Stott v Gunn

[2002] QDC 365

DISTRICT COURT OF QUEENSLAND

CITATION:	Stott v Gunn [2002] QDC 365
PARTIES:	SHEILA HAZEL STOTT Plaintiff and ROY JAMES GUNN Defendant
FILE NO/S:	717 / 2001
DIVISION:	Civil Jurisdiction
PROCEEDING:	Claim
ORIGINATING
COURT:	Southport
DELIVERED ON:	24 May 2002
DELIVERED AT:	Southport
HEARING DATE:	14 May 2002
JUDGE:	Judge Alan Wilson SC
ORDER:	I declare that:

(a)	The plaintiff was entitled to terminate the written contract of sale between the plaintiff and the defendant dated 22 April 2001; and
(b)	The plaintiff is entitled to the return of the deposit she paid and the cost of investigation of title thrown away.

I order that:

(a)	The sum of $23,125.00 paid into Court by Mark Gerrard Gain of Gain Property Pty Ltd on 19 September 2001 be paid out to the plaintiff, or at her direction; and
(b)	The defendant pay the plaintiff the sum of $854.29 for costs of investigation of title thrown away.

CATCHWORDS:	VENDOR AND PURCHASER – SALE OF LAND – PURCHASER’S CLAIM FOR RESCISSION – representation in contract that land free from encumbrances – land affected by easement – whether purchaser may rescind – test for materiality.
Cases considered: Flight v Booth (1834) 131 ER 1160 Heywood v Mallalieu (1883) 25 Ch D 257 Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd [1978] Qd R 279, at 284 Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd
[1979] Qd R 103 Tarbet Investments Pty Ltd v Overett [1983] Qd R 2080 at 288 Hamilton v Munro (1951) 51 (NSW)SR 250, at 253-4 Gould v Vaggelas (1984) 157 CLR 215, at 236
COUNSEL:	Mr P W Hackett for the plaintiff Mr B Cronin for the defendant

1. On 22 April 2001 the defendant agreed to sell a residential property at Runaway Bay to the plaintiff for $462,500.00. The contract was in the standard REIQ form and provided for payment of a deposit of $23,150.00, and settlement within 45 days. The property is at 126 Sundance Way, Runaway Bay, and is described as Lot 593 on RP 220716, County of Ward, Parish of Barrow, containing 668m2.

2. The contract contained a provision in its Reference Schedule stating, with respect to the existence or otherwise of any “title encumbrances” that there were “none known”. In fact, the property was subject to an easement registered on 10 June 1988 to the Gold Coast City Council, for drainage purposes. The defendant did not give evidence but para 3 of his defence implies he knew of the existence of the easement (it was there when he purchased the property himself), but had forgotten it. The plaintiff Mrs Stott said, and I accept, that she did not know of the existence of the easement before she signed the contract, although she had inspected the property with the vendor’s real estate agent on about five occasions on none of which, as I also accept, was she told about it.

[3] When her solicitor’s searches discovered it, she had them write to the defendant’s
solicitors on 23 May 2001, saying:

“The Contract did not disclose this encumbrance and accordingly our client now gives notice of the termination of the Contract in accordance with the terms of the Contract.

Would you please instruct the agent to refund the deposit monies to our client.”

The defendant’s solicitors replied on 24 May 2001 rejecting the plaintiff’s contention that she had the right to terminate but treating that purported termination as a repudiation and claiming an entitlement to elect to forfeit the deposit.

1. The plaintiff’s action is founded upon an allegation she was induced to enter the contract in reliance on the false representation about the absence of any title encumbrances; and/or a right to relief under clause 7.5(4) of the contract itself or because, in any event, the easement constituted a material defect in the title giving a right to relief under the rule in Flight v Booth; or because the circumstances entitled her to relief under s 69 of the Property Law Act 1974. The defendant denies these remedies are available to her and says her termination was unlawful, and seeks a declaration that he lawfully rescinded the contract. A counter-claim was pleaded alleging the plaintiff’s termination forced the defendant to obtain bridging finance to complete another purchase of his own, and he suffered losses, including agent’s commission, of over $18,000.00. At trial he produced a later contract for the property at 126 Sundance Way showing that he had been able to sell it for a slightly higher price, of $467,500.00, and the counter-claim for monetary relief was abandoned, but the claim for declaratory relief was maintained.

2. Clause 7.2 of the contract provides:

   “Encumbrances and Tenancies.”

   Clause 7.5.4 is, relevantly, in these terms:

   “7.5 Survey and Mistake
   …
   (4) If there is a material error, encroachment or mistake, the Buyer may terminate
   this contract before settlement.”

3. S 69 of the Property Law Act 1974 provides:

   “69. (1) Where specific performance of a contract would not be enforced against the purchaser by the Court because of a defect in or doubt as to the vendor’s title, but such defect or doubt does not entitle the purchaser to rescind the contract, the purchaser shall nevertheless be entitled to recover the purchaser’s deposit and any instalments under the contract and to be relieved from all liability under the contract, unless the contract discloses such defect or doubt and contains a stipulation precluding the purchaser from objecting to the defect or doubt.

