Silver Star Fashions Pty Ltd v Dal Broi

Supreme Court of NSW|2018-07-30|Before: Darke J, Mr P, Mr J

Introduction

The plaintiff in these proceedings, Silver Star Fashions Pty Ltd ("the vendor"), seeks permission under s 66ZL(6) of the Conveyancing Act 1919 (NSW) to rescind, under a "sunset clause", nine off the plan contracts it entered into as vendor in 2014. An order giving such permission may only be made if the vendor satisfies the Court that making the order is just and equitable in all the circumstances. The defendants, the various purchasers under the contracts, contend that the Court should not be so satisfied.
The contracts were entered into in relation to a development of a property owned by the vendor in Mary Street, Surry Hills. The development is a mixed use development known as "Emiliano", involving retail space at ground level and 16 residential units on the levels above.
Eight of the nine contracts were entered into between 13 June 2014 and 8 July 2014; the remaining contract was entered into on 28 October 2014. Aside from the subject matter of the contracts and the sale prices, the contracts are in substantially the same terms. In particular, each of the contracts is for the sale of a proposed lot in an unregistered plan of subdivision, and each contains provision for rights of rescission to arise in certain circumstances, including if the proposed plan of subdivision is not registered by a Strata Plan Sunset Date, namely 31 December 2016. As it happened, the strata plan of subdivision was not registered until 23 January 2018.

Summary of evidence concerning the carrying out of the Emiliano development

The vendor acquired the Mary Street, Surry Hills property in about 1997. At that time there was a two storey warehouse building on the site. The vendor thereafter used the property to conduct its business of manufacturing and selling ladies' fashion items. The vendor continued to operate that business at the property until shortly prior to September 2014.
In the early 2000's Mr Kalowski commenced thinking about what could be done with the property once it was no longer needed for the conduct of the business. In 2005 the vendor engaged the architectural firm Fox Johnston to provide advice about options for development of the property.
It appears that the matter was not further pursued until 2008. A development application was prepared and then lodged with the Council of the City of Sydney ("the Council") in 2009 for the demolition of the building on the property and its replacement with a mixed use residential and retail development. There was a deemed refusal of that application. The vendor instituted proceedings in the Land and Environment Court, and on 29 September 2009 successfully obtained a development consent for the proposed development subject to various conditions. The development consent allowed for 16 residential apartments over 7 levels and a commercial shop on the ground floor.
The proposed development was not further pursued until about early 2014. Fox Johnston reminded Mr Kalowski that the development consent was only valid for five years (that is, until 29 September 2014).
In about early 2014 Mr Kalowski spoke to someone at the National Australia Bank about obtaining finance for the development. Mr Kalowski received some advice, although it seems not in writing, that the bank would provide a finance facility for the project but that he would first need to achieve "pre-sales" for about nine of the 16 proposed residential units.
On 13 March 2014 the vendor retained Sotheby's as selling agents for the residential apartments in the proposed development. At about the same time the vendor obtained some advice from a cost consulting firm in relation to the likely costs of the development. The advice received at that time was that the development would cost in the order of $5.85 million plus GST.
Also in March 2014 Fox Johnston lodged an application under s 96 of the Environmental Planning and Assessment Act 1979 (NSW) for a modification of the development consent. The proposed modification involved several aspects, including a reconfiguration of the internal layouts of some of the units. In particular, it was proposed to change apartments 103, 203, 303 and 403 from one bedroom to two bedroom apartments.
At some stage in early 2014 the vendor engaged Sydney International Property Development ("SIPD") to be the project manager.
By 13 June 2014 the vendor had entered into its first contract for sale of one of the residential units (apartment 103).
By that time a tender process was underway for the purpose of selecting a builder. On about 16 July 2014 SX Projects Pty Ltd submitted a proposal for it to be considered as the preferred contractor. The proposal included a proposed construction cost of about $6.28 million plus GST.
On 18 July 2014 the Council partially approved the s 96 application. The approval did not extend to the conversion of the four apartments to two bedroom apartments.
