Marinkovic v Pat McGrath Engineering Pty Ltd

[2004] NSWSC 571

Reported Decision: 61 NSWLR 150

Supreme Court

CITATION:	Marinkovic v Pat McGrath Engineering Pty Limited [2004] NSWSC 571
HEARING DATE(S):	9 & 10 June 2004
JUDGMENT DATE:	10 June 2004
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Contract validly rescinded and deposit repayable. Damages payable by caveator when maintaining caveat caused later contract of sale to be breached.
CATCHWORDS:	CONVEYANCING - RELATIONSHIP OF VENDOR AND PURCHASER - breach of contract - warranties implied under section 52A Conveyancing Act 1919 - warranty that there is no matter in relation to a building that would justify the making of any upgrading or demolition order - whether that warranty applies to land containing building work not approved by council - effect decision of council to do nothing about unapproved building work, when building certificate has not issued - CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - caveats against dealings - refusal or failure of caveator to withdraw caveat - circumstances when compensation recoverable from caveator for such conduct - caveator does not remove caveat in circumstances where it demands a greater benefit as the price of removing the caveat than the Court would give it on application under section 74MA for caveat to be removed
LEGISLATION CITED:	Conveyancing Act 1919 Conveyancing (Sale of Land) Regulation 2000 Environmental Planning and Assessment Act 1979 Real Property Act 1900 Supreme Court Rules 1970
CASES CITED:	Attorney-General for the State of New South Wales v Quin (1990) 170 CLR 1 Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 Beca Developments Pty Ltd v Idamaneo (No 92) Pty Ltd (1990) 21 NSWLR 459 Combe v Swaythling (Lord) [1947] Ch 625 Dunecar Pty Ltd (in Liq) v Colbron [2001] NSWSC 1181 Francombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 Gay v Gooden (1989) NSW ConvR 55-445 Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630 Kerrabee Park Pty Ltd v Daley [1978] 2 NSWLR 222 Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987 Ex parte Lord [1985] 2 Qd R 198 Martyn and Another v Glennan and Another [1979] 2 NSWLR 234 The New South Wales Trotting Club Limited v The Council of the Municipality of Glebe (1937) 37 SR (NSW) 288 Timanu Pty Ltd v Clurstock Pty Ltd (1988) 15 NSWLR 338 Francombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 Wildschut v Borg Warner Acceptance Corporation (Aust) Ltd (1987) 4 BPR 9453
PARTIES :	Milan Marinkovic - Plaintiff Pat McGrath Engineering Pty Ltd - Defendant
FILE NUMBER(S):	SC 1561/02
COUNSEL:	Unrepresented - Plaintiff E Glover - Defendant
SOLICITORS:	In person (with his McKenzie friend, A Walsh) - Plaintiff Gibson Howlin - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

THURSDAY 10 JUNE 2004

1561/02 MILAN MARINKOVIC v PAT McGRATH ENGINEERING PTY LIMITED

JUDGMENT – Ex Tempore (Revised 21 June 2004)

HIS HONOUR

Erection of the Mezzanine Level

1 The plaintiff was the owner of land located at 40 Raymond Avenue Matraville. In 1989 or 1990 he erected a factory building on the site with the approval of the Randwick City Council. In about 1992 he erected a metal and timber framed deck inside the building, which made a mezzanine level inside the building. That mezzanine level was erected without Council approval.

2 On 9 November 1992 the Council wrote to the plaintiff saying that a recent inspection of the premises had shown that the warehouse was not erected in conformity with approved plans and specifications insofar as the mezzanine level had been erected. The letter warned that unless the departure from the Council's approval was rectified within 30 days legal proceedings might be instituted.

3 The plaintiff wrote to the Council on 20 November 1992, saying he had not been aware that Council approval was needed to build the deck. He apologised if he had done so incorrectly. He recorded that he had been advised by a Council officer, Mr Julian, that he needed to construct an additional staircase to the decking in order to comply with the fire safety regulations. The plaintiff said in his letter that the staircase had been ordered, and would be built.

4 The Council replied on 2 December 1992 saying that:

“Council has decided to take no further action in regard to the unauthorised construction of the timber/metal framed storage area within the existing warehouse, subject to satisfactory construction of the egress stairs in accordance with the requirements of ordinance 70 and a satisfactory inspection by Council's district building surveyor.”

5 The plaintiff installed the stairs and they were inspected by a Council inspector. The plaintiff received no further communication from the Council in relation to the mezzanine level. I would infer that the inspector found the stairs to be satisfactory.

6 No further steps were taken, however, to obtain any confirmation that the Council found the situation satisfactory. In particular, no building certificates were applied for at the time. Indeed, no building certificates were applied for until 2001.

