Lee & Anor v Surfers Paradise Beach Resort P/L

STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - RULES OF CONSTRUCTION - WORDS TO BE GIVEN LITERAL AND GRAMMATICAL MEANING - where the respondent purported to terminate a contract between itself and the appellants - where there were inaccuracies in the initial contract - whether the Body Corporate and Community Management Act 1997 (Qld) impacted on the right to rescind the contract

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - PARTICULAR STATUTES - where the respondent purported to terminate a contract between itself and the appellants - whether the performance of the contract required contravention of s 214(2) Body Corporate and Community Management Act 1997 (Qld)

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - CONDITIONS - CONDITIONS AND WARRANTIES - where the appellant failed to tender the purchase price on the date specified in the contract - where time had been made of the essence - whether the failure to pay amounted to a fundamental breach

Body Corporate and Community Management Act 1997 (Qld), s 4, s 213, s 214, s 215, s 217

Bahr v Nicolay [No 2] (1988) 164 CLR 604; [1988] HCA 16, considered

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, cited

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24, cited

Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215; [1997] HCA 17, referred to

Foran v Wight (1989) 168 CLR 385; [1989] HCA 51, considered

Roadshow Entertainment Pty Ltd v CEL/Vision [1997] NSWSC 473; (1997) 42 NSWLR 462, applied

Tramways Advertising Pty Limited v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, applied

R J Douglas SC, with P Kronberg, for the appellants

B D O'Donnell QC, with GD Sheehan, for the respondent

**[1] McMURDO P: Because the relevant facts, issues and provisions of the Body Corporate and Community Management Act 1997 (Qld) ("the Act") are set out in the reasons for judgment of Jerrard JA, my reasons for dismissing the appeal can be relatively briefly stated.

[2] The appellants entered into a contract with the respondent to purchase a residential apartment in a proposed community titles scheme in the landmark Gold Coast highrise building, Q1. The appellants applied for a declaration that the respondent's termination of the contract was invalid. They contended this was so because of the respondent's failure to comply with the Act. The primary judge dismissed their application and instead declared that the contract had been validly terminated and the deposit paid under the contract rightly forfeited to the respondent.

[3] Jerrard JA has set out the differences between the draft letting agreement contained in the disclosure statement required to be made by the respondent under s 213 of the Act and the final letting agreement that came into effect upon the commencement of Q1's community titles scheme. I agree with his Honour's reasons for concluding that those changes invoked s 214(1)(b) of the Act. The changes had the result that "the disclosure statement would not be accurate if now given as a disclosure statement". That conclusion is consistent with the ordinary meaning of the words used in s 214. It is also consistent with the primary object of the Act (s 2) and the relevant secondary objects of the Act (s 4(b), (g) and (h)).

[4] But that alone did not entitle the appellants to cancel the contract. Section 214(4) of the Act entitled them to do so only if all of the matters set out in

s 214(4)(a), (b) and (c) were met. The appellants acted to cancel the contract before settlement (s 214(4)(a)). The primary judge made no finding as to whether the appellants would be materially prejudiced if compelled to complete the contract given the extent to which the disclosure statement had become inaccurate (s 214(4)(b)). The appellants in any case did not plead material prejudice in their Points of Claim in support of their application before the primary judge. Additionally, s 214(4)(c) assumes that the seller has given the buyer a further statement and requires any cancellation to be made effective by written notice given to the seller within 14 days of the further statement. The appellants did not establish that s 214(4)(b) or (c) applied in their case. It follows that they did not establish an entitlement to cancel the contract under s 214.

[5] It may be possible that a purchaser becomes entitled to a further statement under the Act only after the settlement date of the contract. The Act does not necessarily leave such a purchaser unprotected. Section 217 of the Act allows a purchaser to cancel the contract if it has not already settled (s 217(a)) and at least one of the situations set out in s 217(b)(i)-(iv) applies. In my view, consistent with the objects of the Act, the legislature can be taken to have intended that s 217(b)(iv) applies where information disclosed in the disclosure statement, required by the Act to be rectified by a further statement, is inaccurate.

