Marguerite Pocknell v Payce Properties Pty Ltd

District Court of NSW|2008-02-07

CITATION: Marguerite Pocknell v Payce Properties Pty Ltd [2008] NSWDC 5

DECISION: Verdict and judgment for the defendant. Plaintiffs to pay defendant's costs.

CATCHWORDS: Contract for Sale of Land, whether validly rescinded, based on failure of vendor/developer to provide a certificate of insurance and/or to enter into a contract of insurance. Whether Option Deed is a Contract for Sale of land - Principles of construction of a commercial contract

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Toll (FGCT) Pty Ltd (formerly Finemores GCT Pty Ltd) v Alphapharm Pty Ltd (2004) 219 CLR 165 Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 47 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 CASES CITED: Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 McCann v Switzerland Insurance Australia Ltd. (2000) 176 ALR 711 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 Fitzgerald v Masters (1956) CLR 420

Marguerite Pocknell (First Plaintiff) PARTIES: Tracy Davidson (Second Plaintiff) Paul Lytwyn (Third Plaintiff) Payce Properties Pty Ltd (Defendant)

COUNSEL: Mr S. Wells (Plaintiffs) Mr D. Bruckner (Defendants)

1 The plaintiffs (for whom Mr S. Wells of Counsel appears) on 21 November 2003 entered into an option deed giving them the right to exercise an option for purchase of a unit in a development (known as The Waterfront at 8 Stromboli Strait Homebush Bay), being undertaken by the defendant Payce Properties Pty Ltd ("Payce") (for whom Mr D. Bruckner of Counsel appears). The Option Deed annexed a form of contract upon which, if the option was exercised, the sale of the unit would proceed.

2 On or about 1 November 2006 the plaintiffs, having exercised their option to purchase, entered into a contract for sale, which I was informed was in identical terms to the form of contract which had been annexed to the Option Deed.

3 On 29 March 2007 the plaintiffs wrote to the defendant rescinding the Contract for Sale or purporting to rescind the contract, on the basis that no copy of a certificate of an insurance contract had been provided to them which was said to be a breach of Special Condition 36 of the Contract for Sale - which clause is in the following terms: 36 "Home Building Insurance The vendor discloses that: (a) under s96(1) of the Home Building Act 1989, it must not construct the property unless a contract of insurance that complies with the Act is in force in relation to that work; (b) under clause 66 of the Home Building Regulation 1997, it is exempt from the requirement under s96(2) of the Home Building Act to attach a certificate of insurance to this contract until a builder has been engaged; and (c) the vendor must, within 14 days after the contract of insurance is made, provide a copy of the certificate of insurance to the purchaser, failing which the purchaser may rescind this contract."

4 The plaintiffs seek return of $71, 380.00 paid as a deposit. They also seek payment of interest to which they would be entitled if the notice of rescission was valid.

5 No certificate of insurance was provided to the plaintiffs and it was agreed that no contract of insurance was ever entered into by Payce. There is no dispute that a notice of rescission was served on 29 March 2007 purporting to rescind based on an alleged breach of Special Condition 36(c). There is no dispute that if the plaintiffs were entitled to rescind, they are entitled to the return of the amount paid as a deposit, although the amount of interest which would be payable were the rescission to be found to have been valid was not agreed.

6 At the hearing the plaintiffs sought and were granted leave to file an amended statement of claim which asserted that the failure of Payce to enter into a contract of insurance in compliance with s.96 (1) of the Home Building Act ("the Act") was itself a breach of Special Condition 36 and not just (as previously had been pleaded) the failure to provide a certificate of insurance within 14 days of the contract of insurance having been entered into.

7 The question of whether or not the rescission was valid falls within a fairly narrow compass - and involves construction of the contract and in particular Special Condition 36, and consideration of the legislative framework.

8 S.96A of the Act is in the following terms: "Obligations of developers in relation to insurance (1) A developer must not enter into a contract for the sale of land on which residential building work has been done, or is to be done, on the developer's behalf unless a certificate of insurance evidencing the contract of insurance required under section 92 by the person who did or does the work for the developer, in a form prescribed by the regulations, is attached to the contract of sale. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case. (1A) A developer must, before entering into a contract, give the other party to the contract a brochure, in a form approved by the Director-General, containing information that explains the operation of the contract of insurance, and the procedure for the resolution of disputes under the contract. Maximum penalty: 40 penalty units in the case of a corporation and 20 penalty units in any other case. (2) Despite anything to the contrary in section 3A, a reference in this Part to a person who does residential building work: (a) does not include a reference to a developer, and (b) includes a reference to a person who does the work on behalf of a developer. (3) Subject to subsection (3A), if a person contravenes subsection (1) in respect of a contract, the contract is voidable at the option of the purchaser before the completion of the contract. (3A) A contract is not voidable as referred to in subsection (3) if: (a) the person obtained a certificate of insurance evidencing a contract of insurance that complies with this Act in relation to the residential building work before entering the contract concerned, and (b) before completion of the contract, the person served on the purchaser (or an Australian legal practitioner acting on the purchaser's behalf) a certificate of insurance, in the form prescribed by the regulations, evidencing that contract of insurance. (4) This section does not apply to a sale of the land more than 6 years after the completion of the work."

