Malouf v Sterling Estates Development Corporation Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3218/02 - MALOUF v STERLING ESTATES DEVELOPMENT CORPORATION PTY LTD JUDGMENT 1 HIS HONOUR: On 14 February 2000 the plaintiffs agreed to purchase a unit in a proposed building at Camperdown from the first defendant. The contract was in the 1996 edition of the standard form, but with a number of special conditions. The purchase price was $560,000. A deposit of $56,000 was secured by a deposit bond. 2 It was part of the contract that the building in which the unit would be part would be constructed by contractors on behalf of the vendor. The building was expected to be ready somewhere about the end of the following year. 3 Special condition 31 of the contract provided that before completion the vendor must cause the property to be finished as specified. However, the requisitions and complaints that the purchaser could make were limited by special condition 31, so that the purchaser could complain of special faults before completion, but faults and defects which were not within the category of "special faults" were to be notified not with the vendor's solicitor, but with some officer of the vendor, and could be fixed within a limited time after completion. 4 "Special faults" were defined in special condition 23 of the contract in the following terms: "Special fault means a fault or defect in the property which: (a) is structural; or (b) because of its nature requires urgent attention; or (c) may cause danger to persons in the property; or (d) make the property uninhabitable." 5 The vendor's solicitor wrote to the purchasers' solicitor on 5 February 2002 indicating that practical completion was likely to be reached about 20 February, and the strata plan would be registered shortly thereafter. This, no doubt, was to alert the purchasers that some action would be required in the near future to complete the purchase. 6 Special condition 33 made completion conditional, inter alia, on registration of the strata plan. 7 On 14 March 2002 the first plaintiff inspected the unit. On that day he wrote to the first defendant's representative noting eight defects that he said required rectification prior to settlement. I do not need to set out the eight defects, as only two are currently said to be special defects; those two being a damaged fire door and uneven floor levels in the living/dining room area. 8 However, one of the first defendant's men, a Mr Irvine, in fact found eighty-two defects, including drummy tiles which needed attention at that time. 9 On 25 March 2002 the vendor's solicitor wrote to the purchasers' solicitor informing them that the strata plan had been registered on 22 March 2002. It would seem that the other preconditions to settlement had been fulfilled before this date. 10 The completion date under term 5 on page 1 of the contract was 21 days from the date of the fulfilment of the preconditions, which seems to be 13 April 2002. Under cl 15 of the contract: "The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so." 11 Under special condition 27.4 a fourteen day notice is said to be a reasonable period to allow for completion in that notice. 12 The vendors' solicitor's letter also pointed out that under special condition 31 the purchasers were not entitled to delay completion on account of general defects. 13 On 10 April 2002 the purchasers' solicitor wrote to the first defendant's solicitor alleging that there had been an informal agreement between the clients that settlement would take place when 90 percent of the defects in the earlier correspondence had been rectified. 14 On 11 April the first defendant's solicitor wrote that there was no such agreement, that completion was expected on 15 April 2002, and that if that did not occur a notice to complete would issue. 15 On 17 April 2002 the vendor's solicitor issued a notice to complete. 16 The notice read: " NOTICE TO COMPLETE TO: Samuel Malouf and Christine Malouf AND TO: YOUR SOLICITORS Patrick Hargraves & Co BY FACSIMILE 9344 5141 Sterling Estates Development Corporation Pty Ltd ACN 083 002 171 ("the Vendor") gives you notice that: 1. The Vendor is ready and willing to transfer to you the property known as Apartment 420 "Etage", City Quarter, 2-50 Pyrmont Bridge Road, Camperdown in accordance with a contract for sale of land dated 14 February 2002 (" the Contract "). 2. You are required to complete the purchase and to pay the balance of the purchase money on or before 3.00pm on Friday 3 May 2002 at the offices of Kemp Strang, Lawyers, Level 14, 55 Hunter Street, Sydney or such other place as the Vendor may nominate in writing and in this respect time is now of the essence of the Contract. 3. Unless you complete within the time specified in this Notice you will be in breach of an essential term of the Contract. 4. Unless you complete within the time specified in this Notice the Vendor will be entitled to terminate the Contract forfeit the deposit and take such other proceedings pursuant to clause 9 of the Contract as it may be advised. Dated this 17th day of April 2002 S Williams Vendor's solicitor" 17 The plaintiffs' solicitor replied that he considered the notice to complete to be invalid as to substance and time, and said that the purchasers would settle when the defects were remedied. 18 The first defendants' response to the list submitted in March, or at least the two items that are still in dispute, is set out in annexure C to Mr Elgie's affidavit: "1. The front entry Fire Door was repaired in late March 2002.

