HARVEY FIELDS PRIVATE ESTATES PTY LTD -v- 33 MALCOLM STREET PTY LTD [2012] WASC 218 (22 June 2012)

Supreme Court of WA|2012-06-22|Before: Martin J

1 These two actions concern long term 'offtheplans' purchases of strata lots within the meaning of the Strata Titles Act 1985 (WA) (the STA). In both actions, the plaintiff Purchasers (Harvey Fields Private Estates Pty Ltd (Harvey Fields) and Birdwalk Investments Pty Ltd (Birdwalk)) issued notices of avoidance to the same Vendor (the defendant, 33 Malcolm Street Pty Ltd), pursuant to s 69D of the STA in September 2010. They contend that their obligation to settle has, as a result, been ended.

2 The Vendor contends the Purchasers' notices of avoidance are of no moment. It says that each Purchaser was required to settle in September 2010 and has repudiated that obligation by failing to do so. As a consequence the Vendor seeks damages by counterclaim against both Purchasers.

4 In both actions, the Purchasers contracted to acquire offtheplans strata lots proposed to be built as part of a new multistorey residential apartment building at 33 Malcolm Street, West Perth, on the western fringe of the CBD. The Vendor takes its name from that location. The proposed building was to be known as 'Scene Apartments'. As events unfolded, the construction process for the apartment building spanned a period of over 2½ years from the date of entry into the contracts of sale.

5 In CIV 1546 of 2011, the Purchaser is Harvey Fields. It committed to acquire apartment 42 in the Scene Apartments building once it was built, under an offer and acceptance strata title contract accepted by the Vendor on 21 January 2008 (exhibit 1, pp 112 217). The nominated purchase price was $2,140,000. Settlement on acquisition of apartment 42 was to be after the registration of the building's strata plan, enabling separate certificates of title to be issued for the apartments (also known as 'lots') in the strata development.

6 According to draft floor plans forming part of the draft proposed strata plan (and incorporated as an attachment in the contract of sale), apartment 42 was to have an area of 145m2 as a two level apartment occupying areas across levels 6 and 7 in the Scene Apartments building once completed, along with 32m2 comprising a car bay and storage area, for a total of 177m2 (see annexure D - appendix 2 found in exhibit 1 at pp 163 174).

7 In CIV 1547 of 2011, the plaintiff Purchaser is Birdwalk. It committed to acquire apartment 36 within the proposed Scene Apartments building by a strata title contract accepted by the Vendor on 31 December 2007 (see exhibit 2, pp 329 438). The nominated purchase price was $1,100,000. There were similar arrangements concerning settlement after completion of the building and the issue of a separate certificate of title for this apartment.

8 Apartment 36 was to be situated on level 5 of the Scene Apartments building. The draft proposed strata plan incorporated within the Birdwalk contract documentation showed proposed apartment 36 as occupying a total area of 123m2, including the car bay and storage area (see exhibit 2, p 393).

9 Annexures to each contract of sale included lengthy boilerplate special conditions, general conditions, floor plans and seven appendices within annexure D relating to obligations and matters associated with the requirements of the STA, plus annexures E, F and G. These annexures were vendorprepared standard form documentation in each contract of sale. There is no substantive difference in content of this material as between the Birdwalk and Harvey Fields contracts of sale.

10 The Harvey Fields and Birdwalk contracts of sale were explicit as to the proposed 'unit entitlement' tied to each strata apartment that was to be constructed. For strata lots the statutory concept of 'unit entitlement' is important. The term is defined within s 3 of the STA. The implications of a notified reduction by the Vendor of each Purchaser's unit entitlement is a central feature of these actions.

11 Section 3(1) of the STA defines 'unit entitlement', unless the contrary intention appears in the Act. 'Unit entitlement'

in respect of a lot, means the unit entitlement of that lot shown on the schedule of unit entitlement registered with the Registrar of Titles.

12 Section 5 of the STA, as regards the strata plan, relevantly provides:

(a) consist of a location plan and a floor plan in respect of the parcel;

...

(c) be accompanied by a schedule specifying, in a whole number, the proposed unit entitlement in respect of each lot into which the parcel is to be subdivided and specifying also the proposed aggregate unit entitlement.

(My emphasis in bold)

13 Section 14 of the STA provides:

The unit entitlement of a lot, as stated in the schedule referred to in section 5, determines -

(a) the voting rights of a proprietor;

(b) the quantum of the undivided share of each proprietor in the common property; and

(c) subject to subsection (1)(c)(ii) of section 36, the proportion payable by each proprietor of contributions levied under that section.

14 The proposed unit entitlement of a lot within a strata plan, as well as aggregate unit entitlement, is 'notifiable information' a vendor must provide to a purchaser pursuant to s 69A(c) of the STA.

15 Section 69(2) allows a vendor to provide the notifiable information by (as happened in this case) ensuring it forms part of the contract of sale: see s 69(2)(b).

16 For apartment 42, Harvey Fields was notified by the Vendor of an indicative unit entitlement of 51 units in its contract of sale. This unit entitlement was out of an aggregate of 1,000 units which were allocated across the lots in the Scene Apartments building (i.e. allocated across the 42 proposed lots). Expressed as a percentage, Harvey Fields was, in effect, told by the Vendor in January 2008 that apartment 42 would carry 5.1% of the Scene Apartments building's aggregate unit entitlement (see exhibit 1, p 175).

17 Birdwalk's apartment 36 was the subject of notifiable information in December 2007, when the Vendor advised Birdwalk (by annexure D to its contract of sale) of an indicative unit entitlement of 26 units out of the 1,000 unit aggregate or, expressed as a percentage, 2.6% of the building's aggregate unit entitlement (see exhibit 2, p 396).

18 A controversy arising in both actions concerns the validity of notices of avoidance given in September 2010 on behalf of Harvey Fields and Birdwalk (through their solicitor) to the Vendor. In both instances, the Purchasers' notices sought to invoke the statutory right of avoidance afforded to purchasers of strata lots under s 69D of the STA. That provision is found within Part V of the STA.

19 Part V is headed 'Protection of purchasers'. I have had occasion to assess provisions within Part V of the STA in other recent decisions: see Walker v Clough Property Claremont Pty Ltd [2009] WASC 367 and Mirvac (WA) Pty Ltd v Yeo [2011] WASC 162. In Walker [14] [18] I addressed the protective legislative objectives as regards purchasers of offtheplans strata lots, within Part V's provisions. See also Mirvac v Yeo [27] [29], [35] and the observations of Martin CJ in Walker v Clough Property Claremont Pty Ltd [2010] WASCA 232 [21], [42]. There is no need to repeat those observations.

20 The evidence adduced at trial was largely uncontroversial. Exhibits 1 and 2 constitute a joint trial bundle. The trial bundle is divided into three sections by reference to:

(b) documents relevant to the Harvey Fields action (CIV 1546 of 2011); and

21 By an amended trial bundle index (exhibit 3), the parties agreed to excise documents numbered 13, 14, 17, 27, 28, 29 and 43 from the original index.

22 The balance of the documents were uncontroversially received and constitute the bulk of the trial evidence.

23 In addition, I received two edited witness statements of Mr Adam Paul David Wheeler, adduced on behalf of the Vendor in each action (see exhibits 5 and 6). Mr Wheeler was not required for crossexamination. Mr Wheeler's evidence establishes that the Vendor was ready, willing and able to effect settlement of apartments 42 and 36 from 21 September 2010 (see exhibit 5, pars 27 and 28; exhibit 6, pars 28 and 29).

