Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 | Case summary

Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 | Case summary | Zoe

[15]

The plaintiff's claim based on special condition 26.2 15 The plaintiff's notice of rescission dated 27 February 2007 referred to this inspection. The grounds on which the plaintiff purported to rescind were stated in this way: "Inspection of the property on 24 February 2007 revealed that there is a substantial difference between the Draft Strata Plan and the lay-out of the Lot as constructed which detrimentally affects the property to a substantial extent, in that a wall has been constructed substantially obscuring views from the property. This construction of the wall was not disclosed in the Contract." 16 Although not expressly referred to in the notice of rescission, special condition 26.2 was obviously relied upon by the plaintiff (he also seeks to justify the rescission on common law grounds to which I shall come). Special condition 26.2 was as follows: "The purchaser may not make an objection, claim or requisition , delay completion, rescind or terminate because there is a difference between the property as shown in the Draft Strata Plan and the Strata Plan (including a difference in the area or lay-out of the interior of the lot) unless the difference detrimentally affects the property to an extent which is substantial. In this case, the purchaser may rescind by written notice to the vendor within seven days after the earlier of: (a) the date that the vendor serves the Vendor's Notice; and (b) the date that the vendor serves the purchaser with a notice of the change affecting the purchaser." 17 The twofold proposition relied on by the plaintiff in arguing that he validly rescinded the contract by his notice of 27 February 2007 is that there was "a difference between the property as shown in the Draft Strata Plan and the Strata Plan (including a difference in the area or lay-out of the interior of the lot)" and that that difference was one that "detrimentally affects the property to an extent which is substantial". 18 It is necessary now to describe what the notice of rescission referred to "as a wall … substantially obscuring views from the property". First, however, I should say something about the completed home unit. 19 The unit, as it now exists, is of two storeys, with an internal staircase (there are also two car spaces but these can be ignored for present purposes). The lower storey is at ground level. Entry to the unit from the common areas is at its eastern end. Walking forward from the eastern wall of the lower storey, one passes through a living area to glass doors leading to a garden. At the western end of the garden is the property's western boundary. On the upper storey are bedrooms opening on to a balcony facing west. 20 The unit immediately adjoining to the north also has a garden opening off its western wall at ground level. The two gardens are contiguous. 21 The wall about which the plaintiff complains is depicted in a photograph admitted into evidence. The wall stands entirely in the open air. It is an elongation of the dividing wall between the two residential units and runs in a westerly direction from the western walls of the residential premises towards the western boundaries of the gardens. The wall does, however, stop short of those western boundaries so that there is, at its western end, a clear area through which one could walk from one garden to the other were it not for a mesh wire fence which appears to be about one metre high. 22 At its eastern end where the wall abuts the residential building, its top appears to be higher than the ceiling of the ground floor living space. About half way along the wall to the west from that eastern end, the height decreases, in a single step, to roughly two metres (perhaps somewhat less). The wall is, at all points, too high for a view to be obtained over it by anyone in the garden or the ground level living space. 23 I digress at this point to consider the concept of a "lot" as understood in the strata titles context. The physical features of a completed building play a central role in the definition and delineation of a "lot" under the Strata Titles (Freehold Development) Act 1973. It may be said, at some risk of over-simplification, that a "lot" in a registered strata plan consists of a cube of airspace (with "cube" not having its strict meaning in geometry) which has a horizontal base the boundaries of which are shown on the floor plan included in the strata plan, vertical boundaries each of which is the inside surface of a wall of the particular building (or, if not coinciding with the surface of a wall, described in the plan "by reference to" a wall or other physical feature of the building) and an upper boundary which is either the surface of a ceiling or, in the case of an open area such as a balcony, a horizontal plane defined on the plan by reference to a physical feature of the building: see, for example, the analyses in Symes v The Proprietors Strata Plan No 31731 [2001] NSWSC 527, Kannane v Demian Developments Pty Ltd [2005] NSWSC 1193; (2005) 12 BPR 23,305 and The Owners of Strata Plan 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272; (2007) 13 BPR 24,789. 24 It is not possible to identify a lot in a registered strata plan except by reference to physical features such as floors, walls and ceilings, considered in conjunction with the content of the plan itself. The content of the plan alone cannot fully define a lot; nor can the physical features of the building themselves fully define a lot. 25 It follows that there are difficulties with the concept embodied in the words "Lot 2 in the Draft Strata Plan (copy attached)" in special condition 26.2 of the contract. The reference there to a "lot" cannot be a reference to a "lot" in the sense referable to a registered strata plan. This is because the draft plan referred to in special condition 26.2 is a floor plan only; and its content must be interpreted without the aid of the physical features of any building. In the absence of a building, the most that a floor plan can show is boundaries on the horizontal plane (plus their orientation), without any indication of what, if anything, is to stand on, near or within those boundaries.

