Codelfa Construction Pty Ltd v State Rail Authority [1999] NSWSC 1167 | Case summary

7 The definitions in Printed Clause 1 include: "rescind' rescind this contract from the beginning;" 8 The particulars on the first printed page say:- "The plan registration time is 24 months after the date of this contract". 9 In cl.A6.2 "normally" refers to what the vendor may do if the vendor complies with A.6.1; the normal course is that contractual obligations are complied with. The right to rescind is conferred by Printed Condition A6. The reference in Special Condition 24 to "that right to rescind" is a cross-reference to the right to rescind in Printed Condition A6. If the contract meant that the vendor could commit a breach of cl.A.6.1 and then rescind there would be an absurdity because there would be no remedy for breach of A6.1. In the plain and ordinary meaning of these provisions, the right to rescind can only be exercised by the vendor in normal circumstances where the vendor has complied with cl.A6.1. 10 If this result is not reached by the processes of construction or implication it is reached by application of a principle of law referred to in Suttor v. Gundowda Pty Ltd (1950) 81 CLR 418 at 441: see too Alghussein Establishment v. Eton College [1988] 1 WLR 587. 11 The same result is reached by considering whether the terms of the contract impliedly make compliance by the vendor with Printed Condition A6.1 a condition of exercise of the right of rescission. If the tests for implication of a term referred to in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 351-352, 404 are applied this implication should be made, as the contract would lack business efficacy if the vendor could escape from it by delaying. 12 In my view Printed Clause A6 has both the character which appears from its express terms of a promise the breach of which would give rise to a liability for damages and also the character of a condition for the exercise of the vendor's right of rescission; breach of the promise is also the failure of the condition in which the vendor can rescind. 13 The plaintiffs' counsel referred me to observations of McLelland CJ in Eq in Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 34 C-E. The operation of Printed Clause A6 as a condition makes inapplicable to the present case his Honour's observations which relate to the need to show a causal relationship. In any event there is in this case a causal relationship. 14 A vendor acting recklessly may lose a right to rescind: Woodcock v. Parlby Investments Pty Ltd (1989) NSW Conv.R 55-454. In that case there does not seem to have been any contractual provision corresponding with Printed Clause A6 or any express contractual condition for rescission. At 58,297 Young J noted ".. there is no promise by the vendor to build a building within a certain time in accordance with the particular standard of construction." When dealing with cl.8 Young J cited earlier authorities which established, in cases where there was no condition like Printed Condition A6, that there are limits on the availability of the right of rescission. The limits appear from passages in Gardiner v. Orchard (1910) 10 CLR 772 there cited and from the judgment of Gibbs J in Pierce Bell Sales Pty Ltd v. Frazer & Anor (1974) 130 CLR 575 at 590. Disabling circumstances referred to include the necessity for bona fides, that the cancellation must be reasonable, and that the vendor must not be guilty of recklessness in entering into the contract. The plaintiffs' case does not rest on this principle, but on the terms of their contracts. 15 If the defendants' case had been fully upheld, and they had truly needed until December 1998 to complete the building, the defendants would not have been able to rely on rescission, as it would have been reckless to make a wrong estimate six months more than the necessary time, and unreasonable to rely on the rights apparently resulting. The first defendant and Mr Jabbour, with their building and development experience, could not point to access difficulties and delays of weather to excuse so long a period, as they are difficulties of kinds which are foreseeable and obvious. 16 In the Amended Statement of Claim the plaintiffs claim: (a) a declaration that the purported rescission of the contracts on 25 June 1998 was invalid; (b) a declaration that it would be unconscionable for the defendants to rely upon that rescission; (c) an order that the defendants specifically perform the contract; (d) a declaration that the defendants were in breach of contract when they did not obtain registration of the strata plan by December 1997. There are also claims for damages and other relief. 17 The site of the development was formerly four different house properties in four different ownerships. Lots 1, 2, 3 and 4 in Deposited Plan 380248 were numbers 29, 27, 25 and 23 Willock Avenue. These together form a rectangle between Willock Avenue and Seymour Shaw Park, bounded on the west by Central Road. Sutherland Shire Council gave development consent dated 19 October 1995 for development described as "Residential flat building consisting of 52 dwelling units (amended plan)". The applicant was the architects' firm Huntington & MacGillivray which made the application with the authority of the then owners of the four houses. In his evidence Mr George Jabbour, the principal of the first defendant, says that the development application was lodged by Shalala Developments Pty Ltd in July 1995; and he also said in evidence that Shalala Developments abandoned the development or "walked away from it". Shalala Pty Ltd must have had some arrangement with the owners of the properties when the development application was made, but there is no evidence establishing what it was, and as far as I can understand his evidence, Mr Jabbour and his company had no contractual arrangement with Shalala Developments Pty Ltd. He did not obtain the copyright in the architectural plans and the copyright still belonged to Mr MacGillivray. 