On about 31 July 2014 SIPD issued a report (referred to as PCG Report No 1) concerning the status of the project as at 31 July 2014. The report indicates that SX Projects Pty Ltd had been awarded preferred contractor status. The report further indicated: 1. that SIPD was undertaking a cost review and savings process with the builder and the architects with the aim of reducing the contract sum by about $450,000 so as to "bring the project back within feasibility"; 2. that it was envisaged that there would be an Early Works contract that would flow seamlessly into the Main Works contract; 3. that it was intended to lodge a further s 96 application to seek approval for the changes that were not approved by the Council's most recent determination; 4. that a construction certificate would be sought that would cover site establishment and demolition; 5. that it was anticipated that SX Projects Pty Ltd would commence on the site on 1 September 2014; and 6. that the current project duration as presented by SX Projects Pty Ltd was 54 weeks.
In August 2014 Mr Kalowski had further discussions with the National Australia Bank concerning finance. By that time, Mr Kalowski understood that the proposed bank finance would not cover all of the costs of the development. It appears that Mr Kalowski intended to use other sources of funds to finance the early works for the project. It further appears, from the minutes of a project meeting held on 11 August 2014, that Mr Kalowski was to request from the bank a list of its conditions precedent for finance. I note that by that stage the vendor had secured at least nine pre-sales so as to satisfy the requirement that the bank had earlier advised. Mr Kalowski gave evidence that Sotherby's had advised that it was a good market in which to sell off-the-plan residential units, so it was decided to sell all of the residential units. That had been achieved by the end of 2014.
On 15 August 2014 the vendor entered into a $1.5 million finance facility through Guardian Financial Services Pty Ltd.
On 18 September 2014 the vendor entered into an Early Works contract with SX Projects Pty Ltd for a contract sum of $232,872 plus GST. It appears that SX Projects Pty Ltd commenced working on the site on 26 September 2014. A Construction Certificate, limited to demolition and in ground structural works, had been issued on 24 September 2014.
The minutes of a project meeting held on 30 September 2014 indicate that it was agreed at the meeting to postpone action in relation to the further s 96 application until after the main contact work had commenced. The minutes further reveal that a "condition precedent list" had been received from the bank. The list itself is not in evidence.
In October 2014 SIPD issued PCG Report No 2. It is noted in the report that work had commenced on obtaining a Construction Certificate for the main works "so it will be available upon completion of the Early Works". The report further indicates that discussions were taking place with SX Projects Pty Ltd concerning cost savings and the terms of a Main Works contract.
It is clear from the minutes of various project meetings that SX Projects Pty Ltd experienced delays in carrying out the demolition on the site "due to the structure being more robust than thought". In mid-October 2014 it was assessed that these problems may mean that the demolition would not be complete until about late November 2014. As it turned out, the demolition was not complete until early 2015. It seems that these delays were also contributed to by difficulties in demolishing the northern wall that was in contact with a neighbouring wall. There is evidence that during the course of the demolition works some damage was occasioned to the neighbouring property to the north.
The minutes of the project meeting held on 14 October 2014 indicate that Fox Johnston had advised that the Council had amended its requirements for two bedroom apartments and that the proposed two bedroom apartments now met the requirements. It appears that Fox Johnston were going to make enquiries with the Council about obtaining an approval.
I note in passing that it seems to be the case that apartments 103, 203, 303 and 403 were marketed and sold as two bedroom apartments even though they were at that stage only approved as one bedroom apartments. The evidence is incomplete, and somewhat unclear on the subject. However, at least in the case of apartment 203, the evidence shows that it was marketed as a two bedroom apartment. The contracts for apartments 103, 203, 303 and 403 each contained a provision making the contract conditional upon the vendor obtaining an approval in respect of the s 96 application lodged in March 2014.
The minutes of the project meeting held on 28 October 2014 show that there was a discussion about the feasibility of the project by reference to the sales data received from Sotherby's. Mr Englebrecht of SIPD had conducted a feasibility analysis based on that data which showed that the project was in "a robust financial position with a return of 30%+". The minutes further show that there was discussion about the effect of the sales data relating to the "4 unapproved 2 bedroom apartments". It was stated that those apartments represented approximately 22% of the pre-sale value "so should not adversely affect the finance of the project".
On 15 January 2015 the vendor entered into a Main Works contract with SX Projects Pty Ltd for a contract sum of $6.232 million (excluding GST). The period of time specified for practical completion was 54 weeks from the date of the contract.