Plaintiff Contracts to Sell to Defendant

7 In November 2000 the plaintiff advertised the premises for sale. Ms Seymour, a director of the defendant, inspected the premises, in company with a real estate agent. She spoke to the plaintiff, who told her that he had put the mezzanine floor into the building in the early 1990s. She asked the plaintiff, on another occasion, whether he had got Council approval for the floor, to which he said he had a letter. She requested a copy of that letter, but, as things turned out, no copy was provided.

8 On 30 November 2000 the defendant entered a contract to purchase the property from the plaintiff. The property was described by reference to a title reference as being at address “40 Raymond Avenue Matraville”, and that the improvements consisted of a factory. There was no other or more extensive description of the improvements.

9 The contract was one which was on the terms of the standard Contract for Sale 2000 edition, with some special conditions. The contract price was $790,000, of which the deposit was $79,000. A special condition in the contract provided that if the vendor asked the purchaser to release all or part of the deposit, the purchaser would release it to the vendor forthwith. The plaintiff made such a request, for release of the deposit, on 6 December 2000. The deposit was accordingly released.

Defendant’s Enquiries Re Approval of Mezzanine Level

10 In the course of December 2000 and January 2001, representatives of the defendant had been making inquiries at the Council concerning approval for the mezzanine floor, and the information they had been getting was to the effect that there was no such approval.

11 On 31 January 2001 the solicitors for the defendant wrote to the solicitors for the plaintiff saying that the mezzanine floor level of the property did not appear to have any record of approval at Randwick Council for construction. The letter said that there had been a pre-contractual representation by the plaintiff that the total area of useable space in the property was 850 square metres, and that the apparently unauthorised construction of the mezzanine floor severely impacted on the character and value of the improvements. The letter continued:

“We would be pleased if you could urgently provide details of both development approval and building approval for construction of the mezzanine floor level, the availability of which floor space was central to the decision of our client to enter into the contract.
We are further instructed that in the absence of evidence of such approvals being produced within seven days of the date of this letter, the instructions of our client are to rescind the contract for breach of an essential pre-contractual condition upon the basis of which our client entered into the contract. Our client also reserves the right to seek damages.”

Defendant’s Enquiries Re Approval of Mezzanine Level

12 There appears to have been no response by the plaintiff's solicitor to the letter of 31 January 2001. On 14 February 2001 the solicitor for the defendant wrote again to the solicitor for the plaintiff, saying:

“Further to our letter of 31 January 2001, our client has made independent inquires at Randwick Council and has been advised that the mezzanine floor level of the above property has been constructed without development approval from the Council. In these circumstances, there has not only been a breach of a pre-contractual representation by the vendor, but there is also a breach of the implied warranty contained in section 52A of the Conveyancing Act and in accordance with instructions from our client we enclose herewith notice of recision and we require immediate return of a cheque for $79,000 in favour of our clients in return of the deposit.”

That letter enclosed a Notice of Rescission. There has been no criticism of the legal adequacy of the wording of the Notice.

13 There was some further correspondence between the solicitors, in the course of which, on 22 February 2001, the solicitors for the defendant asked the solicitors for the plaintiff to provide evidence of Council approval for the construction of the mezzanine, and said that upon receipt of that evidence they would seek further instructions. No approval was supplied, though the solicitors for the plaintiff asserted that there had been approval.

14 On 1 March 2001, the solicitors for the defendant confirmed that the Notice of Recision stood, and threatened proceedings to recover the deposit if it was not repaid. They said that a caveat had been lodged against the title.

The Defendant’s Caveat

15 The defendant’s caveat was in fact lodged on 2 March 2001. The caveat was one where the defendant identified the estate or interest in land claimed as ”Protection of the rights of the caveator as purchaser” under a Contract for Sale made 30 November 2000. The activities which were forbidden by the caveat were the recording in the Register of any dealing, other than a plan, affecting the estate or interest claimed by the caveator.

16 There was some further correspondence between the solicitors, which was fairly inconsequential.

Council Issues Building Certificates

17 On 9 August 2001, both the plaintiff and solicitors for the defendant applied to the Randwick Council for a building certificate in relation to the premises. On 20 August 2001, Randwick Council wrote separate letters to both applicants, saying that the application for the building certificate was deferred pending submission of fire safety certification. By 5 November 2001 the last of the documentation concerning fire safety certification had been provided, and Mr James, a Council officer, inspected the premises. His report of that inspection included the notation, “See previous correspondence re mezzanine/new floor - no objection - matter resolved in 1992.”