[17]

27 The only indications the draft plan of the ground level gives about anything other than the external boundaries of the lot on the horizontal plane are a north point which fixes orientation and a surveyor's vinculum joining two parts of the whole divided by a line. One of these corresponds with what became the downstairs living area in the completed building. The other corresponds with what became the garden. There was thus an indication in the draft plan of some form of division within the lot along the dividing line. 28 The content of the floor plan of the ground level within the registered plan, as it relates to Lot 2, should now be described. There are, in that plan, lines in substantially the same places and of substantially the same dimensions as the lines on the draft plan as it relates to the ground level. There are also, however, symbols and explanations. The line running in an east-west direction between Lot 2 and its adjoining lot to the north is, for most of its length, a heavy line. Part of it at the western end is more finely drawn. The letters "PCW" appear against the finer section. Those letters, according to the legend on the registered plan, denote "prolongation centre of wall". From this, two conclusions can be drawn: first, that the heavy line denotes a wall between the two lots (with the surfaces of the wall being the boundaries of the respective lots); and, second, that no wall coincides with the finer line which represents a boundary not coinciding with or marked by any physical feature but defined by reference to the wall of which it is a prolongation. 29 I return now to the contract. The crucial words in special condition 26.2 are "a difference between the property as shown in the Draft Strata Plan and the Strata Plan". A question of construction that immediately arises is whether "the property as shown in the Draft Strata Plan" is to be compared with the property "as shown in" the registered plan or the property as it exists by virtue of the registration of the registered plan. On the second possible construction, one would have regard to all features of the lot in the registered plan, including those supplied by the legislation through the presence and location of walls and other physical features; while on the first possible construction, attention would be paid solely to the content of the registered plan - that is, only the things actually "shown in" it. I shall return to this matter, although, for reasons I shall mention, there is no need to choose between the two possible constructions.

[21]

33 The plaintiff also relies on statements made to him by Mr Wu, a salesman with the selling agent, that the unit would have "180 degree water views". Because of the wall, as eventually erected, 180 degree water views cannot be had from the property at ground level, unless one is standing or sitting in the garden near its western boundary (it seems, however, that there are 180 degree water views from the western windows of the upper storey and its balcony). From the interior of the lower level of the built section, a person looking towards Homebush Bay has no water view to the north. It is obscured by the wall. 34 Counsel for the plaintiff submitted that these surrounding circumstances concerning the model and Mr Wu can be taken into account in construing the contract and, in particular, in ascertaining the meaning of "the property as shown in" the draft plan. Reference was made to Franklins Ltd v Metcash Trading Ltd [2009] NSWCA 407. Allsop P said in that case (at [337]), with the concurrence of Giles JA and Campbell JA: "The sort of surrounding circumstances that can be taken into account are ones that enable the meaning of the words used in the document in question to be ascertained as that meaning would appear to a reasonable person who knew the facts concerning those circumstances. Statements by contracting parties about their subjective intentions in entering the agreement do not assist in ascertaining the meaning of the words." 35 It may also be accepted that extrinsic evidence can be used to identify the subject matter if there is doubt: Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302. But the surrounding circumstances on which the plaintiff relies do not elucidate the meaning of the words the parties used in special condition 26.2. Those words direct attention to the content of the draft plan. The reference to "the property as shown in" the draft plan can only be a reference to such description or definition of the property as is given by the draft plan at the date of contract, without resort to other means of description and definition. The parties could have contracted by reference to the model. They could have adopted, in relation to the physical characteristics of the property as eventually built, a provision in the nature of special condition 26.2 directing comparison with the model. They could have included a stipulation about uninterrupted water views. But they did none of these things. They chose to contract in special condition 26.2 by reference to the content of the draft plan alone. 36 The draft plan (which, as I have said, is a floor plan only) depicts the horizontal plane in a way that identifies lot boundaries and the internal division between the two parts at ground level joined by a vinculum. It shows no walls (or proposed walls) as such. The registered plan also depicts the horizontal plane so as to identify lot boundaries and the internal division. In the registered plan, however, the lot boundaries must be taken to be identified for the most part by walls. I say this because all lines except the short section marked "PCW" are thicker than the "PCW" section and that section itself - identified as "prolongation" of a wall - is obviously represented as the site of no wall or other physical feature. 37 In neither the draft plan nor the registered plan is the height of any wall or proposed wall shown. In the case of the registered plan, this is unimportant, since the legislation causes the lot boundaries not delineated on the horizontal plan to be defined by the building's physical features. 38 Because the draft plan merely shows lot boundaries, it gives no indication of where walls are to be. One is driven to speculation. On one assumption, walls might be built on every boundary line. An alternative assumption is that walls might be built so as to enclose (and make into a living space) only the area to the east of the internal dividing line. Yet another assumption might be that the walls last mentioned will be erected together with a wall or walls to the west of the internal dividing line - including, perhaps, some form of low wall at the western extremity where the lot meets the street. An assumption that is unavailable, however, is that there will be no walls at all. Unless there are some walls, there cannot be a registered strata plan. 39 As far as the content of the draft plan is concerned, the positioning of walls is thus mere speculation. What is "shown in" it (to use the special condition 26.2 terminology), with respect to the position of walls and the other features of walls (including their height), is simply nothing. The registered plan, by contrast, shows the location of the bases of walls in the way I have described; but it shows nothing about their features, including height. 40 Whether the comparison directed by special condition 26.2 is to be made with the property "as shown in" the registered plan or with the property consisting of the strata lot as eventually constituted (see paragraph [29] above), the conclusion must be that there is a "difference between" the property "as shown in" the draft plan and the property with which the comparison is to be made. This is because in the depiction of the property in the registered plan - and a fortiori in the lot as physically existing (where heights of walls are also evident) - the locations of walls are established, whereas the draft plan shows nothing about the position, height or dimensions of any wall. 41 It is therefore necessary to consider the second aspect of the special condition 26.2 condition - that is, whether the "difference" is one that "detrimentally affects the property to a substantial extent".

