Sterling Estates Development Corporation Pty Ltd v Malouf
[2003] NSWCA 278
•2 October 2003
NEW SOUTH WALES COURT OF APPEAL
CITATION: Sterling Estates Development Corporation Pty Limited v Malouf & Anor [2003] NSWCA 278
FILE NUMBER(S):
41012/02
HEARING DATE(S): 29 August 2003
JUDGMENT DATE: 02/10/2003
PARTIES:
Sterling Estates Development Pty Limited (Appellant)
Sam John Malouf (First Respondent)
Christine Malouf (Second Respondent)
JUDGMENT OF: Santow JA Tobias JA McColl JA
LOWER COURT JURISDICTION: Supreme Court
LOWER COURT FILE NUMBER(S): SC 3128/02
LOWER COURT JUDICIAL OFFICER: Young CJ in Eq
COUNSEL:
M Cashion SC/S White (Appellant)
M Pesman (Respondents)
SOLICITORS:
Kemp Strang (Appellant)
Patrick Hargraves & Co (Respondents)
CATCHWORDS:
CONTRACT - construction - contract for the construction and sale of an apartment and car space - construction of "Special Faults" clause - D
LEGISLATION CITED:
Public Health Act 1952 (NSW)
DECISION:
1. Appeal allowed. 2. Order that the declarations and orders made by Young CJ in Eq on 24 October 2002 be set aside. 3. Declare that the Notice of Termination dated 3 June 2002 served by the appellant on the respondents in respect of the Contract for the Sale of Land dated 14 February 2000 in relation to Part FI 1/874004 known as Apartment 420 and Carspace 40, The Etage, 2-50 Pyrmont Bridge Road, Camperdown (the "Contract") between the appellant as vendor and the respondents as purchasers was and is valid. 4. Declare that the Contract was validly terminated by the appellant. 5. Order that Caveat registered No. 8684513 be withdrawn by the respondents. 6. Order that the respondents pay the appellant's costs of the proceedings and of this appeal but have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal if qualified.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 41012/02
SC 3128/02
SANTOW JA
TOBIAS JA
McCOLL JA
Thursday, 2 October 2003
STERLING ESTATES DEVELOPMENT CORPORATION PTY LIMITED v
Sam John MALOUF and Christine MALOUF
FACTS
The appellant as vendor and the respondents as purchasers entered into a Contract for the Construction and Sale of an apartment and car space at Camperdown (the "Contract"). The contract provided a procedure for notification by the purchaser of "Special Faults", which were to be repaired by the vendor prior to completion. "Special Fault" was defined in the Contract to mean:
"a fault or defect in the property which:
(a) is structural; or
(b) because of its nature requires urgent attention; or
(c) may cause danger to persons in the property; or
(d) makes the property uninhabitable."
On 14 March 2002, the first respondent, Mr Malouf, sent a letter (the "Special Faults letter") to the appellant identifying a defect said to require rectification prior to settlement, namely a rise in the concrete floor in the lounge room area. On 17 April, the appellant served a Notice to Complete on the respondents requiring completion on or before 3 May 2002. The respondents did not complete relying on the fact that the "Special Fault" had not been rectified. On 3 June 2002 the appellant served a Notice of Termination.
On 14 June 2002 the respondents lodged a caveat to protect their rights under the Contract. On 19 June 2002 they commenced proceedings seeking specific performance of the Contract. The appellant filed a cross-claim seeking a declaration that it had validly terminated the Contract and an order that the respondents remove the caveat.
The trial judge found that, on the proper construction of the Contract, the defect identified in the Special Faults letter constituted a "Special Fault". This defect had not been repaired at the date of service of the Notice to Complete. Accordingly, the appellant was not entitled to issue the Notice to Complete and, in turn, the Notice of Termination was invalid. His Honour entered judgment in favour of the respondents. This appeal was brought from that judgment.
HELD per McColl JA (Santow JA and Tobias JA agreeing), allowing the appeal:
1. On the proper construction of the Contract, a "Special Fault" is a fault or defect of such a nature that the purchasers would be substantially unable to occupy the unit if it was not repaired prior to completion.
2. Young CJ in Eq erred in concluding that the unevenness in the floor required urgent attention within the meaning of sub-paragraph (b), so as to constitute a Special Fault.
3. Young CJ in Eq erred in concluding that the unevenness in the floor posed a substantial danger within the meaning of sub-paragraph (c), so as to constitute a Special Fault.
ORDERS
1. Appeal allowed.
2. Order that the declarations and orders made by Young CJ in Eq on 24 October 2002 be set aside.
3. Declare that the Notice of Termination dated 3 June 2002 served by the appellant on the respondents in respect of the Contract for the Sale of Land dated 14 February 2000 in relation to Part FI 1/874004 known as Apartment 420 and Carspace 40, The Etage, 2-50 Pyrmont Bridge Road, Camperdown (the "Contract") between the appellant as vendor and the respondents as purchasers was and is valid.
