Vella v Ayshan

[2008] NSWSC 84

CITATION:	Vella v Ayshan [2008] NSWSC 84
HEARING DATE(S):	07-08/02/08
JUDGMENT DATE :	15 February 2008
JURISDICTION:	Equity
JUDGMENT OF:	White J
DECISION:	Plaintiffs' counsel to bring in short minutes of order in accordance with reasons.
CATCHWORDS:	CONVEYANCING – the contract and conditions for sale – description of property and subject matter of sale – failure to provide the property described in the contract for sale. - CONTRACTS – general contractual principles – consideration – what amounts to consideration – forbearance to exercise a right to rescind.
LEGISLATION CITED:	Environmental Planning and Assessment Act 1979 (NSW) Civil Procedure Act 2005 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Miller v Cannon Hill Estates Ltd [1931] 2 KB 113 Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317;[1966] 2 All ER 901 Sterling Estates Development Corp Pty Ltd v Malouf (2003) 58 NSWLR 685 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 Sinclair-Lockhart’s Trustees v Central Land Board (1950) 1 P & CR 195 Steele v Midland Railway Co (1866) LR 1 ChApp 275 Cole v The West London and Crystal Palace Railway Co (1859) 27 Beav 242; (1859) 54 ER 96 Perry v Sharon Development Co Ltd [1937] 4 All ER 390 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 Beard v Drummoyne Municipal Council (1969) 71 SR (NSW) 250 Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 Batey v Gifford (1997) 42 NSWLR 710 Dainford Ltd v Lam (1985) 3 NSWLR 255 Tarval Pty Ltd v Stevens & Ors (1990) NSW ConvR 55-552 Thomson v Miles (1794) 1 Esp 184 Byers v Dorotea Pty Ltd (1986) 69 ALR 715 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 241 ALR 88 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
TEXTS CITED:	Sugden, E, The Law of Vendors and Purchasers of Estates, 14th ed (1862) T C Williams & J M Lightwood, Williams on Vendor and Purchaser, 4th ed (1936)
PARTIES:	Gabriel Joseph Vella & 1 Or v Khalil Ayshan & 3 Ors
FILE NUMBER(S):	SC 5332/05
COUNSEL:	Plaintiffs: A Canceri 1st Defendant: J Haddad (solr) 2nd & 3rd Defendants: B Quinn
SOLICITORS:	Plaintiffs: Byles Canceri Lawyers 1st Defendant: Thurlow Fisher 2nd & 3rd Defendants: Mack & Associates

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Thursday, 7 February 2008

5332/05 Gabriel Joseph Vella & 1 Or v Khalil Ayshan & 3 Ors

JUDGMENT

1 HIS HONOUR: On 7 July 2004, the plaintiffs (“the purchasers”) entered into a contract to buy from the first to third defendants (“the vendors”) a property at 20B Belford Street, Ingleburn on which a townhouse was then under construction.

2 On 26 April 2005, the purchasers refused to complete the purchase on the grounds that the vendors had failed to cause the residence to be constructed in a proper and tradesmanlike manner and in accordance with the plans and specifications approved by the Campbelltown City Council. On 2 May 2005, they gave notice of termination of the contract and sought the return of the deposit. The vendors treated the notice of termination as a repudiation and themselves purported to terminate the contract and forfeit the deposit. The vendors later resold the property and suffered a loss on the resale. The purchasers claim the return of the deposit from the fourth defendant and damages from the vendors for legal costs and the costs of obtaining property inspection reports. The vendors claim that they are entitled to the deposit and damages for the loss on resale.

3 Special condition 15, upon which the purchasers rely, provides:

“ 15. Prior to completion the vendor shall in a proper and tradesmanlike manner cause a residence to be erected on the subject property in accordance with the terms and specifications as approved by the Campbelltown City Council and the vendor shall not less than fourteen (14) days prior to completion, serve on the purchaser an Occupation Certificate under the Environmental Planning and Assessment Act. ”

4 Special condition 16 provides:

“ 16. Any defects or faults due to faulty materials or workmanship which appears in the property and are notified in writing to the Vendor within a period of ninety (90) days after the date of completion of this agreement or the date of occupation (whichever is the earlier) shall at the expiration of the said period be amended and made good by the vendor at its own cost PROVIDED THAT this clause shall not apply to nor include normal maintenance nor wear and tear and provided that:-
(i) full and precise details of the defects and other faults complained of are set. [sic]”

The Issues

5 The first issue is whether SC 15 was a term of the contract. Contracts were exchanged at the real estate agent’s office. The purchasers paid a deposit of $950 and had a cooling-off period of two weeks (ten business days) in which they could rescind. Special conditions 15 and 16, along with other amendments to the contract, were agreed upon in correspondence between the parties’ solicitors. The vendors contend that there was no consideration for SC 15.

6 The second issue is in what respects the townhouse, as constructed, failed to comply with applicable building standards or good building practice.

7 There were a number of departures from the approved plans. The third issue is whether the purchasers agreed to such departures or acquiesced in them, and whether the contract was varied or the purchasers are estopped from denying that the residence was constructed in accordance with the terms and specifications approved by the Council.

8 The fourth issue is as to the effect of SC 16. The vendors allege that the defects in the erection of the residence alleged by the purchasers had not been notified in accordance with SC 16, or alternatively, as there was no time limit under SC 16 by which they were required to rectify notified defects, the purchasers could not terminate the contract on the ground that notified defects had not been rectified. The vendors also contended that the purchasers could not complain of departures from the approved plans because the departures had not been notified to the vendors under SC 16 within ninety days of the purchasers taking occupation as matters requiring rectification.

9 The fifth issue is whether SC 15 would only be breached if the residence were not fit for habitation.

10 The sixth issue is whether all or part of SC 15 was a condition, in the sense of an essential term any breach of which entitled the purchasers to rescind.

11 The seventh issue, which arises only if the sixth issue is decided adversely to the purchasers, is whether breaches of SC 15 were so substantial that they went to the root of the contract. The defendants submit that the departures from the approved plans occasioned no loss to the purchasers as the variances were beneficial. They submit that such defects in construction as existed could readily be fixed and the purchasers’ only remedy was in damages. As the purchasers purported to terminate the contract, they did not suffer any damage in rectifying the works.

12 The eighth issue is whether the purchasers, if successful, are entitled not only to the return of the deposit but also damages of $4415.20 for legal fees paid to their solicitors on the purchase including fees for correspondence and advice in relation to the events leading to the purchasers’ purported termination of the contract, and fees paid to David Hall Building Appraisals Pty Ltd for building reports. Conversely, if the vendors are successful, they claim as damages not only the loss on resale of $55,000 (against which the forfeited deposit of $38,000 would be offset) but also $790 for additional moneys spent on the property at the purchasers’ request.

