Solicitors:
Emil Ford Lawyers (Plaintiff)
File Number(s): 2015/375524
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Judgment
By Summons filed 22 December 2015 the Plaintiff, Jobema Developments Pty Limited ("Jobema") seeks an order under s 66ZL of the Conveyancing Act 1919 (NSW) that, relevantly, it be permitted to rescind a contract with the Fourth Defendant, Mr Raymond Wu. Mr Wu has not appeared and has not consented to, or opposed, that order. However, that section confers a statutory jurisdiction upon the Court, to grant leave if certain matters are satisfied, to which I will refer below, and the Court must determine whether those matters are satisfied, before granting leave, notwithstanding that Mr Wu has not appeared to oppose the application.
Jobema also seeks similar orders against several other persons, but the determination of the matters in dispute as between Jobema and those other persons has been deferred on the basis of arrangements between Jobema and those persons that they will agree to extend the time for Jobema to rescind their contracts, if it is granted leave to do so as against them, within fourteen days of the Court's determination of the application for leave in respect of those matters. Accordingly, I am only determining the position as between Jobema and Mr Wu. The position as between Jobema and those other persons will be determined, presumably on the basis of different evidence, likely before a different judge, and at a time in the future following compliance with directions that I have made as to the preparation of evidence for those matters.
As noted above, Jobema's application in respect of Mr Wu is brought under s 66ZL of the Conveyancing Act. That section provides, inter alia, that a vendor may rescind an off the plan contract (as defined) under a sunset clause (as defined) if the subject lot has not been created by the sunset date (as defined), in specified circumstances. The term "off the plan contract" is there defined as a contract for the sale of a residential lot that has not been created at the time the contract was entered into. The term "sunset clause" is defined as a provision of an off the plan contract that provides for the contract to be rescinded if the subject lot is not created by the sunset date. The term "sunset date" means the date set out in the off the plan contract as the latest date (subject to any extension provided for in the contract) by which the subject lot must be created.
The circumstances in which a vendor may rescind an off the plan contract under a sunset clause, where the subject lot has not been created by the sunset date are, first, if each purchaser under the contract has consented in writing to the rescission. In the present case, Mr Wu has not consented to the rescission. Alternatively, relevantly, a vendor may rescind an off the plan contract where it has obtained an order of this Court under that section permitting it to rescind the contract under the sunset clause.
Section 66ZL(4) in turn provides that it is a term of an off the plan contract that a vendor who is proposing to rescind a contract under a sunset clause must serve each purchaser under the contract notice in writing at least 28 days before the proposed rescission that specifies why the vendor is proposing to rescind the contract and the reasons for the delay in creating the subject lot. I will refer below to a notice given by Jobema which sets out why it was proposing to rescind the contract and the reason for the delay in creating the relevant lot. After a degree of confusion, initially, as to the date on which that notice had been served, there is now evidence before me that that notice was served on the date it bears, 1 December 2015, and, accordingly the 28 day requirement for such notice under s 66ZL(4) of the Conveyancing Act is satisfied.
Section 66ZL(6)-(7) of the Conveyancing Act in turn specify matters that are relevant to whether the Court may grant such an application. Section 66ZL(6) provides that the Court may, on the application of a vendor under an off the plan contract, make an order permitting the vendor to rescind the contract under a sunset clause, but only if the vendor satisfies the Court that making that order is just and equitable in all the circumstances. Section 66ZL(7) identifies matters which are relevant to determining whether it is just and equitable in the circumstances to make such an order, and requires the Court to take into account the terms of the off the plan contract, whether the vendor has acted unreasonably or in bad faith, the reason for the delay in creating the subject lot, the likely date on which the subject lot will be created, whether the subject lot has increased in value, the effect of the rescission on each purchaser, any other matter that the Court considers to be relevant and any other matter prescribed by the regulations. My attention has not been drawn to any other matter prescribed by the regulations.
