AJDJ & Ors v Pacific West Developments

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

FRIDAY, 14 DECEMBER 2001 4811/00 - AJDJ PTY LIMITED & ORS v PACIFIC WEST DEVELOPMENTS PTY LTD

JUDGMENT 1 HIS HONOUR: In these proceedings, the plaintiffs are the purchasers of seven units in an eight unit development in the Penrith district. The defendant is the vendor. The Contract for the sale of land for each unit was dated 12 November 1999. On 14 November 2000, the defendant's solicitor gave notice to each plaintiff rescinding the contracts. The plaintiffs seek an order for specific performance of the contracts. The defendant seeks a declaration that the contracts were validly rescinded. 2 In the proceedings, Mr F S Stevens of counsel appeared for the plaintiffs and Mr D L Warren of counsel appeared for the defendant. 3 In each contract, the defendant agreed to sell and the purchaser agreed to purchase a specified lot on an unregistered plan of subdivision. The plan of subdivision contemplated the erection of eight units upon the total property. The purchaser of each unit paid a deposit of $19,500. 4 Relevant clauses of each contract, which were amended by other provisions, provided as follows:-

"28.2 The vendor must do everything reasonable to have the plan registered within 12 months after the date of this contract, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation.

28.3 If the plan is not registered within that time and in that manner - 28.3.1 the purchaser can rescind; and

28.3.2 the vendor can rescind, but only if the vendor has complied with clause 28.2. 28.4 Either party can serve notice of the registration of the plan and every relevant lot and plan number.

28.6 The completion date becomes the later of the completion date and 21 days after service of the notice.

45. Notwithstanding the provisions of clause 28.2 hereof if the Plan is not registered within twelve (12) months from the date hereof due in whole or in part to one or more of the following:- · damage by fire; · proceedings taken or threatened by or disputes with adjoining or neighbouring owners; · any delay by the Council in giving necessary approval (provided that the Vendor shall have taken all reasonable steps to obtain such approval); · strikes lock-outs or inclement weather; · any other cause matter or thing beyond the control of the Vendor,

and if the vendor by written notice to the purchaser within fourteen (14) days of the expiration of the period of delay caused by any such event advises the purchaser of such delay then the time for registration of the Plan shall be extended by a period equal to the period of such delay." 5 It will be seen that settlement was to occur within twenty-one days of the service of the notice of the registration of the plan of subdivision. The vendor was required to do everything reasonable to have the plan registered within twelve months of the date of the contract, 12 November 1999. Should the plan not be registered within that time, the purchaser was entitled to rescind the contract and the vendor also, provided that the vendor had done everything reasonable to have the plan registered within that time. Clause 45 enabled the vendor to give notice extending the period of completion in the circumstances there specified. 6 Clause 28.2 did not use the expression "everything reasonably necessary to" but adopted the term "everything reasonable to". Mr Warren submitted that the omission of the word "necessary" weakened the effect of the clause and, in effect, that it was sufficient for the defendant to prove that it had acted, throughout the construction of the project, reasonably. 7 In this type of context, the word "necessary" does not carry the meaning of "essential" or "indispensable", but rather the meaning of "appropriate" or "needful to be done". The latter is one of the meanings given in (4) of the definition in the Oxford English Dictionary, 2nd Edition. The width of the word "necessary" can be seen from the words of Latham CJ, Rich, Dixon, McTiernan and Webb JJ, where, in Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56, in relation to the term "necessarily incurred" in s 51(1) of the Income Tax Assessment Act, 1936, their Honours said:-

