Borda v Burgess

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2327/03 - BORDA v BURGESS JUDGMENT 1 HIS HONOUR: The plaintiff as vendor and the first defendant as purchaser, entered into a contract for the sale of land in the 2000 edition of the standard form for the sale and purchase of land at Quorrobolong near Cessnock. The contract was dated 2 July 2002; the purchase price was $485,000 with a deposit of $48,500 which was duly paid. The contract provided that the completion date was 2 December 2002. 2 On 4 December 2002 the solicitor for the purchaser sent to the vendor or his solicitors a notice which essentially said that the property was subject to a consolidated mining lease within Bellbird Colliery Holding which embraces the coal only and which expires on 15 May 2009 which was not revealed in the contract. The notice included the statement: "The purchaser would not have entered into the contract for the purchase of the property had the existence of the Lease been revealed to him."

The notice purported to rescind the contract. 3 This was answered by a letter from the vendor's solicitors to the purchaser's solicitors of 11 December 2002 indicating that they were not clear of the basis on which the purported right to rescind arose and pointing out various parts of the contract. There was no reply to this letter. 4 The parties had by agreement extended the time for completion until 2 February 2003. On 4 February 2003 the vendor's solicitors gave a notice to complete to the purchaser's solicitors. Apart from the standard letter denying the validity of the notice it was ignored and on 20 February the vendor's solicitors purported to terminate the contract and forfeit the deposit. 5 The vendor issued a summons on 11 April 2003 for a declaration that his termination was valid. A cross claim was filed for a declaration that the cross claimant had validly rescinded the contract. Each side claimed the deposit under the contract, the purchaser also claiming it under s 55(2A) of the Conveyancing Act 1919. The plaintiff also sought an order that the defendant pay him interest on the balance of purchase monies for a period whilst the contract was on foot, but this was not pressed at the trial. 6 The property has since been resold for $508,000. 7 The above exposition of the facts shows that the basic question I need to address is whether the plaintiff was entitled to give notice of rescission on 4 December 2002. There are then two other matters to address, viz whether the purchaser elected to affirm the contract when he knew of facts entitling him to rescind and whether the purchaser should be repaid his deposit under s 55(2A) of the Conveyancing Act 1919. 8 There is no dispute that the property in question is subject to a consolidated mining lease within the Bellbird Colliery Holding which is for coal only and expires on 15 May 2009. There is also no dispute that the contract contained the clauses and conditions set out in paragraphs 2 and 3 of the vendor's solicitors' letter of 11 December 2002, viz: "10.1.7 … The purchaser cannot make a claim or requisition or rescind or terminate in respect of - the existence of any authority or licence to explore or prospect for gas, minerals or petroleum;"

and special condition 39.1(c): "The purchaser shall make no objection, requisition or claim compensation if it should be found: … that any exploration licence, mining licence or lease, authority to enter or authority to prospect has been granted or pending in relation to the Property under the provisions of the Mining Act and any other act relating to mining or exploration for minerals petroleum and other products." 9 The matter was argued before me on 17 October 2003. However, various points of law came up during the argument and counsel requested, and I granted, that supplementary submissions should be made in writing. The last of these submissions was filed on 1 December 2003. 10 I believe I have set out all the facts that are needed to determine the principal question, though I should note that it is common ground that the property is not within a mine subsidence area. 11 Dr Harper for the plaintiff, puts that any coal that there may have been under the surface of this land was not the subject of the contract for sale. 12 By virtue of Proclamation in the Government Gazette of 24 January 1850, all reservation of coal contained in Crown Grants prior to that date were abandoned and given up and it was declared that the grantees, their heirs and assigns should have full liberty to dig for the coal. However, by the Coal Acquisition Act 1981, s 5, all coal vested in the Crown. The Minister for Mines may then grant leases including leases to explore for or win coal under the Mining Act 1992. 13 The legislative regime dealing with coal in NSW was considered by Sperling J in Nardell Colliery Pty Ltd v NSW Coal Compensation Review Tribunal [2003] NSWSC 462. Essentially this bears out what I have summarised above. 14 Accordingly, there is no obvious defect in title if, because of a mining lease, someone else has title to the coal as the coal was divested from the registered proprietor of the land by legislation at least 20 years ago. 15 Dr Harper then says that because of clause 10.1.7 and special condition 39.1(c), the purchaser is not able to object to title. He quotes the words of Needham J in Cameron v Lewis (1975) 1 BPR 9137, 9138: "An objection to title … is the basis for a rescission on the ground of lack of title … . It would be pointless forbidding an objection, say on the ground of a sewer main passing through the property, if the purchaser were, nonetheless, able to rescind on ascertaining that such a main passed through the property. When neither party is aware of the defect … to forbid an objection, in a properly and adequately worded clause, to a particular kind of defect of title, is to take away from the purchaser any right to rescind upon discovery that a defect of that kind exists."