Is Special Condition 15 a Term of the Contract?

13 The purchasers signed the contract for purchase at the real estate agent’s office on 4 July 2004. The contract price was $380,000. They paid a $950 deposit. They left their signed contract with the agent. On 7 July 2004, their solicitor, Mr Byles of GJ Byles & Associates, received a copy of the contract signed by the vendors. At that time, the contract did not include SCs 15 or 16. The contract included a special condition 4 which provided, inter alia, that the purchasers were purchasing the property in its current condition and repair, subject to all defects latent and patent, and as a result of the purchasers’ own inspections.

14 That condition was plainly inappropriate. All parties intended, and the vendors’ agent had represented, that the vendors would complete the building of the partially constructed townhouse. At the time contracts were exchanged, the house was a shell. Brickwork was partially complete. There was a wooden framework, but no stairs or walls. To view the upstairs section the purchasers climbed a ladder.

15 On 20 July 2004, Mr Byles proposed deleting SC 4 and inserting new clauses that became SCs 15 and 16. He also proposed amending SC 6 to provide that completion be the later of six weeks from the date of contract or fourteen days from registration of the plan of subdivision. Special Condition 6 at the time contracts were exchanged provided that completion was to take place fourteen days from notification to the purchaser that the plan of subdivision had been registered. Mr Byles proposed certain other amendments to the contract to which it is not necessary to refer.

16 On 21 July 2004, the vendors’ solicitor, Mr Cassab of Cassab & Associates, agreed to the proposed amendments save for the deletion of SC 4. Mr Byles pointed out that the condition was totally inconsistent with the vendors’ having any obligation to do further work. He asked how, as the premises were incomplete, could the purchasers accept them in their present condition and state of repair.

17 Both the purchasers’ and vendors’ copy of the contract were dated 7 July 2004. The two-week cooling-off period expired on 21 July 2004. On 22 July 2004, the vendors agreed to delete SC 4. On 27 July 2004, the purchasers paid the balance of the deposit, namely $37,050.

18 Had the agreement upon the variation to the contract been concluded prior to the expiry of the cooling-off period, it would be clear that the consideration for the variation was the purchasers’ refraining from exercising their right to rescind. Even though their contractual right to rescind had expired on 21 July 2004, the purchasers would have been strongly placed to seek either rescission or rectification had the vendors sought to enforce the contract according to its terms, that is, by disclaiming any obligation to complete the construction of the partially finished building. The true bargain was that the vendors were obliged to complete the construction of the townhouse prior to completion. The vendors made no submission to the contrary. Accordingly, in the absence of express terms, terms would have been implied that the residence be constructed using suitable materials fit for the purpose, that the work be carried out in a proper and workmanlike manner, and that the residence be fit for the purpose of habitation (Miller v Cannon Hill Estates Ltd [1931] 2 KB 113 at 122, 123; Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317 at 1332; [1966] 2 All ER 901 at 903; Sterling Estates Development Corp Pty Ltd v Malouf [2003] NSWCA 685; (2003) 58 NSWLR 685 at 694-696 [64]-[71]). The substitution of express terms for such implied terms, together with the amendment to SC 6 which potentially extended the time by which the vendor would be required to complete the works, provided consideration for the vendors’ promises. The avoidance of the possibility that the purchasers would seek to rescind or seek other relief was also sufficient consideration to support the variation (Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 737 and cases cited). I also accept the submission of Mr Canceri, counsel for the purchasers, that the variation provided a practical benefit to the vendors which was sufficient consideration (Musumeci v Winadell Pty Ltd at 744-747).

The Dispute

19 Pursuant to SC 6, completion became due on 22 December 2004. By that date, the construction work had been substantially but not wholly completed. The purchasers were anxious to take occupation. On 24 December 2004, they entered into a lease of the property from the vendors and moved a substantial amount of furniture into the property. They did not take up residence until their return from their honeymoon in February 2005. Mr Canceri accepted, correctly in my view, that for the purposes of SC 16, the date of their occupation of the property was 24 December 2004. The period of ninety days during which the purchasers were entitled to notify defects or faults due to faulty materials or workmanship appearing in the property expired on 24 March 2005.

20 On 11 March 2005, the vendors’ solicitor served a copy of an occupation certificate issued by Pyramid Building Services and asked for arrangements to be made for settlement. Relevantly, the Occupation Certificate certified that the building was suitable for occupation in accordance with its classification under the Building Code of Australia as a class 1a building. Contrary to submissions made on behalf of the defendants at the hearing, the certificate was not a certificate that the building had been constructed in compliance with the Council’s requirements or in accordance with the Building Code of Australia (ss 109C-109I, 109M Environmental Planning and Assessment Act 1979 (NSW)).

21 On 15 March 2005, Mr Byles sent Mr Cassab a copy of a building report of David Hall Building Appraisals Pty Ltd. He said that the vendors were required to carry out all of the rectification work required by the report. There was no dispute that this was a sufficient notification in writing under SC 16 of such defects or faults due to faulty materials or workmanship as were identified in the report. At the same time, Mr Byles asked for, inter alia, a copy of the council’s approved plans and specifications. Mr Byles asserted that there had been non-compliance with SC 15: particularly, but not exclusively, in relation to the level of concreting which, it was said, avoided the warranty on any termite system.

22 On 29 March 2005, Mr Cassab, on behalf of the vendors, forwarded various documents required by the purchasers and other information, including confirmation from the company which applied chemical termicide that the warranty was not avoided by the method of construction. Mr Cassab also forwarded a letter from the second defendant, Mr Ferro, whose company Ferro Design and Construction Pty Ltd held the building licence and carried out the work for the vendors. Mr Ferro answered criticism from Mr Hall as to the level of the concrete paving at the rear of the property. Mr Cassab advised that rectification of other matters raised in Mr Hall’s report would be attended to within a reasonable time.

23 On 7 April 2005, Mr Byles again asserted that the vendors had not completed the residence in a proper and tradesmanlike manner. On behalf of the purchasers, he also claimed that the residence had not been constructed in accordance with the approved plans in that:

“ (a) the laundry/toilet on the ground floor has been completely redesigned as a single room without its own exterior doorway and the services within that room have been relocated;

(b) the kitchen bench layout is completely different from the Plans;

(c) paths and landscaping are not in accordance with the Plans. ”

24 Mr Byles gave the vendors a notice to complete. The notice required completion by 26 April 2005. In the context in which the notice to complete was given, it is clear that the purchasers were not waiving their rights that the residence be constructed in accordance with SC 15 prior to completion. Rather, by making time for completion essential, the purchasers were seeking to limit the time by which the vendors could be required to complete the construction in the way the purchasers contended SC 15 required. There is no issue as to the validity of the notice to complete.

