Sumy Pty Ltd v Southcorp Wines Pty Ltd

No judgment structure available for this case.

CITATION: SUMY PTY LTD v SOUTHCORP WINES PTY LTD [2004] NSWSC 1000

HEARING DATE(S): 5, 6, 13 October 2004

JUDGMENT DATE:
4 November 2004

JURISDICTION:
Commercial List

JUDGMENT OF: Bergin J

DECISION: Plaintiff entitled to judgment in the amount of $1,470,366.

CATCHWORDS: [CONTRACT FOR SALE OF LAND] - Whether the plan attached to the contract is part of the contract - Falsa demonstratio non nocet - Whether maxim applies - Whether the stated area in the deposited plan attached to the contract amounted a contractual warranty - Whether the plaintiff's right to sue for breach merged on completion - [DAMAGES] - Whether damages should be assessed as at time of breach, as at time of discovery of breach, or as at date of trial - [TRADE PRACTICES ACT] - Whether reliance was placed upon misrepresentation - Quantum of damages

LEGISLATION CITED: Conveyancing (Sale of Land) Regulation 1995 (NSW)
Conveyancing (Vendor Disclosure and Warranty) Regulation 1986 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666
Batey v Gifford (1997) 42 NSWLR 710
Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378
Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753
County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916
Cowen v Truefitt Ltd [1898] 2 Ch 551
Diamond v Campbell-Jones & Others [1961] 1 Ch 22
Dodd Properties Limited v Cantebury County Council [1980] 1 WLR 433
East Ham Borough Council v Bernard Sunley & Sons Ltd [1966] AC 406
Eastwood v Ashton [1915] AC 900
Jennings v Zilahi-Kiss, Zilahi-Kiss and M.K. Tramaine & Company Pty Ltd (1972) 2 SASR 493
Johnson v Agnew [1980] AC 367
Johnson v Perez (1988) 166 CLR 351
Murphy v Overton Investments Pty Ltd (2004) 78 ALJR 324
Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273
Svanosio v McNamara (1956) 96 CLR 186
Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 5 BPR 11,189
Terri Co Pty Ltd v Aldoth Pty Ltd (1989) 94 FLR 245
Watcham v Attorney General of East Africa Protectorate [1919] AC 533
Wenham v Ella (1972) 127 CLR 454

PARTIES :
Sumy Pty Limited (Plaintiff)
Southcorp Wines Pty Limited (Defendant)

FILE NUMBER(S): SC 50147/03

COUNSEL: G. Inatey SC; V. Gray; AJ Abadee (Plaintiff)
A. Ogborne (Defendant)

SOLICITORS: Malcolm Johns & Company (Plaintiff)
Cutler Hughes & Harris (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

4 NOVEMBER 2004

50147/03 SUMY PTY LTD –v- SOUTHCORP WINES PTY TD

JUDGMENT

1 The plaintiff, Sumy Pty Limited, was the purchaser of land at Minchinbury in the State of New South Wales (the Land) pursuant to a Contract for the Sale of Land dated 28 November 1997 (the Contract) for the price of $1,625,000 from the vendor, the defendant, Southcorp Wines Pty Ltd. The Land is situated on the southern side of the M4 Motorway next to a site formerly operated as Australia’s Wonderland and adjacent to a quarry. At the time of the purchase the Land was zoned rural. Some years after the purchase, the plaintiff succeeded in having the Land rezoned and its present value on the plaintiff’s unchallenged evidence is approximately $60 million.

2 The Land was advertised on a billboard next to the Freeway and in brochures as comprising “100 acres”. Correspondence to the plaintiff from the defendant in relation to the Land also referred to it as “100 acres”. The Contract contained a Plan of an area (Plan of Lot 1 DP 650179) that formed part of the Land recording its area as “23.59 ha”, that, with other parts, made up the total of 100 acres, whereas in reality the total area was only 80 acres. The reference to “23.59 ha” was an error and should have been recorded as 15.04 ha.

3 It was not until 2002 when the plaintiff commenced negotiations with a third party to either sell the Land or to develop it with that third party in a joint venture, that the plaintiff was advised that the third party’s surveyor had “picked up a discrepancy” in relation to the area of the Land. The third party had purchased what is known as a “digital cadastral file” of the general area and had discovered the “discrepancy” in the total area of Lot 1 DP 650179.

4 An historical search with Land and Property Information (LPI) disclosed that 23.59 hectares was available for Lot 1 in DP 109198 dated October 1913. In about August 1960, 8.546 hectares were transferred from DP 109198 by the registration of DP 419612, leaving a residue area of 15.04 hectares. In early 1993 LPI produced a compiled Departmental Plan being DP 650179 for the creation of a new title. That plan showed an area of 23.59 hectares and did not take into account the 1960 transfer of 8.546 hectares.

5 There is no issue that the plaintiff was informed in advertisements and correspondence that the land was “100 acres” and/or “100 acres approximately”. The defendant does not suggest that the area of the land that was sold could reasonably be described as “approximately” 100 acres.

The Contract

6 The Contract was dated 28 November 1997 with a completion date of 13 March 1998. The Front Sheet of the Contract included the following:

7 The Schedule referred to was in the following terms:

8 The vendor’s agent was identified as Richard Ellis (NSW) Pty Ltd with the reference “J Shepherd”. In the section of the Contract headed “Documents (copy of document attached if marked) (some copies are required by legislation)” the only documents “marked” were: property certificate for the land; plan of the land; unregistered plan of the land; s 149(2) certificate (Environmental Planning and Assessment Act 1979); and s 149(5) information included in that certificate.

9 The plans “attached” to the Contract were of Lots 9, 11, 12 and 13 in DP 241859, Lot Z in DP 419449 and Lot 1 in DP 650179. In the plan of Lot 1 in DP 650179 the dimensions of the boundaries in the plan were accurately recorded but the recording of the area as “23.59 ha” was not accurate.

10 Clause 20.1 was an acknowledgment by the parties that anything stated in the Contract “to be attached”, was attached to the Contract by the defendant before the plaintiff signed it and “is part of this contract”. Clause 20.2 provided that anything attached to the Contract “is part of the contract” and clause 20.3 provided that an area, bearing or dimension in the Contract was “only approximate”.

11 The Contract also provided:

6. Error or misdescription

The purchaser can (but only before completion) claim compensation for an error or misdescription in this contract (as to the property, the title or anything else and whether substantial or not).

12 Clause 10 set out the “Restrictions on rights of purchaser” including the restriction that the purchaser could not make a claim or requisition or rescind or terminate in respect of “a promise, representation or statement about this contract, the property or the title, not set out or referred to in this contract” (cl. 10.1.5). The Contract also provided that “normally”, that is “subject to any other provision of this contract”, “the vendor must give the purchaser vacant possession of the property on completion” (cls. 1 & 17.1). Clause 17.2 provided that the purchaser could make a claim for compensation “(before or after completion)” if any of the land was affected by a protected tenancy. Clause 20.8 provided that “Rights under clauses 11, 14 and 17 continue after completion, whether or not other rights continue”.

13 Special Condition 31 provided, inter alia, that the vendor did not hold an Identification Survey and that the Contract would not be conditional upon the issue of an Identification Survey. Special Condition 35(c) provided:

(c) The Purchaser acknowledges that prior to signing this Contract it has made its own investigations and enquiries in relation to the Property and that the Purchaser has not relied upon any warranty or statement made by the Vendor or by anyone on its behalf except the warranties implied by the Conveyancing (Vendor Disclosure and Warranty) Regulation 1986, as amended. The Purchaser further acknowledges that it is aware that the Property has no access and the Purchaser has been fully advised by its solicitor on the terms and conditions of this Contract.

14 The Special Conditions of the Contract also provided:

No Merger on Completion

In so far as any condition of this Condition (sic) confers rights or obligations on either party which will continue after completion the parties agree that the provisions of these Special Conditions shall not merge on completion of this Condition (sic).

Whole Agreement

The covenants and provisions contained in this Contract expressly or by statutory implication cover and comprise the whole of the agreement between the parties hereto and it is expressly agreed and declared that no further or other covenants or conditions whether in respect of the Contract or otherwise shall be deemed to be implied herein or to arise between the parties hereto by way of collateral or other contract by reason of any promise, representation, warranty or undertaking given or made by any party hereto to another on or prior to the execution hereof and the existence of any collateral or other contract is hereby negatived.