24 The parties administered to each other a series of notices to admit facts in the period leading up to trial. These notices and the responses in the Harvey Fields action are together exhibit 7. I refer in that respect to a notice to admit facts of 1 March 2012 administered by the Vendor, responded to by Harvey Fields on 10 April 2012; the Vendor's notice to admit facts of 4 April 2012 and a reply from Harvey Fields by its solicitors on 10 April 2012; and Harvey Fields' notice to admit facts administered to the Vendor on 12 March 2012 and the response by the Vendor on 31 March 2012. The Vendor administered its third notice to admit facts on 16 April 2012 and a response to that request was received by email on behalf of Harvey Fields on 17 April 2012.

25 There was also a notice to admit facts issued in the Birdwalk action. This was administered by the Vendor on 1 March 2012. Birdwalk responded on 10 April 2012 (see exhibit 8).

26 In addition, the statement of an expert valuer, Mr Matthew Garmony, was adduced by the Vendor. It became exhibit 4. Mr Garmony's report is attachment MG1 to that witness statement, and is dated 28 March 2012.

27 Mr Garmony was crossexamined about his report. Mr Garmony's evidence was adduced by the Vendor for the purpose of establishing that the notified reduction in the Purchasers' proportionate undivided shares in common property did not affect the market value of the apartments. His evidence also opined that the reductions in unit entitlements notified to the Purchasers for apartments 36 and 42 would not in September 2010 affect the market value of each apartment.

The Purchasers' notices of avoidance given under STA s 69D

28 Each Purchaser's notice of avoidance was given on 9 September 2010 through their common solicitor. In the case of Harvey Fields, the notice identified two grounds (see exhibit 1, pp 287 289). Recitals I and J refer respectively to a 'first' and 'second' notifiable variation.

29 Recital O concluded, 'Pursuant to sections 69D(1), (2) and (3) of the Act, the Buyer is entitled to avoid the Contract'. The operative part of the notice of avoidance by Harvey Fields provided:

The Buyer hereby gives notice that it avoids the Contract on the basis of, but not limited to, the matters set out above.
The Seller must promptly repay the Deposit by way of release of the bank guarantee.

30 The notice on behalf of Birdwalk was in similar terms for the ground relating to diminished unit entitlement (see exhibit 2, pp 447 449). It was the sole ground expressly raised in the Birdwalk notice of avoidance. Under recital M, Birdwalk invoked s 69D(1) and (2) of the STA.

31 As regards an avoidance based upon diminished unit entitlement, Harvey Fields' notice said:

By email dated Wednesday 1 September 2010 at 4.37 pm ('the Email'), the Seller by its legal representative Summerslegal purported to provide a notice of a Notifiable Variation (within the meaning of sections 69B and 69C of the Strata Titles Act 1985 as amended (Act)), together with a 'Copy of the Strata Plan 54157', being an amended version of the Proposed Strata Plan ('Amended Strata Plan'), and a document setting out the amended unit entitlements of the Buyer and other purchasers of lots in the Proposed Strata Plan ('Amended Unit Entitlements').

The Amended Unit Entitlements constitute a notifiable variation pursuant to section 69C(3)(d) of the Act ('First Notifiable Variation').

The Email purported to be a notification relating to the First Notifiable Variation only.

The Seller has failed to serve notice of the First Notifiable Variation on the Buyer in accordance with its obligations under section 69C(1) of the Act and clause 21 of the General Conditions.

As to the First Notifiable Variation, by reason of the changes to the unit entitlement for Lot 42, the Buyer has been materially prejudiced within the meaning of section 69D(2)(b) of the Act.

(I note substantively equivalent recitals F, I, J, K and L in Birdwalk's notice given in respect of apartment 36.)

32 In their pleadings, the Purchasers allege that the Vendor's solicitors' email of 1 September 2010 (the Email) was an insufficient notification of the notifiable variations that had been made to the apartments. But the Purchasers no longer press the point. Accordingly, recitals K and L in the Harvey Fields notice, and J and K in the Birdwalk notice, may now be ignored.

33 In both actions, the common issue of contention (raised in recital N by Harvey Fields and recital L by Birdwalk) is whether the Purchasers were 'materially prejudiced', within the meaning of s 69D(2)(b) of the STA, by a diminution in their respective unit entitlements, as they were notified by the Email. As I mentioned, that is Birdwalk's sole ground of avoidance. Harvey Fields' statement of claim says (par 12):

The plaintiff was materially prejudiced by the change in unit entitlement by reason of:

(a) the reduction in its voting entitlements afforded on a poll as between the members of the strata company; and

(b) the reduction in its share of the parcel as a whole.

(See also par 12 of Birdwalk's statement of claim which is in only slightly different terms.)

34 Bearing in mind s 14(a) and (b) of the STA, to which I have referred, this assertion by the two Purchasers as to their respective material prejudice arising from a reduced unit entitlement, calls into focus, in terms of assessing the practical ramifications of the asserted prejudice, the issue of a strata lot owner's reduced voting power on a poll at a meeting of the building's strata company. More generally, each Purchaser asserts a proprietary prejudice by the reduction in its share in the common property of the Scene Apartments building when complete.

Two other key issues in the Harvey Fields action

35 For Harvey Fields, two further grounds of avoidance are relied upon. The first concerns an increase in the floor area of apartment 42 of some 13m2. The second concerns the intrusion of a solid wall, interrupting what would otherwise have been a panoramic view south over the Swan River, on level 6.

36 Recitals F, J, K and M from the Harvey Fields notice of avoidance of 9 September 2010 states, as to this further basis of avoidance:

The Amended Strata Plan records a material change in the floor area of the apartment which comprises Lot 42, being a change of 13 square metres in the floor area, which change is more than 5% of the floor area of the apartment.

The alteration in the floor area contained in the Amended Strata Plan constitutes a notifiable variation pursuant to section 69C(3)(c) of the Act ('Second Notifiable Variation').
The Email purported to be a notification relating to the First Notifiable Variation only.

In breach of section 69C(1) of the Act, no notification has been served on the Buyer relating to the Second Notifiable Variation.

37 For this ground Harvey Fields does not contend that it has suffered 'material prejudice' by s 69D(2)(b).

38 Instead, Harvey Fields says it was never notified of this floor area change by the Vendor. Hence it invokes s 69D(1), not s 69D(2), to avoid.

39 As a result, Harvey Fields says it only has to show, before it can avail itself of s 69D(1), a variation of the strata plan in a 'material particular' as to floor area (under s 69C(3)(c) STA), of which it was not notified. The change in floor area only has to be material, it says.

40 Harvey Fields argues that a material change does not necessarily have to be detrimental, just materially significant. The increase in floor area by 13m2 for apartment 42, it argues, constitutes a material change for the purpose of s 69C(3)(c). It says the nonnotification by the vendor leads to a right of avoidance under s 69D(1).

41 The third ground of avoidance advanced by Harvey Fields concerns what it refers to as a 'design change' for apartment 42. This issue, which concerns the addition of a structural wall on level 6, was not the subject of overt mention in the avoidance notice given by Harvey Fields on 9 September 2010. But it will be remembered that that notice, after expressly referring to the diminished unit entitlement and increased floor area grounds of avoidance, then described itself as an avoidance 'on the basis of, but not limited to, the matters set out above'. Harvey Fields invokes these words of nonlimitation to advance and maintain the design change as a third, independent ground of avoidance.

42 A plurality of the High Court in Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd [1983] HCA 44; (1983) 155 CLR 129, by reference to broadly similar legislation in Queensland, concluded that a purchaser seeking to rely on a statutory right of avoidance could rely upon grounds not expressly mentioned in its notice of avoidance. Applying that approach, I assess it to be permissible for Harvey Fields to advance its third ground, regardless of whether the third ground as ultimately raised and relied upon was known to it when it gave the notice of avoidance: see also Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245, 280 (Gaudron J).