25 On 20 April 2005, Cassab & Associates advised that:

“ Without prejudice and subject to special condition 14 [sic] we are instructed that our client has attended to the defects of which they have been notified. If upon re-inspection your client finds any further ‘minor’ defects then our client will rely on special condition 14 of the contract. ”

It is not clear which condition was the “special condition 14” to which reference was intended to be made.

26 On 26 April 2005, Mr Byles advised that Mr Hall had again attended the property on 21 April 2005 and he was instructed that the vendors had failed to complete the dwelling in a proper and tradesmanlike manner, the defects were significant, the building had not been constructed in accordance with approved plans and specifications, and did not comply with Australian Standards. He disputed the vendors’ assertion that they were willing, ready and able to settle and advised that the purchasers accordingly would not settle the matter in accordance with their notice to complete. On 2 May 2005, Mr Byles served a further report prepared by Mr Hall following his inspection of the property on 21 April 2005 which identified a number of defects considered further below. At the same time the purchasers through their solicitor gave notice of termination of the contract.

Defects in Construction

27 The purchasers contended that at all times there were five defects or faults in the construction of the residence that had not been rectified. The first defendant, Mr Ayshan, deposed that all of the purchasers’ requirements set out in Mr Hall’s reports had been met except in respect of Mr Hall’s complaints concerning the termite protection system, which the vendors considered unwarranted. However, that is not so. Mr Hall’s complaints with respect to the five alleged defects were not addressed.

28 The first question is whether the matters complained of are defects in the erection of the residence. If so, further questions arise as to whether the residence was not erected in a proper and tradesmanlike manner. If so, a further question is what is the consequence of breach of SC 15.

29 The five alleged defects are:

(a) that the tiled deck of the front first floor balcony does not have a sufficient slope away from the sliding door, and there is no step down from the edge of the sliding door onto the tiled deck;

(b) that the rear external concrete slab does not have a slab required by clause 3.1.2.3 of the Building Code of Australia for the purpose of draining surface water away from the building;

(c) that the chemical termite protection system does not meet the performance criteria required by s 8 of Australian Standard 3660.1-2000; the chemical is diluted by water entry due to the concrete slab not having the required level of fall; the concrete slab is at a raised level and does not allow for an unobstructed space which, if termite activity is present, would reveal their presence during an inspection; and contrary to AS 3660.1-2000, the durable notice required by the Building Code of Australia to be affixed to the premises lacked the required information;

(d) the ceiling joists in the roof framework are not continuous to the front beam of the patio roof, and there is no tying of the hangers in this area to the structural joists to prevent roof spread, contrary to Australian Standard 1684.4-1999; and

(e) expansion joints have not been fitted to the floor tiles throughout the ground floor area to prevent uplift and drumminess of tiles, contrary to the requirements of AS 3958.1-1991.

Deck of First Floor Balcony

30 The purchasers contend that the deck of the first floor balcony has not been constructed in accordance with the manufacturer’s recommendations. They do not contend that this construction fails to comply with the Building Code of Australia or any mandatory standard. The complaint is as to the degree of fall away from the sliding door to the balcony and the absence of a step. The manufacturer’s recommendations do not specify a recommended rate of fall. There is a 22mm fall from the sliding door unit to the external edge of the balcony. During their joint inspection, the experts retained by each party, Messrs Hall and Capaldi, agreed that the rate of fall was likely to be adequate and that the works would not be considered a defect. Mr Hall said that wind-driven rain might penetrate due to the lack of a step at the door unit. However, there are aesthetic considerations such that this possibility may reasonably be considered a small price to pay. I do not accept that this complaint is a defect in construction.

Rear External Concrete Paving

31 Clause 3.1.2.3 of the Building Code of Australia states:

“ Surface Water Drainage

Surface Water must be diverted away from class 1 buildings as follows:

(a) slab - on ground - finished ground level adjacent to buildings

the external finished surface surrounding the slab must be drained to move surface water away from the building and graded to give a slope of not less than 50mm over the first 1m from the building. ”

32 The slab as constructed does not have the required fall. The rate of fall at the downpipe adjoining the building at the nearby stormwater grate is 40mm over 1.2m. At the sliding door unit it is 12mm over 1.2m. Across the rear of the building and at the rear of the side door it has been constructed level.

33 Mr Ferro, whose company did the concreting, wrote a letter in response to Mr Hall’s first report. His letter primarily addressed a complaint by Mr Hall as to the height of the concrete pavement. Mr Hall contended that the height of the concrete pavement nullified the termite protection system. Mr Ferro did not specifically address Mr Hall’s complaint that clause 3.1.2.3 had not been complied with as there was insufficient fall away from the building. In any event, Mr Ferro gave no evidence about this matter.

34 Mr Capaldi considered that, notwithstanding the non-compliance with clause 3.1.2.3, the slab (i.e. the external paving) meets the performance objectives of clause 2.2.1 of the Building Code of Australia. Those objectives are the conveying of surface water to an appropriate outfall, avoiding entry of water into the building, and avoiding water damage to the building. Mr Capaldi observed that at the joint inspection, it had been raining but there was no ponding.

35 However, whether there will be ponding will depend on for how long it rains and how heavy the rain is. Mr Vella gave evidence, which I accept, that when he and his wife returned to live in the property in February 2005, water pooled up to the step at the back of the house after it had rained. The Code stipulates how the concrete slab is to be built to achieve the performance objectives. I accept Mr Hall’s opinion that the slope of the external concrete paving does not comply with the requirements of the Building Code of Australia.

Termite Prevention System

36 Mr Hall’s opinion as to the adequacy of the termite prevention system developed over time. In his first report he said that the system failed to comply with the BCA because there was no slab edge exposure, whereas there should have been a 75mm slab edge exposure. Mr Hall said that the external concrete paths, landscaping and paving were at an incorrect height and they needed to be removed and lowered. However, the BCA relevantly provides that if a perimeter chemical barrier is not used, there needs to be a minimum 75mm of slab edge exposed above the finished ground level. The height of the concrete paving at the rear of the building conceals the concrete slab edge. But the slab was not relied on as the termite prevention measure. Instead, a chemical treatment was used. Therefore the 75mm slab edge exposure was not required.