18 On 8 November 2001 the Council issued two certificates under section 149D of the Environmental Planning and Assessment Act 1979, one to the plaintiff, and one to the solicitors for the defendants. Section 149B Environmental Planning and Assessment Act 1979 sets out a regime whereby certain people can apply to a council for a building certificate. Under section 149D(1) the council must issue a certificate if it appears that:

“(a) there is no matter discernible by the exercise of reasonable care and skill that would entitle the council, under this Act or the Local Government Act 1993 :
(i) to order the building to be demolished, altered, added to or rebuilt, or
(ii) to take proceedings for an order or injunction requiring the building to be demolished, altered, added to or rebuilt, or
(iii) to take proceedings in relation to any encroachment by the building onto land vested in or under the control of the council, or
(b) there is such a matter but, in the circumstances, the council does not propose to make any such order or take any such proceedings.”

19 Under section 149E:

“(1) A building certificate operates to prevent the council:
(a) from making an order (or taking proceedings for the making of an order or injunction) under this Act or the Local Government Act 1993 requiring the building to be repaired, demolished, altered, added to or rebuilt, and
(b) from taking proceedings in relation to any encroachment by the building onto land vested in or under the control of the council,
in relation to matters existing or occurring before the date of issue of the certificate.”

20 Each of the certificates issued by the Council on 8 November 2001 was in similar form. Their form was ambiguous in that they did not make clear whether the Council was saying that there was nothing which would entitle the Council to order the building to be demolished, altered, added to or rebuilt, or to take proceedings concerning that matter, or whether it was saying that there was such a matter, but in the circumstances the Council did not propose to make any such order or take any such proceedings. Notwithstanding that uncertainty of construction, it is at least clear that, following the issue of that certificate, the Council would not have been entitled to require demolition of the mezzanine floor.

Plaintiff’s Attempted Resale of Property

21 On 6 December 2001, the solicitors for the plaintiff wrote to the solicitors for the defendant. By that time, the solicitors for the plaintiff had purported to rescind the contract, on the ground of the defendant's failure to complete. The solicitors for the plaintiff stated that the plaintiff was in the process of reselling the property, “and our client will hold the purchaser liable for any difference in price on resale if there is a loss, after crediting the purchaser’s deposit which is hereby now forfeited.”

22 On 7 December 2001 the plaintiff entered into a contract to sell the property to Wilhave Pty Ltd, for the sum of $800,000. That contract contained a special condition saying:

“It is an essential term of this contract, and the vendor agrees that he will cause to be removed caveat registered on title of the subject property by Pat McGrath Engineering Pty Ltd No 7447470 and caveat by Roger Andrew Fitzsimons No 7615539 within seven days. In this regard, the vendor agrees to hand to the purchaser on completion a withdrawal of caveat in respect of the said caveats. In the event that the vendor is in breach of this condition, the purchaser may rescind this contract by notice in writing, and the provisions of standard clause 19 shall apply.”

23 Standard clause 19 is a clause which provides that on rescission, the deposit must be refunded, and, amongst other things, a party can claim damages, costs or expenses arising out of a breach of the contract.

24 On 14 December 2001 the solicitors for the plaintiff wrote to the solicitors for the defendant, confirming that their client had entered into a Contract for Sale of the property, that a caveat had been lodged, and saying:

"We urgently request this caveat to be removed and formally give you notice if the caveat is not removed then relevant legal procedures will be taken for its removal and costs will be sought.”

25 The solicitors for the defendant replied to that letter on 18 December 2001. They said that their client would deliver a Withdrawal of Caveat in exchange for payment of a bank cheque for $79,000, or alternatively, they would attend settlement of the sale with a Withdrawal of Caveat, which they would hand over in return for $79,000.

26 There was no response to that letter until 18 January 2002, when the solicitors for the plaintiff wrote to the solicitors for the defendant, saying that the new sale of the property would settle on 21 January 2002 at 2 pm. Again, the solicitors for the plaintiff threatened that unless they received a Withdrawal of Caveat proceedings would be commenced for removal of the caveat.

27 By letter of 22 January 2002, the solicitors for the plaintiff wrote to the solicitors for the defendant again, saying that settlement had now been fixed for that afternoon at 2 pm. They said:

“We confirm we are instructed that an amount of $79,000 shall be held in trust and request that you immediately prepare a withdrawal of caveat as it is required by this afternoon at 2 pm.”

The letter said that if the matter did not settle, they would commence proceedings for withdrawal of the caveat.

28 Then occurred a strange piece of correspondence. On 22 January 2002, the solicitors for the defendant faxed to the solicitors for the plaintiff a document which starts like a letter, under which they put forward a proposal that the amount of $79,000 be retained by the plaintiff on terms that it be held in a controlled moneys account, and paid out only on a joint authority from the clients, or an order of the Court determining the ownership of the funds. The faxed letter becomes blank part-way down the page. This happened because it was a mistake on the part of the solicitors for the defendant to send that letter at all, and they must have realised the mistake in the middle of transmitting the fax, and stopped the transmission.

