Frankel v Paterson

Supreme Court of NSW|2015-08-19

South Wales (Law Book Company, 2nd ed, 1998) Williams on Vendor & Purchaser (4th ed, Sweet & Maxwell, London, 1926) Category: Principal judgment Parties: Michael John Frankel - first plaintiff Deborah Karen Rosenfield - second plaintiff Mark Ian Paterson - first defendant Anne Lindsey Newman Riches - second defendant Representation: Counsel: M L D Einfeld QC with V F Kerr - for the plaintiffs G Lucarelli - for the defendants

Solicitors: RBHM Commercial Lawyers - for the plaintiffs Minter Ellison - for the defendants File Number(s): 2015/230219

Judgment

These proceedings relate to a contract made on 1 April 2015 between the defendants as vendors and the plaintiffs as purchasers of Unit 5 in a certain street in Vaucluse. Unit 5 is part of a registered strata plan.
Unit 5 is at the top of a block of land which slopes downwards and Unit 4 is underneath Unit 5. Adjacent to Unit 4 is part of the common property which is a lawn and garden.
The purchasers were reluctant to proceed with the contract for reasons that will appear shortly and on 30 July 2015, the vendors issued a notice to complete.
On 6 August 2015 the plaintiffs issued a summons seeking: 1. a declaration that the notice to complete was invalid and that the plaintiffs were not bound to complete on the grounds that … 2. a declaration that the plaintiffs are excused from their obligation to perform the contract; and 3. a return of the deposit.
At the hearing the summons was amended to claim in the alternative, a return of the deposit under Section 55(2A) of the Conveyancing Act 1919 (NSW).
The summons is quite in an unsatisfactory form. As things stood at the date of the trial, the vendors were seeking specific performance by way of a cross-claim so that anything to do with a notice to complete that they may have given on 30 July was now otiose. In any event courts do not make a declaration that a party has a right on certain grounds. The declaration is only that a party has a right: see Lohar Corporation Pty Ltd v Dibu Pty Ltd(1976) 1 BPR 9177 at 9179 and Trans Realties Pty Ltd v Grbac [1975] 1 NSWLR 170.
The second order seeks a declaration that the plaintiffs are excused from their obligation to perform the contract. As will be seen from what follows, the principal argument of the plaintiffs is that they are entitled under the rule in Flight v Booth (1834) 1 Bing (NC) 370; (1834) 131 ER 1160 to escape from the contract. Although in many of the earlier cases the consequence of the rule is that the purchasers were excused from their obligation to perform the contract, the modern cases show that what flows is the right to terminate the contract.
The plaintiffs deliberately have not terminated the contract. Declarations are not granted to tell a person that he or she has a right to terminate the contract: see for example, D C Wagemaker & Sons Pty Ltd v Commonwealth Development Bank of Australia (1970) 91 WN (NSW) 617. The court does not give an advisory opinion. Though in Dormer v Solo Investments (No 2) Pty Ltd [1974] 1 NSWLR 428, Holland J considered that he might make such a declaration but only if there was an undertaking by the relevant party to terminate the contract if the declaration were granted.
Order 3 and the order added by amendment are for return of the deposit.
Despite the infelicities and obscurities of the orders sought in the summons, it was quite clear during the hearing what the case was all about. In any event as I have mentioned, the vendors have filed a cross-claim for specific performance of the contract and the plaintiffs acknowledge that should they fail, a specific performance decree should be made perhaps subject to some condition.
I heard these proceedings on 18 and 19 August 2015. Mr M L D Einfeld QC and Mr V F Kerr appeared for the plaintiffs (purchasers) and Mr G Lucarelli of counsel appeared for the defendants (vendors).
The basic complaint of the plaintiffs is that when they inspected the unit and the common property, they were particularly impressed with the garden which is part of the common property.
The estate agent selling the property was a Mr Zoellner. Mr Frankel says that in the morning of 30 March 2015 he sent an email to Mr Zoellner asking him about the garden. They say their inquiries made them aware that the owner of Unit 4 was going to put a gate across a stairway but otherwise he was not going to interfere with the common property garden at all. The contract was signed in the evening of 1 April.
On 22 July 2015 the purchasers inspected the property together with Mr Zoellner's offsider. They went to measure up rooms for bookshelves and other fittings. They observed that there was a 'hive of activity' around Unit 4. They noticed that a fence had been built across the garden to which had been attached a 'Beware of the Dog' sign. Significant trees and shrubs which had been located in the southeast corner of the garden had been removed and been replaced in part with a soil garden bed boxed in by wooden rails. Extra windows had been inserted in Unit 4 which overlooked the garden and a large grey dog was roaming in the fenced off garden. During the afternoon, the agent remarked that works on the Unit 4 balcony were for an aviary for some Macau birds.
Mr Frankel (the first plaintiff) says in paragraph 45 of his principal affidavit which I admitted over objection: I consider the new fenced off dog compound in the common property garden is so significant that it changes the whole environment of which I thought we were going to live. If the garden and building had been in their current condition at the time we inspected Unit 4 and Unit 5 and when we signed the contract to purchase Unit 5, then I would not have any interest in purchasing either unit.
Ms Rosenfeld (the second plaintiff) makes a similar statement in paragraph 43 of her principal affidavit.
As s50 of the Civil Liability Act, 2002 does not apply to this case, this evidence is admissible though must be treated with caution: Burns v Grevier [2010] NSWSC 1219 [65] - [66].
The purchasers remained of this view and when served with a notice to quit indicated they were not bound to complete because of the change. The vendors by their cross-claim seek specific performance.
Having set the scene, I will now deal in some detail with the issues which appear to me to arise between the parties. A the principle of Flight v Booth; B questions of evidence; C what was actually sold by the contract? D what were the purchasers' rights to the common property? E are the alleged defects, defects of title or defects of quality: does it matter? F are the vendors able to give vacant possession? G are the purchasers entitled to terminate under Section 66L of the Conveyancing Act 1919? H are the plaintiffs entitled to return of the deposit? I the cross claim for specific performance; J what is the result of the case?