43 In Bankmist Holdings Pty Ltd v Azina Holdings Pty Ltd [2009] WASC 230 [34], [37] Johnson J accepted that the breadth of the drafting of a s 69D notice of avoidance can support the purchaser's avoidance on a basis otherwise unexpressed. That is the case here with the notices' use of the broad phrase 'but not limited to'. That decision is a further basis of support to allow the third ground to be considered.

44 Accordingly, it is appropriate that I do assess the design change ground raised by Harvey Fields' pleading and arguments, notwithstanding the defendant's objection. On the authorities that objection cannot be maintained.

45 The design change ground of Harvey Fields is set out in pars 16 18 of Harvey Fields' statement of claim:

Subsequent to the service of the notice of avoidance, the plaintiff became aware that the design of Lot 42 had been altered so that when constructed the south facing glass sliding doors and windows from the living room had been partially replaced by a solid wall, reducing the panoramic view from Lot 42 towards South Perth (design change).
The design change:

(a) is a notifiable variation within section 69C(1) of the Act; and

(b) was not notified to the plaintiff as soon as it became known to the defendant, or at all, as required by section 69C(2) of the Act.

By reason of the matters pleaded in paragraph 17, the plaintiff had a right to avoid the contract pursuant to section 69D(1) of the Act and exercise that right by service of the notice of avoidance.

46 The italicised preface seen in par 16 above, in relation to Harvey Fields supposedly not becoming aware of the design change until after service of the notice of avoidance, is now accepted to be factually incorrect. Counsel for Harvey Fields made that concession very clearly in opening (ts 54). The facts surrounding this knowledge had also been the subject of admission by Harvey Fields in answer to a notice to admit facts served by the Vendor (see exhibit 7 and the answer provided to question 2 on 10 April 2012). I proceed from that corrected factual premise.

47 The design change ground relates to the erection of the unexpected structural wall on level 6 in apartment 42. The solid wall in the completed lot obscures what would otherwise have been a panoramic southlooking view of the Swan River.

48 Harvey Fields knew about this structural wall being in place at least by March or April 2010. On occasions in March or April 2010, Harvey Fields' director, Mr Kennedy, had personally inspected apartment 42 on level 6 and 7 as the Scene Apartments building neared structural completion. It is now accepted that Mr Kennedy noticed the presence of the solid wall.

49 Harvey Fields nevertheless contends that Mr Kennedy's knowledge of the wall is irrelevant. It says the correct question is not what Mr Kennedy saw for himself during personal inspections of the unfinished apartment 42. Rather, the question is whether the Vendor should have notified Harvey Fields of this new wall as a material change to what had been previously shown on the draft strata plan held by Harvey Fields.

50 Harvey Fields contends that as a strata lot purchaser, it was entitled under s 69C(1) to receive notice in writing from the Vendor giving 'full particulars' of all 'notifiable variations'. It then says, by reference to s 69C(3)(c), that the Scene Apartments strata plan, as was lodged for registration and as sent in the Email, differed in a 'material particular' from the draft strata plan in its contract of sale.

51 Harvey Fields contrasts the floor plan for level 6 found in the unlodged version of draft floor plans for strata plan 54157 in its contract of sale (exhibit 1, p 173) with the floor plan for level 6 lodged with Landgate and ultimately registered. Harvey Fields received this version of the strata plan as part of the Email of 1 September 2010 (see exhibit 1, p 2, item 2 and exhibit 1, p 14).

52 It is convenient to juxtapose the different floor plans for apartment 42 on level 6 of the Scene Apartment building: see attachment 'A' at the end of these reasons showing the two floor plans underneath each other.

53 In the version of the plan for level 6 that was lodged (see the bottom half of attachment A), on the right side of the plan about halfway down the parallel vertical lines that divide the balcony area from its adjoining internal space, there can just be observed a narrow oblong shape. The oblong marking protrudes slightly towards the balcony side of the dividing line. The oblong marking is otherwise unexplained. The oblong marking is not seen in the draft floor plan forming part of the contract of sale for apartment 42 (see the drawing in the top half of attachment A).

54 The oblong marking on the 2010 plan, it was accepted by both parties at trial, represents the solid wall on level 6 of apartment 42, as finished.

55 Harvey Fields then argues that if the vendor deemed it necessary to alter the level 6 floor plan for apartment 42 to include the oblong shape not on the plan previously, this alteration must be a variation in a 'material particular' for the purposes of s 69C(3)(c).

56 Harvey Fields also invokes, in the alternative, s 69C(3)(d) as regards an asserted adverse relative value consequence for apartment 42. This, it is argued, arose from the obscuring of what would otherwise have been an uninterrupted panoramic view south over the Swan River. Hence, it was contended that the relative market value of apartment 42 in the Scene Apartment building was diminished by this wall, thereby reducing the unit entitlement of apartment 42. This is because unit entitlement, properly understood as a concept used within the STA, is tied to the relative values of all the strata lots in the finished building. The wall, it was put, lowered the relative value of apartment 42 and thus, lowered its unit entitlement.

57 However, the evidence adduced at trial concerning relative apartment values in the finished Scene Apartments building does not provide a foundation in fact for Harvey Fields' contention that there was a reduction in relative value and the relative unit entitlement of lot 42 by reason of this wall. The evidence, which I will address later in more detail, is that once the Vendor's valuer had reperformed his relative value unit entitlement calculations correctly on about 14 September 2010, there was no reduction in unit entitlement as between the schedule in the contract of sale and that date. On that basis alone the wallrelated unit entitlement argument must fail.

58 I proceed then to deal with the common issue (which is the sole issue in the Birdwalk action) as regards the notified reduction in unit entitlement as a stand alone basis for statutory avoidance under s 69D of the STA.

59 There is no issue over whether or not a reduction in unit entitlement constitutes a notifiable variation. It does. But there was a clear notification by the Vendor of this aspect by the Email. The issue of controversy is whether or not the Purchasers can both show their separately sustained 'material prejudice', sufficient to meet that threshold requirement in s 69D(2)(b) in order to validly avoid their contracts with the Vendor.

60 For apartment 42, the notice of variation of unit entitlement sent in the Email advised of a revised unit entitlement of 190 units out of a total of 5,140. Expressed as a percentage, this amounted to a reduction in unit entitlement by 1.404% (i.e. down from 5.1% to 3.696% of the aggregate unit entitlement of the building). Calculated as a percentage reduction of Harvey Fields' originally notified unit entitlement, this amounts to a 27.53% reduction.

61 For apartment 36, the new unit entitlement of which Birdwalk was notified was 123 units out of 5,140. Expressed as a percentage, this amounted to a reduction of 0.207%, in aggregate unit entitlement, down from having 2.6% of aggregate unit entitlement to 2.393%. Calculated as a percentage reduction in Birdwalk's originally notified unit entitlement, this amounted to a 7.96% reduction.

62 As mentioned, both these reduced unit entitlements had been first notified to Harvey Fields and Birdwalk's solicitor on 1 September 2010 by the Email (see exhibit 1, pp 2 4).

63 The covering advice in the Email, written by the Vendor's solicitors concerning reduced unit entitlement, said (exhibit 1, p 3):

Alteration to unit entitlements - section 69C(3)(d)

We inform you that the final unit entitlements for the development differ from the preliminary unit entitlements (prepared in December 2007) forming Appendix 3 of Annexure D of your Contract of Sale and prepared in as outlined in the enclosed table.

64 This communication did not expressly mention reductions in unit entitlements. But no point is raised over that less than fulsome covering advice.

65 From the Email attachment the reductions in unit entitlement will be appreciated by scrutinising percentage reduction information that is given for all lots, including for lots 36 and 42 as found in the table attached to the Email (exhibit 1, p 4).

