HARDY & ANOR v. WARDY [2001] NSWSC 1141

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J. WEDNESDAY 12 DECEMBER 2001 3936 OF 2000 GAVAN HARDY & MOTOR DIRECT PTY LTD v. EDMOND WARDY JUDGMENT 1 HIS HONOUR: On 26 March 2001, for reasons published on 21 March 2001, I made an order for specific performance by the defendant of an agreement for sale of land arising on exercise of an option to purchase in a lease. The property is the two-storey building being warehouse and offices at 76 Mitchell Road, Alexandria, on which the first plaintiff Mr Gavan Hardy, the lessee in the lease, conducts an auction business, and is part of the land in Folio Identifier 1/81844. In accordance with the order for specific performance the defendant as vendor entered into a contract dated 9 April 2001 for sale of the land to the second plaintiff Motor Direct Pty Ltd as purchaser, thus giving effect to a sub-sale by Mr Hardy to Motor Direct. 2 Motor Direct applied to the Court by Notice of Motion, now Amended Notice of Motion of 23 October 2001 for orders and directions dealing in detail with specific performance including an order requiring Mr Wardy to provide information about the state of outstanding work required to effect the subdivision, and many other directions controlling in detail Mr Wardy's conduct so as to bring about completion of the contract. Mr Wardy's counsel applied orally for leave of the Court to rescind the contract under cl 28 as the plan of subdivision was not registered within six months of the contract and has not yet been registered. These reasons deal with Mr Wardy's application. After an order for specific performance Mr Wardy is not in a position to rescind the contract except under the Court's direction: see Sunbird Plaza Pty Ltd v. Maloney (1988) 166 CLR 245 at 260. In his application for leave to rescind Mr Wardy has the onus of proving that he performed the condition in cl 28.2. 3 The land sold was described as Lot 101 in an unregistered plan a copy which was attached to the contract. The unregistered plan is in a form appropriate for a draft deposited plan, and would divide the land in the Certificate of Title into Lot 101, the land sold, and Lot 100 which the defendant would retain. Thus the defendant was committed to taking up and completing a project for subdivision of the land. The defendant had an earlier project for subdividing the land in this way, as was necessary to give full effect to the long-term lease granted to Mr Hardy, and made a subdivision application in 1995; that project however was not completed as the defendant did not comply with conditions, including a condition requiring him to comply with the requirements of Sydney Water and a condition of approval requiring bricking-up apertures between the buildings on the two lots. In June 1995 the defendant obtained a "Notice of Requirements" from Sydney Water which showed that Sydney Water then required that the two subdivided lots should each have separate sewer connections. This earlier experience meant that subdividing the land into two lots was a task with the practicalities of which the defendant had reason to be familiar, although in the intervening years there had been legislative changes so that a subdivision application made in 2001 was not simply a repetition of the earlier application. 4 The unregistered plan annexed to the contract made provision to create an easement for drainage of sewerage 1.5m wide over an existing line of pipes from the rear line of Lot 100 along the rear line of Lot 101 to reach Fountain Street. Sewer pipes already existing and connecting the building which the defendant was to retain with Sydney Water Corporation's sewerage service ran through the proposed easement. That is to say, the plan provided for Motor Direct to grant an easement back to Mr Wardy with the effect that he could continue to use the existing sewer pipes. Of course, this provision on the plan gave no guarantee or assurance to Mr Wardy that South Sydney City Council, whose consent to subdivision was necessary, would accept an arrangement in which sewer service to the land retained depended only upon a private easement across other privately owned land. Even before exchange of contracts Mr Sullivan, a solicitor of the firm which then represented the plaintiffs, told Mr Ajaka, the solicitor who then represented the defendant, that there was a potential problem with water and sewer connections: it is clear that Mr Sullivan, whose evidence was supported by his contemporaneous note, made this observation, and it should not be found that in the circumstances it could have been thought to be said lightly or as a joke. The possibility that public authorities might well require a direct sewer connection, as they had in 1995 was obvious from the first. 5 Sections 69 to 74 of the Sydney Water Act 1994 relate to Compliance Certificates, commonly called s 73 certificates. A Compliance Certificate certifies that the requirements of the Corporation in relation to a development have been complied with; see more fully the provisions of s 70. By s 71 with the definition of "approval" in s 69 it may be a condition of a Development Consent that a Compliance Certificate be obtained from Sydney Water; and Sydney Water may issue guidelines relating to the imposition of conditions. 