[6] Before enabling a buyer to cancel a contract, s 217 also requires a third condition to be met, namely, that because of a difference or inaccuracy under s 217(b) the buyer would be materially prejudiced if compelled to complete the contract. As I have noted, the appellants did not plead that issue at first instance; and nor have they placed any material before this Court to demonstrate material prejudice. The primary judge specifically made no finding in this respect.[1] Despite White J's observations in Celik Developments Pty Ltd v Mayes,[2] I am far from persuaded on the present material that the differences between the draft letting agreement and the final letting agreement would materially prejudice the appellants if they were compelled to complete the contract (s 214(4)(b) and s 217(c)). But in any case, it is impossible to express a concluded view on this because it was neither pleaded at first instance nor asserted or demonstrated on appeal. The appellants have not established an entitlement to cancel the contract under s 217.

[7] The appellants at the hearing developed two new grounds of appeal. The first was that it was an implied term of their contract with the respondent that each party comply with statutory requirements, including those imposed by the Act. In rejecting that ground, it is sufficient to observe that the necessary requirements to imply such a term, set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council,[3] and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[4] have not been met in the present case.

[8] The appellants' second newly developed ground of appeal was that this Court should not enforce a contract which is illegal because it breaches statutory obligations.

If the legislative purpose of the Act can be fulfilled without finding a contract between parties void and unenforceable, the contract will be construed as valid: see Fitzgerald v F J Leonhardt Pty Ltd,[5] Tonkin v Cooma-Monaro Shire Council[6] and Questcrown Pty Ltd v Insignia Towers (Southport) Pty Ltd.[7] The Act aims to provide an appropriate level of consumer protection for owners and prospective buyers of lots included in community title schemes (s 4(g)) and to promote economic development by establishing sufficiently flexible administrative and management arrangements for community title schemes (s 4(b)). Those objects are not met by allowing a buyer to avoid a contract in the absence of establishing material prejudice resulting from the changes to the disclosure statement. See also s 213(7), s 214(4)(b) and s 217(c). The appellants have not pleaded nor established material prejudice. This ground of appeal is also without merit.

[9] Under the contract between the appellants and the respondent, the appellants were required to complete their contractual obligations on 14 October 2005. The Act did not relieve them of that obligation. Their failure to settle meant that the respondent was entitled to terminate the contract .

[10] The primary judge's orders were correctly made. The appeal should be dismissed with costs.

[11] JERRARD JA: This is an appeal from orders made in the Trial Division of this Court on 27 April 2007, dismissing an originating application filed by the appellants on 19 February 2007, and declaring that on 8 December 2005 the respondent Surfers Paradise Beach Resort Pty Ltd had validly terminated a contract of sale dated 8 February 2003. The learned judge also declared that the respondent was entitled to forfeit a deposit paid by the appellants pursuant to the contract, together with any accrued interest, and ordered that the appellants pay the respondent's costs of and incidental to the proceedings, assessed on the standard basis. The litigation concerned the provisions of the Body Corporate and Community Management Act 1997 (Qld) ("the BCCM Act").

[12] The contract of sale between the appellants and the respondent was in respect of a Proposed Lot No 3703 in a residential, commercial and retail complex being constructed at Surfers Paradise, and known as "Q1". The following description of the relevant facts is taken from the judgment of the learned trial judge:**

"[6] ... It was developed by a joint venture between the respondent which owned the land on the one hand and Sunland Group Limited ("SGL") and Camryville Pty Limited (a wholly owned subsidiary of SGL) on the other. The residential tower has been subdivided to create a community titles scheme pursuant to the BCCM Act.

[7] While the complex was still under construction, and before the creation of the community titles scheme for the residential tower, the applicants agreed to purchase one of the residential apartments (described as lot 3703) "off the plan" for $940,000. On executing the contract on 8 February 2003 they received two bound books of documents required to be given to them under various statutes. Of present relevance were -

(i) Disclosure statement under the Corporations Act 2001 (Cth) made by the respondent on 19 July 2002;

(ii) Disclosure statement under the BCCM Act made by the respondent on 19 July 2002;

(iii) Pro forma Caretaking and Letting Agreement "Q Tower" between the Body Corporate for Q Tower CTS # and an unnamed Resident Caretaker;

(iv) Contract of sale.

They paid an initial cash deposit of $1,000 and subsequently provided a bank guarantee for the balance deposit of $93,000.

[8] In June 2003 the respondent sold the caretaking and letting rights for the residential tower to Sunland Hotels and Resorts Pty Ltd ("SH & R"), a wholly owned subsidiary of SGL. When the community titles scheme was established more than 15 months later, a Caretaking and Letting Agreement between the Body Corporate for Q1 CTS 34498 and SH & R was executed on 30 September 2005."