[34]

"It is to be observed, that the statute does not say in distinct terms that all contracts or agreement concerning the sale of lands shall be in writing; all that it enacts is, that no action shall be brought unless they are in writing. And as there is no clause in the Act which requires the dissolution of such contracts to be in writing, it should rather seem that a written contract concerning the sale of lands may still be waived and abandoned by a new agreement not in writing, and so as to prevent either party from recovering on the contract which was in writing." 61 That statement was made about s 4 of the Statute of Frauds 1677 (29 Car 2 c 3) in its original form: "No action shall be brought whereby to charge . . . any person . . . upon any contract or sale of lands, tenements, or hereditaments, or any interest in or concerning them . . . unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorised." 62 Section 54A of the Conveyancing Act, by contrast, is in these terms: "No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged." 63 Section 54A is to be read in the light of the definition of "disposition" in s 7: "'Disposition" includes a conveyance, and also an acknowledgment under section 83 of the Probate and Administration Act 1898, vesting instrument, declaration of trust, disclaimer, release and every other assurance of property by any instrument except a will, and also a release, devise, bequest, or an appointment of property contained in a will; and 'dispose' has a corresponding meaning." 64 The purchaser under an uncompleted contract for the sale of land has an equitable interest in the land which, as White J pointed out in GPT RE Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964; (2005) 12 BPR 23,217, operates as an imposition on the landowner's title, not a subtraction from it. Consensual rescission of the contract leaves the purchaser without that interest which arguably becomes, through the rescission, the subject of a "release" made by the purchaser and therefore a "disposition" as defined by s 7. If that is so, s 54A seems, clearly enough, to apply. 65 The decisions of the House of Lords in Morris v Barron & Co (above) and British & Benningtons Ltd v North Western Cachar Tea Co (above) must be approached with caution in this context. They were both cases about a descendant of s 17 of the Statute of Frauds: "No contract for the sale of goods, wares, and merchandizes, for the price of ten pounds or upwards, shall be good except . . . that some note or memorandum in writing, of the said bargain, be made, and signed by the parties to be charged by such contract, or their agents thereunto lawfully authorized." 66 That provision contained no reference to the "disposition" (including "release") of an "interest". A contract for the sale of goods will, in any event, not cause the buyer to have an equitable interest in the goods pending completion except, perhaps, in the case of some unique or very rare object. 67 A footnote in the first edition of Williston on Sales (Samuel Williston, "The Law Governing Sales of Goods at Common Law and Under the Uniform Sales Act" (1909) at p 149) should be noticed. The text states the general proposition that the Statute of Frauds does not mention contracts of rescission or discharge which "are, therefore, not affected by its terms". The appended footnote refers to Goss v Lord Nugent (above) and Wulschner v Ward 115 Ind 219; 17 NE 273 (1888) but adds: "An exception to this rule should, perhaps, be made in the case of contracts relating to land, as such contracts create immediately an equitable interest in the land. Equitable interests are within the statutes. . . . The contract to rescind necessarily involves the surrender of an interest in land."

[35]

(The matter is also mentioned in case notes at (1918) 31 Harvard Law Review 804 and (1918) 18 Columbia Law Review 493.) 68 The context in which the question arises will be important. Section 54A of the Conveyancing Act says that "[n]o action or proceedings may be brought upon" the relevant contract, from which it follows that the section does not operate if an oral contract of the relevant kind is relied upon solely by way of defence. Different results may therefore follow in a vendor and purchaser case according to whether a party moves for a declaration or some other relief (such as recovery of the deposit) by positively asserting the oral rescission and its effect on the principal contract or, by contrast, sets up the oral rescission in a purely defensive way to resist, say, a suit for specific performance or action for damages for breach of the principal contract (the point is illustrated by Townshend (Marquis) v Stangroom (1801) 6 Ves Jun 329; 31 ER 1076, a case about oral variation of a written agreement for lease, where the lessor was denied specific performance of the agreement as varied because he could not rely on the oral variation, but successfully resisted the lessee's claim to enforce the unamended agreement by doing just that). In the present case, the alleged oral rescission is used partly in attack and partly in defence. 69 These matters were not fully argued and do not arise on the pleadings. I therefore say no more about them and proceed to consider the plaintiff's oral rescission case. The alleged oral rescission - assessment 70 In approaching the oral rescission question, I must start with email correspondence that passed between the respective solicitors before the alleged oral agreement was made. By late March 2007, the parties were in dispute. The plaintiff had purported to rescind the contract on 27 February 2007. The defendant had rejected that rescission and gave a notice to complete on 20 March 2007 requiring completion on 4 April 2007. It was in that context that, on 26 March 2007, the plaintiff's solicitor suggested to the defendant's solicitor "a meeting to discuss the matters in dispute". The defendant's solicitor replied on 28 March 2007 that Mr Banji, of the selling agent, was "arranging a meeting between your client and mine to discuss your client's concerns". The plaintiff's solicitor sent an email on 3 April 2007 saying that "it is clearly in the interests of both parties to attempt resolution of the dispute". A meeting took place on 5 April 2007. 71 The email correspondence may be of some significance as an indication of the purpose of the meeting. On one version, the purpose was to discuss "concerns". On another, it was to attempt to reach "a resolution of the dispute". 72 Of much greater significance, however, is what actually happened at the meeting. It took place at the subject property on 5 April 2007. The plaintiff and his wife attended. Mr Touma was meant to attend on behalf of the defendant but was delayed at another meeting. He contacted Mr Ray Humphreys and arranged for him to attend in his place. 73 Accounts of what passed between the plaintiff, his wife and Mr Humphreys appear from the evidence of all three. 74 According to the plaintiff's affidavit evidence, Mr Humphreys introduced himself as follows: "My name is Raymond Humphreys. Michael is not going to make the meeting today, however I am representing Statewide. I am authorised to settle the dispute on behalf of Statewide. We hope to sort out your problems and come to an agreement concerning the apartment." 75 This evidence was given in an affidavit sworn on the eve of the hearing. In his earlier affidavit, the plaintiff attributed to Mr Humphreys in direct speech one statement only, namely: "I am authorised to settle the dispute on behalf of Statewide." 76 In his second affidavit, the plaintiff went on to relate a number of other things allegedly said by Mr Humphreys. These included: "There is a number of owners in dispute with Statewide." "I worked for Baseline during the building of the project." "I now work for Statewide Developments." "There have been many problems with the development and possibly the whole development could be in the wrong location by up to as much as 6 metres." "250,000 tonnes of soil needs to be cleared on the site as it is contaminated. That is 6 metres deep all along the foreshore that needs to be dug up and cleaned and this will take two years." "He further stated that 'this process is under way' and pointed out an area where the soil was being filtered. He stated that 'once the soil was cleaned new turf would be laid and it would be like the same out the front as the foreshore in adjacent buildings'. There was extreme noise and despite deodorant being constantly sprayed on the earth being cleaned the acrid smell was heavy in the air." "The fumes and water are all toxic." "If you have a 16 month old and are pregnant you shouldn't live here and I wouldn't either if I were you." "You cannot open the doors to the unit due to soil contamination. Workers have experienced bleeding noses and headaches during the construction.'" "The concrete wall is not on the plans." "If you don't want to settle, just ask for your deposit back and in your situation there will not be a problem. I will speak with Michael and let him know and everything will be taken care of." 77 The plaintiff put into evidence contemporaneous written notes. He accepted in cross-examination that he re-constructed from those notes the version of the conversation with Mr Humphreys ultimately deposed to in his second affidavit. It is relevant to set out the notes in full: " RAYMOND HUMPHRIES 0415 XXX XXX STATEWIDE WORKED FOR BASELINE Represented Michael "the builder" * If you have a 16 mth old & are pregnant you shouldn't live here and I wouldn't either if I were you. * Fumes and water is toxic & nobody should go near it * If you don't want to settle, just ask for your deposit back, & in your situation there should not be a problem * Cleaning will be 2 years. Smell camoed [sic] by deodorant. * You cannot open the doors to the unit due to soil contamination * Workers with bleeding noses & headaches * Wall was not in plan can be removed but will then need a screen 1.8m high * No access * 250,000 tonne to be cleaned * Outside our balcony massive noise." 78 The plaintiff's made it clear in cross-examination that he wrote part of the above while he and his wife were in the unit with Mr Humphreys and that the balance, except for the last two dot points, was written by him in their car to which he and his wife returned after parting from Mr Humphreys. The last two entries were added by his wife as the two of them sat in the car before leaving the site. The plaintiff accepted that he and his wife had collaborated in the preparation of the notes. 79 Mrs Higgins' affidavit attributes to Mr Humphreys the following words: "I am an authorised representative of Statewide Developments. I am meeting with you to come to an agreement concerning the apartment."