6 It was a fair certainty that South Sydney City Council would, as it later did, make it a condition of subdivision approval that a certificate from Sydney Water be obtained under s 73 of the Sydney Water Act, as that would establish that Sydney Water was satisfied with the arrangements for sewerage service; so the parties could not arrange between themselves that the existing pipes and the private easement would be the only sewerage service that the retained land would have. (They did not purport to make any such arrangement merely by providing for a private easement on the unregistered plan.) It was also a fair certainty that Sydney Water would require separate sewer connections, as they had in 1995 and as was their usual approach to such questions. 7 Clause 28 of the Contract of Sale followed a standard form in the 2000 Copyright contract form of the Law Society of New South Wales and the Real Estate Institute of New South Wales, with provision for registration within six months. Clause 28 was in these terms: 28 Unregistered plan 28.1 This clause applies only if some of the land is described as a lot in an unregistered plan 28.2 The vendor must do everything reasonable to have the plan registered within 6 months after the contract date, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation . 28.3 If the plan is not registered within that time and in that manner - 28.3.1 the purchaser can rescind ; and 28.3.2 the vendor can rescind , but only if the vendor has complied with clause 28.2 28.4 Either party can serve notice of the registration of the plan and every relevant lot and plan number. 28.5 The completion date becomes the later of the completion date and 21 days after service of the notice. 28.6 Clauses 28.2 and 28.3 apply to a plan that is to be registered before the plan is registered. 8 It will be seen that under cl 28.2 it is a contractual obligation of the vendor, expressed in imperative terms, to do everything reasonable to have the plan registered within six months. The effect of this is that if some step is reasonable and is necessary for registration within six months the vendor must take that step; the obligation is not that the vendor must do everything reasonable to take the step. The vendor's personal circumstances, knowledge of or ignorance of what is required, reliance on servants, agents or independent contractors, and the skill, knowledge and assiduity of any such agents are all irrelevant to the vendor's obligations; if a step is reasonable, the vendor must take it. My view of the meaning of cl 28.2 is produced by the express terms of the clause, and is reinforced by the consideration that if cl 28.2 is complied with, compliance can work adversely to the purchaser, who has no control over or influence on what the vendor does, or on the vendor's selection of courses to follow or selection of servants agents or contractors, and has no control over the conduct or effectiveness of any such agents, but is bound by the vendor's decision if the vendor rescinds after compliance. The only protection the purchaser has against rescission is the stringency of the condition which the vendor must fulfil if he is to have a right to rescind. It would be inconsistent not only with the express terms of cl 28.2 but also with the purpose of cl 28 as a whole if inefficient or ineffective measures by the vendor or someone by whom the vendor acted could contribute to the vendor's gaining a right to rescind. 9 Counsel referred me to observations of Hodgson CJ in Eq in Masters v. Belpate Pty Ltd (2001) 10 bpr 18,527at paras 60-65 in which his Honour expressed (para 63) disagreement with a view I expressed in Hawes v. Cuzeno Pty Ltd (1999) 10 BPR 18,011 at paras 28-29 and said: [64] However, there are other matters which may be considered matters of specialist expertise, which a developer would normally leave to an architect, engineer or builder: to an architect, the drawing of plans and supervision of building works to an engineer, similar tasks; and to a builder, actual execution of the work. In those matters, in my opinion the independent contractors should not be regarded as agents of the developer in carrying out the developer's role in obtaining registration of the strata plan. Accordingly, delays attributable to independent contractors in carrying out those tasks would not ipso facto involve a breach of the vendor's obligation. Thus, where a builder caused delay by walking off the site because of problems the builder had which were unrelated to the job, that was not considered a breach of the vendor's obligation: Woodcock v. Parlby Investments Pty Ltd (1998) 4 BPR 9568. [65] However, even where delay arises from the conduct of independent contractors in carrying out matters of specialist expertise, there may be associated breaches by the vendor/developer itself, for example in selection of the contractors, in provision of instruction and information, in monitoring progress, and/or in failing to replace the specialist expert when this should have been done. 10 Clause 28.3.2, which makes the vendor's right to rescind conditional on the vendor's having complied with cl 28.2, deals expressly with a subject which courts had considered before cl 28.3.2 or clauses to similar effect appeared in standard forms of contract. Agreements for sale of home units "off the plan" before construction