37 Mr Hall ultimately accepted this. He then said that the slab was laid upon a clay soil and that to satisfy the performance criteria for the laying down of a chemical barrier on clay soil (where penetration is likely to be slow), the surface of the soil must be scarified. That is, the soil must be dug up and mixed with sand so that the chemical is absorbed into the soil (AS 3660.1-2000, Clause 8.5). Mr Hall opined that sand had not been introduced to the soil. However, there was minimal evidence as to the nature of the soil. The photograph Mr Hall produced did not show that the soil had not been scarified. Counsel for the purchasers accepted, rightly in my view, that the evidence did not establish that the soil had not been scarified.

38 Mr Hall also said that the chemical termite system was compromised by water penetrating through a gap between the edge of the rear concrete paving and the wall. He said that the inadequate slope of the rear concrete paving would create or exacerbate the problem in that ponded water would dilute the chemical at the slab edge at an accelerated rate. The “gap” was not itself a defect. It was expansion joint material. Nonetheless, there could be some water penetration. I do not consider that this was a separate or additional defect in the termite management system over and above the defect previously identified relating to the lack of sufficient fall in the rear concrete paving. Nonetheless, I accept that that defect has the potential to allow water to pond and to dilute the chemical termite barrier in the vicinity of the slab edge.

39 There was a direct conflict between Mr Hall and Mr Capaldi as to whether the slab height is such that the bottom of the weep holes are not exposed as required for the inspection for the presence of termites. Mr Capaldi has qualifications as a pest inspector. I accept his opinion on this matter. I am not satisfied that there was a defect of construction in this respect.

40 It was common ground that the sticker describing the termite management system affixed inside the meter box did not include all required information. It did not state the lifespan of the chemical, nor the recommended times of regular inspections. The Building Code of Australia requires these matters to be stated. The latter information (but not the former) was provided to the purchasers in the form of a letter from the company which installed the system.

41 I conclude that the only separate defect in relation to the provision of the termite management system was the absence of all required information in the notice fixed in the meter box, but that the failure to comply with clause 3.1.2.3 of the BCA in relation to the slope of the rear concrete paving has the potential to cause dilution to the chemical barrier if ponded water leaks into the soil adjacent to the edge of the slab.

Roof Framework above Front Patio

42 There was no issue that the roof framework above the front patio did not comply with AS 1684.4-1999 for Residential Timber Frame Construction. The defect was that referred to in para 29(d). This was a structural defect. Some “roof spread” has occurred although it is concealed by panelling. The estimated cost of installing the requisite stabilising ties was between about $300 and $600.

Expansion Joints for Tiled Floor

43 Mr Hall and Mr Capaldi agreed that to meet the requirements of AS 3958.1-1991 for the installation of ceramic tiles, expansion joints should have been provided. They were not. The cost of rectification was estimated by Mr Capaldi to be about $300. Mr Ferro gave oral evidence that such expansion joints were not required because the tiles had been fitted with an expansive rubber based glue. That evidence was given in an unresponsive answer in cross-examination. The vendors did not assert at any earlier time, either in correspondence in response to Mr Hall’s reports or in their affidavits, that such expansion joints were not required because of the type of glue used. No such proposition was put to Mr Hall. I accept the evidence of both the independent experts that there was a failure to comply with the relevant Australian Standard by not using expansion joints.

Departure from Approved Plans

44 The “terms and specifications as approved by the Campbelltown City Council” referred to in SC 15 included the plans approved by the Council. The Construction Certificate was issued by a private certifier, Pyramid Building Services. The Construction Certificate provided that the work would comply with the Environmental Planning and Assessment Regulations 2000 (NSW) if carried out in accordance with the approved plans and specifications. So far as the evidence reveals, the plans, and the requirements endorsed on them, were the only terms and specifications approved by the council.

45 There were three departures from the approved plans. They were as alleged in the statement of claim and the letter of GJ Byles & Associates of 7 April 2005 set out in [23]. The departure from the plans so far as landscaping was concerned was that the landscaping plans required the planting of two rows of kangaroo paw trees at the rear of the premises and two mint bushes at the front of the premises.

46 The vendors alleged that the first two variations were agreed to by the purchasers. No such contention was advanced in relation to the landscaping.

47 Although the allegation that the purchasers had agreed to the changes was not raised in the defences originally filed by the first to third defendants, the vendors’ solicitor had alleged on 15 April 2005 that the variations were all carried out with the purchasers’ knowledge and consent. There was no submission that the allegation was recent invention.

48 Mr Ayshan deposed that the variations to the construction of the kitchen and laundry/toilet were agreed upon at a meeting with the purchasers on 4 July 2004. Mr Vella said that the meeting took place on about 10 July 2004. On either view, the meeting took place before agreement was reached on the amendments to the contract. If the conversation occurred as deposed to by Mr Ayshan, that conversation cannot affect the interpretation of the written contract. However, the defendants also pleaded an estoppel. No submissions were developed in relation to this plea but counsel for the purchasers accepted that if the purchasers had agreed to the variations, they could not be heard to complain of them. Mr Ayshan deposed that he had a conversation with Mr Vella to the following effect:

“ Ayshan: ‘I’m sure Justin made you aware of the changes that we have made to the plans.’
Vella: ‘He explained some things to us.’
We then walked into where the laundry would be. The conversation then continued:
Ayshan: ‘On the plans, there is supposed to be two rooms here, one for the toilet and one for the laundry. If we do it that way, there will be two doors right next to each other, opening out into the kitchen. Also, the toilet will open out onto the kitchen. This will look odd and is not a very good look. What we are doing is swapping the places of the laundry and the toilet, and making them in the same room. That way there will only be one door opening out to the kitchen, and it will be the laundry and not the toilet. But there won’t be any room between the toilet and laundry to have a door lead out to the back yard, so that’s coming out.’
Vella: ‘Is there anything else that is changing?’
We then walked to where the kitchen was to be. The conversation then continued:
Ayshan: ‘The kitchen will have cupboards all around here ( I demonstrated where the cupboards would be by outlining them with my hand ). But this benchtop ( that went around the kitchen ) will be shortened on one side. If we don’t shorten it, there will be a very narrow passageway between the kitchen and the laundry, about 900mm. By shortening one side, the walkway will only be narrow on one small part.’”

49 Mr Vella denied that such a conversation occurred. I accept Mr Vella’s denial. Having heard Mr Ayshan give evidence, it is clear that this is not his mode of speech. In assessing Mr Ayshan’s credibility, I make full allowance for the fact that English is not his first language. His solicitor submitted that Mr Ayshan had limited education and I am prepared to accept that that is so. Nonetheless, I do not consider his evidence to be reliable. The most important matter in reaching that conclusion was his sworn evidence that he and Mr Ferro had completed all of the requirements in Mr Hall’s first report except for the termite control treatment issue. That evidence was not correct. Mr Vella gave his evidence in a straightforward manner and was not shaken in cross-examination. At the time of his meeting with Mr Ayshan, the building was a shell. The building was not so laid out that the matters could be demonstrated. Mr Vella readily made concessions that are potentially significant. While some changes and additions were requested by the purchasers and were agreed to, I find that there was no discussion about, let alone agreement to, the reconfiguration of the laundry and toilet, or the alteration to the kitchen benchtop.