A Flight v Booth

Flight v Booth is a decision of the Court of Common Pleas. There was a sale of a leasehold in Covent Garden London. The particulars of sale given at the auction were different to the particulars that occurred in the actual lease. The matter was referred to arbitration. A party was dissatisfied with the arbitrator's decision and sought review by the court which was declined. At 377 [1162-3] Tindal CJ said: We think it is, in all events, a safe rule to adopt, that where the misdesription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject matter of the contract that it may reasonably be supposed that, but for such misdescription, the purchaser might never have entered into the contract at all, in such a case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation.
The case principally relied on in this aspect of the case by the plaintiffs is the decision of Sugerman J in Hamilton v Munro (1951) 51 SR (NSW) 250. That was a case where there was a sale of a residence in the Newcastle suburb of Adamstown. The contract contained no reference to any restrictive covenant but indeed there was a covenant binding the property that only one house should be erected and that certain types of buildings should never be erected. The purchaser sought removal of the covenant. This was refused and the plaintiffs issued a vendor and purchaser summons as to whether they were entitled to rescind the contract and whether the contract had been rescinded and whether they were entitled to recover their deposit back and their costs of investigating the title. The plaintiffs succeeded.
The judgment shows that Mr Moffitt (as he then was) for the vendor submitted that there was no real problem. The purchasers had basically contracted to buy a house and the purchasers basically had contracted to buy a residence and they have a residence if they complete the contract. However Sugerman J said that it was not just a matter of looking to see what the immediate use of a property was or intended to be. It was most material that a person would buy a property not only to use it for a residence for the time being, but also that the property would be freely alienable. His Honour said at 254: In relation to all such restrictions, the question whether what is tendered to a purchaser in purported performance of a contract of sale differs materially from what was promised, does not depend simply upon the immediate desires, or intentions, uncommunicated and dehors the contract, of the purchaser. Primarily what must be considered are the terms, express or implied, of the contract, and how far what is tendered compares with the contract description (to be gathered from those terms) of what is promised. It may also be necessary to consider surrounding circumstances, the use or habits and modes of thoughts of mankind (or of that section of it which enters into such contracts), and other evidence on the question of materiality. But such a consideration does not involve a mere inquiry into the state of mind as to the immediate use of the purchaser when he made the contract. Its purpose is to assist in determining whether, looking at the whole of the effect of the restrictions, a difference in fact existing is a material difference - whether it is such that 'it may reasonably be supposed that but for' (the misdescription which conceals its existence) 'the purchaser might never have entered into the contract at all.'
I will consider the statement as to objective or subjective intention in Section B.
Professor Butt says in his The Standard Contract for Sale of Land in New South Wales, (2nd ed, 1998) [6.49]: Whether the property differs substantially or materially from that contracted to be purchased is a question of fact. He then quotes from the judgment of Eve J in Lee v Rayson [1917] 1 Ch 613 at 619 where, after quoting Lord Eldon, Eve J said: What the court has to do in such a case as I have here to deal with is to decide whether the purchaser is getting substantially that which he bargained for, or whether the vendor is seeking to put him off with something which he never bargained for, and in arriving at a conclusion on this question the Court is bound to consider every incident by which the property offered to be assured can be differentiated from that contracted for. If the sum of these incidents really alters the subject matter, then the purchaser can repudiate the contract; if, on the other hand, the subject matter remains unaffected, or so little affected as to be substantially that which was agreed to be sold, then the purchaser must be held to his contract.
Mr Einfeld QC put considerable reliance on what the High Court of Australia said in Fullers' Theatres Ltd v Musgrove [1923] HCA 12; (1923) 31 CLR 524. That was a specific performance suit. Flight v Booth was not mentioned, but Isaac and Rich JJ at page 537 refer to the High Court's decision in Lion White Lead Ltd v Rogers [1918] HCA 71; (1918) 25 CLR 533 at 550 that: Where the thing tendered as the consideration differs essentially from the thing contracted for, there is a failure of consideration, and the bargain is at an end. They then said: The word 'essentially' is used in so many collocations that it may easily be misunderstood. The rule means that, apart from express stipulations to the contrary, one party to a contract is not entitled to force upon the other party something which by reason of a departure from the terms of the contract, is so materially altered in character as to be in substance a different thing from that contracted for. The rule is general: and is recognised in such cases as … One of the cases referred to is Lee v Rayson and the passage that I have set out above is then quoted.
The decision of the New Zealand Court of Appeal in Southland Investments Ltd v Public Trustee [1943] NZLR 580 discussed a large number of authorities on the principle including those which differentiate between a substantial and non-substantial deficiency.
A number of the cases dealing with the principle in Flight v Booth were also digested by Sackar J in Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd [2014] NSWSC 743 at 113 and following. His Honour said at [129]: To my mind, a fuller and careful reading of Flight v Booth would seem to suggest that the rule which is said to arise from it has two key aspects; first and foremost, the identification of the misdescription that is so substantial and material that it may be reasonably supposed that the purchaser might never have entered into the contract and the purchaser is not bound to resort to the clause of compensation. The second aspect, however, is that where the difference of value is so uncertain and arbitrary as a result of the misdescription, it is clear that compensation will not be sufficient and the contract must be avoided altogether.