4. Declare that the Contract was validly terminated by the appellant.
5. Order that Caveat registered No. 8684513 be withdrawn by the respondents.
6. Order that the respondents pay the appellant's costs of the proceedings and of this appeal but have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal if qualified.
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 41012/02
SC 3128/02
SANTOW JA
TOBIAS JA
McCOLL JA
Thursday, 2 October 2003
STERLING ESTATES DEVELOPMENT CORPORATION PTY LIMITED v
Sam John MALOUF and Christine MALOUF
Judgment
1 SANTOW JA: I agree with McColl JA.
2 TOBIAS JA: I agree with McColl JA.
3 McCOLL JA: This is an appeal from orders made by Young CJ in Eq by which a contract made on 14 February 2000 between the appellant as vendor and the respondents as purchasers, for the construction and sale of an apartment and car space at Camperdown, was to be specifically performed.
4 The dispute between the parties turned on whether the appellant was entitled to serve a Notice of Termination on 6 June 2002. Its entitlement to do so depended upon whether it had validly served a Notice to Complete on the respondents on 17 April 2002. The respondents asserted that the appellant was not entitled to serve the Notice to Complete because, as at 17 April 2002, it had not complied with a notice the respondents had served under the contract (the "Special Faults letter") on 14 March 2002. The Special Faults letter, according to the respondents, obliged the appellant to repair certain of the defects identified in it prior to completion.
5 The issue before the trial judge therefore, turned on whether, on the proper construction of the Contract for Sale, the matters in the Special Faults letter constituted Special Faults.
6 The trial judge found that the respondents had notified a Special Fault to the appellant prior to service of the Notice to Complete which had not been repaired at the date of service. Accordingly he held the appellant was not entitled to issue the Notice to Complete, so that the Notice of Termination was invalid.
The Facts
7 The apartment which was the subject of the contract was one of 112 residential units to be constructed by the appellant as part of the redevelopment of the Children's Hospital site at Camperdown. The redevelopment included refurbishing the Outpatients building and adding one storey to it. The respondents contracted to purchase Unit 420 which was to be located in the additional storey.
8 The price of the apartment and car space was $560,000. The respondents paid a deposit bond of $56,000 when contracts were exchanged, leaving a balance of $504,000 to be paid on settlement.
9 The cover sheet of the Contract provided that the completion date was:
"... the later of;
(a) twenty-eight days after the date of this contract;
and
(b) twenty-one days after the day on which the vendor serves notice of the registration of the documents referred to in Schedule A."
10 Clause 33.1 provided that completion was subject to and conditional on the registration of the documents referred to in Schedule A which, relevantly, included the Strata Plan.
11 Clause 15 of the Contract provided that the parties must complete by the completion date and if they did not a party could serve a Notice to Complete "if that party is otherwise entitled to do so."
12 "Special Fault" was defined in the contract as follows:
"Special Fault" means a fault or defect in the property which:
(a) is structural; or
(b) because of its nature requires urgent attention; or
(c) may cause danger to persons in the property; or
(d) makes the property uninhabitable."
13 Clause 30.1 provided:
"Before completion the vendor must cause the Building to be constructed in a proper and workmanlike manner in general accordance with the Development Approval and the Building Approval."
14 Clause 31 provided:
"31.1: The vendor must before completion:
(a) Subject to Clause 31.2(a), cause the property to be finished as specified in the Schedule of Finishes ...
...
31.4: Before completion the purchaser may not serve Notice of any defects or faults in the property other than Special Faults.
31.5: The purchaser must serve notice of any Special Fault immediately after the purchaser becomes aware of that defect or fault. The vendor must before completion repair in a proper and workmanlike manner, at the vendor's expense, any Special Fault of which notice has been served by the purchaser before the completion date.
31.6: The vendor must repair in a proper and workmanlike manner, at the vendor's expense, within a reasonable time after the applicable notice has been served by the purchaser, any defect or faults in the property due to faulty materials or workmanship (including Special Faults but excluding minor shrinkage or minor settlement cracks) of which notice is served by the purchaser within three months after completion. The purchaser may not serve notices of defects or faults other than Special Faults on more than 3 occasions.
...
31.12: If the purchaser gives a notice under clause 31.5 or clause 31.6 the purchaser must give it to the vendor direct or to the vendor's agent and not to the vendor's solicitor." (Emphasis supplied)
15 Clauses 31.9 - 31.11 provided that in the event of a disagreement in connection with, among others, clause 31.6, either party could refer the disagreement to an Expert Determinator who was to act as an expert and whose decision was to be final, conclusive and binding on the parties. The Expert Determinator was to be a person nominated by the President for the time being of the Royal Australian Institute of Architects (NSW) Chapter.
16 On 14 March 2002 the first respondent, Mr Malouf, sent the Special Faults letter to the appellant identifying "defects that required rectification prior to settlement". The only "defect" relevant for the determination of the appeal was identified in paragraph 2 of the letter as:
"The area in the lounge room that is between the balcony and the corner to the bedrooms has a rise in the concrete floor. This needs the carpet to be lifted, the concrete satisfactorily levelled out and the carpet replaced."