   (2) If the defect or doubt not disclosed by the contract is one which is known or ought to have been known to the vendor at the date of the contract the purchaser shall in addition be entitled to recover the purchaser’s expenses of investigating the title.

   (3) This section applies-

(a) to a contract for the sale or exchange of land or any interest in land made after the commencement of this Act; and

(b) despite any provision to the contrary contained in the contract.

1. The property contains 668m2. The easement runs the entire length of the lot, adjacent to its boundary with Lot 592, and comprises some 91m2. It is 36.5 metres long, and 2.5 metres wide. It is for drainage purposes and gives the Council:

   “The full and free right and liberty to use (it) together with the right at all times and from time to time to enter upon (it) for all purposes incidental to the construction use and maintenance of drainage works and thereafter for ever to use and maintain sewers, drains and pipes in connection therewith.”

   A photograph of part of the subject property (Exhibit 6) shows the easement land is at least partly paved, and contains gardens; also has timber and brick structures, and steel gates across it; and, is partly covered by a timber pergola which appears to extend to the boundary wall with Lot 592.

2. The plaintiff said, and I accept, that she is now retired but had worked for a local authority in Sydney for 23 years until June 1997 and became aware, in the course of that employment, of a number of disputes over property easements, with the consequence that she was determined never to buy a property subject to an easement. She said, and I accept, that if she had known of the existence of the easement she would not have entered into the contract.

3. Mr Kogler, a registered valuer called by the plaintiff, had 18 years experience with property in the area. In his opinion, an easement is generally a blight on title, because of the potential that Council might enter at any time in the future, with associated perceptions of loss of full enjoyment of land, and of privacy. This easement is, in his opinion, significant in size and would affect the value of the property, reducing it by about $20,000. Ms Fillipina, a real estate agent who had been working in the area for about 18 months thought the effect on value was greater – about $50,000. I did not find her evidence on this point persuasive; but she agreed with Mr Kogler, and I accept both their views on this point, that a registered easement is seen as a detriment by potential purchasers, and this easement is of significant size.

4. The Council’s senior building surveyor Mr Church said, and I also accept, that as a matter of policy if council is required to perform works on an easement any improvements must be removed, and council would not accept any of the costs of removal, or reinstatement. He also said owners could not build structures on the easement without council approval; that the pergola had not been the subject of any approval; and, approval should have been obtained for it.

5. No evidence was called for the defendant. Counsel agreed the critical issue was whether or not the existence of the easement was “material”, as that word has been construed in cases relating to contracts for the sale of land. For the defendant, Mr Cronin argued this question of materiality determined the argument under s 69. Mr Hackett’s written submissions on that point were not fulsome and it was unclear whether he disputed this assertion.

6. It is clear an easement noted on title but not disclosed in the contract is a defect in title: Heywood v Mallalieu (1883) 25 Ch D 257; Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd [1978] Qd R 279, at 284 (a conclusion not dissented from on appeal: Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd [1979] Qd R 103; and, see Tarbet Investments Pty Ltd v Overett [1983] Qd R 2080 at 288). The test for materiality, in the case of an easement, was defined by Kelly J in Liverpool Holdings in these terms;

   “If the existence of the easement would place such a limitation on the use of that allotment that it would be likely to make it more difficult to sell, would be likely to result in a lesser price being obtained than would have been the case but for the easement, then it might be said that the defendant as purchaser of the land as a whole was not obtaining essentially what is bargained for…”. (At page 283).

   The passage was cited, with apparent approval, by Douglas J in the Full Court: [1979] Qd R 103, at 106-7. The test has been expressed in different circumstances in different ways, Mr Cronin relying upon the statement advanced by the learned authors of Carter & Harland’s “Contract Law in Australia”, 3rd edition, para 759:

   “…where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject matter of a contract that it may reasonably be supposed that, but for such misdescription, the purchaser would never have entered into the contract at all, in such case the contract is avoided altogether and the purchaser is not bound to resort to the clause of compensation.”

   The statement is, in fact, a transcript of the principle as it was originally expounded in Flight v Booth (1834) 131 ER 1160.

7. The authorities already mentioned, and other cases cited by Counsel indicate the question of materiality is relative. The test for it is of course objective: Hamilton v Munro (1951) 51 (NSW)SR 250, at 253-4, in which Sugerman J said at 254:

   “Primarily what must be considered are the terms, express or implied, of the contract, and how far what is tendered compares with the contract description (to be gathered from those terms) of what is promised. It may also be necessary to consider surrounding circumstances, the usual habits and modes of thought of mankind (or of that section of it which enters into such contracts), and other evidence on the question of materiality. But such a consideration does not involve a mere enquiry into the state of mind as to immediate use of the purchaser when he made the contract. Its purpose is to assist in determining whether, looking at the whole effect of the restrictions, a difference in fact existing is a material difference – whether it is such that ‘it may reasonably be supposed that but for’ (the misdescription which conceals its existence) ‘the purchaser might never have entered into the contract at all’”.