**[13] SH & R had written to the appellants on 16 September 2004, advising them that if they intended to place their apartment into what SH & R described as "Our Q1 Letting Pool", it was a prerequisite that the appellants purchase a "Q1 Homeware and Furniture Package." That required, inter alia, reviewing, signing, and returning two copies of what was described as the Q1 Furniture & Homeware Package "Supply Agreement", and also required that the appellants read a "Product Disclosure Statement" supplied by SH & R.

[14] The cost of the Q1 Furniture & Homeware Package was $49,900. The learned trial judge found that when the appellants signed the contract in February 2003, they were unaware of any requirements that they buy a furniture package from the resident caretaker, if they wanted to holiday let the apartment through the proposed letting pool. The judge was satisfied that it was the appellants' intention to holiday let the apartment. The appellants were unable to on-sell their apartment, and by a facsimile dated 30 September 2005 the solicitors for the respondent advised the appellants' solicitors that completion was due on 14 October 2005. The appellants' solicitors suggested that the respondent was obliged to provide an amended disclosure statement under the BCCM Act. The respondent did not do so, and completion did not take place on 14 October 2005 or at all. On 8 December 2005 the respondent purported to terminate the contracts, and resold the apartment.

[15] The appellants argued to the learned trial judge that the Product Disclosure Statement and the Apartment Management Agreement provided to them by SH & R were relevant to the respondent's obligations under each of s 213 and s 214 of the BCCM Act. Those sections relevantly provide:**

(1) Before a contract (the contract) is entered into by a person (the seller) with another person (the buyer) for the sale to the buyer of a lot (the proposed lot) intended to come into existence as a lot included in a community titles scheme when the scheme is established or changed, the seller must give the buyer a statement (the first statement) complying with subsections (2) to (4).

(2) The first statement -

(a) must state the amount of annual contributions reasonably expected to be payable to the body corporate by the owner of the proposed lot; and

(b) must include, for any engagement of a person as a body corporate manager or service contractor for the scheme proposed to be entered into after the establishment of the scheme, or proposed to be continued or entered into after the scheme is changed -

(i) the terms of the engagement, other than any provisions of the code of conduct that are taken to be included in the terms under section 118; and

(ii) the estimated cost of the engagement to the body corporate; and

(iii) the proportion of the cost to be borne by the owner of the proposed lot; and

(c) must include, for any authorisation of a person as a letting agent for the scheme proposed to be given after the establishment of the scheme, or proposed to be continued or given after the scheme is changed, the terms of the authorisation; and

(d) must include details of all body corporate assets proposed to be acquired by the body corporate after the establishment or change of the scheme; and

(i) the proposed community management statement, and

(ii) if the scheme to be established or changed is proposed to be established as a subsidiary scheme - the existing or proposed community management statement of each scheme of which the proposed subsidiary scheme is proposed to be a subsidiary; and

(f) must identify the regulation module proposed to

(g) must include other matters prescribed under the

(3) The first statement must be signed by the seller or a person

(4) The first statement must be substantially complete.

(5) The seller must attach an information sheet (the information sheet) in the approved form to the contract -

(b) if the proposed lot is residential property under the Property

Agents and Motor Dealers Act 2000 - immediately beneath the warning statement that must be attached as the first or top sheet of the contract under section 366 of that Act.

(a) the seller has not complied with subsections (1) and (5); and

(7) The seller does not fail to comply with subsection (1) merely because the first statement, although substantially complete as at the day the contract is entered into, contains inaccuracies

residential property see the Property Agents and Motor Dealers Act 2000, section 17.

214 Variation of first statement by further statement

(1) This section applies if the contract has not been settled, and -

(a) the seller becomes aware that information contained in the first statement was inaccurate as at the day the contract was entered into; or

(b) the first statement would not be accurate if now given as a

(2) The seller must, within 14 days (or a longer period agreed between the buyer and seller) after subsection (1) starts to apply, give the buyer a further statement (the further statement) rectifying the inaccuracies in the first statement.

(3) The further statement must be endorsed with a date (the further statement date), and must be signed, by the seller or a person authorised by the seller.

(b) the buyer would be materially prejudiced if compelled to

complete the contract, given the extent to which the first statement was, or has become, inaccurate; and

(c) the cancellation is effected by written notice given to the seller within 14 days, or a longer period agreed between the buyer and seller, after the seller gives the buyer the further statement.

