Strata Titles Act 1985 (WA), s 70

Second Defendant : Mr E M Corby SC & Mr M D Cuerden

Second Defendant : Mr E M Corby SC & Mr M D Cuerden

Second Defendant : Mr E M Corby SC & Mr M D Cuerden

Second Defendant : Mr E M Corby SC & Mr M D Cuerden

1 TEMPLEMAN J: This is the trial of a preliminary issue, pursuant to O 33 r 14 of the Rules of the Supreme Court 1971 (WA). In essence, the issue is whether, on the facts agreed or assumed for this purpose, the second defendant (the defendant) was entitled to terminate a contract for the sale to the plaintiffs, off the plan, of a strata-titled apartment to be constructed in a proposed multi-storey development (the apartment building).

2 There is very little to be said by way of background. It is agreed on the pleadings that the defendant is and was at all material times the registered proprietor of land at 11 Bennett Street, East Perth: and that from on or about 2003, the defendant has been developing the land by, among other things, engaging others to construct the apartment building.

3 It is common ground that on or about 20 February 2004, the plaintiffs as purchasers, and the defendant as vendor, executed a written contract for the purchase of an apartment in the proposed apartment building.

4 The contract is a substantial document comprising a standard form offer and acceptance and various supplementary documents. These include a number of special conditions. The determination of the preliminary issues turns on the construction of the special conditions. So far as relevant, they are as follows:

3.1 This Contract is subject to and conditional upon:

3.1.1 The grant of approval by the relevant authorities for the construction of the Building.

3.1.2 The Local Authority issuing a Certificate under Section 23 of the Strata Titles Act 1985 (as amended) with respect to the Strata Plan.

3.1.3 The Western Australian Planning Commission issuing a certificate of approval in respect of the Strata Plan.

3.1.4 Practical Completion of the construction of the Building.

3.1.5 Registration of the Strata Plan by the Registrar of Titles no later than 90 days after Practical Completion.

3.2 If any of the conditions referred to in these Special Conditions are not fulfilled within the times set out or extended pursuant to this Contract then unless it is otherwise agreed by the Seller and the Buyer in writing the Seller shall repay the Deposit paid by the Buyer to the Seller's Agent as part of the Purchase Price together with interest pursuant to clause 4.5, and upon the Seller repaying the Deposit to the Buyer this Contract shall be at an end and there shall be no further claim under this Contract by either party against the other at law or in equity or pursuant to statute whether state or federal or otherwise.

...

6.1 The Property shall be constructed by the Seller in a proper and workmanlike manner in accordance with the Plans and Specifications subject to the terms of this Contract.

...

If any construction of the Property or any other part of the Building is delayed by any of the following causes:

(a) on account of authorised variations or extra's;

(b) by inclement weather, earthquake, fire or other act of God;

(c) in consequence of proceedings being taken or threatened by or disputes between parties or with adjoining or neighbouring owners or residents;

(d) by reason of any civil commotion or combination of workmen or strikes or lock outs affecting any of the trades employed upon the development or affecting the manufacture or supply of materials for the development;

(e) delay by an authority in giving any necessary approvals;

(f) by any other matter cause or thing beyond the control of Seller;

then in any such case the Seller must [as] soon as practically possible notify the Buyer and may make fair and reasonable extension of the time for Completion of the Building and the Property. Any such extension made by the Seller is at the Seller's discretion and is not subject to question or review and the time for completion of the Building and the Property must be extended by the period claimed by the Seller.

11.1 On completion of the Building, the Seller will prepare the Strata Plan so that it complies with the Act and is in accordance with the Contract.

11.2 The Strata Plan will subdivide the Land into the Lots and the Common Property. The Property will be one of the Lots which together will be known by the Name.