17 On 25 March 2002 the appellant's solicitors wrote to the respondents' solicitors advising that the Strata Plan was registered on 22 March 2002. They asked the respondents' solicitors to submit a transfer for their approval and execution by the appellant in readiness of settlement. They also drew the respondents' solicitors' attention to the fact that, in accordance with clause 31, the purchaser was not entitled to delay completion on account of general defects.
18 On 11 April 2002 the appellant's solicitors wrote to the respondents' solicitors advising that the date for completion was Monday, 15 April 2002. They asked the respondents' solicitors to make a booking for settlement on that date. They forewarned that if settlement was not effected on 15 April 2002 they were instructed, among other matters, to issue a Notice to Complete.
19 Settlement did not take place on 15 April 2002. On 17 April 2002 the appellant's solicitors served a Notice to Complete on the respondents' solicitors. Although, in response, the respondents' solicitors advised that they were instructed to deny the validity of the Notice to Complete "as to law as to substance and as to time", in the final analysis, nothing turned upon its terms. It is sufficient, therefore, to note that it advised that the appellant was "ready and willing to transfer" the property the subject of the Contract, it required the respondents to complete the purchase on or before 3.00 pm on 3 May 2002 and it warned that unless completion took place the appellant would be entitled to terminate the Contract, forfeit the deposit and take such other proceedings pursuant to clause 9 of the Contract as it may be advised.
20 The respondents did not complete on 3 May 2002. On 22 May 2002, in a letter expressed to be without prejudice to the appellant's rights, the appellant's solicitors wrote to the respondents' solicitors advising that they were instructed to advise that if completion did not take place by 3.30 pm on 27 May 2002 the appellant would immediately terminate the Contract for Sale and call on the deposit bond.
21 On 24 May 2002 the respondents' solicitors wrote to the appellant's solicitors advising their clients' position was that amongst the defects identified in the first respondent's 14 March 2002 letter were defects "within the definition of Special Faults, which rendered the property useless to them for the purpose of rental." (emphasis supplied) They again disputed the validity of the Notice to Complete.
22 Completion did not take place on 27 May 2002.
23 On 3 June 2002 the appellant served the Notice of Termination. On 7 June 2002 the appellant's solicitors wrote to the respondents' solicitors advising that their client relied on the Notice of Termination and that the respondents' deposit was forfeited.
24 On 14 June 2002 the respondents lodged a caveat to protect their rights under the Contract. On 19 June 2002 they commenced proceedings seeking specific performance. The appellant filed a cross-claim seeking a declaration that it had validly terminated the Contract and an order that the respondents remove the caveat.
25 Interlocutory orders were made which restrained the deposit bond provider (the second defendant in the respondents' proceedings) from paying the deposit to the appellant. The matter went into the Equity Expedition List and was heard on 23 September 2002. His Honour's judgment was delivered the following day.
The Hearing
26 In his first affidavit in the proceedings, the first respondent swore that he had inspected the unit the subject of the Contract on three occasions between the Special Faults letter and the date he swore his affidavit and that, to his observation, the defects notified to the appellant had "either not been rectified or the rectification works had not been completed."
27 Mr Elgie, the appellant's Project Manager, annexed to his affidavit a document dealing with the defects identified in the Special Faults letter. That document stated:
"The rise in the concrete floor was levelled and removed in early May 2002."
28 Two experts were called, Mr Eccles on behalf of the respondents and Mr Evans on behalf of the appellant. Mr Eccles inspected the site on 25 June 2002. Mr Evans inspected it on 15 July 2002. In other words both experts inspected the apartment after some work had, according to Mr Elgie, already been undertaken to level the concrete floor. Nevertheless both experts identified an area between the living and dining area of the unit where there was a 12mm deviation from the surface alignment.
29 There was no direct evidence that the area Mr Eccles and Mr Evans identified where the floor levels varied was the area identified in the Special Faults letter. While counsel for the appellant asserted that there had been no concession to that effect, it is clear that the trial was conducted on the basis that each expert had reported on the area about which the first respondent had complained. This judgment therefore, proceeds on that basis.
30 Mr Elgie was cross-examined about how the rise in the concrete floor the first respondent identified had been rectified. He said the process involved "taking the carpet back, applying a levelling agent to the floor to level it, the depressions, to bring it to the very constant and smoother surface and reapplying the carpet and subsequently grinding what high points may be necessary." He said the grinding process could be done as a "wet grind" or "dry grind".
31 According to Mr Eccles the floor level in that area required adjustment. Mr Evans said the area could "be easily rectified by grinding down any high spots on the floor slab and/or applying a levelling compound to the surface of the floor to eliminate any minor mis-alignment." He described the "alleged defect [as] of a minor nature only."