(5) Subsections (1) to (4) continue to apply after the further statement is given, on the basis that the first statement is taken to be constituted by the first statement and any further statement, and the first statement date is taken to be the most recent further statement date."

**[16] The appellants argued to the learned trial judge, but not on this appeal, that the "authorisation" in s 213(2)(c) referred both to the authorisation by the body corporate, and to the authorisation by an owner of an individual lot, in the reference to any authorisation of a person as a letting agent for the scheme. The learned judge disagreed, holding that on the proper construction of s 213(2)(c), the respondent's obligation was only to disclose the terms on which the body corporate proposed granting an authorisation to a letting agent. The learned judge stated that neither the contents of the product disclosure statement, nor those of the apartment management agreement, related to the terms of the authorisation of the letting agent for the scheme. That was because they did not relate to the terms on which the body corporate proposed to authorise someone as the letting agent for the scheme. They related instead to the terms upon which SH & R would accept an appointment from an individual lot owner, to let an apartment. The appellants did not challenge that conclusion on this appeal.

[17] The appellants maintained on this appeal submissions also advanced below, regarding s 214. Those submissions pointed to the differences between the draft or pro-forma caretaking and letting agreement supplied to them with the contract on

8 February 2003, and the terms of the executed caretaking and letting agreement. Those differences included that the identity of the proposed agent was not inserted in the draft, nor were the dates between which the agreement was to run. Nor was the lot number of the resident caretaker's unit specified in the draft agreement, as it was in the executed one, and nor were the parts of the common property to be occupied by the resident caretaker disclosed in the draft statement.

[18] The learned judge held that "inaccuracy" ordinarily connotes error, rather than incompleteness resulting from matters not yet being capable of ascertainment. The judge held that in the context of legislation which aimed to provide "an appropriate level" of consumer protection (a reference to s 5(f) of the BCCM Act), those differences were not "inaccuracies" for the purpose of s 214(2). The respondent was not thereby obliged to provide a further statement to the appellants under

s 214(2). The appellants challenge that conclusion on this appeal. They contend that when information came to hand which rendered the first statement inaccurate, the respondent was obliged to provide a further statement, correcting the inaccuracy. That was said to follow from s 214(1)(b).

[19] There were actually three versions of the caretaking and letting agreement. The first was the one supplied to the appellants on 8 January 2003. That was a draft agreement between the body corporate for Q Tower CTS and an unidentified entity, described as "the Resident Caretaker". Clause 1.1(x) of that draft agreement provided that the expression "term" meant the period of 15 years commencing from (an undisclosed date) and expiring on (another undisclosed date). Both dates were left blank. Clause 1.1(i) provided that the expression "Further Term" meant the period of 10 years commencing from (a date left blank) and expiring on (a date left blank). Clause 15 of that draft agreement provided that the resident caretaker must ensure that any written agreement entered into or to be entered into with any owner of a lot in the scheme relating to the letting of their lot included provisions as specified in Schedule E of CO 00/570 (Management Rights Schemes Class Order) (or any Class Order, other document, law or provision that replaces CO 00/570 from time to time). Clause 25 provided that the body corporate gave the resident caretaker the authority to occupy any part of the common property on level C of the building for the purposes of installing or placing, and if appropriate, manning, a tour desk, brochure stand, signage and other similar things.

[20] The second such caretaking and letting agreement was an agreement in a form set out in Schedule 1 to an agreement dated 24 June 2003 entered into between the respondent (as "Seller") and SH & R (as "Buyer") and SGL (as "Guarantor"), in which the respondent agreed to cause the body corporate to grant to SH & R the rights, title and interest in the buyer's caretaking and letting agreement on the terms of that agreement.

[21] The buyer's caretaking and letting agreement, Schedule 1, purported to be between the body corporate for Q Tower CTS (the Body Corporate) and SH & R, as the Resident Caretaker. In that draft Clause 1.1(y) defined "term" as meaning the period of 15 years commencing from (a date left blank) and expiring on

(a date left blank). Clause 1.1(i) described "Further Term" as meaning the period of 10 years commencing from (a date left blank) and expiring on (a date left blank). Clause 15 was in the same terms as before, but referred now to the provisions specified in Schedule CO 02/305 (Management Rights Schemes Class Order)

(or any Class Order, other document, law or provision that replaces CO 02/305 from time to time). Clause 25 now had a Clause 25.2 and 25.3, and 25.2 referred to an attached plan which showed the area that the body corporate gave the resident caretaker the authority to occupy.