50 That is not to say these changes were necessarily detrimental. Mr Vella was satisfied with the kitchen layout, and had no issue with the combining of the ground floor toilet and laundry into one room or the removal of the external door from the laundry. However, neither he nor his wife had given prior approval to the change.

51 Counsel for the second and third defendants submitted that there was no departure from the approved terms and specifications because the council had approved of the variations. I do not accept that submission. The vendors’ position in respect of the reconfiguration of the laundry and toilet, and of the kitchen bench, was that council’s approval to the reconfiguration was not required. Mr Ferro gave oral evidence that in 2004, before the purchasers turned up, he and Mr Ayshan visited the council’s development office, asked if they needed to make any submissions for amendments to the plans for “these minor internal changes”, and were told they did not. Mr Ferro did not say that the council had approved the changes. Had that been the case, I would expect the vendors to have pleaded such approval and to have given evidence by affidavit of it. The purchasers would then have had the opportunity to make inquiries of the council. I would not accept Mr Ferro’s uncorroborated evidence to that effect. However, Mr Ferro did not give the evidence attributed to him by his counsel.

52 I conclude that the vendors breached SC 15 by not causing the residence to be erected in accordance with the plans and specifications approved by the council in each of the three respects alleged. Whether the breaches warranted termination of the contract is a different question to be dealt with later in these reasons.

Special Condition 16

53 The vendors relied on SC 16 in the following ways. First, it was submitted for the first defendant that the alleged defects in construction had not been notified under SC 16. That is simply wrong. The defects were notified in Mr Hall’s first report delivered within the period of ninety days and the purchasers required the defects to be rectified.

54 Secondly, it was submitted that the purchasers could not complain of the variations from the approved plans because those variations were not notified to the vendors within ninety days of the purchasers taking occupation as matters to be rectified.

55 I do not accept that the deviations from the approved plans were defects or faults due to faulty materials or workmanship within the meaning of SC 16. Counsel for the second and third defendants submitted that not making the laundry and toilet or the kitchen bench in accordance with the approved plans was faulty workmanship. No authority was cited in support of this submission. I do not agree. The difference between the construction and the design was not a fault in materials or workmanship. The “fault” lay in not obtaining agreement to the change from the plans. There was no fault in the materials used or in the execution of the work. These matters did not come within SC 16. Moreover, even if it could be said that it was faulty workmanship to depart from the approved plans for the construction of the laundry, toilet and kitchen bench, the failure to complete the landscaping was not faulty workmanship. It was a failure to supply the materials, that is, the trees, required by the council. In my view, that was a breach of the obligation to erect the “residence” in accordance with the terms and specifications approved by the council. The “residence” included the land surrounding the building upon which landscaping work was to be done. It was part of the curtilage of the building and an integral part of the residence. In other words, the “residence” in SC 15 included the curtilage (Sinclair-Lockhart’s Trustees v Central Land Board (1950) 1 P & CR 195 at 204; Steele v Midland Railway Co (1866) LR1 Ch App 275 at 289-290; Cole v The West London and Crystal Palace Railway Co (1859) 27 Beav 242; (1859) 54 ER 96).

56 In any event, SC 16 conferred rights on the purchasers. It did not limit their rights. The purchasers were entitled to have faults due to faulty materials or workmanship rectified if they gave notice within the prescribed time. If the purchasers did not notify the vendors of such faults, they were not thereby precluded from claiming damages or from refusing to complete the contract if they were otherwise entitled to do so. In every case it is a question of construction of the individual contract whether an express clause requiring a vendor to make good notified defects is exhaustive of the purchasers’ rights. But clear words are necessary for that purpose (Hancock v BW Brazier (Anerley) Ltd at 1333-1334). Special Condition 16 is not exhaustive of the purchasers’ rights.

57 Thirdly, it was submitted that there was no time limit under SC 16 by which the vendors were required to rectify notified defects. Therefore, it was submitted, the purchasers could not terminate on the ground that the notified defects had not been rectified. This submission could not apply to the departures from the approved plans. In any event, as no time was specified, the defects were required to be rectified within a reasonable time. That time had passed before the purchasers gave their notice to complete. The validity of that notice was admitted on the pleadings. Moreover, the vendors made it clear before the purchasers gave notice of termination of the contract that they considered they had done all that they were required to do. They cannot now be heard to say that the purchasers could not take them at their word.

58 It follows that SC 16 does not prevent the purchasers from terminating the contract.

Residence Not Erected in a Proper and Tradesmanlike Manner

59 There was no question but that the residence was fit for habitation, notwithstanding the defects in construction. The vendors submitted that it followed that the residence had been erected in a proper and tradesmanlike manner even though there were departures from applicable mandatory building standards. In support of this submission they relied on observations of Diplock LJ, sitting as a trial judge, in Hancock v BW Brazier (Anerley) Ltd. His Lordship said (at 1327):

“ ... I think that it is clear from the judgments of the Court of Appeal in Perry v Sharon Development Co Ltd [1937] 4 All ER 390, which I have already cited, that there is no substantial or significant difference between the formulation of the warranty that the house should be built of materials suitable and fit and proper for the purpose and the work should be carried out in a proper, efficient and workmanlike manner, and the alternative way of stating it, that the house is habitable and fit for humans to live in. ”

60 That passage was cited without apparent disapproval in Sterling Estates Development Corp Ltd v Malouf where McColl JA (at 695-696 [69]):

“ Unlike Diplock LJ, Lord Denning MR did not elide the formulation of the warranty, but little turns on this. Even Diplock LJ acknowledged (at 1327) that the different ways in which the warranty was expressed were merely alternative formulations rather than reflecting any substantive difference. ”

61 Whilst one would expect a house built of suitable and proper materials and in a proper and workmanlike manner to be fit for human habitation, it does not follow that if a house is fit for human habitation it has necessarily been constructed with proper materials and in a proper and workmanlike manner. There may be defects due to poor materials or workmanship that do not render the house uninhabitable.