The minutes of the project meeting held on 2 February 2015 indicate that the demolition works were complete but that piling work was not proceeding pending the arrival of a piling rig. The minutes further indicate that steps were being taken towards satisfying the conditions precedent for the bank finance.
SIPD issued PCG Report No 4 in March 2015. The report reveals that the further s 96 application had been lodged with the Council on 13 January 2015, and that approval had been given for an increase in the number of bedrooms in units 103, 203, 303 and 403 from 1 to 2 "as per the sales contracts". This approval was given on 3 March 2015. It was further stated in the report that: The delay in receipt of the S96 approval caused a flow on delay to the approval of funds, as the application had included the sales of these four units. Without their inclusion in the revenue projection the loan ratio was significantly reduced. The loan has now been approved and release of funds is imminent. The SX claim number 5 has been partly paid and the remainder is to be paid from the facility within the next week. SX has completed the early works package and has undertaken detailed excavation, poured the basement slab and constructed the dwarf walls. SX provided a delay notification on 20 March 2015 stating they are unable to continue works onsite until the next stage Construction Certificate is received. Four items remain with Council for approval to satisfy the requirements of CC 2 these are (submitted 23 January 2015): Colour and finishes scheme; Footpath stone plan; Public Domain Plan (PDP); and Footpath alignment levels.
Approval was given to the further s 96 application on 3 March 2015. As stated in the PCG Report, the conversion of apartments 103, 203, 303 and 403 to two bedroom apartments was approved.
Mr Kalowski deposed that a National Australia Bank facility was in place by about March 2015. An extract of what appears to be a finance facility document is in evidence but a complete copy of the document is not. It seems that the finance facility was for $7.575 million (including an amount to refinance an existing debt of $630,000).
The evidence is somewhat sparse concerning the events of the next six months. However, some light is shed by PCG Report No 5 which was issued in October 2015.
The report includes the following: The PDP approval was received on the 30 June 2015 followed by the issuing of CC2 a few days later. SX claimed additional time for the recommencement and were granted a total of 81 days for the site closure due to the delay in the approval of the S96 and the consequential delay in the issuing of the Public Domain Plan (PDP). SX recommenced the contract works on the 13th of July. The approved extension of time (EOT) extended the construction program to the 23rd of May 2016. The site is continuing to experience delay due to change of resources and lack of management commitment. SIPD are forecasting a project completion of 15th of Sept 2016. Currently there are no claims for delay or any variations, which may have time implication. The only know[n] claimable cause is the requirement to coordinate the services design. The worst-case claim for this item would be 10-14 days. SIPD have repeatedly requested an updated program and sent formal complaints to the management of the company in regard to program, quality and safety. SIPD have been supplied with 3 weekly site programs that have shown 2 weeks delay in the 3-week program. The delay in receipt of the S96 approval caused a flow on delay to the approval of funds, as the application had included the sales of these four units. Without their inclusion in the revenue projection the loan ratio was significantly reduced. … SX Projects have raised RFIs on several occasions for items within the structure and services that seemed not to have been coordinated. As a result SIPD met with the Architect to investigate these items further. From this investigation it has been established that the services and structural documentation was not coordinated and completed "for construction" prior to the tender. Each of these consultants were commissioned to a Design and Construct scope and their documents were not coordinated to the Architectural documents. SX have been contracted to the AS4000 contract on the understating that all documents were up to "For Construction" standard. As a result the Client is exposed to potential claims to bring the design up to requirements by each of these consultants and SIPD for additional work and from SX for both delays and variations for additional scope or to correct problems related to services clashes. SIPD has undertaken several meetings to establish the extent of this work and can now report that some consultant costs have been incurred and some delays have been evident to SX however most of this work should be complete within 2-3 weeks.
The report further provided: 3. Construction Programme Construction works are currently estimated to be 3 months behind the current program. SIPD has been requesting a new program since the work recommenced. No overall program has been supplied. Some 3 weekly programs have been supplied, however these works have been consistently delayed by up to 2 weeks. SIPD has made formal complaints to the senior management of SX and some improvement has been evident in the last few weeks. Project Staff SX changed the entire site and project team on the project after the recommencement. This was done without any consultation with SIPD. SIPD was invited to a morning coffee where the entire new team was introduced. No hand over transition was allowed and delays and confusion resulted. … 4. Financials The client has self-funded or part paid the first 6 claims. However the delay in receipt of the S96 approval caused a flow on delay to the approval of funds, as the application had included the sales of four units. (103, 203, 303 and 403) as two bedroom units these could not be included in the revenue projections until the S96 was approved. Without their inclusion in the revenue projection the loan ratio was critically reduced.