Access

The Purchaser is aware that whilst the Northern Boundary of the property is the F4 Freeway, no access to the property is permitted from that Freeway. The Purchaser acknowledges that it has been drawn to its attention that the physical access constructed under the Freeway to the property from the suburb of Minchinbury is no longer available for use as access to the Property. The Purchaser acknowledges the provisions of the covenant contained in Instrument No. M557276 and Resumption Application W283372. The Purchaser acknowledges that it is aware that no other legal access is available to the property.

Disclosure, Environmental Issues

(a) The Purchaser acknowledges that prior to signing this Contract for Sale or any document relating to the sale of the Property the Purchaser was aware that any adjoining property is being used as a quarry and that the Vendor has used the Property for primary production. The Purchaser also acknowledges that contaminants may have leaked and/or been spilled upon the property or leached onto or under the Property.

(b) The Purchaser warrants that it has made, or will make, its own inspection and enquiries:

(i) regarding the condition of the Property or any improvements thereon;

(ii) as to the existence or non-existence, extent or location of such matters as are referred to in paragraph (a); and

(iii) as to the existence of installations or any other matter or thing the presence of which might constitute a latent defect in the Property;

and will make no objections, requisitions or claims for compensation arising out of any matter disclosed by the inspection and/or enquiry and the Vendor warrants that it will at the cost of the Purchaser co-operate with and assist the Purchaser in ascertaining the matters referred to in this paragraph.

46 (a) The Purchaser shall not be entitled to make any claim for compensation or otherwise against the Vendor nor requisition nor delay completion in respect of any matter disclosed in or arising out of the previous Special Condition.

The status of the plan

15 The plaintiff claims that by force of clause 20.2 of the Contract, the plan with the erroneous area figure within it formed part of the Contract. The defendant submitted that the plan was not part of the Contract and in support of that submission relied upon what Young J, as his Honour then was, said in Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666 at 671 as follows:

Conveyancing (Vendor Disclosure and Warranty) Regulation

16 Although that decision was overruled by Batey v Gifford (1997) 42 NSWLR 710 it was submitted that this portion of Young J’s judgment was cited with approval by Handley JA at 715 as extracted later in this judgment. The defendant also relied upon Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 6 BPR 11,189 in which McLelland J, as his Honour then was, said at 11,191:

In the first place, the errors in the certificate of title were not errors in “the agreement”. There were errors in a document which was attached to the document in which the agreement was embodied (to which I will refer as the contract) in pursuance of the requirements of s 52A(2) (a) of the Conveyancing Act 1919 (NSW) which provides, so far as presently relevant, that a vendor under a contract for the sale of land “shall, before the contract is signed by or on behalf of the purchaser, attach to the contract such documents, all copies of documents, as may be prescribed”. The relevant prescription is contained in cl 4 of the Conveyancing (Vendor Disclosure and Warranty) Regulation 1986 (NSW).

The expression “the agreement” in cl 7 means, in my opinion, the provisions by which the parties are contractually bound (to which I will refer as the binding provisions). The mere attachment of a document to a contract does not have the consequence that the contents of that document have contractual effect. Of course the whole or part of the contents of a document (whether attached to the contract or not) may become part of the binding provisions by being incorporated expressly or impliedly into those provisions. But such incorporation does not occur merely by reason of the document being referred to in the binding provisions as a factum on which the binding provisions operate.

17 Neither of those cases contained a clause equivalent to clause 20.2 of the Contract. The plaintiff referred to what Professor Butt wrote in The Standard Contract for Sale of Land in New South Wales, 2nd ed, at page 805-807. Professor Butt referred to clause 20.2 as “deceptively simple” and continued at paragraph [20.7]:

It purports to make anything “attached to” the contract “part of the contract”. It will be particularly relevant where a document, though physically attached to the contract, is not incorporated into the contract by express reference.

Consider, for example, a survey report that wrongly describes the dimensions of the property; assume also that the report is physically attached to the contract but that there is no express provision incorporating it into the contract or otherwise binding the parties to the description it contains. In the absence of clause 20.2 it would be arguable that the error would not be an error “in this contract”-a prerequisite to a claim to compensation under clause 6. However, under clause 20.2 the survey report would be “part of” the contract, and its erroneous description could well qualify as an error or misdescription “in this contract”.

18 The defendant submitted that even if, by reason of clause 20.2, the plan is part of the contract, it does not mean that it has contractual force. It seems to me that if parties expressly agree, as they did in this Contract, that a document forms part of the contract, it is reasonable to conclude that they intended that it have contractual force. I suppose it will depend upon the type and terms of the document that is expressly agreed to form part of the contract but it does not seem reasonable to conclude that the parties would go to the extent of expressly including it as part of the contract and then relegate it to an irrelevancy.

19 In this case there is additional support for the conclusion that the parties intended the plan to be part of the contract and to have contractual force. That support is found in clause 20.3 that provided: “An area, bearing or dimension in this contract is only approximate”. The reference to “area, bearing or dimension” when viewed in the context of the Contract as a whole, seems to me to be a reference to those concepts within the plans “attached to” and forming part of the Contract. There does not seem to be anywhere else in the contract that such terms could apply. I am satisfied that the attached plans formed part of the Contract and the error within the Plan of Lot 1 in DP 650179 was an error within the Contract. The plaintiff was entitled to claim compensation under clause 6 of the Contract prior to completion. It did not do so because the error was not discovered until four years after completion.

20 The defendant does not claim that the plaintiff should have taken any further steps than it did take to check the title of the land it was purchasing. No suggestion has been made that the plaintiff should have carried out a survey of the land. No suggestion has been made that the plaintiff should have obtained the cadastral search that ultimately exposed the error. Indeed there is no evidence as to whether such a facility was available at the time between exchange and completion in 1997 and 1998. The defendant’s claim is that the plaintiff’s rights merged on completion and, therefore, it must suffer the consequences of having paid the price for the land which both parties understood was approximately 100 acres when it was in fact only 80 acres.

Falsa demonstratio Non Nocet

21 The defendant submitted that if the description of the property consists of two parts, one of which is false but the other of which is true, then provided the true part describes the property with sufficient accuracy, the false part may be rejected leaving the true part to operate: Watcham v Attorney-General of East Africa Protectorate [1919] AC 533 at 541; Cowen v Truefitt Ltd [1898] 2 Ch 551 at 554. It was submitted that the erroneous area in the plan should be rejected by the application of the maxim because the Contract correctly described the land by its title reference.

22 The plaintiff submitted that the translation of the maxim - "mere false description does not vitiate if there is sufficient certainty as to object" (Broom's Legal Maxims, p 426) – is a translation made possible by adding the words “cum de corpore constat”: Eastwood v Ashton [1915] AC 900 at 914, per Lord Sumner. It was submitted that the purpose of invoking the maxim is to give effect to the parties’ intentions. Authority for that proposition is Terri Co Pty Ltd v Aldoth Pty Ltd (1989) 94 FLR 245 in which Asche CJ in considering whether the maxim was being applied in Eastwood v Ashton said at 264:

Now it may be argued that their Lordships were not specifically applying the falsa demonstratio rule because some of them considered that the other descriptions could be shown, in the context and in the light of the recital and the map, to fit in with the presumed intent of the parties.

23 In this case it is beyond doubt, and indeed agreed, that the plaintiff intended to purchase 100 acres from the defendant and the defendant intended to sell 100 acres to the plaintiff. To apply the maxim so as to delete reference to the erroneous area and thus to reduce it to 80 acres would not be consistent with or reflect the parties’ common intention. It was submitted by the plaintiff that the maxim must not be used to subvert the intention of the parties or rewrite the contract inconsistently with the parties’ intentions. I agree with the plaintiff’s submissions. I am not satisfied that the maxim is applicable in the circumstances of this case.

Contractual warranty?

24 The plaintiff claims that the defendant warranted in the Contract that it was selling to the plaintiff for the agreed price the Land including the area stipulated in the plan. It claims that the defendant breached that contractual warranty in that it did not sell to the plaintiff for the agreed price the area as warranted.