11.3 Prior to the Settlement Date the Seller shall apply to register the Strata Plan at the Titles Office.

11.4 The Seller and the Buyer agree in accordance with Section 70(4) of the Act that the Strata Plan may be registered thirty (30) months after the Seller accepts the Buyer's offer and if the Strata Plan is not registered within that period either the Seller or the Buyer may at any time thirty two (32) months after the Seller accepts the Buyer's offer and before the Strata Plan is registered terminate this Contract by giving notice in writing advising that this Contract is terminated and upon repayment of the Deposit to the Buyer there shall be no further claim under this Contract by either party against the other at law or in equity or pursuant to statute whether state, federal or otherwise.

I have included the headings in this extract, although, by cl 2.1(f), unless the contract requires otherwise, headings are included 'for convenience only and do not effect [sic] the interpretation of this Contract or any annexure or schedule'.

5 The term 'Building' is defined to mean the buildings and improvements to be constructed in accordance with the proposed Strata Plan: ie, the apartment building.

6 The term 'Strata Plan' is defined to mean the proposed strata plan for the Building, which is annexed to the contract.

7 It is agreed on the pleadings that on its proper construction, the contract required the defendant to use reasonable endeavours to:

(a) construct the apartment building to the stage of Practical Completion and prepare a Strata Plan for registration; and

(b) register the Strata Plan for the apartment building within 30 months of the date of the contract, alternatively, no later than 90 days after Practical Completion whichever was the later

(statement of claim, par 7(a) and (b): defence, par 5).

8 It is agreed further on the pleadings that the contract contained an implied term requiring the defendant to do all things reasonably necessary on its part to enable the plaintiffs to have the benefit of the contract: which term also required the defendant to use reasonable endeavours to construct the apartment building to the stage of Practical Completion and prepare a Strata Plan for registration (statement of claim, par 8(a) and (b): defence, par 7).

9 It is agreed, for the purposes of the trial of the preliminary issues, that:

(1) the defendant terminated or purported to terminate the contract on 20 February 2007;

(2) the apartment had not been constructed to the stage of Practical Completion as at 20 February 2007; and

(3) the defendant had used its best endeavours to construct the apartment to the stage of Practical Completion by 20 February 2007.

10 By order of Newnes J, the following preliminary issues are to be determined:

(a) Whether, on their proper construction, the provisions of the Contract required the ... Defendant to use reasonable endeavours to offer an extension pursuant to clauses 9 and 11.4 of the Contract in the event the Strata Plan was not registered within 30 months of the date of the Contract ...

(b) Further, whether the Contract contained an implied term to use reasonable endeavours to offer an extension pursuant to clauses 9 and 11.4 of the Contract in the event the Strata Plan was not registered within 30 months of the date of the Contract ...

(c) Further, whether clause 11 of the Contract on its proper construction only entitled the ... Defendant to terminate the Contract after:

(i) the construction of the Apartment Building had reached Practical Completion, alternatively completion, pursuant to clause 11.1 thereof;

(ii) the ... Defendant had prepared a Strata Plan pursuant to clauses 11.1 and 11.2 thereof; and

(iii) the ... Defendant had applied to register the Strata Plan at the Titles Office pursuant to clause 11.3 thereof; and

(iv) the Strata Plan could not be registered within 90 days ...

Paragraph (iv) above did not form part of the original order. It was added at the hearing by agreement between counsel for the parties.

11 As appears from the offer and acceptance, the contract is for the sale and purchase of 'The land situated at and known as 34/11 Bennett Street, East Perth WA 6004'. Special condition 4 provides that the special conditions and annexures attached to the offer and acceptance apply to the contract. The special conditions include cl 6.1, which imposes on the defendant an obligation to construct the apartment in a proper and workmanlike manner in accordance with the plans and specifications which also form part of the contract.

12 The conditions contained in cl 3.1 of the contract are all conditions precedent to settlement. However, no times were stipulated in that clause by which any of the conditions were to be satisfied. Clause 3.1.5 is no exception: it would be satisfied if the Strata Plan was registered no later than 90 days after Practical Completion, but no date was specified by which Practical Completion was to be achieved.