His Honour referred to Waddell v Wolfe (1874) LR 9 QB 515, 522. 16 That case only deals with the point obliquely. However, at p 522 Archibald J said: "In order to produce that result, the conditions must be very clear and distinctly worded for that purpose." 17 Mr Rundle of counsel for the defendants does not cavil with Needham J's proposition, but says that the plaintiff was aware of the mining lease and chose not to disclose it and is not entitled to rely upon either conditions in 10.1.7 or special condition 39.1(c). He refers to Butt Standard Contract for Sale of Land in NSW 2nd ed (LBC, Sydney, 1998) (henceforth "Butt") at 525-6. 18 Mr Rundle's submission is supported by the words in the quote from Needham J: "Where neither party is aware of the defect". 19 The exact proposition in Butt is: "A court of equity will deny the vendor the right to enforce the contract in the face of the defect, whether the vendor seeks specific performance or seeks to terminate the contract for the purchaser's refusal to complete on account of the defect. That is, if the vendor knows of a defect or possible defect in title and, rather than disclosing it to the purchaser, puts forward conditions of sale in general terms wide enough to cover the defect but not referring to it explicitly the vendor will not be entitled to enforce the contract." 20 The principal authority relied on by Butt is Rignall Developments Ltd v Halil [1988] Ch 190. In that case, at 197-8, Millett J said that this was a well established rule of equity and that Nottingham Patent Brick & Tile Co v Butler (1885) 15 QBD 261, 271, was its principal expression. 21 Dr Harper's riposte to this is that the present defect was not a defect in title, it was a mere defect in quality and that there was no obligation to disclose defects in quality. 22 Dr Harper referred to my decision in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189. In that case I said at 15,193: "A very fine, but real, distinction exists between defects in title which entitle a person to rescind and defects in quality which do not. What is a defect in title is difficult to define, but usually encompasses the situation where the vendor is unable to convey the full estate which it promised to convey to the purchaser. A defect in quality merely means that the purchaser obtains the appropriate title to the land but that there are some facts relating to the quality of the property sold which affects its value."

In that case I held that termite infestation was merely a defect in quality. 23 In that case I quoted the words of Williams on Vendor and Purchaser 4th ed vol 2 (Sweet & Maxwell, London, 1936) p 766 which bear repeating: "Not only is there no legal obligation upon a vendor of land to disclose to the purchaser any defects known to him in the quality of the thing sold, but further the vendor is not bound to disabuse the purchaser of any erroneous belief, which the purchaser has formed, and which the vendor knows that the other has formed, as to the quality of the purchased property." 24 Mr Rundle does not cavil with this proposition. However, he says that the current defect is a defect in title. 25 There is no decision of which counsel is aware or of which I am aware which deals with that point. However, Mr Rundle says that the clue is in s 164 of the Mining Act which is the statutory grant of a right of way to the holder of an authority to mine between the land, the subject of the authority, and the nearest practical point of a public road. 26 To that Dr Harper replies that there is not in fact marked out on the land in accordance with the regulations any such right of way so that at the most there is a potential for a right of way and cases such as Carpenter v McGrath (1996) 40 NSWLR 39, indicate that the mere potentiality of land being affected in a way detrimental to the owner is not sufficient to show a defect in title. Indeed, the High Court's decision in Fletcher v Manton (1940) 64 CLR 37, shows that this must be so despite a number of decisions, now overruled, which appear to go the other way. 27 Mr Rundle then refers to Schedule 3 Part 3(12) of the Conveyancing (Sale of Land) Regulation 2000. Schedule 3 to the Regulation is headed "Prescribed Warranties". Paragraph 1 reads: "The vendor warrants that, as at the date of the contract and except as disclosed in the contract: (a) the land is not subject to any adverse affectation …".