At [133] his Honour notes that in the then latest edition of Snell's Equity (31st edition) at [15-34] the learned author said: Misdescription consists of an error in the terms of the contract itself, as opposed to a misrepresentation that merely induces the contract.
That passage sets out a vital difference between a misrepresentation prior to contract and one in the contract. Flight v Booth looks at the contract and the conveyance and asks whether the purchasers are to receive what they contracted to buy.
The distinction is clearly supported by the authorities. For instance in the decision of the Privy Council in Rutherford v Acton-Adams [1915] AC 866 at 870, the Board held that Flight v Booth type of right: applies only to a deficiency in the subject-matter described in the contract. It does not apply to a claim to make good a representation about that subject-matter made not in the contract but collaterally to it.
However, three things must be said. First, there are cases, such as Flight v Booth itself, Re Hare and O'More's Contract [1901] 1 Ch 93 and Charles Hunt Ltd v Palmer [1931] 2 Ch 287 that a misdescription in the auctioneer's conditions of sale as opposed to what was about to be conveyed was sufficient. Secondly, cases such as Fullers' Theatres Ltd v Musgrove (supra) suggest that Flight v Booth may be a subset of a wider general principle as to when a court of equity will refuse specific performance.
Thirdly, there are two decisions of Dillon J in England which are referred to in Jones & Goodhart Specific Performance (1st ed, p240) as authority for the proposition that the principle applies also to innocent representations outside the contract. The cases are Laurence v Lexcourt Holdings Ltd [1978] 2 All ER 810 and Walker v Boyle [1982] 1 All ER 634. If these cases are actually authority for that proposition, I consider that they are wrongly decided.
As Williams on Vendor & Purchaser (4th ed, Sweet & Maxwell, London, 1926 p74) makes clear the question is whether the description of what the purchaser is to receive is misdescribed. That description may be spelt out in the body of the contract itself or in some allied document or oral statement.
It is extremely important to remember that the principle of Flight v Booth only applies where there is a substantial deficiency. Many of the cases to which I have already referred discuss situations one side of the line or the other. The test is, objectively, would a reasonable person in the position of the purchaser have taken the view that he or she was not getting substantially the property for which he or she contracted to obtain?
It should also be noted that in Beard v Drummoyne MC (1969) 71 SR 250 at 265, Walsh JA (with whom Mason JA as he then was agreed) was of the view that it was only deficiencies that were so gross like those that would entitle the purchaser to rescission that would be serious enough to bring the principle into play. The third judge, Wallace P, contented himself by stating that the deficiency must be 'so gross' (p 257).
Paragraphs [15-34] of the 31st edition of Snell give a number of examples as to what is a substantial deficiency. Because each case is different, I merely refer to this work because the examples merely provide guidelines for decision of the current dispute.
In the book to which I have already referred, Professor Butt gives examples in paragraph [6.52] of circumstances in which purchasers have been held to invoke the rule in Flight v Booth and terminate the contract. The fourth of these is: Where the property does not possess an important physical attribute which the contract states that it possesses. The importance of the attribute is a question of fact …
The prime example given is Brewer v Brown (1884) 28 Ch D 309. The case is not of that much assistance because it is quite clear from the report that the purchaser wanted to re-develop along the Atherton Road side of the property he was purchasing and the vendor knew this. The particulars of sale said that the property was 'enclosed by a rustic wall with tradesmen's side entrance'. In fact, the wall did not form part of the property and the tradesmen's side entrance was only able to be used by license of adjoining owner. North J had no difficulty in allowing the purchaser to terminate.
I discuss the facts relating to this issue in Sections C and D of these reasons. For the reasons there stated, I do not consider that the deficiency on which the purchasers rely is substantial.
I was referred to a considerable number of cases on the principle and read many more when preparing these reasons. Both sets of counsel referred me to the decision of Brereton J in Kannane v Demian Developments Pty Ltd [2005] NSWSC 1193 where a number of the authorities are discussed. However, I do not consider there is much purpose in dealing with other cases that have considered the principle in Flight v Booth and I will now pass to deal with specific matters which must be considered before reaching my final decision.
I should now consider the points made by Mr Lucarelli as to why Flight v Booth does not assist the plaintiffs in this matter that are not considered elsewhere in these reasons.
First he says that the plaintiffs have confused two fundamentally different concepts, the concept of fitness for purpose and the concept of the estate or interest which is the subject matter of the contract. It is put that Flight v Booth only applies to the latter.
In supplementary written submissions, this point was put slightly differently, that there is a difference between defect of title and defect of quality and that the present case was in the latter category.
There is of course, some validity in these arguments. However, the decided cases do show some instances where misdescription in matters which may be only defects in quality have attracted the principle. The control mechanism is that the court only intervenes when the misdescription is substantial.
It will be seen after considering the above and what I have written in later sections, how I have reached the decision that the case on the Flight v Booth principle must fail.

