Schenk v ACN 081 123 140 Pty Ltd

[2002] NSWSC 123

Reported Decision: (2002) NSW ConvR 56-021

New South Wales

Supreme Court

CITATION:	SCHENK & ANOR v. ACN 081 123 140 P/L [2002] NSWSC 123
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	SC 5918/2001
HEARING DATE(S):	06/02/2002
JUDGMENT DATE:	6 March 2002
PARTIES :	Achim Schenk & Vittoria Lazzaro - Plaintiffs ACN 081 123 140 Pty Ltd - Defendant
JUDGMENT OF:	Bryson J at 1

COUNSEL :	P.H. Blackburn-Hart - Plaintiffs M. Pesman - Defendant
SOLICITORS:	The Law Firm of Solari's - Plaintiffs Verekers - Defendant
CATCHWORDS:	VENDOR and PURCHASER - matters arising between contract and completion - Rescission - sale off-the-plan of home unit in proposed Strata Plan of building not yet built - Special Condition gave vendor right of rescission if Strata Plan not registered by 16 March 2001 - power to extend for delays exercised and extended to 15 August 2001 - vendor rescinded soon after 15 August 2001 - at time of exchange completion predicted before Olympic Games - main building work commenced December 2000 - no building contract signed until March 2001 - completion of registration expected March 2002 - found that non-registration was caused by breaches of contract by vendor and purported rescission was not effective.
CASES CITED:	Plumor Pty Ltd v. Handley (1996) 41 NSWLR 30 Hunyor v. Tilelli (1997) 8 BPR [97667] 15,629 Peters (W.A. Ltd) v. Petersville Ltd (2001) 75 ALJR 1385 Selkirk v. Romar Investments Ltd [1963] 1 WLR Woodcock v. Parlby Investments Pty Ltd (1988) 4 BPR 9568 Pierce Bell Sales Pty Ltd v. Frazer (1973) 130 CLR 575 at 590
DECISION:	Declaration that contract is valid and subsisting. See para [37] of the judgment.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J

WEDNESDAY 6 MARCH 2002

5918/01 ACHIM SCHENK & ANOR v. ACN 081 123 140 PTY LTD

JUDGMENT

1 HIS HONOUR: The purchasers (the plaintiffs) challenged an exercise by the vendor (the defendant) of a right of rescission of a contract for the sale “Off-the-Plan” of a home-unit where the strata plan has not been registered, and was not registered within the period for which the contract provided.

2 The vendor was formerly named The Satellite Group (Pyrmont) Pty Ltd. I will use “Satellite Pyrmont” to refer to the vendor. By contract dated 26 June 1998 the vendor agreed to sell and the purchasers agreed to buy Apartment 106 together with Car-parking space 120 in The Bauhaus Apartments, a building which had not then been constructed, at 209-221 Harris Street, Pyrmont. The agreed sale price was $420,000 and a deposit of $42,000 was payable in a scale of payments provided for by Special Condition 16; $5000 on exchange, $16,000 on or before 31 October 1998 and $21,000 on or before completion of the contract. In fact the purchasers made payments totalling the whole deposit of $42,000 in or before October 1998. The description of the property sold in the contract showed that the Apartment and Car-parking space were shown in an unregistered plan, and a draft strata plan was attached to the contract. The draft strata plan showed Apartment 106 on Levels 9 and 10 and Carspace 120 on Parking level 3B-4A. The plan showed a proposed brick building of 18 levels on land generally rectangular with frontages to Harris Street, Gipps Street and Ada Place, with 137 lots and 219 car parking spaces. The units may not all have been dwelling units; at other places the number of dwelling units is spoken of as 132, increased by a redesign to 133. Special Condition 2.2 provided to the effect that the Apartment and Car-parking space were to be substantially the size and location as shown on the draft strata plan; and dealt with possible variations.