8. In Liverpool Holdings the plaintiff agreed to sell the defendant certain land which was being subdivided into 21 allotments containing, in all, 17,942m2. Only one, Lot 11, containing 955m2 was affected by the easement which was, itself, 83m2 in area. It faced a road at one end, and a canal at the other and its frontage on the canal was 23 metres. The easement was about 3 metres wide and no building would be possible within 2 metres of the boundary in any event because of by-laws requiring that distance be maintained between boundary, and structure. A higher price had been offered for Lot 11 than an adjoining allotment, Lot 10, of about the same area. The defendant purchaser had originally contracted to pay $285,000 for the entire parcel but uncontradicted evidence showed that within about 12 months the value had dropped dramatically, to about $140,000-145,000. It is clear the fact a higher price had been offered for the encumbered Lot 11, than for the adjoining Lot 10, was an important factor in persuading Kelly J that the easement was not material; at 284, he said:

   “…it has not been shown that the existence of the easement is likely to detrimentally affect the sale of Lot 11, and I have come to the conclusion that it could properly be said that the defendant as purchaser was obtaining essentially what it bargained for…”

   The latter part of this statement also suggests that, in referring to what the purchaser
   “bargained for” his Honour was referring to the entire, very large parcel.

9. In pure mathematical terms, and with reference to Lot 11 alone, the area of the easement, as a fraction of the whole area of that allotment, was about 9 per cent and although he did not raise the argument directly, Mr Cronin might be taken to submit that the proportion here, 13 per cent, is not significantly larger so Liverpool Holdings is authority for the proposition that an effect, by reference to area, in about these fractions is not material. I am of the view however that Liverpool Holdings may be distinguished: the contract was, in fact, for what is comparatively an extremely large area, of which the easement was only a very small fraction; and, Kelly J had evidence which showed the value of the individual lot subject to the easement had not been detrimentally affected. Here, the easement covers about one- eighth of the area the purchaser contracted to buy; and, there is clear evidence from a valuer and a real estate agent that the value of the property is diminished by its existence.

10. In Tarbet Investments (supra) the plaintiff contracted to pay $255,000 for land and buildings which, as it turned out, “aerially encroached” on an adjoining lot. The encroachment was very small, and possibly the result of a building error. A valuer said the area encroached upon was worth only $500, and an engineer that the overhang was within normal building tolerance. While accepting the encroachment constituted a defect in title G L Williams AJ (as his Honour then was) held it was immaterial, in that it did not make the property something different from what had been bargained for. The comparatively substantial nature, in proportionate terms, of the defect here means Tarbet Investments is no more than an example of the kind of small defect upon which a purchaser ought not be entitled to rely.

[17]   Here, the easement constitutes a significant encumbrance in terms of area, and possible interference with the use of the property. Any lawful entry by the Council may be seriously disruptive to quiet enjoyment. I think it is properly described in the circumstances as material.

1. I am also satisfied that the representation in the contract that no encumbrances were known constituted an inducement to the plaintiff, within the principles enunciated by Wilson J in Gould v Vaggelas (1984) 157 CLR 215, at 236; i.e. the representation was false; Mrs Stott did rely upon it; and, although it may not have been the sole inducement which persuaded her to buy it played some part, even if only a minor one, in contributing to the formation of the contract.

[19]   A finding the defect was material also entitles the plaintiff to relief under the principle in Flight v Booth (supra), and under clause 7.5 of the contract.

1. It is unnecessary in those circumstances to make specific findings in relation to the claim under s 69. The learned authors of Duncan & Vann’s “Property Law (Queensland)” suggest, in their commentary on s 69 (at para 6.2300) that Tarbet Investments (supra) is authority for the proposition that the section applies both in actions for specific performance, and actions for recovery of deposit, brought by a purchaser. In that case, however, Williams J would have decreed specific performance of the contract at the suit of either the vendor or the purchaser and, in light of its history as a statute, s 69 did not, therefore, appear to have any application.

2. S 69(1) only applies if a defect or doubt in title is sufficient to prevent the vendor obtaining an order for specific performance, but insufficient to entitle the purchaser to rescind the contract. Here, the defect does give the purchaser grounds to rescind: Heywood v Mallalieu (supra), so in any event does not apply.

[22] I declare that:

(a)	The plaintiff was entitled to terminate the written contract of sale between the plaintiff and the defendant dated 22 April 2001; and
(b)	The plaintiff is entitled to the return of the deposit she paid and the cost of investigation of title thrown away.

I order that:

(a)	The sum of $23,125.00 paid into Court by Mark Gerrard Gain of Gain Property Pty Ltd on 19 September 2001 be paid out to the plaintiff, or at her direction; and
(b)	The defendant pay the plaintiff the sum of $854.29 for costs of investigation of title thrown away.

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