2210/05 ONE SPENCER STREET PTY LIMITED v MARYLAND INTERNATIONAL PTY LIMITED
JUDGMENT
1 HIS HONOUR: The Issues These proceedings concern a deposit of $1,598,000 paid by the defendant to the plaintiff. The plaintiff is the owner of land at 46-54 Court Road and 356-358 Horsley Drive, Fairfield. On 3 August 2004, it entered into a contract for the sale of the land to the defendant for $15,980,000. Completion of the contract was due to take place either nine months from the date of the contract, or three months from the date of notification by the vendor's solicitors to the purchaser's solicitors of approval by Fairfield City Council of a development application referred to in Special Condition 65 of the contract, whichever was the earlier. On 11 November 2004, the vendor's solicitors gave notice to the purchaser's solicitors that the vendor had on that day received notification from the Council that the development application had been determined on 3 November 2004 to become operative on 4 November 2004. On the plaintiff's case, completion was due on 11 February, 2004. On 21 February, 2005 it served a notice to complete requiring completion on 10 March 2005.
2 On 9 March, 2005, the purchaser purported to rescind the contract pursuant to Special Condition 65.
3 On 11 March 2005, the plaintiff's solicitors said that the purported notice of rescission was a repudiation giving its client the right to terminate the contract. It did not immediately do so. However, on 21 March 2005, the plaintiff, through its solicitors, gave notice that it treated the defendant's purported rescission as a repudiation of the contract and advised that it considered that both parties were discharged from performance of the contract and that it would be instituting proceedings for damages in respect of the repudiation. The plaintiff thereby accepted the alleged repudiation and purportedly terminated contract.
4 The principal issue therefore is whether the contract was validly rescinded by the purchaser, that is the defendant, or whether the defendant's purported rescission was a repudiation of the contract which was accepted by the plaintiff which itself validly terminated the contract. Neither party contended that the contract was still in existence. The plaintiff did not rely on its notice to complete. It did not purport to terminate the contract for the purchaser's non-compliance with that notice. Neither party contended that the contract had been terminated by abandonment. (Compare DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434). The defendant had a fallback position, that if it were found that it had not validly rescinded the contract, it was nonetheless entitled to relief against forfeiture of the deposit, or to an order for repayment of the deposit pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW).
Special Condition 65
5 Special Condition 65 provided as follows:
" Completion on this contract is subject to and conditional upon the approval by Fairfield City Council of a Development Application for the construction of 250 home units and some commercial and retail shops as shown on attached drawings on the property within 9 months from the date hereof. The Development Application shall be substantially in accordance with the drawings attached annexure "B" or in the alternate substantially in accordance with the drawings attached annexure "C" whichever is approved by Council.
The Vendor shall use his best endeavours to obtain the councils (sic) approval to the Developments Application and shall be entitled to make such changes as may be necessary to obtain the Development Application to satisfy either Councils or any other authorities (sic) requirements provided that the conditions of approval are substantially in accordance with the proposed Development Application.
In the event that the Development Application is refused or not approved with nine (9) months from the date hereof then either party may by 14 days notice in writing served on the other party may rescind this contract whereupon the provisions of clause 19 shall apply.
In the event that the Development Application is approved but its terms are not reasonably acceptable to the Purchaser shall have such a right of rescission.
In the event that the Vendor and Purchaser are in dispute over what constitutes "reasonably acceptable" then the parties agree that the matter shall be referred to an Arbitrator such person being a person agreed upon between both the Vendor and the Purchaser and in the absence of such agreement by a person approved by the President of the Law Society of New South Wales for the time being and whose decision shall be final and the cost of such Arbitration shall be borne by the party against whom the decision found.
The Vendor will sign whatever may be submitted by the Purchaser to assign the benefit of such Development Application to the Purchaser at settlement.
The Purchaser shall make no objection requisition or claim for compensation in relation to the Development Application or any matter disclosed thereby. "
6 The drawings which were referred to as annexure "B" to the contract provided for the construction of 250 home units on the property. The drawings which were annexure "C", provided for the construction of 204 units on the property.
7 On 3 November 2004, the Council granted approval to the development comprising 204 residential apartments, together with a retail shop and associated basement car parking. The approval was to the development in annexure "C" to the contract.
The Competing Arguments on Rescission
8 It was submitted for the defendant that it was entitled to rescind pursuant to Special Condition 65 on two grounds. First, it submitted that it was entitled to rescind because development approval was not obtained for the construction of 250 home units. Secondly, it submitted that the terms of the development application were not reasonably acceptable to it and it therefore could rescind. Although Special Condition 65 provides that a dispute as to whether the terms were reasonably acceptable to the defendant be referred to arbitration, senior counsel for the defendant submitted that the parties had abandoned arbitration. He submitted that it was clear that the terms of the development application were not acceptable to the defendant and that the evidence showed that there were reasonable grounds for this.