66 The same covering advice from the Vendor's solicitors also said, as regards the altered floor area issue:

We inform you that there has been no material change to the strata plan or the dimensions of any of the strata lots (the majority of which are slightly larger in area than stated in the preliminary strata plan that formed Appendix 2 of your Contract of Sale).

67 The Vendor's solicitors' assertion that there had been 'no material change' to the strata plan, or to the dimensions of any of the strata lots, is hotly disputed by Harvey Fields. It says, as we have now seen, that the increased floor area and a solid wall obscuring the panoramic view over the Swan River on level 6 were very material changes.

68 Pursuant to s 69D(2), the stipulated time for the giving of a notice of avoidance by a purchaser is seven working days after receipt of the particulars of a notifiable variation from the vendor. No contention is advanced by the Vendor that the Purchasers' notices of avoidance were not given and received by the Vendor within that tight seven working day period.

69 However, the Vendor does not accept that either Purchaser was or would be materially prejudiced for the purposes of s 69D(2)(b) by the notified reductions in unit entitlements. Accordingly, the Vendor pressed Harvey Fields and Birdwalk to settle notwithstanding their notices of avoidance. Both refused to settle.

70 In the end, the Vendor set a settlement date which was not met. The Vendor gave each Purchaser notice of termination. The terminations were expressed to be on the basis of asserted repudiation by each Purchaser. The Vendor reserved its rights to pursue damages against each Purchaser (see exhibit 1, pp 309 310 and exhibit 2, pp 470 472).

71 Apartment 36 has since been resold, albeit at a lower price. The Vendor has quantified its damages by reference to the gap between sale prices. There is a small issue between the parties over interest and that sum. Apartment 42 has not yet been resold.

Valuer's error as to notified reduced unit entitlements

72 It is a curious but substantively irrelevant fact that events emerging subsequent to both Purchasers' notices of avoidance of 9 September 2010 show that the Vendor's valuer had made what, on the face of it, presents as a rather significant blunder in calculating the unit entitlements advised by the Email for each of the finished lots at the Scene Apartments. His calculations of unit entitlement, as advised to Harvey Fields and Birdwalk in the Email, had, it turned out, used the wrong underlying criterion. The Vendor's valuer had used the criterion of the relative area of each unit in the Scene Apartments building. But he should have used the criterion of relative value.

73 Both parties accepted at trial that relative value was the proper criterion for use in calculating the different unit entitlements (see ts 139 - counsel for the defendant, at commencement of day 2).

74 The valuer's conceptual mistake soon became apparent. In the meantime, however, the strata plan for the Scene Apartments building, with amended unit entitlements, had been registered at Landgate on 7 September 2010. Moreover, Harvey Fields and Birdwalk through their solicitors had by then given their notices of avoidance to the Vendor on 9 September 2010.

75 A recalculation of unit entitlements for each lot was done by the Vendor using the correct criterion of relative values for each lot in the Scene Apartments building. A resolution of the Scene Apartments strata company was moved and passed to correct the unit entitlements.

76 The recalculation, correctly done, showed unit entitlement outcomes that do not differ at all from those which were given as the indicative contractual strata plan unit entitlements for proposed lots 36 and 42 at annexure D, appendix 3 in the sale contracts (see exhibit 1, p 175).

77 But the unit entitlement calculation correction was not fully implemented until 14 September 2010 (see exhibit 1, p 291). By then it was too late. Harvey Fields and Birdwalk had given their notices of avoidance under s 69D(2) of the STA. They had acted, reasonably enough, on the basis of the notification of reductions in unit entitlement received on 1 September 2010, particularly bearing in mind they only had seven working days to decide on a course of action.

78 In the Vendor's defences in both actions, it pleads that there was no actual change in the unit entitlements of lots 36 and 42. This pleaded position has proved to be a misconceived distraction. The Vendor, by its solicitors, clearly gave notice under the Email of a notifiable variation under s 69C(3)(d). There were only seven working days in which each Purchaser could decide whether to give notice of avoidance or not. Failure to act within that short period would mean losing any potential right of avoidance.

79 The avoidance decision had to be made by each Purchaser on the basis of the notified information. The Purchasers had no independent knowledge of the true facts concerning that entitlement and the values calculation mistake. The right to avoid under s 69D(2) can only be assessed by reference to the state of each Purchaser's knowledge within that seven working day window. The assessment is not to be made by reference to events occurring later, or by reference to matters such as the correction of the valuer's calculation error. That information was not within the Purchaser's knowledge in the seven working day time frame that is under assessment. The fact it came to light later is wholly irrelevant. At trial, counsel for the defendant accepted this to be so (ts 47).

80 The key dispute remains, then, whether either Purchaser suffered material prejudice, assessed by reference to the notified reductions in unit entitlement. The proof of material prejudice lies upon Harvey Fields and Birdwalk, under s 69D(2)(b).

81 There is no West Australian case authority which directly addresses the correct meaning of the term 'material prejudice', as used within s 69D(2)(b). Likewise, there is an absence of local case authority concerning the meaning of the term 'material particular', as used within s 69C(3)(c).

82 Whilst there is an absence of direct local authority, assistance can be obtained, in my view, from a series of cases that contain curial interpretations of the terms 'materially affected' and 'material prejudice' used in Queensland legislation: see Bassingthwaite v Butt [1982] Qd R 670; Gold Coast Carlton Pty Ltd v Wilson [1985] 1 Qd R 182; Mirvac Queensland Pty Ltd v Wilson [2010] QCA 322; Latitude Developments Pty Ltd v Haswell [2010] QSC 346; and Deming No 456.

83 In Bassingthwaite, McPherson J was called upon to assess s 49(5)(b) of the Building Units and Group Titles Act 1980 (Qld). That legislation's structure can, on the face of it, be seen to bear some broad resemblance to s 69D(2)(b) of the STA. A proviso within s 49(5)(b) of that Queensland statute was in these terms (see Bassingthwaite (673)):

Provided always that a purchaser may not void a contract, agreement or other document pursuant to paragraph (b) unless he proves that his rights have been materially affected by a matter referred to in that paragraph.

84 The meaning of the phrase 'materially affected', assessed as regards the rights of a purchaser, was one of the issues considered by McPherson J (674G).

85 In Bassingthwaite it was the purchaser's assertion that it had been materially affected by a reduction in 'lot entitlement' arising in the period between execution of its contract and registration of the strata plan. McPherson J examined the Queensland concept of 'lot entitlement' by reference to s 19(1) of the local legislation (677B D). I observe that the concept of 'lot entitlement' looks very similar to unit entitlement under the STA.

86 Under the Queensland statute, lot entitlement determined a lot proprietor's voting rights, quantum of undivided share in common property and, subject to certain qualifications, a lot owner's liability to make contributions toward strata levies.

87 Having identified some factual repercussions of a reduced lot entitlement (677D 678A), McPherson J observed (678B C):

My conclusion is that whether the foregoing matters are regarded singly or in combination, they cannot on any view be said to result in a deprivation of 'substantially the whole benefit' which the plaintiff may have been intended to receive from the contract; nor, if the contract is completed, can she be regarded as obtaining something different in substance from that contracted for. It follows, therefore, that she was not entitled for the reasons mentioned to rescind for breach of contract.

88 His Honour turned to consider the validity of an attempted exercise by the purchaser of the statutory right of rescission by reference to s 49(5)(b) in the Queensland legislation. He observed (679E):

Here the test to be applied is not that of difference in substance but whether the rights of the purchaser have been 'materially affected' by the change in aggregate lot entitlement ... Section 49(5) is not in terms limited to an affecting that is prejudicial or detrimental to the purchaser, although it is difficult to accept that the intention is to confer a right to avoid where the purchaser is affected in a manner operating to his advantage.