32 Mr Evans, in cross-examination, said that in order to rectify the floor it would be necessary to grind off about 3mm of concrete, use a levelling compound to fill a hollow and, in the event that the apartment was already occupied, to remove furniture and move the carpet. He thought the exercise would take a couple of "easy days" and that it would produce dust.
33 In order to resist the proposition that the floor was defective, the appellant tendered an Occupation Certificate issued by South Sydney City Council on 11 February 2002 which was a "final occupation certificate". Among the matters it certified in relation to the building was that:
* the health and safety of the occupants have been taken into consideration;
* the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia.
34 The appellant also relied upon an Independent Assessment carried out by Rider Hunt certifying that completion of the building was achieved on 28 February 2002. In order to issue that Assessment, Rider Hunt had been required to form an opinion that the Works had, with the exception of minor defects, met the standard of what was described as the "Benchmark Suite" and had achieved "a standard that would not render the Owner in breach of any of the Contracts for Sale" - being the contracts entered into for the sale of the residential units. The appellant relied upon the fact that the Assessment did not identify unevenness in the floor in Unit 420 as a defect.
35 Finally, the appellant relied upon an affidavit of Mr Irvine, a Building Consultant employed by Tyrrells Property and Pest Inspections Pty Limited. Mr Irvine inspected each of the 112 units in the project to identify defects prior to the appellant submitting the units to the Independent Assessment process. He listed a number of matters in relation to the subject unit but, significantly, deposed that he "did not consider the defect to the dining room floor alleged in the Eccles Report was of any significance and accordingly, ... did not note the defect ... ."
The Primary Judge's Reasoning
36 His Honour noted that on the basis of McNally v Waitzer [1981] 1 NSWLR 294; Jillinda Pty Ltd v McCourt (1983) NSW ConvR 55-45 and Wilde v Anstee (1999) 48 NSWLR 387 the appellant could only issue a valid Notice to Complete if it was free from any relevant breach of contract which may have provided the purchaser a good excuse not to complete by the due date and it was able to proceed to completion and deliver to the purchaser all the purchaser was entitled to under the contract no later than the expiry of the Notice to Complete.
37 Before his Honour the respondents relied on two matters as constituting Special Faults - a matter relating to a fire door and the uneven floor. The matter relating to the fire door can be set aside. His Honour held it was not a Special Fault and the respondents did not contend otherwise before this Court.
38 The respondents relied only on paragraphs (b) and (c) of the definition of Special Faults as applying to the uneven floor. In other words they said the unevenness of the floor constituted a Special Fault requiring repair before completion either because its nature was such as to require urgent attention (sub-paragraph (b)) and/or it may cause a danger to persons in the property (sub-paragraph (c)).
39 His Honour accepted that those paragraphs had to be read in the context of the other two sub-paragraphs (a) (dealing with structural faults or defects) and (d) (dealing with defects which make the property uninhabitable).
40 Dealing with sub-paragraph (b) his Honour noted that the appellant submitted that clause covered a situation such as a leaking pipe where unless the fault was immediately rectified it would make the property deteriorate further. The respondents, on the other hand, argued that the words were wider and referred to defects which needed to be dealt with before completion.
41 His Honour noted that the appellant's construction was supported by a number of matters. First, was the maxim of statutory and contractual construction, "nositcitur a sociis (know a word by his fellows)". In this respect his Honour noted that the other clauses identifying a Special Fault all related to what appeared to be very serious defects and, therefore, it would be reasonable to construe sub-paragraph (b) in the same light.
42 Insofar as the word "urgent" in sub-paragraph (b) was concerned, his Honour held that it was a relative word and did not always have the connotation of something which required immediate attention, but, rather, could be something characterised as urgent because it had to be done ahead of other tasks. In this context, his Honour construed "urgent" as meaning something which had priority rather than a connotation of immediacy: cf City of Dayton v Borchers (1967) 232 NE 2d 437, 440 (Ohio).
43 Looking at clause 31.5 in the overall context of clause 31, his Honour observed that it distinguished between faults which needed to be remedied before completion and those which could be remedied afterwards. Accordingly, in his view, sub-paragraph (b) referred to a defect which because of its nature had to be attended to or remedied before completion rather than afterwards.
44 Turning to sub-paragraph (c), his Honour accepted that the word "danger" required the identification of "real danger and not merely a fanciful or theoretical danger, but necessarily a substantial danger", referring to Lord Millett's judgment in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 at 237. His Honour found comfort in that approach in Santow J's judgment in Brachmanis v Columbus Property Developments Pty Ltd [2001] NSWSC 163 in which his Honour concluded that loose flashing was capable in ordinary circumstances of causing danger to persons in the property and, therefore, was a "major defect". [1]
45 His Honour rejected that interpretation, however, on the basis that when one analysed the other sub-paragraphs of the clause more closely it was apparent that they did not, in fact, relate to very serious defects. Thus, his Honour observed, that sub-paragraph (a) dealing with structural defects or faults did not refer to a matter which might affect the stability of the whole building but, rather, a defect of a character which it was the obligation of the owner of the building to remedy rather than the occupier or tenant, referring to Hampson v Clyne [1967] 2 NSWR 591.