3 The contract for sale was on the 1996 edition standard form, but Printed Clause 28 was deleted. Special Condition 1 contained definitions including a definition of “development consent” which showed that development consent had been obtained and that there were proposed modifications, a definition of “building approval” which showed that building approval was still to be obtained and a definition of “building contract” which showed that the building contract was still to be entered into. Satellite Pyrmont agreed to purchase the land on 20 February 1998. The development approval was granted on 3 September 1996. An application for a construction certificate (or building approval) was lodged with Sydney City Council on 6 February 1999.

4 Special Condition 2.3 was as follows:

The Vendor warrants that it will cause the Development including the Apartment and the Car Parking Space to be constructed with reasonable expedition and in a proper and workmanlike manner with good quality materials in accordance with the Development Consent and the Building Approval when obtained and in accordance with the standard of finishes and with the materials equipment and fittings as are set out in the Schedule of Finishes being Annexure “B” hereto subject nevertheless to the provisions of Special Condition 2.4 hereunder.

5 Special Conditions 2.4 and 2.5 dealt with and limited the remedies of the purchaser for any alteration in the standards set out in the Schedule of Finishes.

6 Special Condition 3 related to registration of strata plan, easements etc. and provided:

3. REGISTRATION OF STRATA PLAN, EASEMENTS ETC.
3.1 The Purchaser expressly acknowledges to the Vendor that completion of this Contract cannot take place until beforehand:
(i) The Vendor has caused to be registered in the Land Titles Office the Strata Plan on which the Apartment together with the Car Parking Space to be acquired by the Purchaser will be shown collectively as one lot on the Strata Plan, subject nevertheless to any amendments thereto as may arise pursuant to Special Condition 2.2
(ii) The Vendor has caused any necessary easement(s) and rights of way to be varied, granted and reserved whether by Instrument(s) under Section 88B of the Conveyancing Act or by other dealing(s), such that the proprietor of each of the lots in the Strata Plan shall be entitled to enjoy in common with the proprietors of all other lots those facilities of the Development which are to be shared in common and if necessary, for the provision of essential services for the Development or as may otherwise be required so as to comply or give effect to the Development Consent or any other condition of this Contract.

7 Special Condition 4 related to the completion date. It included cll 4.1 and 4.2

4.1 Subject nevertheless to the provisions of 4.3 hereunder, completion of the sale and purchase as provided by this Contract shall take place within fourteen (14) days after the solicitor for the Vendor serves written notice upon the Purchaser or the solicitor for the Purchaser (as shown on the front page of this Contract or as otherwise previously notified in writing by the Purchaser to the solicitor for the Vendor), that the Strata Plan and any other Instrument(s) or easement(s) as are referred to in Special Condition 3.1 have been registered by the Registrar General.
4.2 If the Strata Plan of Subdivision and any necessary easements which are referred to in Special Condition 3.1 above has not been registered by the Registrar General on or before 16 March 2001 or by any extension of this date pursuant to the terms of 4.3 hereunder, then either party may rescind this Contract whereupon the Purchaser shall be entitled to a refund of all monies paid but the Purchaser shall not otherwise be entitled to any claim or remedy against the Vendor for the payment of any damages, costs or expenses arising out of the fact that the Strata Plan together with any necessary Instrument(s) and/or easement(s) have not then been registered by the Registrar General.

8 Clause 4.3 enabled the vendor to extend the time provided for in cl.4.2 in one or more extensions which were not to exceed nine months, on the happening of various events and upon an architect’s certificate relating to the delay. The events included damage by fire and other adverse events, proceedings involving adjoining or neighbouring owners, delay by public authorities, inclement weather or other matters beyond the control of the vendor.

9 The vendor sent to the purchaser a letter dated 25 January 1999 which said among other things “We are pleased to provide you with an update on your investment for your information” and went on to say that Consolidated Constructions had been chosen as builder to undertake construction of The Bauhaus Apartments, described off-site work which the builder must undertake and said “… over the next four to six weeks you will begin to see machinery on-site which will be testing soil conditions.” The letter also said “Consolidated Constructions are already well into the design component of their Design and Construction Contract” and “We are therefore well on track to complete the project many months prior to the Sydney Olympics.” The letter conveyed much further information on a strongly positive note, indications of satisfaction with the contract and strong expectations of a favourable outcome.