[37]

Q. Isn't it the case that you reconstructed your recollection of what he said by reference to what you believe to be the issues are in this case? A. No." 81 Mr Humphreys gave evidence on affidavit and was cross-examined. He was, in April 2007, a site manager working for the defendant. His job at the time was to oversee the construction of penthouses. While working on the site on 5 April 2007, he received a telephone call from Mr Touma asking him to attend a meeting with the plaintiff at the relevant unit. Mr Touma explained that he was delayed in another meeting and could not attend. According to Mr Humphreys' evidence, the instruction he received from Mr Touma was: "Can you meet with him, let him look at the unit and find out what he is complaining about. It is not your job to answer questions." 82 Mr Humphreys' affidavit account of the meeting begins with his introducing himself as "the site manager" and explaining that he works with Mr Touma who is not available. The account continues: "6. While inspecting the Unit, the Plaintiff's wife complained about the smell and we had a conversation in words to the following effect: Mrs Higgins: 'What's happening with the smell?' Me: 'Got no say in it.' Mrs Higgins: 'I have a baby on the way and a young child. Is the smell harmful?' Me: 'Not to me. I live here.' 7. At the time, I lived in one of the units in the Development. 8. Mrs Higgins said words to the following effect: Mrs Higgins: 'We don't think this is a healthy place to live.' 9. I had a conversation with Mr Higgins in words to the following effect: Mr Higgins: 'The model that we saw did not have the wall on the balcony.' Me: 'A model is a model. There are going to be changes to make the building rigid.' 10. I had a further conversation with Mr Higgins in words to the following effect: Mr Higgins: 'I want the wall on the balcony removed.' Me: 'There has to be some sort of boundary between the apartments. You could look at taking it out and replace with a glass wall.' 11. Later, Mr Higgins said words to the following effect: Mrs Higgins: 'A friend of ours recently purchased another unit. She is not happy and wants out as well.' 12. Towards the end of the inspection, there was a further discussion in words to the following effect: Mr Higgins: We're not happy about the way the unit is at the moment. We can not see ourselves living here. We are in the process of selling our house and don't want to move here.' Mrs Higgins: 'I can't bring my baby here.' Me: 'You will have to talk to Michael Touma or Joe Touma about that, it is nothing to do with me. I am concerned with defects in the unit. Anything about contracts, you will need to talk to them.' 13. It was my impression when Mr & Mrs Higgins left that they were going to speak to Michael or Joe Touma." 83 There are obvious discrepancies between Mr Humphreys' account of the plaintiff's concerns and those of the plaintiff and his wife. Complaint about a bad smell is one example. This is mentioned by Mr Humphreys but not by the plaintiff and his wife. There are also discrepancies between the plaintiff's account and that of his wife. 84 It is relevant to quote a portion of Mr Humphreys' cross-examination relating to what he said about the contract. The following appears after some questions and answers about the process of preparation of Mr Humphreys' affidavit: "Q. What guided you in what you put in? A. Mainly the question was asked, did I give permission for them to leave the contract. It was not my job. I said, no, I didn't give anybody permission to leave the contract. I could never say that, not my job, and that was more important than saying to the right [sic].