89 McPherson J proceeded to consider the correct meaning of the local phrase 'materially affected'. His Honour assessed common law authority, observing (680B):

My conclusion is that the rights of the plaintiff as purchaser were undoubtedly affected by the change or alteration in aggregate lot entitlement between contract and registration of the building plan. The question is whether they were altered or affected 'materially'. On the question of 'material' I was referred to Simons v Herald & Weekly Times Ltd [1970] VicRp 17; [1970] VR 131, 138, where 'material' was treated as connoting 'of consequence'. Among the meanings given in the Shorter OED is '5. Of much consequence; important'.

90 Although the phrase used by s 69D(2)(b) in the STA is 'materially prejudiced', not 'materially affected', McPherson J's analysis of the meaning of the word 'materially' is of assistance in ascertaining the meaning of that word, not only in s 69D(2)(b) but also in relation to the meaning of the phrase 'material particular', as used in s 69C(3)(c).

91 Following the observations about the meaning of the word 'material', his Honour said (680C):

It is clear that much depends on the context in which the word is used. It is implicit that in s 49(4) that it is not any or every alteration in aggregate lot entitlement that is to be regarded as giving rise to a right of avoidance but only such as 'materially affect' the rights of the purchaser.

92 These observations are apposite to an interpretation of the phrase 'materially prejudiced' within s 69D(2)(b) as regards its application to a change in notified unit entitlement under s 69C(3)(d).

93 His Honour then concluded in terms I would see as his impressionistic assessment of the facts in Bassingthwaite (680D):

One can readily see that in the case of a comparatively small number of proprietors an increase by only one in the total number of lot entitlements would be capable of affecting in a material respect the rights of a single proprietor in respect both of voting, share in common property and otherwise; but in my view a reduction of the interest of a proprietor from a 1/62nd to a 1/63rd share is insufficiently significant to be regarded as materially affecting those rights. Accordingly, it is my conclusion that the plaintiff was not entitled under s 49(5) of the Act to avoid the contract of sale.

(my emphasis in bold)

94 From Bassingthwaite I extract these propositions:

(a) the statutory language of the Queensland statute in question, contrasted with the STA, as regards the phrases 'materially affect' and 'materially prejudice', looks to be similar overall. In Bassingthwaite his Honour appears to have assessed the word 'affected' as denoting a likely prejudicial effect (679F);

(b) his Honour's observations and conclusion appear to be very closely confined to the particular facts of Bassingthwaite. Those facts concerned a reduction in lot entitlement from a 1/62nd share to a 1/63rd share. His Honour expressly left open a different outcome for facts where there was a 'comparatively small number of proprietors' (680D);

(c) the phrase 'materially affect' was assessed in Bassingthwaite in a context of repercussions as regards reduced lot entitlement not only prejudicing voting rights but (as is the case here) also generating the reduced shares in 'common property';

(d) the observation in Bassingthwaite that a mere change in lot entitlement (or unit entitlement in Western Australia) is insufficient of itself to generate a material effect (and correlatively, as I see it, material prejudice) is, with respect, plainly correct. There could be no viable function for s 69D(2)(b) to perform if a quantitative reduction in unit entitlement of any magnitude would suffice to afford a purchaser a statutory right of avoidance;

(e) where the line is to be drawn, when assessing the existence or otherwise of a material effect or material prejudice after a reduction in unit entitlement, must raise pure questions of fact and contextual evaluation in every case;

(f) in Western Australia, the legislature has not provided any definition of the term 'materially prejudiced' in the STA. There is no assistance from extrinsic materials. An interpretation of the term therefore becomes a matter of assessing the meaning within place and context, first within s 69D, next within Part V of the STA, and then within the framework of the STA as a whole. The task of assessing the statutory purpose is also a part of that process.

95 The character of Part V's provisions in the STA is important. Part V provides protection for purchasers in the context of offtheplans strata acquisitions, possibly over a long period before completion, in the case of horizontal strata subdivisions.

96 But equally important is the enforceability of legitimate contractual bargains, so parties may have certainty as regards the ultimate performance of those bargains: see s 70B. The scope for opportunistic escapes, motivated by a rising or falling market, from contractual obligations arising out of wholly trivial circumstances ought not find undue curial encouragement: see generally Deming No 456 (163 - 164) (Wilson J).

97 McPherson J's ultimate view in Bassingthwaite was that there was no detrimental material effect. This factual conclusion was effectively rendered in three lines in the short passage commencing 'but in my view' (680D), which I have cited.

98 In Deming No 456, as regards the same Queensland legislation, Wilson J observed (168 169):

With all respect to the learned primary judge, I think an 11% increase in contributions is capable of materially affecting the rights of [the purchaser] ... But no doubt it is true that mere quantum is not the only criterion. Its significance must be judged in the light of all the circumstances and the higher the contract price the less may be the impact which an increase in lot entitlement, even of 11 per cent, would have on a prudent purchaser ... We are construing a statute which reflects a firm resolve on the part of the legislature to protect the purchasers of home units with quite specific statutory remedies. Section 49(4) contemplates that there will be circumstances which are capable of materially affecting the rights of purchasers. These circumstances encompass the entry into or variation of a management agreement or service agreement, the making or variation of a bylaw or a change in the lot entitlement of any lot or the aggregate lot entitlement. Of course, it would be quite unjust if minor changes or adjustments in these areas were to entitle a purchaser to avoid a contract. On the other hand, if the changes are not insignificant and have the effect of changing the substance of that contracted for, the intention of the Legislature would seem to be plain. In the present case, [the purchaser] was clearly entitled to be informed promptly of the change in lot entitlement and the question of material affectation could reasonably have been raised by [the purchaser] had it wished them to avoid the contract on that ground.

(my emphasis in bold)

99 He continued, as regards the change in lot entitlement in that case (169):

I have not found this question an easy one to resolve. In the end I have resolved it against [the purchaser] ... There was no attempt to show the likely effect of an 11 per cent increase in liability for contributions. The primary judge was not given a relevant description of the common property and the likely financial responsibilities of the body corporate for which it would be obliged to levy contributions. No estimate was made of the likely amount of the levies that were to be expected. As the materials stand at present, it would be sheer speculation to conclude that there is a serious issue to be tried. In these circumstances there is no escape from the conclusion that [the purchaser has] failed to discharge the onus placed upon them.

(my emphasis in bold)

100 In Deming No 456, Wilson J assessed the phrase 'materially affected' within s 49 to refer to changes which operated 'to the prejudice of a purchaser to a significant extent' (166). Like McPherson J in Bassingthwaite, Wilson J observed that it 'is a question of fact and degree whether there is such an effect in any particular case' (166).

101 Almost a year after the High Court's decision in Deming No 456, the Full Court of the Queensland Supreme Court (Andrews SPJ, Macrossan and Williams JJ) again considered s 49 of the Building Units and Group Titles Act, in Gold Coast Carlton v Wilson. As regards 'materially affected' used in s 49(4), Andrews SPJ, in the context of an argument about the purchaser's rights being materially affected by the cost of services provided under a management agreement, said (189):

The respondents argued that their rights were 'materially affected'. What this amounts to is that their share of the costs of the services of Body Corporate Services Pty Ltd was to be $63,000 for the first year rising to $70,000 for the next year. Whether this amounts to material affectation of their rights is a question of fact. They argue to the effect that they had a right to expect that the body corporate, or a member or members of it would carry out the tasks involved. They did not make much of a fist of showing what this would involve for the individual or individuals concerned. There is no reasonable ground to assume that other individuals will perform the work for nothing. There is nothing to show that they could or would do the work themselves. I cannot accept that 'materially affect' means other than to affect rights deleteriously in some way. I am by no means persuaded that to show that a purchaser is to pay what appears to be rather a modest sum for work of this kind is to show that his rights have been affected at all.