10 On 24 February 2000 solicitors representing the vendor advised the purchaser’s agents by letter that the date for registration of the strata plan in Special Condition 4.2 had been extended from 16 March 2001 to 21 August 2001 and forwarded an architect’s certificate supporting the extension.

11 The vendor entered into an Early Works Contract with Consolidated Construction Pty Ltd on 28 May 1999 which provided for construction of early works in the nature of preliminaries, with an early works construction period of 8 weeks and a contract sum of $2,172,200.00. The Early Works Contract was conditional on furnishing a bond and on building approval. Provisions of the agreement show that the parties contemplated entering into a Construction Contract which had not then been executed. A request for an early works building approval was made on 20 February 1999, the early works building approval was issued on 11 June 1999 and work commenced on 16 June 1999. The architect’s certificate of 4 February 2000 shows that work under the Early Works Contract was then still proceeding. In February 2000 Consolidated Construction said that they were close to completing the Early Works Contract.

12 In 1998 Satellite Pyrmont was controlled, directly or ultimately, by The Satellite Group Ltd, which issued a prospectus dated 13 August 1999 for an offer of shares. This prospectus contained statements about the Bauhaus Apartments development including a table which said that there were 132 units, that 72% had been pre-sold, that the stage of development was “site being cleared Construction commenced in June 1999” and estimated completion was “December 2000”.

13 In July 2000 there were large changes in the affairs of Satellite Pyrmont. Finnbell Pty Ltd and Consolidated Byrnes Holdings Pty Ltd between them acquired all the shares in Satellite Pyrmont from The Satellite Group Ltd; the purchasers are not related to The Satellite Group Ltd. Satellite Pyrmont was not involved in later events and financial difficulties which overtook The Satellite Group Ltd. Mr Ian Widdup became Managing Director, and Mr Widdup and a new group of individuals associated with the new shareholders took control of Satellite Pyrmonts affairs, and proceeded to obtain its books, records and files, and to establish what had happened. Mr Widdup established that no Construction Contract had actually been entered into with Consolidated Constructions, although it appeared that the Early Works Contract had been carried out. There was a dispute with Consolidated Constructions about the satisfaction of pre-conditions for some documentation of the proposed Construction Contract, and also about payments due under the Early Works Contract. The responsibilities which Consolidated Constructions was to undertake in the contemplated Construction Contract were very comprehensive, including design and construction, referred to as the turn-key project, and also responsibilities for financing. Mr Widdup established that according to information available to him the Bauhaus land was worth $8,000,000 and was subject to six mortgages the total debts on which were greater than $15,000,000. Satellite Pyrmont received a statutory demand from Consolidated Constructions dated 31 July 2000 claiming $1,609,850 under the Early Works Contract and soon became engaged in litigation with one of the puisne mortgagees over an attempt to auction off the property.

14 After the change in control a newsletter was issued by Mr Widdup as Managing Director of Bridge Street Developments. Among other things this document under the heading “Bauhaus Renaissance” said “Good news! The delayed Bauhaus Project is now back on track and is scheduled for completion in late 2001.”

15 Mr Widdup’s attention had to be directed to dealings with the mortgagees, negotiations with proposed builders and review of the pre-sale contracts which had been entered into under the previous control. The builders with whom he negotiated included Multiplex Constructions (NSW) P/L, which later became the contracted builder. After lengthy and very difficult negotiations and some litigation the fourth, fifth and sixth mortgagees compromised their debts and assigned their mortgages to Multiplex, and the third mortgagee assigned its mortgage to a nominee company associated with Satellite Pyrmont’s solicitors which paid its claims, debts and costs, with funds most of which were contributed by Mr Widdup. Mr Widdup addressed further financing arrangements with banks. He carried on negotiations with ANZ Bank and BankWest and eventually achieved agreement for financing with ANZ Bank. By 28 March 2001 an in-principle finance agreement was reached for bank finance, and finance agreements with the ANZ Bank were executed in July 2001. Multiplex took possession of the site on 4 December 2000 and began building work; the building contract was not completed and signed until 28 March 2001, and the building contract was later renegotiated so as to involve a Multiplex subsidiary. The building contract provided for practical completion by 26 March 2002. Work proceeded continuously from 4 December 2000 onwards. At the time of the hearing on 6 February 2002 practical completion was expected in the immediate future.