[22] The third version of the caretaking and letting agreement in evidence was the one actually entered into between the body corporate Q1 CTS and SH & R, on

[23] That agreement specified in clause 1.1(y) that the expression "term" meant the period of 15 years commencing from 18 October 2005 and expiring on 17 October 2020. Clause 1.1(h) provided that "Further Term" meant the period of 10 years commencing from 18 October 2020 and expiring on 17 October 2030. Clause 15 was in the same terms as in the second version of the caretaking and letting agreement, and clause 25 was considerably more detailed. It now described, by reference to two attached plans, the part of the common property which the body corporate authorised the resident caretaker to occupy.

[24] Mr O'Donnell QC, senior counsel for the respondent, accepted that the terms of the respondent's engagement would include the commencing and ending dates.

He submitted that the omission of those from the draft agreements supplied to the appellants in January 2003 rendered that draft incomplete, but not inaccurate.

He accepted that if a seller disclosed only part of what a seller knew, in a first statement provided under s 213, the result might render the first statement inaccurate. Mr O'Donnell submitted that the first statement supplied under s 213 was not inaccurate because incomplete, pointing to the terms of s 213(7). He submitted that section provided that there could be substantial compliance with the requirements, in a first statement which contained inaccuracies.

[25] He conceded that s 214 was expressed to require compliance with the obligation it imposed up until the date of the settlement of the contract, but submitted that once a scheme became established, as this one had been on 30 September 2005, neither

s 213 nor s 214 could have any sensible application. That was because they referred back to a first statement as defined in s 213, which was expressed in prospective terms, about a "proposed" lot. He argued that once the scheme was established, the BCCM Act gave a potential purchaser a separate route to get information about the scheme, under s 205. That section required a body corporate to give information to an interested person, which includes in its definition a prospective purchaser.

[26] He referred to the provisions of s 215, making the first statement and any material accompanying it, and each further statement and other accompanying material, part of the provisions of the contract; and to the provision in s 216 that the buyer might rely on information in the first statement, and each further statement, as if the seller had warranted its accuracy. He then referred to the provision in s 217(b)(iv), providing that the buyer might cancel the contract if it had not already been settled, and if the information disclosed in the first statement, as rectified by any other further statement, was inaccurate, and if the buyer would be materially prejudiced if compelled to complete the contract, because of the difference or inaccuracy.

[27] He argued that a seller aware of a change in circumstances after the first statement was given under s 213, and who did not give a further statement under s 214, created a problem for the seller because of the warranty of accuracy. He contended that s 214(1)(b) operated up to the time the scheme was established, but not later.

[28] With respect to those submissions, they imposed a time limit on the application of

s 214 which does not appear in the section, and which would affect the operation of s 217(b)(iv) and s 217(c). Those later sections assume that inaccuracy in a first statement is rectified by a further statement. The assumption is therefore that a further statement has been provided, correcting what was now inaccurate. On

Mr O'Donnell's construction of s 214, that further statement would not need to be given once the scheme was established. That construction tends to frustrate the object of s 217 and its provisions, allowing a buyer to cancel. Those depend upon the provision of a further statement establishing the inaccuracy in a first one, and reflect the requirement in s 214 that such further statement has to be given if a first statement would not be accurate, if given now in its original terms.

[29] There was no relevant difference between the draft caretaking and letting agreements provided to the appellant, and the one ultimately executed, in the amount of annual contributions reasonably expected to be payable by a lot owner, the terms of the engagement of SH & R as a body corporate manager or the terms of the authorisation given to it as the letting agent, the estimated costs of the engagement to the body corporate, the proportion of the costs be borne by the owner of the proposed lot, or the details of all body corporate assets proposed to be acquired by the body corporate.

[30] Those were the matters expressly required to be stated or included by s 213(2)(b)(c), and (d). The information revealed in the executed agreement did not change any of those terms, but it did identify the parties to be bound by the terms, and the period of the engagement. Mr O'Donnell QC was correct in conceding that the period of the engagement was one of its terms, as indeed was the identity of the resident caretaker, and it followed that from 30 September 2005 - the date of the executed agreement - the first statement would no longer be accurate if given then as a first statement. It would be inaccurate because the identity of the resident caretaker, and the period of engagement of it, were both known to the respondent vendor. Indeed, the respondent had contracted with SH & R on 24 June 2003, promising to cause it to be the resident caretaker with a letting agreement. It knew the probable identity of that party since that date.

