National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561
Judgment (23 paragraphs)
[1]
LR 444; [1976] HCA 21
Proctor v Bayley (1889) 42 Ch D 390
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51
Soames v Edge (1860) Johns 669; 70 ER 588
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57
Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414
Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276
White v Boby (1877) 26 WR 133
Williams v Boambee Bay Time Share Resort Pty Ltd [2004] NSWCA 59
Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358; 13 BPR 24,813
Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370
Ren v Jiang [2014] NSWCA 1
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12
Texts Cited: A Burrows, Remedies for Torts, Breach of Contract and Equitable Wrongs, (4th ed, Oxford University Press, 2019)
T Hall, The Life and Death of the Australian Backyard (CSIRO Publishing, 2010)
F Jordan, Chapters on Equity in New South Wales (6th ed, Government Printer, Sydney, 1947)
D McLauchlan, "Contract Formation and Subjective Intention" (2017) 34 Journal of Contract Law 41
D McLauchlan, "The Continuing Confusion and Uncertainty over the Relevance of Actual Mutual Intention in Contract Interpretation" (2021) 37 Journal of Contract Law 25
R Meagher, Review of I Spry, Equitable Remedies, (1974) 7(2) Sydney Law Review 313
R E Megarry QC, "Notes" (1960) 76 Law Quarterly Review 200
A Olijnyk, Justice and Efficiency in Mega-Litigation (Hart Publishing, 2019)
A Zuckerman, "Lord Woolf's Access to Justice: Plus ça change" (1996) 59 Modern Law Review 773
Category: Principal judgment
Parties: Carmelita Paolucci (Appellant)
Makedyn Pty Ltd (Respondent)
Representation: Counsel:
A Harding SC, J Braithwaite (Appellant)
J Knackstredt (Respondent)
[2]
Solicitors:
Pikes & Verekers Lawyers (Appellant)
Macpherson Kelley (Respondent)
File Number(s): 2020/363921
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity - Real Property List
Citation: [2020] NSWSC 1871
Date of Decision: 17 December 2020
Before: Rein J
File Number(s): 2019/187766
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellant, Mrs Carmelita Paolucci, transferred a large parcel of land to the respondent, Makedyn Pty Ltd, on terms that part of the consideration was the retransfer to her of two newly created lots on which Makedyn was to have built a house and a "Duplex". The parties' agreement comprised a sale contract and "Deed of Agreement", each dated 29 September 2015, and a further sale contract referred to as a "Reconveyance Contract", entered into on 23 November 2015, following the grant of development consent for the subdivision. The Reconveyance Contract provided that the lots and dwellings were to be retransferred to Mrs Paolucci by May 2017. Makedyn did not do so. Belatedly, in October 2018, it provided Layout Plans of the house and Duplex, and that in turn gave rise to a dispute as to the dimensions of the Duplex.
"Duplex" was defined to mean "a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot of no less than 241.54m2". Under the Deed of Agreement, the parties had agreed to negotiate in good faith and agree, inter alia, the Layout Plans, but that did not occur. Thus while the Reconveyance Contract obliged Makedyn to construct the house and Duplex in accordance with the Layout Plans, which were said to have been annexed, no such plans were annexed to the Reconveyance Contract. When Layout Plans were provided, Makedyn contended that the dwelling was to be no less than 241.54m2, while Mrs Paolucci contended that each residence was to be no less than 241.54m2.
Mrs Paolucci instituted proceedings in the Supreme Court of New South Wales, ultimately seeking an order for "partial" specific performance that Makedyn convey the newly created lots to her as vacant lots, without the promised dwellings, and damages reflecting the diminished value of the reconveyed land, pursuant to s 68 of the Supreme Court Act 1970 (NSW). After some delay, her pleadings sought a declaration as to the dimensions of the Duplex. The primary judge dismissed her claim, holding that while there had been delay in providing the Layout Plans, there was no basis for the order of specific performance or damages under s 68 of the Supreme Court Act. The primary judge also rejected Mrs Paolucci's construction of the definition of "Duplex", and declined to determine her submission that a contractual limitation of liability did not apply on the basis that no such claim had been pleaded.
Mrs Paolucci appealed to the Court of Appeal. The primary issues on appeal were:
(i) Whether the primary judge failed to deal with Mrs Paolucci's case to the effect that if Makedyn had provided the Layout Plans promptly, the dispute would have been resolved, such that Makedyn would have built the House and Duplex, as a result of which she was entitled to partial specific performance (the transfer of the lots) together with damages under s 68 of the Supreme Court Act representing the difference in value between the vacant lots and the lots with a house and Duplex constructed upon them.
(ii) Whether the primary judge erred in the construction of the dimensions of the Duplex required by the contract.
(iii) Whether the primary judge erred in failing to determine the contractual limitation of liability.
The Court held, dismissing the appeal:
As to issue (i), per Leeming JA (White JA and McCallum JA agreeing):
[5]
Judgment
LEEMING JA: This appeal concerns the equitable remedy of specific performance and the statutory damages available under Lord Cairns' Act (s 68 of the Supreme Court Act 1970 (NSW)). The latter authorises the award of damages in addition to or in substitution for an injunction or specific performance.
The appellant Mrs Carmelita Paolucci and the respondent Makedyn Pty Ltd entered into a series of contracts involving a large parcel of agricultural land in western Sydney which had been rezoned residential. The land was transferred to Makedyn on terms that part be retransferred to Mrs Paolucci, after subdivision and the construction of a house and a "Duplex", within a specified time (the "Sunset Date"). That date has long since passed. The transfer to Makedyn and the subdivision have occurred, but Makedyn has not retransferred the subdivided lots nor has it built either the house or the Duplex, in part because of a dispute - ongoing until today - as to the dimensions of the latter.
On the one hand, Makedyn sought to exercise a contractual right to rescind. However, Makedyn accepts that doing so was subject to obtaining leave pursuant to s 66ZS of the Conveyancing Act 1919 (NSW) and does not appeal from the decision of the primary judge refusing leave.
On the other hand, Mrs Paolucci has not sought to bring the contract to an end. She appeals from the refusal of her application for orders in the nature of specific performance and damages pursuant to s 68 of the Supreme Court Act.
The primary judge rejected Mrs Paolucci's construction of the clause defining the dimensions of the Duplex, and Mrs Paolucci challenges that in this Court, but that is only a minor aspect of this appeal. Mrs Paolucci's central submission on appeal concerned what was said to have been a breach of contract by Makedyn in failing to provide Layout Plans of the Duplex promptly, shortly after the land was transferred to it in late 2015. This was mainly put as a breach of an obligation to use reasonable endeavours. In fact, the subdivisions of the land to be reconveyed to Mrs Paolucci were only effected in January and May 2018 and the Layout Plans were only provided in October 2018. Mrs Paolucci's submission was that had plans of the Duplex been provided more promptly, the dispute concerning the dimensions of the Duplex would have crystallised and been resolved, one way or another, prior to May 2018, with the result that Makedyn would by the time of the trial have built what it had promised to build. On that basis, Mrs Paolucci contended for what she described as an order for "partial" specific performance, involving a retransfer to her of the lots created by the subdivision, together with damages pursuant to Lord Cairns' Act reflecting the difference in value of the vacant lots compared to the lots with residences constructed on them and lost rent. She maintained that this was consistent with a line of authority stemming from Soames v Edge (1860) Johns 669; 70 ER 588, which the primary judge wrongly distinguished. Further, Mrs Paolucci contended that because the conduct "amounted to deliberate and wilful breaches and/or bad faith or unreasonable conduct", then a contractual limitation of liability to $1 million was inapplicable, and the primary judge had erred in declining so to find. Still further, Mrs Paolucci contended that the primary judge wrongly failed to address her case based on the failure to provide the Layout Plans, going so far as to contend that she was thereby denied natural justice.
[6]
The nature of specific performance
There is at least traditionally a distinction between specific performance in the strict sense, and orders requiring a party to perform a contractual term. Mrs Paolucci sought the latter, not the former. Mrs Paolucci did not seek specific performance "in the primary sense of the enforcing of an executory contract by compelling the execution of an assurance to complete it", as Sir Frederick Jordan explained (Chapters on Equity in New South Wales (6th ed, Government Printer, Sydney, 1947), p 52) or, as Dixon J explained in J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297; [1931] HCA 15, "to compel the execution in specie of a contract which requires some definite thing to be done before the transaction is complete and the parties' rights are settled and defined in the manner intended". Rather, Mrs Paolucci sought an order compelling Makedyn to reconvey certain land to her in accordance with its promise.
Owen CJ in Eq said that there was not infrequently confusion between the two classes of suits, "both popularly described as suits for specific performance, though governed by very different principles": Fell v NSW Oil & Shale Co (1889) 10 LR (NSW) Eq 255 at 259. That passage was reproduced and applied by the Full Court in Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492 at 497. This Court addressed the authorities to the same effect in Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [59]-[62], and then stated:
"The distinction between specific performance in its strict sense and an order made requiring performance of a term of a contract has continued to be drawn: see Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492; Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415; Masters v Garcia (No 2) [2006] NSWCA 15. In Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard Clarke JA (Mahoney and Meagher JJA agreeing) stated, at 423, that where the applicant has carried out its part of the bargain, the contract is not executory and the relief sought is analogous to specific performance, in the sense that 'a party seeks the aid of the court to compel the other party to perform its obligations according to the terms of the contract'." (original emphasis)
The significance in Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd of a clear understanding of the nature of "specific performance" was the conclusion at [64] that "where a contract has come to an end, in the sense that all the obligations under it have been performed, or, in the case of a lease, the term of the lease has expired, specific performance of obligations that were to be performed during the term is not available". As a general principle, specific performance is not available when there is no longer any extant contractual obligation. (I shall put to one side the "sparingly" exercised jurisdiction to backdate specific performance in the strict sense considered in Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63, the effect of which is to treat the parties to an equitable lease as if a deed they had agreed to enter into had in fact been entered into. Chan v Cresdon Pty Ltd is not mentioned in this Court's reasons and no reference to it may have been given in that appeal.) Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd emphasised the need to establish a proper basis for equitable relief to issue.
[7]
Lord Cairns' Act damages
Section 68 of the Supreme Court Act is the current New South Wales counterpart to the power conferred by the Chancery Amendment Act 1858 (21 & 22 Vict c 27) upon the Court of Chancery to order damages. It provides:
"Damages in case for equitable relief
Where the Court has power -
(a) to grant an injunction against the breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or
(b) to order the specific performance of any covenant, contract or agreement,
the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance."
The statutory language is identical to that enacted in 1858, save that the fifth word "power" has replaced "jurisdiction to entertain" in the original enactment. There is no substantial difference flowing from that change. "Jurisdiction to entertain" was the language found in s 9 of the Equity Act 1901 (NSW), s 32 of the Equity Act 1880 (NSW) and in Lord Cairns' Act itself, but that language became inappropriate following the enactment of Judicature legislation in 1972, following which both sides of the Supreme Court had full jurisdiction at common law and in equity.
Even if the precondition to the section is satisfied, the award of Lord Cairns' Act damages remains discretionary. That is the opposite of the position at common law, where damages are as of right. If a plaintiff can establish a breach of contract which has caused loss or damage which falls within either limb of Hadley v Baxendale then so long as the plaintiff sues within six years, the plaintiff is entitled as of right to damages, irrespective of matters such as delay or hardship which might loom large if the plaintiff sought equitable relief in equity's auxiliary jurisdiction. The notion of a claimant having an entitlement as of right to damages and the possibility of discretionary pecuniary relief is not unfamiliar: consider for example damages and account of profits for copyright infringement, analysed by Lockhart J in Masterton Homes Pty Ltd v LED Builders Pty Ltd (1996) 33 IPR 417 at 424-425, or the right to damages and the discretionary power to make compensation orders under ss 236 and 237 of the Australian Consumer Law noted in Jonval Builders Pty Ltd v Commissioner for Fair Trading (2020) 104 NSWLR 1; [2020] NSWCA 233 at [19], [25] and [39]-[41].
[8]
The essential chronology
The appellant and her late husband owned a large block of what was then agricultural land at Gregory Hills at the periphery of Sydney's urban area. They granted, in May 2014, a call option in favour of Makedyn. Mr Paolucci died in June 2015 and the appellant became sole registered proprietor of the land.
Following the land's rezoning, Makedyn lodged a development application with the local council to subdivide the land in March 2015.
[9]
The 29 September 2015 "Sale Contract" and "Deed of Agreement"
On 29 September 2015, Makedyn exercised its option, and the parties entered into the sale contract, whereby Makedyn purchased the entirety of the land for a price of $3,500,000 subject to the following special condition:
"31 PURCHASE PRICE & INTERDEPENDANT [sic] CONTRACT
31.1 It is acknowledged that the Purchase Price (as noted on the front page of this Contract) will be paid as follows:
(a) $2,500,000 less the deposit paid on Completion; and
(b) The reconveyance to the Vendor of two (2) lots in the subsequent development of the Property by the Purchaser (or its nominee or assignee) with the lots comprising respectively one (1) four (4) bedroom freestanding house of not less than 241.54m² and another lot comprising a duplex divided into two (2) three (3) bedroom residences of not less than 241.54 m². The imputed value of the two (2) lots to be transferred is $1,000,000.00."