B Questions of Evidence

The affidavit of Mr Frankel to which I have already referred contains a series of conversations which he says he had with his wife on site before he and his wife entered into the contract. I will not set out all these conversations but pick the vital ones.
Paragraph 13 speaks of an inspection in late January when Mr Frankel said to his wife: 'The garden is really protected and private and in really good condition'. Paragraph 14 the wife: 'The garden benefits from both the morning and afternoon sun. That compensates for the lack of light in the unit. You can also see the trees in the garden from the unit'. The deponent: 'I agree. The garden is just what we're looking for'. The wife: 'We should consider it. Looking outside to see trees is also a very important aspect of lifestyle'.
In paragraphs 44 and 46 which deal with the situation as at 22 July, there are some conversations between husband and wife that they could not enter into the garden with the aggressive dog: The wife: 'Oh no, we have lost the garden'. The deponent: 'This is a disaster'. The wife: 'How can we live here like this? What are we going to do'?
Mr Lucarelli who appeared for the defendants said that all this was inadmissible. I must confess that it appeared to me at first sight that this was the typical inadmissible type evidence that I referred to as the Julie/Bob stratagem in my article in (1992) 66 ALJ 38. Usually one cannot prove something just because one sets out a conversation between two people who are associated with the problem.
However, Mr Einfeld QC strenuously argued that this was admissible as evidence of a state of mind and that evidence of a state of mind could be given by one of the people who had that state of mind and this could well be done as anywhere else in a conversation between husband and wife.
Mr Einfeld QC relies heavily on the passage from Hamilton v Munro which I quoted earlier and submits that, while the ultimate test is an objective one, would reasonable purchasers decline to proceed in the circumstances, the purchasers' actual state of mind is relevant. Gzell J affirmed this proposition in Urban House v Purnell Bros (2007) 13 BPR 24,869 at [26].
Section 66A of the Evidence Act 1995 provides that: The hearsay rule does not apply to evidence of a previous representation made by a person if the representation was a contemporaneous representation about the person's health, feelings, sensations, intention, knowledge or state of mind.
The section to a great extent repeats the common law and it is quite clear with statements as to health such as 'I feel crook' are admissible as to evidence of one's state of health at the time the statement is made.
However, statements to be admissible under Section 66A must be contemporaneous. Contemporaneous in the present case means contemporaneous with the contract of 1 April. According to Phipson on Evidence (18th ed, 2013), paragraph 16-03, a day or so often does not cease to make a statement contemporaneous, but conversations that took place between husband and wife in January would fail the test of being contemporaneous. Furthermore, as is pointed out by the Court of Criminal Appeal in R v Hannes (2000) 158 FLR 359 at 439 per Studdert J with whom Spigelman CJ and Dowd J agreed, show that this section (actually they were dealing with its predecessor, the old Section 72), only applies if the test in Section 55 is made out, that is, that the evidence is rationally material.
The conversations between husband and wife in January do not meet this principle of contemporaneity.
It is difficult to give evidence of state of mind in an admissible form. However, despite the demise of the best evidence rule, it is usually unsafe to rely on conversations between husband and wife or life partners. Courts usually expect some third person to say 'Karen told me on 31 March in the coffee shop that she was about to purchase a unit which she loved because it had this wonderful garden'. There was no such evidence in the instant case.