25 In Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273 Mahoney J, as his Honour then was, said at 279:

Bensten v Taylor, Sons & Co

Halsbury’s Laws of England

If, in deciding whether the provision as to frontage is to be regarded as a warranty, regard may legitimately be had to the oral evidence which was tendered without objection in the present matter, then, in my opinion, it was clear that the existence of a frontage of 15 feet 6 inches to Mansfield Street was of such importance to the purchaser as to constitute the statement of that frontage in the contract a warranty. If regard may legitimately be had only to the terms of the document and to such evidence of surrounding circumstances as is appropriate, for example, to identify the subject matter of the contract and set the context of the particular document, the position is by no means as clear. However, the frontage as it actually existed was of the order only of some 83 per cent of that referred to in the contract of sale. The nature of the subject matter of the sale as appearing from the evidence would suggest to me, on balance, that the right of ownership of the right of way area to which I have referred was indeed of such importance in the context as to constitute the statement as to frontage a warranty by the vendor to the frontage of the property.

I would, therefore, be of the view also that in the present case there was not merely a right of compensation under cl. 5, but, claimed and enforced at the appropriate time, a right of action for damages based upon a warranty. Whether, the contract having been completed, the right of action in damages in relation to a breach of that warranty would be now available to the purchaser is a matter which was not argued before me, and, in view of the conclusion which I have formed as to the construction of cl. 5, it is not necessary for me to consider this question.

26 The “provision” as to frontage referred to by Mahoney J was the description of the land in the contract in the following terms: “ALL THAT piece or parcel of land having a frontage of approx. 15’ 6” Parish of Petersham Municipality of Leichhardt being Lot F in Plan F.P. 108249 (formerly Litho 51473) and being the whole of the land contained in Certificate of Title Volume 7859 Folio 209 and Lot C in Plan F.P. 108249 (formerly Litho 51473) and being the whole of the land contained in Conveyance Registered No. 161 Book 2523 together with improvements erected thereon and known as No 76 Mansfield Street, Rozelle” (at 275).

27 Mahoney J said at 276:

Upon the construction of the words of description, the proper conclusion is, in my opinion, that the subject matter of the contract was the two lots of land specified and not land having a frontage of approximately 15 feet 6 inches to Mansfield Street. The basic structure of the language used in the description indicates in my opinion that the property sold is "ALL THAT piece or parcel of land being … Lot F … and Lot C …”. The words "having a frontage of approx. 15’ 6” to Mansfield Street" in such a context appear to be adjectival in their effect in respect of the piece of land which has otherwise been adequately described. A description of land in a contract of sale as being specified and clearly identified lot or lots in a registered plan to my mind suggests strongly that that which was intended to be sold was the land comprised in that lot and normally statements describing the incidence of that lot or lots will be treated as merely adjectival to the land contracted to be sold.

28 The plaintiff submitted that notwithstanding his Honour’s finding that the words in that contract relating to the frontage were merely adjectival and by way of description rather than delineation (at 277), his Honour also found that it was legitimate to have regard to the oral evidence in deciding whether the provision as to frontage was to be regarded as a warranty. The plaintiff also submitted that if the provision or statement as to area contained in the plan in the Contract in this case is taken to be merely adjectival, it is still legitimate to have regard to the extrinsic evidence, including the affidavit evidence, the oral evidence and the documentary evidence, to determine whether such provision or statement as to the area was a warranty. The defendant agreed that such extrinsic evidence was able to be relied upon for the purpose of determining whether the statement as to area was a warranty.

29 The defendant submitted that the erroneous entry on the plan as to area is merely “adjectival” and that the description of the land the subject matter of the Contract is that contained in the “special place” on the Front Sheet of the Contract and in the Schedule, in particular the land in “Folio Identifier 1/650179 Lot 1 DP 650179”. It was submitted that in Stephens v Selsey the dimensions of frontage were obviously important to the parties because they included them in the description of the land. In this case it was submitted that the absence of any reference to the area in the description of the land on the Front Sheet of the Contract or in the Schedule is an indication of its lack of importance to the parties.

30 That submission relies upon a finding that the description of the area was not contained within the description of the Land in the Front Sheet of the Contract, either expressly or by reference. The Schedule referred to in the section entitled “Land” and in the space next to the heading “Title” on the Front Sheet, extracted earlier in this judgment, contained not only the reference to the Folio Identifier but also the reference to the Lot and the Deposited Plan.

31 In my view the words “See schedule” in the section of the Front Sheet headed “Land”, relate not only to the “Title” but also to the “Plan”. It is reasonable and consistent with common sense and the intention of the parties to read the section headed “Plan” as having included the relevant Lots and Plans as contained in the Schedule together with the words “(copy attached)”, thus including the plans attached to the Contract. On that construction of the Contract the erroneous area was included in the description of the Land because the Plan was included by attachment, and Clauses 20.1 and 20.2 make the Plan part of the Contract.

32 On that basis, the defendant’s submission that the absence of the reference to the area from the description of the Land is indicative of its lack of importance to the parties is rejected. The defendant’s submission that the inclusion of the dimensions of the frontage in the description of the land in Stephens v Selsey indicated that the parties regarded the dimensions as important, when applied to the finding I have just made, supports the finding that the parties to this Contract regarded the area as important by reason of its inclusion in the description.

33 Additionally, the evidence establishes that Mr Fernandez, of the plaintiff, first had his attention drawn to the Land by the billboard next to the M4 Freeway advertising it as “100 acres”. The brochure and all the correspondence referred specifically to the sale of “100 acres”.

34 Mr John Shepherd, identified on the Front Sheet of the Contract as the contact at the vendor’s agent, gave evidence in the plaintiff’s case. In 1996 and part of 1997 Mr Shepherd was working at CB Richard Ellis, a real estate agency in Parramatta. Tesrol Holdings Pty Ltd (Tesrol), of which the plaintiff is a subsidiary, was, as Mr Shepherd understood, in the business of buying and developing property. Tesrol dealt with CB Richard Ellis as one of its agents on new projects. The Land had been listed with Colliers Jardine, a real estate agency in North Sydney. In late May 1996 Mr Fernandez informed Mr Shepherd of the plaintiff’s interest in buying the Land. In early June 1996 Mr Shepherd contacted the agent at Colliers Jardine, Mr Rob Ferguson, who advised him to write to Mr Damien Brown of Stanton Hillier Parker (SA) Pty Limited, real estate consultants in Adelaide and advisors to the defendant.

35 Mr Shepherd’s evidence was that “there was some confusion about the actual land mass” and he “questioned Ferguson about the actual land area”. On 11 June 1996 Mr Ferguson sent a fax to Mr Shepherd listing the various Lots comprising the Land and their individual areas. That fax advised “Michinbury Land Area (not exact but close). The property consists of the following: - Lot 1 in DP 650179 58-29 acres … 100.89 acres or 408,302” square metres “Approx after conversion from acres …”.

36 At that time the Land was landlocked, a matter of which the plaintiff was well aware. On 13 August 1996 Mr Fernandez had a conversation with Mr Shepherd in which he asked him to put an offer to the defendant for the purchase of the Land at a price of $1.625 million. Mr Shepherd asked Mr Fernandez whether he was concerned about the access at the price he was suggesting the plaintiff would pay. Mr Fernandez advised that he was “not concerned” and that “in any event I am happy to pay the money for the 100 acres”. Mr Shepherd responded, “I suppose that you are right, it only equates to approximately $4 per square metre but you wouldn’t want to pay more than that”. Mr Fernandez asked Mr Shepherd to put the offer “on my behalf” and that it was his “best price” and he “must get the terms required to sort out the access issue”.

37 The correspondence containing the negotiations between the parties is in evidence (Ex B) and refers in each letter to the “100 acres”. On 18 December 1996 the parties executed a Deed of Option (the Option) whereby the defendant granted to the plaintiff an option “to purchase the property”. The Option (Ex D) defined “the property” as “the property described in the Contract annexed and marked ‘A’”.

38 The Option included the following clause:

Development Application

7.1 The parties acknowledge that it is the intention of the Grantee to lodge a development application for the property and the Grantee will as soon as possible lodge all necessary applications with the authorities for consent to such applications including applications to access to the property from public streets.