Also on 29 September 2015, the parties entered into a deed styled "Deed of Agreement" obliging Makedyn to undertake a residential subdivision and construct and complete the "Dwellings" and to reconvey two lots to Mrs Paolucci. The critical definitions and operative clauses were as follows:
"1. DEFINITIONS & INTERPRETATION
1.1 Definitions
…
Dwellings means the Duplex to be constructed on one of the Lots and the House to be constructed on the other Lots to be re-conveyed to Paolucci.
Duplex means a residential dwelling divided into two (2) three (3) bedroom residences on the one lot of no less than 241.54m2.
House a four (4) bedroom freestanding residential dwelling of no less than 241.54m2).
Inclusions Schedule means the inclusions and finishes to be made/added to the Dwellings as part of the Works.
Layout Plans means the Internal and external layout of the Dwellings.
Lots means the two (2) lots in the Residential Subdivision of no less than 350m2 to be transferred to Paolucci.
…
2. Promise
2.1 The Developer agrees to do the following:
(a) Undertake a Residential Subdivision of the Property;
(b) To construct and complete the Dwellings in accordance with the Construction Approval; and
(c) Upon the completion of the Works and the Residential Subdivision to re-convey to Paolucci (or their nominee) title to (two) 2 Lots in the Residential Subdivision.
2.2 On or before the Developer becoming the registered proprietor of the Property the parties will negotiate in good faith and agree the following:
(a) the location of two (2) Lots in the Residential Subdivision to be transferred as part of the re-conveyance to Paolucci;
(b) the design and style of the Dwellings to be constructed by the Developer; and
(c) the Inclusions and Layout Plans for the Dwellings to be constructed by the Developer.
In the event that the parties do not reach agreement on any of the above matters, the Developer shall be entitled to determine any of the matters not agreed at their absolute discretion.
2.3 On the date of the Developer becoming the registered proprietor of the Property, the Developer and Paolucci must enter into the Sale Contracts for the sale of the two (2) Lots in the form annexed hereto and marked A. The Sale Contracts must be properly executed by Paolucci and delivered to the Developer's solicitors on or before the date of this Deed.
2.5 The Sale Contract will be completed by the Developer or the Developer's solicitors who are authorised to:
(a) insert where appropriate in the Sale Contract the proposed lots in the Residential Subdivision to be re-conveyed to Paolucci, the Layout Plans, Inclusion List for the Dwelling to be constructed by the Developer, the Prescribed Documents and any other information necessary to complete the Sale Contract; and
(b) date and exchange of the Sale Contract."
[10]
November 2015: Council consented to subdivision and parties entered "Reconveyance Contract"
On 23 November 2015, the council granted development consent for a subdivision of the land. The council's letter identified a total of 44 residential lots, seven "super lots" and two residue lots.
On the following day, the parties entered into the Reconveyance Contract. It seems that entry into the contract was preceded and followed by communications as to its terms by the parties' solicitors. Mr Baxter acting for the appellant asked Ms Catalano acting for Makedyn whether the draft plan of subdivision, the construction approval and the layout plan, all of which were to be annexed to the Reconveyance Contract, were available and if so could they be forwarded. His email was at 12:17pm. There followed a response from a senior conveyancer within the firm that neither the construction approval nor the layout plan was available, to which Mr Baxter responded by requesting a copy of the draft plan of subdivision and asking when the other two documents might be available. At 1:48pm, the conveyancer provided a plan of (what was then) "Stage 4 - Pioneer Rise Estate", which took the following form:
It appears that no plan in those terms was ever registered. I shall return to the way in which the subdivision was effected, more than two years later.
At 2:23pm on 24 November 2015, Mr Baxter wrote again requesting that Ms Catalano "please forward an undertaking to provide them as soon as they are [available] for the purposes of the settlement". She responded by an email at 3:08pm to Mr Baxter as follows:
"Dear David,
I refer to your email to [the conveyancer] and to our subsequent telephone discussion.
As advised, our client will not be able to provide the Construction Approval for annexure to the Contract until it has obtained DA approval from Council. Our client is expecting DA approval in approximately 4 weeks with Construction Approval to follow in approximately February 2016. Further, as discussed, our client will not be in a position to provide the Layout Plan until it has obtained DA approval as this will set the guidelines for the design of the dwellings for each lot.
I understand that the matter has now settled and I thank you for your assistance to date.
If you wish to discuss further, please do not hesitate to contact us."
There was no evidence (aside from what if anything might be inferred from the terms of the email) as to the conversation between Ms Catalano and Mr Baxter.
[11]
The subsequent subdivisions creating lots 149, 150 and 201
On 19 January 2016, after the Reconveyance Contract was entered into, Makedyn became the registered proprietor of the property, and there followed steps to obtain council consent to the various stages of the subdivision, coupled with requests from the solicitors acting for the appellant for details of the dwellings to be constructed for her. The following is derived from the documents tendered.
It seems likely that the original approval for subdivision, on 23 November 2015, created, among many others, a so-called "super lot" known as Lot 139 which comprised the lots described as 1391, 1392 and 1393 on the unregistered plan which was sent by Makedyn's conveyancer to Mrs Paolucci's solicitor on 24 November 2015. (So far as I can see, the actual plans accompanying Council's consent were not reproduced in the appeal books, and may not have been tendered, but similar plans were in evidence which depict a single lot 139.)
The Deposited Plan 1229172 which included lot 201 was registered on 16 January 2018. It creates lot 201 in the position of unregistered lot 1391, of approximately the same area (250.6m2 as opposed to 251m2) and was a subdivision of lot 90 of DP 1216480.
The Deposited Plan that included lots 149 and 150 was registered on 24 May 2018. This was DP 1228259. It created lots 149 and 150, in the location of unregistered lot 1393, of approximately the same area 252.7m2 x 2, as opposed to 502m2) and was a subdivision of lot 104 of DP 1216480.
Thus the lots to be reconveyed to Mrs Paolucci, lots 149, 150 and 201, were created by subdivisions of lots 90 and 104 of DP 1216480. That deposited plan was in evidence. It was registered on 27 June 2017. It was a subdivision of two lots, one of which had been the lot originally owned by Mr and Mrs Paolucci. It effected quite a different subdivision from that shown on the draft plan attached to the 24 November 2015 email. Broadly speaking, the deposited plan created a residential subdivision of the land comprising the north and east of the two original lots conveyed to Makedyn, but left two new large lots 90 and 104 (of areas 1605m2 and 7108m2) unsubdivided.
The evidence does not disclose precisely why the history of subdividing the land took the course it did. But the point that presently matters is that it was not possible to reconvey the two (or as it turned out, three) lots to Mrs Paolucci until Council had approved subdivisions creating lots 149, 150 and 201, which occurred in May 2018. Some of the evidence canvassed the reasons relied upon by Makedyn for the delay, which included the discovery of asbestos on some of the land, but because no complaint was made of delays prior to May 2018, no findings were made. Further, because the primary judge proceeded on the basis (according to Mrs Paolucci, wrongly) that nothing that occurred prior to May 2018 mattered, there was no finding or analysis of any obligation upon Makedyn to supply Layout Plans or whether the entering into of the Reconveyance Contract amounted to a waiver of any such obligation.
[12]
The parties' correspondence in 2017 and 2018
Deposited plan 1216480 was the subject of an exchange of correspondence between Mrs Paolucci's solicitors and Makedyn which occupied much of 2017 and 2018, and which need not be summarised in its entirety.
Most substantively, by letter dated 25 September 2017, Mr Baxter referred to the absence of any substantive response to three earlier communications, and sought confirmation that Makedyn "intends to subdivide lots 90, 104 and 124 in DP1216480 to create, inter alia, lot 1391 of approximately 251 square metres in area and lot 1393 of approximately 502 square metres in area", and "intends to construct on lot 1391 a single dwelling in accordance with the provisions of the contract and on lot 1393 a duplex dwelling in accordance with the provisions of the contract". Mr Baxter threatened lodging a caveat if the requested confirmation was not forthcoming.
Makedyn's solicitor's response of 5 October 2017 attached DP 121480 and the draft plans which reflected the intention to create lots 201 and 149 and 150, and explained the following:
"Our client intends on subdividing the land in various stages, with the intention of creating three lots to be conveyed to your client as opposed to two (2) lots set out in the contract for sale dated 24 November 2015. Since registration of the first stage, the lot numbers have changed, however we confirm the following lots will be conveyed to your client:
(a) Lot 201 (previously lot 1391) being 250sqm; and
(b) Lot 149 and 150 (previously lot 1393) being a total of 505.2sqm.
Our client intends on constructing a single dwelling on Lot 201 and a duplex over lots 149 and 150.
As stated above, our client intended on completing the development and in particular the sale of the lots to your client however the development has been significantly delayed due to the discovery of a large amount of asbestos on the site which required removal and remediation, significant delays with the Council in releasing DA Approval and the linen plans for stage 1-3 which are out of the control of our client. Unfortunately due to these delays, our client is not in a position to provide a timeframe to your client in relation to anticipated registration of the plan of subdivision creating the lots referred to above or completion of the construction of dwellings."
During the period from February to September 2018, Mrs Paolucci's solicitors wrote, repeatedly, seeking information about the plans of subdivision (14 February 2018), the specifications of the homes (17 April and 20 September 2018), and the commencement of the erection of dwellings (9 May and 20 September 2018). Makedyn appears to have made no substantive response to these requests until October 2018.
[13]
The original statement of claim and the amendment concerning the dimensions of the Duplex
Makedyn emphasised that the original statement of claim sought no relief concerning the proper construction of the provisions concerning the Duplex. Indeed, this was not mentioned. Mrs Paolucci alleged that:
1. the "Conditional Matters", including the obligations to complete construction and issue an Occupation Certificate in cl 31.1(c) and (d) of the Reconveyance Contract, had not been performed within 18 months from the date of contract (being 23 May 2017) (paragraph 23);
2. Makedyn had failed to complete or even commence the construction works relating to the House and Duplex, and had failed to obtain occupation certificates for them (paragraph 27), and
3. Makedyn had, despite repeated requests by Mrs Paolucci that it do so, failed to provide any satisfactory explanation for the delay (paragraph 28).
Mrs Paolucci then alleged that Makedyn was in breach of the Reconveyance Contract because it had failed to use reasonable endeavours to complete the Conditional Matters, and said that she relied on the facts and matters set out in paragraphs 23, 27 and 28.
The statement of claim sought a declaration that Makedyn was in breach, an order that Makedyn "specifically perform its obligations under cl 31.1 of the [Reconveyance] Contract", and damages in lieu of or in addition to specific performance under s 68 of the Supreme Court Act. There were also allegations of contravention of the Australian Consumer Law, and a prayer for damages under s 236; those allegations did not take the matter any further (and neither party contended that they did). Not until an amended statement of claim was filed on 27 November 2019 did Mrs Paolucci seek a declaration that:
"for the purposes of clause 2.1 of the Deed of Agreement and clause 31.1 of the [Reconveyance] Contract, 'Duplex' means a residential dwelling divided into two (2) three (3) bedroom residences, each of no less than 241.54 m2 in area".
Makedyn's defence to the amended statement of claim maintained that it was obliged to build "a residential dwelling divided into two (2) three (3) bedroom residences of no less than 241.54m2 in total floor area, or no less than 120.77m2 floor area per residence." Finally, a prayer seeking damages at common law was introduced for the first time by Mrs Paolucci's second further amended statement of claim. They were far from the principal relief sought. They were mentioned without elaboration in Mrs Paolucci's submissions at trial. They were not sought on appeal.
[14]
Issues on appeal
As noted at the outset, Makedyn sought to rescind, and prosecuted a cross-claim to that end, but was refused leave to do so and did not appeal from the refusal. It is unnecessary to summarise that aspect of the litigation.
Mrs Paolucci's amended notice of appeal contained 13 grounds, but they were divided in her written submissions into three groups: grounds 1-5 and 11-13 dealing with specific performance, grounds 6 and 7 dealing with the dimensions of the Duplex, and grounds 8-10 dealing with contractual limitation of liability. I shall follow the same course. Rather than summarising the reasons of the primary judge separately, it will be convenient to summarise those portions which were challenged on appeal simultaneously with the parties' submissions and their resolution.
[15]
Grounds 1, 2 and 3: natural justice and factual findings which should have been made
The first ground of appeal was a complaint that the primary judge had failed to deal with Mrs Paolucci's case. Her case was said to be that there had been a breach of Makedyn's obligation to exercise reasonable endeavours by failing to provide the Layout Plans, and that had it done so, the dispute concerning the dimensions of the Duplex would have crystallised and been resolved relatively promptly.
This was cast as a failure to accord natural justice, insofar as the primary judge found that Mrs Paolucci had abandoned reliance in final submissions on any breach occurring before May 2018. The primary judge said at [9]:
"Originally in these proceedings Mrs Paolucci contended that Makedyn had breached its obligations by failing to achieve registration by May 2018 but during closing submissions Mr Harding withdrew any assertion that the delays in obtaining registration prior to May 2018 were the fault of Makedyn: see T269.3-7. The focus in these proceedings thus shifted to the period from May 2018 to date, although Mrs Paolucci does complain of an ongoing failure to supply layout plans for the dwellings which were supposed to have been annexed to the Reconveyance Contract and were not in fact annexed."
