Lucantonio v Ciofuli [2002] NSWSC 509 | Case summary

7.1.3 the purchaser does not serve notice waiving the claims within 14 days after that service; and 7.2 if the vendor does not rescind, the parties must complete and if this contract is completed - 7.2.1 the lesser of the total amount claimed and 10% of the price must be paid out of the price to, and held by, the depositholder until the claims are finalised or lapse …". 3 The effect of the striking out the clause 7.1.1 was obviously intended to be to allow the vendors to rescind even if the claim for compensation was for less than 5% of the price. The word "claim", as used in clause 7, was not defined in the contract, but the word "rescind" was defined to mean "rescind this contract from the beginning". 4 Special condition 31 of the contract stated that the purchaser acknowledged that he had "relied entirely upon his inspection of the Property and his own inquiries relating thereto". 5 Special condition 40 of the contract was as follows: "40. The Purchaser acknowledges that annexed to the contract is a Notice of Determination of a Development Application dated 4 September, 2001 in respect of the Property issued by the City of Canada Bay Council and accompanying documents. The Purchaser agrees that they shall not raise any objection, requisition, claim for compensation or be entitled to delay completion because of the said Notice or accompanying documents. …". 6 Annexed to the contract was a copy of the City of Canada Bay Council's Notice of Determination made on 4 September 2001 in respect of a development application regarding the Property. Council approved a development application for renovations and alterations to provide 17 commercial/retail units with basement parking, subject to certain conditions. Clause 1 of the conditions required that the development take place and operate generally in accordance with the consent, accompanied by certain specified sheets. It was noted that any minor modification to the approved plans would require the lodgement and assessment of an application to modify consent under s 96 of the Environmental Planning and Assessment Act 1979 (NSW), but major modifications to the approved plans would require the lodgement and consideration of a new development application. Clause 37 of the conditions required that no fewer than 21 car parking spaces be provided in accordance with the approved plans for the parking of resident and visitor vehicles on the site. 7 Also attached to the contract were plans for the proposed development for which approval had been given. The plans provided for 21 car parking spaces. 8 Mr Lucantonio's evidence, not challenged at the interlocutory hearing, was that he and his wife decided to bid for the Property at the auction so that they could develop it in accordance with the approved development application. They accordingly arranged finance in the sum of $3,867,000. Mr Lucantonio said that without the Council's development consent he and his wife would not have purchased the Property. He said he was aware that any modification of the approved plans would involve an application to the Council to modify its consent, and in his experience obtaining such an approved modification from Council would be a difficult and time-consuming matter. In fact, according to the Council's Notice of Determination, a new development application would be needed if there were major alterations. 9 The plaintiffs' solicitor issued standard requisitions on title on 8 November 2001. No reference was made to any difficulty with respect to the development of the Property. The requisitions were answered on 12 November 2001. 10 After they exchanged contracts for the purchaser the Property, the plaintiffs engaged an architect to carry out the necessary work to obtain a Construction Certificate from the Council, so that they could carry out the proposed building work. On 21 November 2001, after inspecting the site, the architect wrote to Mr Lucantonio saying that there had been errors and items omitted from the drawings approved by Council, which would make it impossible to obtain the required number of car spaces. To provide 21 car spaces it would be necessary to construct another basement level of parking, at obvious cost, and the Council's consent would be required. The architect's opinion was subsequently confirmed in a letter dated 13 December 2001 from Transport and Traffic Planning Associates. 11 On 22 November 2001 the plaintiffs' solicitor wrote a without prejudice letter to the defendant's solicitor referring to the problems discovered by the architect. The letter required the defendant's acceptance of the plaintiffs' offer which it set out, under which (inter alia) the defendant would bear the cost of obtaining amended plans and of applying for variation of the Council's consent; and would also bear the additional building, engineering, architectural and geotechnical costs, estimated at that time to be in the vicinity of $200,000; and if the Council were to refuse to amend its consent, the plaintiffs would be entitled to rescind the contract. The defendant's solicitor responded by a without prejudice letter dated 27 November 2001, saying that the Property had been sold with copies of the development consent and approved drawings available for inspection prior to the auction, and also that the defendant was not convinced by the architect's assertions. The letter also relied on special condition 40 of the contract. It concluded that the matter was "not negotiable", and that settlement was required on 16 January 2002. 