Because the conversations are not contemporaneous with the contract and they do not rationally lead to the conclusion which the plaintiffs wish me to reach, I reject them.
Even if I were wrong on this, in my view, even when coupled with other admissible evidence, it would not establish anything more than that the garden was a significant matter with the plaintiffs rather than it was a vital matter which would lead them to decide not to enter into a contract to purchase.
The emails sent from Mr Frankel to Mr Zoellner in the final week of March were relied on by Mr Einfeld QC. However, to my mind, they weaken his case. The most significant is that sent by Mr Frankel on 31 March. This was in an endeavor to convince Mr Zoellner that the price being offered by the plaintiffs was likely to be the best he would get. Numbered items 10 and 11 were as follows: 10. The possibility of the owners of units 3 and 4 dominating the Body Corporate is problematic for a small body corporate, and worrying for a prospective buyer. 11. The requirement of unit 4 to effectively take over the garden, a really special part of the block, is problematic for a prospective buyer.
The email shows that, despite the plaintiffs being aware that there were problems with the proprietor of Unit 4 which might impact on the use of the garden, the plaintiffs were still prepared to purchase Unit 5.
There was a question as to whether any material in the emails between the purchasers and Mr Zoellner could be held to be knowledge of the vendors. Mr Einfeld QC says it is as Mr Zoellner was the vendors' selling agent and, as such, fell within the general principle that 'all knowledge acquired by the agent when acting in the scope of his authority is the knowledge of the principal.' Taylor v Yorkshire Insurance Co Ltd [1913] 2 IR 21 quoted in Bowstead & Reynolds on Agency (16th ed, 1996) at [8-206] in support of the Rules in [8-204] of that work. Bowstead's similar, though not identical statement in the 14th edition was approved by Hutley JA in Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253 at 266.
As Bowstead further reminds at [8-206] there is a presumption that an agent has passed on his knowledge to the principal.
Accordingly, I can look at the emails in an endeavor to find the purchasers' state of mind.
The first of the series of emails is that of 30 March. In it, Mr Frankel says 'we need to see the garden as common property. The garden is a critical part of our interest in the property. Watt (sic) can be done to ensure that it is not sold off from the common property…..'
Later that day, Mr Zoellner informed the purchasers that 'he thinks' as the garden was not included on any other lot entitlement, it is common property.
In exchange of text messages between Mr Zoellner and the proprietor of Unit 4 and the purchasers, information was given to the purchasers that the proprietor of Unit 4 intended to put a gate across the stairs leading to Unit 5, but had no proposal to fence the garden area.
These emails, together with the other evidence, suggest that the garden was one of the key considerations of the purchasers. I include in this assessment the statements in paragraph 45 of Mr Frankel's affidavit and that in paragraph 43 of Ms Rosenfeld's affidavit set out in [17] above. However, the evidence does not, to my mind, indicate that the purchasers' position as at 1 April was that the garden was vital to their purchase.
Accordingly, the plaintiffs have not persuaded me, even on the balance of probabilities, that they would not have bought the unit if the garden was otherwise than as it was as at the date of the contract.
Thus, the claim based on Flight v Booth, fails.

C What was actually sold in the contract?