Mrs Paolucci said this was wrong, and no such abandonment occurred.
Ground 2 of Mrs Paolucci's notice of appeal alleged that by failing to consider her claim, the primary judge (a) assessed the breach of contract on the basis that the relevant breach arose in May 2018 and was rectified in October or December 2018, (b) failed to make findings as to when the dispute would have arisen and been resolved, (c) erred in finding that the breach did not cause the failure to complete the construction of the dwellings, and (d) erred in finding that Makedyn was not in breach of its promise to have built the dwellings. Ground 3 alleged that the primary judge should have made findings to that effect.
[16]
Did Mrs Paolucci abandon reliance on pre-May 2018 breaches?
The exchange which the primary judge stated amounted to an abandonment of the earlier aspects of Mrs Paolucci's claim, placed in its context, was as follows:
"HARDING: I next turn to the duplex, and remembering that I'm making the submission here that in relation to the duplex the failure to exercise reasonable endeavours continued after the 18-month period. The layout plan was not provided until October 2018. There was an unexplained delay of almost three years in providing that plan and a delay that was neither contemplated nor permitted by the contracts, especially cl 2.2 of the deed of agreement. The fact that a dispute then arose as to the proper construction of the contract which is seized upon by Makedyn as its answer to the plaintiff's whole claim is not an answer.
Had the layout plan been provided in a timely fashion the dispute, such as it was, would have been resolved by about 2016 sometime and certainly by 2017 and certainly before the plans of subdivision were registered in 2018 by either party, it doesn't matter which one, by either party taking the necessary steps to have the meaning of the contract clarified. As it was Mrs Paolucci never had that opportunity because Makedyn never provided a layout plan in default of its obligations and therefore the issue remained unexposed and unexplored.
HIS HONOUR: She didn't know there was a problem.
HARDING: That's correct. In any event the contract has an objectively ascertainable meaning. The fact that the parties disagree about what that meaning is does not afford a defence to not perform obligations under it, and we've addressed this further in our written submissions in opening. Hence, in respect of the duplex, Makedyn was, for many years, and remains, in unremedied breach of the obligation to use reasonable endeavours to satisfy the conditional matters and had reasonable endeavours been exercised, this is the counterfactual, the duplex would have been built by February 2019 and we invite so your Honour to find, and that was--
HIS HONOUR: What was that date? By when?
HARDING: February 2019, calculated this way: the plan of subdivision for stage 3 was registered in May 2018; Mr Vrsaljko's evidence was that it would take about three months to get a DA approval; and then six months to build, is a total of nine months; takes you from May 2018 to February 2019, on our calculation.
Next, the defences raised by Makedyn afford no answer, and it relies on the matters that I just directed your Honour's attention to in the pleading. But it relies firstly on asbestos and drainage issues, but on the plaintiff's own evidence all those issues had been solved well before the time the plans of subdivision were registered in January and May 2018. By those dates, I mean the dates by which the plans of subdivision were registered.
HIS HONOUR: But do I need to get into any of that, then, if really the starting point is May 2018?
HARDING: So far as we're concerned, your Honour doesn't need to delve in to the vast tracts of the court book that relate to efforts to use reasonable endeavours to get to that point. I'm not putting a submission to your Honour that Makedyn could and should have moved quicker to get registration of the plans of subdivision. I don't put that submission. But I am saying, however, as I emphasised earlier, that in that early period Makedyn did fail to use reasonable endeavours--
HIS HONOUR: Because it didn't give the layout plan.
HARDING: That's right. And it could of course do these things in parallel. It's not a necessary sequencing. ..."
[17]
Nothing turns on any failure by the primary judge to determine this part of Mrs Paolucci's case
A court at first instance is subject to an obligation to determine a litigant's substantive submissions advanced at trial (although it may be going too far to describe it as a failure to accord natural justice). But nothing turns on the point, for two independent reasons.
First, as stated at the outset of these reasons, Mrs Paolucci's submission is contrary to basic principle. (Indeed, this is why I suspect the primary judge misapprehended the position - his Honour considered she was abandoning something contrary to principle.) The basic question is whether Mrs Paolucci can establish that it would not be just to leave her to a remedy of damages. In the present case, that turns on identifying an extant breach, and asking whether it is just in all the circumstances for relief to be confined to damages. Mrs Paolucci focusses on the historic breach which, so she maintains, led to a delay in providing the Layout Plans for some years, and she then hypothesises what would have happened in a counterfactual world when those plans had been provided. Such reasoning may be deployed in assessing questions of causation and damages at common law. But it is foreign to the approach required in the present case.
Putting the matter differently, Mrs Paolucci contends that the dispute as to the dimensions of the Duplex would have been resolved years earlier if only the Layout Plans had been provided more promptly. Be that as it may, it does not mean that she can rely upon that historic breach, or its consequences, as a basis for specific performance in 2019 when she commenced her suit or in 2020 when it was heard. That is clear from the fact that Mrs Paolucci was seeking an order requiring performance of a term of a contract, and no court would order Makedyn to provide Layout Plans that had already been provided in October 2018. There was an extant failure to construct the dwellings and obtain occupation certificates, but that was because of the dispute as to the dimensions of the Duplex, and Makedyn was ready willing and able to build it once that dispute had been resolved. In other words, Mrs Paolucci had not established the ingredients of a claim for specific performance, even taking her case at its highest.
Related to this is another confusion in the articulation of Mrs Paolucci's case. Not uncommonly parties dispute the proper construction of their bargain. Contrary to the submission made by Mrs Paolucci at trial highlighted in the passage earlier reproduced, it is not the case that such a dispute "does not afford a defence" to the failure to perform the disputed obligation. The position depends on precisely what relief is being sought.
1. First, if a party asserts (what turns out to be) a wrong view of a contract believing it to be correct, and on that basis breaches the contract in a way that causes recoverable loss to the plaintiff, then the plaintiff is entitled to damages as of right.
2. However, if a party asserts (what turns out to be) a wrong view of a contract believing it to be correct, but is willing to perform the contract according to its tenor, an intention to repudiate will not be imputed to the party. In the words of Stephen, Mason and Jacobs JJ, the party may be willing "to recognize his heresy once the true doctrine is enunciated" or "to accept an authoritative exposition of the correct interpretation": DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432; [1978] HCA 12. Mason J went on to say in Green v Sommerville (1979) 141 CLR 594 at 611; [1979] HCA 60 that "it is a general principle of the law of contract that the court will not readily infer from a party's insistence on a wrong construction of a contract that he is unwilling to perform it according to its true construction".
3. For this reason, a defendant's wrongful insistence on a particular construction will not necessarily assist a plaintiff seeking specific performance. It may be quite reasonable for a defendant not to perform a disputed obligation, even if the defendant turns out to be contending for a construction which is wrong, and there may be no basis for equitable relief to issue, damages being an entirely adequate remedy. Further, the commencement of proceedings for specific performance does not waive a plaintiff's rights to damages based on breach: Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; [1976] HCA 21.
[18]
Grounds 4 and 5 - the failure to build the House
These grounds put the Duplex to one side and directed attention to the fact that the Layout Plan for the House to be built on lot 201 was agreed in December 2018. Ground 4 challenged the conclusion of the primary judge that failing to construct the House was not unreasonable, on the basis that it was desirable for the construction to proceed simultaneously, and the fact that Mrs Paolucci did not plead an alternative case based on the failure to build the House. Ground 5 maintained that the primary judge ought to have found that the failure to construct the House within a reasonable time after the Layout Plan was agreed was a breach of the Deed of Agreement and of the Reconveyance Contract.
The primary judge addressed this at [36]:
"In my view Makedyn cannot be criticised for not building the Duplex whilst Mrs Paolucci was insisting that the dimensions should be 241.54m2 for each dwelling, i.e. 483.08m2 in total. Whilst it is unfortunate that no declaratory relief was sought by Makedyn that remedy was equally open to Mrs Paolucci and it is noteworthy that when she commenced these proceedings she did not raise the issue of the dimensions of the Duplex but rather mounted a case based on Makedyn's failure to obtain registration before May 2018. In relation to the failure to build the House the position is less clear but on balance I do not think that Makedyn acted unreasonably in holding off building the House whilst the Duplex issue was not determined. The Reconveyance Contract called for all three lots with dwellings to be delivered and delivery of the House on Lot 201 would have amounted to only partial performance and indeed Mrs Paolucci's case is that the failure to build both the House and the Duplex constituted breach of the Reconveyance Contract - there was no alternative case pleaded based solely on the failure to build the House. If Makedyn was found to be correct in its contentions about the dimensions it would have been deprived of the opportunity of having construction proceed simultaneously on all three lots, which would appear to be desirable from a practical and economic point of view."
These grounds produced a cascade of peripheral issues in the exchange of submissions. In particular, Makedyn said that the House could not be constructed until a temporary easement on the lot was removed, which was said not to have occurred until November 2019. Mrs Paolucci said that Makedyn should not be permitted to advance that submission, and that doing so was inconsistent with its stance at trial, including objecting to cross-examination on the issue. I do not propose to summarise the evidence bearing upon either Makedyn's defence or Mrs Paolucci's opposition to that defence being advanced.
[19]
Grounds 11-13 - partial specific performance and statutory damages
Ground 11 was that the primary judge erred by distinguishing Soames v Edge (1860) Johns 669; 70 ER 588 and by misapplying the principles in relation to partial specific performance. Ground 12 was that the primary judge erred in failing to order the conveyance to Mrs Paolucci of the three lots as vacant land together with damages under s 68 of the Supreme Court Act for Makedyn's failure to build the dwellings, while ground 13 was that the primary judge should have made those orders.
The primary judge addressed relief at [75]-[85]. His Honour correctly summarised the position which obtained on his findings: that Makedyn maintained that it could build the dwellings once the dimensions of the Duplex were known, and that it was Mrs Paolucci who contended that although her primary relief was specific performance, it would be expedient to order partial specific performance, ie the reconveyance plus damages, rather than performance of the entirety of the parties' bargain. He recorded with approval Makedyn's submission that the Court is not permitted to in effect rewrite the Reconveyance Contract that the parties entered into, referring to Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [37]. There the High Court said, in the context of termination for breach of an essential condition, that equity was not authorised "to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable", which is a proposition applicable by analogy. It will be seen that in substance, Mrs Paolucci wants to bring the contract to an end, to release Makedyn of its ongoing obligation to build the dwellings, and to pay damages rather than accepting the reconveyance of the land with the dwellings built upon it.
Mrs Paolucci submitted that "[t]he relief sought would result in Mrs Paolucci receiving precisely what she bargained for: the Lots and the Dwellings." That, with respect, is simply not so. The relief sought would result in Mrs Paolucci receiving the land without the dwellings, together with a sum of money.
Mrs Paolucci placed heavy reliance on Soames v Edge. The primary judge dealt with this as follows, at [78]-[80]:
"Mrs Paolucci contends that it is open to the Court to order conveyance of the three lots and in addition to give her damages for the failure to build the three dwellings. Reference was made to George Russell Northcote, Fry on the Specific Performance of Contracts (Stevens and Sons, Ltd., London, 6th ed, 1921) at paragraph 850. I set out paragraph 850 of Fry which states the principles and summarises the case of Soames v Edge (1860) John 669:
'850. But whatever difficulties may have previously existed on this point, seem to have been removed by Lord Cairns' Act (21 & 22 Vict. C. 27), and it may, it is conceived, be laid down, that wherever the thing which the Court cannot enforce is a condition inserted for the plaintiff's benefit in respect of which the defendant is in default, and where the Court would, before the passing of the Act, have had jurisdiction to enforce the contract on the plaintiff's waiver of the condition for his benefit, there the Court can now grant specific performance of the contract so far as it is enforceable specifically, and direct the defendant to pay damages (whether substantial or nominal) for his non-performance of the condition which the Court cannot specifically enforce. Thus, in Soames v Edge, the plaintiff had agreed to grant a lease to the defendant so soon as he should have built a new house on the land: and the defendant agreed to accept the lease when required and to build the new house: the plaintiff filed his bill praying specific performance of the contract to build and take the lease, also for damages, either in addition to or substitution for such relief: on demurrer the defendant urged that the Court could not execute the contract to build, that the lease was dependent on the house being built, that the plaintiff had not waived the condition, and consequently that Lord Cairns' Act did not apply: this argument was repelled by Lord Hatherley (then a Vice-Chancellor), who overruled the demurrer and held, that on the plaintiff's waiver of the condition he should have had jurisdiction before the Act, and that therefore since the Act he could give relief as to part by way of specific performance, and as to the rest by way of damages.'
(Footnotes omitted).
Reference was also made to other authorities in which the principle in Soames has been accepted: J. D. Heydon, Heydon on Contract (Thomson Reuters, 2019) at [29.80], Starline Drive-In Theatre Ltd v Federal Commissioner of Taxation (1964) 112 CLR 458, and Wright v Carter (1923) 23 SR (SNW) 555 at 568.
The principle in Soames requires the plaintiff to waive a condition for his or her benefit, and here the condition is the construction of the three dwellings. It will be noted, however, that in Soames the defendant 'urged that the Court could not execute the contract to build.' Makedyn does not assert that the Court cannot execute the Reconveyance Contract; rather it says that it can complete the Reconveyance Contract: see T248.35-251.40 and CB4 2291."