18 Mr Jabbour interested himself and his company in the development in March 1996 when the defendants as purchasers made an agreement with Mr and Mrs O'Riordan who then owned 25 Willock Avenue to buy their property for $530,000. Under the terms of the contract (Exhibit 2) the completion date was 9 calendar months from contract but could be earlier, and the vendors were not obliged to vacate before 15 January 1997. On 27 March 1996 (Exhibit 3) the defendants agreed with Mr Jones to buy 27 Willock Avenue for $535,000 and the date for settlement was 9 months from contract. These two contracts were interdependent. 19 On 10 April 1996 (Exhibit 1) the defendants agreed with Mr Baker to buy 23 Willock Avenue for $510,000, settlement to take place on 9 May 1996 with time of the essence; and settlement did take place on that day. On 23 May 1996 the defendants obtained an option (Exhibit 5) from Mr Hill to purchase 29 Willock Avenue; the option was to be exercised between 31 October 1996 and 23 December 1996 and was in fact exercised on 23 December 1996. (Exhibit 4). 20 The defendants completed the purchase on No. 27 Willock Avenue on 23 December 1986, No. 25 Willock Avenue on 23 January 1997 and No. 29 Willock Avenue on 3 February 1997. 21 It will be seen that when the defendants agreed to sell home units to the plaintiffs the defendants owned one of the four properties, had interdependent contracts to buy the other two with completion postponed until December 1996 and January 1997, and had an unexercised option to buy the fourth; and did not exercise that until December. 22 The defendants commissioned Mr MacGillivray the architect to prepare the Building Application before they entered into contracts with the plaintiffs. Mr McGillivray says this was in May: Mr Jabbour says it was about March, but relates it to the Baker purchase which was in April. Neither supports the time with any record or note. Probably all of May was available for Mr McGillivray to work on the Building Application. Mr MacGillivray had prepared the development application and had been the applicant, so he was well familiar with the project, and with the conditions of the Development Consent, which meant that there had to be some redrafting of plans which had been submitted with the Development Application. He had also worked for Cuzeno Pty Ltd in many projects over about 15 years. He prepared the Building Application and it was lodged on 13 December 1996. 23 There were some complexities about preparing the Building Application as the terms of the development application required departures in some significant respects from the architect's plans which had accompanied the development application. Mr MacGillivray said in evidence that he was instructed to seek building approval in May 1996, that he then commenced preparation of the plans and that the work was delayed for a couple of months because of pressure of other work. Re-drawn plans were substantially different from the original plans and he says "the changes to the plan included a splitting of the whole block down the middle making it split level and consequently a redrawing of all the stairs in the development." 24 The plaintiffs called the evidence of Mr Wood, who is a valuer by profession but has experience as a developer, not in the Sutherland Shire and not with developments as large as 52 home units, but with significant experience in managing developments extending over a number of years. It was his evidence that in his experience a Building Application for a block of home units like this one can be prepared in four weeks by vendors who are keen to obtain a building approval as soon as possible and who use their best endeavours to do so. 25 I accept Mr Wood's evidence as establishing the scale of time which is usually required for preparing a building approval; his time scale of four weeks is, in my finding, much closer to business realities and the practicalities of conducting development business than the period of over seven months which elapsed from May 1996 until the development and the application of building approval was actually lodged on 13 December 1996. There were complexities arising from Council's requirements and the need to redesign the levels and stairs and otherwise adapt the existing Council plans, and as Mr Wood was not involved in that work I give greater weight to Mr McGillivray's assessment of the practicalities and the time required. Even doing so, the difficulties spoken of by Mr MacGillivray and Mr Jabbour in their affidavits and also in their oral evidence do not reasonably explain the time which was taken and the delay. 26 Important elements in the context of facts in which this must be appraised are that Mr MacGillivray was familiar with the project and had prepared the development application, and was also used to working with Mr Jabbour after many years of experience, and that the terms of Council's approval had become known in October 1995, so the difficulties raised cannot have been new to Mr MacGillivray when he was commissioned in May 1996, and they were difficulties of a kind with which he was professionally equipped to deal. It is clear even on Mr MacGillivray's own concession that he delayed work on this project for a couple of months because of the pressure of other work in his office. As I understand his evidence attending to other commissions also contributed to delay after that. 27 Although there were complexities in preparing the plans for the building application, all the complexities were established by conditions of the development consent which had been given in October 1995 after consideration since the previous July, and all the complexities were known to Mr MacGillivray, and should have been known to the defendants, long before contracts were exchanged with the plaintiffs. No detailed explanation was given in evidence of how the time from commissioning Mr MacGillivray to 13 December 1996 was used and it is plain that there were delays of some months and the progress was impeded by Mr MacGillivray giving his attention to other work, while Mr Jabbour left Mr Macgillivray to take his own course. 