Malouf & Anor v Sterling Estate Development Corp Pty Ltd

[2005] HCATrans 379

[2005] HCATrans 379

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S558 of 2003

B e t w e e n -

SAM JOHN MALOUF

First Applicant

CHRISTINE MALOUF

Second Applicant

and

STERLING ESTATE DEVELOPMENT CORPORATION PTY LIMITED

Respondent

Application for special leave to appeal

McHUGH J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 27 MAY 2005, AT 11.19 AM

Copyright in the High Court of Australia

MR M.J. SLATTERY, QC:   May it please your Honours, I appear with my learned friend, MR P.J. CASTLEY, for the applicant in this matter.  (instructed by Heidtman & Co)

MR S.T. WHITE, SC:   May it please the Court, I appear with MR S.B. DOCKER for the respondent.  (instructed by Kemp Strang)

McHUGH J:   Yes, Mr Slattery.

MR SLATTERY:   Your Honour, this is a matter which raises two special leave questions which, if I may, I will deal with in the reverse order to which they are set out in our submissions on page 71 of the application book.  The first question is whether it is legally permissible to use a term which may be implied into a contract as a legal incident of a particular class of contract.

McHUGH J:   Before you do that, this matter is filed out of time, is it not?

MR SLATTERY:   It is, your Honour, yes.

McHUGH J:   It was deemed abandoned in May 2004 and then you filed a summons seeking that it be reinstated.  What is the position with that summons?  This has not been dealt with yet, has it?

MR SLATTERY:   The orders for reinstatement were made but we would need an order extending time for the notice.  The application was filed out of time.

McHUGH J:   Yes.  Well, anyway, carry on.  It needs an extension of time.  That is really what I ‑ ‑ ‑

MR SLATTERY:   Yes, it was out of time by four days, your Honour.  The first question is whether or not a term may be implied of a contract as an implied term of law, whether that can be used to construe the express terms of the contract.  That is what the Court of Appeal did and, in my submission, that is impermissible, but Justice Young took the correct conventional approach at first instance.  It is a question of general public importance because if this decision is allowed to stand, it is an approach which will be taken more generally.  Secondly, your Honours, the actual terms of the clause which were construed are terms which are in common use in off‑the‑plan sales contracts.  Brachmanis, one of the judgments referred to in the Court of Appeal judgment, is another example of that and we have indicated how it is more widely used as a licensed term within the conveyancing community.

The way I intend to approach it is to take your Honours to the terms of the contract, take your Honours then to one finding on the first question and then briefly put the argument.  Your Honours will find the terms of the contract in this case set out in full in Justice McColl’s judgment on page 33 of the application book.  Clause 23(b) is the only clause in issue and is set out at line 25 of page 33.  The structure of the provision is that if something qualified under special condition 23 as a “special fault”, then what would happen is that it needed to be fixed before completion, whereas all other faults did not need to be fixed before completion, but notice could be served and they needed to be dealt with within a reasonable time.

That is provided for, your Honours will see, in application book 33, at the bottom of the page at lines 45 and 50.  The general obligation to complete the property is in 31.1, and 31.4 provided for notice of defects to be served.  And then the critical obligation is 31.5 which goes on to application book page 34, that the vendor has the obligation to complete those notified special faults.  Now, simply what happened in this case was - and there is one finding I need to take your Honours to - that there was a notice of one special fault which was given and it was a fault which involved an unevenness in the flooring of the unit.

McHUGH J:   However, they held it was not an urgent matter.

MR SLATTERY:   The Court of Appeal held it was not urgent, but they did so in a way which, in my submission, involves an error which involved applying the term implied by law into the process of construction which, in my submission, is simply impermissible and so much so that the decision should be corrected.  Your Honour, the essential reasoning is set out on page 45 of the application book.  Justice McColl wrote the principal judgment and Justices Santow and Tobias agreed in it.  Essentially the approach she took, unlike the approach of the learned primary judge which was simply to look at the words in the special clause 23(b) and say “What do they mean?”, what she did was this.  Your Honours can see at line 15 she, in the first line at 62, decided:

It is important . . . to take into account the dual nature of the contract ‑

And she then took an excursion into the term implied at law which will exist in these contracts where there is no express term covering an off‑the‑plan sales contract where there is a contract to sell a property and to construct a dwelling at the same time.  What she does is refer to Miller’s Case and Perry’s Case which your Honours will see at 46 involve the fundamental proposition that:

there is an implication of law that a house shall be reasonably fit for the purpose for which it is usually required, that is, for human dwelling. 

And what she then does is this, and this is the essential error.  If your Honours go to pages 50 and 51, she construes subparagraph (b) of the clause I took your Honours to by the Macquarie Dictionary definition, what does “urgent” mean in this context, that is:

“a fault or defect . . . which . . . because of its nature requires urgent attention.”

She says, at line 25:

it is clear that to be caught by sub-paragraph (b) the fault or defect must be one which must be remedied at once.

So far that is unexceptionable.  But what she then does is this.  If your Honours go to 52 and 53, and here is the error, in paragraphs 87, 88 and 91 she effectively imports into the construction of the whole of the special condition 23 the notion of habitability, which is sourced in the term implied by law.  And she says this, at paragraph 88 on page 52:

I accept the appellant’s submission that the sub-paragraphs took their colour from their surroundings.  So viewed it is clear that each of the sub-paragraphs requires the demonstration of a fault or defect of such a nature as would deny to the purchaser the substantial benefits of the Contract if completion was to occur prior to its rectification.  In other words, in order that there be a Special Fault, the fault or defect must be of such a nature that the purchasers would be substantially unable to occupy the unit if it was not repaired prior to completion.