The contract is in the 2005 edition of the New South Wales standard form. Page 1 provides that the land is Unit 5 in a certain street in Vaucluse and gives the title reference 5/SP13473. The purchase price is $2,100,000 with a deposit of $210,000.
The key provision is that: The vendor sells and the purchaser buys the 'property' for the price under these provisions instead of Schedule 3 Conveyancing Act 1919, subject to any 'legislation' that cannot be excluded.
The words italicized in the above quote are defined terms. 'Property' is defined in Clause 1 as 'the land, the improvements, all fixtures and fittings and the inclusions, but not the exclusions.'
The land is defined on the first page of the document with its address, its title reference being Lot 5 in a particular strata plan.
Clause 23 which applies only if the land is a lot in a strata plan or the like provides that 'common property' includes association property for the scheme or any higher scheme and 'the property' includes any interest in common property for the scheme associated with the lot.
The plan annexed to the contract shows that the common property includes the garden area. .
The only other clauses to which I need refer are 34, dealing with the condition of the property by which the purchasers acknowledge that they have inspected the property and accepted it in its condition and state of repair as at the contract date and that the property is being sold 'as is' and Clause 38 which is written in handwriting: 38. Change to Common Property From the contract date the vendor will not vote in favour or support any change to the common property and the provisions of Clause 23.18 will apply to any general meeting of the owners' corporations convened before completion requiring the vendor to vote in respect of any change to the common property.
The deposit was paid in accordance with Clause 39 of the contract as to 50% upon exchange and then the balance immediately prior to completion. The balance has not yet been paid.
Those provisions then lead to a consideration as to what the contract means by 'any interest in common property'.
The Strata Schemes (Freehold Development) Act, 1973 deals with rights in the common property. Section 18 of that Act which I will subsequently refer to as the Principal Act provides that upon registration of a strata plan: Any common property in that plan vests in the body corporate for the estate or interest evidenced by the folio or the Register comprising the land the subject of that plan but freed and discharged from any mortgage, charge, covenant charge, lease, rent or caveat affecting the land immediately before registration of that plan.
Section 20 of the Principal Act provides that: The estate or interest of a body corporate in common property vested in it or acquired by it shall be held by the body corporate as agent: (a) where the same person or persons is or are the proprietor or proprietors of all the lots … or (b) where different persons are proprietors of each of two or more of the lots the subject of a strata scheme concerned for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots.
Section 24 provides that: 1. In any dealing or caveat relating to a lot, a reference to that lot includes a reference to any estate or interest in common property which is vested in the body corporate as agent for the proprietor of that lot without express reference to the common property and without that dealing or caveat being recorded in the folio of the Register comprising the common property; 2. The beneficial interests of a proprietor of a lot in the estate or interest in the common property, if any, held by the body corporate as agent for that proprietor shall not be capable of being severed from, or dealt with except in conjunction with, the lot.
In Carre v Owners Corporation - Strata Plan 53020 (2003) 58 NSWLR 302 at 310 Barrett J said at [28]: The statute seems clearly enough to proceed on the footing that each proprietor of a lot is to be regarded as the equitable owner of an undivided interest as one of several tenants in common in the estate or interest of which the owners' corporation is the legal owner. That passage was approved by the Court of Appeal in Owners - Strata Plan 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169 at 179 [45] and also in Ridis v Strata Plan 10308 (2005) 63 NSWLR 449.
The position was again considered by the Court of Appeal in Owners - Strata Plan 50276 v Thoo (2013) 17 BPR 33,789; [2013] NSWCA 270. Tobias AJA (who dissented in the result) said at [135], page 33820: The interest of a lot owner as an equitable tenant in common is a product of the statutory provisions concerning the relationship of the owners' corporation to the common property. Because it holds the common property as 'agent' in the manner specified in s20(b) of the 1973 Act, the owners' corporation holds it upon trust for the several lot owners from time to time in proportion to their unit entitlements - albeit on the footing that a lot owner's equitable interest cannot be dealt with except in conjunction with the lot: s24(2). [136]: It is because the owners' corporation holds the common property as trustee under a statutory trust that it is possible to identify the equitable interest in the lot owners in the common property. And it is the owners' corporation's status as trustee that may be regarded as the source of general law duties additional to the statutory duties to which it is subject.
Thus whilst the interests of the lot owners is classed as an equitable fee simple as tenants in common with all the other lot owners, it must be remembered that this is all subject to the statutory scheme so that the rights of the lot owners as equitable tenants in common are to be adjusted accordingly.
Mr Lucarelli says that it must be remembered that the cases to which I have just referred were decided in the area of the responsibility of the body corporate to effect repairs etc and whether an individual lot owner had a right to sue if repairs were not made. There is some validity in that comment, but it would seem to me that the utterances of the Court of Appeal and single judges to the effect that generally speaking the interest in the common property is that of an equitable tenant in common are too strong to distinguish on that ground.
Thus, so far as the contract provided for the purchasers to receive an interest in the common property whilst they get equitable ownership of an undivided share, their actual rights in respect of the day to day use of the common property, including the garden, is limited.
It must be noted that there is nothing in the contract that refers to the use of the garden and there was no promise by estate agent or in advertising material which could have had any contractual effect concerning the garden.