9 S.92 of the Act provides that a person "must not do residential building work under a contract" unless a contract of insurance that complies with the Act in the name of the person who contracted to do the work is in force and a certificate of insurance meeting the requirements of the regulations has been provided to the parties to the building contract, and imposes a penalty for a breach.

10 As at 2003 when the Option Deed was entered into the Home Building Regulations relevantly provided: "Clause 66 Exemption from certificate requirement where work not commenced (1) A developer is exempt from the requirements of section 96A of the Act if: (a) work under a contract for the carrying out of residential building work entered into by the developer has not commenced when a contract of sale is entered into for the sale of the land on which the residential building work is to be done, and (b) the contract of sale contains provisions: (i) informing the purchaser of the land under the contract that the exemption applies, and (ii) informing the purchaser that the Act requires residential building work (whether or not done under a contract) to be insured, and (iii) requiring the developer or any assignee of the developer's rights under the contract to provide a certificate of insurance in respect of any residential building work (as required by section 96A (1) of the Act) to the purchaser within 14 days after the contract of insurance in respect of that work is made, and (iv) enabling the purchaser to rescind if the developer or any assignee of the developer fails to provide the certificate of insurance within that period of 14 days. (2) In any contract of sale entered into before the commencement of this clause, a reference to section 96(2) or 96(2A) of the Act is taken to be a reference to section 96A of the Act."

11 By the Home Building Amendment (Insurance Exemptions) Regulation 2003 No. 948 (which by Clause 2 commenced on 31 December 2003), amendments were introduced to the Home Building Regulations, the relevant clause of which Clause 57BC was in the following terms: "57BC Exemptions from insurance for multi-storey buildings (1) A person who does, or enters into a contract to do, residential building work relating to the construction of a multi-storey building is exempt from the requirements of Part 6 of the Act in respect of that residential building work. (2) A developer who enters into a contract for the sale of land on which residential building work relating to the construction of a multi-storey building has been done, or is to be done, is exempt from the requirements of section 96A of the Act in relation to that residential building work. (3) This clause does not apply in respect of residential building work commenced before the commencement of this clause. (4) If a developer entered into a contract for the sale of land on which residential building work in relation to a multi-storey building was proposed to be carried out but was not commenced before the commencement of this clause and the developer complied with clause 66 in relation to that contract: (a) The provisions of the contract complying with clause 66(1)(b)(ii) and (iii) cease to have effect, and (b) The developer must notify the purchaser of the land in writing that they no longer have effect and of the exemption from the requirements of Part 6 of the Act in relation to the residential building work conferred by this clause." [Emphasis added].

12 Part 6 of the Act comprises s.89E to s.103E. Clause 57BC was, in late 2004, replaced by Clause 74 which is in identical terms save for Subclause (3) which excludes from its operation residential building work commenced before 31 December 2003. There is no dispute that the defendant was a developer or that the building in question is a "multi-storey building" within the meaning of the amendments. There is no dispute that building work on the Waterfront development commenced in June 2005, that is, after commencement of Clause 57BC and later, Clause 74. The Contract for Sale was entered into in November 2006 after the commencement of building work. 13 It will be observed that by virtue of Subclause 66(2) a reference in a contract for sale to s.96 (2) or (2A) of the Act is to be taken to be a reference to s.96A and it was agreed that s.96 is not relevant to the building construction in question.

14 At the close of the hearing Mr Wells sought and was granted an opportunity to provide the Court with a written outline of the oral argument advanced and Mr Bruckner sought and was granted an opportunity to deal with the issue of late reliance on a further ground of rescission by the plaintiffs. Further submissions were received and this prompted a further set of submissions from the defendant and by subsequent agreement, from the plaintiff. The plaintiff's submissions in reply were received on 29 January 2008.

15 The following issues emerge from the submissions: 1 Whether Payce was, as at the time of entry into the Contract for Sale, exempt from the statutory requirement otherwise imposed by s.96A of the Act of having to annex to the Contract for Sale a copy of the certificate of insurance in respect of insurance required by s.92 of the Act effected by the person carrying out work on the project. 2 If either Subclause 57BC(4) or Subclause 74(4) are relevant to determination of (1), whether Payce had complied with (a) Clause 66 of the Regulations and (b) served notification of legislative changes as required by Subclause 57BC(4) or Subclause 74(4). 3 If the answer to (1) is yes whether Payce was nevertheless contractually bound by Special Condition 36 to ensure that a contract of insurance had been obtained (and provide a certificate in respect of such contract of insurance within 14 days of having done so). 4 Whether the purported rescission was valid. 5 If the answer to (4) is yes, what amount for interest is the plaintiff entitled to receive in addition to the amount of the deposit? 6 Can failure to enter into a contract of insurance be relied on by the plaintiffs given that the notice purporting to rescind did not refer to this ground?

