Marvolos Pty Ltd v VADF Pty Ltd
[2012] VSC 550
•18 October 2012.
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S CI 2012 5316
| Marvolos Pty Ltd (ACN 132 510 831) | Plaintiff |
| v | |
| VADF Pty Ltd (ACN 080 678 557) | First Defendant |
| Registrar of Titles | Second Defendant |
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JUDGE: | KYROU J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 October 2012 |
DATE OF ORDER: | 18 October 2012. Request for reasons made on 2 November 2012. |
DATE OF REASONS: | 14 November 2012 |
CASE MAY BE CITED AS: | Marvolos Pty Ltd v VADF Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2012] VSC 550 |
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CAVEATS – Removal of caveat – Whether there was a serious question to be tried that the first defendant had a caveatable interest in properties the subject of contracts of sale – No material change entitling the first defendant to issue a notice of abatement – Whether time was of the essence – Whether the first defendant repudiated the contracts - Contracts came to an end – Order for removal of caveat – Transfer of Land Act 1958, s 90(3)
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J P Foster | De Marco Lawyers |
| For the First Defendant | Mr P N Wikramanayake SC and Mr D P Lloyd | Anthonys Solicitors |
| For the Second Defendant | No appearance |
HIS HONOUR:
Introduction and summary
On 18 October 2012, I made an order in the Practice Court for the removal of caveat number AJ634681L (‘Caveat’) lodged in respect of the titles to units 1 to 4, 2 Ash Street, Thomastown (‘Properties’). I also dismissed the summons of the first defendant filed on 15 October 2012 seeking an order for access to the Properties for the purpose of inspection and an adjournment of the plaintiff’s application for the removal of the Caveat. I informed the parties that I would deliver reasons if requested to do so. On 2 November 2012, the solicitors for the first defendant requested such reasons. These are the reasons for my order.
The plaintiff is the registered proprietor of the Properties. On 9 July 2010, the plaintiff entered into four separate contracts of sale with the first defendant in respect of the Properties (‘Contracts’). Settlement was due on the latter of 14 days after the plaintiff had given notice to the first defendant of the registration of the plan of subdivision, or 14 days after the plaintiff had given notice to the first defendant that the certificate of occupancy had been issued.
General condition 16.1 of the Contracts provided that time was of the essence of the Contracts. General Condition 27.1 provided that a party was not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party was served and failed to comply with a written default notice. General Condition 28 specified the consequences of a failure to remedy a default under the Contracts.
Special Condition 18 of the Contracts relevantly provided:
18.2The Vendor must ensure that the Property and the common property is constructed by the Builder in general accordance with the Building Plans and Specifications as annexed to this Contract.
18.3The issue of the Occupancy Permit is conclusive evidence that subject to the Vendor procuring registration of the Plan of Subdivision, the Vendor has complied with its obligations under this Contract. …
…
18.5The Purchaser acknowledges that the Building Plans and Specifications may be varied or altered by the Vendor from time to time in any manner the Vendor considers necessary or desirable.
18.6The Vendor must notify the Purchaser within a reasonable time of any variation or alteration to the Building Plans or Specifications which in the Vendor’s opinion materially and detrimentally affect the Purchaser.
…
18.10 If there is any dispute in connection with special condition 18:-
(a)the Purchaser may not delay completion of or rescind this Contract;
(b)either the Vendor or Purchaser may within 2 weeks after the settlement date resolve the dispute in accordance with special condition 20.
Condition 4 of the planning permit issued by the City of Whittlesea (‘Council’) to the plaintiff on 12 April 2010 (‘Planning Permit’) provided as follows:
The development allowed by this permit and shown on the plans and/or schedules endorsed to accompany this permit shall not be amended for any reason without the consent of the Responsible Authority.
On 2 March 2012, a certificate of occupancy was issued for each of the Properties and on 13 March 2012, the plan of subdivision was registered. By letter dated 15 March 2012, the plaintiff notified the first defendant of the registration of the plan of subdivision and attached the certificates of occupancy. The initial date for settlement was 29 March 2012. This date was extended to 5 April 2012 and then to 10 April 2012, following the plaintiff’s receipt of a statement of adjustments from the first defendant with an adjustment date of 10 April 2012. However, settlement did not take place on 10 April 2012.