46 His Honour concluded that the uneven floor may be a danger either because it increased the chances of someone tripping and falling or because furniture may easily overbalance.
47 Looking at the layout of the unit and the location of the unevenness of the floor between the lounge and dining areas, his Honour concluded that most probably a major exercise would be required to remedy the unevenness once the unit was occupied. The steps which he appeared to contemplate were the removal of the carpet and moving furniture - steps which he concluded should be carried out before completion.
48 Accordingly his Honour held that the uneven floor came within both sub-paragraphs (b) and (c) of the definition of Special Fault. He concluded that the appellant had been obliged to remedy the uneven floor before it could expect the respondents to complete on 15 April 2002. As it had not remedied the floor it was not entitled to issue the Notice to Complete and, therefore, the Notice of Termination was invalid.
The Appellant's Submissions
49 The appellant submitted that at the trial there had been no evidence concerning the nature of the rise in the concrete floor referred to in the first respondent's 14 March 2002 letter. It submitted that the trial judge had been in error in the findings he made concerning the steps required to rectify the uneven floor post completion either because those findings were not open on the evidence or because the uneven floor was not a defect within either sub-paragraph (b) or (c) of the definition of "Special Fault".
50 The appellant next submitted that the trial judge was in error in concluding that the uneven floor fell within sub-paragraph (b) because he had assumed that it was not in dispute that the respondents were entitled to a flat and level floor in the apartment. The appellant submitted that it had at all times disputed the uneven floor constituted a defect which it was obliged to repair. It contended that although its own expert concluded that the floor was out of level by 12mm, it was within the maximum tolerance of 10mm deviation from surface alignment referred to in Australian Standard AS 3600.
51 The appellant submitted that there was no evidence upon which his Honour could base his conclusion that rectification of the uneven floor post completion was a "major exercise" nor that the uneven floor could constitute a danger within sub-paragraph (c).
52 The appellant submitted that the trial judge had erred in rejecting the application of the nositcitur a sociis principle, saying there was no matter which displaced the principle. It pointed out that the words used in the definition of "Special Fault" were not terms of art and could have several meanings. In those circumstances, it submitted, the words took their colour from their surroundings, referring to Bromley London Borough City Council v Greater London Council [1983] 1 AC 768 at 841; Lee-Verhulst (Investments) Ltd v Harwood Trust [1973] QB 204 at 217; Westminster Council v Ray Allen Limited [1982] 1 WLR 383 at 387 and Bourne (Inspector of Taxes) v Norwich Crematorium Ltd [1967] 1 WLR 691 at 695 - 696. The appellant submitted that rather than construing the words "urgent" and "danger" in context, the trial judge had construed those words in isolation and thus gave them an inapposite meaning.
53 In relation to sub-paragraph (b), the appellant submitted that, properly construed, the words "urgent attention" were intended to deal with faults and defects which left unchecked would, by reason of their nature, deteriorate - a construction it submitted was reinforced by the need to look at the "nature" of the defect rather than the defect itself.
54 The appellant submitted that the reference in sub-paragraph (c) to "may cause danger" is directed to faults or defects which presently exist but do not yet constitute a danger to the person. It submitted that that fact, however, did not mean that the fault or defect was not required to be a serious one.
55 The appellant also submitted that the trial judge appeared not to have had regard to sub-paragraph (d) in the definition of "special fault". It submitted that the word "uninhabitable" in that sub-paragraph reinforced the proposition that the other sub-paragraphs in the definition were directed to defects and faults of a most serious kind.
56 Finally, the appellant submitted that clauses such as clause 31 were directed to ensuring that where apartments in a large development were purchased "off the plan", purchasers could not use minor faults to delay completion.
The Respondents' Written Submissions
57 In response to the appellant's final submission, the respondents observed that "by a misapplication of such clauses developers [could] attempt to force seriously defective works on purchasers with limited or no intention that they be rectified." They submitted that the appeal fell into the latter category. In his oral submissions, counsel for the respondents sought to resile from the proposition that the case involved an attempt by the appellant to force "seriously defective" works on the respondents. Rather, his contention appeared to be that the works were sufficiently "defective" within the meaning of the definition of "Special Fault" in the Contract.
58 The respondents submitted that it was clear on the evidence of both parties that the floor of Unit 420 was not flat. They submitted that they were entitled to a flat floor in a unit which they had purchased for $560,000. They submitted that it was irrelevant for the appellant to submit that the floor complied with the relevant Australian Standard or that, to the extent there was any non-compliance, it was minimal. They pointed out that on the evidence the standard was exceeded by 20% and that the respondents were being asked to buy a unit with a wave in the floor over 1 cm high.
59 The respondents conceded that there was no expert evidence on the danger posed by the uneven floor, but submitted that the trial judge was entitled to draw his own conclusions as to the danger it posed. They submitted that even a minor defect could be dangerous, giving as an example a small hole in a gas main.