It was further noted in the report that the project was then estimated to be 12 weeks late.
The "site closure" referred to in the report is apparently a reference to the period from about 20 March to mid-July 2015 during which SX Projects Pty Ltd had ceased work. The minutes of the project meeting held on 30 March 2015 reveal that work had stopped by that time, probably since about 20 March 2015. It appears that work could not continue in the absence of the further Construction Certificate. The minutes of the project meeting held on 25 April 2015 suggest that the National Australia Bank was not prepared to release at least some funds until the further Construction Certificate was issued. The Construction Certificate was issued on 23 June 2015.
The minutes of the project meeting held on 4 September 2015 indicate that the ground floor slab to the restaurant area had been poured, as had the walls up to the underside of the car park slab. The minutes further record that SX Projects Pty Ltd had announced earlier that day, without prior notice, that an entirely new team of staff had been brought in to the site. This seems to be the incident referred to in PCG Report No 5 under the heading Project Staff. The minutes also refer to continuing efforts on the part of SIPD to secure additional finance for the project.
On 11 September 2015 an email was sent by SIPD to the National Australia Bank in which various requests were made, including a request that the facility be extended to September 2016 and include "additional capitalized interest as required". The email included the following: Since our Client has a AS 4000 Fixed Lump Sum Contract with a reputable and capable contractor and the project is 100% pre-sold in a market where there is little or no chance of default by the purchasers who hold Exchanged Contracts of Sale we believe there is adequate margin and safety to reach a compromise position to allow the project to move forward to completion.
At about that time Mr Kalowski borrowed $300,000 from a family member to provide additional funds for the project. In late September 2015 the National Australia Bank increased the facility limit from $7.575 million to $7.962 million.
On 30 September 2015 a design meeting was convened to discuss "coordination issues" that had arisen because the design had not been "fully coordinated between the consultants" and the level of completed design presented in the tender was not such as to conform with "a fully designed AS 4000 contract".
The minutes of the project meeting held on 6 November 2015 indicate that construction had continued slowly with SX Projects Pty Ltd forecasting the pouring of the first floor slab by 11 November 2015. It is noted in the minutes that that was some two and half to three months "behind the current program". The first floor slab was in fact poured on 13 November 2015.
The minutes of the project meeting held on 19 November 2015 indicate that SX Projects Pty Ltd had provided an updated program which had a completion date of 25 October 2016. It was noted in the minutes that that "is some 5 months behind the current contract completion date of 23rd May 2016". The minutes further note that "all the services coordinated documents" had by then been supplied to SX Projects Pty Ltd.
On 18 December 2015 a cost consulting firm, Coutts, provided a report to the National Australia Bank. The report includes the following: 13 Program & Sunset Date 1.3.1 The project commenced on site during October 2014 and is contracted to be complete by the 2nd of February 2016. This will not happen due to the delay in a Construction Certificate being issued. The works have now recommenced given that a further Construction Certificate has now been issued for the structure only at this stage. The client's project manager has given SX EOT's until the 23 May 2016. We are of the belief, given the current rate of progress that the completion is actually now likely to be late September 2016. The sunset date included in the sales contract is 31 December 2016. This is now starting to become a concern given an assumed completion of late September 2016. (emphasis original)
As mentioned earlier, on 19 January 2016 SX Projects Pty Ltd was placed into external administration. On the same day, the vendor exercised a contractual right to terminate the Main Works Contract with SX Projects Pty Ltd.
Also on 19 January 2016 a meeting, referred to as a project finance meeting, was held. The minutes of the meeting indicate that SIPD advised: 1. that it would take about two to three months to negotiate with a new contractor and the construction union; 2. that current project delays were seven months; and 3. that the target date for completion of construction was 23 June 2017.
