BAKHOS v FENNER & ANOR

LEGISLATION CITED : Conveyancing Act 1919 Uniform Civil Procedure Rules 2005

Tony Bakhos - Pltf PARTIES : Regula Fenner - 1st Dft Rolf Maximillian Fenner - 2nd Dft

COUNSEL : N/A - Pltf Mr A. Fernon - Dfts

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2703/06 - TONY BAKHOS v REGULA FENNER AND ROLF MAXIMILLIAN FENNER JUDGMENT 1 HIS HONOUR: When these proceedings were called for hearing today Mr Fernon of counsel appeared for the defendants and there was no appearance for the plaintiff, Mr Tony Bakhos. The plaintiff's name was called outside the Court three times at two minutes past ten however there was still no appearance for the plaintiff. 2 The proceedings were commenced by Summons on 11 May 2006. Mr Bakhos was then represented by Mr Sid Hawach, solicitor of Parramatta, who filed the Summons on his behalf. On the following day, 12 May 2006, the plaintiff obtained a number of orders for the further conduct of the proceedings including an order extending his caveat until further order. The Summons and the Application for Extension of Caveat were supported by the plaintiff's affidavit of 10 May 2006. The order for the extension of the caveat was taken out in the registry of this Court on 12 May 2006 and it still has effect. 3 I cannot see from the file that the plaintiff has taken any significant steps in the conduct of the proceedings since then. He has not been represented at any of the six interlocutory and directions hearings, although for some of them a note says that the proceedings were mentioned for the plaintiff by the defendants, suggesting some arrangement having been made between the plaintiff and the defendants at some time. 4 The plaintiff was not represented when the proceedings came before Registrar Walton on 14 March 2007. On that date, the Registrar fixed the hearing of the proceedings to commence before me today. 5 The plaintiff's solicitor filed a Notice of Ceasing to Act as the plaintiff's solicitor on 19 March 2007. I have today read the affidavit of Vincent Leonard Butcher, solicitor, of 20 June 2007 and the affidavit of Maree Elizabeth Booth, solicitor, of 20 June 2007. These affidavits show that the defendants' solicitors have not been given a copy of the Notice of Ceasing to Act or been told about it. The Registrar sent the plaintiff a tax invoice for an allocation fee dated 12 April 2007 and the tax invoice, which remains unpaid, says, among other things, that the hearing date had been fixed and the proceedings were to be heard today. 6 I felt some concern last week about whether there would be an appearance for the plaintiff at the hearing and so caused my Associate to write a letter to the plaintiff at the address given for him in his affidavit and in the Notice of Ceasing to Act indicating that the case was to be heard today. 7 The affidavits of Mr Butcher and Ms Booth, both of 20 June 2007, show that the solicitors representing the defendants have kept up communication with Mr Hawach concerning preparations for the hearing and advised him of the appointment of the hearing date but he has not participated in preparations for the hearing in any appropriate way. 8 Indeed, quite remarkably, after he had filed the Notice of Ceasing to Act he continued to take part in communications with the defendants' solicitor in a way which did not suggest that he had in fact withdrawn from the proceedings. 9 I have regard to r 29.7 of the Uniform Civil Procedure Rules 2005 which deals with the procedure to be followed if a party is absent. I have been told by counsel that the defendants wish to press on with the hearing, including the hearing of claims in the cross-claim. I note that the plaintiff did not file a defence to the cross-claim. 10 It is not sufficient simply to dismiss proceedings on the plaintiff's claim; there is a need to establish entitlement to recover or retain the deposit, the subject on which each side seeks declaratory relief. It does not seem to me to be appropriate to leave the deposit open to any further debate. 11 The defendants are subject to a caveat which has been extended until further order and I should now give attention to their claim that the caveat should be removed. I propose to take the course indicated in rule 29.7(2)(a) and proceed with the trial generally.