Section 66ZL of the Conveyancing Act was introduced by the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW). Schedule 9, Pt 9, ss 15 and 16 of the Conveyancing Act, also introduced by that amendment, applies that section to an off the plan contract (as defined) regardless of whether the contract was entered into before, on or after the commencement of the section, and the section has effect on and from 2 November 2015. My attention has not been drawn to any case law dealing with the section, possibly because of its recent introduction. The Explanatory Memorandum to the Conveyancing Amendment (Sunset Clauses) Bill 2015 refers to the operation of the section, but does not make any wider statement as to the purpose of the section.
Before turning to the evidence supporting the application, I should refer briefly to the chronology of events. By contract dated 6 December 2013, a previous developer of a site at Dora Street, Hurstville, Xycom Pty Limited ("Xycom") agreed to sell a unit to be constructed at that site to Mr Wu under an off the plan contract. Clause 34.1 of the Special Conditions to that contract relevantly provided that:
"The parties agree that completion of this contract is subject to and condition[sic] upon the registration of the Strata Plan by the Registrar General prior to the Sunset Date. If the Strata Plan is not registered on or before the Sunset Date, then within 14 days of the expiry of the sunset date, either party may rescind the contract in accordance with standard condition 19. The purchaser's right of rescission lapses immediately upon registration of the Strata Plan."
The term "sunset date" was in turn defined in the Special Conditions as 31 December 2015, such that Xycom could, subject to the matters noted below, potentially have rescinded the contract up to 14 January 2016, when the registration of the strata plan by the sunset date was not achieved. However, cl 34.2 required Xycom to use all reasonable endeavours to have the Strata Plan registered on or before the Sunset Date. As I will note below, there is a real question whether Xycom could in fact have invoked cl 34.1 to rescind the contract with Mr Wu, as a matter of contract law, so far as any failure to meet the Sunset Date appears to have involved a failure to comply with its obligation under cl 34.2 of the contract. That matter was not argued at any length before me. Clause 34.3 in turn allowed Xycom to extend the sunset date by reason of delay due to specified matters, including matters beyond its control, up to a maximum of 18 months.
Jobema subsequently purchased the relevant site from Xycom, and is presently developing that site. Jobema concedes that it entered that purchase contract subject to a number of existing contracts entered into by Xycom for the sale of the residential strata lots off the plan.
By a Deed of Assignment of Contract which is undated, other than for a reference to the year 2014, between Xycom, Jobema and Mr Wu, the parties recited Jobema's agreement with Xycom to assume Xycom's obligations and Xycom's assignment of its rights under the contract of sale with Mr Wu to Jobema. That deed of assignment also recited that the parties had entered that Deed to record their agreement upon Jobema's assumption of Xycom's obligations under the contract with Mr Wu and Xycom's assignment to Jobema of its rights. Clause 2.1 provided that Jobema covenanted and agreed with Xycom and Mr Wu to assume Xycom's obligations under the contract with Mr Wu as if it had entered into that contract in place of Xycom. Although that deed is described, in its title, as an assignment, I am satisfied that it brought about an effective novation of Xycom's obligations which were assumed by Jobema with Mr Wu's agreement.
By notice dated 1 December 2015 and served by facsimile on that date on Mr Wu's agent under the contract, Jobema gave a notice as required by s 66ZL(4) of the Conveyancing Act, specifying its intent to rescind the contract and indicating why it was proposing to do so and the reason for delay in creating the subject lot. That notice relevantly provided that:
"5. Jobema is proposing to rescind the Contract because:
(a) Since the date that the Contract was entered into, construction costs have increased significantly;
(b) [Xycom] did not advance the project to the time that Jobema acquired it in 2015;
(c) The Contract does not meet the financial requirements for funding the project in 2015;
(d) Jobema has offered [Mr Wu] the opportunity to continue with the purchase at a new price which reflects 2015 current market conditions;
(e) [Mr Wu] [has] elected not to continue on the basis set out in paragraph d;
(f) Jobema has the opportunity to sell the property in the Contract at a price which reflects the 2015 market and takes into account the increased construction costs referred to in paragraph a.
