Lewis v Stojanovic & anor [2011] ACTSC 155

2. On 10 March 2011 the seller gave the buyers a notice to complete, appointing 25 March for settlement. On 23 March the buyers served a notice of rescission. On 1 June the buyers commenced the present proceedings, seeking a declaration that the rescission was valid, and a refund of the deposit.

3. The seller argues that the buyers were not entitled to rescind, and asks for an order that the agent account to the seller for $42,000.00 from the deposit, being $13,000.00 commission, $22,000.00 loss on resale, $5,000.00 for interest and holding charges and $2,000.00 for legal costs.

4. The first plaintiff says that he and his wife moved to Canberra early this year and started looking for a house for their family. They have three young children. They attended an inspection of the house, where they spoke to the representative of the agent, Mr Mehta. The house was on a small corner block of 483 m2. Mr Mehta gave them a copy of the contract, to which was attached a set of plans of the house. The site plan showed a 1.8 metre paling fence along the eastern boundary of the block, facing its longer street frontage. The house was new and had been completed but the fence was not yet in place.

5. The first plaintiff says that it was important to their decision that they have a fenced-off area of private open space for their children to play. Mr Mehta showed them the plan attached to the contract and told them that the fence would be erected in accordance with the plan.

6. The plaintiffs went back to have another look at the house on 18 January. A 1.8 metre fence had been constructed at the back of the property (that is, along the northern boundary) and partially constructed on the eastern side, apparently consistently with the plan they had been shown.

7. They went back for another inspection about a week later. The fence along the eastern boundary seemed to have been completed but was very much shorter than the fence disclosed on the plan. The first plaintiff deposes that Mr Mehta told them that he was 99% sure that they would be able to get approval to have the rest of the fence completed after settlement.

8. In his first affidavit, the first plaintiff said that on that basis, and because they felt pressured by being told that they might lose the sale to another buyer if they did not exchange contracts on 8 February, they signed contracts on that day. At the time of exchange they were aware that the fence as shown on the plan had not been approved by the ACT Planning and Land Authority (ACTPLA) but believed that they would be able to obtain approval subsequently.

9. He said that he then became concerned and contacted Canberra Building Solutions to check what was approved. He was given a copy of the Certificate of Occupancy which included a copy of the approved plans. These did not show a fence along the eastern boundary of the block but instead "selected screen shrubs".

10. The first plaintiff later filed a short affidavit correcting an error he had made. He said that his visit to Canberra Building Services had been the day before contracts were exchanged, thus conceding that prior to exchange he had seen a copy of the approved plan and was aware that the fence along the eastern boundary was not part of it. He says that he still believed, on the agent's advice, that there should be no difficulty in having the fence approved later.

11. After exchange he contacted ACTPLA, who confirmed that the fence on the eastern boundary was not approved and told him that it was unlikely to be approved.

12. The first plaintiff contacted Mr Mehta about this. Mr Mehta showed him a copy of an email from ACTPLA to the first defendant, described as a "first warning letter to lessee". The email asserted that ACTPLA officers had conducted an inspection of the property on 8 February (coincidentally the date of exchange). The inspection had identified that a 1.8 metre paling fence had been erected without approval. This was an offence. The options were to remove it or to lodge a development application for retrospective approval.

13. Mr Mehta told the first plaintiff that the builder would not be able to get the fence approved because this would set a precedent, but ACTPLA would be more receptive if the plaintiffs wrote and explained their personal situation. The agent drafted a letter which the plaintiffs edited and sent. In the letter they asked that the fence be allowed to remain in place. The first plaintiff was subsequently told by telephone by ACTPLA that permission would not be granted. ACTPLA could not deal with them because they were not the lessees, and in any event the fence would not be approved because "it was in breach of several legislative requirements for Casey". There was no further detail in evidence about this, but the parties appeared to accept that there was no prospect of obtaining ACTPLA approval to leave the existing fence in place or of getting permission to build a fence as shown on the plan annexed to the contract.

14. On 20 February the plaintiffs sent their solicitor an email setting out a lengthy list of building defects, including "Completion of the fence as per plans (if approved by ACTPLA). We lodged an application for approval last Thursday". I infer from this that the plaintiffs had sent their letter to ACTPLA on Thursday 17 February but had not yet had a reply.

15. On 22 February the solicitors for the plaintiffs wrote to the solicitors for the first defendant, passing on the request that the defects be attended to before settlement. Their letter concluded with the following:

Aside from these issues my clients would also like a detailed response from you and your client about the issues that were raised with the fencing. The plans that you included in your contract clearly show that there was supposed to be a fence that enclosed the yard and allowed for some private open space. Not only was the contract misguiding as to the approval of the fence, but we also felt that both you and your client pushed our clients into exchanging contracts before this issue could be fully investigated. Could you please discuss this with your client and let us know what you intend to do so that my clients can fully consider their position.