And effectively what the court is doing is saying that the whole of special condition 23 is to be construed by reference to this general principle that in an off‑the‑plan sales contract where there is an obligation to sell the property but construct a unit first, that the whole clause is to be construed to lead to the conclusion that the real test is whether or not someone is substantially unable to occupy the unit.  Now, that, in my submission, is an impermissible approach.  You cannot use an implied term to ‑ ‑ ‑

McHUGH J:   But her Honour does not does not say she is using an implied term; that is a statement she makes.  I mean, this is a long bow you seem to be drawing, Mr Slattery.  You yourself use the expression effectively.  There is nothing to suggest that her Honour did that.

MR SLATTERY:   But it is evident from this, your Honour, she looks at subparagraph (b) on its own on page 51, paragraph 83 of the judgment, and she does not get that from it there.  But then when she looks to the construction of the clause as a whole, including subparagraph (b), she then adds the gloss which appears in paragraph 88 in the last sentence.  And the only explanation for that can be the fact that she is using the implied term in that way.  The other evidence of that is to be found in paragraph 70 on page 48 where, in referring to Miller and Hancock, the two cases that raise and describe the implied term, she says in the last part of that paragraph:

These two matters are significant, too, in determining the construction issue in this case.

So she is clearly - if one is to explain ‑ ‑ ‑

McHUGH J:   But the learned trial judge himself took into account that there was an implied term that the dwelling should be constructed in a proper and workmanlike manner and be fit for human habitation, did he not?

MR SLATTERY:   He referred to the existence of those implied terms, but it was not part of his reasoning to achieve the result that he did.

McHUGH J:   The difference between his Honour and the Court of Appeal was that his Honour took the view that “urgent” meant as a matter of priority and he held it may cause danger and that it was something that had to be done ahead of other tasks, whereas the Court of Appeal seemed to take a different view of it.  They rejected his Honour’s view that it meant “urgent” as a matter of priority and said it referred to a matter which had to be attended to immediately.  Because the floor could be attended to after the tenant moved in, despite inconvenience, it did not amount to an urgent matter and therefore it was not a special fault.  Is that not the distinction between the two courts?

MR SLATTERY:   That is the distinction in outcome, but it is the way that the Court of Appeal got there which creates the problem, in my submission.  The distinction was essentially grounded in this idea, that the learned trial judge said because of the requirement to lift the carpet, even the floor, fill in holes in the floor and then put the carpet back and remove furniture through this process, and it was in a large room which was part of the apartment, because of that, it was a major exercise, he said, and that fell into the category of “urgent” in the sense that it needed to be done prior to completion.  He construed “urgent” as meaning something which needed to be done before completion rather than allowing the purchaser, because of the gross inconvenience of this ‑ ‑ ‑

McHUGH J:   Well, he said it had to be done ahead of other tasks, did he not?

MR SLATTERY:   Yes, he did, but the essential thing was that it needed to be done prior to completion, and he found that at application book 16, paragraph 64.  That is really his construction there which I submit was the correct construction.  If your Honours look at ‑ ‑ ‑

McHUGH J:   But the Court of Appeal theory was ‑ ‑ ‑

MR SLATTERY:   Between lines 20 and 25 on application book 16.

McHUGH J:   Thank you.  The Court of Appeal theory seems to have been, accepting what you say about the background of the implied term, that the special fault clause was intended to deal with situations where you would be unable to occupy the unit if it was not repaired prior to completion.  Well, that is the way they took it.  It is just a question of interpretation of a single word in the contract, is it not?

MR SLATTERY:   It is at one level, but it is a contract - and this is the second point, your Honours - which is widely used in conveyancing.

McHUGH J:   It is called a Mallesons contract, I suppose.

MR SLATTERY:   It has been licensed by Mallesons, it is used by other firms and it is also referred to in the Brachmanis Case, which is referred to in one of the footnotes of Justice McColl’s judgment.  The result of the Court of Appeal’s judgment effectively is this, that “urgent” in this clause which is in common use in off‑the‑plan sales contracts really means will substantially interfere with the occupation of the unit rather than that it means, as the learned trial judge said, something which must be fixed before completion occurs.  So it leaves someone such as this applicant in the position where completion has to occur and he is ultimately reliant in the contract on the vendor’s obligation to fix something within a reasonable time, which means that he has to wait either to occupy or let the unit.  The unit is clearly unlettable in circumstances where someone is going to come in at some stage after letting, pull all the carpet up, remove all the furniture and then do the work and put it all back.  It would take him no doubt some days, which the trial judge described as a major exercise.  That is the effect.

HEYDON J:   Two days.

MR SLATTERY:   Two days, your Honour, yes.  But it makes the property clearly effectively unlettable.  It is a major exercise, as Justice Young said.  So that is the effect of the construction.  Your Honours, that summarises the second special leave point as well.

McHUGH J:   Yes, thank you.  The Court need not hear you, Mr White.

The Court is of the opinion that an appeal in this matter would have insufficient prospects of success.  Accordingly, the application must be dismissed with costs.

AT 11.37 AM THE MATTER WAS CONCLUDED