First Plaintiff v First Defendant

"(a) The purchasers shall, at their expense, on or before 15 February 2010, install in a proper and professional manner a kitchen including tiles, cupboards, sink and taps, dishwasher, cooking range (including oven cooktop and fume extractor).

(b) The purchasers shall, at their expense, on or before 15 February 2010, install in a proper and professional manner two new bathrooms with showers, vanities, taps and tiles.

(c) The purchasers shall, at their expense, on or before 15 February 2010, install in a proper and professional manner a laundry including cupboards, tape, laundry tub and tiles.

(d) The purchasers shall, at their expense, on or before 15 February 2010, install in a proper and professional manner tiles in the passage between the kitchen and the laundry.

In the event that the works are not completed by 15 February 2010, the purchasers shall pay to the vendor the sum of $240 per week until such time as the works have been completed.

The vendor shall:

(a) grant the purchaser access to the grounds of the property for the purpose of surveys and other works that he requires to assist with the application for subdivision to the Maroondah City Council and Registrar of titles. The access to the house shall be limited to twice and shall be on 7 days' notice;

(b) paint inside all walls and doors;

(c) either sand and polish all floors or carpet and tile where appropriate;

(d) provide window coverings; and

(e) repair doors and glass where necessary."

2 On 28 May 2010, the Kearsleys, through their solicitor, sent a notice headed "Default Notice" ("Notice").

3 On 25 June 2010, Mr Robson lodged a caveat over the property claiming an estate in fee simple. The grounds of claim were "pursuant to a contract of sale dated 6 November 2009 between Phillip George Kearsley and Deidre Gay Kearsley as vendors and Craig William Robson as purchaser."

4 This proceeding was issued on 30 July 2010. The originating motion was supported by an affidavit of the Kearsleys which, among other things, exhibited to it a copy report from Bullas Building Consultants Pty Ltd, dated 17 June 2010. The Bullas report was highly critical of the works which had been carried out on the property by or on behalf of Mr Robson ("works").

5 The proceeding came on for hearing on 20 December 2010. The Kearsleys relied upon their affidavit sworn on 26 July 2010 and an affidavit sworn by Mr Gordon Jacobs of Aughtersons on 11 August 2010. Mr Bullas swore a further affidavit on 17 December 2010 annexing his report of 17 June 2010 and a further report of 12 August 2010. Mr Robson relied on an affidavit sworn by him on 19 August 2010, an affidavit of Jeremy Collins on 24 August 2010, an affidavit of Christopher Davis sworn 17 December 2010, exhibiting an inspection report and opinion regarding the wall and floor tiling works prepared by him on 15 December 2010, and an affidavit sworn by Cathy Lombardo, a real estate agent, exhibiting a copy of the contract of sale. None of the deponents of the affidavits were required to attend for cross-examination. A summary of the evidence follows.

(a) they are the registered proprietors of the property;

(b) on 6 November 2009 they entered into the contract of sale;

(c) owing to their concerns about Mr Robson's compliance with the Special Conditions of the contract of sale regarding the works, they engaged Mr Bullas of Bullas Building Consultants to inspect the property and the works and prepare a report;

(d) as a result of Mr Robson's failure to complete the works and/or failure to carry out the works in a proper and professional manner as detailed in the report of Mr Bullas (noting the report is dated June 2010) they instructed their solicitors to serve a Notice of Default upon Mr Robson;

(e) on 19 May 2010 Aughtersons wrote a letter to GLN Conveyancing Services Pty Ltd ("GLV") the conveyancing firm acting on behalf of Mr Robson in the following terms:

"We are instructed that your client is in default of the provisions of the Contract of Sale in that he has failed to complete the works referred to in the Special Conditions within the specified time, and has failed to pay the amounts referred to in the Special Conditions.

Notice is hereby given that unless the said works are satisfactorily and properly completed no later than the 27th May 2010 and all outstanding amounts are paid by that date, a Notice of Default will be served";

(f) on 28 May 2010, Aughtersons served the Notice upon GLN. The particulars of default were said to be as follows:

"The Purchaser has failed to properly complete the works which are referred to in the Special Conditions set out in the contract by the specified date and has failed to make payments totalling $960.00 due under the terms of the said "Special Conditions".