16 Mr Christopher Heap, a consultant in the construction industry, acted as an in-house project or development manager for Satellite Pyrmont on the Bauhaus Development from about mid-August 2000. The many tasks he undertook including reviewing the contracts of sale entered into by Satellite Pyrmont with various purchasers in early to mid-1998. He established that, as in the case of the plaintiffs, the date for registration of the strata plan in contracts of sale was 16 March 2001 and had been extended to August 2001; and he also formed the view, in August 2000 that the project could not be completed by August 2001. The reasons for this view included:

1. Draft construction programs received from potential builders indicated a remaining construction period of at least 13 months;

2. Arrangements had to be made with the various mortgagees in connection with obtaining construction finance; and

3. No building contract had been entered into or builder engaged.

17 The terms of the pre-sale contracts and the task of obtaining finance were interrelated because financiers imposed conditions under which they would examine pre-sale contracts closely. As an example, an offer of finance by the Bank of Western Australia Ltd (BankWest) dated 13 February 2001 imposed among other conditions of the initial drawdown a condition requiring pre-sale contracts to a minimum of $30,000,000, which were to conform and to be certified by the bank’s solicitors to conform with requirements including the sunset clause no earlier than 31 July 2002, 10% deposits, arm’s-length contracts, negotiated purchase price at a minimum of 95% of the lender’s valuation and other conditions, with detailed progress reports. The bank finance finally obtained was obtained from ANZ Bank, not BankWest. Multiplex was involved in the ANZ Bank finance. The first draw-down was in July 2001. The terms imposed by ANZ Bank on its finance included exacting conditions precedent to drawdowns. Mr Heap’s view was that a number of the pre-sale contracts had issues which would make them unacceptable to a new financier including (1) the sales were not at arm’s-length: (2) some included vendor finance provisions: (3) some included buy-back provisions: (4) some provided for 5% deposits, and (5) some were exchanged at prices considerably less than original list prices.

18 Mr Heap said in evidence that following his review of the pre-sale contracts Mr Widdup and consultants made decisions in early 2001 as to which contracts Satellite Pyrmont should seek to rescind and which it should seek to extend and keep on foot. However a decision about Apartment 106 and the contract with the plaintiffs must have been taken earlier because the defendant entered into a contract for the sale of Apartment 106 and its related car-parking space for $480,000 to Richard Graham Bach and Christine Moira Witlock on 19 December 2000. On 10 April 2001 solicitors representing Satellite Pyrmont wrote to the plaintiffs’ conveyancing agents and said “We have now received instructions from our clients that they do not intend proceeding with the sale to your clients and at the expiry of the sun-set clause date in August of this year will exercise their rights of rescission. Alternatively if your client wishes to rescind now rather than wait until August our client will consent to a mutual rescission immediately.”

19 The plaintiffs then retained solicitors who initiated correspondence challenging the proposed rescission; Satellite Pyrmont’s solicitors did not reply, but on September 2001 wrote again to the purchasers’ conveyancing agents referring to the right of rescission, stating that the strata plan had not been registered and that the vendor exercised its right to rescind pursuant to cl.4.2; they went on to propose return of the deposit (without admitting that the deposit had been paid). The purchasers’ solicitors again sent correspondence disputing entitlement to rescind and the effect of the purported rescission; the purchasers also lodged a caveat. The vendor then appointed new solicitors who stated the vendor’s position fully on 12 November 2001, maintained the effectiveness of the rescission, acknowledged that the deposit had been paid and authorised its release to the purchasers, and called for withdrawal of the caveat. They forwarded a Lapsing Notice on 22 November 2001 and the purchasers initiated these proceedings on 12 December 2001; they have been heard with expedition. The plaintiffs claim a declaration that their contract is valid and subsisting, extension of their caveat, damages and ancillary orders.