2. The carpet near the left side of the island bench had the edge strip joined and stains removed by about mid-April 2002. The carpet joins were also repaired at that time. The rise in the concrete floor was levelled and removed in early May 2002 ... ." 19 There is other material to suggest that the levelling took place about 22 May, though it is possible that it was a little later. 20 On 22 May 2002 the vendor's solicitor purported to extend the time for compliance with the notice to complete to 3.30pm on Monday 27 May 2002. 21 On 24 May the purchasers' solicitor said that the defects noted in March were special defects and they still had not been remedied, though it appeared that they might be shortly. He said that the purchasers would complete after inspection following the rectification. However, on 3 June 2002 the vendor purported to terminate the contract. 22 On about 14 June 2002, the plaintiffs lodged caveat 8684513 to protect their rights under the contract and commenced these proceedings on 19 June 2002. 23 The proceedings are for specific performance. There is a cross-claim by the vendor to remove the caveat and for a declaration that it has validly terminated the contract. 24 There were some interlocutory proceedings, when the Duty Judge restrained the deposit bond provider (the second defendant) from paying over the deposit to the vendor. The matter then came into the Expedition List and I fixed it as an expedited hearing and evidence was heard yesterday, but, time running out, I reserved my decision overnight. 25 There are quite clearly a number of points that could be made about the defects in performance of vendors and purchasers. However, as I was beginning to discuss these with counsel in addresses, after all the evidence had been given, I was handed a letter by the purchasers' solicitor to the vendor's solicitor of 16 July 2002, which said this: "The plaintiffs do not say … that the only issue in the proceedings was the "special defect" question. Rather, that is the key factual matter before the Court and the finding in relation to it will be determinative of the proceedings. So that there can be no doubt about the matter, the plaintiff(s) put their case as follows: 1. The defects identified in our letter dated the 25th June 2002 are "Special Faults". 2. The being in the case, your client was obliged to rectify those faults before completion. 3. As at the 17th April 2002 (the date of the Notice to Complete), the defects were not rectified. 4. In any event, the fire door has still not been rectified. 5. It follows that the Termination Notice dated 3 June 2002 is invalid and the plaintiffs are entitled to specific performance." 26 It was extremely unfortunate that I was not shown this letter until after all the evidence was finished. Had I been made aware of the letter earlier, I would have done what I could to ensure that the vital questions between the parties were actually tested, which, of course, focused on whether the contract had been validly terminated. 27 However, by the time I saw the letter it was too late. The parties had made their choices as to what evidence they would lead on the basis of the letter, and there is no available avenue for the plaintiffs to explore to start again because of the Anshun principle. 28 It is really very inappropriate to ask judges to solve disputes on agreed issues between the parties where those agreed issues may not raise the real questions in the case. At least the judge should be involved in working out what the limited issues are. In Abraham v Mallon (1975) 1 BPR 9157, 9169, Holland J, over 25 years ago, made his protest of this sort of matter, that is, putting judges in a position where they find it very difficult to give a meaningful decision because of the forensic practice the parties have adopted. I call attention to it because the problem still seems to be with us. 29 Another unsatisfactory aspect of this case was the evidence by the so-called "expert" witnesses called by the first defendant. This Court and the Federal Court have recently taken a very firm attitude to expert evidence. Expert witnesses under the Rules are to be people whose expertise can assist the court in arriving at the truth, and they are to be people who have no clear bias one way or the other. 30 Many of the so-called "expert" witnesses called by the first defendant were not independent persons at all, leaving aside the question of their expertise. The first defendant was a considerable provider of construction work for companies and individuals in the building trade. It was involved in projects which involved building blocks of home units. The so-called experts were persons in its network. 31 It got worse because whilst almost all the "experts" paid lip service to schedule K of the Supreme Court Rules, Mr Pesman for the plaintiffs spot checked the knowledge of the witnesses of schedule K. Whilst they may have mouthed the words that they acknowledged their duty, it was quite patent that few understood what their duties really were. 32 The rules for expert witnesses are there for a purpose and parties should either call genuine experts, who really know what their obligations to the court are, or none at all. It is a matter of not allowing any costs for so-called expert witnesses who are put forward before the court on what is really a false basis. 