(g) On 7 June 2010, GLN wrote to Aughtersons, as follows:

"We refer to previous communications. Our client instructs that all works have now been completed and your client has been notified. A further $240.00 will be deposited to the credit of your client's account being the final instalment due."

(h) on 23 June 2010, Aughtersons wrote to GLN as follows:

"We refer to our letter dated 28 May 2010.

Your client has failed to remedy the default detailed in the Default Notice dated 28 May 2010, in that he has failed to properly complete the works which are referred to in the Special Conditions. The Default Notice has expired, and the contract between our respective clients is at an end.

Your client and his Contractors are not to enter upon the property again."

(i) on 25 June 2010, Mr Robson lodged the caveat upon the title of the property.

7 In his affidavit sworn 11 August 2010, Mr Gordon Jacobs, a solicitor with Aughtersons, verifies the matters referred to in paragraphs (e) to (i) above.

8 The Kearsleys also relied upon two reports prepared by Mr Graham Bullas of Bullas Building Consultants Pty Ltd dated 17 June 2010 and 12 August 2010. In his 17 June 2010 report, Mr Bullas inspected works carried out by or on behalf of Mr Robson in the kitchen, ground floor powder room, passage, first floor passage, bathroom and laundry. In his report, Mr Bullas states:

"At no time has the works that have been carried out by the developer been completed"; and

"it was quite obvious that most of the works do not comply with the Building Code of Australia and the Australian Standards on tiling AC3958 including the standards on waterproofing requirements in wet areas AS3740."

9 In his report of 12 August 2010, Mr Bullas provided further criticism of the works carried out on the property, stating:

"The workmanship carried out on this shower cubicle is the worst I have ever seen . . . "

10 Mr Bullas also provided a list of 22 defects in his 12 August report.

11 In his affidavit sworn 19 August 2010, Mr Robson gave evidence as follows:

(a) he has been a property developer in Melbourne's outer east for 17 years;

(b) in mid to late 2008 Ms Cathy Lombardo, a real estate agent, contacted him and told him she was aware of a couple who planned to purchase a property in Ringwood with a view to entering into a joint venture for its development;

(c) he met with Mrs Kearsley on two to three occasions in late 2008 to discuss the development of the property. However, he was subsequently informed the Kearsleys intended to develop the property on their own;

(d) in August or September 2009, Ms Lombardo called him and told him that the Kearsleys wished to sell the property, but the property had passed in at auction upon a bid of $950,000. She said the Kearsleys would consider a long settlement period. Mr Robson said he had a full book of developments and could only consider a long settlement of up to two years and a five per cent deposit;

(e) upon inspection of the property, Mr Robson formed the view that the property was suitable for subdivision. He was also of the view that the house on the property required a substantial amount of work to complete the renovation and make it habitable. Ms Lombardo suggested he make an offer to purchase the property at a reduced price and undertake the renovation works over a period of time. Mr Robson entered into negotiations with the Kearsleys. Ms Lombardo told him the Kearsleys required rental income from the property. She proposed a date for completion of the works of 15 February 2010 with a proviso that he would pay $240 per week as a "penalty" in the event of late completion. These terms were included in the contract of sale;

(f) Mr Robson deposed that he experienced difficulties with the works because of structural problems with the house, including damp, which required rectification, and poor weather. He did not receive any complaints from the Kearsleys about the quality of the works;

(g) he paid the Kearsleys $960.00 for rent and $275 for costs within 14 days of service of the Notice;

(h) the works specified in the contract of sale had been completed by June 2010 subject to certain items. He had also carried out additional works not required by the contract of sale, at a value of $3,481.00;

(i) the Kearsleys had not carried out any of the works required by the contract of sale;

(j) he had not been previously provided with the report of Mr Bullas exhibited to the Kearsley's affidavit of 26 July 2010; and

(k) he is ready, willing and able to perform the contract of sale.

12 Mr Robson also relied upon an affidavit sworn by Mr Jeremy Collins. Mr Collins is a shareholder of the Park Homes Group of companies. Mr Robson is the other shareholder. Mr Collins deposed to the business operations and experience of the Park Homes Group. He deposed that he attended at the property regularly for the purpose of supervising and inspecting the works, and that the renovations to the property have cost approximately $30,000, plus management time.

13 Mr Collins also exhibited a report he had obtained from Mr Keith Fisher, the tiler who carried out the works on the property, in response to Mr Bullas' report.