60 They submitted that the starting point for the construction of the expression "Special Fault" was the obligation of the appellant to finish the unit as specified in clause 31. This made it clear that that obligation divided into matters requiring attention before and after completion. They submitted it was appropriate for the trial judge to construe the various matters in the definition of Special Faults in that context. The respondents also submitted that compliance with the Notice to Complete would have resulted in them being required to purchase a unit with "Special Faults".
61 Finally, the respondents submitted that the trial judge's construction of the definition of "Special Fault" was correct and gave consideration to that expression in the context of the Contract as a whole.
Consideration
62 It is important, in determining the meaning of "Special Fault", to take into account the dual nature of the contract between the parties. It was both a contract for the sale of land and for the construction of a dwelling - the unit in the new floor being erected on top of the former Children's Hospital. These matters are important for, in construing the Contract, it is essential to determine the mutual intentions reasonable people in the position of the actual parties would have had as to their respective rights and obligations, having regard to the nature of the Contract as well as the language in which it was expressed.
63 In the ordinary contract for the sale of land the vendor is not obliged to disclose defects in the quality of the land or improvements, whether latent or patent. There is no implied term that the property sold has any particular quality. Such contracts are, by their nature, ones in which the rule "buyer beware" reigns supreme. [2]
64 Where, however, the contract is one for the sale of land and the construction of a dwelling by the vendor, the maxim "buyer beware" does not apply. [3] In such cases there is an implied term that the dwelling will be constructed in a proper and workmanlike manner, that proper materials will be used and that the house will be reasonably fit for human habitation. In Miller v Cannon Hill Estates Ltd [1931] 2 KB 113 at 121 - 122, Swift J said:
"I think it is quite clear law that if one buys an unfurnished house, there is no implication of law, and there is no implied contract that the house is necessarily fit for human habitation ... the position is quite different when you contract with a builder or with the owners of a building estate in course of development that they shall build a house for you or that you shall buy a house which is then in the course of erection by them. There the whole object, as both parties know, is that there shall be erected a house in which the intended purchaser shall come to live. It is the very nature and essence of the transaction between the parties that he will have a house put up there which is fit for him to come into as a dwelling house. It is plain that in those circumstances there is an implication of law that the house shall be reasonably fit for the purpose for which it is usually required, that is for human dwelling ... If the plaintiff has no implied warranty that it shall be fit for human habitation, then the consideration for which he bought this house wholly fails."
65 McNaughton J formulated the proposition in the following manner (at 123):
"It can hardly be doubted that the obligation of the builder was an obligation to build properly, to build with proper materials, and in a proper manner, and to provide a house fit for the purpose for which, to the knowledge of both parties, the house was required - namely, for the habitation of the plaintiff and his wife. That is to say, it was an implied term between the parties that the defendants should complete the house in a good and workmanlike manner with materials of good quality and description, so as to be fit for habitation."
66 Miller v Cannon Hill Estates Ltd was applied in Perry v Sharon Development Co Ltd [1937] 4 All ER 390 at 394. In Perry, Sir Wilfred Green MR (at 392 - 3) emphasised the importance of the fact that the subject matter of the contract was a house in the course of erection, the corollary being that completion was not to take place until the house was in the condition contemplated for completion - readiness for occupation. Romer LJ (at 394 - 5) was also of the view that there was an implied term that the house should be completed in such a way that it was fit for human habitation.
67 In Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317 at 1326, Diplock LJ (as he then was, sitting as an additional judge of the Queen's Bench Division) said Miller v Cannon Hill Estates Ltd was "regarded as constituting a milestone in the law relating to the purchase of buildings under construction." Hancock concerned several contracts in the same terms, each relating to the sale of a plot of land and the erection of a house on the plot. By clause 9 the builders agreed to erect and complete each house "in a proper and workmanlike manner" in accordance with plans and specifications attached to the contract. By clause 11 the vendors agreed to make good at their own cost "structural defects discovered and notified to them by the purchasers within six months of the date of completion." Some two or four years after completion the floors and walls of the houses cracked badly. On investigation it was discovered the damage was due to defective hardcore under the concrete floors of the houses. The builder had obtained the hardcore from independent suppliers. At trial it was found that the deficiency in the hardcore would not have been apparent to the builders. Diplock LJ found that clause 9 related to the manner in which the builders carried out their work rather than the materials they supplied. Accordingly, he found that there was room for implying a contractual warranty by the builder that the hardcore used under the concrete should be fit, proper and suitable for that purpose. On that basis there was a breach of the warranty because the hardcore was plainly not fit for the purpose for which it was used.
68 In dismissing the appeal in Hancock, Lord Denning MR (with whom Danckwerts and Salmon LLJ agreed) observed (ibid at 1332):
"It is quite clear from Lawrence v Cassel [1930] 2 KB 83 and Miller v Cannon Hill Estates Limited [1931] 2 KB 113 that when a purchaser buys a house from a builder who contracts to build it, there is a threefold implication: that the builder will do his work in a good and workmanlike manner; that he will supply good and proper materials; and that it will be reasonably fit for human habitation."