29 On 22 January 2002, the solicitors for the defendant wrote to the solicitors for the plaintiff saying:

“We are unable to obtain any additional instructions from our client, which would allow us to provide a withdrawal of caveat on the basis suggested by your firm. We note that the deposit moneys were paid by our client and released to your client, who has used them to his advantage. As our client claims that it validly rescinded the contract for sale, it maintains a claim for the return of the deposit.
Your firm has threatened to take proceedings to seek orders for the requirement of the removal of the caveat. On the present evidence available, your client has no proper grounds to obtain such orders. The true issues in this matter can only be resolved by determining the validity or otherwise, of the notice of rescission.
Accordingly, we must advise that our client is not prepared to withdraw its caveat.”

30 The letter foreshadowed that different instructions might be obtained, but that was the position for the moment. Another letter of 22 January 2002 explained that the earlier facsimile (see para [28] above) had been sent in error, and that it had been intended to be viewed by the defendant for the purpose of instructions.

31 On 23 January 2002 the defendant’s solicitors wrote a further letter, saying that their client was prepared to withdraw the caveat on the basis that the clients entered into a Deed of Release where each party gave up any claims against the other, whereby $70,000 was to be paid to the defendant, and $9,000 paid to or kept by the plaintiff, and that some District Court proceedings, which the defendants were threatening, would not be brought.

32 On 21 January 2002 the solicitors for Wilhave served the plaintiff with a Notice to Complete. It required completion of the plaintiff’s sale to Wilhave to take place on or before 7 February 2002.

33 On 18 February 2002 the proceedings I am now hearing were started by the filing of a summons in Court, and obtaining an order for short service. The orders which were sought by the summons were a declaration that the Contract for Sale had been validly determined by the plaintiff, and that the deposit had been validly forfeited.

34 On 20 February 2002 the solicitors for Wilhave served on the plaintiff a Notice of Termination of the Contract for Sale to Wilhave, and required return of the deposit payable under that contract.

35 On 21 February 2002 these proceedings came before me as duty judge. On that occasion, consent orders were made, whereby the defendant would provide a withdrawal of the caveat on or before “the date of settlement of the sale by the plaintiff of the property 40 Raymond Avenue, Matraville”, and set up a regime whereby on settlement of the sale the plaintiff would place $79,000 into a controlled money account to abide the decision of the Court, or agreement, as to who was entitled to it. Those orders were made too late to allow the plaintiff’s sale to Wilhave to complete, as Wilhave had terminated its contract the day before. They did result, however, in $79,000 being placed in a controlled money account, and the caveat being withdrawn.

36 On 18 March 2002 Wilhave commenced proceedings against the plaintiff, seeking a declaration that Wilhave had validly terminated its Contract for Purchase, and seeking the return of its deposit with damages, interest and costs. Wilhave’s proceedings against the plaintiff settled in July of 2002, on terms that there was a declaration that the Contract for Sale was validly terminated by Wilhave’s notice of 20 February 2002, a declaration that Wilhave was entitled to the return of its deposit of $80,000, an order that the plaintiff return to Wilhave the $80,000 deposit, judgment for Wilhave for damages of $32,500, and an order that the plaintiff pay Wilhave’s costs of $37,500. The plaintiff has paid the amounts which he was obliged to pay under the terms of that judgment.

Issues in these Proceedings

37 In the present proceedings, the plaintiff continues to seek a declaration that he has validly terminated the contract, and that the deposit has been validly forfeited, and also, now, seeks an order for compensation under section 74P of the Real Property Act 1900 and/or damages. The only basis propounded for any such damages was section 74P.

38 The defendant has filed a cross-claim, under which it seeks an order that it be paid the sum of $79,000 under the contract, damages, and interest. No submissions were directed to the claim for damages.

39 To decide the issues in this case, there are two separate groups of questions which need to be answered. The first concerns whether the defendant’s recision of the contract was justified. The second concerns the consequences of the defendant maintaining a caveat on the land.

Implied Warranties

40 Under section 52A of the Conveyancing Act 1919, any contract for the sale of land has implied in it certain warranties. Those warranties are the ones which, now, arise under the Conveyancing (Sale of Land) Regulation 2000, which has been effective since 1 September 2000. Hence it is to that regulation one must look to see what warranties were implied into the contract between the plaintiff and the defendant. The 2000 Regulation, in clause 7, says that the relevant warranties are those set out in Part 1 of Schedule 3 of the 2000 Regulation. Part 1 of Schedule 3 includes a warranty that:

“1 The vendor warrants that, as at the date of the contract and except as disclosed in the contract:
…
(d) there is no matter in relation to any building or structure on the land (being a building or structure that is included in the sale of the land) that would justify the making of any upgrading or demolition order or, if there is such a matter, a building certificate has issued in relation to the building or structure since the matter arose.”