[46]

Q. I suggest to you that you don't have a real recollection of what happened at that meeting? A. No, incorrect. When somebody asks me questions, I don't want to spend too long on it. So, yes, no, answers. And then the question came up about the contract. I didn't offer any contract. I said, 'It's not my job. Any contract complaints, talk to Mr Touma'." 85 I am satisfied that Mr Humphreys did not use the word "rescind" and that Mrs Higgins' evidence is inaccurate in suggesting that he did. Mr Humphreys is a builder. Having seen and heard him in the witness box, I would be surprised if "rescind" was a word he ever used. It is pertinent that, in the passage of cross-examination just quoted, he spoke of "permission to leave the contract" and denied that he had given any such permission because it was "not my job". By using the word "leave" to express the concept of becoming free of the contract, Mr Humphreys confirmed the impression that "rescind" is not part of his normal vocabulary. Questions about contracts were, in his mind, questions for other people. He would have taken that attitude during the meeting on 5 April 2007. 86 I am satisfied that, despite Mrs Higgins' evidence to the contrary, Mr Humphreys did not say: "I agree you can rescind the contract and Statewide Developments will return your full deposit." 87 A matter of particular significance is that the plaintiff's own evidence does not bear out the proposition that Mr Humphreys spoke these words or any other words constituting an oral agreement to rescind. The plaintiff, unlike his wife, does not attribute to Mr Humphreys any language consistent with immediate formation of an agreement to rescind. No doubt because the plaintiff, in preparing his affidavit, drew on the contemporaneous notes, his evidence about what Mr Humphreys said corresponded very largely with the relevant content of the notes: "If you don't want to settle, just ask for your deposit back, & in your situation there should not be a problem." 88 This is not language of immediate contractual commitment. It is no more than a suggestion as to future action the plaintiff might consider, coupled with a comment about the prospects of success if the suggested course is taken. 89 The account in the plaintiff's notes, repeated in his affidavit, is consistent with Mr Humphreys' evidence, at least to the extent that Mr Humphreys said that he indicated that "anything about contracts" would have to be raised with someone else. 90 My conclusion on this part of the case is that the oral agreement of rescission alleged by the plaintiff was not made. The defendant's claims 91 Because the plaintiff has been unsuccessful in his claim under special condition 26.2, his Flight v Booth claim and his claim based on alleged oral rescission, it is necessary to deal with the claims in the defendant's cross-claim. Those claims must be approached on the basis that the contract continued on foot when the defendant served notice to complete on 20 March 2007 so that the plaintiff's failure to complete in accordance with that notice was a breach of contract. 92 The defendant claims damages, interest and a declaration that it is entitled to keep the deposit of $76,100 in accordance with standard condition 9 of the contract. Standard condition 9 is in these terms: " 9 Purchaser's default If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can 9.1 keep or recover the deposit (to a maximum of 10% of the price); 9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1 for 12 months after the termination ; or 9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination to recover - the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract." 93 Under standard condition 9.1, the defendant is entitled to the deposit of $76,100. I do not understand the plaintiff to dispute this, although the plaintiff does advance a claim to relief in that respect under s 55(2A) of the Conveyancing Act to which I shall come in due course. 94 The defendant's right to damages is recognised in standard condition 9.3. The evidence makes it plain that the defendant did not resell the property under any contract made within twelve months after termination of the contract (or at all). The defendant remained the owner of the property at the time of the trial. The defendant's right is therefore, in terms of standard condition 9.3.2, simply "a right to recover damages for breach of contract". 95 The defendant, in its cross-claim, alleges that it "has suffered loss and damage as a consequence of the cross defendant's defaults in failing to complete the purchase of the property by the date for completion and/or the completion date". Particulars follow:

[49]