33 A final preliminary matter is that Mr S White, counsel who appeared for the first defendant, constantly said there was no evidence of this, and there was no evidence of that. Where one has a mirror cross-claim seeking declarations that one's client is entitled to succeed, submissions that there is no evidence on a particular matter are really of little value at all because it means that even if the opponent fails, one's own case must fail also. 34 I now pass to the matters on which the parties wish me to decide. 35 As I have said, cl 15 provides that a notice to complete can issue if a person is otherwise entitled to do so. 36 There are a series of cases of which McNally v Waitzer [1981] 1 NSWLR 294; Jillinda Pty Ltd v McCourt (1983) NSW ConvR 55-145, and more recently Wilde v Anstee (1999) 48 NSWLR 387 are the most useful, which make clear the right of a party to issue a notice to complete in circumstances like the present. If a vendor wishes to issue a notice to complete, it will only be able to do so, (a) if it is free from any relevant breach of contract which may have provided the purchaser a good excuse not to complete by the due date; and (b) it is able to proceed to completion and deliver to the purchaser all the purchaser is entitled to under the contract no later than the expiry of the notice to complete. 37 The submissions of the purchasers are that for one reason or another, it does not matter which, the vendor was not entitled to issue a notice to complete on 17 April in the present case. 38 It is unusual to see a person trying to extend a notice to complete after it has expired. There is no authority on the point. However, probably the effect is merely to keep the right to terminate alive whilst giving a further opportunity to the purchaser to complete: Tropical Traders Ltd v Goonan (1964) 111 CLR 41, 55 and see Spencer v Cali [1986] 2 Qd R 456. 39 The practice is undesirable. It is preferable to issue a second notice to complete following the first with, perhaps, a reduced time because of the issuing of the first. 40 In the present case the point does not really matter if, as treating the extension as valid, one would still have to analyse the situation as it existed as at 17 April 2002 to see whether there had been non-completion by the due date for completion, other than caused by a breach by the vendor, and whether the vendor was entitled as at that date to issue a notice to complete. 41 The purchasers say that the two matters of the fire door and the uneven floor were special defects and because the special defects were not dealt with by that date, nor, indeed, by the date of expiry of the notice to complete, the vendor cannot terminate on 3 June. 42 I will deal first with the construction of the contract and then having done that deal with the questions of fact that arise. 43 It is necessary really to look at the expression "special fault" as a whole, even though Mr Pesman puts no reliance on (a) (structural defects) or (d) (defects which make the property uninhabitable). This is because when one is focussing on (b) and (c), one must read them in context. 44 Looking at (b), does either the problem with the fire door or the uneven floor come within the category of a fault or defect in the property, which, because of its nature, requires urgent attention? 45 It will be noted that a "special fault" is a fault or defect in the property. "Property" is defined on the first page of the contract as "the land, the improvements, all fixtures and the inclusions". For some reason or other "Property" is not defined as including the building, which is separately defined in cl 23.1. However, counsel have agreed that I should approach the definition on the basis that the word "property" includes the apartment 420, the subject of this contract. 46 Mr White for the vendor, says that (b) covers a situation where, unless you have immediate rectification of a fault, the fault will make the property deteriorate further, such as a leaking pipe. 47 Mr Pesman says that the words are wider and refer to defects which need to be dealt with before completion, or now, rather than in the three month period after completion. 48 It seems to me that there are three points that could be made in favour of the vendor's construction, and three points that could be made in favour of the purchasers' construction. 49 So far as the vendor is concerned, the first point is summed up in the well-known maxim of statutory and contractual construction "noscitur a sociis", which freely translated means "know a word by his fellows". 50 Here we see that (b) is surrounded with words which appear to be very, very serious defects, structural defects, defects causing the property to be uninhabitable and defects which may cause a danger and, accordingly, it is reasonable to construe (b) in the same plight. I will consider that argument in more detail a little later. 