14 Finally, Mr Robson relied upon a report by Mr Christopher Davis, a building consultant, who inspected the works at the property and reviewed the reports prepared by Mr Bullas and Mr Fisher. Mr Davis was critical of both Mr Bullas' and Mr Fisher's reports but formed the view that Mr Bullas' criticisms were generally unwarranted. However, he noted that some minor tasks were required to complete the works, and specified four areas of concern which required repair or rectification.

15 Section 90(3) of the Transfer of Land Act 1958 provides that:

"Any person who is adversely affected by any such caveat may bring proceedings in the court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit."

16 In Piroshenko v Grojsmann & Ors,[1] Warren CJ distilled the following principles to applications for removal of caveats from the authorities. She said:

"Therefore, consistently in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s.90(3) of the Act, he or she must satisfy the Court that:

1. there is a probability on the evidence before the Court that he or she will be found to have the asserted equitable rights or interest; and
2. that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in accordance with their normal proprietary rights."

17 At paragraph 22, Warren CJ proposed the following formulation of the test which a caveator must satisfy to justify maintaining a caveat:

"In order to avoid confusion as to the burden which must be discharged by the caveator, it may be that courts would be better served by talking of a prima facie case giving rise to a serious test question to be tried or even a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat when deciding such applications."[2]

18 Therefore, the burden upon the caveator is quite substantial. While it is not necessary for the caveator to show that they would, as a matter of certainty, be able to establish a proprietary interest in the relevant property at trial, the evidence must disclose a cogent and plausible claim on the part of the caveator, not merely an arguable case. The test also requires some consideration of the "balance of convenience", in that it requires the caveator to discharge the burden of showing that the constraint imposed upon the ability of a registered proprietor to deal with their land is justified having regard to the strength of the caveator's claim and the potential prejudice to the caveator of the removal of the caveat.

19 Counsel for the Kearsleys submitted that in the current case there is no serious issue to be tried. The works referred to in the Special Conditions of the contract of sale were not completed by 15 February 2010, and that such work as was carried out by Mr Robson was not done properly. In his first report, Mr Bullas formed a view that the required works had not been completed as at June 2010 and that the works carried out did not comply with the Building Code of Australia and applicable Australian standards. As such, the works were not done in a "proper and professional manner" within the meaning of the contract of sale. Further, General Condition 16.1 of the Contract of Sale makes time of the essence, breach of which entitles the other party to terminate the contract of sale. The Kearsleys provided a warning letter to Mr Robson on 19 May 2010 and served the Notice on 28 May 2010.

20 Counsel submitted that unless and until the Notice is set aside by a court by force of General Condition 28 of the contract of sale, the contract of sale is at an end and Mr Robson's interest in the property ceased to exist. Therefore, the caveat is not sustainable.

21 Further, counsel for the Kearsleys submitted that any proceeding by Mr Robson to compel specific performance of the contract of sale is unlikely to succeed. First, he has not complied with the special conditions of the contract of sale regarding the works. Secondly, Mr Robson's prospects of obtaining equitable relief are slim, in that he would not be coming to the court with clean hands. Mr Robson has not and never has been a registered builder for the purpose of the Building Act 1993 and, as such, would not be able to lawfully complete the works.

22 This submission was based upon counsel's contentions that, by incorporating the requirements to carry out the works in the Special Conditions, the contract of sale can be characterised as a "major domestic building contract" within the meaning of the Domestic Building Contracts Act 1995. Section 176(2A) of the Building Act 1993 requires that a builder must not carry out works under a major domestic building contract unless the builder is registered under the Building Act. As Mr Robson is not a registered builder, he cannot comply with the terms of the Special Conditions of the contract of sale without being in breach of the Building Act which, counsel for the Kearsleys submits, would not be sanctioned by a court.

23 In response, counsel for Mr Robson submitted that there is a serious question to be tried. There is no question that a purchaser under a contract of sale has a caveatable interest in the land. He submitted that the central question in the current application is whether there is a probability on the evidence, sufficient to justify the caveat being maintained, that the contract of sale will be found to be valid and subsisting.