Paragraph 2 provides: "For the purpose of this warranty: (a) land is ' subject to an adverse affectation ' if anything listed in Part 3 of Schedule 3 of the Conveyancing (Sale of Land) Regulation 2000 applies in respect of the land … ".

Paragraph 12 of Part 3, Part 3 being headed "Adverse Affectations" reads: "12. a right of way under section 164 or 211 of the Mining Act 1992." 28 In my view Dr Harper's submission that for a right of way to exist under s 164 the right must be marked out on the ground is correct. As Dr Harper submits, if this were not the correct construction: "Every square metre of every parcel of land within the area of the mining lease, would be subject to a 'right of way' constituting an 'adverse affectation' under Part 3 of Schedule 3, even though there is not, nor could be, any physical affectation in the form of a marked out right of way present on the vast majority of the area of the mining lease." 29 Counsel informed me that the relevant Regulation requires any right of way claimed under s 164 to be marked out with steel star pickets or other appropriate posts placed at particular intervals. 30 Dr Harper spent some time in his submissions arguing that a right of way under s 164 of the Mining Act is not a right of way at all but a mere licence. There is quite a lot to be said for this view especially as rights under the Mining Act are usually not considered to be interests in land; see Miller v Minister of Mines [1963] AC 484; Crampton v French [1996] ANZ Conv R 156. However, it does not matter to my mind whether the right under s 164 is an incorporeal hereditament or a licence because it is expressly mentioned in the conveyancing regulation. 31 The other argument of Dr Harper's is that s 164 speaks of a right of way between the land subject to the authority and the nearest practical point of a public road. It is common ground that the present mining lease is an "authority" within the meaning of s 164(1) of the Mining Act. 32 Dr Harper points out that s 164 simply has no application to land within the area, the subject of the authority. It deals with a situation where the mining lessee needs a right of way for access between the area of the mining lease and the nearest public road, that is, land outside the mining lease and between it and the nearest public road. I can see no answer to that submission, nor was one ever provided by Mr Rundle. 33 Accordingly, the purchaser cannot rely on a right of way under s 164 of the Mining Act and the corresponding statutory warranty to rescind the contract. 34 As the vendor never contracted to sell the coal, and as the mining lease of itself would not be an interest in land (see Miller v Minister of Mines (supra)), I do not see any defect in title and accordingly there is only a defect in quality, and that the vendor did not have to disclose. 35 Accordingly, the purchaser's rescission on 4 December was ineffective. 36 I should now briefly consider the election point. 37 Dr Harper went on to argue that even if I had found against his client on the point that has occupied these reasons to date, the purchaser having appropriate knowledge of his rights had nonetheless elected to affirm the contract. Because of what I have already held, it is unnecessary to deal with this argument, but in case the matter should go further, I will briefly consider the arguments. 38 The alleged acts of affirmation are: (1) the purchaser's letter of 21 October; and (2) the purchaser's agreement re a stronger transformer on 31 October 2002. 39 (1) I need to find some facts. The case being made by the plaintiff as to (1) is that on 15 October 2002, the purchaser's solicitors informed the purchaser that their searches had disclosed that there were two mining rights affecting the land: (a) a petroleum exploration licence about which the purchaser was told not to worry; and (b) the consolidated mining lease about which the solicitor said: "I am not certain as to the effect of the Consolidated Mining Lease and it might be wise for you to make further enquiries of the Department of Mineral Resources to determine what effect, if any, the lease is likely to have on the land." 40 By letter dated 8 October the vendor's solicitor had written to the purchaser's solicitors seeking confirmation that the settlement date was extended to 2 February 2003 with the purchaser paying interest at the contract rate. 41 On 21 October, the purchaser wrote to the vendor's solicitors as follows: "Thankyou for your letter of 08.10.02, copy attached. As my Solicitor, Mr Mark Turner, … is away due to illness, his office has forwarded your letter to me. I advise that I agree to the terms." 