Clause 2(c) defines an, “ upgrading or demolition order”, as including:

“(i) order No 2 in the Table to section 121B of the Environmental Planning and Assessment Act 1979 , being an order made in the circumstances referred to in paragraph (a) or (d) relating to that order, and
(ii) order No 12, 13 or 14, in the Table to section 121B of the Environmental Planning and Assessment Act 1979 .”


Those orders are as follows:

Column 1	Column 2	Column 3
To do what?	In what circumstances?	To whom?
2 To demolish or remove a building	(a) Building is erected without prior development consent of consent authority in a case where prior development consent is required or is erected without prior development consent of a consent authority and a prior construction certificate in a case where both prior development consent and a prior construction certificate are required.	Owner of building
…
(d) Building is erected without prior approval of council, in a case where prior approval was required under the Local Government Act 1919 or the Local Government Act 1993 when the erection of the building commenced.
…
12 To do such things as are specified in the order to restore premises to the condition in which they were before building was unlawfully erected or before work was unlawfully carried out	(a) Building as been unlawfully erected, and an order No 2 has been given requiring the building to be demolished or removed (b) Work has been unlawfully carried out	The owner of the premises, any person entitled to act on a development consent or complying development certificate or any person acting otherwise than in compliance with a development consent or complying development certificate
13 To do such things as are necessary to bring into compliance with relevant development standards any building or part of a building that has been unlawfully erected	Building has been unlawfully erected and does not comply with relevant development standards
14 To repair or remove a building	The building is situated wholly or partly in a public place	Owner or occupier of building

41 Clause 3 of the 2000 Regulation defines, “building certificate” as meaning “a certificate issued in accordance with sections 149A - 149E of the Environmental Planning and Assessment Act 1979”.

42 The 2000 Regulation, by clause 19, permits a purchaser to rescind a contract for breach of the warranty prescribed under section 52A(2)(b) of the Act. Clause 19(3) provides that the contract may not be rescinded unless:

“(a) the breach constitutes a failure to disclose to the purchaser the existence of a matter affecting the land, and
(b) the purchaser was unaware of the existence of the matter when the contract ... was entered into, and
(c) the matter is such that the purchaser would not have entered into the contract ... had he or she been aware of its existence.”

43 Another limit on the ability to rescind arises under clause 19(4), namely:

“Further, a purchaser may not rescind:
(a) a contract for the sale of land for a breach of so much of the warranty prescribed under section 52A(2)(b) of the Act as is set out in item 1(d) of Part 1 of Schedule 3, or
(b) an option to purchase residential land for a breach of so much of the warranty prescribed under section 66ZA(1) of the Act as is set out in item 1(d) of Part 2 of Schedule 3,
if a building certificate in respect of the building (or part of the building) to which the warranty relates has issued since the date of the contract or option concerned.”

The 2000 Regulation also spells out the consequences of rescission, in clause 21(1), namely that:

“… the deposit and any other money paid by the purchaser to the vendor under the contract is to be refunded.”

44 To apply the text quoted above from Part 1 of Schedule 3, one needs to consider the zoning to which this particular land was subject. The land was located in zone number 4A (Industrial Zone) under the Randwick Local Environmental Plan 1998. The zoning restrictions applicable in that zone are such that development for the purpose of three types of activity can be carried out without development consent, development for about 20 different types of activity is prohibited, and any other type of development requires development consent. The building of the mezzanine floor did not fit within the activities permitted without consent, nor did it fit within the activities which were prohibited. Therefore, it was an activity which required development consent. The need for development consent arose under section 76A(1) Environmental Planning and Assessment Act 1979, which provides that:

“If an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless:
(a) such a consent has been obtained and is in force, and
(b) the development is carried out in accordance with the consent and the instrument.”

That Act also provides an extended definition in section 4, of “ building” as including “part of a building and any structure or part of a structure.”

Defendant Entitled to Rescind?

45 In the present case, the existence of the mezzanine floor was, in my view, a matter that would justify the making of an upgrading or demolition order. It had that characteristic even though the Council, in its 1992 letter, had stated an intention to do nothing about the matter. The Council has statutory responsibilities, which it cannot prevent itself from exercising by any estoppel: The New South Wales Trotting Club Limited v The Council of the Municipality of Glebe (1937) 37 SR (NSW) 288; Attorney-General for the State of New South Wales v Quin (1990) 170 CLR 1. Thus, even if that letter had been acted upon by the plaintiff, it could not estop the Council from later deciding that it should require the removal of the structure which had been erected without consent. If the Council issues a building certificate, however, it does so under statutory authority, and with the consequences which section 149E Environmental Planning and Assessment Act1979 lays down so far as fettering its future discretions is concerned.