13 In my view, the conditions set out in cl 3.1 are not promissory. That is to say, the defendant did not, by this clause, promise that the stages in the development to which it refers would actually be achieved. So far as construction of the apartment is concerned, the promissory element is contained in cl 6. Further, as I have noted above, the parties are agreed that the defendant was obliged to use reasonable endeavours to construct the apartment to the stage of Practical Completion and was obliged to do all things reasonably necessary on its part to enable the plaintiffs to have the benefit of the contract.

14 The decision of the High Court in Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 is authority for the proposition that if no date is fixed for the satisfaction of a non-promissory condition which must be satisfied before settlement can take place, a reasonable time must be allowed for its satisfaction: see Gibbs CJ at 543 and Wilson J at 556. However, the common law position is modified by s 70 of the Strata Titles Act 1985 (WA), which is contained in pt V of the Act. This provision is designed to protect the purchaser of a strata lot which is not in existence as at the date of the contract. Section 70(4) provides:

If the strata/survey-strata plan is not registered -

(a) within such period after the date of the contract as is agreed in writing by the purchaser and the vendor; or

(b) in the absence of any such agreement, within 6 months after that date,

the purchaser may avoid the sale at any time before the plan is registered.

It is to be noted that this provision does not provide any protection for the vendor. And s 70B provides, so far as relevant, that except as provided by s 70(4), pt V of the Act (which is entitled 'Protection of purchasers') does not 'empower any party to avoid the contract'. Further, by s 70A of the Act, a contract or arrangement is of no effect to the extent that it purports to exclude or restrict the operation of pt V.

15 By cl 11.4 of the special conditions, the parties agreed the period of 30 months for the purposes of s 70(4)(a) of the Strata Titles Act. It must follow that if the plaintiffs had wished to avoid the sale 30 months after the date of the agreement, they could have done so.

16 Clause 11.4 then provides for either the defendant or the plaintiffs to be entitled to terminate the contract at any time 32 months after the date it came into existence, if the Strata Plan had not been registered 30 months thereafter.

17 For the reasons given above, to the extent that cl 11.4 purports to restrict the plaintiffs' right to terminate after 30 months, it must be invalid. However, the crucial question for the purposes of this litigation is the effect of the clause on the defendant's position.

18 The second limb of cl 11.4, which is set out above, appears to proceed on the basis that the agreement empowering the defendant to terminate the contract after 32 months is derived from s 70(4). But because s 70B prevents a party other than a purchaser from acquiring a right to terminate, that agreement must be void. It follows that the defendant had no right to terminate the contract pursuant to cl 11.4.

19 Senior counsel for the defendant, while accepting that the language of cl 11.4 was 'not happy' (ts 30), sought to avoid this conclusion by submitting that the second limb of cl 11.4 contains a separate agreement, outside s 70(4) of the Act, which permitted the defendant to terminate the contract at any time 32 months from the date on which it came into existence, and before the Strata Plan was registered.

20 In my view, that submission cannot stand in the face of the clear words of cl 11.4. However, in case I am wrong (or if that conclusion is not open, having regard to the formulation of the preliminary issues), I will assume for present purposes that the second limb of cl 11.4 should be construed in the way submitted on behalf of the defendant.

21 It is then apparent that there is a conflict between cl 3.1.5 and cl 11.4. That is because cl 3.1.5 contemplates that the time for satisfaction of the condition relating to registration of the Strata Plan will not start to run until Practical Completion has been achieved. This is inconsistent with cl 11.4, which contemplates that time for registration of the Strata Plan will start to run from the date of the contract and expire 32 months thereafter.

22 In my view, the conflict is resolved by having regard to the agreed implied term, that the seller was required to do all things reasonably necessary on its part to enable the buyer to have the benefit of the contract. That term obliged the seller to use reasonable endeavours to construct the apartment to the stage of Practical Completion and prepare a Strata Plan for registration.

23 If the seller was entitled to terminate the contract before Practical Completion had been achieved (even though 32 months had elapsed from the date of the contract) it would, I think, be in breach of this implied term.

