Pacifico v Berlian

[1999] NSWCA 378

Reported Decision: (2000) NSW ConvR 55-922

New South Wales

Court of Appeal

CITATION:	PACIFICO v BERLIAN [1999] NSWCA 378
FILE NUMBER(S):	CA 40903/97
HEARING DATE(S):	24 September 1999
JUDGMENT DATE:	24 September 1999
PARTIES :	PACIFICO (TIMBER) PTY LIMITED v BERLIAN TIMBERS PTY LIMITED
JUDGMENT OF:	Handley JA at 1; Beazley JA at 21; Stein JA at 22

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	EQ 3401/97
LOWER COURT JUDICIAL OFFICER:	Windeyer J

COUNSEL:	D J Hammerschlag (Appellant) C J Stevens/C Hodgson (Respondent)
SOLICITORS:	Foulsham & Geddes (Appellant) Colin Ferguson (Respondent)
CATCHWORDS:	CONTRACT - sale of land - conditional on registration of subdivision - option to rescind - whether purported rescission valid - whether breach of obligation to take all reasonable steps to register subdivision disentitled vendor from rescinding - whether refusal to comply with erroneous Council requirements unreasonable
DECISION:	Appeal dismissed with costs

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40903/97
EQ 3401/97

HANDLEY JA
BEAZLEY JA
STEIN JA

Friday 24 September 1999


PACIFICO (TIMBER) PTY LIMITED v BERLIAN TIMBERS PTY LIMITED

CONTRACT - sale of land - conditional on registration of subdivision - option to rescind - whether purported rescission valid - whether breach of obligation to take all reasonable steps to register subdivision disentitled vendor from rescinding - whether refusal to comply with erroneous Council requirement unreasonable

The appellant entered into a contract for the sale of land conditional upon a subdivision being registered within a certain time; either party could rescind if this condition was not met. The vendor delayed making the application for subdivision and when the subdivision was not registered by the due date, owing to some confusion over a council requirement for an additional fire-rated wall, the vendor rescinded. The trial Judge found that the vendor had breached its obligation to take all reasonable steps to register the subdivision and was not entitled to rescind. Specific performance was ordered.
HELD : dismissing the appeal: (1) The appellant had not acted reasonably in its response to the erroneous requirement of the Council. (2) The trial Judge was correct in finding that the vendor’s delay had disentitled it from exercising the option to rescind.

ORDERS

Appeal dismissed with costs.

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40903/97
EQ 3401/97

HANDLEY JA
BEAZLEY JA
STEIN JA

Friday 24 September 1999

PACIFICO (TIMBER) PTY LIMITED v BERLIAN TIMBERS PTY LIMITED
JUDGMENT

1    HANDLEY JA: This is an appeal by a vendor from a decision of Windeyer J who rejected its claim that a contract of sale had been validly rescinded pursuant to a special condition and ordered specific performance in favour of the purchaser.
2    The proceedings relate to property at Mount Kuring-gai, being part of lot 41 in Deposited Plan 752053. The sale was conditional upon a subdivision of lot 41 being registered by 4 July 1997. Contracts were exchanged on 17 October 1996.
3    The contract price was $1.3 million. The relevant condition in the contract was condition 29, which is as follows:

“29. Completion of this contract is conditional upon registration by the vendor of a plan of sub-division of the land in Folio Identifier 41/752053 in accordance with the plan annexed hereto and marked with the letter ‘A’, either as a Torrens Title sub-division or a Strata Title sub-division at the option of the vendor.
The vendor shall take all steps and do all things to apply for approval of the sub-division and registration of the plan at the Land Titles Office and will use its best endeavours to effect such registration.
In the event that the plan is not registered on or before 4 July 1997, then either party may, by notice in writing, rescind the agreement and the vendor will refund to the purchaser the deposit and any purchase money paid by the purchaser (other than the sum of $8,000 per month occupation fee and outgoings paid or payable by the purchaser)”.