[31] Further, the area the resident caretaker had authority to occupy was specified.

A first statement which suggested as at 30 September 2005 that those matters were not settled would be inaccurate, not simply incomplete. Accordingly, the seller was obliged to give a further s 214 statement to the appellants, as they claimed at the time.

[32] The respondent was accordingly in breach of a statutory obligation to the appellants, imposed with respect to their contract, and capable (if fulfilled) of giving the appellants a right to end the contract, in the circumstances described in s 214 and

s 217. Mr O'Donnell QC argued that the respondent had 14 days, ending at midnight on 14 October 2005, to provide the information, whereas

Mr O'Donnell QC contended that the buyers were required to complete by 5.00 pm on that date. That was when settlement was to occur, at the latest. Accordingly, he argued, when the appellant failed to complete at that moment, the respondent was not in breach of the Act at that time, (having some seven hours to go), and was entitled to terminate. He submitted that right arose from Clause 7.1 of the contract entered into on 8 February 2003, giving the seller the right to terminate if the buyer failed to comply with any obligation under the contract.

[33] Both counsel made submissions on a terminating party's obligation to establish that it was ready and willing to perform its obligations under the contract, referring to authority (including Foran v Wight [1989] HCA 51; (1990) 168 CLR 385 and Bahr v Nicolay [No 2] [1988] HCA 16; (1988) 164 CLR 604). Because the obligations imposed by s 214 on the respondent were imposed on it as a contracting party, and, when carried out, could result in the appellants having the right to cancel the contract, the respondent was obliged to show that it was ready, willing and able to perform that obligation before being able to claim a right to repudiate. It did not demonstrate that readiness, and the appeal record showed instead that it disputed, at the time, its obligation to deliver an amended disclosure statement. It asserted that in correspondence dated

14 October 2005.[8] The appellants were not obliged to settle without receipt of the further statement the respondent was obliged to give them. It follows that Clause 7.1 of the contract, entitling the seller to terminate upon the buyer's failure to comply with an obligation under the contract, has no application. That in turn means that the provisions of clause 2.4 of the contract applied in the appellants' favour. That read:**

The party entitled to receive the Deposit and any interest on the Deposit is:

(a) if the Contract settles - the Seller is entitled to the Deposit and the Buyer is entitled to the interest on the Deposit;

(b) if the Contract is terminated without default by the Buyer - the Buyer; or

(c) if the Contract is terminated owing to the Buyer's default - the Seller."

**[34] The contract was terminated by the seller without default by the buyer, and accordingly clause 2.4 provides, as Mr R Douglas SC submitted for the appellants, that they are entitled contractually to receive the deposit and any interest on it. That was the point of their prosecuting this appeal.

[35] I would order that the appeal be allowed, the orders made on 27 April 2007 be set aside, and in lieu thereof it be ordered and declared that:**

• the amended originating application filed by the applicants on

• the respondent is not entitled to forfeit the deposit paid pursuant to the contract of sale dated 8 February 2003, together with any accrued interest, and declare that the appellants are entitled to the return of that deposit, together with accrued interest, from the respondent;

• the respondent pay the appellants' costs of and incidental to the proceedings (including the counter-claim and of this appeal), to be assessed on the standard basis.

**[36] DUTNEY J: I have had the advantage of reading the reasons for judgment of Jerrard JA. The facts are set out in his Honour's reasons and I will not repeat them.

[37] I agree with his Honour's conclusions that the obligation in s 214 of the Body Corporate and Community Management Act 1997 ("the Act") to furnish the purchaser with a further statement terminates only upon settlement and not when the scheme comes into existence. To conclude otherwise entirely ignores the plain language of the opening part of subs. (1).

[38] Regrettably, I am unable to agree with his Honour's ultimate conclusion as to the disposition of the appeal for the reasons which follow.