12 HIS HONOUR: In these proceedings the plaintiff as purchaser agreed to buy the house property at 341 Burns Bay Road, Lane Cove ("the property"), by a Contract for Sale of Land, in writing, dated 11 July 2003 ("the contract"). The vendors were the first defendant, Ms Regula Fenner, and Mr Peter Voglsinger, who owned the property as joint tenants. Erected on the property was a brick and tile two bedroom house said to have been constructed in or about 1946. The property has water frontage to the Lane Cove River and at the time of the contract there appears to have been significant underdevelopment. 13 The purchase price was $1,400,000 and there was provision for payment of the deposit of $140,000 by instalments. The instalment provisions were not exactly complied with but this gave rise to no difficulty. 14 The contract provided for a completion date "365 days after the date of this contract", which I understand to mean on or before 10 July 2004. However the completion date was not made of the essence by the terms of the contract. 15 Several of the printed clauses of the contract should be noted. Clause 2.8 of the contract provides: If any of the deposit or of the balance of the price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion, subject to any existing right. 16 "Terminate" is defined in cl 1 of the contract to mean "terminate this contract for breach". This carries over to the word "termination" in cl 2.8 of the contract. 17 Clause 9 of the contract is headed "Purchaser's Default" and provides: If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. 18 There is then a provision in cl 9.1 of the contract to the effect that after the purchaser's default and termination by the vendor by serving notice on the purchaser, the vendor can keep or recover the deposit to a maximum of 10 per cent of the purchase price (and in this case the deposit is within that limit). 19 Special Condition 4 provides for a right of termination in the event of the death of a party and this extends to the death of one of the defendants. Special Condition 4 confers on either party a right to terminate, by notice in writing, within 21 days of becoming aware of the death. Exercise of this right gives effect to rights, including the right to recover the deposit, under cl 19 of the contract. 20 On 18 July 2003, seven days after the date of contract, the plaintiff obtained the vendors' consent to his lodging plans with Lane Cove Council to develop the property. The property was then habitable and indeed had been used by the vendors as their home for some years; by the time of the sale their principal home was however in Coffs Harbour and they occupied the property themselves only from time to time. Photographs which form part of the affidavit of Mr Bassan Batshon, a chartered structural and civil engineer, of 29 September 2006, illustrate that the property, while habitable, was showing signs of its age. 21 Completion did not take place in accordance with the terms of the contract and the parties entered into a deed in July 2004 ("the deed") which provided, among other things:

1. The parties agree that settlement shall now be 11th July 2005. 22 This provision does not make time for completion of the essence of the parties' agreement. The parties did not fix a period within which settlement was to take place but instead substituted a particular day, 11 July 2005, as the contract completion date or date of settlement. The deed also provided for the payment of interest on the balance of the purchase price at $9,550 per month until 11 July 2005, and some such payments were in fact made by the plaintiff. There were other provisions, including provisions relating to costs, in the deed and, except as the deed provides, the parties affirmed the terms of their contract. 23 In my opinion interest payable under the deed should not be seen as either part of the purchase price or part of the deposit payable under the contract. Interest which has in fact been so paid does not fall within the principles of law which give special protection with respect to deposits and their forfeiture under both equitable principles and s 55(2A) of the Conveyancing Act 1919 ("the Act"). 24 A fire occurred in the house on 27 April 2005 at a time when the defendants were not present and it appears the house was unoccupied. Damage caused by the fire brings Division 7 of Part 4 of the Act into consideration, particularly s 66L(1) which gives the purchaser the right to rescind a contract where land the subject of the contract is substantially damaged before completion. Section 66L(1) of the Act provides: (1) Where land is substantially damaged after the making of a contract for the sale of the land and before the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice in writing served on the vendor before the completion of the sale. 25 Section 66J(2) of the Act provides: (2) For the purposes of this Division, land damaged after the making of a contract for the sale of the land is substantially damaged if the damage renders the land materially different from that which the purchaser contracted to buy. 26 I also notice the provisions of s 66K(1) of the Act relating to the passing of risk to the purchaser, which provides that the risk in respect of damage to land shall not pass to the purchaser until completion and which, by implication, clearly provides that the risk in respect of damage to the land remains with the vendor until completion. So it was in this case at the time of the fire. 27 The plaintiff took the position that he was empowered by s 66L(1) of the Act to rescind the contract and his solicitor gave a written notice of rescission relying (although the reference to s 66L was not correctly stated) on s 66L; notwithstanding the misstatement, reliance on s 66L was unmistakable. 28 The solicitor for the defendants replied disputing entitlement to rescind and demanding completion. It became clear in the absence of any response that there was not going to be completion and, on 2 June 2005, the vendors' solicitors, by letter, treated the purported rescission as a repudiation of the contract and accepted the repudiation. 29 Whether or not this acceptance of repudiation had effect under the general law of contract to terminate the contract depends on whether or not there was a good basis for the purported notice of rescission dated 13 May 2005 and that depends in turn on whether, as a result of the fire, the land was substantially damaged within the meaning of s 66J(2) of the Act. 30 Whether or not the land was substantially damaged, the letter of 13 May 2005 makes it quite clear that the plaintiff was unwilling to complete the contract. Indicating this unwillingness was an anticipatory breach of the obligation to complete on 11 July 2005 unless the justification under s 66L of the Act in fact existed. 31 Unfortunately the co-vendor, Mr Voglsinger, died in September 2005. The second defendant, Mr Fenner, is the executor of his estate and obtained probate of his will, granted by this Court on 15 June 2006.