7.2 All such applications and the cost of meeting the conditions of any consent shall be payable in full by the Grantee.

7.3 The Grantee shall at all times fully inform the Grantor as to the then present position in regard to all applications and will furnish copies of all documentation and correspondence to and from the relevant authorities and the grantee or its consultants concerning all applications.

7.4 The Grantor, shall, as soon as reasonably possible after request by the Grantee sign all reasonable and necessary applications or plans.

7.5 The Grantee shall bear all costs, fees and expenses in relation to the applications including any fees charged by consultants to the Grantor to advise the Grantor on the Grantee's plans and/or applications.

39 The plaintiff relied upon this clause to submit that the defendant knew that the plaintiff intended to develop the land and that the area of the land was of significant importance by reason of such intention. Clause 13 of the Option contained the consent by the defendant to the plaintiff lodging “subdivision applications, development applications, building applications or re-zoning applications” (approved by the defendant) with the local council and other relevant authorities. Clause 13 required the plaintiff to provide any re-zoning application to the defendant's solicitors for consideration prior to its lodgement and gave to the defendant an absolute discretion to withhold its approval.

40 The Option was exercised and the Contract was exchanged on 28 November 1997 and completed on 13 March 1998 with the erroneous plan attached in the manner referred to above. The defendant submitted that the evidence of Mr Fernandez demonstrated that the plaintiff did not regard the provision in the Contract relating to the area as important. The defendant submitted that Mr Fernandez’ evidence in cross examination established that he did not rely upon the statement or provision in the Contract as to area and that such lack of reliance demonstrated that the provision was not important, so as to qualify it as a warranty. I disagree. It is true that in cross examination Mr Fernandez gave evidence that he relied upon the advertisement and the brochure and the letters in which there was mention of the 100 acres. However he also gave evidence that he was involved in reviewing the Contract before he signed it (tr. 35) and at the time of the transaction understood that “the title details that appeared on the contract were references to a particular identifiable parcel of land that could be identified by reference to details and plans held with the Land Titles Office” and that the plaintiff was acquiring the land which “corresponded to the land identified by the particular title details” (tr. 28).

41 Mr Fernandez gave unchallenged affidavit evidence that he, on the plaintiff’s behalf, negotiated the price of $1.625 million based on the 100 acres and that if he had been informed that the Land was materially less than 100 acres he would not have agreed to purchase the Land at that price.

42 The defendant also submitted that the plan was not attached or included in the Contract for the purpose of identifying the land being sold but rather in compliance with the defendant’s statutory obligation to make certain disclosures. In this regard the defendant referred to clause 4(1)(c)(ii) of the Conveyancing (Vendor Disclosure and Warranty) Regulation 1986 (NSW), referred to in the Special Conditions and to its successor, clause 5 of the Conveyancing (Sale of Land) Regulation 1995 (NSW), requiring the defendant to attach to the Contract “a copy of the plan for the land issued by the Department of Lands, the Land Titles Office or the council for the local government area within which the land is situated”.

43 The defendant submitted that the plan did not constitute a warranty as to the area being sold, but was merely a representation to the effect that the plan was a copy of a plan for the land issued by the Land Titles Office. In support of this submission the defendant relied upon Batey v Gifford (1997) 42 NSWLR 710. In that case the Court of Appeal was considering clause 12 of a contract that was in the general form of the 1988 Conditions of Sale approved by the Law Society and the Real Estate Institute. Clause 12(b) provided that:

Conveyancing Act

Conveyancing (Vendor Disclosure and Warranty) Regulation

Environmental

Planning and Assessment Regulation

44 Handley JA said at 714:

Environmental Planning and Assessment Regulation”.

45 Handley JA also said at 715:

The next question is whether this error in the certificate was an “error … in this agreement”. It had become common by 1989 for solicitors acting for vendors to annex a large number of documents to their contracts for sale. In some cases this was mandated by legislation which imposed specific duties of disclosure on vendors, but in other cases annexation was voluntary. Documents were annexed to disclose information to the purchaser and protect the vendor from claims for rescission or compensation. It does not follow that every annexed document forms part of the contract: see Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666 at 671. However the s 149 certificate was not simply annexed, it was incorporated as part of the Fifth Schedule and was referred to in cl 11(g) and cl 12(b). Both clauses refer to disclosures by the vendor in various schedules, including the fifth, “or otherwise in … this agreement”, clearly enough recognising that the Fifth Schedule itself is part of the agreement. Although the vendor did not warrant the information provided pursuant to s 149(5), nevertheless the certificate was part of the agreement . An error in the certificate was an error in the agreement. (Emphasis added)

46 In reliance upon the underlined words in Handley JA’s judgment, the defendant submitted that the contents of documents that are annexed to contracts in compliance with statutory obligations are not able to be relied upon as contractual warranties. I understand the underlined portion of Handley JA’s judgment to be a finding that the vendor did not warrant that information pursuant to clause 12(b) of the contract in that case. His Honour emphasised in the portion of his judgement at page 714, extracted above, that the clause 12(b) warranty applied only in respect of matters prescribed by s 149(2) and that while the s 149(5) certificate was included in the contract it was not the subject of the warranty in clause 12(b). The underlined portion of Handley JA’s judgment therefore seems to me to be a matter of clarification rather than a rule. I am not satisfied that the statement in Batey v Gifford is authority for the proposition for which the defendant contends.

47 The defendant also relied once again upon what Young J said in Avim v Guilianotti; that one does not use the attachment, in that case the s 149 certificate, to affect the description of what was sold, and on the following statements at 670-671:

The only errors or misdescriptions which could annul the sale are those pursuant to which the purchaser could get something substantially less than it bargained for. To find out whether the error had that effect, one must look to see what the purchaser bargained for. I have set out section F of the particulars. The particulars do not refer to any building at all. They merely indicate that the purchaser was to get the land at 329 King Street, Newtown. The space provided for someone to include a reference to the building or other improvements on the land or to furnishings and chattels have been left completely blank. Accordingly, if one was only looking to the description of the property, there would be no case at all for saying that the purchaser was buying anything else than the land. …

It is, of course, possible to go outside the particulars in section F of the contract to find out what was sold and to go to other parts of the contracts and perhaps even outside the contract, the crucial matter is the description of the property in the contract.

48 In the Contract under consideration in this case, there are two references to the Plan being attached. The first is on the Front Sheet in the description of the Land where “(copy attached)” is written after the word Plan. The second is on page 2 under the heading “Documents” with the “x” in the box next to the words “plan of the land”. It is on page 2 that the words, “some copies are required by legislation”, are included in the heading. In Avim v Guilianotti in the particulars in section F of the contract under consideration “set out in full” by Young J, there is no mention of “copy attached” in relation to any plan that might have been available. It appears that in that case, unlike the Contract in this case, there was no provision for that to occur in the description of the land or if there was such a provision it was not taken up or included by the parties as part of the contract.

49 I am not satisfied that the purpose of attaching the Plan to the Contract in this case is limited to the defendant’s statutory obligation. The bracketed words “(copy attached)” on the Front Sheet were included as part of the description of the Land. The parties could have deleted those words if they did not wish to include the Plan in the description of the Land. If that had occurred and there was only the “marking” of the “plan of the land” on page 2 of the Contract the defendant’s submission may have more force.

50 I am satisfied on all the evidence that the provision or statement in the Contract as to the area on the plan of Lot 1 in DP 650179, being a necessary part to make up an area totalling 100 acres, was of such importance to the plaintiff as to constitute the statement of that area in the Contract as a warranty.

Merger

51 Generally, provisions in a contract for the sale of land merge on completion with the exception of those rights and obligations that the parties intended to endure beyond completion. The Contract refers to some rights merging on completion, for instance those provided under clause 6, and there is express provision that the rights under clauses 11, 14 and 17 continue after completion “whether or not other rights continue”.