D The Purchasers' rights in the Common Property

There seems to be very little consideration in the texts and cases on Strata Titles as to what precise rights a unitholder has in the common property.
Generally speaking, a person who has an equitable fee simple in land is not, unless the trust is 'at home' or the trust deed confers that right entitled to physical possession of the land, see eg Turner v Noyes (1904) 20 WN (NSW) 266, a decision of A H Simpson CJ in Eq, affirmed by the Full Court and so binding on me. Any action, such as a claim for rent against the tenant, must be brought in the name of the trustee: Schalit v Joseph Nadler Ltd [1933] 2 KB 79.
Mr Einfeld QC and Mr Kerr submitted written submissions based on the English Court of Appeal's decision in Bull v Bull [1955] 1 QB 234 for the proposition that equitable tenants in common have a right to possession in common with their co-owners. Gzell J in Lin v Owners Strata Plan 50276 (2004) 11 BPR 21.463 at [9] and, seemingly, Tobias AJA in Thoo at [143] accepted this proposition. However, with respect, that is the result of a misreading of Bull. The English Court of Appeal merely said that because in England legal tenancy in common was abolished and nowadays tenants in common hold equitable interests behind a statutory trust, they now must hold the same rights as they did before the 'reform'. NSW has not introduced that 'reform'. In NSW, an equitable tenant in common does not have a right of possession unless that right is specially conferred.
In NSW, a unitholder's right to use and enjoy the common property derives from his or her rights as an equitable owner or such rights as modified by the 1973 Act or the Strata Schemes Management Act, 1996 (the 1996 Act) or perhaps merely as granted expressly or by implication by the 1973 and 1996 Acts.
The 1996 Act makes some particular provision for the By-laws or resolutions of the Body Corporate to grant exclusive rights over the common property. Subject to the Act and By-laws and such resolutions, it would appear that each unitholder has at least a license to use and enjoy the whole of the common property in common with all other unitholders.
Considerable problems may emerge when one is endeavoring to be more precise about the extent of the license. Can a unitholder place a child's swing or a small bed of carrots on common property without a resolution? I do not have to address those sorts of problems in this judgment.
Section 117(1)(b) of the 1996 Act provides that an owner or occupier of a lot must not: use or enjoy the common property in such a manner or for such a purpose as to interfere unreasonably with the use or enjoyment of the common property by the occupier of any other lot…
The wording of that provision assumes that each owner or occupier has a right to use and enjoy the common property. The word 'occupier' shows that it is not a property right attached to the equitable fee simple, but an implied statutory right. In Platt v Ciriello [1998] 2 Qd R 417 the majority, McPherson JA and Ambrose J took this view, but Pincus JA disagreed and Gzell J in Lim shared the view of Pincus JA (see Lim [33]) that no such right can be implied from the Queensland equivalent provision. I would follow the majority in Platt, both because that is the right approach to take of the decision of an interstate Court of Appeal, but also because it seems to me to be correct.
Platt v Ciriello is also authority for the proposition that the Body Corporate cannot completely remove the right of a lot owner to use and enjoy the common property.
Schedule 1 to the Strata Schemes Management Act, 1996 contains several by-laws which deal with use of the common property. By-laws 1-4 are as follows: 1 Noise An owner or occupier of a lot must not create any noise on the parcel likely to interfere with the peaceful enjoyment of the owner or occupier of another lot or of any person lawfully using common property. 2 Vehicles An owner or occupier of a lot must not park or stand any motor or other vehicle on common property except with the written approval of the owners corporation. 3 Obstruction of common property An owner or occupier of a lot must not obstruct lawful use of common property by any person. 4 Damage to lawns and plants on common property An owner or occupier of a lot must not: (a) damage any lawn, garden, tree, shrub, plant or flower being part of or situated on common property, or (b) use for his or her own purposes as a garden any portion of the common property.
If a unitholder appropriates to himself or herself part of the common property, the Body Corporate may take action to restore the common property. It may well be under a fiduciary obligation to do so, as it needs to hold the scales equally among the equitable interests of the unitholders.
Thus, in principle, the mere fact that a unitholder has unilaterally appropriated part of the common property is not of major concern as the appropriation can be reversed. I say 'in principle' because, if the purchasers' fears are correct that the Body Corporate may be dominated by aggressive people who will not support them, they will be forced themselves either to take action before the Strata Titles Commissioner or in the Court.
These matters are relevant as to whether it can be said that there is a substantial deficiency between what was contracted for and what will be supplied when the transfer is registered.
In my view these factors show that there is no substantial misdescription. However, it may be that specific performance might only have been granted with compensation. However, neither party seeks that result.

E Are the alleged defect, defects of title or defects of quality and does it matter?

Mr Lucarelli made a substantial submission that the alleged defects claimed by the purchasers were merely defects in quality and thus not substantial defects
One often has difficulties in deciding which side of the line a defect falls. In the instant case it does not matter as the authorities make it clear that, in the appropriate case, the principle of Flight v Booth can apply to both.