28 It is important for appraising the events that the defendants were under a very strongly worded contractual obligation in Printed Clause A6.1 - "The Vendor must do everything reasonably necessary to have the plan registered within the plan registration time". Doing everything reasonably necessary included preparing the Building Application, and doing it within a time scale within which the plan registration time could be complied with; preparing the Building Application was necessary to achieve this outcome and it was a contractual obligation of the vendors to do it. Their contractual obligation was not to commission some suitable person to do it; it was a direct obligation to do it and I do not regard it as open to them to point to pressure of other work in their architect's office, as the words used in Printed Clause A6 do not admit of any concession for inattention or attending to other business. 29 When testing contractual compliance it is not relevant whether the defendants' relationship with their architect was an independent contractor relationship: their contractual obligations are the same irrespective of whose agency they act through. There is a test of reasonableness, but it does not relate to the time at which things are done; it relates to identifying which things have to be done; making a Building Application obviously is one of them, and the vendors had an unqualified contractual obligation to do every such thing so as to have the plan registered within the plan registration time. Young J's observations in Woodcock v. Parlby Investments about the architect as an independent contractor relate to the operation of the recklessness principle and were not directed to a clause such as cl.A6. 30 Mr McGillivray in cross-examination gave 12 to 16 weeks as a reasonable time to prepare the building application: on a whole view of his evidence he acknowledged that more time than was necessary was taken from May to December. My finding is that the building application should have been completed by the end of August: this finding is largely influenced by Mr McGillivray's evidence in cross-examination. About four weeks had passed since he was commissioned about the beginning of May when the defendants came under their contractual obligation to Mr Li on 29 May. Over thirteen more weeks passed before the end of August and although the nature of the subject does not allow precision I find that that was reasonably sufficient. 31 By August 1996 the defendants were already in breach of the time provisions of their contracts and this disabled them from exercising their right of rescission. However I am of the view that there were further breaches. When the Building Application was lodged on 13 December 1996 communications between the defendants and their architect and the Shire Council took place and the application was granted on 5 May 1997, that is after about 4 months and three weeks, or 20 weeks and 3 days. This was influenced, probably only slightly by a lowering in the pace of work in the Shire office associated with Christmas and New Year. 32 Mr Wood gave in evidence the view that a Building Application prepared in a competent and comprehensive manner where the applicant responds promptly to any queries made by the Council after lodgment should be approved within four months of lodgment even where as in this case the Christmas period intervened. He refers to the fact that Council's Building Application file shows a very significant number of queries. He also gave in evidence the dates of significant events in the communications between the defendants and their architect and Council officers. 33 I am not satisfied however that there was any breach with respect to the length of time which it took to obtain Building Approval. However that time should have started by the end of August. If it had, approval would have been available in January 1997. 34 It was contended that there was a breach with respect to the period of about one month which intervened between the building permit on 5 May 1997 and the commencement of work in June 1997. I do not regard this interval as showing any breach having regard to the practical problems of assembling contractors and initiating work. My view then is that if the Building Application had been prepared and lodged and the application had been conducted in conformity with cl.A6.1 the building work would and should have started about 20 February 1997. 35 To my mind it is significant that in March and April 1996 the defendants made their contractual arrangements with their vendors on a basis which would bring them possession of the property in December or January 1997; and these arrangements were actually completed by early February 1997. These arrangements are an indication of what the defendants then expected would happen and when they would need possession. Some emphasis is given to this by the defendants' having leased out No. 23 Willock Avenue for six months from May 1996. The fact that possession was not available until completion in January and February 1997 had no delaying effect on the outcome. 