[20]
Grounds 6 and 7: The definition of "Duplex" in the Reconveyance Contract
Clause 35.1 of the Reconveyance Contract required Makedyn to construct the "Dwelling". "Dwelling" was not defined, but the plural "Dwellings" was defined to mean the Duplex and the House, the layout of which was to be substantially as specified in the Layout Plan. But there was no Layout Plan, and so far as may be seen, nothing to indicate even on which of the unregistered lots either structure was to be built, let alone what their layouts were to be.
The essential question is whether each of the two residences comprising the "Duplex" was to have a floor area of not less than 241.54m², or whether the single residential dwelling which was divided into two three bedroom residences was to have an area of no less than 241.54m². Makedyn maintained, and the primary judge determined, that the latter construction was correct. The appellant consistently disputed this, although when the appeal was heard, she was content to rely on her written submissions.
Duplex is defined in the Reconveyance Contract (cl 30.1) as "a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot of no less than 241.54m2". House is defined as "a four (4) bedroom freestanding residential dwelling of no less than 241.54m2."
The primary judge addressed this at [48]:
"Given that the parties have ruled out an interpretation that the lot size had to be 241.54m2, I think that the interpretation advanced by Makedyn is to be preferred. My reasons are these:
(1) Since the word residential dwelling singular is used and it is to be divided into two residences I would expect the word 'each' to appear if the 241.54m2 was intended to describe the residences not the dwellings. The natural reading of the definition … is of the residential dwelling.
(2) 'House' and 'Duplex' are both defined in cl 30.1 of the Reconveyance Contract. The definition of 'House' is a freestanding dwelling of no less than 241.54m2 and it makes sense to read the dimensions in the definition of Duplex as also relating to the dwelling not the individual residences.
(3) The definition is a definition of 'Duplex' not a definition of 'the residences' - supporting the approach that it is the Duplex i.e. the whole building which is to be 241.54m2. 'Duplex' and 'residences' are not interchangeable."
His Honour added that he had placed no reliance on the pre-contractual correspondence of April 2014 and 28 May 2014, stating that while he was inclined to think that it fell within the majority's approach in Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295, "given that I have reached a conclusion on the interpretation without recourse to two documents I need express no firm view on their admissibility".
[21]
Grounds 8-10 - the contractual limitation of liability
These grounds do not arise, but may be addressed reasonably concisely, as did the primary judge, although reference to some procedural aspects of the hearing is unavoidable.
The issue arose when Makedyn relied at the outset of the hearing on cl 32.2 of the Reconveyance Contract, limiting its liability to $1,000,000. This clause had not hitherto been specifically invoked in Makedyn's defence. Evidently the view was taken - so far as I can see, correctly - that it needed to be pleaded expressly if reliance were to be placed on it in answer to Mrs Paolucci's claim for Lord Cairns' Act damages. There was thus a contested application to amend on the first day of the trial. The primary judge indicated that he would permit the amendment to be made, but on terms that there be an adjournment with Makedyn paying the costs of that day and costs thrown away if Mrs Paolucci so desired. After taking a short adjournment for instructions, Mrs Paolucci confirmed that she wished to proceed. However, she did not file a reply alleging that the breach of contract was wilful or deliberate, despite having maintained in her unsuccessful opposition to the amendment she would raise that issue.
Thereafter, in final address in reply Mrs Paolucci invited the Court to find that "there has been over time, over a period of many years, a deliberate and wilful breach by the defendant of its obligation under the contracts to provide a Layout Plan to the defendant on or before completion or becoming the registered proprietor of the land; and thereafter a failure to progress the dwellings including by obtaining agreement to the plans or in default of agreement in proposing plans in accordance with the contract."
The primary judge resolved the point thus at [52]:
"Clause 32.2 is found under the heading 'Sunset Date & Completion Date' (CB2 984). Mr Harding contended that cl 32.2 was only dealing with rescission, but I do not accept that contention. Whilst it does seem at its commencement to be dealing only with the consequence of rescission, the words 'or any breach of any express [or] implied term of this Agreement' onwards are not in any way limited. Indeed the words 'in respect of any loss or damage' and 'which may arise directly or indirectly in respect of this Agreement' cannot be constrained by an event of rescission based on the failure of the vendor to meet the conditions in cl 31.1. Mr Harding also asserted that the clause does not apply to a wilful or deliberate breach of the Reconveyance Contract by Makedyn and that Makedyn's conduct did entail wilful and deliberate breach of the contract. Even assuming that contention is correct as a matter of interpretation of the clause, that Makedyn had deliberately and wilfully breached the contract was not pleaded as a response to the Amended Defence to the FASTOCL (and indeed the Plaintiff had objected to the Amended Defence on the basis that she would wish to mount such an argument: see T64.43 and T69.34-43). Given that Mrs Paolucci has accepted that the delays up to May 2018 are not attributable to any absence of reasonable endeavours by Makedyn, the only breaches with which the Court is concerned are those occurring since May 2018 and the only breach established was the failure to provide layout plans before October 2018 - which was rectified by October or at the latest by December 2018, a delay which has not been shown to have caused the failure to complete the construction. Mrs Paolucci has not established that Makedyn has deliberately and wilfully breached the Reconveyance Contract."
[22]
Conclusion and orders
For those reasons, none of Mrs Paolucci's grounds are made out. The appeal should be dismissed. As presently advised, there is no reason to depart from the usual rule that costs follow the event. If either side seeks some special order as to costs, application may be made within the period specified in UCPR r 36.16. I propose that the appeal be dismissed with costs.
WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Leeming JA. I agree with his Honour's reasons.
I would add the following observations which do not seek to qualify what his Honour has said.
As described by Leeming JA, in the court below the principal relief sought by Mrs Paolucci was an order for partial specific performance and damages under s 68 of the Supreme Court Act 1970 (NSW). In the court below, Mrs Paolucci also sought damages at common law for breach of contract.
On appeal Mrs Paolucci did not seek common law damages. The only damages sought were pursuant to s 68 of the Supreme Court Act as damages either in addition to or in substitution for an injunction or specific performance.
Mrs Paolucci's principal submission on appeal was that Makedyn was in breach of cl 32.1.1 or cl 29.4 of the Reconveyance Contract (referred to by Leeming JA at [53] and [54]) and cll 2.2 and 2.5 of the Deed of Agreement (referred to by Leeming JA at [45]) by not providing layout plans within the time there provided or otherwise in a timely manner.
Mrs Paolucci's claim that Makedyn breached the Deed of Agreement and the Reconveyance Contract by not providing Layout Plans was not pleaded. It was not alluded to in her affidavits or in any affidavit she filed or in her detailed written submissions. It was raised for the first time in Mrs Paolucci's counsel's opening submissions. Mr Harding SC said that the Deed of Agreement obliged Makedyn as and from the time it became registered proprietor to negotiate with Mrs Paolucci concerning the layout plans for the duplex and the house. When the primary judge asked whether Mrs Paolucci was obliged to indicate what she wanted in terms of layout, Mr Harding responded "well it's not a contractual obligation. What the contracts say is that the parties shall negotiate about those things." Mr Harding then continued by saying "Makedyn is the one who has to prepare the layout plan and the contract - the deed of agreement says it shall do that on or before it takes the registered [sic]." Mr Harding said that Makedyn supplied the layout plans more than two years late after Mrs Paolucci had been "crying out for them". Then Mr Harding submitted that Makedyn should have given layout plans back in 2016 so that if there were a disagreement between the parties about the meaning of the contractual requirements for the duplex that could then have been identified and would have been resolved quickly. The judge asked why Mrs Paolucci wouldn't have been able to do that as well and Mr Harding said that the deed of agreement placed the responsibility of preparing the layout plans with the defendant. He later said that if Makedyn had complied with its obligations in the deed of agreement and had exercised reasonable endeavours and provided layout plans in 2016, the dispute would have been resolved long ago.
[23]
Amendments
15 September 2021 - [9] - "it will be seen than" changed to "it will be seen that"
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.
Decision last updated: 15 September 2021
Even assuming all factual matters in favour of Mrs Paolucci, there was no error in declining to order specific performance or damages under s 68 of the Supreme Court Act, in circumstances where the failure to provide the Layout Plans had long since been cured and Mrs Paolucci had not shown that it was not just for her to be confined to a remedy in damages: at [41].
J C Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] HCA 15; Ferguson v Wilson (1866) LR 2 Ch App 77; Lavery v Pursell (1888) 39 Ch D 508; Proctor v Bayley (1889) 42 Ch D 390; Gallagher v Rainbow (1994) 179 CLR 624; [194] HCA 24, considered and applied.
Although the primary judge was mistaken in concluding that Mrs Paolucci had abandoned reliance on the failure to supply the Layout Plans, nothing turned on that: at [91]-[103].
Per White JA: the responsibility for the mistake of the primary judge lay wholly at the feet of Mrs Paolucci, and it was not open for her to raise the issue on appeal: at [164]-[165].
Consideration by Leeming JA of: the nature of specific performance at [10]-[24]; the nature of damages under s 68 of the Supreme Court Act at [25]-[41]; the "partial" specific performance ordered in Soames v Edge (1860) Johns 669; 70 ER 588 at [114]-[121].
As to issue (ii), per Leeming JA (White JA and McCallum JA agreeing):
The primary judge correctly concluded that the contract provided for the construction of two residences comprising the Duplex which (together) were to be of no less than 241.54m2: at [129]-[138].
As to issue (iii), per Leeming JA (White JA and McCallum JA agreeing):
These grounds did not arise. In any event, the course taken by Mrs Paolucci at trial stood in the way of making findings of deliberate or wilful or bad faith or unreasonable breach such as arguably to render the contractual limitation of liability inapplicable: at [141]-[150].
Makedyn propounded a cascade of answers to Mrs Paolucci's claims. Makedyn said that a breach of an obligation to provide the Layout Plans was never squarely pleaded, nor did it appear in the voluminous written submissions provided in advance of trial, and that undeveloped references in oral address were insufficient. Makedyn says that had the issue arisen, there would have been exploration of the contractual basis for the alleged obligation, which it said was far from self-evident, not least in light of the apparent waiver by Mrs Paolucci at the time of entry into contract, and Makedyn would have adduced evidence on that issue including explaining its delay. Makedyn maintained that it was fanciful to hypothesise that the dispute would have been resolved earlier had the Layout Plans been provided earlier, noting that the dispute was quite hypothetical given the parties' contractual rights to walk away from the contract after the Sunset Date and further that no plans could be provided until the subdivision was approved. Irrespective of whether the issue had been properly raised and whether Makedyn was in breach of an obligation it owed and which had not been waived, Makedyn maintained that there was no relevant extant breach either in 2019 when Mrs Paolucci commenced proceedings or at the trial in 2020, because Layout Plans were provided in October 2018. Makedyn submitted that any historic breach of contract by its delay in providing Layout Plans prior to October 2018 could not be relied upon by Mrs Paolucci as a basis for specific performance in 2020. Against this latter point, Mrs Paolucci submitted that there was an extant breach, namely, of Makedyn's obligation to build three residences by the Sunset Date, although she accepted that until the dispute as to the dimensions of the Duplex had been resolved, Makedyn was entitled not to construct it.
Enough has been said to indicate that both sides have enthusiastically debated a multitude of issues, and that in order to resolve some of them, it will be necessary to refer to the procedural history of the litigation and the course of the trial. In due course I shall do so. However, it is convenient to note at the outset my agreement with the tenor of the approach taken by the primary judge, which was to attend directly to the central aspect of the dispute.
It is commonly necessary in law to distinguish the essential from the peripheral. For one thing, doing so may lead to a mass of non-dispositive issues falling away. The overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings which is the guiding principle in ss 56-60 of the Civil Procedure Act 2005 (NSW) incorporates that approach. Some litigants multiply issues, even issues which cannot warrant the time and expense of arguing about them, and notwithstanding the obligation upon the litigants themselves to assist the court to further the overriding purpose. The tendency in some litigation for every point to be taken, however disproportionate it be to the real issues, is familiar (see the overview in A Olijnyk, Justice and Efficiency in Mega-Litigation (Hart Publishing, 2019) at 30-32 and the history of attempted procedural reforms summarised in A Zuckerman, "Lord Woolf's Access to Justice: Plus ça change" (1996) 59 Modern Law Review 773 at 779-781, both referring to Dickens' description of Lord Eldon's Chancery in chapter 39 of Bleak House). This applies not merely to so-called "mega-litigation" but also to much more modest disputes such as that giving rise to this appeal: see for example Ren v Jiang [2014] NSWCA 1 at [15] and Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [10]. As Allsop P observed in the latter case, "although the points run by the appellant at the trial had not been imprudently or unreasonably taken, nevertheless the appellant had engaged in litigious 'trench warfare' taking every point in the teeth of honest commercial commonsense." Courts must also distinguish the vast quantity of inessential fact and law from what is essential to resolve the dispute fairly and intelligibly and in a manner which enables disappointed parties to exercise rights of appeal and review: see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 271-273 and Williams v Boambee Bay Time Share Resort Pty Ltd [2004] NSWCA 59 at [34]. In performing that task, they are entitled to expect counsel's assistance in separating wheat from chaff, as was observed in New South Wales v Mannall [2005] NSWCA 367 at [151].