12 The plaintiffs commenced the present proceeding on 21 December 2001. They did not complete the purchase of the Property on 16 January 2002, the completion date provided for in the contract. On 17 January 2002 the defendant's solicitor issued a notice to complete, appointing 2pm on 6 February 2002 as the time for completion. The plaintiffs' solicitor responded on 18 January 2002, denying that the defendant was entitled to issue a notice to complete, and disputing that the defendant was ready and willing to transfer the Property in accordance with the contract. The defendant's solicitor sent settlement figures to the plaintiffs' solicitor on 31 January 2002, providing for payment of the full balance of purchase money without any deduction for compensation. The covering letter by the defendant's solicitor said that if the purchasers did not complete on the due date nominated by the notice to complete, then the defendant would issue a notice of termination of the contract. 13 On 4 February 2002 the plaintiffs' solicitor wrote a without prejudice letter to the defendant's solicitor, noting that the plaintiffs disputed the validity of the notice to complete, but making an offer to complete the sale pending determination of the plaintiffs' claim for damages, if the sum of $300,000 be withheld from the purchase money and retained in trust pending the Court's determination. The defendant's solicitor rejected the offer by letter dated 5 February 2002. 14 The defendant's solicitor attended at the time and place nominated for settlement in the notice to complete, together with a representative of the discharging mortgagee, Citibank Ltd. He telephoned the plaintiffs' solicitor from the settlement room. The plaintiffs' solicitor said that he would not be attending the settlement, and his client would be relying on the Court proceedings. The defendant's evidence is that he was ready, willing and able to settle on 6 February 2002, and also on 16 January 2002. The plaintiffs disagree, saying that the defendant insisted on payment of the full balance of the purchase money, and that she was not entitled to do so. They have also foreshadowed in submissions that, at the final hearing, there may be other challenges to the defendant's readiness and ability to complete. 15 The defendant's solicitor wrote to the plaintiffs' solicitor on 7 February 2002, saying that his client elected to terminate the contract for breach of an essential term of the contract, namely the purchasers' failure to complete the sale on or before 6 February 2002 in accordance with the notice to complete. 16 The defendant's solicitor wrote to the plaintiffs' solicitor on 8 February 2002, saying that the defendant intended to re-sell the Property, and asserting an entitlement under clause 9 of the contract to retain the deposit and also to hold the plaintiffs liable for any deficiency on re-sale. The plaintiffs' solicitor replied on the same day, denying the validity of the notice to complete and purported termination, and also denying the defendant's entitlement to re-sell, and saying that the plaintiffs were lodging a caveat on the title. 17 The plaintiffs' caveat, claiming equable ownership of the Property by virtue of the contract dated 3 November 2001, was lodged on 8 February 2002. The defendant contracted to sell the Property for $2.42 million to Michael and Rosanna Cantali as to a one half share, and Richard and Tina Ciofuli as to the other half share. Richard Ciofuli is the defendant's son, to whom I have referred. The contract of sale is dated 10 April 2002, and provides for completion to take place on 19 June 2002, but it is a condition of the contract that the caveat lodged by the plaintiffs be removed. The plaintiffs' solicitor received a lapsing notice from the defendant's solicitor on 13 May 2002. 18 The defendant gave evidence of financial hardship. She explained that the Property had been leased to Jewel Food Stores until the end of 1996, when that company decided it required more space and moved out. The defendant then leased the Property to her son, who also used it as a supermarket. In order to refurbish the Property, the son borrowed funds using the Property and his place of residence as security. However a Coles Supermarket opened in approximately September 2000, directly opposite the Property, and this had a severe impact on the son's business. The son ceased trading in approximately June 2001, leaving debts including debts secured by mortgage over the Property. According to the son's evidence, by April 2002 his debts to the mortgagee, Citibank Ltd, amounted to $1,472,000, of which approximately $902,000 related to the refurbishment of the Property and approximately $570,000 was a home mortgage debt. However, Citibank's own demands (referred to below) suggest that a substantially lower amount may be secured over the Property. 19 Since approximately July 2001 the defendant has not received any income from the Property, and she is not eligible to receive a pension. She attempted to clear the debts secured on the Property by pursuing a development application. The development application was lodged on her behalf by her son, who intended to carry out the development himself. After obtaining development consent, the defendant and her son decided to sell the Property and use the proceeds of sale to clear the debts secured over it, because the son was being pressed by Citibank for repayment. 