s Boarding Houses Licence register up to 1990, which, in the view of Craig Milne & Company, indicated that “the property was a licensed boarding house under existing legislation at that time”. The register showed that the premises held a license for “Boarding Houses and Houses Let in Lodgings” from 1982 to 1990. Craig Milne & Company stated:-

“It is accordingly obvious from the evidence supplied that the property is approved by South Sydney Council for use as a boarding house.”

25 The letter of 17 July 2001 did not, in my view, satisfy the requirements of condition 4. At most, it showed that the existing use of the premises may be lawful. It did not show that the Council had relevantly approved or approved of the use of the premises as a boarding house.

26 Mr Campbell relied upon the contra proferentem rule, submitting that condition 4 should be construed against the party who inserted it. In this respect, he relied upon evidence from Mr Milne that he had not himself seen the condition before it was inserted in the contract. In my view, condition 4 is not ambiguous. It requires evidence of approval from the Council for the use of the premises as a boarding house. The ordinary meaning of those words is confirmed by condition 3, which provides that there should be no adjustment for land tax as the property had been represented to be a boarding house.

27 Conditions 3 and 4 required evidence that the premises had been approved for use or that the Council approved of the use of the premises as a boarding house. I reject Mr Campbell’s submission that “Paragraph 4 can be satisfied if only part of the premises is used as a boarding house”. That is not what condition 4 states. It must be satisfied as a matter of substance. The evidence before the Court does not show that the Council had approved or approved of such use. If anything, the evidence is that the number of persons accommodated is almost double the maximum allowed, which suggests that the Council has taken little interest in the premises.

28 Mr Campbell submitted that M & V was not entitled to rescind as it failed to do whatever was reasonably necessary to cause the condition to be satisfied. This argument was put principally on the ground that, by writing to the Council on 5 July 2001 seeking information about approval, Lang Gellert & Noonan distracted the Council’s attention from a letter which Craig Milne & Company had written to the Council on 12 June 2001 which stated, inter alia:-

“We are instructed that the operation of the private hotel/boarding house is conducted pursuant to an existing use of the premises as there is no development consent in existence.
If this is the case we should be pleased if you could confirm same in writing to satisfy a purchaser of the property in regard to the current use of the premises.”

29 Mr Campbell’s submission was that the Council considered that it was answering both letters when it wrote to Lang Gellert & Noonan on 17 July 2001 and that, by refusing to treat the Council’s reply as satisfaction of condition 4, M & V had failed to do everything that was reasonably necessary to be done on its behalf. In my opinion, the Council’s letter of 17 July 2001 did not affirm that the existing use was lawful.

30 I am satisfied that M & V was entitled to rescind the contract when it did and that it is entitled to recover its deposit, with interest.

31 Counsel should bring in short minutes of order within 21 days. The defendant should pay the costs of the proceedings.

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Last Modified: 12/21/2001