have incorporated clauses similar in effect to cl 28 dealing with sales of lots in unregistered plans of subdivision. The vendor has control over or the opportunity to influence the steps which it is necessary to take between selling a home unit off the plan and obtaining registration of the plan, including the building work, preparing the strata plan, obtaining local government approval and formal steps recording the approval and registering the plan. The purchaser has no opportunity to influence these and may well feel dissatisfied if the contractual time for them passes and the vendor rescinds. In Woodcock v. Parlby Investments Pty Ltd (1988) 4 BPR 9568 Young J said, at 9571 "Special Conditions like 26 are usually construed as subject to the circumstance that only a party who is not at fault can rely on the condition." Special Condition 26 entitled either party to rescind if the strata plan was not registered by a stated date. The vendor in that case gave no express contractual promise that the plan would be registered or that all things necessary for registration would be done; and the vendor's right of rescission was not expressly made conditional on performance of any such promise, so the contract was significantly different in its terms from contracts incorporating cl 28. 11 Young J at 9571-9572 reviewed the origin and workings of the approach to construction of which his Honour spoke and showed that there was no case where the fault of an independent contractor of the vendor had been held to be the fault of the vendor, or had been held to disentitle the vendor from relying on such a condition. His Honour also examined the Recklessness Principle, in which entering into a contract with an inappropriately short time for registration or otherwise for availability of the right to rescind has been treated as fault of the vendor. As Young J said, "The precise legal analysis behind this proposition is obscure". I would think that in most contracts the inability of the vendor to rescind where the vendor was at fault would be attributable to necessary implication, as there would be an element of absurdity in the vendor's having an opportunity to rescind unless the vendor had acted reasonably; without the implication, the vendor could escape his obligations so easily that only the purchaser's obligations would have any real meaning and the contract would only have a bilateral character only in appearance. The principle is probably the same principle, or is closely related to the principle by which an obligation is implied to do all such things as are necessary on the part of one contracting party to enable the other party to have the contemplated benefit of the contract, and a negative covenant is implied not to hinder or prevent the fulfilment of the purpose of express promises: see Peters (WA) Ltd v. Petersville Ltd (2001) 75 ALJR 1385 at 1393 and authorities at notes 52 and 53. An express contractual provision such as cl 28 obviates implications dealing with the same subject. 12 The principle was examined in Plumor Pty Ltd v. Handley (1996) 41 NSWLR 30 (McLelland CJ in Eq) at 34; his Honour stated the principle as being "… that a party to a contract is not entitled, as against the other party, to rely on an event resulting from the first party's wrongful act." and gave further references to authority. McLelland CJ in Eq applied the principle in Hunyor v. Tilelli (1997) 8 BPR 15,629, a case which related to purported rescission by the vendor of an agreement for sale of a home unit "off the plan"; the rescission was not effective because the strata plan was not ready within time because of events, considered at length by his Honour, for which the vendor was responsible. It does not appear that McLelland CJ in Eq treated delay arising from the acts of an independent contractor as delay from the effects of which the vendor was exempt. 13 In Masters v. Belpate the contract, as in Hawes v. Cuzeno but unlike other cases which I have mentioned, contained a printed condition A6.1 which while not in the same terms as condition 28 was to a generally similar effect, except that it did not contain a provision corresponding with cl 28.3.2 making the vendor's right to rescind dependent upon the vendor's having done everything reasonably necessary; that was left to implication and, as my decision in Hawes v. Cuzeno para [9] shows, implication is sufficient. 14 Hodgson CJ in Eq's view in which, according to circumstances, the vendor has no responsibility or has qualified responsibility for delays resulting from wrongful conduct of contractors does not accord with my own view in Hawes v. Cuzeno. The qualification relating to delays attributable to independent contractors was treated by Young J and by McLelland CJ in Eq. as available where the obligation of the vendor which it qualified rested on general principle: in my opinion there is no room for the general principle or the qualification to operate where the parties' agreement expressly and explicitly states what the vendor's obligation is. Clause 28.2 is in very similar terms, although not identical with printed cl A6.1 under consideration in Hawes v. Cuzeno. In my respectful opinion it is even clearer in relation to cl 28 including cl 28.3.2 than it was in relation to cl A.6 of the earlier standard form that it is the vendor's obligation to do everything reasonable to have the plan registered, and if that obligation is not complied with the vendor is not excused by showing that the non-compliance arises from some failure of an independent contractor. The principle in Woodcock v. Parlby Investments has been regarded as involving an exemption in respect of failure of some person other than the vendor himself. It is not that principle which applies in the present case but the plainly expressed meaning of cl 28; doing everything reasonable to have the plan registered is something which the vendor has expressly promised to do and must do, and he must do it whether he does it himself or by the agency of someone else. I adhere to the views which I expressed in Hawes v. Cuzeno and have sought to explain again. 