52 The defendant submitted that prior to completion the plaintiff was entitled to make a claim for compensation under clause 6 of the Contract in respect of any error or misdescription in the Contract but that once completion occurred the plaintiff’s rights merged. In support of this proposition the defendant relied upon Svanosio v McNamara (1956) 96 CLR 186. In that case the sale of land included an hotel, a licence and goodwill. After completion it was discovered that the hotel was standing partly on the land conveyed and partly on adjoining Crown land. The purchaser had not made any requisitions or objections to title and had not had a survey made of the land. The purchaser sought a declaration that the parties had executed the contract under a common mistake as to the fact, accepted as a fundamental condition of the contract, that the vendor owned the whole of the land upon which the hotel was erected. The purchaser also sought orders setting aside the contract and for repayment of the purchase price.

53 McTiernan J, Williams & Webb JJ said at 211-212:

The present case on analysis falls completely within the principle that, after the contract has been completed by the execution of the conveyance and the payment of the purchase money, the purchaser, apart from rights arising from the deed of conveyance or subsisting under the contract which do not merge in the deed, has no remedy at law or in equity in respect of any defects either in the title to or in the quantity or quality of the estate: Brett v Clowser (1880) 5 C.P.D. 376, at pp. 386-389. The conveyance having been executed the purchaser must take all the consequences: M’Culloch v Gregory (1855) 1 K. & J. 286 at p. 291 [69 E.R. 466, at p. 468].

54 The plaintiff submitted that its rights arise from the Contract and thus fall into one of the categories excluded from the principle referred to above in the joint judgment in Svanosio v McNamara. The plaintiff also emphasised that there was no claim for damages in that case.

55 It was submitted that the plaintiff’s claim for damages for breach of contractual warranty did not merge on completion and that such a claim is quite different from a claim for compensation that was available pursuant to clause 6 of the Contract prior to completion. In Jennings v Zilahi-Kiss, Zilahi-Kiss and M.K.Tremaine & Co Pty Ltd (1972) 2 SASR 493 the purchaser discovered after completion that the “five flats” in the description of the land were not “flats”. The contract contained a similar provision to clause 6 of the Contract in this case. Bray CJ held that the error was of such a nature that the purchaser could have claimed compensation under the contract and said at 510-511:

According to the principle in Flight v Booth (1834) 1 Bing. (N.C.) 370 (131 ER 1160), such a clause does not cover a misdescription so material and substantial that it may reasonably be supposed but for such misdescription the purchaser would never have entered into the contract at all, and, in my view, the description of the units as flats falls into this class. If this is so, then before completion the plaintiff would have been entitled to rescind if she had found out the true state of affairs and would not have been confined to a claim for compensation under the error or misdescription clause: and by parity of reasoning I do not see why that clause should now exclude her from claiming damages, even though the time for rescission has passed. In short, in my view, the provision that compensation cannot be claimed for error or misdescription after settlement does not apply to an error or misdescription as substantial as that involved in describing the units as flats without disclosing the background relating to the building permit, the lodging house registration, and the council's attitude towards the stoves.

Nor, in my view, does the statement that the purchaser had entered into the contract on his own investigation and inspection relieve the vendor from any liability for breach of any warranty contained in the contract itself.

56 In Stephens v Selsey Mahoney J said at 280:

I would, therefore, be of the view also that in the present case there was not merely a right of compensation under cl 5, but, claimed and enforced at the appropriate time, a right of action for damages based upon a warranty. Whether, the contract having been completed, the right of action in damages in relation to a breach of that warranty would be now available to the purchaser is a matter which was not argued before me, and, in view of the conclusion which I have formed as to the construction of cl. 5, it is not necessary for me to consider this question.

57 I am not satisfied that the parties to this Contract intended that any claim for damages for breach of warranty was to merge on completion. Indeed the parties went to the trouble of expressly agreeing in clause 6 that any claim for compensation was not available after completion but did not restrict a claim for damages post completion. They also restricted any claims in relation to environmental issues. Clause 20.8 contemplates that there will be other rights that do not merge on completion.

58 I am satisfied that the plaintiff's rights in respect of its action for damages for breach of contractual warranty did not merge on completion.

Breach

59 There was no submission made by the defendant that if I found the existence of a contractual warranty, the failure to deliver to the plaintiff the area warranted would not be a breach of that warranty. I am satisfied that the defendant breached the contractual warranty by failing to deliver the 100 acres to the plaintiff.

Damages

60 The plaintiff submitted that in this case damages should be assessed at a date other than the date of the breach, either at the date of the discovery of the breach or the date of the trial. The plaintiff submitted that at the time the parties entered into the Contract they “contemplated that the purchaser acquired the land for development purposes” (written subs. 1/10/04 par [17]) and that it was unnecessary for the plaintiff “to prove that the precise re-zoning or the nature and scale of the ultimate development were within the parties’ contemplation” (written subs. 8/10/04) par [20]). The defendant submitted that the terms of the Option with the various alternatives of application for subdivision, development, building and/or re-zoning were in very general terms and do not prove that the defendant knew of any particular manner in which the plaintiff intended to use the Land. An analysis of the evidence on this aspect of the matter is necessary and is set out later in this judgment.

The principles and the authorities

61 The usual rule is to assess damages at the time of the breach of contract, however that rule will yield if it “is necessary to do so in the interests of justice”: Johnson v Perez (1988) 166 CLR 351 at 356 per Mason CJ; or if in particular circumstances, some other date is necessary to provide adequate compensation: per Wilson, Toohey and Gaudron JJ at 367: see also Johnson v Agnew [1980] A.C. 367. In the joint judgment in Johnson v Perez their Honours referred, at 367, to Wenham v Ella (1972) 127 CLR 454; Dodd Properties Limited v Canterbury County Council [1980] 1 WLR 433 and County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916, as examples in which the usual rule yielded.

62 Wenham v Ella was a different case to this. In that case the shares in a property owning syndicate purchased by the respondent entitled him, or would have entitled him but for the breach by the appellant in failing to deliver the shares, to a six twentieth share in a property that was at the time of the purchase already producing income for the syndicate. In that case the loss of the income from the rental of the property was held to be both the natural consequence of the breach and within the contemplation of the parties: per Barwick CJ at 460-461, Menzies J at 464, Walsh J at 465 and Gibbs J at 473.

63 Dodd Properties Limited v Canterbury County Council involved a building dispute in which the English Court of Appeal held that the date that damages for the cost of the repairs of the defective work should be assessed was the date of the action, when the works could reasonably be undertaken rather than at the date of the damage. County Personnel (Employment Agency) Ltd v Alan R Pulver & Co was a case in which solicitors negligently failed to ascertain the rent payable under a head lease and failed to explain the effect of a rent review clause to the plaintiff. The plaintiff sought damages for the capital sum paid for the surrender of the lease, the arrears of rent and the loss on the prospective sale of the lease and the goodwill of the business. The deputy judge found that if the plaintiff had been properly advised they would not have entered into the lease. On appeal Bingham LJ said at 926:

This being so, damage cannot be assessed with reference to a specific gain which the plaintiff would only have made if it had entered into this underlease, unless it be proper on the facts to conclude that properly advised, the plaintiffs would probably have been able to negotiate the grant of this underlease but without the offending clause.

64 Browne-Wilkinson V-C observed, at 927, that the diminution in value was an inappropriate measure for the quantification of damages in the circumstances and that the measure of damages was the difference between the actual value of the asset and the value it would have had if it had possessed the features the plaintiff thought it possessed.

65 The plaintiff relied upon a statement in Chitty on Contracts, 29th edition, Sweet & Maxwell 2004 at [26-057], that if a party does not know of a breach at the time it occurred, damages will usually be assessed as at the time when the party should reasonably have discovered the breach and thus been in a position to act on such knowledge, for example by attempting to mitigate. East Ham Borough Council v Bernard Sunley & Sons Ltd [1966] AC 406 was cited for authority for that statement. In that case some stone panels fixed to the exterior of a school building fell off after completion of the building works and two years after the architect had given his final certificate. The local authority repaired the work and sought to recover the cost from the contractors in an arbitration, pursuant to a clause in the building contract between the local authority and the contractors.