51 The second consideration is that the word "urgent" usually has some connotation of the pressure of necessity; see for instance Dayton City v Borchers 232 NE (2nd) 437, 440 (Ohio) (1967). The word, accordingly, means something different to priority, or other words which could have been employed. 52 Thirdly, it is to be noted that it is the nature of the defect, not the defect itself that requires the urgent attention. That again tends to look towards the leaking pipe situation, rather than something which would be expensive to finish after completion, but would not involve any further deterioration through not attending to the defect at an early point of time. 53 On the other side, the argument was that one has got to read the definition of "special fault" in the context of the special condition 31. With respect to the drafter, special condition 31 is not particularly well put together. It does not dovetail in such a way that all eventualities are covered. However, the prime obligation in 31 is in the first subclause, that is, to impose a positive obligation on the vendor to cause the property to be finished as specified in the schedule of finishes. Actually the schedule of finishes, which is an appendix to the contract, does not say that the purchaser is entitled to a flat and level floor, but that is by the by, as the thrust of 31.1 is that before completion the purchaser is entitled to a unit which is properly finished. 54 31.3 deals with disagreements with any finish or any item installed, rather than actual defects. Then one gets 31.4, which puts the matter negatively, that: "Before completion the purchaser may not serve notice of any defects or faults in the property other than Special Faults." 55 31.5 then talks about when notice of special faults may be given, namely immediately after the purchaser becomes aware and, then it says: "The vendor must before completion repair in a proper and workmanlike manner, at the vendor's expense, any Special Fault of which notice has been served by the purchaser before the completion date." 56 This tends to give a dichotomy between faults which need to be remedied before completion, and those which can be remedied after. Accordingly, when one sees the words "urgent attention" in (b), one is looking to those faults which need to be remedied before completion, as opposed to those which can be remedied after. 57 Mr Pesman says that if one is going to make a floor flat and level then the evidence shows that what one does is to remove everything off the floor, lift back the carpet, if laid, sand, or otherwise use abrasive equipment to reduce unwanted peaks in the concrete, then put on some liquid, which will solidify and iron out hollows and make things smooth; let the same dry; put back the carpet; put back the furniture. 58 If the fault is remedied before completion it is a relevantly easy matter. On the other hand, if completion takes place, as everyone expected, the purchasers would either occupy the unit themselves, or alternatively, under special condition 57 of the contract, let it. The amount of time and effort and inconvenience to tenants in having the furniture moved out, the carpet raised and not put back for a day or so, would be such as would require urgent attention. 59 The second argument is that the prime task of the vendor was, on completion, to cause the property to be finished in accordance with the schedule and, accordingly, one should look to the construction which fitted in with that prime obligation, that is, to do a proper job and remedy real problems which would cause inconvenience or more to the purchasers, rather than to permit those to carry on after completion. 60 Thirdly, the word "urgent" is a relative word and it does not always have the connotation of something that is particularly pressing, calling for immediate attention, or instantly important, but one can have something which is urgent merely because it has got to be done ahead of other tasks, so that, for instance, one gets a firm with the name "Solicitors Urgent Enquiries" not meaning that the firm only handles enquiries that are absolutely urgent, but enquiries which are going to be done speedily and in priority. 61 So those are the competing matters which I think impinge on how one construes (b). 62 The noscitur a sociis argument at first impressed me a lot, but the more I looked at the rather polysemous weasley words which the drafter used in defining "special fault", the less I became impressed with it. 63 The first impression one gets of the word "structural" is of some vital element which would affect the stability of the whole building. However, the case tends to show that it really does not have that as its prime meaning, but usually a defect of a structural character is merely one which it is the obligation of the owner of the building to remedy, rather than the occupier or tenant of the building; see for instance Hampson v Clyne [1967] 2 NSWLR 591. 