20 When the plaintiffs did not proceed with completion of the Property, the defendant found it necessary to borrow $20,000 from for daughter for day-to-day living expenses, as well as relying upon the daughter for accommodation. Her son has also recently lost his job and is now without income. Apart from the debt to Citibank, he owes other creditors about $86,000 and they are pressing for payment. The defendant has not been able to pay the statutory outgoings of the Property, which have been outstanding for approximately 6 to 9 months. The amount owing is about $11,000. Approximately $91,000 is immediately owing to the mortgagee, Citibank Ltd, for overdue interest on all its accounts. 21 On 26 February 2002 Citibank issued a default notice under s 57 (2) (b) of the Real Property Act 1900 (NSW). The notice referred to a single account with a balance of $302,799.55 and required payment of an overdue amount of $17,571.23 within 31 days, and said that the mortgagee would exercise its power of sale if payment was not made. On 30 May 2002 Citibank's solicitors wrote to the defendant setting out the arrears of interest in respect of four accounts, including the account referred to in the s 57 (2) (b) notice, stating that unless the plaintiffs' caveat was removed by 3 June 2002, Citibank would require immediate payment of all arrears of interest, failing which it would exercise its entitlement to enforce its security. 22 By notice of motion filed on 22 May 2002, the plaintiffs now seek an order for the extension of the caveat until further order of the Court. They maintain, and the defendant denies, that as at the date of the contract and thereafter, the building renovations could not be carried out with 21 car parking spaces, as provided for in the conditions of the development consent. For the purposes of this application, the plaintiffs and the defendant accept that the cost of building a further floor to accommodate the requirement for 21 car parking spaces will be $584,000. 23 In assessing an application to extend a caveat over land, the Court proceeds by analogy with the law concerning interlocutory injunctions see, for example, Martyn v Glennan (1979) 2 NSWLR 234, 239; in Lawrence v Appleby (2002) NSW Conv R paragraph 55-993 Palmer J pointed out that the analogy is a qualified one, but not in any way directly affecting the present determination. The questions for determination here are whether the interest asserted by the caveat raises a serious question to be tried at the final hearing, and whether the balance of convenience favours the granting or refusal of the extension. For the purpose of considering the balance of convenience, the Court normally requires the plaintiff to give the usual undertaking as to damages. The plaintiffs have offered to give that undertaking in the present case. 24 The defendant accepts that the issue whether the approved plans can accommodate 21 car parking spaces is a question of fact, and is a serious question to be tried in the present proceeding. However, the defendant submits (and the plaintiffs deny) that even if the plaintiffs' factual case on this question is correct, still there is no serious question to be tried that the plaintiff has an equitable interest in the Property under the contract dated 3 November 2001, because the defendant maintains that the contract has been validly terminated. The parties also disagree as to the balance of convenience. 25 I have had the benefit of full submissions with respect to the question whether the contract of sale was validly terminated by the defendant notwithstanding the problems with car parking spaces alleged by the plaintiffs. Where a question of law arises in interlocutory proceedings, it may be appropriate for the Court to determine that question on a final basis, in certain circumstances. In my opinion it would be desirable to deal with the termination of the contract on a final basis, given the very difficult positions in which the plaintiffs and the defendant find themselves. The plaintiffs are being kept out of their deposit, a substantial sum, and have incurred expenses with respect to the purchase and the proposed development. They need to know whether they will be able to proceed with their plans. The defendant is in a very difficult financial position, especially having regard to the pressure being applied by the mortgagee for repayment. Receipt of the proceeds of sale under the new contract for sale will substantially alleviate or eliminate her difficulty. 26 However, the plaintiffs say that, notwithstanding the defendant's evidence on the interlocutory application, there will be an issue at the final hearing as to whether the defendant was ready and able to complete the contract at the time and place stipulated in the notice to complete. I gather that the contention will be based on matters other than the plaintiffs' claim that 21 car parking spaces could not be constructed under the approved plans and development consent, and the defendant's insistence on payment of the full purchase price without any deduction for compensation. If the party issuing a notice to complete and purporting to terminate for non-compliance with that notice was not herself ready, willing and able to complete at the time stipulated in the notice to complete, that party cannot rely on failure to comply with the notice to complete as a ground for termination of the contract: Frankcombe v Foster Investments Pty Ltd (1978) 2 NSWLR 41, at 48. 