The main point in this litigation turns on an appreciation of the true nature of the "specific performance" and statutory damages which Mrs Paolucci seeks. Once that is recognised, it will be seen that the primary judge was correct to focus on the finding that there was no extant breach by Makedyn which warranted equitable intervention or engaged the discretion to order statutory damages. That is a short answer to most of this appeal. Because it can be addressed without regard to the details of the factual and procedural background, I shall do so immediately.
Often nothing turns on the distinction between the two senses of specific performance, and it has been suggested, notably in Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737 at 742, that the applicable principles are the same. It is unnecessary for present purposes to consider in any detail whether it is appropriate to maintain the distinction. But two points made be noted.
The first bears upon Mrs Paolucci's claim for "partial" specific performance. The present is not a case where the fact that Mrs Paolucci does not seek for Makedyn to be compelled to perform all that it had promised to do is an especially relevant consideration. Orders compelling the performance of particular provisions of a contract are not uncommon, and mandatory orders may be made at least where the obligation is severable. Mr R P Meagher, then of junior counsel, long ago derided the shibboleth that one cannot get specific performance of part of a contract: R Meagher, Review of I Spry, Equitable Remedies, (1974) 7(2) Sydney Law Review 313 at 315. It would be simpler if, as Meagher maintained, such orders were styled final injunctions, rather than "specific performance", and would avoid the risk of the distraction of a submission that they are not available because the relief sought fell short of the entirety of the bargain.
The primary relief sought by Mrs Paolucci at first instance and on appeal is an order for the conveyance of three lots to her, but as vacant lots, without the promised dwellings erected on the land, and a sum of money reflecting the diminished value of the reconveyed land. That is quite different from the parties' bargain, bearing in mind that Makedyn operates a business of constructing and selling homes. And it is sought in circumstances where it is undisputed that Makedyn is ready and willing to construct the dwellings on the three lots, and the reason today it has not done so is that Mrs Paolucci disagrees with the dimensions of the Duplex as determined by the primary judge.
The second is that in requiring the performance of a contractual term, equity is acting in aid of the plaintiff's legal rights. As Dixon J put it in J C WIlliamson Ltd v Lukey at 298:
"An injunction is a remedy appropriate to restrain the violation of a provision or term of a contract which is the final expression of the parties' legal relations. But, in granting an injunction for this purpose, the Courts of equity acted in aid of a legal right."
Mr R E Megarry QC explained that "equity will not intervene to grant the remedy unless there is some good ground for doing so": (1960) 76 Law Quarterly Review 200 at 202. It is thus necessary for the plaintiff to prove that damages are not an adequate remedy. Professor Burrows described this as "the primary restriction", writing that "specific performance will not be ordered unless damages (and the common law remedy of the award of an agreed sum) are inadequate. This is the major hurdle that a claimant seeking specific performance must overcome ...": A Burrows, Remedies for Torts, Breach of Contract and Equitable Wrongs, (4th ed, Oxford University Press, 2019), p 402. The requirement of inadequacy of damages has been explained as meaning whether it is just in all the circumstances that the plaintiff should be confined to a remedy in damages: see Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414 at [97] and the authorities there collected by Brereton J, deriving from a reformulation by Sachs LJ in Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 at 379.
On what basis might Mrs Paolucci be entitled to equitable relief that Makedyn perform its contractual obligations? Mrs Paolucci had a contractual entitlement that Makedyn build particular structures and retransfer certain parcels of land to her. (She also had an equitable interest in the land, based on the extent to which equity would protect those rights, but the arguments at trial and on appeal passed over the proprietary rights which Mrs Paolucci enjoyed, and were confined to her rights derived from contract. I shall follow the same course.)
The present case is unusual in Mrs Paolucci's focus upon what she maintains is the historic breach by Makedyn in 2016 and 2017 to provide the Layout Plans, which were provided in May 2018 before she commenced proceedings, and the extant breach of Makedyn's failing to construct the House and the Duplex and to reconvey the land on which those structures were erected. She emphasises that the two are causally linked; the delay in providing the Layout Plans prior to 2019 caused, according to Mrs Paolucci, the failure to have constructed the dwellings in 2019, 2020 and indeed 2021. It was put thus in counsel's oral submission in reply:
"It's not merely a historical breach of failure to exercise reasonable endeavours. It's an extant breach of [the promise to] actually build. That breach is extant because, had reasonable endeavours been applied, this contract would have been performed long ago. Had we been given a layout plan indicating what Makedyn was going to build, we would have raised this dispute and this contract, contractual dispute would have been determined and the houses would have been built long ago. So, in that sense, ... and I think my learned friend correctly accepted this that where there is an extant breach, there is a circumstance for the intervention of equity and that is expressed no better than in the passage from Spry's Equitable Remedies which is extracted in Wolseley Investments v Gillespie 13 BPR 24,813 at p 24,820 which is on my friend's list and Professor Spry said there:
'But in equity the position is entirely different. An order of specific performance generally requires the defendant to carry out in specie every term, whether or not it is a condition or essential term, and accordingly wherever a breach has occurred or there is in the circumstances a sufficient likelihood of the occurrence of a breach to render it desirable that the interests of the plaintiff should be safeguarded by the court, an order of specific performance will be granted if otherwise appropriate.'
We respectively adopt that as a correct statement of principle."
While the passage from Spry on Equitable Remedies is unexceptionable, it (no differently from the paragraph of Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358; 13 BPR 24,813 in which it is cited) is referring to the fact that equitable relief can be granted when there is a sufficient likelihood of breach in the future, unlike an action for damages at law. That is a long way removed from the facts of the present case. All the breaches of which Mrs Paolucci complains are actual breaches which (she says) occurred months or years ago.
The deployment of passages from decisions or textbooks in circumstances other than those to which they are directed is not uncommon in legal argument. Occasionally it may assist in the development of the law, although more commonly it tends to confusion of thought. In the present case I do not accept counsel's submission. It conflates two very different things.
Let it be assumed, favourably to Mrs Paolucci, that Makedyn promised to provide (or to take reasonable endeavours to provide) the Layout Plans and was in breach of that promise and that Mrs Paolucci did not waive the breach. It may be that Mrs Paolucci has a claim for damages for that breach. But no court in 2019 or 2020 would order Makedyn to provide the Layout Plans which had been provided in 2018. Perhaps, as Mrs Paolucci contends, the dimensions in the Layout Plan for the Duplex were too small, because Makedyn had misconstrued the contract. Even then, no relief would issue if as was the case here Makedyn was prepared to provide a replacement Layout Plan and build a different Duplex if its construction of the contract turned out to be wrong.
The fact that there is an extant breach of a different provision does not alter the position. The parties continue to be in dispute as to the dimensions of the Duplex. It is reasonable for Makedyn not to commence building (and indeed, not to seek development consent) until that dispute is resolved. Indeed, Mrs Paolucci accepts that it is reasonable for Makedyn to take that course. Early in the hearing of the appeal, counsel candidly accepted that "there couldn't be an order for specific performance until such time as there'd been agreement or resolution of the dimensions of the duplex that was required to be built". As it happens, the only reason that dispute remains unresolved now, in the second half of 2021, is that Mrs Paolucci has exercised her right of appeal from the decision of the primary judge. But there is nothing to suggest that when the dispute is resolved, Makedyn will be unready or unwilling or unable to erect that structure. It follows that there is no proper basis for equitable relief to issue.
The fact that the ongoing failure to resolve the dispute about the dimensions of the Duplex is a consequence of the delayed provision of the Layout Plans is not to the point. The position might have been different had Mrs Paolucci commenced proceedings prior to October 2018.
Further, and significantly for the present appeal, the precondition to the discretion to order damages under Lord Cairns' Act is that the Court have power to grant an injunction or order specific performance. In very many cases, it will be just for a plaintiff to be confined to a remedy in damages, and in such cases the power to order damages under the statute is unavailable.
However, there are cases where a plaintiff's remedies at law are inadequate. One example that reflects that fact is that equitable relief may issue quia timet, when a plaintiff has no entitlement to relief at common law. Injunctive relief is available in an appropriate case based on the threat of the breach of a contractual right, before the plaintiff can point to any breach or any damage caused by a breach. There is thus a line of authority directed to the circumstances when an order requiring performance of a term of a contract may be obtained in advance of an actual breach. The contrary proposition was rejected in Hasham v Zenab [1960] 2 WLR 374, Lord Tucker of the Privy Council saying that the fallacy lay in equating the right to sue for specific performance with a cause of action at law. Many of the decisions were reviewed by this Court in Wolseley Investments Pty Ltd v Gillespie, a decision to which both parties referred, and which was recently applied in Fuller v Albert (No 2) [2021] NSWCA 183 at [10]. Generally speaking, a threatened breach of contract, so long as it is "more than a theoretical or remote possibility", may in an appropriate case be sufficient: see at [19], [45] and [47].
Nice questions can arise where at the time a plaintiff commences a suit, it lacks all of the "ingredients" for equitable relief, but these do exist by the time of the hearing. Nice questions may also arise if the ingredients exist when the suit is commenced, but are not all present when the time for the order arrives. But it is clear that if at all times one or more of those ingredients is absent, then Lord Cairns' Act damages cannot be ordered because the precondition to the discretionary power has not been satisfied. This point is critical to the present appeal, and for that reason warrants development.
In Ferguson v Wilson (1866) LR 2 Ch App 77 at 91, Cairns LJ said, of the precondition that the Court has "jurisdiction to entertain" an application:
"where there are, at least at the time of bill filed, all those ingredients which would enable the Court, if it thought fit, to exercise its power and decree specific performance - among other things where there is the subject matter whereon the decree of the Court can act - in a case of that kind, the Court has a discretionary power to award, under certain circumstances, damages in substitution for, or in addition to, the decree for specific performance."
The reference in that passage to there being "the ingredients which would enable the Court, if it thought fit, to exercise its power" was reiterated by Dixon J in J C Williamson v Lukey at 295.
In White v Boby (1877) 26 WR 133, Sir George Jessel MR said:
"The Act which is commonly known as Lord Cairns' Act does not come into operation unless there is equity in the bill. You must start with an equity, and then in certain circumstances you may get under Lord Cairns' Act damages instead of that equity."
An example may be found in Lavery v Pursell (1888) 39 Ch D 508, where Chitty J refused a claim for damages under Lord Cairns' Act where it was conceded that specific performance could not be ordered because of the effluxion of time, saying at 519 that:
"in this case when the writ was issued it was impossible to give specific performance. It was suggested that after Lord Cairns' Act the Court of Equity could give damages in lieu of specific performance. Yes, but it must be in a case where specific performance could have been given."
His Lordship concluded:
"[W]hen this case was opened, it was opened, very properly, as a case for damages and not for specific performance. It would have been impossible to grant specific performance in this case, and that being so, it appears to me that the Plaintiff cannot recover any damages."
Another example is Proctor v Bayley (1889) 42 Ch D 390, which bears some similarity to the present facts, insofar as it turns upon an historic breach, with a plaintiff seeking equitable relief and statutory damages and not seeking damages at common law. A patent owner brought infringement proceedings in the Court of the County Palatine, seeking an injunction, an account of profits and damages in lieu of an account. The defendant had had four machines which infringed the patent, but had not used them for years, and had advised the plaintiff as much before proceedings were commenced. The Judicature reforms did not affect that Court, which thus had only an equitable jurisdiction, supplemented by Lord Cairns' Act. The Vice-Chancellor granted an injunction, but an appeal was unanimously allowed, with Cotton LJ and Fry LJ treating the matter as turning on whether the patent holder could make out a case for an injunction. Fry LJ said that "an injunction is granted for prevention, and where there is no ground for apprehending the repetition of a wrongful act there is no ground for an injunction": at 401. Concerning the claim for damages, he said:
"Under Lord Cairns' Act there is no jurisdiction to give damages except in substitution for or in addition to an injunction. Unless, therefore, the Plaintiff can establish his right to an injunction, his case wholly fails."
Having concluded that there was no ground for an injunction, he continued:
"The injunction therefore falls, and with it the right to damages. The Plaintiff may have a claim for damages on the ground of the user, which claim he might have brought forward in a common law action, but, instead of taking that course, he has brought a regular patent action in equity, for which there is no foundation, as there is no ground for supposing that the Defendants mean to infringe his patent."
Cotton LJ likewise said at 400-401:
"As regards damages the Court of the County Palatine has no jurisdiction to give them except under Lord Cairns' Act, and where there is no case for an injunction, damages under that Act ought not to be given. There being in the present case no title to equitable relief, damages cannot be given."
In Gallagher v Rainbow (1994) 179 CLR 624; [1994] HCA 24, an injunction was sought to stop the registration of a plan of subdivision, and it appears that damages at common law and under the Queensland counterpart of Lord Cairns' Act were sought. (So far as I can see, the proceedings sought, relevantly, what were described as "equitable damages" - see pp 6 and 30 of the judgment of Lee J delivered 24 March 1992 - but they seem to have been treated as extending to damages under Lord Cairns' Act.) The joint majority judgment of Brennan, Dawson and Toohey JJ concluded that an injunction was not available, based on the effect of the subdivision upon the easements, and concluded their judgment thus at 635:
"Once it is accepted that the benefit of the easements would pass to the registered proprietors of the lots into which lots 16 and 17 were subdivided, there can be no question of an injunction to restrain the subdivision or to preclude the consequent attachment to the new allotments of the benefit of the easements. And if an injunction was not available at any stage to the appellant, there can be no question of equitable compensation or damages in lieu of an injunction. This much was accepted by the appellant."