The minutes of the meeting further refer to the position of the National Australia Bank at the time, this being described as: NAB supportive of Star Fashions Pty Ltd Star Fashions instructed not to collapse existing Contracts of Sale SIPD to instruct Lands Legal to write to purchasers seeking extension of Sunset Dates by at least 6-8 months Suggested time to negotiate and contract with new building Contractor: 2-3 months SIPD to keep NAB informed on all fronts
SX Projects Pty Ltd had ceased working on the site in about mid-December 2015. Mr Kalowski gave evidence that he assumed that the builders had gone on holidays. In late December 2015, after hearing rumours that SX Projects Pty Ltd was not "travelling well", Mr Kalowski ascertained that a company related to SX Projects had recently gone into administration.
After SX Projects Pty Ltd itself went into administration, Mr Kalowski was informed by SIPD that the next steps were to resubmit tenders and get another builder to finish the job. Mr Kalowski gave evidence that by that time he was feeling very stressed by the project and his stress was increased after the vendor received a land tax assessment notice on about 20 January 2016.
On 29 January 2016 Mr Kalowski met with Mr Englebrecht and Mr Norton, also of SIPD. An agenda document prepared for the purposes of the meeting, presumably by SIPD, suggests that the topics to be discussed included the replacement of the building contractor and the taking of steps to extend the Sunset Dates under the contracts for sale. The agenda document suggests that completion of the contracts may be able to occur in April 2017, allowing for two and a half months to find a replacement builder, ten months for completion of construction, and a further two months to register the strata plan and settle the contracts.
On 8 February 2016 the vendor received an offer (conveyed by Colliers International on behalf of an unnamed client) to purchase the Mary Street property for $7 million, with a 5% deposit. On 15 February 2016 Colliers International submitted a further offer to purchase the property for $7.6 million, with a 10% deposit.
In the meantime, Sotherby's sent emails to the various purchasers under the contracts for sale. The email was in the following terms: Below is some news in relation to the status of Emiliano - 22 Mary Street, Surry Hills. Please read carefully and come back to me with any queries or questions you have. The Current builder SX Projects Pty Ltd has formally gone in to Administration as at the 20th of January 2016. The Developer and the project manager has met with their bank to review the status and way forward. The principal is yet to meet with the Administrator in regard to creditor issues. The developers team have reviewed a number of possible replacement contractors and will select 2-3 of these to undertake a selective tender in the next week. The tender, submission, selection and contract negotiation process will take approx. 2 months. Once the developer has signed a replacement contract to complete the works and attained a settlement position with the administrator, we will be in a better position to formally notify the Purchasers of any amendments. We will endeavour to keep you informed, as the facts unfold. I will follow this email up with an individual phone call with purchasers later this week.
On 11 February 2016 a further project finance meeting was held. It seems that at this meeting Mr Kalowski approved the issue of a further tender for building contractors. However, Mr Kalowski gave evidence that at that meeting he also expressed his desire to exit the project by selling the property. In cross-examination, Mr Kalowski agreed that he had said at the meeting that he was overwhelmed by the scope of the issues facing the project, and had explained that for various reasons he felt that it was too much for him to continue with the development. Mr Kalowski denied that he had by that time decided that he would no longer be involved in completing the project, but conceded that he was "very, very reluctant" to carry on and engage replacement contractors. As Mr Kalowski put it, the fire had gone from his belly. Mr Kalowski seemed to accept that he had by that time "ruled out" the vendor continuing with the project, but he later explained that the tender process nonetheless continued at least for a while. It seems that Mr Kalowski may have been open to the vendor continuing the project as part of a joint venture with a builder/developer in which the vendor would become "almost a silent partner" and the builder/developer would "take over…all of the responsibility".
Later in February 2016 the vendor received a further offer to purchase the property. The offered price was $7.5 million, with a 5% deposit to be released to the vendor. This offer was expressly subject to a condition that the vendor "collapse" all existing contracts for sale and return the deposits to the purchasers.