6. The lot which is the subject of a Contract has not yet been created following the following reasons:
(a) From the date of the Contract until 5 February 2015 [Xycom] carried out little or no physical work for the Project;
(b) Since 5 February Jobema has entered into contracts to sell other lots in the project in order to secure finance for the Project;
(c) Jobema has commenced physical works but anticipates that the lot will not be created until sometime in 2017.
I will refer to aspects of the matters specified in that notice below.
By Summons dated 22 December 2015, Jobema commenced this application for leave under s 66ZL of the Conveyancing Act. The application was heard on an urgent basis in the duty vacation list, since otherwise Jobema's right to rescind (if such a right existed) would potentially have been lost where it had not reached agreement with Mr Wu to extend the period for its exercise. In support of the application, Jobema relies on an affidavit of its solicitor, Mr Van Ede, which sets out the chronology of events to which I have referred above. Mr Van Ede's evidence, which is consistent with the other evidence, is that virtually no building work had taken place before Jobema had acquired the site and that, although Jobema has begun building work, registration of the strata plan is not expected until 2017.
Jobema also relies on an affidavit dated 14 January 2016 of Mr John Curtis, the Managing Director of Conquest Constructions Pty Limited, who says he is authorised to swear the affidavit on behalf of Jobema. The relationship between Conquest Constructions and Jobema in relation to the site was not entirely clear from the evidence, although it appears that Jobema now owns the site and Conquest Constructions is constructing the relevant project. It appears from Mr Curtis' evidence that Conquest Constructions initially unsuccessfully sought itself to purchase the site and that Jobema, represented by Mr Curtis, purchased the site from Xycom by contract dated 13 October 2014 and settled in January 2015, with development approval for 72 residential units and seven commercial lots. Mr Curtis fairly acknowledges, as I have noted above, that Jobema assumed Xycom's responsibility in respect of lots that had been pre-sold off the plan by Xycom. Mr Curtis also accepts that little construction work had been done when Jobema was negotiating to acquire the site and indicates that he met with financiers to discuss construction finance prior to the exchange of contracts on the site.
Mr Curtis' evidence, by way of bare assertion, is that new contracts at current prices needed to be entered into before construction finance could be approved. Mr Curtis notes that, as the legislation then stood, Jobema proceeded on advice, which is not put before the Court, that it was entitled to rescind the relevant contracts and that the current legislative regime, introduced by the Conveyancing Amendment (Sunset Clauses) Act was unforeseeable at that point. I am not convinced that the particular possibility that the legislature might intervene, to protect the interests of off the plan purchasers of strata plan units, was unforeseeable, but in any event it seems to me that legislative change generally is a foreseeable risk of business activity.
It appears that Xycom and Jobema negotiated an agreement by which Jobema was bound not to rescind several contracts, which did not extend to the contract with Mr Wu. The reason why some purchasers had that good fortune and Mr Wu did not is left unexplained, although Mr Curtis did indicate in oral evidence that it was the vendor's requirement that the sunset date for certain lots be extended. Some contracts with earlier purchasers have been rescinded by consent, but that with Mr Wu has not been. Mr Curtis does not give evidence to seek to support several critical assertions in the notice of rescission, including those as to increased construction costs or current market conditions in respect of purchase prices.
Mr Van Ede led further oral evidence from Mr Curtis, although I was only prepared to permit that course within limits, where the matter was listed in a busy duty list to meet Jobema's convenience and Jobema had had an opportunity to lead affidavit evidence prior to that listing, and other matters which also had claims to urgency were listed on the day of the hearing. Mr Curtis identified, in oral evidence, the strata plan relating to the site (Ex P2) and also identified a list of other lots as to which contracts had exchanged since Jobema acquired the site (Ex P3). I interpolate that that list did not refer to the purchase price of those other lots, and so it did not support the claim in the notice of rescission that higher purchase prices were achievable in 2015.