62 In Perry v Sharon Development Co Ltd [1937] 4 All ER 390, the Court of Appeal did not equate such warranties. Lord Greene MR held (at 393) that on the facts as found by the trial judge in that case, the vendor of an uncompleted house who had promised to complete the construction was obliged to put it into “the contemplated condition of complete finish and readiness for occupation”. Romer LJ said (at 395) that there was an implied obligation that the house be fit for human habitation. McKinnon LJ held (at 396) that there was an implied undertaking that the building work be done properly. As noted earlier in these reasons, in Miller v Cannon Hill Estates Ltd, the implied warranty was expressed as one that the residence be constructed using suitable, or fit, or proper materials, and in a proper, or efficient, or workmanlike manner. When Diplock LJ said in Hancock v BW Brazier (Anerley) Ltd that there was no substantial difference between the formulations of the judges forming the Court of Appeal in Perry v Sharon Development Co, or between those formulations and the formulations of the warranty in Miller v Cannon Hill Estates Ltd, I do not understand his Lordship to have said that all of the formulations of the warranty should be read down to the lowest standard: that the residence, when constructed, be fit for human habitation. To the contrary, I take his Lordship to be saying that the warranty as formulated by Romer LJ in Perry v Sharon Development Co Ltd was not intended to express a different standard from that formulated by the other judges in that case, or from that formulated in Miller v Cannon Hill Estates Ltd. Thus, Diplock LJ construed an express term that the house be erected in accordance with the plan and specification, which in turn referred to the use of “hardcore” material, to require that the hardcore selected be fit, proper and suitable for its purpose (at 1328). In any event, in the Court of Appeal, Lord Denning MR, with whom Danckwerts and Salmon LJJ agreed, formulated the implied warranty in cumulative terms (at 1332) as follows:

“ ... when a purchaser buys a house from a builder who contracts to build it, there is a threefold implication: that the builder will do his work in a good and workmanlike manner; that he will supply good and proper materials; and that it will be reasonably fit for human habitation. ”

63 The present case concerns the construction of an express term. In my view, the obligation to erect the residence in a proper and tradesmanlike manner is not to be read down as meaning merely to erect a residence which is fit for habitation.

64 The defendants claim support for their submission from the judgment of the Court of Appeal in Sterling Estates Development Corp v Malouf. There, the Court of Appeal had to construe a substantially different term, namely the definition of a “Special Fault” which was defined to mean:

“ ‘Special Fault’ means a fault or defect in the property which:

(a) is structural; or
(b) because of its nature requires urgent attention; or
(c) may cause danger to persons in the property; or
(d) makes the property uninhabitable. ”

65 McColl JA, with whom Santow and Tobias JJA agreed, said of this clause (at 698 [88]):

“ [88] I accept the appellant's submission that the subparagraphs took their colour from their surroundings. So viewed it is clear that each of the subparagraphs requires the demonstration of a fault or defect of such a nature as would deny to the purchaser the substantial benefits of the contract if completion was to occur prior to its rectification. In other words, in order that there be a Special Fault, the fault or defect must be of such a nature that the purchasers would be substantially unable to occupy the unit if it was not repaired prior to completion. ”

66 The term there being construed bears no similarity to SC 15. The Court of Appeal did not have to construe the phrase “proper and tradesmanlike manner” and did not do so. Sterling Estates does not assist in the construction of SC 15.

67 The syntax of SC 15 is inelegant. The clause means that the vendor must cause the residence to be erected in a proper and tradesmanlike manner. That requires a judgment to be made as to the whole of the work done. An isolated or trivial departure from a building standard would not necessarily mean that there was a breach of the clause. Thus it could be said that failing to provide all of the required information on the notice to be inserted in the meter box was a failure to cause the residence to be erected in a proper manner, because it involved a departure from a mandatory standard. But if it stood alone, I would not consider such a failure to be a breach of SC 15. However, the defects I have found existed in the construction were not trivial, nor were they isolated. They involved departures from mandatory standards. I accept that by reason of those defects the vendors did not cause the residence to be erected in a proper and tradesmanlike manner.

68 If SC 15, on its proper construction, focuses attention on how the vendor should itself go about causing the residence to be erected, there would still be a breach. Whilst the work was carried out by subcontractors with the necessary qualifications, the work was largely supervised by Mr Ayshan who had none. He said that he performed the role of foreman. The existence of the defects indicates that he did not properly carry out the role. That is not altogether surprising in that his qualifications were as a painter and he had little experience in the construction of buildings. He held no qualifications as a building supervisor.

69 For these reasons I conclude that the vendors breached both limbs of SC 15.

Special Condition 15 Describes the Subject Matter of the Sale

70 The critical question in this case is whether the vendors’ obligation to cause the residence to be erected in a proper and tradesmanlike manner, or their obligation to cause the residence to be erected on the subject property in accordance with the terms and specifications approved by the Campbelltown City Council, was an essential promise, any breach of which would entitle the purchasers to rescind. Mr Canceri, for the purchasers, submitted that it was. He referred to the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642 where his Honour said:

“ The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v Booth (1834) 1 Bing NC 370 at 377 ; Bettini v Gye (1876) 1 QBD 183 at 188 ; Bentsen v Taylor Sons & Co (No 2) [1893] 2 QB 274 at 281 ; Fullers’ Theatres Ltd v Musgrove (1923) 31 CLR 524 at 537–8 ; Bowes v Chaleyer (1923) 32 CLR 159 ; Clifton v Coffey (1924) 34 CLR 434 at 438, 440. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. ”

71 Mr Canceri emphasised the words “prior to completion” which, he submitted, showed that the purchaser was entitled to strict and literal performance of the promise before he was required to complete.

72 I do not consider that the words “prior to completion” are themselves sufficient to make the vendors’ obligation to cause the residence to be erected in a proper and tradesmanlike manner an essential condition. It is equally consistent with a requirement that there be a substantial performance of the promise, as distinct from a strict and literal performance of the promise, before completion, so that only a substantial breach would justify a discharge. In other words, provided the house was ready for occupation, even if it had not been in all respects completed in a proper and tradesmanlike manner, completion would be required.