4    The subdivision application was not lodged with the Hornsby Council until 14 March 1997, a few days short of six months after contracts were exchanged. Approval for the subdivision was granted on 26 May. The instrument of approval contained 8 conditions expressed to be such and 7 notes. There followed what were described as "comments" from the Council's building manager. Comments 8.3 and 8.5 were as follows:

"8.3 The external walls of both buildings where deemed exposed to a fire source feature must have an FRL of not less than 240/240/240 ...
8.5 The eastern wall of both buildings must be constructed of materials having an FRL of not less than 240/240/240 where deemed to be exposed to a fire source feature".

5    A building application was required for the building work involved in the subdivision, including the fire rated wall or walls between the two buildings on the property. However, as the Judge found, there was no reason for the building application and the work the subject of that application to hold up the release of the subdivision plan as a bond could have been lodged for the performance of that work.
6    On 5 June a meeting took place between Mr Weir, who was acting in conjunction with Messrs Dunlop, Thorpe and Co as the surveyors for the vendor, and Mr Welfare, who was the Senior Environmental Health and Building Surveyor at the Council. In the course of that meeting Mr Weir became aware, possibly for the first time, that Mr Welfare was of the opinion that two fire walls were required between the other building on the land, currently occupied by BBC Hardware, and the building the subject of the sale to the purchaser.
7    Mr Weir did not agree that a second wall was required, and his notes to Mr Dunlop, the principal of Dunlop, Thorpe and Co of that day, indicated his views on the matter. He said he was seeking a ruling from the Building Council of Australia in Canberra, which he clearly thought would support the position he had taken in his discussions with Mr Welfare. The problem arose from the plan of subdivision, which had been lodged with the Council but had been prepared by Mr Weir. This provided for a single fire wall between the buildings, although it does take a moment or two to realise that this is the effect of the plan.
8    Mr Welfare, who could only have had a very quick look at the plan, thought that it provided for two fire walls between the buildings. His attitude was that in such a case both walls had to be fire rated. Mr Weir, who drafted the plan, intended to provide a single wall, but accepted that it had to be fire rated. Since his plan was the basis of Mr Welfare's misunderstanding, it should not have taken a great deal of time or trouble to clarify the position, and have Mr Welfare change his opinion.
9    By the time this difficulty emerged, a fire wall between the buildings had been practically completed, the Council having indicated informally to Mr Weir that no objection would be taken to the construction of the wall proceeding prior to the submission of a formal building application.
10    Council's apparent requirement evidenced in the “comments” on the subdivision approval, confirmed by Mr Welfare on 5 June, was communicated to Mr Dellow, the principal of the vendor, who took the view that the requirement for a second wall was a piece of nonsense and that he was not going to pay for it, especially when informed that the cost might be in excess of $60,000. Nothing effective was done to resolve the difficulty before the time limited by special condition 29 expired. Thereafter the vendor acted without delay in purporting to rescind the contract.
11    The purchaser did not accept the validity of the rescission and legal proceedings followed. It was not in dispute that both by the express terms of special condition 29 and by the general law the vendor had to take all reasonable steps within its power to secure approval of the subdivision and registration of the plan at the Land Titles Office. The purchaser claimed that the vendor’s breaches of this obligation disentitled it from relying on the clause. The dispute in this Court concerns the findings by Windeyer J that the vendor was in breach of its obligations under the clause.
12    The Judge found that there had been unexplained and unnecessary delay by the vendor in applying for and obtaining the necessary Council approval and this finding was not, and indeed could not, be challenged. He also found that one course open to the vendor after the subdivision approval received on 26 May was to lodge a bond to comply with the building requirements of the Council. If this had been done the plan could have been released and registered in good time.
13    When Mr Welfare's affidavit was sworn and filed on 20 November 1997, only some four months after the purported rescission, it became clear that his so called requirement for a second fire wall was the result of a mistake. As a result of this evidence the Judge found that had a building application been lodged, or had a new application been made to carry out the works necessary for the subdivision, only one fire resisting wall would have been required.
14    The first issue which arose on the appeal concerned the appellant's challenge to the Judge's finding that it was unreasonable of the vendor not to agree to pay the extra cost required for the second wall. The estimates of the cost of this wall ranged between $45,000 and $68,000 and the Judge assumed the higher figure in favour of the vendor. In the context of the purchase price of $1.3 million, the Judge came to the conclusion that the refusal of the vendor to pay the amount in question was not reasonable in all the circumstances. He said that the onus was on the vendor to show that the refusal was reasonable and it had not done so.
15    Insofar as it was suggested that the amount was unreasonably large in relation to the purchase price, and for that reason alone the vendor's refusal to pay was unreasonable, I would agree with the trial Judge that the vendor failed to establish this. Mr Hammerschlag submitted that the Council's requirement was itself unreasonable since a single fire wall was sufficient. The unreasonable nature of the Council's requirement for a second and unnecessary fire wall meant that the vendor could reasonably refuse to pay for such a wall. It is not necessary to express any view on such a case because it is clear, in my judgment, that the vendor did not act reasonably in dealing with this strange so called requirement from the Council.
16    The vendor's failure to lodge a subdivision application during a period of six months from the date of the contract made a material contribution to the difficulties which were encountered between the end of May, when the approval was granted, and the expiration of the time specified in special condition 29. This delay, by itself, was sufficient to disentitle the vendor from relying on the clause and rescinding the contract.
17    The plan of subdivision was inherently a simple one. The purpose of the subdivision was to enable the existing buildings on the land to pass into the ownership of different persons. This highlights the problems for the vendor created by its long delay in lodging the subdivision application.
18    The Judge found that had the application been lodged, as he would have expected, during December 1996 at the latest, it would have been dealt with in the ordinary course some time in February. He further found:

"Had that been the position then in my view it is more likely than not that with appropriate discussions with Council the true position would have been revealed. The evidence is that nobody ever asked Mr Welfare why two walls were required. The fact is that he thought as a result of misreading the sketch plans that two walls were to be built, and in those circumstances required each to be fire resistant".

19    Mr Weir, who had discussions with Mr Welfare on 5 June, as recorded in his notes, did not give evidence on behalf of the vendor. It was therefore impossible for the Judge to determine whether he made a proper attempt to persuade Mr Welfare of the error of his ways in misreading the plans. It is apparent from all the evidence that the possibility of being able to cancel this contract under special condition 29 was not unwelcome to Mr Dellow and without evidence from Mr Weir it is just impossible to know whether and what attempts were made by him to clarify the position and remove this unreasonable requirement. Within four months of the rescission of the contract Mr Welfare had an entirely different perspective on his requirement and it has not been suggested that this change of attitude was other than bona fide. He was not cross-examined to the contrary at the trial.
20    Mr Hammerschlag made a valiant attempt to persuade us that the Judge's second finding, that I have referred to, could not be supported, but in my judgment it is correct. Indeed any other result in this case would have been a travesty having regard to the need for proper performance of contractual obligations. The appeal therefore fails on all grounds, and I would propose that it be dismissed with costs.
21    BEAZLEY JA: I agree.
22    STEIN JA: I also agree with Handley JA. The evidence before the trial Judge amply justified his finding that the appellant vendor could not rely on special condition 29 to rescind the contract since it had not acted reasonably and used its best endeavours to effect registration of the plan of subdivision by 4 July 1997. The manifest and unexplained delay by the vendor is testament to its unreasonable conduct. This is not a case of the imposition of an unreasonable condition by a council. There was no unreasonable condition in the subdivision consent, nor do I regard the note to the document as a Council requirement. It was nothing more than advisory and had no legal status. I agree that the appeal should be dismissed.
23    HANDLEY JA: The order of the Court therefore will be appeal dismissed with costs.
24    STEVENS: There is actually also a cross-appeal. That also ought to be dismissed, and we would suggest with no order as to costs.
25    STEIN JA: It was a defensive cross-appeal.
26    STEVENS: Yes.
27    HANDLEY JA: Do you want to be heard against that, Mr Hammerschlag?
28    HAMMERSCHLAG: Only as to the question of costs, because the cross-appeal related to an assertion of an agreement for an extension and amongst others seeking to upset his Honour's finding of fact on that subject.
29    HANDLEY JA: I understand that, but no time has been taken up with that in court. Time was spent in written submissions. Is there a body of material required for the appeal books that wouldn't otherwise have been required?
30    HAMMERSCHLAG: I can't say that there is.
31    HANDLEY JA: It comes down to the written submissions. I really think it is in the nature of a defensive cross-appeal, Mr Hammerschlag. No order as costs of the cross-appeal.