36 On a reasonable basis then the defendants had the rest of 1997 and the first five months of the year 1998 to complete construction, obtain Council's certificates on completion, complete the strata plan, obtain Council's certificate on it and register it. From 20 February 1997 to 29 May 1998 was 465 days or 66 weeks and 3 days. In fact the work was begun in June 1997 and completed by 23 December 1998, and the plan was registered in February 1999. The time required from practical completion for certificates and registration of the Strata Plan is two months, so effectively 58 weeks were available for building work. 37 Mr Jabbour gave practically no detail of difficulties encountered in construction, whether related to weather or otherwise. He did not give any evidence until his affidavit was lodged at a very late stage, long after the time limit fixed by the court's direction. This is surprising, as he is a very experienced builder and was in charge of the operation, and he is plainly in a good position to give evidence in detail of any difficulties which were encountered, and to show in detail the progress of the job and the actual influence of weather and of any other causes of delays. The means of proof of practical difficulties in the course of construction are in the defendants' hands and not in the plaintiffs'. Mr Jabbour spoke in general terms of difficulties of access, but his evidence did not satisfy me that access to the site created any real difficulty out of the ordinary in building construction. There were complications arising from competing use of the roads and other competing activities. The narrowness of Willock Avenue was a factor. The Development Consent required the developer to widen Willock Avenue by 2.5m. Conditions of the Building Approval allowed access at 2 points at the west on Central Road and disallowed one another access point on Willock Avenue. In my finding access was reasonably adequate, although it was subject to difficulties which are common and encountered in many building sites; a large home unit building is likely to be built in a place where there is much other activity. Mr Jabbour was also in a position to give evidence of time lost through rain and of the circumstances in which there were delays associated with the Christmas close-down at the end of 1997. In fact he gave no significant evidence carrying these matters to detail and it proved difficult when he was cross-examined to elicit any matter of detail from him. My view is that I should understand that the defendants gave the best evidence that they were able to muster explaining any causes of delay which they encountered. The evidence they did produce was very unimpressive because of its lack of detail. 38 It is very difficult to discern what effect rain had; the information available to the plaintiffs given by Mr Wood and based on meteorological statistics, and these do not really indicate whether work was impeded, because the impact of rain varies with the time at which rain falls and also with the stage at which the work is; at some stages, work can proceed under protection. 39 Mr Jabbour obtained finance approval from the Arab Bank dated 17 April 1997 to assist in the construction. In support of the application Mr Jabbour relied on the pre-sales, including those to the plaintiffs: the bank in turn relied on them. The pre-sales gave assurance to Mr Jabbour in assessing his own position, so he must then have expected that he could enforce them and that the buyers would not become able to rescind them. In connection with the application to the bank Mr Jabbour supplied some calculations (Exhibit C) on the feasibility and expected profit which are difficult to follow but which appear to allow for a period of one year until sales can commence. A one year period implies 10 months for construction and 2 months for registration. If this is what his notes mean, they are consistent with an estimate of 10 months for construction. Mr Jabbour would not accept that this was so, but to my reading the notes probably have that meaning. A pre-construction Quantity Surveyor's Report was obtained by the bank in May 1997 which said "We expect the project to be completed in 10 months from the commencement of the excavation, subject to good management practice and average weather conditions prevailing." The Report also said "We believe Mr Jabbour have the ability to complete this project within time and budget constraints". 40 Mr Jabbour's evidence was to the effect that when he undertook the project he believed that the Building Application could be prepared and approved within about 9 months. When this is applied to my finding that Mr MacGillivray was commissioned by the beginning of May, this means approval was expected by the end of January 1997. In evidence Mr Jabbour said to the effect that when the project began he expected completion within 24 months, although it was very difficult to establish any detail underlying this expectation. He gave me the impression of evading detail. It should be understood from Mr Jabbour's treatment of the application for finance that he expected the building work to take 10 months. As things turned out the building work and registration took over 20 months. However on what he must be understood to have expected, it was quite feasible to complete the building process and register the plan well within the contractual period of two years. The defendants are under the difficulty that if they show there was a serious miscalculation by Mr Jabbour they might encounter the other legal principle under which they are disabled from relying on the time commitment if they gave the commitment recklessly. 