Mr Curtis also expanded on his affidavit evidence, to which I referred above, that it was a requirement for Jobema to obtain construction finance that "old contracts" not remain in place. There were, it seemed to me, several difficulties with that proposition. The first is that it plainly overstated the position, so far as Jobema had purchased the property on terms that it was bound by the existing contracts, which did remain in place at the time it purchased the property; second, Jobema had agreed with Xycom to extend some but not all of the sunset dates in respect of the "old contracts"; third, it presumably has obtained construction finance with the "old contracts" in place since construction is presently underway; and, fourth, other oral evidence of Mr Curtis indicated that the likely consequence of an inability to rescind was, not that Jobema would not have construction finance, but that it may be required to contribute additional capital to meet its lender's requirements.
Mr Curtis' evidence was that the project would not have been viable if other contracts, including Mr Wu's, were not rescinded, but that evidence does not seem to me to rise beyond bare assertion, and is unsupported by any substantive evidence as to the likely profit or cash flow of the project or Jobema. That evidence is also qualified by the fact that Mr Curtis ultimately indicated that the effect of not rescinding the contract with Mr Wu was a matter for Jobema's lender, and did not himself indicate what its likely outcome would be, beyond the possibility of a requirement to contribute additional capital by Jobema to which I referred above. I declined to permit further oral evidence as to Jobema's financial position which could, and should, have been led by affidavit evidence.
The Plaintiff also relies on an affidavit of Mr Weldon, a construction manager with Conquest Constructions, who indicates the work done by Conquest Constructions in the year in which it has been engaged in demolition and construction work. He refers to matters including contamination of the site, the need for remediation works, and delays with the sewer mains, which I accept are likely to have delayed the project. He notes that the construction of four out of five basement levels is presently completed, and that it remains to construct 14 stories above ground and undertake further works associated with completion, and estimates the completion will take place by April 2017, subject to inclement weather, and registration of the strata plan by around July 2017.
I turn now to Mr Van Ede's comprehensive submissions in support of the application for leave to rescind. Mr Van Ede commences with the proposition that Mr Wu would not have obtained an apartment but for the acquisition of the site by Jobema, and that the project has only been progressed by Jobema's diligence and, had it remained with Xycom, Mr Wu would have seen no more than the return of his deposit. It seems to me that there would be some force in that submission, if the project had remained with Xycom. However, that is not the present position, where Jobema has in fact acquired the property on terms that it would be bound by Xycom's off the plan contracts, including with Mr Wu. In that situation, the question is whether, as Jobema and Mr Wu now stand, Jobema can satisfy the requirements for rescission under s 66ZL of the Conveyancing Act. If it can, then Mr Wu is essentially in the same position as he would have been, where Xycom had not complied with its obligation to take reasonable steps to achieve the sunset date and had not achieved it; if it cannot, then Mr Wu is in a better position, or at least has the benefit of the continuing contract, by reason of the legislative intervention made by s 66ZL of the Conveyancing Act.
Mr Van Ede distinguishes between the period in which Xycom did not progress construction and the subsequent period where Jobema has done so. I accept that the evidence indicates that Jobema has exercised diligence in progressing the construction, notwithstanding several difficulties that it had faced. As will emerge below, however, it does not seem to me that Jobema's position in respect of an application for leave can be considered only by reference to its diligence, and disregarding Xycom's lack of diligence, where Jobema had expressly assumed Xycom's obligations under the relevant contract.
Mr Van Ede refers to the specific factors specified in s 66ZL(7) of the Conveyancing Act, and it is both mandatory, and helpful, to have regard to those factors, in guiding the Court's determination whether it is just and equitable to grant the leave sought. The first factor is the terms of the contract with Mr Wu. Mr Van Ede submits that Jobema is not itself in breach of cl 34.2 of the contract which required the vendor to use all reasonable endeavours to have the strata plan registered on or before the strata date. However, Jobema has assumed Xycom's obligations, apparently with knowledge of the lack of work that had been done by Xycom. It seems to me that, notwithstanding the subsequent construction work undertaken for Jobema, it is not in a better position than Xycom would have been if it had delayed for a long period then taken steps to undertake the work in the latter period of the contract. That factor might, as I have noted above, have prevented Xycom relying on cl 34.1 of the Special Conditions to rescind the contract, as a matter of contract law but, in any event, it does not assist Jobema in respect of the grant of leave under s 66ZL of the Conveyancing Act.