[39] The changes between the draft agreement granting authorisation to a letting agent ("the draft agreement") contained in the first statement under s 213 and the final agreement that came into effect upon the commencement of the scheme ("the final agreement") were identified during the course of argument by senior counsel for the appellants as follows:

• The name of the agent is inserted in the final agreement

• The commencement date is inserted in the final agreement

• The expiry date of the agreement is inserted in the final agreement

• The number of the Class Order for the Management Rights Scheme has changed although the content of those statutory rules is unchanged

• The letting agent has been allocated exclusive occupancy of three areas of the common property. The area on Level A marked OA1 is a vacant space behind the lifts not allocated for car parking. The area marked OA2 is the corresponding space on level B of the car park. The area marked OA3 is a small area on the roof now designated for the placement of a satellite dish.

[40] It is unnecessary for the reasons which follow to determine whether the effect of these omissions and changes, had they been known or applied at the time the first statement was provided to the appellants, would be to render the disclosure contained in the first statement inaccurate and therefore trigger the obligation on the respondent to provide a further statement pursuant to s 214(2). For the purposes of these reasons, I shall assume that they do render the first statement inaccurate.

[41] Where the first statement was or has become inaccurate, s 214(4) permits the purchaser to rescind the contract provided each of subparas (a) to (c) inclusive is satisfied. One of the prerequisites to the right to rescind is that the purchaser would be materially prejudiced if required to complete the contract in the light of the inaccuracies in the first statement. Section 214(4) appears to presuppose that a further statement is provided. The time for rescission is limited by the date the further statement is provided.

[42] On the other hand, if no further statement is provided but the first statement as varied by any further statement is inaccurate (see s 217(b)(iv)), there is a separate right to rescind under s 217(d)(i). That right must be exercised not later than three days before the purchaser is otherwise required to settle. Subparagraphs (d)(ii) and (iii) of s 217 have no application in this case. By s 217(c) it remains a pre-requisite to the right to rescind that the inaccuracy would make it materially prejudicial to the purchaser if compelled to complete. Thus, there does not seem to be any practical difference between a right to rescind under either section.

[43] None of the variations between the draft agreement and final agreement were obviously materially prejudicial to the purchasers.

[44] It was not suggested by the appellants that the name of the letting agent was of any consequence to them. That the final agreement was to commence upon the scheme coming into existence was also not obviously materially prejudicial. The agreement could not sensibly commence any earlier. It was a long term agreement with a right of renewal. The appellants' intention was to let their unit. Provided the letting authorisation was in place when the appellants' contract was due for settlement, it is hard to see how their position was affected by the actual commencement date.

[45] A change in the statutory designation of the Class Order without change to its content is immaterial.

[46] The areas now allocated to the exclusive occupancy of the letting agent are small, out of the way, otherwise vacant and not previously designated for any particular use. The intended use of AO1 and AO2 is for storage.

[47] Having regard to the wording of s 214(4) and s 217(c), it seems to me that the onus falls on the purchasers to prove that they would be materially prejudiced if required to settle given the changes that had taken place between the time they were provided with the first statement and the date for settlement.

[48] The appellant's pleading did not allege that any of the changes resulted in material prejudice. The appellants' case below was based on the proposition that they had been deprived of the opportunity to consider whether or not they would be prejudiced.

[49] In written submissions in reply, the appellants asserted that the changes following the first statement and which obligated the giving of a further statement were not trivial having regard to their nature. This submission was made in the context of a submission that the imposing of the obligation to give a further statement in the circumstances was not unduly onerous on the respondent. This is different from a submission that enforcing the appellants' obligation to settle would be materially prejudicial. The latter submission was not open on the pleadings or the evidence.

[50] Despite any wrongful assertion that it had no obligation to provide a further statement, the respondent's failure to do so did not result in any right on the part of the appellants to rescind the contract. Any right of rescission was based on the fact that the statement or statements provided were or had become inaccurate and on the appellants being able to demonstrate that they would be materially prejudiced if now forced to settle on the basis of the true facts. It follows that the purchasers' obligation to tender the purchase price in accordance with the terms of the contract was not conditioned on the receipt of the further statement.

[51] The principles discussed in Foran v Wight [1989] HCA 51; (1990) 168 CLR 385 on which both parties relied afford no assistance to the appellants. The relief from the obligation to tender performance discussed in the case is prefaced on the intimation by the other party to the contract that such tender would be pointless because of the second party's inability or refusal to tender in exchange that which the first party was entitled to receive.

[52] In this case, in the absence of material prejudice the appellants were entitled at settlement to receive no more than the respondent was prepared to give in exchange for payment of the purchase price. In this case, that was a conveyance of Lot 3703 in the residential complex Q1. At the time of contracting for the purchase of the lot, the appellants were aware that the body corporate would, by the time of settlement, have given a letting authorisation on terms not substantially different from those in fact granted to Sunland Hotels & Resorts Pty Ltd.