On 1 March 2016 Mr Kalowski received an email sent by Mr Englebrecht. The email referred in some detail to what was seen as two options for the vendor in relation to the project, the first being a partnership agreement and the second being a sale of the development. The email included the following: Option 1: A partnership agreement; whereby Silver Star Fashions sells a 50% share in the development to an external equity partner. Under this scenario, the existing Sales are rescinded and a resale process is undertaken. NAB is paid out the current loan facility and a new debit facility is established between the partners to complete the project. (NB SIPD has not allowed to undertake conditions precedent to this new loan) This we understand this [sic] is your preferred option. … Option 2: Sale of the Development; In this option. [sic] A sale is negotiated for a figure agreeable to both parties, for a free and unencumbered site. SIPD anticipates that terms will include the following items below which SIPD has included within the attached PM fee cash-flow for February, March and April being $100,000 in total. Please note, it is not likely SIPD will be commissioned to continue to provide PM services beyond the settlement of the sale, as such an additional loss of profit fee/share of prior savings fee (for which work has already been done) will be invoiced for $35,000. This additional fee, plus the outstanding balance of fees for February, March and April, will be payable with the settlement. Should SIPD be commissioned by the incoming purchaser to continue to provide PM services this $35,000 will be reduced to $15,000 and the balance passed onto the purchaser. Should as the offer attached suggests, SIPD is required to continue until the end of May a nominal fee of $14,478/month will be charges [sic] unless specific additional works are required, in which case SIPD will reserve the right to amend the fees to account for works unknown at this time. Anticipated scope of PM service under this option. Supply of structural engineers sign off on the existing structure Supply of the Section 96 approval from council for the Aluminum windows Release documents signed by each of the applicable prior subcontractors and suppliers Supply of all approvals and receipts for fees paid to Council and supply Authorities. Determination of all contracts of Sale and refund of deposits Release letters from all existing consultants confirming nil fees owing. Commissioning and briefing of a Lawyer to supply release documents and rescind the sales agreements. Arrange and liaise with the NAB in regard to closure of the existing facility. Complete the tender, access the tender, negotiate the commercial terms, present a draft contract to the incoming purchaser. … Chris, we would like to meet with you on either Wednesday 2nd or Thursday 3rd March, at Toast at say 10am, to both review this fee structure and to present a formal offer and Heads of Agreement for an offer purchase at $7.6 mill from a reputable development group. Understanding that you are currently working to find both Purchasers and potential Partners in your own right, however we thought it prudent to proceed with this offer so you have it on the table. (emphasis original)
In cross-examination, Mr Kalowski was reluctant to accept that he had stated that a partnership agreement, involving the rescission of existing sales, was his preferred option. Mr Kalowski emphatically stated that he did not want to rescind the contracts, and had refused offers which would have involved taking that course.
On 10 March 2016 the vendor appointed 1st City as selling agents for the property in order to obtain expressions of interest. On 11 March 2016 Mr Caldwell-Eyles of 1st City sent an email to Mr Redelman containing information about the property. It may be recalled that a company associated with Mr Redelman, OZD, eventually entered into a Project Delivery Agreement with the vendor.
Mr Redelman and Mr Caldwell-Eyles exchanged a number of emails on 11 March 2016. Mr Redelman asked Mr Caldwell-Eyles whether the development was "all sold out". That was evidently an enquiry as to whether all of the units in the proposed strata plan had been sold. Mr Caldwell-Eyles indicated that he understood the development was all sold out. Mr Redelman then sent an email to Mr Caldwell-Eyles in the following terms: Would they be amenable to try rescind them?
Mr Caldwell-Eyles' email in response was in the following terms: It's a discussion that has occurred. This owner is inexperienced in development…he will need a lot of guidance….he is conscious of the prospect of the sunset provisions and the new laws. It's all on the table…
Another company associated with Mr Redelman, Parker Logan Property Pty Ltd ("Parker Logan"), is the holder of a building licence. It has constructed several residential or mixed commercial-residential developments in the Sydney area since its incorporation in 2006. Parker Logan became involved in assessing the Mary Street development. Representatives of Parker Logan including Mr Redelman inspected the development site. The company was given information about the development (including the Coutts report of 18 December 2015), and was able to speak to at least some of the various consultants that had been engaged by the vendor for the project.