16. The solicitors for the first defendant wrote back on 2 March. Their instructions were that some of the asserted defects would be rectified before settlement and that in respect of at least one a monetary allowance would be made by way of adjustment on settlement. As to the fence they said "your client will have to take the fence as the agent has mentioned, or the builder can remove the fence".

17. On 10 March, the solicitors for the plaintiffs wrote to the solicitors for the first defendant with responses about a number of the asserted defects. They said that the buyers would proceed to settlement when a number of things had occurred, including "Fence shown on the contract is erected including the return to the house to the corner of the living area with the gate placed in the fence as indicated on the plan".

18. On the same day, the notice to complete was served. The next day, the solicitors for the buyers wrote back rejecting the notice to complete, with reasons related to the failure to provide a fence as shown on the plan attached to the contract. They said that the fence as shown on the plan was "an essential component in their decision to purchase this property". They had not been provided with a copy of the approved plans and had thus been misled. They would never have agreed to buy a house which did not have an enclosed area closed off from the street where their children could play safe from passing traffic. The areas behind and on the other side of the house were so narrow as to be little more than passageways with no practical facility for recreational use.

19. Mr Mehta affirmed an affidavit in which he said that the day before exchange of contracts the solicitor for the buyers showed him a copy of the approved plan, showing shrubs rather than a fence on the eastern boundary of the block, so that he believed the decision by the buyers to exchange contracts was one made in the knowledge that the fence was unapproved.

20. Mr Mehta said that a few weeks after exchange, the buyer contacted him and asked for access to the house and permission to install an air-conditioner. He arranged access and the air-conditioner was installed.

21. Mr R C K Figg, architect, swore an affidavit saying that he had been preparing plans for the first defendant for the last twenty years. He prepared the plans for the house at Casey. He arranged for the plans for be submitted for building approval to Canberra Building Solutions, a private building certifier. On 17 March 2010 he received an email from the certifiers saying that the timber paling fence shown on the plan did not comply with the Territory Plan. An available option was to remove it and replace it with a screening hedge. The next day he visited their offices and amended three copies of the site plans by deleting the fence and showing the hedge instead. Due to his heavy workload on other projects at the time, he neglected to inform the first defendant about the change.

22. The first plaintiff gave oral evidence. He said that he had sought permission from Mr Mehta to have the air-conditioner installed before exchange of contracts. The installation took place a week after exchange. At the time of installation he was still confident that the fence would be approved, and the family were making plans to move into their new house. He agreed that following exchange he and his wife had taken out an insurance cover note over the property. He also accepted that the contract had provided scope for a 5-day cooling-off period after exchange but this had been waived by his solicitors.

23. Oral evidence was also given by Mr Mehta. His evidence was generally consistent with that of the first plaintiff, except that he denied having given any assurance that he was 99% sure that approval for the fence would be forthcoming. He said that he did not know whether there would be a problem getting approved but he did tell them that he would help them try to get it approved.

24. Dr Weereratne, the solicitor who acted for the first defendant on the conveyance, and also appeared for him on the hearing of the action, submitted that I should find that the first plaintiff had deliberately given false evidence in his earlier affidavits about not having seen a copy of the approved plan until after exchange. It is true that he did not correct his evidence as to the sequence of events until after he had seen Mr Mehta'a affidavit, but I am not satisfied that the mistake was deliberate or intended to deceive the court. In any event, to the extent that this was an attack on his credit, there was really nothing else in his evidence which Dr Weereratne sought to challenge. Now that the mistake has been corrected, there is really no issue between the parties as to the facts.

25. It is necessary to examine the contract to determine what the parties intended to agree to, and what they in fact agreed to. The contract is in the standard form published by the Law Society of the Australian Capital Territory (2004 edition). Page 2 of the standard form lists a large number of documents which may or may not be attached to a contract, with boxes to be marked to indicate attachments. None of the boxes were marked, although there were a number of attachments. These included a title search, a copy of the deposited plan of the subdivision, a lease conveyancing enquiry and report, an inclusions list, energy rating certificate, plans of the block and house and asbestos advice.

26. The inclusions list included as item 1.2.6 "Fence: half perimeter lapped 1.8m high paling."

27. The inclusions list, though attached to the contract, is not, so far as I have been able to see, referred to in the body of the contract. The schedule on the front page of the contract contains an item "Goods", completed as follows "fixed floor coverings, light fittings and window treatments, dishwasher and $100 worth of plants in front yard". The inclusions list is far more extensive, and its attachment to the contract must mean that the parties intended it to form part of the contract.