(my emphasis in bold)

[E]ven if the purchasers are able to establish a deficiency in the notice given under s 49(4), the proviso to subsec (5) makes it clear that they are not entitled to avoid the contract on account of that deficiency unless they prove that their rights have been materially affected by the matter.

103 Subsequent Queensland decisions consider a more recent statute, the Body Corporate and Community Management Act 1997 (Qld). Section 214(4)(b) of this legislation provided, as regards notified inaccuracies in a seller's disclosure statement:

The buyer may cancel the contract if -

...

(b) the buyer would be materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate.

(my emphasis in bold)

104 So the phrase 'materially prejudiced' is seen as used in the 1997 Queensland legislation. This brings the more relevant Queensland provision even closer in its structure to s 69D(2)(b).

105 In Wilson v Mirvac Queensland Pty Ltd [2010] QSC 87 [30] [31], Margaret Wilson J rejected a contention that proving material prejudice under s 214 of the Body Corporate and Community Management Act required a purchaser to show that, but for a misdescription of a material and substantial matter, the purchaser would never have entered the contract. In rejecting that contention, her Honour distinguished an earlier decision of Derrington J in Sommer v Abatti Holdings Pty Ltd [1992] 1 Qd R 300, 302 concerning s 49(4) of the Building Units and Group Titles Act.

106 As regards 'material prejudice' now found in s 214 of the Body Corporate and Community Management Act, her Honour observed (in terms subsequently approved by the Queensland Court of Appeal in Mirvac Queensland Pty Ltd v Wilson [50]) [32]:

Some matters are clear.

(a) The focus is on the buyer. This suggests the test is objective having regard to the particular buyer's circumstances: would someone in those circumstances be materially prejudiced?

(b) Given that the buyer has only 14 days in which to cancel the contract, and the completion date may still be some months away (as it was in this case), material prejudice must be assessed in the light of the buyer's circumstances when the Further Statement is received or at the latest at the expiry of 14 days from its receipt.

(c) There must be a causal relationship between the inaccuracy and the prejudice.

(d) There must be proportionality between the inaccuracy and the prejudice.

(e) Because this is consumer protection legislation, it should be construed beneficially.

107 By reference to the facts underlying that decision, Margaret Wilson J observed [35]:

In my view it would be enough for the applicant to establish that she would be disadvantaged in some substantial way if she were obliged to complete the contract on the premise that the Body Corporate would not have the CCTV security system and other items of property which had been included in the first Disclosure Statement and omitted from the Further Statement. I note that the applicant's assertion of material prejudice was based principally on the omission of the CCTV security system. She relied on the other omissions as compounding the prejudice.

(my emphasis in bold)

108 Personal security issues were of particular importance to the applicant purchaser in Wilson v Mirvac. Her husband had been appointed a Federal Magistrate in August 2006. Those underlying facts were of significance, even in an application of an objective test, by reference to the buyer's particular circumstances as regards a buyer's material prejudice. Her Honour explained [39]:

The security system had been promoted as an integral feature of the development and arrangements for its management. Viewed objectively, a person in the applicant's circumstances in August 2009 would be disadvantaged in a substantial way by its omission. That disadvantage was compounded by the omission of other items of property which would have enhanced the amenity of the apartment.

109 Her Honour concluded that the applicant was entitled to cancel the contract and declared accordingly.

110 That decision was upheld on appeal, as I have mentioned. On the appeal, after expressing his view that the primary judge was correct in rejecting the use of the test to ascertain material prejudice from Sommer v Abatti Holdings, Jones J observed [58] [59]:

Turning then to the terms of the legislative provision. In the context of s 214 (and also s 217), the question of prejudice depends upon the information which has come to the buyer's actual knowledge and whether the information on an objective basis is inaccurate ... [T]he prejudice for the purpose of s 214 flowing from the inaccuracy arises from some detriment or disadvantage to the buyer. In its ordinary meaning 'prejudice' in this context means 'to injury [sic] or to impair the validity (of a right, claim or interest) to damage'. A person is 'prejudiced' when affected disadvantageously or detrimentally [referring to definitions in the Oxford English Dictionary (2nd ed) and Macquarie Dictionary (4th ed)].

A person would be 'materially prejudiced' if disadvantaged 'substantially' or 'to an important extent'. The Court of Appeal in Vennard v Delorain Pty Ltd as Trustee for the Delorain Trust suggested, that in a similar context, the phrase meant 'disadvantaged in a way which is substantial or of much consequence' [[2010] QCA 309 [27]]. It is this concept that requires a consideration of the personal circumstances of the buyer in what is otherwise a determination to be made objectively. The concept of using an objective standard but having regard to personal characteristics is not novel in law. It commonly finds expression in relation to personal self control in criminal law [referring to Stingel v The Queen [1990] HCA 61; (1990) 171 CLR 312] and in relation to varying standard of care in 'reasonable person' tests [McHale v Watson [1966] HCA 13; (1966) 115 CLR 199]. The material prejudice for the purpose of s 214 (and s 217), has to be assessed in the context of the buyer's personal circumstances being required to complete the contract on its changed terms. The evaluation of whether any disadvantage or detriment reaches the level of material prejudice such as to warrant cancellation of the contract, must be objectively determined in accordance with community standards.

111 I find considerable assistance in these Queensland decisions, particularly Wilson v Mirvac. That is so in the task of assessing the meaning of both 'materially prejudiced' in s 69D(2)(b) and 'material particular' in s 69C(3)(c).

112 The factors identified by Margaret Wilson J are important in answering what is essentially a question of fact and degree denoted by the phrase 'material prejudice' under s 69D(2)(b).

113 Material prejudice is to be assessed objectively but, nevertheless, having regard to the buyer's particular circumstances. The showing of material prejudice by a purchaser will require a demonstration of a degree of disadvantage by a purchaser which is substantial or of much consequence or 'to an important extent'. To borrow the terminology of Wilson J from Deming No 456, there must be shown to be 'prejudice of a purchaser to a significant extent'.

114 I also note some further observations by the President in Mirvac Queensland Pty Ltd v Wilson. McMurdo P observed at [2] that it is the information notified to a purchaser which is relevant, not other facts which could indicate that a matter said to constitute material prejudice may not in fact be the case. Those observations I find to be most apposite here, in connection with the erroneous calculations of unit entitlement by the Vendor's valuer. Those calculations were subsequently corrected, but only after each Purchaser had given its notice of avoidance. As McMurdo P concluded, subsequently learned facts are essentially irrelevant.

115 To demonstrate material prejudice it is not necessary for a purchaser to show, to an objective standard, that had the purchaser been notified of the correct information, the purchaser would never have entered into the contract of sale in the first place. That threshold is set at too high a level. The proper test is whether or not the purchaser has suffered a substantial disadvantage, not whether the contract would have been entered into or not. However, evidence that the purchaser would not have entered into the contract of sale if the change had been notified at the outset may nevertheless be received, if that is the position. If a court concludes, applying an objective standard, that that is the likely position, then the likelihood of a finding as to material prejudice would be strong.

116 I also mention observations in a subsequent decision by Peter Lyons J in Latitude Developments Pty Ltd v Haswell [59] and [60], as regards the Body Corporate and Community Management Act s 214.

117 Essentially, then, what is now required is a factual assessment and value judgment concerning the reductions in unit entitlements notified to Harvey Fields and Birdwalk on 1 September 2010 by the Email. The exercise involves questions of degree that need to be assessed in the two specific realms of alleged prejudice pleaded by the plaintiffs, in respect of which they carry the onus of proof.