20 Challenges to rescissions of “Off-the-Plan” contracts for the sale of residential units which are yet to be constructed frequently come before the Equity Division. The primary matter for consideration is the rights of the parties under the terms, express and implied, of their contract of sale. In this case the standard form, Printed Clause 28, was excluded and the special conditions which the parties adopted establish their relationship. Each of many decisions in this field is a decision on the particular contract in question, but some recurringly important general principles, which are applicable in the present case, were stated in Plumor Pty Ltd v. Handley (1996) 41 NSWLR 30 at 34 and 35 by McLelland CJ in Eq. The principles there stated and now relevant are to the effect that a party to a contract is not entitled, as against the other party, to rely on an event resulting from the first party’s wrongful act; that if the failure by the rescinding party to obtain some relevant consent or registration within the contractual period resulted from any default by him in the performance of express or implied obligations, that party is not entitled to exercise a right of rescission otherwise available; and that causation of the failure to obtain consent or registration by the wrongful act must be proved unless the terms of the contract make obtaining the consent or registration a condition for the exercise of the right of rescission. Another important principle, stated by McLelland CJ in Eq at pp35 and 36, is that the plaintiff bears the onus of proof on the issue of whether not obtaining the requisite consent or registration within the period specified resulted from a breach by the rescinding party of contractual obligations. This principle must be taken with the qualification, expressed by McLelland CJ in Eq in Hunyor v. Tilelli (1997) 8 BPR [97667] 15,629 at 15,631: “It is necessary however to bear in mind that all evidence is to be weighed according to the proof which it was reasonably within the means of one party to produce or of the other to contradict. This has particular significance in respect of evidentiary facts which are peculiarly within the knowledge of one party rather than the other …” (and McLelland CJ in Eq referred to authority).

21 A further important principle is that the law implies an obligation of a contracting party to do all things necessary on that party’s part to enable the other party to have the contracted benefit, and a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises; see Peters (W.A. Ltd) v. Petersville Ltd (2001) 75 ALJR 1385 at 1393 [36]. The relevant operation of this implied obligation is that it was the obligation of the vendor to do all such things as are necessary on its part to bring about registration of the strata plan before the date stated in Special Condition 4.2 or any extension thereof, and there was a negative obligation not to hinder or prevent the fulfilment of the purpose of proceeding to completion of the sale. This is an obligation implied by law and is additional to the warranty of constructing the development with reasonable expedition in Special Condition 2.3, and breach of either the implied obligation or of the warranty, causing the strata plan not to be registered within the prescribed time disentitles the vendor from reliance on its right of rescission.

22 There are also circumstances in which the purchaser may be entitled to equitable relief against a rescission even though the rescission was made in accordance with the terms of the parties’ contract. There are a number of grounds for equitable intervention. In summary the right of rescission must be exercised reasonably but this summary should not be substituted for the law as stated in Selkirk v. Romar Investments Ltd [1963] 1 WLR 1415 at 1422; and see Woodcock v. Parlby Investments Pty Ltd (1988) 4 BPR 9568 (Young J). Part of the passage in Selkirk was referred to and followed by Gibbs J in Pierce Bell Sales Pty Ltd v. Frazer (1973) 130 CLR 575 at 590.

23 Predictions made by and on behalf of Satellite Pyrmont at about the time the contract was entered into and later, and the terms of the warranty in Special Condition 2.3, taken with the provisions of Special Condition 4 relating to the completion date, constitute admissions by Satellite Pyrmont that if work on the development including construction work proceeded with reasonable expedition it was quite feasible to complete the work and register the strata plan long before 16 March 2001. The defendant is no less bound by those admissions because there has been a change in its ultimate control and the individuals managing its affairs, and no evidence has been led to suggest that the admissions were wrong or that there were any reasons why reasonable expedition would not have produced the clearly contemplated outcome. Although the burden of proof of breach of the warranty is on the plaintiffs, regard has to be paid to the opportunity of each party to adduce relevant evidence dealing with this subject, and the plaintiffs are in no position to do more than rely on the admissions which I have referred to, whereas the defendant notwithstanding the change of control is in a position to establish any matter of fact which might explain delay. Indeed the defendant addressed the question of delay by obtaining the architect’s certificate and justifying an extension of time to 15 August 2000.