46 In construing the warranty, it is appropriate to bear in mind the purpose for which the legislation was introduced. It was introduced in 1988, motivated by a desire on the part of the legislators to promote candour on the part of vendors. The means that was chosen to deal with that problem was to require the vendor of property to make extensive disclosure of matters relating to the property. The vendor doing this would speed up the conveyancing process and give a purchaser a greater degree of assurance, at the time of contracting, that he or she knew the information about the property which a purchaser would wish to know. In Timanu Pty Ltd v Clurstock Pty Ltd (1988) 15 NSWLR 338 at 339-40 Kirby P said:

“The plain object of the legislation is to reduce disputes concerning representations about the land which are made by the vendor to the purchaser, to facilitate a proper judgment about the bargain at the time of the signing of the contract and to provide, at that time, a clear indication of the terms, conditions and warranties upon which the parties agree to contract. Effectively, the new procedure shifts the obligation from the purchaser to the vendor, so that the latter has to supply, rather than the former to discover, certain basic information about the subject land. The provision is clearly a remedial one with a reformatory object. The courts should not frustrate the attainment of that object by a narrow construction of the legislation, and the subordinate regulations made under it. On the contrary, the courts should endeavour to facilitate the attainment of the purpose which clearly emerges from the legislation, understood in the context of the practices which preceded it.”

47 I recognise that there is always a discretion in a Council about whether, when the circumstances exist which would entitle it to make an order or make an upgrading or demolition order, it will actually make any such order. When one considers the context in which the warranty implied under section 52A comes to operate in a conveyancing transaction, one should recognise that it could be a serious problem for a purchaser if it had entered a contract to purchase a property concerning which there was a risk that a Council might make such an order.

48 The purpose of the legislation in implying this warranty is to assist a purchaser in having certainty about what it is that he or she is acquiring. Thus, the expression “matter... that would justify the making of any upgrading or demolition order” ought be construed, in my view, in a way which applies to any situation where the Council has power, in the exercise of its discretion, to make such an order. The existence of the mezzanine floor was a matter concerning which the Council had that power. It had not been disclosed by the plaintiff prior to contract.

49 There is express evidence from Ms Seymour that she would not have entered into the contract if she had known that the mezzanine floor might be liable to being demolished. This is consistent with the contemporaneous documentation, and also with her express evidence that the bottom level of the factory was about the same size as the property which she had already sold, and that she was looking for something bigger. I accept Ms Seymour’s evidence. In these circumstances, the defendant was justified in terminating the contract, by reason of breach of the implied warranty.

50 While a building certificate was obtained later in 2001, that is not something which can retrospectively cure the deficiency or the breach of warranty which existed at the time that the contract was entered into, nor take away the entitlement which the defendant had, at the time the defendant terminated the contract, to do so.

51 It follows from this that the defendant is entitled to receive back its deposit.

Defendant Failed Without Reasonable Cause to Withdraw Caveat?

52 The next aspect of the case concerns the claim concerning the caveat. Section 79P Real Property Act 1900 provides:

“(1) Any person who, without reasonable cause:
…
(c) being the caveator, refuses or fails to withdraw such a caveat after being requested to do so,
is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph … (c) compensation with respect to that loss.”

53 Section 74P was introduced into the legislation in 1986, in a form which included in the conditions for its operation that the person have acted “wrongfully”. After the scope of that section, containing the “wrongfully” expression, had been expounded by the Court of Appeal in Beca Developments Pty Ltd v Idamaneo (No 92) Pty Ltd (1990) 21 NSWLR 459, the legislation was amended in 1996 to its present form. The 1996 amendment means that the decision in Beca Developments no longer governs the operation of section 74P.

54 The section should be construed in the context of the other provisions concerning caveats which accompany it. A relevant area of law to consider is that concerning orders for removal of a caveat. The Court can order removal of a caveat under section 74MA even if the caveat was, at the time of its lodgment, properly lodged. The test which the Court adopts for removing a caveat under that section is whether or not, in the circumstances which exist at the time that the application comes before the Court, the Court would protect the interests claimed in the caveat by the issue of an interim injunction. If no such injunction would be issued, then the caveat will be removed: Kerrabee Park Pty Ltd v Daley [1978] 2 NSWLR 222; Martyn and Another v Glennan and Another [1979] 2 NSWLR 234; Gay v Gooden (1989) NSW ConvR ¶55-445.

55 An example of the Court’s jurisdiction to order removal of a caveat is where land which is subject to a mortgage has been sold for a price which will be completely payable to the first mortgagee. In such a case a subsequent mortgagee is not entitled to maintain a caveat which will prevent completion of that sale: Wildschut v Borg Warner Acceptance Corporation (Aust) Ltd (1987) 4 BPR 9453; Dunecar Pty Ltd (in Liq) v Colbron [2001] NSWSC 1181 at [18]-[19].