[53] The correct approach to this case is illustrated by the judgment of the Court of Appeal in New South Wales in Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 479-481 where the following passages appear:**

"As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party: see J, W, Carter, Breach of Contract, 2nd ed, (1991) at 347 and Halsbury's Laws of Australia, vol 6 'Contract' (1992) par 110-9520, by the same author. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon: see Nina's Bar Bistro Pty Ltd (formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd (at 614, 620-621, 632); and compare Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 440-442.

A party in breach of non-essential terms, who has not repudiated may rescind for fundamental breach: see Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26; State Trading Corporation of India Ltd v Golodetz Ltd (at 286-287). A party in breach of an essential but independent term may also rescind for fundamental breach: see State Trading Corporation of India Ltd v Golodetz Ltd (at 285-287); compare Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 at 50-51. Roadshow, we consider, was not, by reason of its conduct, unable to terminate on the ground of CEL/Vision's repudiation_._"

[54] The test to apply to determine whether or not a term of a contract is to be regarded as essential is that set out in the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (N.S.W.) Ltd (1938) 38 S.R. (N.S.W.) 642 at 641-642:

"The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v. Booth ((1834) [1834] EngR 1087; 1 Bing. (NC) 370, 377; [1834] EngR 1087; 131 ER 1160, 1162-1163), Bettini v. Gye ((1876) 1 QBD 183, 188), Bentsen v. Taylor, Sons & Co (No. 2) ([1893] 2 QB 274, 281), Fullers' Theatres Ltd v. Musgrove ((1923) [1923] HCA 12; 31 CLR 524, 537-538), Bowes v. Chaleyer ((1923) [1923] HCA 15; 32 CLR 159), Clifton v. Coffey ((1924) [1924] HCA 35; 34 CLR 434, 438, 440). If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight."

**[55] In my view, notwithstanding that the contents of the first statement are given contractual effect by s 215 of the Act, the limitation on the right to rescind in s 214(4)(b) and s 217(c) renders inessential an inaccuracy not materially prejudicing the purchaser. This is because the same statute which makes the statements part of the contract also limits the extent to which rescission is available for what becomes a breach of a contractual warranty.

[56] Applying the principles to which I have referred to the facts of the present case, notwithstanding the respondent's breach of a non-essential term, the respondent retained the right to rescind for fundamental breach by the appellants. In this case the fundamental breach lay in failing to tender the purchase price on the date specified in the contract where time has been made of the essence by clause 1.4.

[57] The argument for the appellants appeared to be that notwithstanding that it is now known that the inaccuracies in the first statement would not have given rise to a right to rescind the contract, they were nonetheless entitled to defer settlement upon becoming aware that there may have been such inaccuracies. I cannot accept that proposition. If the failure to provide the further statement was a non-essential breach of the contract, then absent a separate right to defer settlement I can see no basis for any moratorium on the vendor insisting on settlement in accordance with the contractual obligation.

[58] There is no statutory moratorium. The statutory rights are limited in the way I have set out. Indeed, s 217(d)(i) appears to assume that settlement on the due date can be insisted upon if the purchaser has not otherwise rescinded.

[59] An alternative argument was based upon illegality. It was submitted that the court should not lend itself to the enforcement of a contract where the respondent was in breach of a statutory obligation. Reliance was placed on Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 at 227, 229, 230.

[60] In this case the principles enunciated in that case have no application. The terms of the contract did not require the seller to contravene s 214(2) in performing the contract and the non-delivery of the further statement was not something done by the respondent in performance of the contract.

[61] Finally, it was submitted that a term that each party would comply with its obligations under the Act should be implied. I can see no reason to imply such a term. The Act itself provides remedies for non-compliance when the non-compliance is prejudicial to the other party, this argument must also fail.

[1] See Lee & Anor v Surfers Paradise Beach Resort Pty Ltd [2007] QSC 93, [28].

[2] [2005] QSC 224, [37]; BS No 6096 of 2005

[4] (1982) 149 CLR 337, 347

[5] [1997] HCA 17; (1997) 189 CLR 215, 227 (McHugh and Gummow JJ); [1997] HCA 17

[6] [2006] LGERA 48, 60[72].

[7] [2007] QCA 378