On 10 April 2012, the first defendant inspected the Properties.
On 11 April 2012, the Council inspected the Properties. By email dated 12 April 2012 (‘Council Email’), the Council relevantly stated:
I have inspected the landscaping and all is in accordance with the endorsed plans.
Fencing has had approval from Buildings and there are no further outstanding issues.
Between 11 April and 17 April 2012, the plaintiff’s solicitors and the first defendant’s solicitors engaged in correspondence regarding the first defendant’s complaints about the positioning of the unit 1 fence and alleged defects at the Properties, and the plaintiff’s responses to those complaints. By letter dated 13 April 2012, the plaintiff’s solicitors notified the first defendant’s solicitors that the fence line complied with the Council’s requirements and attached the Council Email.
On 18 April 2012, the plaintiff served a rescission notice on the first defendant in respect of each of the Properties (‘First Rescission Notice’). The ‘Particulars of Default’ were described as ‘Failure to settle in accordance with the terms of the Contract of Sale’. The First Rescission Notice required the first defendant to effect settlement within 14 days, by 3 May 2012.
On 2 May 2012, the first defendant’s solicitors wrote to the plaintiff’s solicitors, advising that the first defendant would not settle on the Properties. The letter relevantly stated:
We … advise that [the first defendant] will not settle on the … [Properties] until the items listed in our previous correspondence are attended to.
…
We would ask that [the plaintiff] not rescind the contracts and instead carry out the works in accordance with the plans and permits provided. In the alternative, if [the plaintiff] does not wish to undertake these works, then we request that you provide us with amended stamped plans which [the first defendant] will accept in resolution of the matter.
On 2 May 2012, the plaintiff’s solicitors replied to the first defendant’s solicitors, stating that ‘[w]e … confirm that the Rescission Notices stand and expire tomorrow, 3rd May 2012’.
On 2 May 2012, the first defendant lodged the Caveat against the titles to the Properties, claiming an estate in fee simple in respect of each of the Properties as purchaser under the Contracts.
On 4 May 2012, the plaintiff’s solicitors wrote to the first defendant’s solicitors, stating, in respect of each of the four units, ‘[w]e … note that the Rescission Notice expired yesterday and the Contract of Sale is at an end’.
On 30 May 2012, the plaintiff’s solicitors wrote to the first defendant’s solicitors requiring settlement by 13 June 2012 (’30 May Letter’). That letter relevantly stated:
Although we contend that each of the contracts has been validly rescinded, in case we are wrong about that we are instructed to invite the purchaser to effect settlement of each of the contracts upon the basis that each of the contracts remains in force and that this correspondence triggers the obligation to settle. … [I]f [the first defendant] fails to effect settlement 14 days after this notice, we have instructions to serve rescission notices.
The first defendant did not effect settlement by 13 June 2012. On 14 June 2012, the plaintiff served a further rescission notice on the first defendant in respect of each of the Properties (‘Second Rescission Notice’).
On 5 July 2012, the plaintiff’s solicitors wrote to the first defendant’s solicitors (‘5 July Letter’). That letter relevantly stated, in respect of each of the four units, ‘[w]e … confirm the Notices of Rescission have now expired and the Contracts of Sale are now at an end’.
On 12 October 2012, the Council stamped and endorsed amended plans for the Properties. On 16 October 2012, the Council wrote to the plaintiff’s solicitors regarding the Planning Permit for the Properties. The letter relevantly stated:
(1)As of 11 April 2012 Council was aware of the change in the location of the fenceline ‘as built’ compared to that contained in the endorsed plans when a Council Officer carried out an inspection of the development at the property on 11 April 2012;
(2)Council considered the development as a whole to be generally in accordance with the approved permit, and approved the position of the fenceline applicable to unit 1, as of 11 April 2012. This approval was later implicitly confirmed by virtue of the landscaping plan bond being released to [the plaintiff] on or about 29 April 2012;
(3)Council does not consider there to be any breach of condition 4 of the planning permit as Council has given its consent to the changed position of the fenceline; and
(4)The endorsed plan stamped on 12 October 2012 is no more than confirmation of the consent which had already been given by Council as of 11 April 2012.