24 No explanation has been given in evidence for the elapse of 29 months between Development Approval and Building Application, or for the time taken to perform the Early Works Contract, which took about eight months although the construction period provided for was eight weeks and the architects certified for an extension of 109 days. No explanation is forthcoming for not proceeding to make a Construction Contract, which the Early Works Contract shows was contemplated in May 1999. Correspondence from Consolidated Construction called attention to this need in February 2000, nothing significant had occurred at the time of the takeover of control in July 2000, no arrangement for any other builder to do work had effect until December 2000, and no building contract was made until March 2001. These unexplained delays are to be contrasted with predictions emanating from the defendant about the expected time of completion. There is no reason to think that the defendant was overcome or impeded by adverse circumstances; the only reasonable inference is the defendant did not have the resources or the capacity to carry the development forward at a reasonable rate of progress, and never acquired the resources or capacity until the new management had been in control for almost half a year.

25 The defendant’s own correspondence in Exhibit 1 shows a number of matters bearing on delay. On 14 September 1998 the defendant informed Consolidated Construction that the defendant looked favourably towards formally appointing Consolidated Construction as the builder, required commencement on site in November and asked Consolidated Construction to expedite finalisation of funding. In March 1999 (Exhibit 1 p.66) Consolidated Construction received a finance proposal from its bank which contemplated first draw-down to finance construction no later than 31 May 1999 and the term of the loan of 90 weeks, suggesting completion in the early months of 2001. On 17 March 1999 (Exhibit 1, p.70) Satellite Pyrmont told Consolidated Construction that given the time frame it was imperative that Satellite Pyrmont now move to commence construction. On 30 June 1999 (Exhibit 1, p.78) Satellite Pyrmont stated “We anticipate the finalisation of the building contract and associated finance facilities in the next few weeks” and also said “… we are approaching the final stages of documentation of this transaction …”. Communications with Consolidated Construction continued, inconclusively. On 23 May 2000 (Exhibit 1, p.86) Consolidated was predicting signing a contract by 1 June 2000 and achieving completion on 1 September 2001.

26 The correspondence throughout shows that the defendant had no economic strength, and had entered into commitments with the plaintiff and others which could not be carried out with the defendant’s own resources, and depended for execution on finding a builder which would design and construct the works and obtain financing. The defendant’s troubles and delays arose from having made contractual commitments without having appropriate resources. In my finding, with reasonable expedition the building would have been completed at the latest in the early months of 2001, and could well have been completed about six months earlier than that.

27 The burden of the evidence adduced by the defendant was directed to explaining events from the time of change of control in July 2000. By that time there had already been in my finding serious failures to observe reasonable expedition, as the defendant had been in a position to enter into the Early Works Contract in May 1999 for early works which according to the contract would take eight weeks, but by July 2000 the early works had been completed, no construction contract had been entered into, and early works had not been paid for which (if nothing else had done so) would have disrupted any expectation that Consolidated Construction would enter into a construction contract and carry out the proposed Design and Construct turn-key operation. Further the defendant had not by July 2000 made financing arrangements which could carry the construction project forward, but was involved in six mortgages, and in disputes, threats of a mortgagee sale and litigation which were resolved with extended negotiations and significant difficulty. Apart from the early works, construction did not start until 4 December 2000, almost 30 months after contracting with the plaintiffs, less than four months before the original date for strata plan registration and less than 10 months before the extended date, in a building project estimated to take 13 months.

28 In my finding then the vendor was, by July 2000, and thereafter always remained in breach of its warranty that it would cause the development to be constructed with reasonable expedition, and I also find that this breach of warranty caused the strata plan’s not being registered by the extended date of 15 August 2001, and remaining unregistered at the date of the hearing. This breach disqualified the vendor from reliance on or exercise of its right of rescission in Special Condition 4.2.