66 The House of Lords (Viscount Dilhorne (dissenting), Lord Cohen, Lord Guest, Lord Upjohn and Lord Pearson) held that since a reasonable examination by the architect at the end of the defects liability period would not have disclosed the defects complained of, the local authority was entitled to damages from the contractors. On the question of the assessment of damages, the issue was whether the damages should be assessed by reference to the cost of the building works: (a) at or shortly after the date of the breaches of contract in May 1954; or (b) in 1960 and 1961 when the local authority carried out the investigations and remedial work. Lord Cohen said at 434:

As all your Lordships are agreed that the latter is the correct date I can state my reasons for concurring in this conclusion quite shortly. Dealing with this subject, the learned editors of Hudson’s Building and Engineering Contracts, 8th ed. (1959) say at page 319 that there are in fact three possible bases of assessing damages, namely, (a) the cost of reinstatement; (b) the difference in cost to the builder of the actual work done and work specified; or (c) the diminution in value of the work due to the breach of contract. They go on:

“There is no doubt that wherever it is reasonable for the employer to insist upon reinstatement the courts will treat the cost of reinstatement as a measure of damage”

In the present case it could not be disputed that it was reasonable to the appellants to insist upon reinstatement and in these circumstances it necessarily follows that on the question of damage the trial judge arrived at the right conclusion.

67 Lord Guest agreed that the trial judge was correct in holding that the damages should be assessed by reference to the cost of building works in 1960 and 1961. His Lordship said at 440:

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd

“In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach.”

In addition to the reasons given by Melford Stevenson J., I would only add that it must have been in the contemplation of the parties upon the view which I take of clause 24 (f) that after the expiration of the defects liability period the contractors might be liable to make good defects which resulted from a breach of contract but which were not apparent till after the expiration of the defects liability period. The loss actually resulting from the breach would be the cost of making good the defects when they appeared.

68 Finally on this issue Lord Pearson said at 450:

The argument is that in the ordinary course of things the architect would have discovered the defects in the fixing of the stone panels at or soon after the time when they were fixed, and the extra cost due to the delaying of the remedial work from 1954 to 1960-61 would not have been incurred, and the damages for the breach of contract, correctly assessed according to the established principles, should not include this extra cost.

Hadley v Baxendale

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd

“Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in that ordinary course.”

Subsequently he explained what he meant by the words “liable to result.” He said [at 540]:

“It is indeed enough … if the loss … is a ‘serious possibility’ or a ‘real danger.’ For short, we have used the word ‘liable’ to result. Possibly the colloquialism ‘on the cards’ indicates the shade of meaning with some approach to accuracy.”

Hadley v. Baxendale

69 The plaintiff also relied upon Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753. In that case the defendant was aware that if the plaintiff exercised the option to purchase the land in question he intended to seek approval to develop the land, convert the existing building into six flats and build six houses. Notwithstanding the plaintiff’s option, the defendant sold the land to a third party. Elwes J said at 756:

It is clear, in my opinion, that if the defendants are shown to have known that the plaintiff intended to develop the land for profit special circumstances are established which entitle the plaintiff to have the damages assessed by reference to the profits which both parties contemplated he would make. There cannot be the slightest doubt here that the defendants knew what the plaintiff's intentions were, and knew exactly how he intended to pursue them.

70 Elwes J, at 756, referred to Diamond v Campbell-Jones & Others [1961] 1 Ch 22 in which Buckley J held that the plaintiff was not entitled to damages “referable to profits obtainable by developing the property in the absence of knowledge by the defendant vendor of the plaintiff’s intention to develop”. Harman J had earlier declared that the defendants had wrongfully repudiated an agreement for the sale by them to the plaintiff of leasehold property at Mayfair for 6,000 pounds and directed an inquiry as to what damages the plaintiff had suffered. On the hearing of the damages aspect of the matter before Buckley J, there was reference to that part of the contract referring to the defendants carrying out “the works mentioned in the schedule”. Those works included the conversion of the ground floor and basement into self-contained office accommodation with the remainder as a self-contained maisonette in accordance with certain plans. They also included "sanitary works" for male and female staff as may be employed in the office. That part of the contract was relied upon as “showing that it was clear, at the time that the parties entered into the contract for sale, that the property was one which would be appropriately exploited by converting it from a single unit of domestic occupation to more than one unit of occupation”.

71 In that case the plaintiff submitted that the subject matter of the contract was “a house which everyone considered to be fit only for conversion and no longer to be suited to single occupation; that it was at least “on the cards” that a purchaser would convert the house before disposing of it, and that it follows that if the purchaser in fact intended to do this, and can show that it was reasonable to suppose that his profit by doing so would have been greater than if he had sold the property for its market value at the date of the breach of contract, he is entitled to damages measured by the probable profit” (at 35). Buckley J observed that had the pleadings made an allegation that the plaintiff was a professional converter of townhouses and proved such allegation on the evidence and proved that the defendant knew of that profession and that the plaintiff either intended or was likely to carry out the conversion of the property himself then “it may be that the ordinary common-law rule as to the measure of damages to which I have made reference would operate differently than it does in a case in which those facts are not alleged or proved, notwithstanding that the claim was only for general damages” (at 35).

72 Buckley J was not satisfied that the plaintiff had proved that the defendants had knowledge of actual relevant circumstances and said at 36:

particular

Victoria Laundry

the reasonable probability of the possible loss arising from a given state of knowledge, that is to say, an established state of knowledge of actual relevant circumstances. (

73 The nature and extent of the vendor’s knowledge at the time of the entry into the Contract seems to me to be a crucial factor in justifying the assessment of damages at a date other than at the time of the breach of contract. The second sentence of the paragraph of Elwes J’s judgment in Cottrill v Steyning and Littlehampton Building Society extracted above suggests that very specific knowledge is necessary before departure from the usual rule is justified. The decision in Diamond v Campbell-Jones & Others supports this approach. Although the plaintiff in that case failed to persuade the Court that damages should be assessed otherwise than in accordance with the usual rule, the criteria referred to by Buckley J were the knowledge that the purchaser was a developer and knowledge that the purchaser “intended to carry out the conversion of the property himself”. Although this may appear to be criteria of a more general nature there are two matters that suggest that specific knowledge is necessary. The first is that the specific conversion works were included in the Schedule of the contract. The second is the statements by Buckley J that the knowledge to be imputed to the vendor is that “the purchaser intends to use” the land “in any particular manner” and that there must be “an established state of knowledge of actual relevant circumstances”.

74 In Brueckner v The Satellite Group (Ultimo) Pty Ltd & Ors [2002] NSWSC 378, Campbell J, in considering the plaintiff’s claim against the defendant for failing to give him title to two home units, to which, if the contracts had been performed, the plaintiff would have obtained title, referred to what Buckley J said in Diamond v Campbell-Jones & Others and held at [90] that there was no evidence that the defendant “was aware of the particular manner” in which the plaintiff intended to use the two properties. Consequently Campbell J held that the measure of damages was the value of the land at the date of the breach of contract.

75 It appears that Cottrill v Steyning and Littlehampton Building has not been considered at appellate level. It seems to me that there are good policy reasons for requiring specific or particular rather than merely general knowledge in relation to the purchaser’s plans at the time the contract is executed. If mere knowledge that the purchaser is a developer and intends to develop the land without more specificity, is the only pre-requisite for the justification for assessing damages at a time other than at the date of breach of contract, uncertainty would exist as to the limits of liability with vendors possibly finding they are responsible for losses in particular developments of which they had no knowledge at the time of the contract. That may adversely affect the willingness of vendors to deal with developers, similarly affecting the commercial property market generally.

76 I do not read the abovementioned cases as supporting such an approach. In each of Cottrill v Steyning and Littlehampton Building and Diamond v Campbell-Jones & Others, there was specific detail as to the nature of the works or development to be carried out. Notwithstanding the particularity in the latter case the plaintiff failed on the grounds referred to above. In Brueckner v The Satellite Group (Ultimo) Pty Ltd & Ors there was no particularity as to use and thus the usual rule applied.

77 In my view there must be proved “special circumstances”, or specific knowledge in the vendor at the time of entry into the contract of the particular use the purchaser intends to make of the land, to warrant the departure from the usual approach of assessing damages at the date of the breach of the contract.

The evidence

78 The defendant's agent, Mr Shepherd, gave affidavit evidence that he knew that Tesrol Holdings Pty Ltd of which the plaintiff is a subsidiary, was "in the business of buying and developing property". Mr Shepherd also gave evidence that in late May 1996 Mr Fernandez said:

I think the land would be a good investment for Tesrol as it has potential to be a successful industrial site in the future because it is next to a quarry and right near the M4 motorway.