73 However, there is the more fundamental question of what is the subject matter of the contract. It is of first importance that the contract is one for the sale of land. As Walsh JA (as his Honour then was) said in Beard v Drummoyne Municipal Council (1969) 71 SR (NSW) 250 at 265:

“ ... apart from any relevant special provision, a purchaser [of land] may have a right to rescind, or at his option to go on with the contract, extending to deficiencies between promise and performance which would not be, in the case of other contracts, such as to enable him to treat himself as discharged from the contract, but which would ‘sound in damages’. ”

74 In Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1, Menzies J said (at 27-28):

“Williams on Vendor and Purchaser , 4th ed. (1936), at pp. 34-37 sets out the chief duties of a vendor at common law:
1. To show a good title to the property sold;
2. To produce land corresponding substantially in all respects with the description contained in the contract and available to be transferred to the purchaser in fulfilment of the contract; and
3. To hand over to the purchaser on completion all deeds and other muniments of title relating solely to the property purchased. This case concerns the second of these duties.
At common law, any difference, however trivial, between the land described in the contract and the land produced constituted a defect which entitled the purchaser to rescind.
Where there was only a slight difference, the Courts of Equity began to interfere and introduced the principle of compensation for deficiency: see Erskine L.C. in Halsey v. Grant (1806) 13 Ves. Jun. 73 at 76-9; 33 ER 222 at 223-224. Unless the deficiency was so substantial as to give the purchaser something entirely different from what he had contracted, equity would order specific performance on giving compensation for the deficiency. ”

75 In Batey v Gifford (1997) 42 NSWLR 710, Handley JA said (at 716) that:

“ The vendor's obligation at law under a contract for the sale of real estate by description was similar to that of a seller under a contract for the sale of goods by description. The description was an essential term of the contract and the purchaser could reject the goods if there was any difference, other than trifling, between the goods tendered and the contractual description. ”

See also Dainford Ltd v Lam (1985) 3 NSWLR 255 at 265-266; Tarval Pty Ltd v Stevens & Ors (1990) NSW ConvR 55-552.

76 The principle applied not only to the extent of land described in the contract of sale but also to the description of the interests sold. Thus, in Sugden, E, The Law of Vendors and Purchasers of Estates, 14th ed (1862), p 298, Lord St Leonards said:

“ Where a person sells an interest, and it appears that the interest which he pretended to sell was not the true one; as, for example, it was for a less number of years than he contracted to sell, the purchaser may consider the contract at an end, and bring an action for money had and received, to recover any sum of money which he may have paid in part performance of the agreement for the sale: and the vendor offering to make an allowance pro tanto, will make no difference; it is sufficient for the plaintiff to say, ‘it is not the interest which I agreed to purchase.’ ”

77 Does SC 15, or part of it, describe the subject matter of the sale, or is it a term going only to the quality of the thing to be sold? Where a building is sold in its present state of repair, the state of repair is not part of the description of the property sold (Thomson v Miles (1794) 1 Esp 184). On the other hand, in Byers v Dorotea Pty Ltd (1986) 69 ALR 715, Pincus J held that a term that a unit to be built would be designed by an architect was part of the description of the unit sold, such that the breach would justify rescission (at 725-727). In Dainford Ltd v Lam, the contract was for the sale of a home unit to be constructed and was described by reference to a plan annexed to the contract on which the unit was edged in red. The plan annexed to the contract included within the designated area of the unit two areas marked “ledge”. The area was not usable floor space. It consisted of about ten square metres. When the strata plan was registered, the area marked “ledge” was not included within the lot to be transferred to the purchaser. Powell J (as his Honour then was) held that the subject matter of the sale was the lot in the home unit building yet to be built which was to have the same physical features and to be in the same location as depicted on the annexed plans (at 264). The vendor was not in a position to convey the property as so described. The vendor could not rely upon the “errors or misdescription” clause in the contract. At common law, the purchaser was entitled to rescind. The vendor had treated the purchaser’s rescission as a repudiation and had itself purported to terminate the contract. It had not sought specific performance. Had it done so, it may well have succeeded in obtaining an order for specific performance albeit with compensation for the deficiency. Not having done so, it was not open to it to treat the purchasers’ rescission as a repudiation. The purchasers were entitled to exercise their common law right of rescission because the vendor was not able to convey the lot as described in the contract.

78 In this case, two pages of the approved plan showing the layout on the first and ground floors were included as attachments to the contract. The “property” was described on the front page as “the land, the improvements, all fixtures and the inclusions, but not the exclusions”. There are no relevant exclusions. The land was described by its address and its lot in the unregistered plan. The improvements were described as “house”. The inclusions included “landscape gardens”. The house and landscaped gardens were part of the subject matter of the sale. They were not to be sold in their condition at the time of contract. The house was a shell. Special Condition 15 was both a further description of the subject matter and a term as to quality. The term that the vendor erect the subject property in accordance with the terms and specifications approved by the council described what was to be sold. The term that the vendor cause the residence to be erected in a proper and tradesmanlike manner specified how it was to be constructed. The subject matter of the sale comprised the land, a house and landscaped gardens, whichever together comprised the “residence” erected in accordance with the terms and specifications approved by the council, that is, in accordance with the approved plans. The term obliging the vendors to cause the residence to be erected in accordance with the approved terms and specifications is an essential term because it describes the subject matter of the sale.

79 In Travinto Nominees Pty Ltd v Vlattas, Menzies J said that, at common law, any difference, however trivial, between the land described in the contract and the land produced constituted a defect which entitled the purchaser to rescind. However, his Honour, in the passage quoted above, also cited with approval Williams on Vendor and Purchaser which described the vendor’s obligation as being to produce land corresponding “substantially” in all respects with the description in the contract. In Dainford Ltd v Lam, Powell J said (at 265):

“ At Common Law, a deficiency error in the smallest portion or interest in the subject-matter of the sale either as to quantity or otherwise was equivalent to a total want of title; and the purchaser was entitled, at Common Law, to annul the sale, and, on so doing, to the return of all moneys paid, plus costs of investigation of title, but — because of the rule in Bain v Fothergill (1874) LR 7 HL 158 — normally was not entitled to substantial damages for loss of bargain: see, for example, Mortlock v Buller (1804) 10 Ves Jun 292 at 305-306; 32 ER 857 at 862 per Lord Eldon LC; Pope v Garland (1841) 4 Y & C Ex 394 at 404-405; 160 ER 1059 at 1063-1064; Travinto Nominees Pty Ltd v Vlattas (at 27) per Menzies J; Fry on Specific Performance , 6th ed (1921), at 23; Williams on Vendor and Purchaser , 4th ed (1936), at 51-52. It is that fact which led to the introduction into contracts for the sale of land of clauses such as cl 5 of the contract (see also Conveyancing Act 1919, Schedule III), although even such clauses will not protect a vendor if an error or misdescription be substantial and material: Flight v Booth; Re Arnold; Arnold v Arnold (1880) LR 14 Ch D 270; Jacobs v Revell [1900] 2 Ch 858 at 868.

Although the harshness of the old Common Law rule has been ameliorated, in part, by resort to such clauses and, in part, by the willingness of the Court of Chancery, in a vendor's suit for specific performance, to treat deficiencies which are not substantial as not being a breach of an essential term, I do not understand the old Common Law rule otherwise to have been affected. ... ”

80 In Williams on Vendor and Purchaser, 4th ed (1936), p 51-52, the learned author says (in a passage also quoted in Dainford Ltd v Lam at 266):

“ (2) If the property, which the vendor is able to convey in fulfilment of the contract for sale, shall not be substantially identical with the property described in the contract, the vendor shall not enforce the contract at law or in equity, and the purchaser may treat the contract as broken; but if in such case there is a mere deficiency (whether of estate, area or otherwise) capable of assessment at a money value, the purchaser may in equity exact the specific performance of the contract with compensation for the deficiency, provided this will not prejudice third parties, or involve great hardship on the vendor.