29 The defendant led a considerable body of evidence which, as well as being directed to explaining events bearing on carrying out the Bauhaus Development and the use of time, was directed to explaining, insofar as it can be explained, the defendant’s decision to rescind its contract with the plaintiffs and to enter into another contract for the sale of Apartment 106 at a higher price. The defendant’s evidence was directed to showing that its new management acted under practical constraints relating to the availability of finance and the need to conform with requirements of financiers relating to pre-sale contracts. Evidence, particularly that of Mr Heap, was directed to showing that many of the pre-sale contracts preceding the change of control had features which would not be satisfactory to a financier, and that this explains the decision to rescind the plaintiff’s contract and seek the commercial advantages available from sale to some other purchaser. Mr Heap listed in his affidavit some features which would make contracts unacceptable. These do not apply to the plaintiffs’ contract. It was an arm’s-length contract; or in any event there was no reason, either in facts shown by evidence or in facts shown to be known to the defendant, to think that it was not, or to think that there was some association between the plaintiffs and The Satellite Group which would place the matter in any doubt. The plaintiffs’ contract included no vendor finance provision or buy-back provision, and provided for a 10% deposit; the effect of Special Condition 16 was that the purchasers could have deferred paying half the deposit until completion, but in fact they did not, but paid the full 10% deposit in or before October 1998. By paying the full deposit before they were contractually obliged to they gave an unusually strong indication that they were purchasers in earnest.

30 Another matter mentioned by Mr Heap was that contracts had been exchanged at prices considerably less than original list prices. He sought to maintain that this was true of the plaintiffs’ contract. There were suggestions in documents preceding the exchange of contract that the price was below list price; the sales advice notice dated 19 June 1998 Exhibit 2 included a statement “Exchange by Friday 26 June ’98 at this price or price changes to list price” and a letter from the defendant’s solicitors to the plaintiffs’ agents of 22 June 1998 Exhibit 3 stated “We are instructed that contracts for sale must be exchanged by Friday 26 June 1998 failing which the purchase price of $420,000 shall revert to the higher list price.” The second plaintiff Ms Lazzaro produced in evidence two price lists which were provided to the plaintiffs by sales representatives of the defendant in 1998; one dated 20 May 1998 showed the list price of Unit 106 at $420,000 and the other dated 18 August 1998 after the sale shows its list price as $490,000. There is no evidence that up to the time of exchange of contracts any other price list or list price for Apartment 106 ever existed. Cross-examination of Mr Heap showed that his reasons for the view that the sale of the plaintiffs was under list price related to consideration of the value of the unit, and of its value in relation to other units, after the change in control. Transcript t.5, l.20 apparently recording a concession by Ms Lazzaro the second plaintiff that the sale was at a discount is not accurate; the witness did not make that concession. The indications to the plaintiffs, in Exhibits 2 and 3 and otherwise, that the sale price was less than the list price have not been borne out by evidence of any price list which then existed, and the probability is that the suggestion that there was some discount was made to the plaintiffs as part of some puffing activity in support of effecting the sale.

31 Other matters on which ANZ Bank required to be satisfied, as set out in the bank’s Terms Sheet, and not mentioned by Mr Heap among the issues which he considered, were not adverse to the plaintiffs’ contract either; they were Australian residents, and they were not multiple buyers. They also had a right of rescission under clause 4.2 but there is no practical prospect of rescission by them.

32 It should be said, by the bye, that the matters listed by Mr Heap, and by Mr Byrnes who also dealt with this subject, or the requirements of a bank for finance in an arrangement made two years or so after entering into a contract of sale are not good grounds on which to decline to observe contractual arrangements, which are no less binding if they are not at arm’s-length or are entered into with low deposits, or contain unusual special conditions, and so forth. It was plain from his evidence as a whole that Mr Byrne’s view that the sale to the plaintiffs was under the market value was based on his view of market values at the time when he addressed the question and not at the time of the contract more than two years earlier.