69 Diplock LJ (at 1327) had seen no difference between the formulation of the warranty that the relevant building work should be carried out in a "proper, efficient and workmanlike manner, and the alternative way of stating it, that the house is habitable and fit for humans to live in." Unlike Diplock LJ, Lord Denning MR did not elide the formulation of the warranty, but little turns on this. Even Diplock LJ acknowledged (at 1327) that the different ways in which the warranty was expressed were merely alternative formulations rather than reflecting any substantive difference.
70 Miller and Hancock emphasise the extent of the vendor/builder's obligations to the purchaser of land on which a building is being erected. Perry emphasises the importance of assessing those obligations in the context of completion of the contract for the sale of the land on which the building is being erected. These two matters are significant, too, in determining the construction issue in this case.
71 In this case, as in Hancock, clause 30.1 expressly obliged the appellant to "cause the Building to be constructed in a proper and workmanlike manner in general accordance with the Development Approval and the Building Approval." "Building" was defined to mean "the building containing the apartment which forms part of the property." Clause 30.1 accordingly defined the general scope of the appellant's obligation to the respondents. Consistently with Miller, Perry and Hancock the appellant was obliged, at completion, to deliver to the respondents a property which was fit for human habitation.
72 There are other significant matters which emerge from the Contract itself which provide part of the background to the construction exercise.
73 First, the Contract set a strict timetable for completion - relevantly within 21 days after the appellant gave notice of registration of the Strata Plan. A valid notification of a "Special Fault" could have the effect of delaying completion because the vendor was obliged to repair the "Special Fault" prior to completion. Postponing completion of a contract for the sale of land is a serious matter. This tends to indicate that a defect or fault notice which would entitle a purchaser to postpone completion must be of a serious character.
74 Secondly, there was no limit on the number of notices the purchaser could serve in relation to "Special Faults", whereas the purchaser was restricted to three notices of any other defects or faults: clause 31.6. This, again, serves to underline the proposition that "Special Faults" were to be of such a substantial nature that the obligation to repair them would always rest on the vendor.
75 Finally, completion of the Contract did not terminate the respondents' rights to have defects repaired. Clause 31.6 created, in effect, a defect liability period, giving the respondents the right to have any defects or faults notified to the appellant within 3 months of completion repaired at the appellant's expense.
76 I turn to consider each of the sub-paragraphs of the definition of Special Fault.
Sub-paragraph (a) - "a fault or defect in the property which ... is structural"
77 A "fault or defect in the property which (a) is structural" in my opinion connotes building work of a substantial nature which must be done to the fabric of a building.
78 Hampson v Clyne, the case upon which his Honour relied, concerned the question whether a local council was entitled to serve a notice to remedy a nuisance upon the owner of the premises on which the nuisance arose pursuant to s 65 of the Public Health Act 1952 (NSW). The Council was obliged to serve the notice upon the owner if the nuisance arose from "any want or defect of a structural character". Brereton J made the following useful observation (at 592):
" 'Structure' of course is a word of which the meaning varies considerably according to the context, and the phrase 'structural character' or 'defect of a structural character' varies correspondingly. Literally 'structure' means something which has been constructed and 'defect of a structural character' means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together. With particular reference to buildings in common parlance we refer to the bare building as the structure."
79 Having regard to that analysis, his Honour concluded that the phrase "defect of a structural character" for the purposes of s 65 was concerned to make the owner responsible for defects for which the owner of a building, as distinct from a mere occupier, might ordinarily be responsible. Accordingly, he held that where the nuisance was said to arise from the deterioration of the original water reticulation system so there was no longer an adequate wholesome water supply to the premises, there was a "defect of a structural character."
80 I would adopt Brereton J's interpretation of the phrase "defect of a structural character" as an apposite construction of sub-paragraph (a). In other words, in my opinion, that sub-paragraph was directed to a fault or defect in the property which arose either from the construction of the structure or a subsequent failure on the part of the structure to remain satisfactorily put together. Either way, it related to the appellant's fundamental obligation to carry out the core building work in a "proper and workmanlike manner".
81 On the one hand, Young CJ in Eq's conclusion that the structural defect was one which the owner had to repair takes the matter no further in this case for it was the owner which was also constructing the building. On the other hand, his Honour's first impression of the word "structural", namely that it refers to "some vital element which would affect the stability of the whole building" would, in my view, be included in the sub-paragraph. Also included would be matters of a similarly serious nature in relation to the individual unit the subject of the Contract.
Sub-paragraph (b) - "a fault or defect in the property which ... because of its nature requires urgent attention"
82 Sub-paragraph (b) requires the identification of a "fault or defect in the property which ... because of its nature requires urgent attention." I cannot agree with his Honour that "urgent" in this context meant no more than a matter which required priority, rather than a matter which had to be attended to immediately. The Macquarie Dictionary defines "urgent" as:
Pressing; compelling or requiring immediate action or attention; imperative."