"The word 'necessarily' no doubt limits the operation of the alternative, but probably it is intended to mean no more than 'clearly appropriate or adapted for': cf. per Higgins J in Commonwealth v Progress Advertising & Press Agency Co. Pty Ltd (1910) 10 CLR 457, at p 469." 8 In the expression used in clause 28.2, the word "everything" is the strong word. Unqualified, it would require that everything that had to be done to complete the project within twelve months must be done. But it is qualified by the word "reasonable". The vendor was not required to take any unreasonable step. The essential point is that the vendor sold the units on the footing that, subject to clause 45, settlement would occur shortly after the twelve month period. It was incumbent on the vendor to do everything reasonable on its part to ensure that that could be fulfilled. 9 Accordingly, I am of the view that the vendor was under an obligation to take all reasonable actions that were appropriate or needful to be done to ensure that the plan of subdivision was registered by 12 November 2000. That obligation was no more and no less than the obligation which would have been implied had the contract been silent on the point. 10 I reject the approach, which is implicit in the report of Mr G Lynas, the defendant's expert, that it is sufficient to consider whether the vendor proceeded as a reasonable developer, without time constraints, would have done. 11 There was a time constraint agreed upon by the parties and the vendor was obliged to do whatever was reasonably required to meet that time frame. 12 Such a time constraint required that there be reasonable expedition. I am satisfied that the defendant failed in this respect. Contracts were exchanged on 12 November 1999. The plan was not sent to the private certifier for certification until 13 December 1999. No explanation for the delay has been given. The certification was given on 22 February 2000. It has not been shown that it could not have been obtained by the end of January. Mr R Burger, the plaintiffs' expert, put a time of six to eight weeks on certification and considered that certification should have been obtained by 1 February 2000. Mr Lynas stated that four to eight weeks, with perhaps some delay over Christmas, was reasonable. The certification, in fact, was not obtained until more than three months after 12 November 1999. 13 The evidence does not disclose when building quotations were sought. One was received at the end of January and was revised in February. Two or more others were received during February. The building agreement on which the defendant relies was dated 5 March 2000. Work did not effectively commence until 17 April 2000, more than five months after 12 November 1999. 14 In my opinion, the defendant failed to exercise due expedition in getting the construction on foot. In his report, Mr Lynas expressly declined to comment on the time which elapsed between 12 November 1999 and 22 February 2000, when the certification was received. He expressly noted a delay of nineteen days, which he attributed to the builder, between 1 March 2000 and 17 April 2000. 15 I accept the opinion of Mr Burger that there was undue delay in the period before construction commenced and that an efficient developer would have proceeded more quickly than did the defendant. Mr Lynas' view was not substantially different. I accept the time frames said to be "reasonable", which are set out in para 4.2(c) of Mr Burger's report. 16 Both Mr Burger and Mr Lynas were of the view that twelve months was a realistic period for the construction of the units and for the registration of the plan. Both agreed that twenty-four weeks was an appropriate construction time, net of delays for industrial problems and wet weather. Mr Burger would have allowed a notional twenty-nine weeks for construction taking these factors into account. Mr Lynas' calculations were not dissimilar. Mr Burger said that the obtaining of an occupational certificate and the registration of a plan could take eight weeks but that a proposed plan should be lodged with the Council well prior to practical completion so that the effective delay would be much reduced. Mr Lynas did not disagree with this. Both Mr Burger and Mr Lynas considered that the introduction of the GST and the holding of the Olympics should not have affected the project once construction began, although Mr Lynas qualified this by saying that there were problems during the year 2000 in obtaining workers and material. I consider that the effect of the evidence of both experts was that a capable builder would not have been significantly delayed by reason of the GST or the Olympics. 17 It was inherent in the obligation imposed by clause 28.2 that the defendant should have carried out the construction work competently or should have employed a competent builder to do so. I agree with the comments of Young J in Woodcock v Parlby Investments Pty Ltd (1989) NSW ConvR 55-454, where his Honour said at 58,299:-

"However, no matter what the precise formulation of the principle, there is no case where the fault of an independent contractor of the vendor has been held to be the fault of the vendor to debar the vendor from relying on such a condition. In my view, the fault of an independent contractor cannot be said to be the fault of a vendor within the meaning of such principle. Of course, if the vendor is personally at fault in choosing an incompetent contractor or in obstructing that contractor's progress, he will be guilty of fault within the meaning of the principle. However, in circumstances such as the present where a vendor engages a competent builder and the units are not completed in due time because of a problem that that builder has, the vendor is not debarred from relying on the condition." 18 The defendant rejected some quotations it had received and could not make an arrangement with the builder it preferred. The directors of the defendant are Mr Harry Anastasiadis and Mrs Georgina Anastasiadis. Mrs Anastasiadis was the principal witness for the defendant. It appears that the Anastasiadis family had had involvement in property for many years but that they had never previously undertaken a development. 19 Ellena Anastasiadis, the daughter of Mr and Mrs Anastasiadis, was a student at the University of Technology, Sydney, studying for a Bachelor of Building and Construction Management Degree. For the purpose of obtaining practical experience, she was working on an unpaid basis with Denysenko & Associates, builders. 20 On 5 March 2000, the defendant purported to enter into a building agreement with Denysenko & Associates for the construction of the units for the price of $885,000. I am satisfied that the building agreement was a sham. The evidence shows that Mr Denysenko did little more than lend his licence number to the project and give occasional advice. Ellena Anastasiadis said, for example, that occasionally he, Mr Denysenko, would turn up at the site. She also said that Mr Denysenko was available on the phone if they wanted his advice. 21 In the result, Ellena Anastasiadis was the day to day manager of the project. She kept the daily diary which, insofar as a record was kept, was the record for the project. The defendant sought quotations from subcontractors and paid those subcontractors and suppliers. Mr Denysenko took no part in the finances of the project. Indeed, he was paid no remuneration for any part that he played in the project. Insofar as it is alleged that Ellena Anastasiadis was an employee of Denysenko & Associates, the fact is that she received no payment from that firm and her correspondence to and from subcontractors was in the name of the defendant. 22 In the result, the defendant was the effective builder of the units. Ellena Anastasiadis was the principal manager of the project. However, other members of the Anastasiadis family contributed. For example, Mrs Anastasiadis said:-