33 Mr Byrne’s evidence showed that the decision as to which of the pre-sale contracts were to be rescinded, and which were to be left to take effect was based on what he and others responsible for Satellite Pyrmont’s affairs believed to be achievable prices at the time of decision in 2000 or 2001 and said “Our motivation for rescinding that contract was that we felt we could achieve a higher price.” Attempts in cross-examination to obtain estimates by Mr Byrnes of the times required for early stages in the development produced answers which did not deal with the subject in a concrete way.

34 I am satisfied that, although the conditions imposed by ANZ Bank and other financiers on the kinds of pre-sales which were acceptable to the financiers may well have influenced the decisions whether or not to rescind some pre-sale contracts or to leave them into effect, the requirements of financiers had no real impact on the decision to rescind the contract with the plaintiffs, which had no significant unsatisfactory feature. Mr Byrnes conceded that the predominant factor was the price; that the basis of the decision was “simply dollars”. If any other matter such as the amount of deposit, or the sale not being at arm’s-length, or the sale being discounted or at less than list price was taken into account, it was unreasonable to take it into account as it had no basis in fact. The plaintiffs’ contract was not rescinded under the influence of some necessity to comply with the requirements of a financier. The rescission was not a response to any difficulty in Satellite Pyrmont’s dealings with the purchasers, either a difficulty which existed in substance and reality or a difficulty which existed in the vendor’s concept of what made a pre-sale contract eligible for rescission because of the need to satisfy the vendor’s financiers. Long before the vendor rescinded or had any apparent right to rescind the vendor had chosen its course and acted on it by entering into a second pre-sale contract at a higher price. The pursuit of the higher price was the only thing which in reality moved the vendor to rescind. If the rescission had been otherwise effective, the vendor acted unreasonably and the purchasers would have been entitled to be relieved in equity against the rescission.

35 I find that the defendant rescinded its contract with the plaintiffs for the purpose of selling the unit at a higher price, and not for the purpose of escaping from any dilemma or difficulty encountered in endeavours to conform to its contractual obligations.

36 It was suggested that the plaintiffs were guilty of delay or failure to take steps at an appropriate time to challenge the threatened rescission from April 2001 onwards. The plaintiffs sought to uphold their position in that Ms Lazzaro had several telephone conversations in February and March 2001 with Mr Geoffrey Davey, a consultant engaged in the defendant’s affairs. Mr Davey, after speaking to Mr Widdup, told her that the defendant considered that the Apartment was underpriced and would resell at a higher price; Mr Davey made some expressions of sympathy. Mr Davey was unable to give evidence in the proceedings because he had suffered a stroke and he was disabled. Ms Lazzaro then sought her solicitor’s advice, tried to have a meeting with the director of the defendant and got no significant response. She also spoke to a solicitor then acting for Satellite Pyrmont seeking a Deed of Variation. The plaintiffs’ solicitors were active in challenging the purported rescission by correspondence, some months passed before any reply was received which engaged with their contentions, and it was appropriate to deal with the matter by correspondence and a caveat until litigation was precipitated by the Lapsing Notice. In my finding the plaintiffs did everything that could reasonably be expected of them. In any event the activity or inactivity of the plaintiffs had no effect on the course taken by the defendant, which had decided to sell to someone else and had agreed to do so the previous December.

37 ORDERS:

(1) Declare that the Contract for the Sale of Land between the Plaintiffs and the Defendant dated 26 June 1998 of the land referred to in the Schedule to this Order is valid and subsisting.

(2) Liberty to apply with respect to
(a) Caveat 8089401
(b) Specific Performance of the Contract.
(c) Damages.

(3) Order that the Defendant pay the Plaintiffs’ costs of the proceedings.

SCHEDULE
The land is apartment 106 and car parking space 120 in the draft strata plan attached to the Contract for Sale being the draft strata plan submission of development to be erected or being erected on the property formerly Lot 2 Deposited Plan 217537 being the whole of the land comprised in Folio Identifier 2/217537 and now being Lot 22 in Deposited Plan 882825 and which is known as 209-221 Harris Street, Pyrmont.

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Last Modified: 03/27/2002