24 Counsel submitted that there is a strong likelihood that the Notice was defective, and that the Kearsleys were not entitled to terminate the contract of sale. He submitted that a failure on the part of Mr Robson to complete the works referred to in the Special Conditions did not entitle the Kearsleys to serve the Notice under clause 27 of the General Conditions, as the Special Conditions (which prevail over the General Conditions) provide as follows:

"In the event that the work is not complete by 15 February 2010, the purchaser shall pay to the vendor the sum of $240 per week until such time as the works have been completed."

25 He submitted that this provision should be regarded as an exclusive code governing the rights of the Kearsleys upon any failure on the part of Mr Robson to complete the works. If there were a breach of the Special Conditions, the Kearsleys were entitled to receive the sum of $240 per week from Mr Robson and no more. They were not entitled to terminate the contract of sale.

26 Further, counsel for Mr Robson contended that the Notice was defective. The Notice did not convey to Mr Robson that he must remedy particular defects in the subject works. It did not identify in what respects the works were defective. The Notice was completely silent as to any of the matters described by Mr Bullas in his reports. Therefore, it was not possible for Mr Robson, as the recipient of the Notice, to determine what was required to remedy the alleged defects. Therefore, the Notice was not effective for the purpose of clause 27 of the General Conditions, even if the Kearsleys were entitled to serve the Notice.

27 Finally, counsel for Mr Robson submitted that the balance of convenience does not favour the removal of the caveat. Mr Robson has paid the sum of $60,000 to the Kearsleys by way of a deposit and the evidence shows that he has expended a considerable sum of money in carrying out the works, the value of which would be foregone if the contract of sale has in fact come to an end. There is no evidence to suggest that the Kearsleys are suffering any particular inconvenience or prejudice by reason of the caveat (or at least, any inconvenience which could not be cured by the payment of $240 per week).

28 Counsel for the Kearsleys made an alternative submission that if the caveat was to be maintained, it should be maintained on the condition that Mr Robson issue a proceeding seeking specific performance of the contract of sale. Counsel for Mr Robson stated that such a condition was not necessary, given that the time for performance by the Kearsleys under the contract did not arise until the settlement date of 5 January 2012.

29 In order to determine whether Mr Robson has a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat, Mr Robson has to show that he has a prima facie case that the contract of sale remains on foot, such that he has reasonable or even strong prospects of success in any action for specific performance of the contract of sale. If so, he has a caveatable interest in the property as a purchaser under the contract. In order to satisfy the relevant test, Mr Robson would need to establish a prima facie case that:

(a) he had complied with the terms of the contract of sale with respect to the works, so that the Kearsleys were not entitled to serve the Notice; or

(b) the Notice was defective, such that it was liable to be set aside; or

(c) he had otherwise complied with terms of the Notice, such that the Kearsleys were not entitled to terminate the contract of sale; and

(d) a court would be, in all of the circumstances, likely to exercise its discretion to order specific performance of the contract.

30 While it is not possible to resolve the question of whether the works were deficient or defective in the context of this application, it appears that at least some further works are required to be carried out by or on behalf of Mr Robson. The substantial disagreement between the parties and their experts appears to be regarding the quality of the works already done. Accordingly, it is difficult for Mr Robson to contend with any great confidence that as at the time the Notice was served (or thereafter) he had complied with his obligations under the contract of sale with respect to the works. Furthermore, there is no evidence that Mr Robson paid the Kearsleys any amount in respect of rental prior to the service of the Notice. Therefore, it is at least arguable that the Kearsleys were entitled to issue the Notice.

31 Counsel for Mr Robson submitted that the Notice was defective insofar as it required Mr Robson to complete the works and remedy defects without specifying the works to be completed and the defects to be rectified. (See Central Pacific (Campus) v Staged Developments Australia)[3]. While the degree of precision required will depend upon the knowledge of Mr Robson and the circumstances of the case, it seems to me that this is a serious question to be tried. Given the degree of particularity in which the Special Conditions expressed the obligations imposed upon Mr Robson (and, for that matter, the Kearsleys) with respect to the works, it seems to me to be at least arguable that the Notice should have specified:

(a) what works had not been carried out, or were incomplete;

(b) what works were defective, and in what respect; and

(c) what works were required to be completed and/or rectified in order for Mr Robson to comply with the Special Conditions.