56 This is an example of the way that the Court will not permit a caveat to be used as a device for exerting commercial pressure. In such a case the caveat is legitimately lodged in respect of a disputed claim, but forces the registered proprietor to pay out that claim even though it is disputed. The Court has consistently taken the attitude that where the caveat claims an interest in land as security for the payment of money, if the registered proprietor is prepared to put up an alternative security which is commercially adequate, then it will remove the caveat even though the caveat may be completely valid: Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987 at 11,991; Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630; Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 at 15,257.

57 It seems to me that similar principles ought apply to the construction of section 74P. After all, section 74MA sets out what is to happen if a person who wishes to have a caveat removed is able to get to Court and have the Court decide whether it should or should not be removed. Section 74P deals with the situation where a person who wishes to have a caveat removed has requested that it be removed, but for one reason or another has not actually gone to Court to seek enforcement of that request. I see no reason why the test for whether or not the caveat should be removed ought be different under section 74P to that applied under section 74MA.

58 In the present case, the defendant, once it had rescinded the contract, had a clear entitlement to get its deposit back. That arose under the terms of clause 21 of the 2000 Regulation. Clause 21 of the 2000 Regulation, considered by itself, gave only a personal right of action to recover the deposit.

59 Clause 2.8 of the Contract for Sale between the plaintiff and defendant contained a provision that:

“If any deposit ... is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion, subject to any existing right.”

That clause covers the present situation, where there has been neither termination by the vendor, nor completion, and confers an equitable charge on the land, for the amount of the deposit. As well, there is a general law doctrine whereby an equitable lien exists for a purchaser’s deposit, where a contract for sale of land goes off without any default on the part of the purchaser: Francombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 at 57; Whitbread & Co, Limited v Watt [1902] 1 Ch 835; Combe v Swaythling(Lord) [1947] Ch 625. A purchaser's lien of this kind is a caveatable interest: Ex parte Lord [1985] 2 Qd R 198.

60 Here, the interest which was claimed in the caveat was much wider than the interest which the defendant was legitimately entitled to, of a charge or lien to secure repayment of the deposit. That is not something which seems to have produced any particular consequences, however.

61 The course of negotiation between the solicitors which I have outlined shows that the plaintiff had offered, at a comparatively early stage, to place the deposit into a controlled money account, to await a court determination concerning who was entitled to it. The defendant refused to agree to those terms. Instead, the defendant tried to strike a better bargain for itself, under which the defendant would be able to dispense with any argument about who was entitled to the deposit. Its proposal was that it would get back its $79,000 in exchange for a withdrawal of the caveat (on 18 December 2001), or that it would get $70,000 back plus a release (on 23 January 2002). Each of these bargains which the defendant sought to obtain was more than a court would have required if the matter had gone to Court for an order seeking removal of the caveat. This was implicitly recognised by the defendant on 21 February 2002, when it agreed to the caveat being withdrawn on the basis that $79,000 be paid into a controlled moneys account. It was the proposal which the defendant’s solicitor made to the defendant on 22 January 2002, in the letter part of which was mistakenly faxed to the plaintiff’s solicitor. In these circumstances, I am satisfied that the case has been made out that the defendant, without reasonable cause, refused or failed to withdraw its caveat after being requested to do so.

62 Caveators should be aware that they are playing with fire if they insist on maintaining a caveat when they know that the existence of the caveat is imperilling settlement of a conveyancing transaction, and when they have been offered adequate security for the interest they have in the land.

Compensation for Wrongful Refusal to Withdraw Caveat

63 That then gives rise to a question about what, if any, damages or compensation ought flow. Section 74P in its terms confers an entitlement to “compensation”, not damages.

64 Even though it is quite clear that the Contract for Sale to Wilhave is one which was entered when the plaintiff had full knowledge that the title was under the cloud of the caveat, and even though the plaintiff does not appear to have acted as quickly as he might have done in getting the caveat taken off, once the contract with Wilhave was entered into, it is still the existence of the caveat which was a substantial cause of the contract with Wilhave going off. The defendant submits that the failure of the plaintiff to serve a lapsing notice under section 74J is conduct which shows an unreasonable failure on the part of the plaintiff to mitigate his own damage. While the plaintiff had time, after entering the contract to sell to Wilhave, to serve a lapsing notice and have 21 days after service expire, I do not regard the plaintiff’s failure to do so as something so unreasonable as to prevent the defendant’s failure to withdraw the caveat when requested from being a substantial cause of the contract with Wilhave being terminated.

65 There is mention in the special condition with Wilhave about there being another caveat on foot at the time that contract was entered into. However, the correspondence shows that it was not that other caveat which was preventing completion, only the caveat of the defendant.

66 The losses which the plaintiff claims are the totality of the amount he had been ordered to pay to Wilhave, together with an additional amount of in excess of $150,000 for loss of rent and other items of damage accruing after the contract between the plaintiff and the defendant went off.