(3) If the property available to be conveyed by the vendor in fulfilment of the contract shall correspond substantially with that described therein, but owing to some error innocently made by the vendor there shall be some small and insubstantial deficiency either of quantity or estate or in some other respect, the vendor (though he shall not enforce the contract at law), may nevertheless in equity exact the specific performance thereof, on giving compensation for the error; and the purchaser shall have the like right to enforce specific performance with compensation, but shall not be entitled to insist on his legal right to rescind the contract or recover damages for its breach, if the vendor shall be willing to make compensation and shall assert his own right to specific performance on those terms. ”

81 The emphasis here is on the subject matter to be conveyed being substantially identical with the subject matter described in the contract. In this context, it is clear that “substantial” does not mean large. It means of substance rather than merely nominal. Hence, in Dainford Ltd v Lam, the omission of the “ledges” from the lot to be conveyed, even though they were not usable, was a difference which warranted rescission at law, even though it would have been no answer to a claim by the vendor for specific performance.

82 The departures from the approved plans are substantial in this sense. Having the toilet and laundry in one room rather than two, having a smaller area for the kitchen bench, omitting an exterior door, and not providing the designated trees are both individually and in combination, matters of substance such that the residence erected is not substantially identical with that described in the contract. It follows that at common law the purchasers were entitled to terminate the contract as they did. Had the vendors sought specific performance, then, subject to the question next to be dealt with (that is, whether the breaches of the promise to cause the residence to be erected in a proper and tradesmanlike manner justified rescission or only damages), it is clear that specific performance would have been ordered, albeit with some small compensation. But specific performance was not sought and the parties’ rights are determined by the common law.

83 No reliance was placed on clause 6 of the contract which gives the purchaser the right to claim compensation before completion for an error or misdescription in the contract, whether as to property, title or anything else and whether substantial or not. The case is not one of error or misdescription. The property to be conveyed was accurately described in the contract. The vendor was not in a position to convey what was described (see also Dainford Ltd v Lam at 265). It is unnecessary further to consider clause 6. Nor was any argument raised concerning clause 7.

84 It follows that the plaintiffs are entitled to the return of their deposit.

Seriousness of the Breaches

85 Strictly, it is not necessary to decide whether the breaches of SC 15 were so serious as to go to the root of the contract so as to entitle the purchasers to rescind even if no part of SC 15 had been an essential term. However, as that question was argued, I should state my conclusion on the question. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 241 ALR 88, Gleeson CJ, Gummow, Heydon and Crennan JJ said (at 104 [55]):

“ [55] A judgment that a breach of a term goes to the root of a contract, being, to use the language of Buckley LJ in Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 at 380; [1971] 2 All ER 216 at 232, ‘such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract’ , rests primarily upon a construction of the contract. Buckley LJ attached importance to the consequences of the breach and the fairness of holding an injured party to the contract and leaving him to his remedy in damages. These, however, are matters to be considered after construing the agreement the parties have made. A judgment as to the seriousness of the breach, and the adequacy of damages as a remedy, is made after considering the benefit to which the injured party is entitled under the contract.”

86 The benefit the purchasers were to obtain under the contract was a residence properly constructed in accordance with the approved plans. The departures from the plans did not deprive the purchasers of a substantial part of that benefit. As noted earlier in these reasons, Mr Vella had no issue with the laundry and toilet layout and was happy with the kitchen. The failure to plant the required trees did not deprive the purchasers of a substantial part of the benefit they were to obtain. The defects in construction identified earlier in these reasons would have had a more significant adverse effect on the purchasers. However, the defects in roof construction and in the laying of the ceramic tiles could readily have been fixed at a small cost. Mr Hall’s rough estimate of rectifying the slope of the concrete slab was that it would cost about $10,000. The property is one of three properties in a row, but the plaintiffs did not establish that it would not be possible to correct the slope of the external concrete paving without also having to carry out similar works on the adjoining properties. I conclude that such works could be carried out at a cost of about $10,000. Until that work is done, the absence of the required slope can cause water to pond after heavy rain. This may affect the termite prevention system or it may not. In any event, regular annual inspections of the termite prevention system are required and if the chemical needed replacing, it could be replaced. None of these matters would deprive the purchasers of the substantial benefit of the residence. The cost of rectification could readily be quantified and an award of damages would provide adequate compensation. I conclude that the breaches were not so serious as would have entitled the purchasers to terminate the contract had no part of SC 15 been an essential term.

Damages

87 As noted above, in addition to the return of their deposit, the purchasers claim damages representing legal costs on the conveyance and the costs of obtaining Mr Hall’s reports. It would have been within the reasonable contemplation of the parties at the time the contract was made that such costs would be incurred, and would be wasted, in the event of a breach pursuant to which the plaintiffs terminated the contract. There is a presumption that the contract would not have caused a loss to the innocent party, so that the innocent party is entitled to recoup his expenditure: the onus lying on the contract breaker to prove that the expenditure would not have been recouped had the contract been performed (Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 85-89, 106-108, 126-127, 155-156, 166). The expenditure was wasted and the plaintiffs are entitled to the damages claimed.

Conclusion and Orders

88 I will make declarations that the contract for sale was validly terminated by the plaintiffs by notice given on 2 May 2005 and that the plaintiffs are entitled to the return of their deposit of $38,000. There will be judgment for the plaintiffs against the first, second and third defendants in the sum of $4,415.20 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW), from the time of payment of the sums totalling that amount referred to in para 32(v) and (vi) of the affidavit of Mr Vella sworn 8 September 2006, to the date of judgment. The evidence does not presently establish when those sums were paid.

89 The proceedings will stand over to a convenient date for the plaintiffs’ counsel to bring in short minutes of order including a calculation of interest under s 100.

90 It was common ground between the plaintiffs and the first, second and third defendants that the fourth defendant holds the deposit. No appearance has been entered for the fourth defendant. Upon the plaintiff providing proof of service and evidence that the fourth defendant is the holder of the deposit, I will make an order that it pay the deposit to the plaintiffs and pay interest to the party or parties entitled in accordance with the contract. If there is any dispute as to how interest on the deposit should be dealt with, I will hear argument on that. The cross-claims will be dismissed. The first, second and third defendants should pay the plaintiffs’ costs.

91 I direct the plaintiffs’ counsel to bring in short minutes of order in accordance with these reasons.

******