9 Senior counsel for the plaintiff submitted that the development approval contemplated by Special Condition 65 was not confined to one for the construction of 250 home units. The relevant approval could be either for the construction of 250 home units and commercial and retail shops substantially in accordance with the drawings which were annexure "B", or, it could be for the construction of 204 units and a retail shop, substantially in accordance with the drawings which were annexure "C". It was the latter approval which was given. Counsel submitted that when the clause was read having regard to what he contended was part of the objective matrix of facts which could be taken into account in construing the contract, it could be seen that the reference to 250 home units was a mistake which could be ignored or corrected to avoid absurdity or inconsistency. (Fitzgerald v Masters (1956) 95 CLR 420 at 426-427). However, even if words could not be amended or deleted, or other words added, to the first sentence of Special Condition 65, the plaintiff submitted that the rest of the clause applied to whatever development application was approved by the Council, being a development application substantially in accordance with either of the drawings which were annexure "B" or in accordance with those which were annexure "C". Hence, the plaintiff submitted, the only ground upon which the defendant could rescind under Special Condition 65 was if the terms of the approval of the development application were not reasonably acceptable to the defendant. However there was a dispute as to whether the terms of the approval were reasonably acceptable to the purchaser which had to be resolved by arbitration. It was submitted that as the defendant had purported to rescind without submitting the dispute to arbitration, the rescission was ineffective and not made in good faith.
10 The plaintiff also submitted that whatever rights the defendant may have had to rescind under Special Condition 65, it had elected to affirm the contract.
Background to the Contract of 3 August 2004
11 On 8 May 2003, the plaintiff lodged a development application with the Fairfield City Council for the construction of three 9-storey towers and one 8-storey tower development. The proposed development involved 262 residential apartments and four retail shops.
12 On 14 August 2003, the Council identified what it considered to be numerous deficiencies in the application. On 1 September 2003, the Council advised the plaintiff that the proposed development should be amended to have regard to a master plan prepared by the Council's consulting urban designers for the site. The master plan building envelope enclosed with the Council's letter of 1 September 2003 contained little detail. It provided for the construction of one 9-storey tower block and other high rise blocks of between four and six storeys. A note to one of the sketches suggests that about 200 units could be constructed under the proposed development.
13 At some time after 22 September 2003, and after a number of meetings with Council officers and the Council's consulting urban designers, the plaintiff decided to amend the development application in accordance with the master plan prepared by the Council's consulting urban designers. It is not clear when that decision was made.
14 On 27 October 2003, the plaintiff and the defendant (then called Maryland Group Pty Limited) entered into a contract for the sale of the subject property for the price of $18,540,000, such price to be subject to adjustment depending upon the number of units for which development approval was given. Special Condition 65 of that contract provided that its completion was subject to and conditional upon the approval by the Council of a development application for the construction of 250 home units and some commercial and retail shops as shown on attached drawings of the property, such development application to be substantially in accordance with the drawings attached as annexure "B". The purchase price was said to be based upon the approval of 250 units. Special Condition 68 provided that should the approval permit a lesser or greater number of units, then the purchase price would be varied according to a formula whereby 200 units would equate to a purchase price of $16,000,000, 250 units would equate to a price of $18,540,00, and 300 units would equate to a price of $20,000,000.
15 An amended development application was considered by the Council on 9 December 2003. The plaintiff's architect, Mr O'Brien of Opra Architects, tabled a set of drawings and explained that the amended proposal had been designed in accordance with the preferred building envelope for the site as prepared by the consulting urban designers. The amended design produced a total yield of 198 residential apartments. However the proposal was still being worked on. The plaintiff requested that the Council not determine the application at that time.
16 I infer that from at least October 2003 there were discussions between the plaintiff and the defendant in relation to the development application being pursued with the Council. As the defendant had agreed to purchase the site, and would be expected to pursue the development if approval were given, it would be surprising if the defendant had not insisted on being kept abreast of the discussions with the Council.
17 On 25 January, 2004 the parties entered into a new contract for the sale and purchase of the site. Although it does not appear that the October contract was expressly rescinded, I infer that the contract of 25 January 2004 was intended to replace the contract of October 2003. Some parts of the January contract involve simply photocopying executed pages of the special conditions of the October contract. In the January 2004 contract, Special Condition 65 was amended. The first sub-paragraph provided that:
" Completion on this contract is subject to and conditional upon the approval by Fairfield City Council of a development application for the construction of 250 home units and some commercial and retail shops as shown on attached drawings on the property within twelve months of the date hereof. The development application shall be substantially in accordance with the drawings attached annexure "B" or in the alternate substantially in accordance with the drawings attached annexure "C" whichever is approved by Council . " (Emphasis added)
18 The third sub-paragraph of clause 65 was also amended in 2003 to provide that either party could rescind if the development application were refused or not approved within nine months from the date of the contract, instead of twelve months as provided for in the October 2003 contract. It is apparent from clause 67 of the January contract that $600,000 of the deposit had already been paid and accounted to the vendor. The clause made provision for the payment of the balance of the deposit. The formula for calculating the purchase price remained the same as it had been under the October 2003 contract.