27 Given that such a contention is foreshadowed, it seems to me that at this interlocutory stage I cannot properly resolve the question of validity of the purported termination of the contract on a final basis. However, the plaintiffs have not at this stage advanced any evidence to support their contention as to the defendant's readiness and ability to complete, and if (but for that contention) the Court would conclude that the termination was valid, then on the interlocutory application the appropriate conclusion is that the plaintiff has not established a serious question to be tried. Termination of contract 28 The plaintiffs contend that the contract was not validly terminated on 7 February 2002, because the defendant was not able to issue a notice to complete, or to terminate based on that notice, given her demand for payment of the full balance of purchase money; and they say that the defendant was not in a position to settle at the time nominated in the notice to complete, because she could not then proffer performance of the contract in view of the deficiencies in the development approval. They say that the development consent could not be used because the building based on the approved plans could not be built, and those facts constitute a defect in the defendant's title. 29 The defendant says that the plaintiffs' entitlement (if any) to claim compensation with respect to alleged deficiencies in the development approval is governed by the terms of the contract; the plaintiffs were not entitled to claim compensation because of the alleged problem with the car parking spaces having regard to special condition 40; if (contrary to the defendant's submission) special condition 40 did not prevent a claim for compensation, any such claim should have been made under clause 7 of the contract (and if it were, the defendant would have been entitled to rescind under that clause); and since no claim for compensation was made under clause 7, the defendant was entitled (as she did) to claim the full balance of the purchase price on completion. 30 For the purpose of considering these submissions, I shall assume (although these matters will be contested at the final hearing) that the building as envisaged by the approved plans and development consent could not be constructed without the addition of a basement floor to provide further car parking spaces, so that the total number of car parking spaces would be 21 as required by condition 37 of the development approval. I shall also assume that this would be a major alteration requiring a new development consent. It would follow from those assumptions that the development consent annexed to the contract could not be used. 31 The plaintiffs contend that development approval attaches to the land, and permits the land to be used for a purpose for which, but for the approval, it could not be used. They rely on Tambel v Field (1982) NSWR 55-077, where a block of flats was sold on the basis that there were six flats conforming with local government requirements and that the building had strata potential, whereas in fact there was no Council approval for two of the flats. Rath J held that this constituted a defect in title. It is at least doubtful that this decision, relating to a contravention of local government legislation concerning a building already constructed, should be extended to a case where a property is sold with an ineffective approval for a development that has not occurred. However, having regard to the view that I take as to the construction and application of the contract, it is unnecessary for me to decide whether there is a defect in title in this case. 32 Nor is it necessary for me to characterise the plaintiffs' claim for compensation as equitable compensation, common law damages, or statutory damages arising under the Fair Trading legislation. I was referred to some observations by Handley JA in Batey v Gifford (1997) 42 NSWLR 710, at 718, where his Honour explained the difference between compensation awarded in equity ancillary to specific performance, said to be available only for a deficiency in the subject matter described in the contract, and unliquidated damages for breach of contract (and for that matter, unliquidated damages recoverable under trade practices legislation). But that distinction is not significant in the present case, having regard to the terms of the contract, as I shall explain. 33 The plaintiffs submitted, relying on such cases as Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1, Dainford v Lam (1993) 3 NSWLR 255 and Batey v Gifford, that a vendor cannot, by notice to complete, seek to compel the purchaser to complete unless the vendor first offers compensation for a defect in title. But those cases referred to contractual provisions different from the contract in the present case. In my opinion, the form of the contract in the present case makes that proposition inapplicable. 