98 Despite item 1 of the particulars quoted at paragraph [95] above, the defendant has not sought to establish the value of the property at the time of the plaintiff's breach or at all. No valuation evidence has been tendered. Rather, the defendant has given evidence about outlays it has made (and, in a practical sense, been compelled to make) by reason of its continuing ownership of the property after the plaintiff's breach of contract. These are no doubt relevant to item 2 of the particulars at paragraph [95]. The outlays are of two main kinds. First, there are disbursements directly attributable to the ownership of the property (such as local government rates and water rates charged in respect of the property and strata title levies). Second, there is an interest expense. The defendant borrowed a very substantial sum to undertake the major development of which the subject property forms part. The principal outstanding at various times appears from bank documents exhibited to Mr Touma's affidavit and appears to have been more than $64 million. The defendant has calculated a proportion of the ongoing interest charge related to that total borrowing which it considers to be attributable to the subject property. That proportion of the interest, the defendant says, represents the major part of the damage it suffered by reason of the plaintiff's breach of contract. Two problems with the defendant's claims 99 Two consequences seem to me to follow from the way the defendant has approached this aspect of the case. First, the court has no basis on which to make any finding about the extent, if any, to which the value of the property at the time of the purchaser's breach (or at any other time) was less than the purchase price, with the result that the court cannot include in any award of damages anything referable to any such head of loss. Second, the sum the defendant claims by reference to its own costs of borrowing is not a legitimate element of any award of damages. It is necessary to say something by way of explanation of each of these matters. 100 In relation to the first matter, I quote from the judgment of Hodgson JA and McColl JA in Paino v Paino [2008] NSWCA 276; (2008) 40 Fam LR 96 at [76]-[77]: "There is a general principle in relation to damages that where a plaintiff has proved substantial loss but the evidence does not enable precise quantification of it, the court should "do its best": Fink v Fink [1946] HCA 54; (1946) 74 CLR 127 (at 143); State of NSW v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536 (at [72]); Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 (at [135]-[141]). However, in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 Hayne J said this: 'Placer undoubtedly bore the burden of proving not only that it had suffered damage as a result of Thiess Contractors' breach of contract, but also the amount of the loss it had sustained. It goes without saying that it had to prove these matters on the balance of probabilities and with as much precision as the subject matter reasonably permitted. It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind. This case did not invite attention to such questions. Placer sought to calculate its damages precisely.'" 101 In the quoted extract from the judgment of Hayne J in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 at [37], it is made clear that a party seeking damages for breach of contract must prove two things: first, that the party has suffered damage as a result of the breach; and, second, the amount of the loss sustained. Only in relation to the second aspect may it become appropriate for the court to resort, on occasion, to "estimation, if not guesswork". 102 In this case, so far as concerns the possibility of loss and detriment through reduced value of the property, the defendant has not proved that it has suffered any such loss or detriment as a result of the breach. For reasons that are unexplained (and about which one can only speculate), the defendant has produced nothing - not even evidence of property market trends over the relevant period - that enables the court to conclude that, putting to one side precise quantification, the value of the subject property at the time of breach was or even may have been less than the contract price. The obligation of the court to "do its best" in assessing damages, including even "estimation, if not guesswork", is therefore not activated. That is an obligation that applies only to quantification of demonstrated loss. 103 I turn now to the defendant's contention that a legitimate component of its damages is a proportion of the cost of its borrowing in the form of interest that it has continued to pay upon finance obtained to complete the home unit development as a whole (see item 2 of the particulars at paragraph [95] above). 104 In seeking to maintain that claim, the defendant relied on the decision of the Court of Appeal in Palasty v Parlby [2007] NSWCA 345; (2008) 13 BPR 25,311. That was a case in which the vendor resold after the purchaser's default. A question arose concerning interest for which the vendor became liable on several mortgages of the property that he had had to maintain on foot (and to refinance) during the period before the resale was effected. In the result, however, the vendor did not contend that the interest charge thus incurred by him between the purchaser's breach and completion of the resale was a component of the damages recoverable for the purchaser's breach. Mason P (with whom Tobias JA and Handley AJA agreed) said at [48]: "It was undoubtedly proved that the vendor was paying interest on his two outstanding mortgages for at least some of the period between termination of the subject contract and completion of the resale. In addition, the purchaser's breach forced the vendor to incur the expense of refinancing the two mortgages which expired during that period. This refinancing resulted in the vendor incurring over $40,000 in additional fees and expenses (Black 78, 82). But the vendor did not at trial press a claim for additional interest based on his actual mortgage outlays. In the circumstances, he did not establish that those mortgage losses were recoverable under either limb of Hadley v Baxendale ." 105 Mason P had earlier observed (at [37]) that the outlays concerned had been the basis of the vendor's pleaded interest damages claim but, in final submissions at trial and also on appeal, had been put forward only to demonstrate the justice of awarding interest damages at court rates. 106 Palasty v Parlby thus does not support the approach the defendant wishes the court to take with respect to the calculated proportion of its financing expenses. Furthermore, that approach is inconsistent with authority. 107 Professor Butt, in "The Standard Contract for the Sale of Land in New South Wales" (above), observed at page 520: "Generally, a defaulting purchaser is not liable to pay to the vendor by way of damages interest which the vendor continues to incur under a mortgage over the property after terminating the contract for the purchaser's default. It is true that had the sale been completed the mortgage would have been discharged. But the obligation to continue to pay the mortgage arises not from the purchaser's breach but from the vendor's decision to terminate the contract and retain the property." 108 Professor Butt cites, in that connection, Carpenter v McGrath (1996) 40 NSWLR 39, a case relied on by counsel for the plaintiff. Clarke JA there said (at 44): "The claim for interest paid by the respondents to their mortgagee did not arise because of the breach of contract. The obligation to continue paying the interest followed the decision of the respondents not to sell the property. It is wrong in principle to regard an obligation which arises because a vendor makes a commercial decision to retain a property as flowing from the breach of contract by the purchaser." 109 Cole JA said (at 73): "Continued payments of mortgage interest on a property retained after termination of a contract for default cannot in usual circumstances be regarded as a loss flowing from the breach."