The proposition thus rested upon the appellant's concession, but it was nonetheless properly made.
In short, to the extent that there had been an historical breach of the obligation to provide Layout Plans they had long since been provided, and any breach could not of itself warrant equitable relief. There may also have been an extant breach of the promise to build the House and Duplex, but there was good reason for the delay (namely, the dispute as to the dimensions of the Duplex) and Makedyn was ready and willing to do so when that dispute was resolved. That would not of itself warrant equitable relief. Mrs Paolucci contends that the reason for the delay was the historical breach. Even if that be so, I do not accept that Mrs Paolucci is entitled to any equitable relief on that basis. There might be a nice question if Mrs Paolucci had commenced proceedings prior to October 2018, before the Layout Plans had been provided. But she did not commence proceedings until December 2019. This is not a case for equitable relief or for damages pursuant to Lord Cairns' Act. Save for the dispute concerning the dimensions of the Duplex (grounds 6 and 7, which Mrs Paolucci did not seek to elaborate in oral submissions) that suffices to resolve the entire appeal.
However, in order to address the other grounds, it is necessary to descend to the detail of the factual and procedural background.
It will be seen that part of the consideration for the sale of the land was the promise to "reconvey" the (newly created) lots on which were to have been constructed the House and the Duplex. It will also be seen that there was an express obligation to negotiate including as to the design of the House and the Duplex, with a power on the part of Makedyn to determine at its absolute discretion matters which were not agreed. The result should have been the bringing into existence of, inter alia, two Layout Plans identifying the dimensions of the House and the Duplex prior to Makedyn becoming registered proprietor. No later than that date, the parties promised to enter into "Sale Contracts" whereby the two lots would be transferred to Mrs Paolucci, with the House and Duplex built in accordance with the Layout Plans on that land.
The parties referred to the "Sale Contract" envisaged by the Deed of Agreement as the "Reconveyance Contract" and it will be convenient to do the same. It will be seen that the parties executed and exchanged the Reconveyance Contract without annexing the Layout Plans, and indeed (so far as the evidence discloses) without there being any communications whatsoever concerning what the House and Duplex would look like.
The so-called "Reconveyance Contract" was entered into on 24 November 2015 (precisely when on that day is not clear on the evidence). In that contract, Makedyn promised to transfer to Mrs Paolucci land then described as "[u]nregistered lots 1391 and 1393" at the address in Gregory Hills, on the "Completion Date", defined in special condition 32.3. The special conditions also made it plain that the land was to be reconveyed with three residences constructed on it. Annexure A was the unregistered plan of Stage 4 reproduced above. Annexures B and D were left blank.
The material definitions and clauses were as follows:
"29 Conditional Contract
…
29.4 If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen.
…
30 DEFINITIONS
30.1 The following words shall have the following meaning:
…
Dwellings means the Duplex and House to be constructed on the Lots as part of the Works.
Duplex means a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot of no less than 241.54m².
House a four (4) bedroom freestanding residential dwelling of no less than 241.54m².
Guarantee means an unconditional bank guarantee in the form acceptable to the purchaser provided by a bank conducting retail business in Australia in the sum of $1,000,000.00 which secures the vendor's obligations under this Contract for Sale.
Inclusions Schedule means the inclusions and finishes to be made/added to the Dwelling as part of the Works which is or will be set out in Annexure C.
Interest Rate means ten percent (10%) per annum,
Layout Plans means the internal and external layout of the Dwelling (with or without changes as permitted under this Agreement) which is or will be set out in Annexure B.
Lots means the unregistered Lots referred to in the front page of this Agreement.
…
31 CONDITIONAL CONTRACT & GUARANTEE
31.1 Completion subject to conditions
The Lots are sold subject to and conditional upon:
(a) the Vendor obtaining consent to the registration of the Plan by Council and other proper authorities; and
(b) the registration of the Plan by the Registrar General.
(c) the completion of Works; and
(d) the issue of an Occupation Certificate.
called the "Conditional Matters".
31.2 Guarantee
In support of the Vendor's obligations with respect to the Conditional Matters the Vendor will provide the Guarantee on or by the date of this Agreement.
32. SUNSET DATE & COMPLETION DATE
32.1 Sunset Date
32.1.1 The Vendor will use its reasonable endeavors to ensure that the Conditional Matters are completed within eighteen (18) months of the date of this Agreement (the "Sunset Date").
32.1.4 In the event the preconditions specified in 31.1 are not met by the Sunset Date or, within such further period as may be agreed by the parties, then either party may at any time thereafter serve written notice to the other party or their solicitor rescinding this Agreement whereupon the provisions of Clause 32.2 of this Agreement shall apply.
32.2 In the event that the Contract is rescinded in accordance with Clause 32.1.4 the Purchaser shall be entitled to call upon the Guarantee forthwith. The Purchaser acknowledges that, other than its entitlement to call upon the Guarantee, the Vendor will not be liable to the Purchaser for any direct, indirect or consequential damages including loss of profits, revenue or data arising out of or in relation to the rescission of this Agreement pursuant to Clause 32.1.4 or any breach of any express of implied term of this Agreement or breach of any express or implied warranty or condition (other than non excludable statutory warranties and conditions under the Competition and Consumer Act (Cth) 2010. The Vendor's liability to the Purchaser in respect of any loss or damage (including consequential or indirect loss or damage) which may be suffered or incurred or which may arise directly or indirectly in respect of this Agreement shall be, in aggregate, limited to an amount equal to the Guarantee.
32.3 Completion
The Completion Date shall take place on the later of either: -
(a) fourteen (14) days from the date on which the Vendor or the Vendor's Solicitors give written notice to the Purchaser or Purchaser's Solicitors that the conditions referred to in Clause 31.1 have been completed;
(b) thirty five (35) days from the making of this Agreement.
33 PURCHASE PRICE
33.1 The parties acknowledge that the consideration for the sale/re-conveyance of the Lot has been provided by the Purchaser as part of the original sale of the Development Site to the Vendor.
…
35 CONSTRUCTION
35.1 Construction
Before completion the Vendor must procure:
(a) the construction of the Dwelling in a proper and workmanlike manner;
(b) that the lay out of the Dwelling is substantially as that depicted in the Layout Plan;
(c) finishing of the Dwelling will be substantially as specified in the Inclusions Schedule;
(d) installation of the items will be substantially as specified in the Inclusions Schedule; and
(e) the Works have an appropriate policy of Home Warranty Building Insurance (which shall be incorporated in this Agreement upon issue and form Annexure E).
35.2 Alterations
The Vendor can without being required to give any notice to the Purchaser:
(a) alter any manner of the finish as specified to be finished in the Inclusions Schedule to a manner of finish of at least equivalent quality;
(b) alter any manner of item to be installed as specified in the Inclusions Schedule with an item of at least equivalent quality;
(c) make constructions amendments to the Works, provided:
(i) the amendments are to meet, or as a consequence of meeting, the requirements of Council;
(ii) to substitute materials of at least equivalent quality if those materials are difficult to obtain;
(iii) as required for the proper constructions of the Dwellings; or
(iv) as desired by the Vendor from time to time, acting reasonably."
Thus the Reconveyance Contract imposed an obligation to construct the House and Duplex substantially in accordance with the "Layout Plan" being a plan which was stated to be annexed to the contract but which was not in fact annexed. Instead, there was only, relevantly, the problematic definition of "Duplex" to which I shall turn in due course. Mrs Paolucci submitted that there was an obligation to bring a Layout Plan into existence within a reasonable time.
The Sunset Date was late May 2017, 18 months after the date of the Reconveyance Contract, after which there was a contractual right of "rescission" entitling the Purchaser to be paid the outstanding $1,000,000 by calling upon the bank guarantee if she chose not to accept the lots on which the House and the Duplex had been constructed. The same clause, cl 32.2, provided that Makedyn's liability to Mrs Paolucci was capped at $1,000,000; Mrs Paolucci contended that Makedyn's deliberate breach of the obligation to provide the Layout Plans disentitled Makedyn from relying on the clause.
The primary judge found that on 8 October 2018 Mr Vrsaljko on behalf of Makedyn and Mrs Paolucci's daughter Yvonne had a discussion about the lots, in which Mr Vrsaljko raised the possibility that instead of the Duplex Makedyn could construct two separate dwellings, to which Yvonne expressed interest. I interpolate that it seems doubtful that this would have been the first time the issue arose. The subdivision creating lots 149 and 150 was registered five months earlier, and steps to put it in place must have taken place earlier still. Once that subdivision was effected, it ceased to be possible to build a "duplex", which is to say, two dwellings on the same lot. (It is also best to put entirely to one side "the conventional duplex of two dwellings located one on top of the other in the one building" to which Tobias JA referred in Calleja v Botany Bay City Council [2005] NSWCA 337; 142 LGERA 104 at [25]; the parties seem never to have had that in mind.) Nonetheless, it will be convenient to follow the parties' language, and the contractual language, and continue to refer to the promise to build the "Duplex".
On 9 October 2018, Mr Vrsaljko sent an email referring to that discussion attaching a proposed layout for the House (lot 201) and the Duplex (lots 149 and 150). Each of the dwellings on Lots 149 and 150 was shown as having a floor space of 151.73m2, and the house on Lot 201 was shown as a residence with 152.2m2. That may well have been based upon Makedyn's contention that the Reconveyance Contract required the lot size to exceed 241.54m2, a contention advanced in a letter from its solicitors dated 5 December 2018. It is not necessary to elaborate the merits of that position, because this claim was not pressed at trial or in this Court. Mrs Paolucci's solicitors had, shortly after receipt of the Layout Plans, advised that the contract called for "the construction of one (1) 4 bedroom freestanding house of not less than 241.54sqm and a duplex divided into two (2) 3 bedroom residences each of 241.54sqm." The letter confirmed that Mrs Paolucci would accept three separate dwellings, but "each would need to comprise a total floor area of 241.54sqm as provided in the contract".
The dispute concerning the dimensions of the house to be built on lot 201 was resolved in December. Makedyn's solicitors provided a revised Layout Plan for a two storey house with an area of 242.6m2, which was satisfactory to Mrs Paolucci. That left unresolved the dispute concerning the dimensions of the "Duplex". Mrs Paolucci commenced proceedings six months later, on 17 June 2019.
I have emphasised the portion of the transcript to which the primary judge referred (T269.3-7) and also an earlier proposition concerning whether Makedyn had a defence, to which I shall return. It will be seen that immediately after a summary of the submissions as to the consequences of failing to provide the Layout Plans, counsel for Mrs Paolucci made the statement that he did. Like most oral communications, it could have been more clearly expressed. It unequivocally extended to a renunciation of any allegation that there was a breach in failing to secure development consent for the subdivisions prior to May 2018; that is the force of the sentence which begins "I'm not putting a submission ...". But its opening words might readily be thought to absolve the trial judge from exploring the factual details preceding May 2018.
That seems to be how it was understood by Makedyn. In response, counsel for Makedyn referred to the concession twice. In particular, he said:
"This is not a case about credit. This is not really a case about factual issues. In fact, it was conceded in the submissions just made that nothing is said about the conduct of Makedyn in getting the project to the point of registering the subdivision plan. That's an important concession because that is why, on my client's case, the rescission right arose, namely, because it was a significant time after the expiry of the sunset date that the subdivision plan could be registered."
Mrs Paolucci was given an extended opportunity for oral reply (it appears that her counsel's reply commenced around 4.35pm, and concluded at around 5.05pm). Nothing further was put about the events prior to May 2018. Nor was it said that Makedyn had mischaracterised the extent or effect of the concession.
The foregoing suggests that the primary judge was right to regard the plaintiff as having abandoned this point. However, whether or not that is so turns on what occurred at the hearing when viewed as a whole. The transcript does not all point in the same direction on this issue. In particular, as Mr Harding emphasised when the appeal was heard, at least at one point both Makedyn and his Honour appear to have regarded the concession as not precluding the case sought to be advanced. That emerged from the following exchange:
"KNACKSTREDT: ... So if there is a breach of some requirement in the contract that Makedyn had to produce a layout plan, then it results in no loss and just goes absolutely nowhere.
HIS HONOUR: Doesn't the plaintiff say, 'Well, if you'd have provided it when you should have, then that would have all been sorted out earlier'?
KNACKSTREDT: Well, that is a fiction, in my submission, for this reason. Up until 24 May 2017, there was a very real possibility that the sunset date might be reached before the conditions - bearing in mind this is a conditional contract - before the conditions were satisfied. After 24 May 2017, it was a certainty, because that was precisely what had happened, as I've been saying. The idea that in those circumstances one can engage in speculation about people going off to court and getting declarations, and thereby concluding that this could all have been sorted out years ago is really fanciful, in my submission. It's probably not what would have happened in those circumstances. And even if your Honour thought that, on balance, someone may have done that, there's really no way of putting a timeframe around that, and it really is nothing more than speculation, because we know that that's not what happened.
HIS HONOUR: Well, is it also relevant that there's no evidence to that?
KNACKSTREDT: Yes."
That exchange tells against an inference that Mrs Paolucci's concession was as clear-cut as his Honour recorded in the judgment.