15 A necessary step towards registration of the plan was that Mr Wardy should apply for and obtain Development Consent to the subdivision as development. Mr Wardy did not conduct affairs himself but gave authority to his son Mr John Wardy to conduct the business on his behalf; and Mr John Wardy did. On 26 March 2001 he wrote a letter to Mr Paul Wild the principal of Max Braid Surveyors Pty Ltd of Glebe, setting out the terms of his appointment to supply land surveying services relating to the subdivision. The services were described at length and included preparing the plan of subdivision and s 88B Instruments, preparing a development application, reviewing and advising on conditions imposed by Council on the Development Consent, and the following commission in para 6 of the letter: 6. Consult with and ascertain the requirements of public authorities (Sydney Water, Energy Australia, Sydney Water, Energy Australia, ) in relation to Services Mains currently serving the land and their requirements to approve the proposed subdivision. (unless we advise you that we have appointed a specialist consultant who will be instructed to issue to you all necessary documents to be included in application for subdivision). 16 The statement of the work commissioned went on and included preparing an application for subdivision certificate and submitting the certificate and linen plan to South Sydney City Council, obtaining executed plan and documents and lodging for registration, answering requisitions and other ancillary tasks. Some of this work had already been undertaken as the unregistered plan of subdivision was available for annexure to the contract when exchanged soon afterwards. 17 The Development Application for consent to the subdivision was lodged with South Sydney City Council on 12 April 2001. Mr John Wardy did not do anything to make the application progress. Mr Wild made inquiries investigating the progress of the application with the Council on 4 and 8 May, and Council responded by a letter dated 11 May and received by Mr Wild on 16 May, which said: Whilst assessing the application for subdivision for the abovementioned property, it has come to Council's attention that the tenant of No.76 Mitchell Road, Gavin Hardy Auctions, appears to have contravened conditions (2) and (3) of their development consent (reference No. U95-00438 copy attached). These conditions require the provision of parking for that use on the adjoining site at 101-103 Belmont Street. That site has since been redeveloped for residential purposes and the required area for car parking lost. Your tenant has been requested to inform Council of how his company intends to provide the required parking. Until such time as this parking matter is resolved, the subdivision application will not be finalised. Should you have any enquiries on this matter, please contact Mrs C Edney on 92885271. 18 So far as evidence goes Mr Wild did nothing to challenge or seek further consideration of the statement that the subdivision application would not be finalised until contravention of the Development Consent relating to providing parking had been resolved. Nor did Mr John Wardy. Obviously enough it was a reasonable course and well available to point out to the Council's Area Planning Manager that the fact that a tenant of part of the land to be subdivided had not complied with a condition of a Development Consent relating to use of that part was not a reason for not attending to an application to approve a subdivision made by the owner of a larger piece of land. Eventually Council officers came to see that this was so, because a Development Consent was in fact given by determination dated 19 June 2001, which approved the subdivision subject to a number of conditions one of which was obtaining a Compliance Certificate or s 73 Certificate from Sydney Water. Mr John Wardy was advised of the Development Consent by Mr Wild on 22 June. 19 The only relevant attention given on behalf of the defendant to Council's letter of 11 May which appears from evidence is that his then solicitor Mr Ajaka sent a copy on to the then solicitors for the plaintiff asking for Mr Gavan Hardy's response and saying "As you can appreciate my client is not in a position to respond to the matters raised in the said letter without obtaining a detailed response from Mr Hardy." This was altogether incorrect as, while it was in point to bring the difficulty to Mr Hardy's attention, there were other means of overcoming the problem. On 4 June 2001 Motor Direct wrote to the Council (Exhibit 1 Tab I) giving an undertaking about steps which Motor Direct would take, after completion of the sale, to resolve the parking issue including, as one alternative, evicting Mr Hardy. The letter also said "Mr Wardy does not wish to sell the land and is likely to delay the subdivision if at all possible." and sought Council's urgent attention due to the contractual time restraint. 