34 Clause 6 of the contract refers to claims for compensation for errors or misdescriptions and is as to the property, title or anything else, whether substantial or not. To the extent that the approved plans annexed to the contract demonstrated errors, any claim for compensation for those errors fell within clause 6 whether the errors were or were not errors "as to" the Property or title. To the extent that the problem concerning the car spaces could not be described as and "error or misdescription in this contract", clause 6 did not apply. However, clause 7 applied to any "claim" (including a claim under clause 6, and had the effect of limiting any claim before completion to a claim following the procedure specified in the clause). It is common ground that there was no claim made by the plaintiffs for the purposes of clause 7. 35 The word "claim" is not defined in the contract. However, it is a word of broad scope. In the conveyancing context, it can be taken to include any claim arising out of the contract for sale and leading to an adjustment of the purchase price. The plaintiffs' assertion that they were entitled to reduce the purchase price payable on settlement by an amount, subsequently found to be $584,000, is in my view a "claim" to which clause 7 applies. In the absence of service of a statement of the amount claimed for the purposes of clause 7, the effect of clause 7 is that such a claim cannot be made before completion. 36 If the plaintiffs had made a claim under clause 7, then the defendant to would have been entitled to rescind the contract under clause 7.1. By demanding compensation but not making a claim under clause 7, the plaintiffs purported to deprive the defendant of the right to rescind conferred upon her by the clause. They were not entitled to proceed in this manner, under the contract. Clause 7 expressly provides that a claim (that is, a claim of any kind) is to be made before completion only by serving a statement under that clause, and if the vendor does not rescind after the claim has been made, the parties must complete. 37 In my view, therefore, the plaintiffs were not entitled under the contract to insist upon a reduction in the purchase money payable on completion. Their failure to comply with the defendant's notice to complete was a breach of an essential term of the contract, entitling the defendant to issue her letter of termination on 7 February 2002, subject to one matter. 38 The one remaining matter is the plaintiffs' submission that the defendant was prevented from issuing a valid notice to complete or notice of termination because she was in breach of an obligation under the contract. There is authority for the proposition that a party issuing a notice to complete is in a position analogous to a party instituting a suit the specific performance, and therefore that party must be free of default by way of breach or antecedent relevant delay when the notice is given: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, at 299 per Barwick CJ and Jacobs J; see also McNally v Waitzer (1981) 1 NSWLR 294, at 296 per Reynolds JA and at 303-4 per Hutley JA. The plaintiffs contend that the defendant could not obtain an order for specific performance without offering compensation and therefore similarly, she could not issue a notice to complete and terminate the contract. 39 Once again, it seems to me that this submission overlooks the express terms of clause 6 and 7 of the contract. They govern the positions of the vendor and purchaser as regards claims for compensation with respect to matters arising under the contract. It seems to me that if no claim for compensation were made under clause 7, the vendor would be entitled to a decree of specific performance without any allowance for equitable compensation (assuming all other conditions were satisfied), even though the purchaser claimed a defect in title or an error or misdescription or some other basis for a contractual claim. In principle, I see no reason why a court of equity would not give effect to the contractual provisions in such circumstances: see ICF Spry, The Principles of Equitable Remedies (6th ed, 2001), p294. 40 In any event, my view is that there has been no breach of contract by the defendant, on the evidence before me. Putting aside any question of misrepresentation by advertisement prior to the auction, development consent is made relevant for contractual purposes by special condition 40, read in light of special condition 31. Whether or not special condition 40 prevents the plaintiffs' claim for compensation (see below), special conditions 31 and 40 at least govern to the contractual significance of the development approval. The development approval is there for inspection, annexed to the contract, but the vendor makes no warranty about it. It does not warrant, in particular, that the construction of the building proposed in the approved plans is feasible at a particular price or at all. The contract says: "Here are the papers relevant to the approval - make your own inquiries about them": cf Tambel v Field, at 46,455.. 41 This analysis does not require the Court to reach any conclusion as to the effect of special condition 40. There is authority for the view that provisions of this kind must be strictly construed: see, for example, Batey v Gifford at 717 per Handley JA; and generally, ICF Spry, op cit at 293-4 and cases there cited. Even so, clause 40 (read in the context established by special condition 31) expressly prevents the purchasers from claiming compensation "because of" the Council's notice of determination and the accompanying documents (including the approved plans). It seems to meet plausible to contend that the plaintiffs' claim in the present case is a claim to compensation because of the Council's notice of determination and approved plans. However, if the only issue were the construction of special condition 40, I would be inclined to concede that there is a serious question to be tried as to whether the plaintiffs' claim is a claim "because of" the Council's determination of the development consent and the accompanying plans, as opposed to being a claim "because of" some oversight made by the applicant for Council's approval. 