28. The only reference in the body of the contract I have been able to find to attached plans and specifications is in clause 14, which reads as follows:

14. Off the plan purchase

14.1 If the Lease contains a Building and Development Provision which has not been complied with at the Date of this Contract and cl 4.2 does not apply, before the date for completion, the seller must at the seller's expense complete the construction of the Improvements promptly and in a good and workman like manner substantially in accordance with the plans and specifications attached and which are:

(under the Building Act as applicable)

14.2 If at the Date of this Contract the plans and specifications referred to in cl 14.1 are to be approved, this contract is subject to the seller obtaining the approval referred to in that clause within 60 days of the Date of this Contract. If the Seller has not already done so the Seller must:

(a) make an application to the appropriate authority for approval of the plans and specifications;

(b) diligently pursue that application;

(c) do everything reasonably necessary;

(d) pay any application fee; and

(e) supply all information required by the proper authority to obtain approval of the plans and specifications within 60 days of the Date of this Contract. If the approval is not obtained in that time the Buyer may rescind and cl 21 applies. The Buyer has no right to rescind this Contract once the plans and specifications are approved.

29. Neither box in Clause 14.1 was ticked. A copy of the crown lease was not attached to the contract, and there is hence no evidence about whether the lease contained a Building and Development Provision, defined in the contract to have the meaning it has in the Planning and Development Act 2007. There being no other reference to the attachment of plans and specifications, I infer that it was the intention of the parties that cl 14.1 was to apply. Although neither box was marked, the evidence of the architect is that plans and specifications for the house were approved, but that they were not the same as the plans and specifications attached to the contract. It seems to me that by cl 14.1 the seller undertook at his expense to carry out works so as to complete the house, and other improvements shown on the plan such as the fence, prior to completion.

30. The fence not having been erected in compliance with the plan attached to the contract, the seller was not in a position to serve a notice to complete when he did, and the plaintiff buyers properly rejected the notice.

31. Section 11 of the Civil Law (Sale of Residential Property) Act 2003 provides that certain conditions are, if not included in a contract for the sale of residential property, taken to be included in it. One of those conditions is a condition to the effect that if, before completion of the contract, the buyer becomes aware of an unapproved structure that is not disclosed in the contract, the buyer may ask the seller to arrange for the structure to be approved before completion, and if it is not approved before completion, is entitled either to rescind the contract or to complete and claim damages.

32. It is now apparent that the portion of fence on the eastern boundary of the property, not there when the plaintiffs first inspected it, but in position prior to exchange, was an unapproved structure.

6.1 If the buyer establishes before Completion that except as disclosed in this Contract, there is any Unapproved Structure on the Property, then the Buyer may:

6.1.1 require the Seller to arrange for the Unapproved Structure to be approved before Completion; and

6.1.2 if the Unapproved Structure is not approved before Completion, rescind or complete and sue the Seller for damages.

34. Unapproved Structure is defined in the contract to have the same meaning as in the Civil Law (Sale of Residential Property) Act. I am satisfied that the fence in place at the date of exchange and, on the evidence, still in place is an unapproved structure.

35. The Seller could have removed the unapproved fence, but did not do so before issuing a notice to complete and has not done so since. In the circumstances the buyers were entitled to rescind.

36. It is strictly unnecessary to decide what the position would have been if the seller had removed the unapproved fence before serving the notice to complete. It seems to me that the seller would still have been in breach of contract, specifically of cl 14 set out above, in failing to complete the construction of the improvements shown on the plans and specifications attached to the contract. It is apparent that there was effectively no prospect of the seller obtaining approval to put up a fence as shown on the plans attached to the contract, so that eventually a position would have been reached where the buyers would have been entitled to rescind in any event.

37. The parties agreed in cl 21 of the contract in the following terms:

21.1 Unless s.15 of the Property Act applies, if this Contact is rescinded, it is rescinded from the beginning, and unless the parties otherwise agree:

21.1.1 the Deposit and all other money paid by the Buyer must be refunded to the Buyer immediately without any further authority being necessary and

21.1.2 neither party is liable to pay the other any amount for damages, costs or expenses.

38. It is not suggested that the section of the Property Act applies, and there is no evidence of any other agreement between the parties. Hence the agent must refund the deposit to the buyers in full.

39. As to costs, notwithstanding subclause 21.1.2, the plaintiffs seek the costs of the action. They have been able to achieve the outcome they have only by commencing proceedings, and costs should follow the event.

40. There will be a declaration that the plaintiffs validly rescinded the contract for sale between the plaintiffs and the first defendant on 23 March 2011, and an order that the second defendant refund to the plaintiffs the deposit of $52,700 without deduction.

41. The second defendant was joined only so that appropriate orders could be made about refund of the deposit. Whilst the second defendant did not enter a submitting appearance, it did not participate in the proceeding, or do anything which increased the costs of either the plaintiffs or the first defendants. I therefore propose to treat the second defendant as having submitted to the order of the court, and to make no order for costs against it.

42. The counterclaim by the first defendant will be dismissed.

43. The first defendant must pay the costs of the plaintiffs.

I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of Master Harper.