Preliminary issue: was there a material change?
During the hearing, I dismissed the first defendant’s summons filed on 15 October 2012 seeking an order that it be granted access and be permitted to inspect the Properties and to take measurements and photographs, and an order adjourning the hearing of the proceeding. Mr P Nimal Wikramanayake SC, who appeared with Mr David Lloyd for the first defendant, submitted that there had been a material change entitling the first defendant to serve a notice of abatement. The material change was said to be constituted by a change to the boundaries of the land upon which the Properties are situated, caused by the positioning of the fence line for unit 1.
According to Mr Wikramanayake SC, the plaintiff was in breach of the Contracts, as the set back for unit 1 is only 2.7 metres, whereas the approved plans forming part of the Planning Permit provided for a set back of 4.5 metres. The positioning of the fence line was said to place some of the land in the common property. Mr Wikramanayake SC contended that no purchaser will buy unit 1 until it conforms to the Planning Permit or an exemption is obtained by the plaintiff from the Council; and that it is open to the plaintiff to apply to the Council for an amendment to the Planning Permit.
In my opinion, the first defendant’s arguments lacked any factual foundation and were entirely misconceived. Despite the first defendant’s expert evidence to the contrary, I was not satisfied that there was any material change caused by the positioning of the fence line. The paling fence is an internal fence and therefore the fence line is not a title boundary. The change to the fence line did not alter the dimensions of the land in any way and had no connection with the common property. The paling fence could have been replaced easily and inexpensively. Even if the change was considered material, it was not detrimental to the first defendant. Rather, the placement of the fence line had the practical effect of expanding the private open space of the rear courtyard of unit 1 relative to the front yard of unit 1, and was thus of benefit to the first defendant. I was not satisfied that there was any diminution in the area or the value of the Properties. Therefore, there was no basis for an abatement notice to be served.
I was of the view that the first defendant agitated the alleged non-compliance with the Planning Permit caused by the positioning of the fence line in order to delay settlement, and that the arguments made in support of an abatement notice were disingenuous.
Relevant legal principles for making an order for the withdrawal of a caveat
Section 90(3) of the Transfer of Land Act 1958 (‘TLA’) provides that:
[a]ny person who is adversely affected by any ... caveat may bring proceedings in the Court against the caveator for the removal of the caveat and the Court may make such order as the Court thinks fit.
In Goldstraw v Goldstraw,[1] Dodds-Streeton J explained the nature and operation of s 90(3) of the TLA as follows:
Section 90(3) is in the nature of a summary procedure analogous to the determination of interlocutory injunctions. The Court’s power under s 90(3) is discretionary. In that context, it is recognised that the caveator bears the onus of establishing that there is a serious question to be tried that he or she does have the estate or interest in the land claimed. That is, ‘in order to resist successfully the applications for removal of caveats (the caveator’s) arguments must be directed towards the assertion of an interest in the subject land in the light of relevant principles of property and equity law’. Further, if the caveator does establish the serious question to be tried in relation to the estate or interest claimed, the weight of authority indicates that the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial.
[1](2006) V ConvR 54-712, 63,067 [30] (citations omitted).
In the present case, the two-step process for determining the plaintiff’s application for the removal of the Caveat is:
(a) the first defendant, as the caveator, must establish that there is a serious question to be tried that it has a caveatable interest in the Properties; and
(b) if the first defendant establishes that there is a serious question to be tried, it must further establish that the balance of convenience favours the maintenance of the Caveat until trial.
Substantive issue: were the Contracts validly rescinded?
At the time that the Contracts were signed, the first defendant acquired an equitable interest in the Properties pursuant to a specifically enforceable contract. If the Contracts remain in force, the first defendant maintains that equitable interest in the Properties. However, if the Contracts were effectively ended by the plaintiff, the first defendant no longer has an equitable interest in the Properties.
Were the First Rescission Notice and the Second Rescission Notice validly issued?