19 On 28 January 2004, the plaintiff's architect, Mr O'Brien, met with three representatives of the defendant. These included two of its directors. A note of Mr O'Brien's in relation to that meeting records "skem 1 198 revised 202". I infer from this note that by that date the application previously lodged with the Council for 198 units had been revised to 202 units, or that it was proposed that such a revision be made.
20 On 7 February 2004, Mr Jiang, who acted as a director of the defendant, wrote to Mr Jamal of the plaintiff in relation to the development. He said that the marked-up drawings provided to Opra Architects dated 6 February 2004 were the defendant's preferred layout and unit mix. He asked Mr Jamal to instruct the architect to make amendments based on those drawings. After referring to the defendant's requirements for unit mix, he said that:
" In regard to the total purchase price of the land, we confirm our agreement that it will be assessed on the final approval from the Fairfield Council at $74,000 per IoAt. "
21 There was no evidence as to what was contained in the drawings provided by the defendant to Opra Architects dated 6 February, 2004. On 27 February 2004, an alternative design was lodged with the Council. That design was discussed between Mr O'Brien and representatives of the defendant at two meetings after 27 February. Mr O'Brien had already discussed the concerns Council had raised in relation to the original application and the changes made to address those concerns, at the meeting on 28 January 2004.
22 During May 2004, there were further communications between Mr O'Brien and representatives of the defendant in relation to the development. On 3 May 2004, Mr Adam Huang, who described himself as an architect and a director of the defendant, asked Mr O'Brien to provide him with, amongst other things, the area schedule showing each unit's internal area, external area, total area, aspect etc and the latest architectural designs including floor plans, sections and elevations. The evidence was silent as to whether the information requested was provided. I infer that it was, as the parties continued to work together on the project and ultimately made a new contract for the sale and purchase of the site. Amended architectural plans were lodged with the Council on 21 June, 2004. In the meantime further payments towards the deposit were made as to $100,000 on 23 April 2004, and as to $300,000 on 9 July 2004.
23 On 2 August 2004, Mauric & Doyle, the plaintiff's solicitors, wrote to Kemp Strang, who acted for the defendant, and advised that they understood from their client that there had been substantial alterations to the proposed development in order to satisfy the Council's requirements and that agreement had been reached to rescind the existing contract simultaneously with the exchange of a fresh contract incorporating the amended plans, a reduced contract price, and consequent amended contract terms to reflect the terms of the new agreement.
24 On 3 August 2004, the parties entered into what was called a deed of rescission. As originally typed it provided for the contract of 27 October 2003 to be rescinded. However, the words "and a subsequent contract dated 25 January 2004" were inserted and the date 27 October 2003 was crossed out and 25 January 2004 inserted. Clearly the 25 January 2004 contract was rescinded. I think it is clear the parties had also rescinded the contract of 27 October 2003, if they had not already done so by the contract of 25 January 2004.
25 On 3 August 2004, the parties entered into a new contract. It contained Special Condition 65 which I have quoted in paragraph [5]. The contract price was $15,980,000 and was not subject to variation according to the number of units for which development approval was given. The plans which were annexure "B" were all dated 2 September, 2003. The plans which were annexure "C" were dated between 10 June, 2004 and 22 June, 2004.
26 On 3 November 2004, the Council gave notice of its determination of the development application No. 799/2003. It advised that the application had been approved. The development which was approved was for the construction of 204 residential apartments, substantially in accordance with the plans which were annexure "C".
27 On the same day, Kemp Strang wrote to Mauric & Doyle, advising that their client understood that the development application included a requirement for the construction of a two-storey underground car park. They said that their client had obtained a geotechnical groundwater report dated 2 November 2004 and that their client understood it would be costly and technically difficult to construct such two-storey underground parking.
28 On 4 November 2004, Mauric & Doyle advised that they had not at that stage received the development approval conditions. They were not received until 11 November 2004. Mauric & Doyle advised the purchaser's solicitors that their client had on that day received notification from the Council that the development application had been determined on 3 November 2004, to become operative on 4 November 2004.
29 In the meantime, on 9 November 2004, the defendant (purchaser) wrote directly to the plaintiff. The letter was headed "without prejudice" but it was not written for the purpose of seeking to settle any dispute and it was tendered without objection. The defendant said, amongst other things:
" Maryland International entered into the contract for the purchase of the above properties on the condition that cost-effective construction could take place in accordance with either of the two sets of drawings attached to the contract. That is reflected in condition 65 of the contract. That condition provides Maryland International with the right to rescind the contract in the event that the development application is approved on terms not reasonably acceptable to it."