32 There are several descriptions of the damage to the house in evidence. Mr Fenner in his affidavit of 3 October 2006 says that shortly after the fire - I infer within a few days - he walked through the property, looked at the damage and removed some personal items of property including personal papers. He says: 8. I could see that the damage to the house was mainly smoke damage. The paint was still on the walls, but was charred. Two ceilings had sagged as a result of water from the fire department putting the fire out. These were in the lunge room and sunroom. The ceilings were otherwise in fairly good condition. They were still white and were not charred. Almost all the windows had shattered, as had the glass in the front door. All carpets were burnt. 33 The first defendant, Regula Fenner, in her affidavit of 3 October 2006, also describes the state of the property, which she first inspected on 30 April 2005. She speaks in her evidence of being shocked at the sight, as the walls were black. She observed damage on the outside of the house to the front gutter below the roof and smoke marks under the eaves above the windows on the front of the house. According to Ms Fenner, Mr Voglsinger inspected the property and concluded that there was no damage to the actual structure of the floor or walls, there was however damage to ceilings in one bedroom and the sunroom. 34 The defendants had insurance with NRMA Insurance. NRMA Insurance accepted liability for their claim for fire damage, and approved repair work which was carried out by Mr Voglsinger with the help of contractors as well as Ms Fenner, Mr Fenner and other friends. 35 Mr Voglsinger was for many years a builder by trade. At the time of the fire he had retired. He suffered an illness but he was in every position to carry out and supervise building work with skill. 36 Mr Fenner's affidavit shows that he helped Mr Voglsinger repair the property on weekends and some weeknights. Mr Fenner says that repairing the property took about four weeks and he gives a description of work organised and carried out by Mr Voglsinger. 37 Ms Fenner, in her affidavit, also describes work that was done to repair the property. According to Ms Fenner, there was considerable work in cleaning the property. Ms Fenner says cleaning the property took approximately four days and involved Mr Voglsinger, Mr Fenner and herself scrubbing down the walls with solution and sponges. A pressure cleaner was used and some professional cleaners were also engaged. Ms Fenner says Mr Voglsinger supervised contractors who assisted in repairing the kitchen, painting the interior and laying carpet.

38 There is a description of the property in the evidence and report of Mr Batshon, who inspected the property in the company of Mr Voglsinger on 2 June 2005, more than four weeks after the fire. Mr Batshon has over 20 years experience in consulting engineering practice, predominantly in the Sydney metropolitan region, specialising in residential and small scale commercial buildings. 39 In my opinion, Mr Batshon was in a very good expert position to observe and appraise the condition of the property as at 2 June 2005. His evidence shows that at inspection he observed that the internal and external brick walls revealed no loss of mortar, no cracks or structural defects. The walls appeared to be upright and showed no sign of distress. The timber floor appeared to be in good condition. The floor timber did not suffer any damage from the fire. The roof timber did not suffer any damage from the fire and the roof appeared to be in good condition. There were no visible signs of roof sagging or caving-in, no cracks in the roof tiles or loss of mortar in the ridges and there were no signs of water leaking on the ceiling.