A review of the whole of the submissions in reply supports the inference that what was occurring was a series of misunderstandings between Mrs Paolucci and his Honour. It will be recalled that Mrs Paolucci submitted that "[t]he fact that the parties disagree about what [the objectively ascertainable] meaning [of the contract] is does not afford a defence to not perform obligations under it". His Honour made it very clear that he did not understand the gravamen of Mrs Paolucci's case. (I note that just before the luncheon adjournment on the final day of the trial, Makedyn made an open offer, which is the explanation for his Honour's reference to "the settlement issue".) Immediately after the adjournment, at the commencement of Mrs Paolucci's final address, his Honour said:
"HIS HONOUR: ... That's why I don't understand either of you. That's why I've said I'm not going to get into the settlement issue again, I'll just assure you of that, but I'm just now talking legally. Why do you even need specific performance? They haven't denied that they need to build. In the witness box Mr Vrsaljko says, 'Yes, we're ready to build, we'll start next week.'
HARDING: Yes, your Honour, but there's a track record there of default, to start with.
HIS HONOUR: There are issues there but your clients never rescinded or accepted the conduct as repudiatory.
HARDING: No.
HIS HONOUR: So you want specific performance but there's nothing to indicate they - sorry, I'm having trouble understanding why, once I've resolved the issue of the duplex, why the defendant wouldn't go ahead and build them.
HARDING: We take that on board, your Honour."
So far as I can see, counsel did not return to this. It is easy to see how it aligned with the conventional need to identify why relief at law was not sufficient.
As counsel for Mrs Paolucci was proceeding through the correspondence between the parties concerning the failure to provide details of the dwellings, there was the following exchange, preceding the concession:
"HARDING: But no plan was provided before the entry into the reconveyance contract or without four weeks thereafter as was impliedly promised and undertaken in this email.
HIS HONOUR: But assume breach, it was cured. By December 2018, it was cured because there was--
HARDING: Your Honour is jumping ahead.
HIS HONOUR: The house and the duplex were provided.
HARDING: Yes, that's true and I'm coming to that, but in the meantime ..."
It will be seen that his Honour was clearly flagging a failure to understand how Mrs Paolucci could be entitled to specific performance based on an historic breach to provide the Layout Plans which had long since been cured.
Of course the transcript is an imperfect record of what occurred at trial. That is one reason why considerable deference should be given to a judicial officer who states that a point was abandoned at the hearing. My mind has fluctuated on this issue, but on balance, after reading the closing addresses as a whole, I think Mrs Paolucci is correct and she should not be understood to have abandoned her submission that the failure to provide the Layout Plans contributed to the extant failure to have built the dwellings and obtained occupation certificates by the time she commenced proceedings, this being a submission which the primary judge did not address.
Thus while it is true enough, as Mrs Paolucci submits, that where a party's incorrect construction causes loss, there is no defence to a claim of damages, that was not her primary case. Mrs Paolucci sought relief in equity and for Lord Cairns' Act damages. In order to make out her primary case, she needed to show that it would not be just in all the circumstances to be confined to damages, and if she failed to do that, she would not obtain specific performance or Lord Cairns' Act damages. It is true that acceptance of Mrs Paolucci's submissions based on the consequences of failing to provide the Layout Plans promptly would have engaged her fallback claim for damages at common law. However, so far as I can see, this was never articulated at trial. In any event, the orders sought on Mrs Paolucci's appeal included no claim for damages at common law.
The second reason that the misapprehension by the primary judge concerning what Mrs Paolucci was abandoning was immaterial is that Mrs Paolucci fell far short of making out any such case that the non-provision of the Layout Plans prior to October 2018 caused the extant breach in 2019 and 2020. This was for a number of reasons.
The starting point is that the Reconveyance Contract was entered into without the Layout Plans attached, to the knowledge of the solicitors acting for Mrs Paolucci. An undertaking was requested, but there is no evidence that it was given (or indeed that the request occurred before exchange). Mrs Paolucci had unquestionably waived a right to have a Layout Plan attached to the contract. It follows that there is a question of construction about the obligation to provide a Layout Plan. That is not free from difficulty. True it is that there was an express obligation upon Makedyn to do everything necessary to cause the construction of the Dwellings and the issue of occupation certificates (cl 29.4), which aligned with the conventionally implied obligation in a contract to do all that is reasonably necessary to secure its performance: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607; [1979] HCA 51. But was that obligation breached?
Makedyn did not know the dimensions or the location of the lots until the subdivision was approved. Makedyn could not apply for development consent until the subdivision was approved. (I have no doubt that that was the practical reality of the situation, nor that as a matter of strict legal entitlement, the applicable zoning and/or the development control plan would have prohibited the council granting consent to build multiple dwellings on a single (unsubdivided) "superlot".) It is evident from the fact that the original promise to convey a single "Duplex" on a large lot was consensually replaced by a promise to provide two residences on two adjoining lots where the large lot had been located that the subdivision envisaged by Makedyn had a measure of flexibility. Although Makedyn's responses to Mrs Paolucci's requests for information were less than informative, Makedyn did maintain that it "could not" prepare a Layout Plan until the subdivision had been approved. I do not think that its stance has been shown to have been unreasonable. What is the point of preparing the Layout Plans which Mrs Paolucci had not insisted upon when the Reconveyance Contract was entered into prior to the lots on which the buildings were to be built coming into existence? If as in fact occurred the subdivision changed, there would be a need to revisit the Layout Plans. In the facts which actually obtained, I would infer that the Layout Plan of the "Duplex" as originally contemplated (built on a single lot 1393) was different from that provided when lots 149 and 150 had been created, at least in relation to the curtilage separating the two dwellings.
At the factual level, there is no evidence supportive of a conclusion that the earlier supply of the Layout Plans would have caused the dispute as to the dimensions of the Duplex to be resolved. There is no evidence as to what would have been involved in Mrs Paolucci making the serious step of commencing legal proceedings. When the dispute arose, it took some eight months for Mrs Paolucci to commence. At that time, there had been many months of correspondence which Mrs Paolucci regarded as unsatisfactory. There is no basis for inferring that she would have been quicker to commence proceedings had the dispute crystallised earlier.
I do think that Makedyn was in breach of an obligation to use reasonable endeavours to provide the Layout Plans after around June 2018, when the subdivision had been approved and the plans registered. The primary judge was of the same view ("at the latest within a few weeks of May 2018": at [37]). But that is insufficient to advance Mrs Paolucci's case. Even when the dispute crystallised in October 2018, it was some eight months before proceedings were commenced, and even then it was more than a year before the proceedings incorporated a claim for relief concerning the dimensions of the Duplex. Thus if the Layout Plans had been provided in June 2018 rather than October 2018, there is no sound basis to conclude that these parties with a demonstrated appetite for engaging in disputation would have resolved their dispute as to the dimensions of the Duplex. As Makedyn submitted, the parties are still in dispute in 2021, because Mrs Paolucci is unwilling to accept Makedyn's construction as upheld by the Supreme Court at first instance.
Finally, the primary judge concluded that Makedyn had not been shown to be in breach of the Reconveyance Contract by not having to date built the three dwellings: at [8]. I am unpersuaded that there was error in that conclusion. Makedyn cannot be faulted for not having built the Duplex while there was a dispute as to its dimensions. Insofar as this aspect of ground 3 incorporates a complaint about the failure to find breach based on not having built the House, it is addressed under grounds 4 and 5 below.
Ordinarily, only errors which are material in the sense that they deprive the party of the possibility of a successful outcome will warrant intervention: Nobarani v Mariconte (2018) 265 CLR 236; [2018] HCA 36 at [37]-[38]. For the reasons I have explained, grounds 1-3 do not give rise to any material error capable of affecting the orders made by the court at first instance.
In oral submissions, very little time was directed to these grounds. That reflects the fact that they were far from the forefront of Mrs Paolucci's submissions at trial. The primary judge was correct to say that no alternative case was pleaded based solely on the failure to build the House. Mrs Paolucci does not deny this, but says that this complaint was apparent on the face of the pleadings. But it remains the case that no separate case was advanced at trial. In Mrs Paolucci's 34 pages and 245 paragraphs of final submissions at trial, nowhere is any separate submission, let alone a fallback case, made concerning the relief that should issue for the failure to build the House.
Further, although Mrs Paolucci complains that "the primary judge's finding as to the practical and economic benefits to Makedyn in constructing the House and Duplex simultaneously was unsupported by any evidence", there is no such finding. The concluding words of [36] are an observation that it would "appear" to be desirable. That is, to my mind, self-evident. The lots are contiguous. There will be materials on the same orders used in the construction of both. It is obviously more efficient for concrete pours to occur at the same time. There will be subcontractors capable of being employed at the same time on the construction of both. And so on.
Fundamentally, Mrs Paolucci's submissions do not attend to the reality that she sought equitable relief. (I do not think that the undeveloped claim for damages at common law could properly be understood as extending to the double alternative of damages at common law based solely on the failure to build the House, and in any event, as previously noted, Mrs Paolucci's appeal did not extend to a complaint that damages at common law should have been ordered.) That required her to show that it was not just for her to be confined to damages, and that a discretion should be exercised in her favour. The trial judge made an evaluative conclusion, based on (a) the absence of this case being advanced separately or strenuously, (b) the fact that construction of the House and reconveyance of lot 201 would only amount to partial performance, and (c) an assessment of the reasonableness of holding off constructing the House while the dimensions of the Duplex remained in dispute. The conclusion that it was reasonable for Makedyn to delay was one that was open to his Honour, and it is not one as to which Mrs Paolucci has established appellable error.
These grounds are not made out.
Mrs Paolucci contends that the facts in Soames v Edge are analogous to the present case. She made the following submissions.
"In Soames, the plaintiff sought specific performance of an agreement under which the defendant had agreed to build a house and thereafter to take a lease (of the land with the house built on it). The defendant failed to build the house. The plaintiff sought specific performance of the defendant's obligation to take a lease and damages for the failure to build the house.
The defendant on demurrer submitted that the Court would not decree specific performance of the whole of the contract (building the house and taking the lease) because this would involve specific performance of a building contract of indefinite terms; nor would the Court order partial specific performance (requiring the defendant to take the lease, with no house) because he, the defendant, had not built the house and the contract required the defendant to do both. The Court accepted the first proposition but rejected the second. It held that the defendant could not aver his own wrong as a reason why the lease should not be taken before the house was built.
The primary judge distinguished Soames on the ground that in that case 'the defendant "urged that the Court could not execute the contract to build"'. His Honour contrasted the present case on the basis that Makedyn had not urged that it was unable to execute the contract to build, and that it could complete the Reconveyance Contract. However, this reasoning finds no support in the facts or outcome in Soames so far as it relates to partial specific performance. Instead, the basis on which the defendant in Soames resisted an order for partial specific performance was essentially that it was not open to the Court to rewrite the bargain between the parties. Makedyn advanced an identical submission in the present case - it contended that it was not open to the Court to 'rewrite' the contract and require Makedyn to convey the lots as vacant land without first having built the Dwellings. This was precisely the argument that was raised and rejected in Soames, on the basis that the defendant could not aver his own wrong as a reason for resisting an order for partial specific performance." (footnotes omitted)
These submissions misapprehend what was decided in Soames v Edge.
The bargain between Mr Soames and Mr Edge was that Edge would demolish an old house on Soames' land and build a new one on conditions to be approved by Soames' surveyor, and when it was built, Soames would grant and Edge would accept a 90 year lease of the land. Edge demolished the structure but it was alleged that he was in breach of his promise to erect a new house. Soames' bill sought specific performance of the whole bargain, but if the Court were to decline to order specific performance of the provisions relating to the building of the house, then he waived the benefit of those conditions. Soames also sought specific performance of the promise to accept a lease, which he (Soames) offered to execute, and he sought damages in addition to or in substitution for the relief sought pursuant to Lord Cairns' Act.
The issue arose on demurrer, and so it was assumed that Edge had no excuse not to have built the house. It was accepted that the Court would not grant specific performance of the building contract, but the Vice-Chancellor said that there was a "distinct" agreement to accept the lease, which was amenable to specific performance. In those circumstances, the Vice-Chancellor overruled Edge's demurrer, holding that it was open to compel the promise to accept a lease on terms that Soames waive his entitlement to approve what was built on the land, and that this was a case where damages under the statute might be ordered.
Ms Paolucci relied in particular on the following passage:
"The Plaintiff having agreed to grant a lease, if he takes damages will be obliged to grant a lease; and the bill contains what in fact amounts to an offer to grant a lease upon damages being awarded. The Defendant cannot aver his own wrong as a reason why the lease should not be taken before the house is built. This is a case, above all others, to which this very beneficial Act should be applied. Here is a person in possession, who has pulled down one house, and remains in possession, and refuses to do that upon which the Plaintiff would be bound to grant a lease. The Plaintiff says, 'I want my house built, or damages for the default; and then I require you to accept a lease.'"
Obviously, Soames v Edge arose on a demurrer, and so the plaintiff's case was to be taken at its highest. Edge was assumed to have no excuse for not having taken steps to build the house, that being the precondition to his being required to accept the 90 year lease. In the present appeal, there has been a trial, and it is common ground that Makedyn was acting reasonably in not building the Duplex until the dispute as to its dimensions was resolved.