118 The Purchasers argue that two kinds of prejudice followed from the notified reduction of unit entitlements: the reduction of their voting entitlements and a diminution of their property rights in the common property.

119 Before rendering an assessment as to that asserted material prejudice, it is necessary to mention some further context concerning the terms and conditions found within the parties' contracts of sale.

The Harvey Fields and Birdwalk Contracts of Sale: Contractual provisions

120 Unlike in Mirvac v Wilson, Harvey Fields and Birdwalk raise no particularly unique presenting facts as regards their respective positions as the Purchasers of apartments 36 and 42 in the Scene Apartments building. I have already mentioned the purchase prices for those lots in each contract of sale.

121 Contextually, however, I need to refer to some standard terms within the parties' annexure A special conditions. Both Purchasers accepted these conditions. Manifestly, they were presented to the Purchasers by the Vendor for their signature. They were not open for negotiation.

122 These conditions concern variations by the Vendor (special condition 7) and errors, misdescriptions and requisitions (special condition 15.1, and particularly (e) and (f)):

7.1 The Seller may make any change to the Detailed Plans, Proposed Strata Plan, Apartment or Specifications after the Contract Date (provided that any change shall not involve materials of a lesser quality):

(a) where arising from any condition imposed by an Authority on the Seller, Builder, Development or Apartment;

(b) for the purpose of meeting practical methods of construction according to good building practice;

(c) in accordance with any recommendation of the Seller's architect, builder, structural engineer, mechanical engineer or electrical engineer and not adversely affecting the Buyer's use and enjoyment of the Apartment;

(d) due to the availability of materials;

(e) due to increases in the cost of materials or products described in the Detailed Plans or Specifications it is reasonable for the Seller to substitute those materials or products with equivalent materials or products;

(f) due to matters that arise which the Seller could not have reasonably foreseen; or

(g) where the Seller believes the changes will enhance the Development or Apartment.

7.2 Provided that a change pursuant to Special Condition 7.1 does not materially prejudice or affect the size or value of the Apartment by more than five per cent (5%) the Buyer shall have no right to make any objection requisition or claim for compensation in respect of such change.

7.3 If the floor area of the Apartment as shown on the Strata Plan is less than the floor area of the Apartment as shown on the Proposed Strata Plan by more than five per cent (5%), the Purchase Price will be reduced on a prorata basis to the extent that the reduction is in excess of five per cent (5%). For the sake of clarity if the floor area is reduced by six per cent (6%) the Buyer will be entitled to a one per cent (1%) reduction of the Purchase Price.

7.4 If the floor area of the Apartment as shown on the Strata Plan exceeds the floor area of the Apartment as shown on the Proposed Strata Plan by greater than five per cent (5%) the Seller may, by notice in writing to the Buyer, elect to increase the Purchase Price payable at Settlement by the percentage that the increase in floor area exceeds five per cent (5%). For the sake of clarity if the floor area is increased by six per cent (6%) the Seller will be entitled to increase the Purchase Price by one per cent (1%). If the Buyer is unwilling to pay the increased price the Seller may by written notice to the Buyer at any time prior to Settlement elect to terminate this Contract.

7.5 Any change pursuant to Special Condition 7.1 does not create any right for the Buyer to:

(a) delay Settlement; or

(b) terminate this Contract.

15.1 The Buyer is not entitled to terminate or rescind this Contract or to make any objection requisition or claim for compensation or damages or retain any part of the Purchase Price by reason of:

...

(e) any variation of five per cent (5%) or less from the floor area shown on the Proposed Strata Plan to the floor area of the Apartment;

(f) any alteration in the Unit Entitlement of any lot on the Proposed Strata Plan and the Unit Entitlement finally allocated thereto on the Strata Plan.

123 In these boilerplate special conditions, present in both contracts of sale, I detect, assessing the positions of the parties objectively, that the parties have placed significance on the threshold level of 5%. This figure was used as an indicator of materiality in assessing the ramifications of a change bearing upon the parties' respective contractual obligations (see special conditions 7.2, 7.3, 7.4 and 15.1(e)). So in special conditions 7.3 and 7.4 the threshold of 5% as regards floor area delimits scenarios in which the purchase price could be reduced on a pro rata basis, or increased on a pro rata basis. In circumstances where that 5% floor area figure was exceeded, the purchase price could be adjusted either up or down. (In the present case, the Vendor did not seek a price increase under special condition 7.4 from Harvey Fields, notwithstanding the notified increased floor area of 13m2 for apartment 42.) In special condition 15.1(e), the Buyer's right of termination or rescission is, as regards floor area, tied to variations of 5% or less.

124 The ultimate assessment as to purchasers' material prejudice is inevitably tied to the unique circumstances of each case. Ultimately, it is a matter of overall impression, and as Wilson J observed in Deming No 456, it is not, I find, an easy one to resolve. A reduction in notified unit entitlement obviously would not, of itself, be enough. The legislature has clearly specified an additional requirement. I note that the certificate of the licensed valuer which is at the foot of the Form 3 schedule of unit entitlement itself makes reference to s 14(2a) of the STA and to an assessment that uses a threshold of 5% proportionate value in the process (see exhibit 1, p 293, contrasting exhibit 1, p 26). The purchaser must show material prejudice.

125 As regards voting on a poll, the Vendor argues that a reduced unit entitlement is, in a practical sense, only capable of manifesting at a meeting of the strata company, and then in the limited context of a poll taken for a contentious special resolution. 'Special resolution' is defined within s 3 of the STA (see also s 3B, s 3C and s 3CA).

126 The occasion for a special resolution vote in the deliberations of the strata company can arise by reference to certain occasions mentioned in provisions specified in the STA: see s 16 (resolutions to apply to the State Administrative Tribunal to amend unit entitlement), s 41(1) (change of name of the strata company), s 42(2)(c) (amendment of Schedule 2 bylaws), s 42(14) (amendment of Schedule 1 bylaws in respect of voting and unit entitlement, where none of the lots are used for residential purposes), s 47(1) (limitations on expenditure by the strata company), s 42(2) (the Schedule 1 bylaws) and Schedule 1 cl 4(8) (removal of a member of council between annual general meetings).

127 The Vendor contends, practically speaking, that the notified reductions in the Purchasers' unit entitlements would not of themselves impact upon or against Harvey Fields or Birdwalk voting alone to pass, or even to veto, a special resolution at a meeting of the strata company: see s 3B(2)(a) and (b). I accept that to be the case. The requirement to carry a special resolution is 50% of aggregate unit entitlement, and the presence of 50% of proprietors in the scheme. To prevent a special resolution being passed requires a negative vote of 25% or more of the aggregate unit entitlement of lots in the scheme and 25% or more of the proprietors of lots in the scheme.

128 But the Purchasers argue that the notified reductions to their unit entitlement, and thus to their voting rights, should be assessed pragmatically, in the context of potential blocking vote by groups of aligned proprietors. They say that the significance of a 'balance of power' scenario ought not be deprecated. It is put that there could be, for instance, considerable significance flowing from a reduction to voting rights where, for instance, a group of proprietors from a particular floor or floors opposed a proposal made by another group of proprietors from different floors. Furthermore, they say that given the seven day window within which an avoidance decision has to be made, it is not unreasonable to assess these potential voting outcome ramifications on a hypothetical basis.

129 I accept that from a voting perspective, the notified reductions in unit entitlement have been quantitatively detrimental to each Purchaser when assessed for a hypothetical poll vote on a contentious special resolution. But, for the facts of each case here, are they substantial enough to constitute material prejudice for Harvey Fields and Birdwalk?