40 Mr Batshon observed that the paint on internal walls and timber frames was affected by the fire. The lounge room front window had also been removed. However no other internal defects were identified in his report. Mr Batshon saw no external damage to the house structure on the property caused by the fire. His evidence is illustrated with photographs. 41 The repair work was completed in early July 2005 and paid for by NRMA Insurance about one week before the completion or settlement date of 11 July 2005. 42 While there was obviously considerable damage to furniture and carpets, my concern is not with any movable property but with the structure of the property itself and any fixtures which might fall within the meaning of "the land" in s 66J(2). In my judgment the fire damage to the house was not such that, in the words of s 66L(1), the land was "substantially damaged". In reaching this conclusion I have regard to the nature of the property and the amount of the price. In considering whether or not the damage rendered the land materially different from that which the plaintiff contracted to buy, I am of the view that the house itself, a two bedroom brick and tile house, well over 50 years old and showing signs of its age, was obsolescent and the structure could only have a small place, if it had any place at all, in appraising what was of economic significance in a purchase for $1,400,000. 43 The plaintiff had some redevelopment proposal. Evidence does not show what it was, but it is in no way surprising that he should have plans to develop the property in some way and it is extremely improbable that the house and the condition of the house were material in the valuation of the property or in his decision to buy the property. 44 In the context, the damage caused by the fire was, in my judgment, of slight significance and did not render the land materially different from that which the plaintiff contracted to buy. Its slight significance is illustrated by the scale of the work which it was necessary to do in order to repair the damage; the damage was repaired and overcome very readily. In any event the fire damage was not a problem for the plaintiff because the risk in terms of damage to the property was still with the vendors; they had insurance, the damage was put right within a few weeks and it was put right before the date on which the plaintiff had a right to call for completion. 45 I conclude therefore that the land was not substantially damaged and that there was no entitlement under s 66L(1) of the Act to rescind the contract by notice in writing. 46 The plaintiff's behaviour at that time and later shows quite clearly, as appears sufficiently clearly from the terms of the notice of 13 May 2005 itself, that he had no intention of completing the contract. When the defendants' solicitors advised the plaintiff's solicitors by letter of 16 December 2005 that Mr Voglsinger had died, the plaintiff, by his solicitor, sent forthwith a notice of 19 December 2005 purportedly rescinding the contract under Special Condition 4. If the contract had still been on foot he would have been entitled to do so and the rights of the parties would be regulated by Special Condition 4 and cl 19 of the contract; but in my judgment the contract had already been effectually terminated by acceptance by the vendors of repudiation of the contract by the plaintiff. 47 In the statement of claim the plaintiff claims a declaration that he validly rescinded the contract on 13 May 2005. He is not entitled to that declaration as his purported rescission was invalid. Alternatively, he claims a declaration that he validly rescinded the contract on 19 December 2005. As the contract had already been terminated by a valid acceptance by the defendants of the plaintiff's repudiation, the plaintiff is not entitled to that declaration. 48 The plaintiff also claims an order for the return of the deposit. In the circumstances the plaintiff is not entitled to return of the deposit according to the contractual provisions and has no claim, in my view, for an exercise of the discretionary power of the Court to order the return of the deposit under s 55(2A) of the Act; nor does the plaintiff have any claim to relief against its forfeiture under general equitable principles. 49 The plaintiff also claims an order for the return of the moneys paid as interest; in my opinion there is no basis on which he could recover the interest, even if any other part of his claim were to succeed. There are alternative claims which in my opinion should fail. 50 In their cross-claim the defendants claim a declaration that the contract was validly terminated on or about 2 June 2005, that is to say, they claim a declaration relying on the effectiveness of their acceptance of repudiation. They are entitled to succeed in this claim. They also claim a declaration that they are entitled to retain the deposit and they are entitled to succeed in this claim also. The defendants further claim a declaration which would establish that the plaintiff has no caveatable interest and an order that he withdraw the caveat. The defendants are entitled to succeed in these claims as well. 51 As I have already said, the defendants are entitled to a declaration establishing that they should retain the interest payments, which they were entitled to recover. They also claim judgment for two interest payments of $9,550, one which fell due on 11 May 2005, which they are entitled to recover, and one which fell due on 11 June 2005, which they are not entitled to recover as they had already accepted the repudiation of the contract and, in my opinion, entitlements under the deed fell with the contract. 52 My orders are:

(1) Upon the statement of claim I give judgment for the defendants with costs.

(2) On the amended first cross-claim I make the declaration in claim 1, the declarations in claims 2, 3 and 4. I make the order in claim 5 and the declaration in claim 6. On claim 7 I give judgment for the defendants for $9,550.

(3) I order that the plaintiff/cross-defendant pay the defendants'/cross-claimants' costs of the cross-claim.

(4) I reserve liberty to apply for further relief in respect of caveat AC136900.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.