42 The question of fact is whether, when he wrote this letter, Mr Burgess had received the letter from his solicitor telling him about the consolidated mining lease. 43 There is no direct or documentary evidence as to when the solicitor's letter was despatched or received. 44 In his affidavit, Mr Burgess says at the time of the letter his wife who goes by the name of Traci Jones was in hospital and he himself was in Western Australia dealing with a family problem. Ms Jones says that she was discharged from hospital on 19 October 2002 and went to Bellingen to recover. She says that "After we returned to Sydney from our farm when I was well enough to make enquiries about the lease, which Mark Turner had written to us on 15.10.03, the letter was at home when we returned to Sydney." 45 The evidence that emerged during cross examination showed that Ms Jones' statement was quite inaccurate. 46 Both Mr Burgess and Ms Jones were cross examined on the events of October. Mr Burgess was unable to supply any confirmatory evidence as to when he was in Western Australia, but admitted that he must have been back in Sydney by 21 October when he wrote the letter of 21 October which in fact he faxed, apparently from a Sydney fax machine. He said his wife was the administrator of "our partnership" and that she would have drafted the letter. 47 Ms Jones admitted that she drafted the letter her husband signed on 21 October and that she did that at Lane Cove. 48 Although the evidence of the purchaser and his wife is very unsatisfactory, it would seem that the Burgess family must have left Sydney about 24 October in order to call at the property to pick up the quad bike on the way up to Bellingen. As will subsequently appear, the family probably returned to Sydney on 31 October or 1 November. 49 Ms Jones said that her grandmother who lived nearby collected the family's mail while they were away. 50 Ms Jones denied that she collected mail when she was in Sydney between 19-24 October. She said that all the mail for 15-31 October was collected on her return from Bellingen. 51 Neither the purchaser's then solicitor nor the grandmother were called to give evidence. 52 It is difficult to believe that a person would not collect all their mail from their grandmother before they went to Bellingen, especially when Ms Jones appears to pride herself on her status as an accountant. 53 Ms Jones says that when she returned from Bellingen the solicitor himself had a family health problem, there was a little time before she could contact him to find out what she needed to do to research the mining lease, and that she actually did that about 28 November. 54 I should interpose to say that the solicitor involved was a relation and one gets the impression that he was involved in the transaction with some limited retainer and that Ms Jones, who gave her occupation as accountant, was doing some of the work herself when her health allowed for that to happen. 55 Dr Harper points to the confused state of Mr Burgess' evidence. He also says that Ms Jones' evidence tended to take a 180 degree turn when she realised what the questions were all about. Indeed, it is difficult to reconcile the later part of Ms Jones' evidence with the earlier part. 56 However, it is a well known principle of evidence that the mere fact that the defendant's evidence is untrustworthy or incredible does not mean that there is evidence of the contrary proposition. It was for the plaintiff to establish that before the 21 October letter the facts about the mining lease were communicated to Mr Burgess. Is the evidence strong enough to show this? 57 There is nothing in the actual documentation to show that the letter of 15 October was received, or indeed, even when it was posted. The 15 October is a Tuesday, the 21st a Monday in the year 2002. The health problems and the moving from hospital to Lane Cove to Bellingen and back to Sydney give rise to a distinct possibility that the letter was not opened, or alternatively, if it was opened, was not absorbed. (The reason for this last comment will appear later). 