24 In my view, the position is as stated by Diplock LJ (as Lord Diplock then was) in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74:

The mutual obligations of parties to a synallagmatic contract may be subject to conditions precedent, that is to say, they may not arise until a described event has occurred; but the event must not be one which one party can prevent from occurring, for if it is, it leaves that party free to decide whether or not he will enter into any obligations to the other party at all. The obligations under the contract lack that mutuality which is an essential characteristic of a synallagmatic contract (83).

Diplock LJ used the term 'synallagmatic' to describe a contract between two or more parties, as distinct from a unilateral contract (82).

25 In the present case, there are five 'events' which must occur before the plaintiffs are obliged to complete the purchase of the apartment. They are the events described in cl 3.1.1 to cl 3.1.5 inclusive. They include Practical Completion. If, despite the defendant's best endeavours, Practical Completion had not been achieved by 32 months after the date of the contract, then, on a literal construction of cl 11.4, the defendant could prevent Practical Completion from occurring (as between itself and the plaintiffs) by exercising its right to terminate. In my view, this construction would lead to the unacceptable result to which Diplock LJ referred in the passage set out above. I do not think this could have been the parties' intention.

26 Senior counsel for the defendant accepts, as he must, that the defendant is obliged to do all things reasonably necessary to enable the plaintiffs to have the benefit of the contract. He submits, however, that the benefit is limited by the defendant's ability to terminate the contract after 32 months if the Strata Plan has not then been registered.

27 But that, I think, begs the question. In my view, the benefit of the contract to the plaintiffs is to have the defendant do all things reasonably necessary to complete the apartment within a reasonable time and convey it to them at the agreed price. On that basis, to paraphrase Diplock LJ, the defendant should not be permitted to deny the plaintiffs that benefit, before a reasonable time has elapsed to enable Practical Completion to be achieved and the Strata Plan registered 90 days thereafter.

28 It is submitted by senior counsel for the plaintiffs that cl 11, relating, as it does to the preparation and registration of the Strata Plan, should not take effect until after the Practical Completion has been reached. This, it is submitted, is consistent with the fact that cl 11 is concerned with the preparation and registration of the Strata Plan, while cl 10 is concerned with matters relating to Practical Completion.

29 This approach would also, I think, give rise to difficulties of construction. It would have the result that if Practical Completion was reached at (for example) 33 months after the date of the contract, the defendant could terminate immediately, without having to use its best endeavours to have the Strata Plan registered. That, it seems to me, would also fall foul of the principle set out above.

30 In my view, a preferable construction would be that cl 11.4 was not to take effect until 90 days had elapsed from the date of Practical Completion. If, despite the defendant's best endeavours, the Strata Plan had not been registered by the end of that period and more than 32 months had elapsed since the date of the contract, the defendant would be entitled to terminate the contract. However, as senior counsel for the defendant points out, if that is the true construction, cl 11.4 would be unnecessary. That is because the contract would be terminated by operation of cl 3.2, in the absence of any written agreement to the contrary.

31 I do not attribute any bad faith to the defendant: but these considerations suggest to me that the second limb of cl 11.4 was inserted by the defendant in an attempt to obtain an advantage under s 70(4) of the Act, which that provision does not permit.

32 Senior counsel for the defendant submits that if cl 11.4 has the construction for which the plaintiffs contend, the result would make no commercial sense because the parties would be 'locked in' to the contract until at least 90 days after Practical Completion. I do not accept that to be so. Perri v Coolangatta Investments Pty Ltd is authority for the proposition that if no time is stipulated for the performance of a non-promissory condition, and it cannot be performed within a reasonable time, either party, if not in default, can elect to treat the contract as at an end.

33 There might be a dispute as to what was a reasonable time, or whether the party seeking to avoid the contract was in default. However, that possibility does not detract from the principle.

34 The principle will therefore protect both parties: although the plaintiffs have, in addition, their rights under s 70(4) of the Strata Titles Act.