Edge could not be heard to rely upon his own breach as an answer to the relief sought by Soames. But Makedyn was willing and able to build the house, and although it may be assumed that it had been in breach in not earlier providing the Layout Plans, that breach was not sought to be enforced. It is true that Makedyn was in breach of its promise to build the dwellings and obtain occupation certificates, but unlike Edge it was entitled to defend that breach by saying that it was entitled not to do so until the dispute had been resolved.
These grounds are not made out.
The precision in "241.54m2" in a clause otherwise replete with ambiguity is readily explained. 100 square feet is one "square". A "square" is thus 9.290304 square metres. 241.54 m2 is almost exactly 26 squares. This explanation does not shed much light upon the legal meaning of the definition, even though at least to my mind it is more common to speak of built structures rather than land in terms of "squares". I can contemplate a project home builder offering designs of 18 and 20 and 22 squares, or a real estate agent advertising a house of 30 squares, but it would be unusual for land to be measured in squares (the natural imperial measurement would be an acre, hence the Australian cliché of the "quarter acre block": see T Hall, The Life and Death of the Australian Backyard (CSIRO Publishing, 2010), p 6). I pass over whether any reliance could be placed upon this, because nothing turns on it; I agree with the parties' common position that the area should not be read as specifying the minimum area of the land on which the Duplex is to be built.
The question is whether Makedyn is obliged to provide a dwelling containing two residences each of at least 26 squares, or a dwelling of 26 squares containing two residences.
The point was treated in this Court more narrowly than at trial. The primary judge rejected Makedyn's reliance on planning instruments (the LEP and the Development Control Plan) on the basis that the starting point was that there was no clear proof that the latter would have prevented the construction of a Duplex of the dimensions for which Mrs Paolucci contended (at [47]), and that submission was not renewed in this Court.
The starting point is the literal or grammatical meaning of the definition. The essential issue is determining what is qualified by the concluding words "of no less than 241.54m2". As a matter of ordinary English grammar, those words may qualify either the "residential dwelling" or the "residences" or the "one lot".
I would attach but little weight to one of Makedyn's submissions, which was that if each residence were to be at least 26 squares, then it would have been easy to insert "each" before "of no less than" (this was the point on which the primary judge relied at [48(1)]). The task before the Court is to construe the ambiguous words which the parties have chosen, and ordinarily that task is not greatly assisted by identifying other words which would avoid the ambiguity but which the parties have not chosen. Ultimately, the fact that there is clearer language that the parties did not use does not carry much weight in determining the legal meaning of the language they did in fact use. Another way of making the point is that it would also have been easy to place the words "of no less than 241.54m2" earlier in the definition, so that they followed "a residential dwelling". That is another way of rewriting the parties' bargain so as to avoid ambiguity. But it does not much assist the analysis of the parties' chosen words.
As a matter of ordinary English grammar, the words "of no less than 241.54m2" may qualify any of the preceding nouns. Commonly such a clause qualifies the noun which immediately precedes it, but that is far from universally the case. I sought to explain this in Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 at [67]-[68]:
"It is common, but far from inevitable, for a clause to qualify the immediately preceding clause. Contrast 'Let's go to the shop and buy that shirt while it's still on sale' and 'Let's go to the shop and buy that shirt while it's still open'. The first sentence is unremarkable. While the second sentence is a little awkward, it is not ungrammatical; English does not insist that the words 'while it's still open' immediately follow the clause 'Let's go to the shop'. That said, the meaning of both those sentences is clear, but that is not because of their grammar, but because of their semantic content: it must be the shirt that is on sale, and the shop that is open.
For the purposes of the first example, I have put to one side the grammatical possibility that it is the shop, rather than the shirt, which is on sale. However, if there were evidence that the shop was itself on sale, and the conversation was between two friends of the vendor wanting to create an exaggerated appearance of trading in the presence of a potential purchaser, the words 'while it's still on sale' might perhaps refer to the first clause. This simply illustrates that the meaning of language is inevitably contextual." (original emphasis)
The issue is whether the Dwelling (ie comprising both residences) must be no less than 241.54m2, or whether each of the two three bedroom residences must be no less than 241.54m2.
The key to construing the definition is to observe that it is to be construed against a context where the parties had agreed that Makedyn would reconvey to Mrs Paolucci two (newly subdivided) lots, on which were to be constructed three residences. The point of the parties' description of two of the residences as a Duplex was that those two residences were to be constructed on a single lot. Bearing that in mind, it is clear that the words "a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot" comprise a compound term amounting to a single concept. Another way of making this point is that the words "on the one (1) lot" are to be understood as qualifying the words "a residential dwelling" rather than the immediately preceding words "two (2) three (3) bedroom residences". It is true that both the residential dwelling and both of the three bedroom residences are all located on the one lot, but that is merely a consequence of the former comprising the latter. But the essence of the idea that this is the definition of a "Duplex" is that there is a single structure on a single lot which amounts to two separate residences.
When it is appreciated that the words "a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot" are a single concept, which itself is qualified by "of no less than 241.54m2" then it becomes clear that the dimensions naturally qualify the "residential dwelling". As a matter of ordinary English, it is decidedly unlikely that an internal component "two (2) three (3) bedroom residences" of the much longer composite phrase "a residential dwelling divided into two (2) three (3) bedroom residences on the one (1) lot" is qualified by the specification of dimension, as opposed to the composite phrase itself. Another way of putting this is that while the words "of no less than 241.54m2" may naturally qualify the immediately preceding term "on the one (1) lot" or alternatively the immediately preceding composite term, they would not ordinarily be understood as qualifying words internal to the composite term.
The foregoing is in substance merely a more verbose explanation of the concise reasoning applied by the primary judge:
"The definition is a definition of 'Duplex' not a definition of 'the residences' - supporting the approach that it is the Duplex i.e. the whole building which is to be 241.54m2. 'Duplex' and 'residences' are not interchangeable."
I conclude that the construction arrived at by the primary judge is correct.
By grounds 1 and 2 of its amended notice of contention, Makedyn maintained that certain of the correspondence summarised above and exchanged at around the time of the Reconveyance Contract was relevant to the issue of construction of the contract. This Court divided on that issue in Cherry v Steele-Park (see at [1], [91]-[94] and [146]-[163]) although the issue was not material to the outcome of that appeal. White JA referred to the work of Professor McLauchlan, to which may now be added that author's works "Contract Formation and Subjective Intention" (2017) 34 Journal of Contract Law 41 and "The Continuing Confusion and Uncertainty over the Relevance of Actual Mutual Intention in Contract Interpretation" (2021) 37 Journal of Contract Law 25. This Court heard very limited oral submissions on the issue, nor was there anything like full argument on the point in the written submissions, and it cannot affect the outcome (the emails amounted to an express request to include the word "each" in the clause, which was not accepted, and so if they were able to be relied on, they would support Makedyn's construction). In accordance with Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [7]-[8] and [101] it is inappropriate to address this issue.
These grounds are not made out.
Mrs Paolucci maintains by grounds 8, 9 and 10 that his Honour erred "by proceeding on the basis (at [52]) that the appellant had not pleaded such an argument in response to the amendment", and erred by finding "that the respondent did not deliberately and wilfully breach the Reconveyance Contract nor act in bad faith or unreasonably" but instead ought to have concluded that Makedyn's "conduct in failing to provide layout plans in a timely fashion (on or before 19 January 2016, and well before October 2018) and its failure to satisfy the Conditional Matters amounted to deliberate and wilful breaches and/or bad faith or unreasonable conduct, such that the limitation on liability in clause 32.2 of the Reconveyance Contract did not apply."
Ground 8 does not withstand scrutiny. There was no pleading by Mrs Paolucci that Makedyn's breach was deliberate, or wilful, or in bad faith, or unreasonable. No such allegation was contained in her statement of claim, and she chose not to file a reply, even after Makedyn's reliance on cl 32.2 was expressly pleaded and despite an opportunity being given for her to do so.
Implicit in grounds 9 and 10 is the proposition that submissions made in opposition to an amendment, and the oral submissions in reply, sufficed to make Mrs Paolucci's contention that Makedyn's breaches had been "deliberate and wilful" and/or "bad faith or unreasonable conduct" an issue in the proceedings. That submission cannot be accepted. There are occasions when the parties may acquiesce in departing from the issues identified in the pleadings, but there is nothing to suggest that Makedyn did so in the present case, still less is this a "clear case" of one party acquiescing in the expansion of a new case against it to which reference was made in Banque Commerciale SA en liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 287; [1990] HCA 11. The argument and ruling explicitly contemplated the possibility of a reply. It is clear to me that the primary judge anticipated that any allegation by Mrs Paolucci would require clear pleading and full particulars. His Honour was correct to take that course. In response, Mrs Paolucci contends that she cross-examined the principals of Makedyn to the effect that the company's delay was deliberate and wilful. That may be so, but that does not mean that the issues in the litigation, as opposed to the credit of Makedyn's witnesses, expanded to an unpleaded, unparticularised case of deliberate or wilful breach in circumstances where Mrs Paolucci had chosen not to serve a reply.
The difficulties in this Court are even more acute. Mrs Paolucci seeks, in order to succeed on these grounds, a finding made by this Court that Makedyn's breach was one or more of "deliberate", "wilful", "in bad faith" or "unreasonable". She adds in her submissions "fundamental". This amounts to a serious allegation which as a matter of fairness should have been pleaded and particularised in advance of the hearing, to which the principals of Makedyn could address their evidence, and as to which they should have been squarely confronted. If that had occurred, it is reasonable to infer that evidence would have been adduced as to the various reasons for delay (including the finding of asbestos on the land Makedyn had acquired). It cannot be advanced for the first time on appeal. If contrary to all of the above this Court were to entertain the submission, it would not be possible to make the findings sought by Mrs Paolucci based merely on the transcript.
These grounds do not arise, but if they did, they are not made out. They should be resolved on the basis that the course taken by Mrs Paolucci at trial stood in the way of the making of findings sufficient to engage Mrs Paolucci's submissions as to the inapplicability of cl 32.2. It is not necessary in those circumstances to construe the clause, which would involve determining whether any or all of conduct which was "in bad faith" or "unreasonable" or "deliberate" or "wilful" or "fundamental" fell outside its operation.
These grounds should be dismissed.
Mrs Paolucci did not seek leave to amend the statement of claim to raise this new allegation. It is true that Mr Knackstredt, who appeared for Makedyn, did not object to the opening, but the time to object was when (if at all) Mrs Paolucci proposed an amendment to her pleading to raise the issue. This she never did. Sometimes the parties engage at trial in issues that have not been pleaded, but Makedyn did not so engage. It did not seek leave to file any affidavits or to adduce oral evidence in chief or in reply on the issue.
Had the alleged breach been pleaded, the cross-examination of Mr Vrsaljko shows that there may have been a number of defences available (assuming breach were otherwise established). Mr Vrsaljko said in cross-examination that Mrs Paolucci said that she didn't care about the layout. There was an obligation on both parties to negotiate in good faith about the terms of the layout. Mrs Paolucci asked about the provision of the layout documents before the contract was entered into but waived (or is estopped from asserting) any breach of the implied obligation under cl 2.5 of the deed of agreement by exchanging contracts which did not include either the construction approval or the layout plan. She did not thereafter propose any layout plan for herself or ask for a layout plan after exchange. Mr Harding submitted that repeated requests were made about the construction of the dwellings but those were requests for advice as to when the contract was likely to be completed and Occupation Certificates issued. They did not include a request for a layout plan.
Mr Vrsaljko also said in cross-examination that blocks were sitting on different development applications and there was no point designing the layout plans and getting an approval or not and then finding that the council had knocked back the development application and these were matters outside Makedyn's control. That issue was never explored.
Mr Knackstredt said that the reason objection was not taken was because it was not clear that the issue was being raised. There is substance to this. At different points in opening Mr Harding said that there was and was not a contractual obligation.
The primary judge thought that "Mrs Paolucci had eschewed any assertion that Makedyn failed to use reasonable endeavours up until May 2018" (J [58]) and said (J [52]) that "the only breaches with which the Court is concerned are those occurring since May 2018 and the only breach established was the failure to provide layout plans before October 2018 which was rectified by October or at least by the latest December 2018".
Mrs Paolucci is correct in saying that the primary judge misapprehended the position as to what was and was not being asserted. The only concession made by Mr Harding was that Makedyn did not fail to use reasonable endeavours to obtain registration of the plan of subdivision before May 2018. He did not abandon his submission, advanced for the first time in oral submissions in opening, that Makedyn had breached its obligations from 2016 by not providing layout plans.
But responsibility for the confusion lies wholly at the feet of Mrs Paolucci. The particular issue concerning layout plans was interwoven with numerous other issues in the case which did not arise on appeal. The submission now raised was raised at trial as an ambush. At no stage did Mr Harding say that the issue he was raising was new; that it was not pleaded, not addressed in any affidavits, and not raised in the written opening submissions. The judge mistakenly thought that it had been abandoned.
Had Mrs Paolucci sought leave to amend, as she ought to have done, it is likely that the amendment would have been refused, or, if not, allowed only at the cost of an adjournment.
In my view it is not open to Mrs Paolucci to raise the issue on appeal.
McCALLUM JA: I agree with Leeming JA and with the additional remarks of White JA.