(1) Was Payce exempt from the requirements of S.96A of the Act 16 It was agreed that s.96A of the Act was the section relevant to developers. The Contract of Sale was entered into on 1 November 2006. Subclause 74(2) applies because Payce (who it is agreed was a developer within the meaning of the Regulations) entered into a contract for the sale of land on which residential work relating to the construction of a multi-storey building as at that date "had been done" (and was "to be done"). Payce was therefore, by virtue of Subclause 74(2) (no point of distinction was drawn by the parties between Acts and Regulations), exempt from the requirements of s.96A of the Act and was therefore not required to provide a certificate of insurance: see s.96A (1); and the contract was not voidable for contravention of s.96A (1).

17 In taking this view, I accept the plaintiff's submission that Subclause 74(4) cannot be relied on by Payce as it only applies if building work had commenced before the commencement of the Clause. This point is amplified by the unavailability of Clause 66 for the same reason: see Clause 66(1)(a). Mr Bruckner accepted that to come within 74(4) the Option Deed would have to be treated as the Contract for Sale of Land. Although he set out in his written submissions matters which might be pertinent to reaching a conclusion on that point, he did not contend that the Court should make such a finding. In my view it is clear that the Option Deed is not itself a contract of or for the sale of land. The plaintiffs were free not to exercise the option if they wished. Clause 3.1 of the Option Deed noted the parties' agreement that if the Option was exercised, the parties "are regarded as having entered into the contract" but by 3.1(b) it was agreed that the date of the contract was the option notice service date, and the Contract for Sale is dated 1 November 2006. In any event, the plaintiffs pleaded that on or about 1 November 2006 they and Payce entered into a contract for sale of land and that pleading was admitted by Payce's defence, so the Court is dealing with a claim based on a contract dated approximately 1 November 2006 and not a case based on the Option Deed.

18 Mr Wells in his submissions (see para 17 of plaintiff's Outline of Submissions dated 29 November 2007) argued that Subclause 57BC(2) had no application in this case because it was clearly inconsistent with the terms of the Contract for Sale of Land on 1 November 2006. I deal below separately with the question of whether, even if the statute did not require a contract of insurance or a certificate of insurance, Payce was contractually bound to obtain or provide such but Subclause (2) operates to exempt Payce from any statutory obligation to do so.

19 It follows that in my view neither Subclause 57BC(4) and its successor, Subclause 74(4) can be relied on by Payce whether notification was given by it or not and whether or not Clause 66 had been complied with by it. (3) Was Payce contractually bound to enter into a contract of insurance and/or to provide a certificate 20 Mr Bruckner and Mr Wells referred to principles of construction that the Court should have regard to in construing Special Condition 36 (both submissions proceed on the basis that the Contract for Sale was a commercial contract), although there was not precise agreement regarding these principles. I shall summarise the relevant principles extracted from pronouncements of the High Court as follows: (1) "The primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words used of the instrument in which the contract is embodied"; a clause's meaning may be revealed by other parts of the document per Gibbs J (as he then was) in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 (2) The Court endeavours to ascertain the meaning of the terms agreed upon objectively - the subjective intentions of the parties are not relevant: see Toll (FGCT) Pty Ltd (formerly Finemores GCT Pty Ltd) v Alphapharm Pty Ltd (2004) 219 CLR 165, and see Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 47 at [34] (3) The process of interpreting terms is a pragmatic process, and "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements" Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, per Barwick CJ at [35]-[36], [40]-[42]. Commercial contracts should be construed "fairly and broadly, without being too astute or subtle in finding defects" per Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 cited with approval by Gibbs J in Australian Broadcasting Commission (supra) pp.109-110. (4) Questions as to meaning are "to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements": McCann v Switzerland Insurance Australia Ltd. (2000) 176 ALR 711, 729 (5) " There is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning": per Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 348, which His Honour remarked has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. (6) " If the words are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust" per Gibbs J in Australian Broadcasting Commission (supra) and see Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 at [38] per Beazley JA (Campbell JA concurring). (7) If the words used give rise to absurdity or inconsistency "words may generally be supplied, omitted or corrected in an instrument when it is clearly necessary in order to avoid absurdity or inconsistency" per Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) CLR 420 at pp.426-7. (8) In resolving an ambiguity "… if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate'", and "it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument" per Gibbs J in Australian Broadcasting Commission (supra).