32 The question also arises as to whether the Notice reflected a proper construction of the terms of the contract of sale, namely the Special Conditions. The Notice required that Mr Robson remedy the (unspecified defects) and pay an amount calculated with respect to the penalty clause. There appears to be no dispute that Mr Robson owed the Kearsleys an amount of $240 per week for the period in which the works remained incomplete: indeed, this amount was paid. However, as submitted by counsel for Mr Robson, there is a serious question to be tried as to whether the only remedy available to the Kearsleys pending completion of the renovation works was to demand and recover payment of any penalty amounts. Arguably, the Kearsleys' requiring completion of the works amounted to an attempt to unilaterally vary the terms of the contract to exclude the payment of the penalty as an alternative to completion of the works.

33 Further, if the above contention is correct, as it may be, then by making payment of the sum demanded in the Notice, Mr Robson had complied with the terms of the Notice, thus denying the Kearsleys the right to terminate. I note that there is no evidence as to whether Mr Robson continues to pay the Kearsleys the sum of $240 per week and, if not, whether any further demands for payment have been made by the Kearsleys.

34 Finally, the question arises as to whether, if it is found that the Kearsleys were not entitled to terminate the contract of sale in the manner they did, whether Mr Robson would be successful in obtaining any order for specific performance. Counsel for the Kearsleys suggested that such an outcome was unlikely given that Mr Robson would not be coming to the Court with "clean hands". As Mr Robson is not and never has been a registered builder, he is not able to lawfully arrange or carry out the works required by the contract.

35 It appears to me that there is a significant flaw in this argument. While the contract of sale does require the works to be carried out (or the penalty amount paid), it does not specify who is to actually carry out the works. It is unlikely that the contract of sale does not permit Mr Robson to engage contractors to manage and carry out the works. Indeed, the contract imposes upon the Kearsleys (who describe their occupations as manager and teacher respectively) an obligation to carry out certain works, including painting all interior walls and doors, to sand and polish all floors or carpet and tile where appropriate, and to repair doors and glass where necessary. The terms of the Special Conditions do not appear to me to require the parties to actually carry out the works themselves.

36 Finally, on the evidence available, there appears to be no other compelling reason why a Court would not order specific performance of the contract of sale in the event the Court found the contract of sale had not been validly terminated. The property is not the home of the Kearsleys. An order for specific performance of the contract of sale does not involve substantial judicial supervision. Mr Robson has deposed that he is ready, willing and able to complete the purchase of the property

37 Accordingly, Mr Robson has established that he has a prima facie case that the contract of sale remains on foot. The question remaining is whether the balance of convenience favours maintaining the caveat, thereby impeding the ability of the Kearsleys to deal with their property. In this case, the balance of convenience favours the maintenance of the caveat. There is no evidence that the Kearsleys are suffering any loss by reason of their inability to deal with the property, or that they have lose or are at risk of losing a valuable opportunity. If the contract of sale is found to be subsisting, settlement of the sale is due in less than 12 months' time. On the other hand, the uncontradicted evidence of Mr Collins is that Mr Robson (or an entity in which he has an interest) has expended at least $30,000 on the renovations to date, which could be wasted if the property is sold.

38 Accordingly, I will dismiss the application for removal of the caveat, subject to certain conditions. The first condition is that Mr Robson undertakes to issue a proceeding in a court of competent jurisdiction within 60 days of the date of this order to determine whether the contract of sale remains on foot. While counsel for Mr Robson submitted that it would not be necessary for Mr Robson to issue a proceeding prior to the due settlement date, it seems that, first, Mr Robson would already have an arguable course of action based upon repudiation and/or anticipatory breach of the contract of sale and, in any event, it would be in the interests of the parties to resolve the issue prior to the settlement date. I have nominated 60 days in order to provide the parties time to mediate the dispute prior to embarking upon further litigation. The second condition I would impose would be to require Mr Robson to undertake to pay the sum of $240 per week to the Kearsleys (if he is not already doing so) until the outstanding works are completed, with the completion of the works to be certified by an appropriately qualified expert to be nominated by a reputable industry body in the absence of agreement between the parties.

39 I will hear counsel on the form of orders and the question of costs.

[1] [2010] VSC 240 per Warren CJ.

[2] Followed in Percy & Michele Pty Ltd v Gangemi & Ors [2010] VSC 530.

[3] (1998) V Conv R 54-575 per Callaway JA.