The second relevant factor is whether Jobema has acted unreasonably or in bad faith. Mr Van Ede helpfully refers to the authorities as to those concepts, which I need not repeat. It does not seem to me that unreasonableness or bad faith on Jobema's part is established. The third factor is the reason for delay in creating the subject lot, which Jobema attributes to Xycom, although it adds the somewhat speculative statement that that may have resulted from difficulties in Xycom's obtaining construction finance. There is no evidence that establishes that proposition. I accept that the delay largely resulted from Xycom's lack of action. I do not accept that Jobema, having assumed Xycom's obligations with knowledge of that position, can put aside that matter in seeking leave under s 66ZL of the Conveyancing Act, and that matter does not assist Jobema in this application.
The next relevant factor is that the date on which the lot will be created, and I accept the evidence that that is likely to be mid-2017, although it is not clear to me that that matter has any particular significance, whether in favour or against rescission in this application. The next factor is whether the lot has increased in value. Jobema asserts that that has occurred, but leads no substantive evidence to support that proposition. If that were the fact, it may in any event have tended against the grant of leave so as to deprive Mr Wu of his bargain, particularly where the delay has arisen from Xycom's apparent failure to perform obligations which Jobema has now assumed. The next factor is the effect of rescission on Mr Wu. There is no evidence of this matter, beyond the fact that he has not consented to rescission.
Jobema also identifies other matters which it contends are relevant, including the level of realisations necessary to secure construction funding and its diligence since it has acquired the site. I have referred to those matters above. I should note, however, that several of the matters noted in the reasons for rescission in Jobema's notice of intention to rescind have not been established by evidence or do not assist Jobema in this application. There was no substantive evidence led to establish that construction costs have increased; the fact that Xycom did not advance the project before Jobema acquired it does not assist it, where Jobema acquired the site with knowledge of that position and assumed Xycom's obligations; the proposition that the project does not meet financial requirements in 2015 is not established by substantive evidence, and is arguably a risk that Jobema assumed when it assumed Xycom's obligations; and there is no evidence that the higher price which it offered to Mr Wu in fact reflected 2015 prices, because there is no evidence as to 2015 prices. To the extent that Jobema relies on the change of legislation, as I have noted above, it seems to me that any business entity undertaking a project over a period of time assumes the risk of adverse legislative change, and I note that the legislative regime has expressly not excluded existing projects from its operation.
Finally, Mr Van Ede draws attention to the broader concept of "just and equitable" and refers to the applicable authorities, and rightly points out that that requires a determination to be made judicially by reference to the specified matters and other relevant circumstances. Mr Van Ede submits, on that basis, that it is just and equitable to grant the relief sought. I am not satisfied that that proposition has been established by the evidence to which I have referred above. It seems to me that, in the relevant circumstances, several matters on which Jobema relies to support its application, including increases in construction costs and purchase prices have not been established; to the extent that there has been delay, prior to Jobema's acquisition of the site, that is a matter which Jobema was aware of, and cannot avoid having taken into account, when it has assumed Xycom's obligations under the contract; if Jobema assumed that the legislature would not intervene to increase the protection available to off the plan purchasers, that assumption was a business risk, and the legislative change which has occurred was also a risk which it assumed; and finally, the selective and unexplained process by which some purchasers have their sunset dates extended, by agreement with the vendor, and others do not, is a matter which tends against the grant of leave sought.
Accordingly the application is dismissed, as between Jobema and Mr Wu.
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Decision last updated: 21 January 2016