130 The unit entitlement reduction for Harvey Fields, as notified, amounted to a 1.404% reduction (down from 5.1% to 3.696%). Such a devaluation, in a voting context for a poll, particularly on a close contest, could prove to be significant or even determinative, especially on a block veto 25% context. In fairness to Harvey Fields the numerical reduction in voting rights cannot, I think, simply be brushed off as wholly theoretical in relation to the passing or blocking of a contested special resolution at a meeting of the strata company. The nature of the exercise must be theoretical to an extent, given the seven day timeframe for potential avoidance that is involved.

131 A movement in an alignment of voting power can make a crucial difference on a close vote. The composition of Australian parliaments sometimes displays this phenomenon. But, fundamentally, by Part V of the STA the legislature has enshrined the intrinsic importance of a purchaser's unit entitlement. It does that by requiring the Vendor's notification of variations to unit entitlement (s 69A(c)) in furtherance of its policy aim of protecting purchasers. That is not to say that any numerical reduction in unit entitlement will deliver material prejudice. It will not. But clearly the subject matter of unit entitlement enjoys the legislature's special concern as an identified area of protection for the purchaser. When is the line crossed by a reduction that is enough to connote material prejudice in the facts of a particular case? In my view, the bar should not be set at too high a quantitative level given the partly theoretical nature of the material prejudice evaluation that is required.

132 For the present case, the notified reduction to Harvey Fields' unit entitlement amounted to a reduction of 27.53% as against the unit entitlement notified at the time of contracting. Evaluated in the context of these precise contractual relationships, where the parties, objectively assessed, identified a threshold of a 5% change in floor area or value as being a significant demarcation towards detecting a relevant change in their contractual relationship (see special conditions 7.2, 7.3 and 7.4), the percentage reduction in unit entitlement of 27.53% is, in my view, significant. I reject the Vendor's submission that I must focus predominantly on the size of the reduction in unit entitlement in absolute terms (being 1.404%), rather than a percentage reduction viewed as a proportion of the unit entitlements originally notified to the Purchasers. That submission is not supported by the approach found in the special conditions as regards floor area and allied potential increases or reductions in purchase prices.

133 For Birdwalk, the percentage reduction in absolute terms was smaller than for Harvey Fields, down 0.207% (from 2.6% as had been contractually notified, to 2.393% by the notifiable variation information in the Email). That amounted to a reduction of 7.96% to the unit entitlement as originally advised to Birdwalk. That level of reduction also exceeds the 5% threshold, which I assess in all the circumstances of those two purchase contracts, assessed objectively, to be an appropriate demarcation criterion towards materiality in both contracts.

134 These reduction percentage calculations for Harvey Fields and Birdwalk can be contrasted with the position in Bassingthwaite. There the reduced lot entitlement, assessed for the purposes of the Building Units and Group Titles Act 1980, only amounted to an overall percentage reduction of 0.026% (i.e. down from 1/62nd to 1/63rd, being 1.613% to 1.587%). Hence the purchasers' reduced entitlement in Bassingthwaite was a mere reduction by 1.587% from the entitlement as originally notified.

135 As a pure quantitative mathematical comparison therefore, a 7.9% reduction for Birdwalk and a 27.53% reduction for Harvey Fields, when assessed in a context of these two contracts of sale, is greater than that assessed by McPherson J (a reduction of 1.587%) in Bassingthwaite.

136 It was not argued before me that special condition 15.1(f), as regards 'any alteration' in unit entitlement being sterilised as to its adverse contractual repercussions, could validly inhibit these purchasers' statutory rights to give a notice of avoidance, once the provisions in Part V of the STA were otherwise engaged. That must be so in any event, in my view, as regards contractual provisions not ultimately being allowed to impinge against the protections of Part V in the statute: see s 70A(1) STA and my observations in Mirvac v Yeo [35]. I do take special condition 15.1(f) into account, however, in the overall exercise of construction. However, its content, as regards the end assessment as to material prejudice, is, I think, significantly outweighed objectively by the importance of the carefully chosen threshold of 5% as a touchstone of significance, when assessing significant change in both contracts.

137 In Deming No 456, Wilson J was prepared to accept that an 11% increase in a proprietor's liability to pay levies was 'capable of materially affecting Deming's rights as a purchaser' (168). In the end he resolved the prejudice question against the purchasers, essentially because the purchasers had not discharged the evidentiary onus they carried as a party resisting an application for summary judgment. Wilson J observed that there had been no attempt to show the likely effects of an 11% increase in liability for contributions (169). Here the position is somewhat different from an evidentiary perspective, especially given the 5% threshold for materiality to be applied to these parties in the special conditions which were drafted by the Vendor.

138 Here, material prejudice to both Harvey Fields and Birdwalk resulting from a reduction of unit entitlements in the context of a contested special resolution by a poll vote of the strata company, is in my view sufficiently established by each Purchaser in its own right.

139 There is also the allied question of the reductions by reference to unit entitlement for each Purchaser's share in common property. Although this question would be most relevant if the strata building had suffered some sort of catastrophe, the law's traditional respect for property rights extends, in my view, even to shared statutory rights to common property in the event that a strata building or property is extinguished. This is a contributory factor towards material prejudice. Once again the quantitative position is a higher reduction in common property than in Bassingthwaite. By contrast, see the observations of McPherson J in Bassingthwaite (677B G) and also STA s 14(1)(b).

140 These two elements (reductions in voting entitlement and in common property) delivered by the notified reductions in voting entitlement, assessed together, persuade me, on the balance of probabilities, that Harvey Fields and Birdwalk have both proved their material prejudice for the purposes of s 69D(2)(b).

141 In both cases, reductions of greater than 5% to their respective unit entitlements, as first advised, were notified to Harvey Fields and Birdwalk by the Email. I assess a 5% threshold reduction to be significant in the overall unique contexts of these cases. The notified reductions in unit entitlements and, in turn, to shared rights in common property, cannot just be brushed off as insignificant. That is especially so in the context of Part V of the STA, which was inserted for the protection of purchasers of offtheplans strata lots.

142 Overall, I am of the view that both Birdwalk and Harvey Fields, assessed in the unique circumstances of the terms of their individual contracts with the Vendor, have established the material prejudice arising out of the Vendor's notified reductions of 5% to their respective unit entitlements.

143 As a result, they were both entitled to give notices of avoidance within seven working days under s 69D(2). Their notices of avoidance were legitimately grounded upon each Purchaser's material prejudice directly arising out of the extent of the reductions of their unit entitlements.

144 On that basis alone, both plaintiffs succeed. Harvey Fields is correlatively entitled to orders for the cancellation of a bank guarantee it provided in lieu of a deposit. In Birdwalk's case, it is entitled to a refund of its deposit.

145 From that platform, I move to assess in briefer fashion the remaining two grounds raised on behalf of Harvey Fields. Harvey Fields' success on these points would simply serve to buttress the legitimate avoidance conclusion I have already reached in the Harvey Fields action.

Harvey Fields: increase in aggregate floor area from 177m2 to 190m2

146 Even though it expressly relied on this change in its notice of avoidance, Harvey Fields says the Vendor had failed to notify it of this floor area change, as was required by s 69C(3)(c).

147 The issue over nonnotification is important because, if it is correct, Harvey Fields' termination may then be grounded upon s 69D(1) rather than s 69D(2). Where s 69D(1) applies, it is not necessary for Harvey Fields to show material prejudice, as is otherwise required for an avoidance under s 69D(2).

148 In response, the Vendor first says it was not obliged by s 69C(3)(c) to give notice on this issue of increased floor area, because there was no change in any 'material particular'. The Vendor says an increase in floor area of 13m2 for apartment 42 was actually a beneficial thing for the Purchaser. Accordingly, it says an increase in floor area is not a notifiable variation.

At a glance

Court

Decision date

Before

Source

Judgment (267 paragraphs)

Legislation Cited (3)

Cases Cited (4)