58 However, in my view on the evidence before me principally that summarized in [46]-[52] above and on the balance of probabilities the solicitor's letter was received by the purchaser before he wrote his letter of 21 October. I find that I cannot believe that with a grandmother living close, when Ms Jones and the grandchild in a concerning state of health, there would not have been a visit between 19-24 October and the mail would have been handed over. 59 In any event, the purchaser's solicitor had this knowledge and in conveyancing transactions, knowledge of the solicitor is knowledge of the client: Sargent v ASL Developments Ltd (1974) 131 CLR 634, 658-9. 60 (2) There is a second aspect of affirmation which occurred about 31 October 2002. 61 Mr Duckworth, the manager of the property, says that prior to 31 October 2002, Mr Burgess had had a series of conversations with him about a more powerful electricity supply being put onto the property. Mr Duckworth says about 31 October he said to Mr Burgess, "About that transformer, we are putting the electricity on. We have allowed for 100 amp, you mentioned you wanted 200 amp. Do you still want the 200 amp?" to which Burgess replied, "Yes I still want the 200 amp, I will pay the increased cost at settlement." Mr Duckworth says that also on that day he telephoned the offices of the vendor's solicitor and had a conversation with Ian Benecke in which he told Mr Benecke that he had an agreement with Scott Burgess to put in a 200 amp transformer and that Mr Burgess had agreed to pay the amount when the sale goes through. Mr Benecke advised that a written confirmation should be obtained to this. Mr Duckworth made a note in his diary of 31 October. Mr Benecke also has a note to this effect but his note is dated 4 November which would have been the following Monday. 62 It is unclear whether the conversation of 31 October was in person or by telephone, but the way the affidavit reads is that it was person to person and so it is more likely than not that it occurred on the way back from Bellingen to Sydney. 63 My findings of fact on this issue make it necessary to consider whether it was necessary to show that Mr Burgess was aware of his rights to rescind when he made his acts of affirmation. 64 It is too simplistic a statement to say, as Dr Harper has submitted, "All that need be established for the doctrine of election to apply is knowledge by the purchaser of the facts giving rise to inconsistent legal rights" a proposition for which he cites Sargent v ASL Developments Ltd (supra) at 645-6. As I read that judgment, this proposition is true where a person is a party to a contract which clearly states that he or she has a right to terminate if certain things happen because everyone must be taken to have knowledge of the terms of the contract which they signed. 65 However, where as here, the right to terminate is dehors the contract, it would seem to me that the authorities suggest that the person said to have elected must also understand that he or she has a right to terminate. 66 It must always be remembered that Sargent's case was one of election between two inconsistent contractual rights. Where the rights exist dehors the contract normally the propositus must know both the relevant facts and his or her right to rescind: Coastal Estates Pty Ltd v Malevende [1965] VR 433. This was noted with approval in Sargent's case. 67 In Khoury v Government Insurance Office of NSW (1984) 165 CLR 622, 633-4, four Justices of the High Court said: "It would seem, however that, at least where the alternative rights arise under the terms of one contract, a party may be held to have elected to affirm it, notwithstanding that he was unaware of the actual right to avoid it."