21 Special Condition 36 by its introductory words "the vendor discloses that", appears on its face to itself provide no substantive rights but rather to alert the purchasers to their rights under the Act as qualified by the Regulations. It is true that in so doing the draftsperson has referred to s.96(1) (and may therefore not have met the requirements of s.66 of the Act) but that it is an attempt to obtain the benefit of Clause 66 of the Regulations is obvious.

22 To meet the requirements of Clause 66, the contract must not only disclose the matters in (b)(i) and (ii) but must require the developer (or any assignee) to provide a certificate of insurance as required by s.96A(1) of the Act to the purchaser within 14 days after the contract of insurance in respect of that work is made and must enable the purchaser to rescind if the certificate of insurance is not provided.

23 The difference in wording between (a) and (b) on the one hand and (c) supports the conclusion that by Special Condition 36(c) Payce was promising to provide a certificate of insurance in conformity with the requirements of the Act and Regulations within 14 days of the contract of insurance being entered into, and providing a contractual remedy to the purchaser of rescission should that certificate of insurance not be provided within 14 days of the contract of insurance having been entered into, rather than simply stating (or purporting to state) what was provided by statute. If Special Condition 36 did require Payce to obtain insurance and to provide a certificate then I agree with the plaintiff's submission that Special Condition 36(c) should be construed as conferring a right of rescission where no contract has been entered into and not only when a certificate is not provided after a contract of insurance is entered into. The question is however, should Special Condition 36 be construed as imposing those obligations.

24 Clause (a), of Special Condition 36 is, as I have noted, a disclosure, or attempt at disclosure, of what is contained in the legislation. Clause (c) of Special Condition 36 standing alone does not specify when the contract of insurance must be entered into, or even, when read literally, that a contract of insurance must be entered into.

25 Absent the legislative changes which occurred, the entry into a contract of sale without a contract of insurance effected by the person doing the work for the developer, was an offence and itself rendered the contract voidable at the option of the purchaser: see s.96A(3). That might explain why the contract annexed to the Option Deed did not have to provide that a contract of insurance had to be entered into and induces doubt as to whether it can be said that there was imposed on the developer a contractual obligation to ensure that a contract of insurance had been entered into even prior to the legislative changes. The fact that s.96(1) imposed no obligation on the developer even before the introduction of Clause 57BC (and then Clause 74) is another difficulty. Further, if the contract of sale did require an insurance contract to be entered into on or prior to the commencement of the building work, it was required to have been effected by June 2005 and a copy of the Certificate would have had to have been available as at November 2006 since that was well after 14 days since the commencement of the building work.

26 The context within which Special Condition 36 sits, is as a part of a proposed contract originally annexed to an option deed prepared before the introduction of legislative changes in a form which attempted whether successfully or not to gain the benefit of a legislative exemption. The fact that a statute does not require something to be done is not determinative of whether or not the parties have agreed that it will be done, but the obviously close relationship between Special Condition 36 and Clause 66 and the intervening legislative changes, the fact that Clause 66 could not apply to the contract because, by the time contract had been entered into (as opposed to the date of the Option Deed), building work had commenced, and the fact that s.96(1) of the Act did not in any event apply because s.96A had been introduced to deal with developers (although well before even the Option Deed) are relevant matters in considering whether the literal words, which do not require a contract to be entered into by Payce and which require provision of a certificate of insurance only within 14 days of such a contract having been entered into, should be read as requiring something more. If the statute, as at the date of contracting, required something to be done it could well assist the argument that the contract should be read as imposing such an obligation. Here, we have the opposite situation; the legislation at the date of the Contract of Sale exempts Payce from the obligations that the plaintiffs assert are to be drawn from Special Condition 36. Looked at objectively in context and given the legislative framework, and the fact that work on the development had already commenced in June 2005 and with no contract or certificate of insurance appended to the Contract of Sale more than a year after the commencement of the building work, I do not think that it was intended by the parties that Payce was required to obtain a contract of insurance or provide the plaintiffs with a certificate of insurance. It follows that it is not appropriate, in my view, to read Special Condition 36 as imposing on Payce as at November 2006 an obligation to obtain an insurance policy or to provide a certificate of insurance. (4) Was the rescission valid 26 It follows from the earlier conclusions that the purported rescission was not valid. (5) Interest 27 This issue does not arise. (6) Reliance on the absence of contract 28 The conclusion that I have reached is that the plaintiffs could not validly rescind by reason of the failure to obtain a contract of insurance or absence of a certificate of insurance. It is therefore not necessary for me to consider the further question of whether, given the terms of the letter purporting to rescind, the plaintiffs are able to rely on an automatic right of rescission due to the failure to obtain a contract of insurance as opposed to the failure to provide a certificate of insurance.

Conclusion 29 It follows that there should be verdict and judgment for Payce and the plaintiffs should pay Payce's costs.

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