79 The correspondence between Mr Shepherd for Richard Ellis and Stanton Hillier in August 1996 made a number of references to the plaintiff's activities. They included the following:

The purchaser believes that they are 60% of the way in finalising a result, however, extensive survey work is required-this alone is expected to cost at least $150,000. In light of the considerable expense that they will have to incur in order to produce a result they are requesting that you consider providing them with either a 3 month or 6 month option. (Letter 5 August 1996)

necessary Development and Building Application. (Letter 13 August 1996)

(i) We confirm the purchaser will be granted authority to lodge necessary Development and Building Applications. (Letter dated 21 August 1996)

Necessary Development and Building Applications (letters 26 August 1996 and 27 August 1996)

80 On 16 December 1996 the defendant executed an Authority authorising the plaintiff “to lodge subdivision application, development/building and re-zoning application with the Local Council at Blacktown and any other relevant authorities that may be required for such application”. The Option Deed was executed on 18 December 1996 and pursuant to clause 7, set out earlier in this judgement, the parties acknowledged the plaintiff's intention to “a lodge a development application for the property" and that the plaintiff would "as soon as possible lodge all necessary applications with the authorities for consent to such applications including applications to access to the property from public streets”.

81 The Option Deed also contained the following clause:

Access to Property

The vendor authorises the purchaser or any person nominated in writing by the purchaser to enter on and remain on the property the purposes of carrying out survey requirements, drilling at any test bores, environmental impact studies, geotechnical reports, agents inspections, prospective purchasers and investors inspections, financial institutions (mortgagees inspections), landscape architects and town planner inspections. Provided that in doing any of the aforesaid the purchaser will be responsible for any loss or damage and repair any damage and reinstate the property at its cost and the purchaser hereby indemnifies the vendor against any claims arising directly or indirectly from any entry onto the land. This obligation to rectify and fix damage shall continue in full force and effect and shall not merge on completion. The purchaser will be obliged to pay for all such reports consultants and services as noted herein. The purchaser shall give reasonable notice in writing to the vendor of such proposed inspections or carrying out of work investigations by consultants and the purchaser will liaise with the agent in relation to access and notice.

82 Clause 13 of the Option Deed also included the defendant's consent to the lodgement of “subdivision applications or development applications or building applications or re-zoning applications" with the relevant council and authorities. Clause 15 provided that, inter alia, clauses 12 and 13 were “deemed to be incorporated” into the Contract.

83 The relevant history relating to the Land since completion of the Contract on 13 March 1998 includes: (1) the Land was re-zoned in February 1999 as “Employment” under the State Environmental Planning Policy No. 59 – Central Western Sydney Economic and Employment Area (SEPP 59); (2) some time between November 2002 and June 2004 after various approvals and contractor announcements, work commenced on the M7 Motorway; (3) the Minister released stages 1 and 2 of the Eastern Creek Business Park for development; (4)Australand completed “several leasing deals and “turn key” sales within the Park”; and (5) between November 2002 and June 2004 the completion of a number of developments in the Park (Dale p. 14 -15).

84 The plaintiff relied upon the expert reports of Michael Sturgess, a Quantity Surveyor, Paul Dale, a registered valuer and Goodwin Cullimore Allen Gower, a chartered accountant. Mr Sturgess was requested to report on “what costs are involved in carrying out all necessary work and constructing all infrastructure in accordance with the plan of subdivision” that was supplied to him. That plan was a “proposed plan of subdivision” dated March 2003. Mr Sturgess expressed the opinion that the “value of work” totalled $7,547,322.69 “based on a conceptual subdivision plan” and that “the cost of infrastructure relating to the proposed subdivision should be reviewed as the detailed design documentation develops”.

85 Mr Dale provided two reports, one attached to an affidavit sworn on 24 September 2004 and the other in a letter dated 1 October 2004. Mr Dale was requested to provide a valuation of the property on a number of bases. He expressed the following opinions in his first report: (1) that at the date of completion of the Contract, 13 March 1998, the 100 acres had a value of $4,100,000 and the 80 acres had a value of $3,200,000; (2) that at the date of the discovery of the breach, 1 November 2002, the 100 acres had a value of $34,700,000 and the 80 acres had a value of $27,500,000; and (3) that at the date of trial (fixed at 30 June 2004), the 80 acres had a value of $60,000,000. In his second report Mr Dale expressed the opinion that at the date of trial the 100 acres had a value of $75,500,000.

86 Mr Dale also expressed the opinion in his first report that the 80 acres, developed with services, as at 1 November 2002 had a value of $60,920,700 and as at the date of trial (fixed at 30 June 2004) had a value of $102,453,400.

87 Mr Gower expressed an opinion as to the “Loss before Tax”, “Statutory Interest” and “Total Economic Loss” based on the assumption that the defendant was liable to the plaintiff for damages at the three dates, 13 March 1998, 1 November 2002 and 30 June 2004. The opinion as to the last-mentioned matter on those dates was respectively $1,470,366, $8,451,616 and $16,281,262.

88 The defendant relied upon the evidence of Robert Farrell, a registered valuer, who expressed an expert opinion in his report the subject of an affidavit of 3 September 2004, that as at 13 March 1998 the acres had a market value of $3,280,000. Mr Farrell was not asked to express an opinion on the value of the Land on any other basis.

89 There was no cross examination of any of the experts. There is only $80,000 difference in the valuation of the Land as at 13 March 1998 between Mr Dale and Mr Farrell. In those circumstances it is appropriate to accept the value of $3.2 million thus leading to a loss as at 13 March 1998 of $900,000 with statutory interest of $570,366 leading to a total loss of $1,470,366 (Gower p.4). If the loss is to be assessed at either of the later dates, there has been no evidence to challenge the plaintiff’s valuation evidence together with interest, of $8,451,616 as at 1 November 2002 and $16,281,262 as at 30 June 2004 (Gower p.4).

Conclusion on damages

90 At the time of the conversation between Mr Shepherd and Mr Fernandez in 1996 in which Mr Fernandez said he thought the Land “would be a good investment for Tesrol as it has the potential to be a successful industrial site in the future”, it is apparent that Mr Shepherd was not the defendant’s agent. Mr Shepherd’s affidavit evidence was that the Land was “listed with Colliers Jardine”. The Contract attached to the Option Deed recorded “Richard Ellis (NSW) Pty Ltd” as the defendant’s agent, with the reference “J Shepherd”. How or when that agency was put in place is not disclosed in the evidence. It appears that it occurred some time between May 1996 and the date of the Option Deed, 18 December 1996. On 13 August 1996 Mr Fernandez requested Mr Shepherd to “submit the offer on my behalf” to which Mr Shepherd responded that he would “get onto it right away. Mr Shepherd gave evidence in cross-examination that after he had received the title and area details from Mr Ferguson in June 1996 he had further discussions with Mr Fernandez “revolving around when I could expect him to sign up a deal so I could earn a fee as an agent” (tr. 20).

91 It appears to me that at the time of the conversation in May 1996 in relation to the potential of the Land, Mr Shepherd was acting as the plaintiff's agent and received that information in that role. Alternatively, he was neither the plaintiff's nor the defendant's agent at that time and received the information as an independent third party. If he received information as the plaintiff's agent, it does not appear to me that once he became the defendant's agent, the defendant is taken to have known that information. There is no evidence establishing that the content of the conversation in May 1996 was made known to the defendant.

92 Even if Mr Shepherd's transmogrification from an apparent agency relationship with the plaintiff to an agency relationship with the defendant were to establish that his knowledge of the content of the May 1996 conversation then became the defendant's knowledge of its content, it does not establish that the defendant had knowledge of the plaintiff's intention in respect of the Land. This conversation took place 18 months prior to the date of the Contract and almost two years prior to its completion and was a vague expression about future prospects. It also appears that Mr Shepherd had commenced employment with the plaintiff prior to the exchange of contracts, although a decision had apparently been made to exercise the option prior to the commencement of that employment. The observation made by Mr Fernandez in relation to the potential of the Land to be a “successful industrial site in the future” because of its proximity to a quarry and the M4 Motorway was made specifically in relation to it being a “good investment for Tesrol”. There was no mention of the plaintiff. That Mr Fernandez had that idea at that time does not translate into notice to the defendant of a firm intention of the plaintiff in respect of any particular use of the Land.