42 My conclusion is that in view of clauses 6 and 7 of the contract, there is no serious question to be tried upon the plaintiffs' assertion that the contract was not validly terminated. Balance of convenience 43 If the caveat is not extended, it is likely that the defendant will proceed to complete the sale of the Property, and thereby put it out of her hands to be able to complete the sale to the plaintiffs. That would leave the plaintiffs with a claim for damages against the defendant. The plaintiffs draw attention to the fact that the contract for sale was entered into nearly four months after the commencement of the present proceeding, and note that one of the purchasers is the defendant's son. They submit that the making of the contract, in these circumstances, is an attempt by the defendant to pull up her case by its bootstraps and in that way to shift the balance of convenience. 44 In my opinion there was nothing improper in the defendant contracting to re-sell the Property when she did. Completion of the new contract is subject to removal of the plaintiffs' caveat. The defendant was being pressed by a Citibank to resolve her financial position, and a s 57 (2) (b) notice had been issued, foreshadowing a mortgagee sale if payment was not made. She asserted, on legal advice, that the contract of sale to the plaintiffs had been validly terminated. Her solicitor informed the plaintiffs' solicitor of her intention to sell, and although the plaintiffs' solicitor asserted that she was not entitled to do so, there is no evidence that the plaintiffs sought an interlocutory injunction to prevent the sale. The defendant initiated the lapsing notice which has brought the parties to Court on the present application. 45 While the defendant's son (and also, presumably, the son's wife) are co-purchasers under the new contract, there are two other purchasers and the sale price is higher than the price to which the plaintiffs agreed. There is nothing to suggest that the new contract is a sham, or that (though genuine) it was procured by the defendant in order to improve her prospects of resisting the present application. 46 In summary, I reject the contention that by relying on the new contract the defendant has attempted to pull up her case by its bootstraps and thereby shift the balance of convenience in her favour. In my view the existence of a genuine contract for sale at a higher price providing for completion in the near future is very material to the balance of convenience, and supports the defendant's case on that matter. 47 I have summarised the defendant's evidence as to her financial hardship. In my view that evidence is another significant factor suggesting that the balance of convenience is in her favour. The plaintiffs say that, in light of that evidence, they may well be faced with difficulty in recovering any judgment for damages against the defendant. In my opinion, the Court cannot make such an inference. While the defendant is presently in very straitened circumstances, she owns a valuable Property which she has contracted to sell, by a contract which provides for completion well before any judgment for damages could be obtained against her by the plaintiffs. Even if all of the son's debts to Citibank were secured by the mortgage over the Property, and were consequently paid out of the proceeds of sale upon completion of the new contract for sale, there would on the evidence be a surplus of around $900,000 for the defendant. The s 57 (2) (b) notice raises a question, in my mind, as to whether Citibank's security over the Property may be limited to only one of the son's accounts with the bank, in an amount of a little over $300,000 plus accruing interest. If that is so, the defendant would receive net proceeds of sale of over $2 million. 48 In my opinion, the balance of convenience so strongly favours the defendant in this case that I would decline to extend the plaintiffs' caveat even if I had formed the view that their asserted interest in the land raised a serious (though not strongly arguable) question to be tried. Conclusions 49 In my view there is no serious question to be tried concerning the plaintiffs' assertion that the contract between the parties dated 3 November 2001 was not validly terminated by the defendant by her solicitor's letter dated 7 February 2002. Therefore the plaintiffs are not entitled to maintain their caveat based upon their asserted interest in the Property under that contract. That conclusion would be enough to cause me to refuse to the plaintiffs' application for an order extending the caveat. 50 Additionally, the balance of convenience favours refusal of the plaintiffs' application. I shall therefore dismiss the application and hear the parties on the question of costs. **********

Lucantonio v Ciofuli

At a glance

Court

Decision date

Before

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Judgment (13 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (8)

Cited By (4)