41 Plainly the defendants expected to be able to complete within 24 months; Mr Jabbour's evidence shows that this is so, and they undertook a contractual commitment to do so. They incurred a forensic or evidential burden of explaining why the process took much longer, and they have not discharged this burden. In the circumstances I feel entitled to be bold in drawing inferences on the relatively limited material which the plaintiffs were able to bring forward. The onus of proof remains on the plaintiffs throughout. 42 The defendants had apparent motivation to escape from their contracts with the plaintiffs, as the market was rising throughout the whole period. Mr Jabbour acknowledged in his evidence that he knew that the market was rising. I do not suppose that the time taken to complete construction is wholly explained by an endeavour to manoeuvre into a position where an apparent right of rescission could be relied on, but it is significant in understanding the defendants' conduct, and also in understanding Mr Jabbour's evidence and the case he presented, to see that the defendants had strong economic motivations moving them against proceeding with expedition, and these probably weighed in their behaviour against any perceived need for compliance with their contractual obligations. The defendants' communications with the Arab bank relating to finance clearly showed awareness of the market movement. 43 The defendants called the evidence of Mr Anthony Brown, a Quantity Surveyor with much experience. Mr Brown was not involved in the project but inspected it once on 22 October 1999 and saw the plans and consents. He pointed to access difficulties, and to difficulties relating to the site arising from the large extent of detailed steel work and other complexities of steel work, to there being a number of different home unit layouts and to the need for shoring, which requires time, and the general size and complexity of the building. He gave the opinion that there would be approximately 54 days between May 1997 and October 1998 during which building works could not have taken place because of wet weather. However this opinion was not carried to any detail related to amount or time of rainfall and impact of rainfall on work at different stages. He expressed the view that taking into account wet weather and difficult access the reasonable time for completing the development would be 71 working weeks. In oral evidence he added a further allowance for holidays and rostered days off. 44 I do not accept Mr Brown's figure of 71 working weeks because there was no sufficient exposition of its basis. The impact of rain on the work time required was not clearly shown. Mr Brown's rainfall statistics included rainfall of the period from June to October 1998 which is outside the period which could be relevant. Mr Brown's assessment of the impact of rain, made in and after October 1999 without earlier knowledge of the job, does not appear to me to be an appropriate basis on which to establish what the impact was; Mr Jabbour from his control of the job ought to be in a position to show how rainfall actually impacted on the job day to day, and did not do so. I also regard Mr Brown's assessment of the impact of access as giving that factor more weight than was appropriate. 45 The most significant ground on which I find Mr Brown's evidence unsatisfactory is that he did not address the impact of the contractual requirement of Printed Condition A6 on what the builder could do. There is no indication in his evidence that he considered the feasibility of unusual measures such as working on Saturdays, or engaging additional staff or programming work to proceed with greater intensity. Although Mr Brown was not explicit as to what he contemplated I understood him to be dealing with a general concept of ordinary and reasonable working methods uninfluenced by any special contractual obligation, and in particular he did not address an obligation under which the builder must do everything reasonably necessary to have a strata plan registered within a prescribed time. Notwithstanding Mr Brown's evidence I regard it as clear that if that provision had been complied with, the building work should have been commenced late in February 1997 and completed before the end of March 1998, leaving sufficient time to obtain certificates and register the plan. Within that time about 57 weeks were available, and in my finding the work could have been done in that time or less. 46 In my view the plaintiffs have established that the time spent on construction was far longer than the time which would have been spent on construction if the provisions of cl.A6.1 had been complied with. A precise finding is not required, and in my view it is clear that the building work should, if cl.A.6 had been complied with, have been completed by the end of March 1998. I conclude that at the time when the purported notices of rescission were given the defendants were in breach of the provisions of the contracts of sale relating to time in that they had failed to do everything reasonably necessary to have the plan registered within the plan registration time. For that reason the defendants were not entitled to rescind, and the plaintiffs are entitled to proceed with their contracts in a regular way towards completion. 47 I propose to make a declaration establishing the plaintiffs' entitlement, and an order that the contracts be specifically performed under the control of the court. 48 Orders:

Codelfa Construction Pty Ltd v State Rail Authority

At a glance

Court

Decision date

Before

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Judgment (16 paragraphs)

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Cases Cited (5)

Cited By (4)