20 Ms Christine Edney, a Statutory Planner employed by South Sydney Council, processed or took part in processing the application. She was absent on leave for some time and the Development Consent was given while she was absent, but she returned from leave on 26 June, and on the day of her return received a telephone call from Mr John Wardy. Mr John Wardy inquired why Council had issued its consent given its earlier letter as to non-compliance with parking conditions. He asked Ms Edney whether there had been any objections raised and whether there had been any notification of the application. He spoke very loudly and his manner indicated to her that he was upset at the Development Consent having been issued without the parking conditions being complied with; he spoke so loudly that he had to hold the telephone away from her ear. 21 Plainly Council's giving the Development Consent without delay until the parking condition was complied with was a disappointment to Mr John Wardy, from which it can readily be inferred that he had done nothing to bring about the issue of the consent in the face of the letter of 11 May, and indeed no evidence suggests that he had done anything, the burden of proof that the defendant did everything reasonable being on the defendant. 22 In my finding the defendant was in breach of cl 28.2 in not taking any action to resolve the delay imposed by the last words of the Council's letter of 11 May, and in leaving any significant action in that regard to Motor Direct. It is probable that this breach contributed, in some degree which cannot be clearly assessed, to delay in determining the development application; however it is the defendant's not doing everything reasonable, not the consequent delay, which constitutes failure to comply with cl 28.2. 23 Conditions imposed by Council in its Development Consent included, relevantly, conditions requiring brickwork on the site, which Mr John Wardy engaged contractors to attend to, and a condition requiring a Compliance Certificate under s 73 to be obtained with Sydney Water. The brickwork was completed and a Compliance Certificate relating to it was issued by South Sydney City Council on 13 August 2001. Mr Wild lodged an application for s 73 Certificate with Sydney Water on 3 July and Sydney Water responded by a letter dated 20 July 2001 setting out its requirements for a s 73 Certificate, including a requirement which had the effect that a direct sewerage service between the land retained and Sydney Water's sewerage service in Mitchell Road Alexandria had to be constructed, because reliance on the private easement was not acceptable to Sydney Water. Mr Wild received this letter on 24 July, then sought and ascertained a list of accredited and approved project managers (and Sydney Water required that such a project manager be engaged), contacted Mr Michael Bell and on 27 July accepted his quote as project manager for design and tender to meet Sydney Water's requirements. This led to a quote dated 3 September being obtained from E & M plumbing and accepted on 6 September. Work proceeded, and was still proceeding during the hearing of the Notice of Motion before me on 8 and 9 November, that is about a month after the expiry of the period of six months referred to in cl 28. 24 Although it is a matter for decision by Sydney Water, in relation to each particular application, whether a private easement is acceptable or whether a direct connection will be required before a Compliance Certificate is issued for a subdivision, Sydney Water has long-standing practices, which were known to developers and others such as surveyors and engineers conducting development work, although they were not collected together and recorded in writing until a little later in the present year than Sydney Water's letter of 20 July 2001. The considerations to which regard was paid when Sydney Water was asked to accept a private easement were fairly well settled and included readiness to consider extraordinarily large expense occasioned by requiring a direct connection. Practices existed also in which an informal and, I take it, non-binding indication of what would probably be required could be obtained by inquiry at the counter at Sydney Water's office, and a more formal procedure, called an application for a "Notice Pending", existed under which the requirements of Sydney Water could be ascertained and stated in answer to a preliminary application made before Development Consent for a subdivision was obtained from the town planning authority. That is to say, procedures existed, including the "Notice Pending" procedure, under which Sydney Water's requirements for a particular proposed subdivision could be ascertained with fair certainty while a development application relating to a subdivision was still under consideration by the town planning authority, thus obviating delay arising from initiating Sydney Water's consideration with a formal application for a Compliance Certificate under s 73 only after a Development Consent requiring a s 73 Certificate had been given. Mr Wild did not know of these procedures, and did not contact Sydney Water or do anything to ascertain its requirements until after he learnt of the Development Consent. If Mr Wild had made inquiries of Sydney Water at about the time the Development Application was lodged, he would by the time the Development Consent was given have ascertained what Sydney Water would require, including its requirement to engage an approved project manager for design and tender. 