See also Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30 and 40. 68 Thus there are three categories of case: (a) election where the right to rescind is under a contractual provision where the Sargent rule applies; (b) election where the right to rescind dehors the contract where it does not; and (c) possibly some situation closely resembling (a), where the Sargent rule applies. 69 The present case is in situation (b). 70 Indeed, apart from cases where the right to rescind should be obvious to anyone who has read the contract, fairness dictates that people should not too easily lose important rights by unwitting conduct unless that conduct has been acted upon by another to his or her detriment. Losing a right by conduct which is undertaken in ignorance of its legal consequences should be confined to estoppel. The law should preserve the distinction between election, where no detriment to the other side is required, and estoppel where detriment is required. 71 Presumably because of Dr Harper's submission on the law, no interrogatories were administered or questions asked of the purchaser in cross examination as to his knowledge of his right of rescission. 72 It would seem to me clear on the facts that I have that Mr Burgess was not aware of his right to terminate because of the problems that might have been caused by the mining lease. 73 However, the solicitor must be presumed to be fully conversant with contract and conveyancing law, in the absence of him denying such knowledge. The solicitor's knowledge of the right to rescind for a defect in title must be attributed to the client. 74 The question of election does not actually arise. Had it arisen, I would have asked for further submissions on the point. 75 This is because not all the academic writers or courts have interpreted what Stephen J said in Sargent's case in the same way. So on Dr Harper's side of the line is Carter & Harland, Contract Law in Australia 4th ed (Butterworths, Sydney, 2002) [1971] p 738 and Re Hoffmann (1989) 85 ALR 145, 151. On what I would consider the more orthodox line are Crump v Wala [1994] 2 NZLR 331; Peyman v Lanjani [1985] Ch 457; The Uhenbels [1986] 2 Ll LR 294, 297; The Kanchenjunga [1987] 2 Ll LR 509, 517 and Macro v Thompson (No 3) [1997] 2 BCLC 36, 63 (none of which actually refer to Sargent's case). See also GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 [351] which discusses the matter in a neutral way. 76 However, as the case involves only $48,000 and the point is of academic interest only, I will not do that. On the above analysis, the plaintiff would have succeeded on the election point. 77 I now need to consider the question of the return of the deposut under s 55(2A) of the Conveyancing Act 1919. 78 Both counsel agree that one looks to the statement of LW Street CJ in Eq in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268, 272-3, as the commencement of any discussion in a case based on the subsection. Basically the question is whether the purchaser has demonstrated that it is unjust and inequitable to permit the vendor to retain the deposit. 79 Whilst the discretion under the section must not be trammelled by rules, I noted in the Eighth SRJ case at 15,202 that it was usual for courts to consider a number of matters such as whether the non-completion was a fault of the purchaser or came about because of circumstances over which it had no control, was there any misstatement from the vendor's camp which affected the purchaser's decision even if that was not an actionable misrepresentation, and has the vendor received any windfall benefit? 80 Mr Rundle submits that the purchaser has been caught up in a situation through little fault of his own or perhaps through the fault of his solicitor who did not give full attention to the matter because of the illness of his wife. He says that the vendor has made a substantial windfall by virtue of the resale, and that the ground relied upon to rescind was a technical one about which the minds of conveyancers may well differ. 81 On the other hand, Dr Harper says that there are no factors in the present case telling against the vendor's conscience. The fact of the resale at a higher price was not a windfall, or if it was, it was not a windfall that was against the conscience of the vendor; see Adderton v Festa Holdings Pty Ltd [2003] NSWSC 1065 [36] per Gzell J. 82 I should add that the mere fact that the property was sold for it would appear $23,000 more than the contract price does not, to my mind, demonstrate a windfall because one does not know what expenses the vendor incurred in the aborted first sale, or whether there was a rising market, whether the vendor's use of the land was frozen whilst the first contract was on foot, and other factors. I would not consider that a resale at an excess of $23,000 of itself demonstrated a windfall. 83 The purchaser and his family were going through a rough patch with the ill-health of the purchaser's wife and baby son. The purchaser was also disappointed that he could not sell his Lane Cove home for the price he wanted. However, neither of these matters really impinged on the decision to rescind. That decision was taken on the basis of the alleged interference by the mining lease. Whilst the purchaser says this was on legal advice, there is little material to support this assertion and it is difficult to accept when one realises that the solicitor was a relative of Ms Jones who appeared to be the person making the decisions. Ms Jones indicated the rescission because of the alleged defect of the mining lease. That was a wrong decision. The normal consequence is that the deposit is forfeited and I cannot see any good reason why the ordinary rule should not apply. 84 Although Mr Rundle puts that the purchaser's solicitor was the cause of his problems, it is difficult to make such a finding in view of the fact that part of the legal work for the purchaser was being done for them by a relative and part by the purchaser's wife. 85 The vendor at the hearing appeared to have abandoned any claim other than for the forfeiture of the deposit. Accordingly, I make declarations 1 and 2 in the summons. I dismiss the cross claim. I order the first defendant Scott Raymond Burgess to pay the plaintiff's costs of the proceedings. The exhibits, being documents, may remain with the papers.

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