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110 This is consistent with earlier decisions. In Bridges v MacPhail (1977) 3 BPR 9317, Needham J referred (at 9317) to a submission as follows: "Counsel for the vendors submitted that interest paid by them under the mortgages, either until the eventual sale of the property or at least for a reasonable time, should be included in the damages payable by the purchasers. He appealed to the general principle that, in cases of breach of contract, damages should, so far as money could do so, put the innocent party in the position he would have occupied if there had been no breach. The submission was not restricted to cases where the purchaser knew that the property was mortgaged, although it was submitted that such a case was even stronger." 111 Needham J then referred to the evidence: "The evidence here is that the purchasers knew that the property was mortgaged - there is no other relevant knowledge attributed to them." 112 Then followed this assessment: "If the vendors' submission is correct, then in every case of a breach by a purchaser where the property is mortgaged he will be liable for interest paid on the mortgage until the vendor sells, or until a reasonable time after the breach. I do not think that that is correct as a general proposition. I think the general rule is contained in the cases to which I made reference in my original reasons. If there are special circumstances, for example, knowledge in the purchaser of a particular situation in which the vendor is placed, so that to a person in the position of the purchaser it would appear not unlikely that a breach would cause special damage, then the general rule would not sufficiently recompense the vendor (cf Cottrell v Steyning & Littlehampton Building Society [1966] 1 WLR 753)." 113 Subsequently, Young J said in Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391 at 396 that interest incurred by the vendor on a continuing mortgage would not be "damages flowing from the purchasers' default except in cases where the second limb of the rule in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145; [1843-60] All ER Rep 461 applied." His Honour was there referring to loss "such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it", to quote the words of Alderson B in Hadley v Baxendale itself. 114 The question of what might reasonably be supposed to have been in the parties' contemplation, in circumstances of the relevant kind, was addressed by Young J in Eight SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 at 15,200: "The vendor had mortgaged the property. The purchaser knew that the vendor had mortgaged the property both by his searches and from conversations. However, the mere fact that the purchaser knows the vendor has mortgaged the property is insufficient to remove the case from the general principle that the damages payable by the purchaser do not include interest payable on the vendor's mortgages: Bridges v MacPhail and Jampco v Cameron . There is not sufficient material to depart from this general rule." 115 The need for what Young J called "sufficient material to depart from this general rule" - or "special circumstances", to quote Needham J, - must be emphasised. A claim of the kind the defendant is now pressing seeks to sheet financial responsibility home to the defaulting purchaser according to the peculiar circumstances of the particular vendor. If the defendant's approach is correct, the claim will be maintainable in every case where the property is encumbered by a mortgage given by the vendor. It will be a large claim if the mortgage debt happens to be large and a small claim if the mortgage debt happens to be small. There will be no claim at all if the vendor's mortgage does not secure any debt at the relevant time. 116 It cannot, in general, be the case that the quantum of the defaulting purchaser's liability in damages should vary according to these quite fortuitous circumstances affecting the vendor. But the position can be different if there is some aspect of the surrounding circumstances warranting the conclusion that the purchaser knew of the vendor's liability and both parties actually had in contemplation the loss that the vendor would suffer if the vendor did not duly receive the balance of purchase moneys and was thereby not able to discharge the liability. As the cases I have mentioned make clear, the mere fact that the purchaser knows that a mortgage exists is not enough. 117 In the case before me, no evidence has been led as to the plaintiff's knowledge of the defendant's financing arrangements. Nor was any submission made that the plaintiff had in contemplation loss that the defendant might suffer through inability to use the proceeds of sale to retire some of its acquisition and construction finance. 118 The defendant has not shown that the damages to be awarded to it should include a sum referable to the construction financing cost actually incurred by it. Assessment of damages 119 Given my conclusions with respect to the matter just mentioned and the absence of evidence about the value of the property at the time of the plaintiff's breach, the only components of loss that the defendant can properly claim by way of damages are those related to direct costs of holding the property, that is, costs that would have been avoided had the plaintiff's breach not occurred and which were occasioned by the continued ownership. These are made up of strata levies, local government rates, water rates and land tax. A schedule prepared by the defendant and not challenged by the plaintiff quantifies these at $22,312.19. Despite item 3(iv) (electricity, water, telephone and other utilities), item 4 (certain legal costs) and item 5 (selling agent's commission) of the particulars set out at paragraph [95] above, the defendant led no evidence in support of its claim to recover those items. It should be pointed out, in any event, that item 3(iv) is irrelevant as it relates to consumption of services actually provided to an occupier of the property - a matter quite unrelated to the ownership and holding of the property. 120 Against the strata levies, local government rates, water rates and land tax must be offset rent that the defendant has been able to derive by reason of its ongoing ownership of the property. The defendant conceded that it had received rent of $54,000 over the relevant period. The plaintiff did not challenge that figure. 121 In the result, therefore, the evidence led by the defendant shows that the costs of ongoing ownership have been exceeded by the benefit in the form of rent receipts. The quantum of damages established by the defendant is therefore zero.

[51]