25 Of course knowledge of the practices of Sydney Water is not universal and advantage can only be taken of measures for saving time by those who know of those practices, and Mr Wild did not. This is not reprehensible or even unusual in respect of a surveyor in practice handling work of the scale which he was accustomed to handle; surveyors who did not deal in large developments or multiple subdivisions and from time to time conducted two-lot or other small subdivisions would not usually be aware of Sydney Water's practices, although they could find out about them by inquiry, a readily available measure. On the view which I take of the obligation in cl 28.2, the personal circumstances and state of knowledge of Mr Wild, and for that matter of Mr Edmond Wardy and Mr John Wardy, do not establish what it is reasonable to do; there is an express contractual obligation that the vendor must do everything reasonable to have the plan registered within six months, there was a fair certainty (as Mr Wild must have known) that a Compliance Certificate under s 73 would be required, and an early inquiry of Sydney Water to find out whether Sydney Water's requirements could be considered before the Development Consent was available, and what they would be, was an obvious and simple measure which a person under the obligation of cl 28.2 should have taken. Further Mr Wild's commissioning letter expressly required him to consult with and ascertain the requirements of public authorities including Sydney Water and Sydney Water's requirements to approve the proposed subdivision. Inclusion of this provision in his commissioning letter shows clearly that the need to make such inquiries was seen from the first and, that being so, it was reasonable actually to make them. 26 For these reasons it should in my view be concluded that, even by the time the Development Consent determination was made on 19 June, there had been significant failures to comply with cl 28.2. Further, if relevant, those failures plainly had an adverse impact on the prospects of having the plan registered within six months after the contract date. In my view other delays in obtaining the s 73 Certificate and in entering into a contract with the plumbing firm are not adequately explained, but the breaches I have found are sufficient to establish unavailability of reliance by the defendant on its right of rescission. 27 Considerable attention was given at the hearing to evidence relating to what were put forward by Motor Direct as active measures taken on behalf of Mr Wardy to delay progress of work and registration of the plan. In my view it is quite clearly established that Mr John Wardy regarded disposition of the development application by South Sydney City Council as early as it was as a disappointment and a matter of complaint. There are signs of other action, less plainly connected by evidence with the defendant but, as a matter of probability, fairly certainly inspired by him in some way. Mr Perry, a principal of Silver & Co Real Estate, who were agents for the defendant in relation to the lease, met Mr John Bush a South Sydney Councillor and told him to the effect that he wanted to find out whether there was any way the application could be slowed down by the Council and said to the effect that it was in Mr Wardy's interest to have the processing of the application delayed. Mr Perry gave a different account of the meeting and what was said, and explained the circumstances which led him to see Mr Bush at all in terms which if true would show that he was not deliberately acting with a view to delaying progress of the subdivision in the interest of Mr Wardy. Mr Bush's evidence was so clear and evidently sincere, and the elements of the fantastic in Mr Perry's narration of the circumstances were so strange that I have no hesitation in accepting what Mr Bush said and in concluding that measures were being taken in the interest of Mr Wardy directed at delaying progress of the subdivision. As it is plain that the value of the property has risen and the price established by the option in the lease does not represent the present value for the property, a probable motive for resisting carrying out the sale and, as means thereto, resisting the timely success of the subdivision application is obvious. However the defendant fails not because of motive or purpose, but because the conduct of the subdivision application overall has involved failures to comply with cl 28.2. 28 For these reasons the defendant is not entitled to rescind and should not be given leave to do so. I propose to attend in detail to the plaintiff's application for directions relating to Specific Performance.

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