83 There may be cases in which the circumstances indicate that the word "urgent" does not carry the usual connotation of immediacy. There is nothing, in my opinion, in the context in which that word is used in the "Special Faults" clause which would detract from the word being understood in its ordinary English usage. Indeed, again having regard to the ability of the purchaser to delay completion by identifying a fault or defect which required such attention prior to completion rather than after, it is clear that to be caught by sub-paragraph (b) the fault or defect must be one which must be remedied at once.
Sub-paragraph (c) - "a fault or defect in the property which ... may cause danger to persons in the property"
84 Sub-paragraph (c) requires little elaboration. As his Honour said, in order for that sub-paragraph to be attracted it is necessary to identify a fault or defect in the property which gives rise to a substantial danger. With respect to his Honour, however, I cannot conclude that the unevenness in the floor posed any such danger.
85 The respondents conceded that the unevenness in the floor could not increase the chances of someone tripping - the first matter which had found favour with his Honour. That meant that they were left with the proposition that the uneven floor constituted a substantial danger because furniture may easily overbalance. When pressed, however, counsel for the respondents could not identify how the uneven floor might lead to furniture overbalancing, let alone what substantial danger might be caused to persons in the property if furniture did overbalance.
Sub-paragraph (d) - "a fault or defect in the property which ... makes the property uninhabitable"
86 Finally, I should refer briefly to sub-paragraph (d), requiring the identification of a fault or defect in the property which made it uninhabitable. A fault or defect in the property which made it uninhabitable would clearly be a substantial and serious matter. The significance of the requirement that a property be fit for habitation upon completion was emphasised in Perry as I have already pointed out. The inclusion of this sub-paragraph in the definition of "Special Fault" reinforces my conclusion that each of the sub-paragraphs relates to a matter which must be of such significance as to have to be repaired prior to completion.
Conclusion
87 This analysis of the definition of "Special Fault" demonstrates that the clause has a cascading quality: each sub-paragraph identifies a distinct but serious defect, the clear intention being that the definition should deal exhaustively with matters which would preclude effective occupation of the unit.
88 I accept the appellant's submission that the sub-paragraphs took their colour from their surroundings. So viewed it is clear that each of the sub-paragraphs requires the demonstration of a fault or defect of such a nature as would deny to the purchaser the substantial benefits of the Contract if completion was to occur prior to its rectification. In other words, in order that there be a Special Fault, the fault or defect must be of such a nature that the purchasers would be substantially unable to occupy the unit if it was not repaired prior to completion.
89 In the final analysis, as I understood the submission, the respondents' case rested on whether or not rectifying the defect was a major exercise needing to be done prior to completion, so as to be caught by sub-paragraph (b).
90 I do not accept the respondents' submission that rectifying the uneven floor was a defect or fault within the meaning of sub-paragraph (b).
91 I have already set out the evidence concerning the nature of the work which would have to be undertaken in order to remedy the defect. In my opinion, moving furniture and taking up carpet and grinding down the concrete even over a period of two days, is not of such a major nature as would warrant urgent attention within that sub-paragraph. Undertaking the work would not interfere with the substantial occupation of the unit which was the respondents' entitlement at completion of the Contract.
92 As I have already pointed out, in my view sub-paragraph (b) refers to a matter which requires immediate attention, rather than being merely a matter which should be accorded higher priority than some other task. In my opinion remedying the uneven floor did not fall into this category.
Orders:
93 I would make the following orders and declarations:
Appeal allowed.
Order that the declarations and orders made by Young CJ in Eq on 24 October 2002 be set aside.
Declare that the Notice of Termination dated 3 June 2002 served by the appellant on the respondents in respect of the Contract for the Sale of Land dated 14 February 2000 in relation to Part FI 1/874004 known as Apartment 420 and Carspace 40, The Etage, 2-50 Pyrmont Bridge Road, Camperdown (the "Contract") between the appellant as vendor and the respondents as purchasers was and is valid.
Declare that the Contract was validly terminated by the appellant.
Order that Caveat registered No. 8684513 be withdrawn by the respondents.
Order that the respondents pay the appellant's costs of the proceedings and of this appeal but have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal if qualified.
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Santow J was considering a clause in identical terms to the "Special Faults" definition in
the clause in the instant case, save that the words "major defect" were used instead of
"Special Fault".
Dormer v Solo Investments Pty Ltd [1974] 1 NSWLR 428 at 432; see also Tsekos v
Finance Corporation of Australia Ltd [1982] 2 NSWLR 347.
See Lynch v Thorne [1956] 1 All ER 744 at 745 - 6; Streeter v McLennan [1959] Qd R 136 at 140 - 141; R v Judge Given; ex parte Builders' Registration Board of Queensland [1985] 2 Qd R 32 at 39.
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