Mr Wikramanayake SC submitted that neither the First Rescission Notice nor the Second Rescission Notice was lawful, because at the time that the plaintiff served those notices on the first defendant, the plaintiff was itself in breach of the Contracts. Mr Wikramanayake SC relied on McNally v Waitzer[2] for the proposition that a party that is itself in breach of a contract cannot validly rely on another party’s breach of the contract to issue a rescission notice. According to Mr Wikramanayake SC, the plaintiff’s breach was constituted by the non-conformity of the Properties with the approved plans forming part of the Planning Permit issued for the development of the land, due to the positioning of the unit 1 fence line. Mr Wikramanayake SC also submitted that this was a material and detrimental change of which the plaintiff failed to notify the first defendant within a reasonable time, as required by Special Condition 18.6 of the Contracts. I have already held at [21] above that the change was neither material nor detrimental.
[2][1981] 1 NSWLR 294.
Mr Justin Foster, who appeared for the plaintiff, submitted that the change to the unit 1 fence line was approved by the Council in the Council Email of 12 April 2012. Therefore, according to Mr Foster, at all relevant times, the plaintiff was not in breach of the Contracts, such that the First Rescission Notice was valid.
Mr Foster submitted that, while the approval from the Council was provided to the first defendant on 13 April 2012, three days after the nominated 10 April 2012 settlement date, that approval was nonetheless received before the First Rescission Notice was served on the first defendant on 18 April 2012 and before 4 May 2012, the date upon which the plaintiff’s solicitors gave notice to the first defendant’s solicitors that the Contracts were at an end. Mr Foster further contended that the Council’s approval of 12 April 2012 came well before the 30 May Letter and the Second Rescission Notice served on 14 June 2012 and before 5 July 2012, the date upon which the plaintiff’s solicitors again gave notice to the first defendant’s solicitors that the Contracts were at an end.
In my opinion, the Council Email did constitute valid consent. This is because condition 4 of the Planning Permit did not specify the form of the consent to be given by the Council. It merely provided that any amendment to the development allowed by the Planning Permit required the consent of the Council. Accordingly, at the time that the First and Second Rescission Notices were served, the plaintiff was not in breach of the Contracts.
Further, under Special Conditions 18.3 and 18.10(a) of the Contracts, the first defendant was not entitled to delay settlement. Mr Wikramanayake SC’s submission that the words ‘the Purchaser may not delay completion’ in Special Condition 18.10(a) gave the first defendant a discretion whether or not to delay settlement is fanciful. Umbers v Kelson,[3] upon which Mr Wikramanayake SC relied, provides no support for that submission.
[3](2010) V ConvR 54-782.
Was time of the essence of the Contracts?
Mr Wikramanayake SC further contended that the Contracts were not validly rescinded because time had ceased to be of the essence. He contended that, by extending the due date for settlement from 29 March 2012 to 10 April 2012 and then to 13 June 2012, the plaintiff waived the essentiality of time under the Contracts. If time were to be made of the essence again, so it was contended, the plaintiff was required to issue a notice to complete to the first defendant. According to Mr Wikramanayake SC, the plaintiff was not entitled to serve the Second Rescission Notice because time had ceased to be of the essence of the Contracts. Alternatively, it was submitted that, because time had ceased to be of the essence, the Second Rescission Notice did not bring the Contracts to an end; a further notice ending the Contracts was required.[4]
[4]Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd (2004) V ConvR ¶54-690, 62,841-2 [28] (‘Burke’).
Mr Foster submitted that the 30 May Letter made time of the essence once again.[5] He further contended that the Second Rescission Notice could, of itself, have the effect of again making time of the essence of the Contracts. This was, so it was said, irrespective of the fact that the Second Rescission Notice may have been given in the mistaken belief that General Condition 27 of the Contracts applied; or that the Second Rescission Notice expressed the consequences that would follow from failure to comply if General Conditions 27 and 28 of the Contracts continued to apply.[6]
[5]Thornton v Bassett [1975] VR 407, 423, 429 (‘Thornton’); Burke [2004] V ConvR 54-690, 62,841-2 [28], [31].