64 Likewise, the word "danger" is a word which initially throws up a very serious defect, but when one looks at (c) a little more closely, it is not something which is an actual danger now, but which may cause danger somewhere in the future when there are persons in the property. Accordingly, the noscitur a sociis argument, the more I thought about it, the less significance I gave it, and it seems to me that reading the contract as a whole, particularly 31, the construction that, because of the nature of the defect attention has to be given before completion, rather than after completion, is the proper construction of (b). 65 I have less doubt about (c). The question is whether the defect may cause danger to persons. Not property. Not that it is a danger, but that if left unremedied may cause danger. "Persons in the property" seems to connote the persons who are going to occupy it after completion and, accordingly, that is something that has to be attended to now, before the danger arises. 66 Now again "danger" is a word which can have various connotations. It seems to me that, borrowing words used by Lord Millett in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, 237, when his Lordship was talking about risks, that one must look for a real danger and not merely a fanciful or theoretical danger, but not necessarily a substantial danger. Again it is a potential danger, not necessarily an actual danger. 67 This construction is reinforced by the approach taken by Santow J in an interlocutory decision in Brachmanis v Columbus Property Developments Pty Ltd [2001] NSWSC 163. His Honour had to consider the definition of "major defect" in the contract before him, which included a defect which: "(c) may cause danger to persons in the property." 68 His Honour considered that loose flashing was capable in ordinary circumstances of causing danger to persons in the property (vide para [15]) and, accordingly, loose flashing was a major defect within the meaning of the definition. 69 In the present case an uneven floor may be a danger either because it increases the chances of someone tripping and falling or because furniture may more easily over-balance. 70 This approach to (c), of course, influences one's approach to (b). 71 I now then turn to the facts. The evidence refers to the fire door and to the uneven floor. I must confess I was not impressed with the evidence of the fire door being something which required urgent attention, or may cause danger to persons in the property. The fire door had a series of imperfections. Perhaps the major imperfection was that, probably through careless work by the builders, there was a split in the piece of wood underneath the lock which had been filled by some sort of adhesive. There were also minor matters with its fitting and its hinge. 72 However, I was not impressed with the evidence of the plaintiffs that these matters meant that the fire door was not one which met the specifications or the requirements of the authorities and that there was possible danger to persons in the property through the door failing, or that for that reason it required attention before completion. If it did need fixing, it could be removed and replaced without too much inconvenience to those who were occupying the unit. 73 On the other hand, it seemed to me that the uneven floor was a matter which came within both (b) and (c). The uncontradicted evidence was that there was unevenness of the floor in the area between the lounge and dining areas. The plan of the unit showed that there was really just one large room, which had an alcove, which was for dining purposes, but otherwise the loungeroom, the kitchen and dining area were all one big open space. The two bedrooms were then at one end of the unit, and there was a separate laundry. This would mean that once the carpet was laid and had to be removed probably a major exercise was needed and that once the unit was occupied certainly the furniture around near the dining area, if not a whole lot of other furniture, would have to be moved and query where it could be moved to. 74 The fact that the purchasers and any tenant are entitled to a flat and level floor, seems to be beyond dispute. I must confess I did not understand the evidence of Mr Evans, who tried to distinguish between a level and flat floor, so I have used both words. The builder knew, and the vendor knew that the purchasers were complaining about this, and in fact did remedy the problem, it would seem, somewhere about 22 May. But there was no certainty as at 17 April, or even likelihood, on the balance of probabilities, that that would happen before the expiry of the notice to complete. 75 Furthermore, the vendor was obliged, as this was a special defect, to remedy it before it could expect the purchasers to complete on 15 April. 76 Accordingly, in my view, the vendor was not entitled to issue the notice to complete. Its notice of termination is thus invalid. 77 It follows, I think, that there should be an order for specific performance in the usual form and that the cross-claim should be dismissed. The vendor should pay the purchasers' costs of the proceedings and the exhibits can be returned.

Last Modified: 10/03/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.