93 The correspondence set out above, in which there appeared the plaintiff's authority to lodge “necessary Development and Building Applications”, made no reference to the specific nature of those applications. Indeed, at the time of the correspondence the Land was zoned rural. The Option Deed contained the acknowledgement that the plaintiff intended to lodge a development application but once again there was no specificity as to the nature of the development. The only specificity appeared in relation to the application to access the property from public streets.

94 The inclusion of clauses 12, 13 and 14 of the Option Deed in the Contract, recorded the defendant’s consent to the plaintiff's lodgement of “subdivision applications or development applications or building applications or re-zoning applications” (emphasis added) with the relevant authorities and council. At the time of the entry into the Contract there was no specificity of what the plaintiff intended to do, other than the recording of the defendant’s consent for the plaintiff to make any of the various applications referred to in clause 13. There is nothing in the evidence that proves that the defendant knew of the plaintiff’s specific intention in respect of the Land at the time the parties entered into the Contract.

95 I am satisfied that at the time the parties entered into the Contract, and taking a view of Mr Shepherd’s evidence most favourable to the plaintiff, it is more probable than not that the defendant knew: (1) that the plaintiff was a developer or part of a group of companies involved in development; (2) that the plaintiff intended to make an application for access to public streets so that the Land was no longer landlocked; and (3) that the plaintiff might make any or all of the applications for subdivision, or development or building or re-zoning of the Land. I am not satisfied that the evidence establishes that at that time the defendant knew the particular use to which the plaintiff was to put the Land. Indeed it seems to me that at that time, the plaintiff was not sure what it was going to do with the Land. I am satisfied that the appropriate time at which to assess damages is at the time of the breach on 13 March 1998.

96 The amount of damages to which the plaintiff is entitled for breach of contractual warranty is $1,470,366.

Trade Practices Claim

97 The defendant did not suggest that it had not misrepresented the area to the plaintiff within the meaning of misleading or deceptive conduct under the Trade Practices Act 1974 (Cth). Although there was a submission that the plaintiff did not rely on the misrepresentations by reason of Mr Fernandez instructing his solicitors in the matter checking that the area was 100 acres by way of title search, I am satisfied that the plaintiff did rely upon the misrepresented facts in the advertisement, in the brochure, in the correspondence and in the Contract.

98 The question of damages on this aspect of the matter is to be assessed as to how much worse off the plaintiff was by reason of that reliance. The evidence adduced by both the plaintiff and the defendant is that at the time the plaintiff purchased it, the Land was worth about twice the amount the plaintiff paid for it. The defendant submitted that in those circumstances the plaintiff did not suffer any loss because it obtained the land for about half its true worth.

99 The plaintiff accepted that the usual measure of damages for misrepresentation inducing a purchase of property is the difference between price and value, but submitted that it is wrong to assume that this measure is always to be applied. In this regard reliance was placed on Murphy v Overton Investments Pty Ltd (2004) 78 ALJR 324 in which the Court said at par [31]:

Potts v Miller

100 Murphy v Overton Investments Pty Ltd was a case distinguishable from this. In that case the appellants did not know that the estimate of outgoings in relation to the retirement village upon which they had relied to enter into a contract did not provide for all the outgoings that were then being incurred. The Court concluded that the appellants suffered no loss as a result of undertaking the obligations they did unless and until the contingency which the misrepresentation hid - that items other than those used to form the estimate were then being incurred and could be charged as outgoings - was first realised. The Court held that when the respondent decided to charge for the wider categories of outgoings the appellants’ adverse risk eventuated and they then suffered loss and damage.

101 The evidence in this case is that the plaintiff would not have entered into the Contract at the particular price had it known that the area was only 80 acres instead of 100 acres. It calculated the purchase price it was willing to pay on the basis of an area of 100 acres. The plaintiff claims that its damage is really in the nature of consequential damage, that is, that it is now only able to develop and yield profit on 80 acres, when it should have been able to yield profit on 100 acres. The plaintiff was never going to be able to obtain 100 acres at this particular site. There is no evidence that any comparable site was available to it to purchase that would yield anything like the extraordinary increase in the value of the land over the six-year period.

102 The plaintiff was able to purchase the Land for half of its true value at the time the Contract was entered into. I am satisfied that in this case it is appropriate to measure any damage the plaintiff has suffered as the difference between the price it paid and the value of the Land at the time it paid the price. The consequence is that the plaintiff is not entitled to any damages because the value was far greater than the price it paid.

103 If I am wrong in that conclusion an appropriate measure of damages may be the difference between $1,625,000 paid on the basis of 100 acres and the amount for 80 acres assessed on a pro rata basis at $1,300,000, being $325,000 plus interest.

Conclusion

104 The plaintiff is entitled to judgment in the amount of $1,470,366. If the parties are unable to agree on a costs order I will hear argument on 10 November 2004 when the matter is listed for the filing of Short Minutes of Order entering judgment.

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Last Modified: 11/18/2004

Key Legal Topics

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Contract Law
Civil Litigation & Procedure

Legal Concepts

Contract Formation
Breach of Contract
Implied Terms
Limitation Periods
Compensatory Damages

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Citations

Sumy Pty Ltd v Southcorp Wines Pty Ltd [2004] NSWSC 1000

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CITATION:	SUMY PTY LTD v SOUTHCORP WINES PTY LTD [2004] NSWSC 1000
HEARING DATE(S):	5, 6, 13 October 2004
JUDGMENT DATE:	4 November 2004
JURISDICTION:	Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Plaintiff entitled to judgment in the amount of $1,470,366.
CATCHWORDS:	[CONTRACT FOR SALE OF LAND] - Whether the plan attached to the contract is part of the contract - Falsa demonstratio non nocet - Whether maxim applies - Whether the stated area in the deposited plan attached to the contract amounted a contractual warranty - Whether the plaintiff's right to sue for breach merged on completion - [DAMAGES] - Whether damages should be assessed as at time of breach, as at time of discovery of breach, or as at date of trial - [TRADE PRACTICES ACT] - Whether reliance was placed upon misrepresentation - Quantum of damages
LEGISLATION CITED:	Conveyancing (Sale of Land) Regulation 1995 (NSW) Conveyancing (Vendor Disclosure and Warranty) Regulation 1986 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666 Batey v Gifford (1997) 42 NSWLR 710 Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378 Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753 County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916 Cowen v Truefitt Ltd [1898] 2 Ch 551 Diamond v Campbell-Jones & Others [1961] 1 Ch 22 Dodd Properties Limited v Cantebury County Council [1980] 1 WLR 433 East Ham Borough Council v Bernard Sunley & Sons Ltd [1966] AC 406 Eastwood v Ashton [1915] AC 900 Jennings v Zilahi-Kiss, Zilahi-Kiss and M.K. Tramaine & Company Pty Ltd (1972) 2 SASR 493 Johnson v Agnew [1980] AC 367 Johnson v Perez (1988) 166 CLR 351 Murphy v Overton Investments Pty Ltd (2004) 78 ALJR 324 Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273 Svanosio v McNamara (1956) 96 CLR 186 Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 5 BPR 11,189 Terri Co Pty Ltd v Aldoth Pty Ltd (1989) 94 FLR 245 Watcham v Attorney General of East Africa Protectorate [1919] AC 533 Wenham v Ella (1972) 127 CLR 454
PARTIES :	Sumy Pty Limited (Plaintiff) Southcorp Wines Pty Limited (Defendant)
FILE NUMBER(S):	SC 50147/03
COUNSEL:	G. Inatey SC; V. Gray; AJ Abadee (Plaintiff) A. Ogborne (Defendant)
SOLICITORS:	Malcolm Johns & Company (Plaintiff) Cutler Hughes & Harris (Defendant)

[2004] NSWSC 1000

4 November 2004

Key Legal Topics

Areas of Law

Contract Law

Civil Litigation & Procedure

Legal Concepts

Contract Formation

Breach of Contract

Implied Terms

Limitation Periods

Compensatory Damages