The plaintiff's claim under s 55(2A) of the Conveyancing Act 122 It remains to consider the plaintiff's claim for an order that the deposit of $76,100 be returned to him. 123 Section 55(2A) of the Conveyancing Act provides: "In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon." 124 By virtue of s 7, the reference here to "the court" is a reference to this court. These proceedings are proceedings of the kind referred to in the section. 125 Considerations relevant to the exercise of this statutory jurisdiction emerge from conclusions stated by Santow JA (with whom Tobias JA and Brownie AJA agreed) in Havyn Pty Ltd v Webster [2005] NSWCA 182; (2005) 12 BPR 22,837 at [173]: "(a) Section 55(2A) confers upon the Court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture. (b) Notwithstanding this, it is important for a Court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur. (c) That context is significant when considering the justice and equity of the case, and whether the Court "sees fit" to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show "special circumstances" (or satisfy any like test) before a deposit will be returned. (d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited. (e) In considering an application under s 55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited." 126 The judgment of Gleeson CJ, McHugh J, Gummow J, Hayne J and Heydon J in Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367 contains the following passage (at 27]: "The appeal to the Court of Appeal should have been dismissed. The appeal to this court should be allowed with costs. The orders made by the Court of Appeal should be set aside. In place of those orders it should be ordered that the appeal to the Court of Appeal should be dismissed with costs and the cross-appeal should be allowed with costs. Involved in allowing the cross appeal is the conclusion that Windeyer J erred in the exercise of his discretion under s 55(2A) of the Conveyancing Act in ordering the return of the deposit where evidence was insufficient to show that it would be unjust or inequitable to allow the vendors to retain the total sum of $50,000 paid as deposits under the contracts for sale. There should be a declaration that that sum of $50,000 is forfeited to the appellants." 127 In Nassif v Caminer [2009] NSWCA 45; (2009) 14 BPR 26,873, the Court of Appeal noted that this passage in the joint High Court judgment had not been referred to by Santow JA in Havyn Pty Ltd v Webster. Macfarlan JA (at [66]) expressed the opinion that the joint judgment did not "dictate any different approach to that identified by Santow JA". Sackville AJA (with whom Basten JA agreed) was of the view (at [91]) that the passage in the joint judgment emphasised the significance of Santow JA's observation that "a court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract, when performance does not occur". 128 The decision in Havyn Pty Ltd v Webster was that the deposit should be returned to the purchaser. A significant factor in the decision was what the court characterised as "misrepresentations" in a brochure prepared by the selling agents as to the size of each of six flats that became the subject of the contract for sale. The units were described as being some 5% larger than they in fact were. The evidence established that the purchaser had relied on the incorrect statements when deciding to enter into the contract. 129 In Nassif v Caminer also, there were allegations that the vendor's agent had made material misrepresentations to the purchaser. In that case, the property was sold subject to an existing tenancy and the agent had incorrectly represented that the tenant was a good tenant who kept up to date with the rent. Macfarlan JA saw that as one of two factors leading to the conclusion that the s 55(2A) jurisdiction should be exercised favourably to the defaulting purchaser. The other members of the court did not share that opinion since, on the view they took, the evidence did not allow responsibility to be attributed to the vendor for misleading and deceptive conduct that influenced actions of the purchaser. 130 In the present case, there is uncontradicted evidence, first, that the plaintiff relied on the scale model of the then proposed building in deciding whether to enter into a contract for "off-the-plan" purchase; second, that the wall that led to the plaintiff's attempted rescission did not appear in the scale model and was incorporated into the building design a considerable time after the contract had been entered into; third, that Mr Wu, a representative of the selling agent, represented orally to the plaintiff that the property when completed would enjoy "180 degree water views"; and, fourth, that the presence of the wall in issue means that "180 degree water views" are not available from the ground floor living area. 131 Also uncontradicted is the plaintiff's evidence that the availability of the 180 degree views that are in fact rendered unavailable by the wall was a significant factor in his decision to enter into the contract. 132 I have already said that the defendant was contractually entitled to take the course it in fact took in building the wall in question so as to obstruct in part water views from the lower storey of the subject unit. By taking the course thus contractually available to it, however, the defendant dishonoured representations made by it (through both display of the model and the agent's representative) that had understandably been taken into account by the plaintiff as an important consideration in deciding to buy the particular property for the particular price. 133 That, to my mind, amply justifies an order under s 55(2A) that the plaintiff should have the deposit restored to him. It would be unjust or inequitable to allow the defendant to have the benefit of the deposit when it had acted (admittedly in exercise of a contractual right) to undermine an important part of the circumstances that had induced the plaintiff to contract with it as he did. 134 A second factor also points towards an order under s 55(2A) in favour of the plaintiff in this particular case. Had damages been awarded to the defendant, the deposit would have been brought to account as part of the damages. Thus, if damages had been assessed at $100,000, the forfeited deposit of $76,100 would have been applied towards those damages and the further outlay required of the plaintiff would have been the difference of $23,900. If, on the other hand, damages had been assessed at $50,000, the deposit would have been applied to satisfy those damages in full and the plaintiff, as purchaser, would have had no right to recover the balance of $26,100. The clear contractual provision declaring that the vendor can keep the deposit would have stood in the way of any such recovery; yet the plaintiff would have been in the same position as if $50,000 of the $76,100 had not been forfeited at all and the defendant, having proved loss of only $50,000, would enjoy $76,100. 135 After a purchaser's default, the deposit represents a form of security for that purchaser's liability in damages (having been, before default, a form of security for the purchaser's obligation to perform the contract). Where the deposit exceeds the damages to which the vendor is entitled by reason of the purchaser's breach, the vendor's legal right (conferred by the contract) to keep the excess may not sit happily with the fact that the vendor's loss has been fully compensated and the vendor thereby made whole without resort to that excess. In the present case where assessment of damages has produced a zero entitlement for the vendor, the vendor's legal right to keep the whole deposit and the purchaser's consequent inability at law to recover any part of it likewise may not sit happily with the justice and equity of the case. Although the fact that a vendor has resold at a profit may not, of itself, be sufficient to warrant an order under s 55(2A) in favour of the defaulting purchaser, it is still a significant consideration: see, for example, Nelson v Bellamy [2000] NSWSC 182; (2000) 10 BPR 19,011. A case such as the present in which the vendor has proved no loss or damage stands in the same light. Disposition 136 Upon the claims in paragraphs 1 to 7 and 9 of the further amended statement of claim, there will be one order only, being an order pursuant to s 55(2A) of the Conveyancing Act that the deposit paid by the plaintiff under the contract for sale dated 30 October 2003 be returned to him. 137 Upon the claims in paragraphs 1 to 3 and 5 of the cross-claim, there will be no order because of the conclusion stated at paragraph [121] above. 138 That leaves, in each case, the claim for a costs order. It will be necessary to hear argument on costs. The question of costs is therefore reserved.

Higgins v Statewide Developments Pty Ltd

At a glance

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Judgment (52 paragraphs)

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Cases Cited (25)

Cited By (16)