"A. In that particular time we were so desperate for materials because we could not get material. We had to ask and beg people practically to get material, whether it was done through Pacificwest or Mr Denysanko [sic] it did not matter at the time because we had to get the material to complete this project, and that is exactly what we were trying to do."

(Emphasis added) 23 The defendant was inexperienced in building and construction. It does not appear to have been experienced in dealing with Council officers. It had no building organisation, no building employees and no building equipment. Not surprisingly, the work did not proceed with the expedition which would have occurred had a competent builder been employed. The defendant encountered problems in obtaining subcontractors, in obtaining materials and in coping with the building problems which were encountered, such as the wet conditions in March and April 2000. 24 It is clear that the project did not proceed as it should have done. It did not proceed as Mr Burger considered that it ought to have proceeded. Mr Lynas himself identified delays totalling thirty-six days which he identified as being attributable to the builder. In his report, Mr Lynas identified seventy-nine days as the time taken for the framing of the walls and roofs, whereas, on his notional programme, he allowed only thirty-three days. Mr Lynas, in drafting his report, did not realise that the defendant was the actual builder. 25 Mr Lynas gave considerable attention in his report to the wet weather which resulted in lost days. I need not go into the details because I do not consider the weather to have been particularly significant. There is no evidence that the rainfall was above average or more than was to be expected. Of course, it did delay the work but rain must be taken into account when building in Sydney. Mr Burger would have allowed a notional five weeks for rain and like delays for a project of this type. The rain delay which occurred, forty days between 1 March 2000 and 11 November 2000, did not greatly exceed that. Overall, I would rely on Mr Burger rather than Mr Lynas. There are aspects of Mr Lynas' report which are unduly favourable to the defendant. Nevertheless, there was not a great deal of difference between the experts. 26 I am satisfied that the defendant's inexperience in development, building and construction greatly contributed to the delays which occurred. 27 I am satisfied that the defendant breached clause 28.2 in that it did not exercise the expedition which was due on its part and did not employ an experienced and competent builder. 28 For these reasons, I am satisfied that the defendant did not do everything reasonable to have the plan registered within twelve months after the date of the contracts and, therefore, was not entitled to rescind the contracts on 14 November 2000. Bryson J came to a like view in a somewhat similar case, Hawes v Cuzeno Pty Ltd (2000) NSW ConvR 55-930. 29 There is another basis on which I would find against the defendant. Clause 45 enables the time for completion to be extended in circumstances such as those relied upon by the defendant in this case. All the causes of delay, which are relied upon by the defendant, would come within the following provisions of clause 45:- · "any delay by the Council in giving necessary approval (provided that the Vendor shall have taken all reasonable steps to obtain such approval); · strikes lock-outs or inclement weather; · any other cause matter or thing beyond the control of the Vendor;" They would come within that clause, provided that they were not due to the defendant's default. For the purposes of this present discussion, I assume that was the case. 30 The defendant was entitled to give notice in relation to any delay by the Council or any inclement weather which delayed the work. Assuming that the building delays had been delays of a competent builder, the defendant would have been entitled to give a notice in respect of all those matters. 31 In my view, clause 45 was not intended for the benefit of the vendor alone. Its provisions qualified the period specified in clause 28.2 so as to enable the vendor to extend the time in the various types of circumstances that could be envisaged as delaying a building project. The contracts envisaged that the twelve months period, specified in clause 28.2, could be extended pursuant to clause 45. In my view, it was unreasonable and unconscionable for the defendant to rescind on 14 November 2000, and to do so for its own purposes, without having extended the period in accordance with clause 45 in reliance upon the delays which had occurred. 32 In relation to a somewhat different context, Viscount Radcliffe, giving the judgment of their Lordships, said, in Selkirk v Romar Investments Ltd [1963] 1 WLR 1415 at 1422-1423:-