F Vacant Possession

The contract in Clause 17 requires the vendors to give the purchasers vacant possession on completion. Mr Einfeld QC submits that, because of the problems with the present state of the garden, the vendors cannot provide vacant possession.
The ordinary meaning of the words 'vacant possession' in vendor and purchaser law is that, on completion, the purchaser is entitled not only to have the property free from occupation of other people, but also that there is no substantial impediment to the enjoyment of possession by the vendor leaving a substantial physical impediment, such as junk or rubbish, see Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264.
Mr Einfeld QC submits that the purchasers were entitled to be excluded from the unfettered use of the common property by other owners.
The first problem with this is whether the purchasers' rights extended to vacant possession of the common property. The argument for the affirmative view is that the interest in the common property was part of the property sold. The negative view is that it is impossible to give vacant possession of a piece of property which is shared with others, or to which one has no rights to possession.
There is no authority on the point. However, in my view the latter proposition is logically correct.
If this is correct, there is no substance in the plaintiffs' case on this point.
If it is wrong, then the fact that the impediment to vacant possession is a result of activity or occupation by a third party or that the purchasers would be able to remove the impediment, are no answers to the claim that the vendors are unable to give vacant possession, see Cumberland Consolidated Holdings at 270-1.
The test seems to be whether the purchasers could occupy every substantial part of the property sold under the contract. If this is not able to be done even because of some government interference, vacant possession cannot be given (see eg Cook v Taylor [1942] Ch 349). However, the interference with the right to occupy must itself be substantial, as the various cases show where the complaint was that rubbish was left on the land (see eg Hynes v Vaughan (1985) 50 P & CR 444).
In my view, the restriction imposed by the activity alleged to be the result of the activities of the proprietor of Unit 4, does not result in there being a substantial prevention of occupation by the purchasers of a substantial part of the property.
Thus, the plaintiffs' case on this point fails.

G Section 66M of the Conveyancing Act

Section 66M (1) of the Conveyancing Act, 1919 provides: Where land is damaged after the making of a contract for the sale of the land and before the risk of the damage passes to the purchaser, the purchase price shall be reduced on completion of the sale to such amount as is just and equitable in the circumstances.
Mr Einfeld QC puts that 'land' in section 66M includes the purchasers' interest in the common property. Further, he notes that section 66J of the Act provides that 'damage' includes 'destruction'. He submits that the land (or part of it) has suffered damage because of the fencing in and other activities of the proprietor of Unit 4 of the garden area.
The basal submission here is that 'damage' includes all interferences with the rights of the purchaser over the land. I do not accept that view. The purpose of sections 66L and 66M was to reverse the common law position as to the passing of risk where there was physical damage to the property. I accept that that physical damage could have been caused by natural forces or by malicious or accidental human action.
I have some doubts as to whether damage is restricted to physical damage, as resumption of the whole or part of the property may be covered, as that is a situation close to destruction. However, the (assumedly) unauthorized activity of a unitholder on the common property which restricts the use of that property by other unitholders, is to my mind, outside the definition. That is a matter for the Body Corporate or the Strata Titles adjudication process to settle.
Mr Einfeld QC submits that as the Notice to Complete required payment of the full purchase price, if section 66M applies, it must be invalid. Although there is no need to consider the validity of the notice to complete in this case, I must not be taken to have assented to that proposition.

H Are the plaintiffs entitled to return of the deposit?

The claim is made both under the general law and under section 55(2A) of the Conveyancing Act, 1919.
The state of the contract is that the vendors say the contract is on foot and that they want it to be specifically enforced. The purchasers also say that the contract remains on foot, but that they are not required to perform it. For some unknown reason, they have not purported to terminate it.
Thus, it is premature to consider whether the deposit is repayable under the general law. As will be seen, I consider that I should make an order for specific performance, section 55(2A) of the Conveyancing Act again does not justify return of the deposit.

I The Cross Claim for Specific Performance

Mr Einfeld QC virtually conceded that if his case failed, the cross claim must succeed. However, depending on my findings, it may be that conditions should be attached to the order. I was asked by both sides and I agree that the sensible course is for me to publish these reasons and then stand the matter over for a short time for short minutes to be brought in. I will do so.

J The result of the case

The result is that the plaintiffs' case must be dismissed with costs and that an order for specific performance should be made on the cross-claim with costs
The only order I make at this stage is to stand the matter over for short minutes to be brought in on a convenient date to counsel next week.

Amendments 21 September 2015 - Grammatical and typographical errors amended 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. Decision last updated: 21 September 2015

Strata Schemes (Freehold Development) Act 1973(NSW)

Strata Schemes Management Act 1996(NSW)

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