67 There is some sketchy evidence, to the effect that the plaintiff has now sold the property. It is not at all clear when he sold it. He cannot remember the name of the purchaser. He gave two different accounts of what he thought the purchase price was under that contract, namely $830,000 and $930,000. In all these circumstances, I am not satisfied that he has established any claim for loss arising from any circumstance other than the judgment which Wilhave has obtained against him.

68 Nor, in my view, is he entitled to all of the elements of that judgment. His obligation to repay the deposit of $80,000 to Wilhave, while it represents money which flowed out of his pocket, is not truly a loss which he has sustained, because he had received that $80,000 from Wilhave at the time his contract with Wilhave was entered into. Hence he is not entitled to compensation from the defendant for having had to repay that deposit.

69 So far as the order for Wilhave’s costs is concerned, Counsel for the defendant submits that it should not be regarded as being caused by the wrongful failure to withdraw the caveat. Rather, she submits, the order for costs was caused by the plaintiff defending proceedings to which he had no trace of a real defence. I accept that submission, and do not allow the item of $37,500 for costs.

70 That leaves the item of $32,500, for damages, paid to Wilhave. If the caveat had been withdrawn earlier, that amount would not have had to have been paid. That is a good starting point for a conclusion that the failure to withdraw the caveat is the cause of paying that amount, though it is not necessarily sufficient. In the present case, it seems to me that, in the ordinary commonsense meaning of the term, it has been the failure to withdraw the caveat which caused that amount of damage to be sustained.

71 In the circumstances, I find that the amount of compensation to which the plaintiff is entitled under s74P is $32,500.

Defendant’s Claim to Interest on Deposit Paid by it

72 The defendant also makes a claim for interest on the deposit it paid to the plaintiff. The deposit was, as I have said, released to the plaintiff. His obligation, I have found, was to return that deposit on or shortly after 14 February 2001. He retained the deposit until it was paid into Court pursuant to the orders made on 21 February 2002. The regime whereby the money was paid into a controlled money account on 21 February 2002 was a regime agreed to by both parties.

73 The order I make concerning interest is for the plaintiff to pay the defendant interest at Schedule J Supreme Court Rules 1970 rates on $79,000 from a period shortly after 14 February 2001 to 21 February 2002. I fix that “shortly after” period as commencing on 21 February 2001. Thus I shall order the plaintiff to pay interest to the defendant on the deposit at Schedule J rates over the year from 21 February 2001 to 21 February 2002.

Costs

74 Each side makes a claim for costs. The practical reality is that each side has brought a claim, and each has won one of the claims which it brings and has failed in defending a claim.

75 There are also two offers of compromise. The offers of compromise are ones made by the defendant, each of which commences with the words, “The defendant offers to compromise the plaintiff’s action in the following manner”. The first of them was by the plaintiff paying the defendant $54,000 plus costs as agreed or assessed, the later offer was by the plaintiff paying the defendant $70,000 plus costs as agreed or assessed.

76 The offers of compromise are unclear in that it is not apparent whether the defendant was offering to compromise both the claim and the cross-claim, or merely the claim made on the plaintiff’s summons. The rules relating to offers of compromise (Supreme Court Rules 1970 Part 52A rule 22 and Part 22 rule 3) do not prescribe a form, or state in detail the particular form which an offer of compromise should make. However, it seems to me that an offer of compromise which is to trigger the consequences arising under Part 52A rule 22 ought be one which makes clear on its face exactly what it is that is offered, and in exchange for what it is offered. I do not regard the offers of compromise in the present case as doing that. Hence I would not regard them as affecting the discretion which I exercise concerning costs.

77 Once the offers of compromise are put to one side, it seems to me that the appropriate order is that each party bear its own costs.

Orders

78 In consequence, the orders of the Court are:

1. Declare that the contract for sale of land made between the plaintiff as vendor and the defendant as purchaser on 30 November 2000 in respect of the whole of the land comprised in Folio Identifier 30/B/8313 and known as 40 Raymond Avenue Matraville has been validly rescinded by the defendant.

2. Order the plaintiff to pay to the defendant the sum of $79,000. In addition, order the plaintiff to pay to the defendant interest on the said sum of $79,000 at the rate prescribed by Schedule J of the Supreme Court Rules 1970 for the period 21 February 2001 to 21 February 2002.

3. Order the plaintiff to execute such documents and take such other steps as might be necessary to vest in the defendant any interest which might have been earned on the sum of $79,000 paid into a controlled moneys account in the joint names of the solicitors for the plaintiff and the solicitors for the defendant pursuant to orders made in these proceedings on 21 February 2002.

4. Order the defendant to pay to the plaintiff the sum of $32,500.

79 I make no order as to costs. Exhibits may be returned.

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Last Modified: 07/12/2004