"It does not appear to their Lordships, any more than it did to the judge who tried the action, that there is any room for uncertainty as to the nature of the equitable principle that is invoked in these cases. It has frequently been analysed, and frequently applied, by Chancery judges, and, although the epithets that describe the vendor's offending action have shown some variety of expression, they are all related to the same underlying idea, and their variety is only due to the fact that, as each case is decided according to the whole context of its circumstances and the course of conduct of the vendor, one may illustrate more vividly than another some particular aspect of that idea. Thus, it has been said that a vendor, in seeking to rescind, must not act arbitrarily, or capriciously, or unreasonably. Much less can he act in bad faith. He may not use the power of rescission to get out of a sale 'brevi manu,' since by doing so he makes a nullity of the whole elaborate and protracted transaction. Above all, perhaps, he must not be guilty of 'recklessness' in entering into his contract, a term frequently resorted to in discussions of the legal principle and which their Lordships understand to connote an unacceptable indifference to the situation of a purchaser who is allowed to enter into a contract with the expectation of obtaining a title which the vendor has no reasonable anticipation of being able to deliver. A vendor who has so acted is not allowed to call off the whole transaction by resorting to the contractual right of rescission: see In re Jackson and Haden's Contract [1906] 1 Ch 412, C.A.; Baines v Tweddle [1959] Ch 679; [1959] 3 WLR 291; [1959] 2 All ER 724, C.A." 33 In Woodcock v Parlby Investments Pty Ltd, Young J referred to this principle but considered that it did not apply in circumstances where there was no clause, such as clause 45, providing for an extension of time. In Woodcock v Parlby Investments Pty Ltd, each party had an express right to rescind at the end of the specified period, if the plan was not registered. In the present case, the defendant was able, by means of clause 45, to complete within the time allowed by the contracts. It could have done this by giving a notice or notices, under clause 45, extending the time to take account of all of the delays on which it relies. 34 Mr Warren has pointed to the requirement of clause 45 that a notice is to be given within fourteen days of the delay. In my opinion, that clause should be read in a practical and commercial manner and not as requiring that a notice be given after each day's rain. In any event, there were delays which could have been relied upon before rescinding the contracts on 14 November 2000. The defendant did not give clause 45 any attention whatsoever. It sought to take advantage of the delays which had occurred for the purpose of advancing its own financial interests. In my view, it was unjust for the defendant to rescind for its own purposes when it had power to extend the completion date. 35 As I have said, the defendant gave the notices to rescind for its own purposes. Mrs Anastasiadis was reluctant to concede that the notices were given for the purposes of enabling the defendant to resell the units at a higher price. However, she did concede that that was one of the matters in her mind at that time. I shall hereafter refer to Mrs Anastasiadis' unreliability as a witness. In my opinion, it is likely that the prospect of reselling at a higher price was the predominant factor actuating the giving of the notices of rescission. Perhaps that was itself prompted by higher costs incurred by the defendant. However, no evidence has been given as to what it cost the defendant to construct the units. Mrs Anastasiadis said that no calculation had been made. For this reason also, I would find that the notices of rescission were invalid. 36 Another matter relied upon by the plaintiffs was that the deposits have not been repaid, being still held by the real estate agent to whom the deposits were paid. I see no significance in this fact. No request for repayment has been made. 37 I should mention, specifically, that I reject a good deal of the evidence of both Mrs Anastasiadis and Ellena Anastasiadis. 38 It seems to me that the case, which they put in their affidavits and which they propounded orally to the Court, that there was a building agreement with Denysenko & Associates and that the actual builder was Denysenko & Associates, was a deliberately false picture. It appears to me that the evidence was close to being a fraud on the Court. It is plain that Mr Denysenko had little to do with the building construction. He played a part, which was minimal, and he was not paid anything for the work which he did. The work was carried out by the defendant. The defendant hired the subcontractors, paid the subcontractors and ordered and paid for the supplies. Needless to say, if one were to read the affidavits and accept the evidence of Mrs Anastasiadis and Ellena Anastasiadis, one would get a quite false picture of what occurred in relation to the construction of the units. I, therefore, consider that there was a good deal of unreliability in their evidence and I have taken that into account in assessing Mrs Anastasiadis' reliability as a witness, in relation to the reason why the notices of rescission were given. 39 For these reasons, I consider that there should be orders in favour of the plaintiffs. I reserve the question of damages. 40 I will make orders in accordance with the Short Minutes of Order initialled by me and dated 14 December 2001. **********

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