35 In my view, cl 9 has no bearing on this dispute. It applies when construction has been 'delayed' by any of the causes there set out, including anything beyond the control of the defendant. It purports to entitle the defendant to make a fair and reasonable extension of 'the time for Completion' of the building works.

36 Clause 9 therefore appears to be predicated on the basis that the contract fixes a time for Completion (or, perhaps, Practical Completion, since Completion is not a defined term). However, unless a time has been fixed, I do not think it possible to identify a delay: nor to make an 'extension of the time'.

37 As I have noted above, the defendant's obligation is to complete the construction of the apartment building within a reasonable time: and this will depend on the circumstances. If, therefore, despite the defendant's best endeavours, the progress of the works is slowed as a result of unforeseen circumstances, the reasonable time required to complete the works might be longer than it would have been otherwise.

38 In these circumstances, I do not think it could be said that the defendant was obliged to offer an extension of the time for completion of the works, pursuant to cl 9(f), or was under any obligation to use its best endeavours to do so. Indeed, I have some difficulty with the concept of using best endeavours to nominate a time.

39 I therefore consider that cl 9 has no application in the present case.

40 Senior counsel for the plaintiffs submits that if the conflict between cl 3.1.5 and cl 11.4 cannot be resolved by a process of construction, the contra proferentum rule should be applied.

41 Standing in the way of that submission is cl 2.1(o) of the special conditions which provides that:

In this Contract unless the context otherwise requires;

...

(o) no rules of construction will apply to the disadvantage of the party because the party was responsible for the drafting of this Contract or any part of this Contract.

42 In GL Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62, Giles JA, with whom Spigelman CJ and Beazley JA agreed, held that it was open to the parties to a contract to agree 'upon appropriate rules for construction of their contract, including negating the contra proferentem rule' [26]. In that case, the contract contained a provision similar in effect to cl 2.1(o) above, but apparently without the opening words which save the rule if 'the context otherwise requires'.

43 It is now settled that the contra proferentum rule is to be applied only as a last resort, where an ambiguity exists which cannot be resolved otherwise: NEA Pty Ltd v Magenta Mining Pty Ltd [2005] WASC 106, per EM Heenan J, citing Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 [122] - [124] and Insurance Commission of Western Australia v Container Handlers Pty Ltd [2004] HCA 24; (2004) 218 CLR 89 [97].

44 That being so, the context which would result in the rule being applicable here, must be more than an ambiguity. If the rule is not to be excluded by cl 2.1(o), there must be some additional context.

45 If there is a conflict between cl 3.1.5 and cl 11.4, it arises from the ambiguity in the second limb of cl 11.4. As I have noted above, that clause either purports to give the defendant a right to terminate the contract under s 70(4) of the Strata Titles Act, or independently of the Act. However, the possibility that the latter construction was intended would be apparent to the plaintiffs only if they were familiar with s 70(4) and knew that it afforded no protection to the defendant.

46 Senior counsel for the plaintiffs submits, in essence, that because all of the plaintiffs in these actions are residents of New South Wales, it may be assumed that they are not familiar with s 70(4): and in that context, the contra proferentum rule should be applied.

47 I pause to note that the plaintiffs' places of residence are not agreed facts. However, even if counsel's assumption is correct, I do not think it would assist the plaintiffs, having regard to the observation of Kirby J in Johnson v American Home Assurance Co [1998] HCA 14; (1998) 192 CLR 266. His Honour said that the contra proferentum rule was applicable 'as the last resort in construction' (275), so far as it required that:

a document written by A is to be read as outsiders would read it, and not as A would read it

citing The Western Australian Bank v The Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533, 574 (Higgins J).

48 Thus, if the present plaintiffs are 'outsiders', the rule would be applicable if it had not been excluded by cl 2.1(o). The status of the plaintiffs as 'outsiders' cannot therefore provide that additional context in which, for the purposes of cl 2.1, the contra proferentum rule is to apply.

49 For the reasons given above, I consider that the preliminary issues should be answered in the following way:

(c) Yes (on the assumption that the second limb of cl 11.4 is a valid provision).