[6]Burke (2004) V ConvR ¶54-690, 62,842-3 [32]; Thornton [1975] VR 407, 427.
According to Mr Foster, the first defendant’s failure to effect settlement and to pay the remainder of the purchase price within the 14 days set by the First Rescission Notice and then the Second Rescission Notice constituted a repudiation of the Contracts entitling the plaintiff to rescind.[7] Mr Foster submitted that the 5 July Letter could apply equally to the 30 May Letter giving the first defendant until 13 June 2012 to effect settlement, or to the Second Rescission Notice giving the first defendant until 28 June 2012 to effect settlement.
[7]Burke (2004) V ConvR ¶54-690, 62,843 [36].
I accept the evidence of Mr Pasquale Scaturchio,[8] a director of the plaintiff, that the initial delays in settlement of the Contracts were at the request of the first defendant, which requested that certain minor rectification works be performed prior to settlement. Where a contract contains a condition that time is of the essence, a mere extension of time does not waive the effect of the condition.[9] Even if time had ceased to be of the essence, as contended by the first defendant, it became of the essence again upon the plaintiff’s service of the 30 May Letter or, at the latest, upon issue of the Second Rescission Notice.[10] Failure to comply with the reasonable period of 14 days specified for settlement the Second Rescission Notice led to the termination of the Contracts. Alternatively, the failure by the first defendant to comply with the demand for payment within the reasonable period of 14 days specified in the Second Rescission Notice constituted a repudiation of the Contracts, which the plaintiff accepted in its letter dated 5 July 2012 to the first defendant.[11] Therefore, I found that the Contracts came to an end at the latest on 5 July 2012.
[8]Mr Scaturchio gave oral evidence at the hearing on 18 October 2012.
[9]Thornton [1975] VR 407, 422.
[10]Thornton [1975] VR 407, 423, 429.
[11]Burke (2004) V ConvR 54-690, 62,843 [36].
As the Contracts came to an end at the latest on 5 July 2012, the first defendant thereby ceased to have a caveatable interest in the Properties. Accordingly, at the date of the hearing, there was no serious question to be tried.
As I found that there was no serious question to be tried, it was not necessary for me to consider whether the balance of convenience favoured the maintenance of the Caveat until trial.
Other matters
Dispute resolution mechanism in the Contracts
The first defendant originally sought to argue that the plaintiff was required to refer the dispute for resolution in accordance with Special Condition 20 of the Contracts before it rescinded the Contract and instituted proceedings in this Court. At the hearing before me in the Practice Court, Mr Wikramanayake SC did not pursue this submission. He was correct not to do so, as the submission was devoid of merit.
Applicable interest rate
A further issue that arose in relation to the validity of the First and Second Rescission Notices was the applicable rate of interest to be specified in those notices. Item 8 of the Rescission Notices specified an interest rate of 18.5% as the rate on the amount due under the Contracts.
On 1 May 2012, the first defendant’s solicitors wrote to the plaintiff’s solicitors asserting that the First Rescission Notice was invalid as interest had been charged at 18.5%. The first defendant sought to rely on General Condition 26 of the Contracts, which relevantly provided that interest at a rate of 2% per annum plus the rate fixed for the time being by s 2 of the Penalty Interest Rates Act 1983 was payable on any money owing under the Contracts during the period of default.
In its written submissions, the plaintiff submitted that General Condition 26 did not apply to the Contracts, as Special Condition 1.2(q) specified, amongst other matters, that ‘General Condition … 26 … shall not apply to this Contract’. According to the plaintiff, Special Condition 7 applied to the Contracts. Special Condition 7 provided for the payment of a default rate of interest 8% above the rate for the time being fixed under the Penalty Interest Rates Act 1983, which at the time was 10.5%. Therefore, so it was submitted, 18.5% was the correct rate of interest to be specified in the Rescission Notices.
The interest rate issue was not pursued in the first defendant’s written submissions or in oral argument before me. In any event, I accepted the plaintiff’s submissions and found that the Rescission Notices correctly specified the applicable interest rate in the event of default under the Contracts.
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