On 16 March 2016 Mr Bredow of Parker Logan sent an email to Mr Redelman in which it was suggested that works could start on 6 June 2016 and be completed "in 50 weeks by April 2017". On 22 March 2016 Parker Logan sent a letter to the vendor that included the following: Parker Logan Property offers that a Joint Venture be established to complete the development of the land whereby: Parker Logan Property Pty Ltd is a licensed builder and will be engaged by the developer to carry out all the construction work. The Developer is a single purpose vehicle related entity. The Developer will require the land to be pledged as security with financiers. SSF confirms advice that not more than $2,000,000 is currently owing on the land under mortgage AJ457315 to NAB. SSF as landowner to receive $7,000,000 at the earlier of the date the sales settle (net of proceeds) or 1/12/2017. Parker Logan Property guarantee payment on or before 1/12/2017 irrespective of whether the sales have settled or not. Parker Logan Property will manage the project until completion in accordance with duties and cost allocations as per attached schedule. Parker Logan Property has the skills, expertise and personnel to deliver this project. We have some concerns regarding the structural certification of the building but have allowed for any remediation necessary in our pricing. Further to this we have completed our due diligence and are ready to proceed.
Mr Redelman deposed that prior to the making of the offer he had prepared a "feasibility costing" for the Mary Street development. Mr Redelman has considerable experience in preparing "feasibilities" of that nature. The calculations underpinning the feasibility costing made allowance for various issues identified by Mr Redelman. These issues included the possibility that the ground works carried out by SX Projects Pty Ltd were not compliant with building requirements, and the possibility that none of the sales contracts were rescinded. Mr Redelman prepared calculations on the basis that none of the sales contracts would be rescinded "and that the entity which purchased this site would make a builder's margin only" of about 5-10%. Mr Redelman deposed that he had it in mind that if the costs "blew out" an application could be made to rescind the contracts. He also deposed that it was important to prepare the feasibility on the basis that the contracts remained in place "to ensure there could be some profit margin in this respect if that occurred".
The tender process for a replacement builder continued in the meantime. On 22 March 2016 SIPD received a tender from Growthbuilt. The Growthbuilt tender, which was based on various assumptions about the quality and accuracy of the works carried out to date, proposed a site construction programme of 30 weeks. SIPD also received a tender from Lahey Constructions Pty Ltd. This tender envisaged a construction period from about April 2016 to April 2017.
Mr Kalowski deposed that the tenders were similar in cost to those received at the commencement of the development in 2014. After taking into account the amount of almost $2 million already drawn from the National Australia Bank facility, Mr Kalowski considered that the new tenders "represented an increased cost of some $2 million on the project". Mr Kalowski made no approach to the National Australia Bank for additional finance.
On 29 March 2016 Mr Kalowski sent an email to Mr Caldwell-Eyles in which he stated that he was "not very keen on the Parker Logan scenario". Mr Caldwell-Eyles sent an email in response to Mr Kalowski in which he stated that Parker Logan had improved their offer in some respects, including by agreeing to be responsible for all costs in the event they require the vendor "to invoke sunset proceedings". That may be taken as a reference to proceedings under s 66ZL of the Conveyancing Act. Mr Kalowski said in cross-examination that he believed that the possibility of rescission of the contracts was discussed in relation to the Parker Logan offer. He also said that by 22 March 2016 he had reached the view that he "wanted out altogether" and was not willing to contemplate a joint venture to complete the development. I took that answer to mean that Mr Kalowski did not want the vendor to remain involved with the completion of the development. As he said, he had "decided to try and exit as cleanly as possible". Mr Kalowski explained that he personally felt overwhelmed by the development, and it was adversely affecting his health. He assumed that somebody would finish the apartments, but it would not be the vendor.
The vendor continued to consider offers to purchase. On 1 April 2016 the vendor received a proposal via Colliers that would involve the liquidation of the vendor and the return of the deposits to the purchasers.
On 4 April 2016 Mr Caldwell-Eyles sent an email to Mr Redelman which included the following: The essential terms of the agreement are: Total value of deal to owner is $7,150,000 (exc of GST). To be paid down at the earlier of: strata settlements of new lots/August 31st, 2017. $350,000 to be released to owner upon exchange of this agreement. Should PL require rescissions via sunset - PL will indemnify owner against all associated costs and proceedings; claims; actions etc.
Parker Logan then sent a revised offer to the vendor which appears to be consistent with that described by Mr Caldwell-Eyles. Mr Redelman was evidently confident that an agreement on a joint venture would be reached accordingly. Later on 4 April 2016 he sent an email to his solicitor, Mr Boskovitz, about the matter. The email included the statement: I want to get out of all the contracts for sale and resell the apartments. The email also included a suggestion that a letter be sent to purchasers encouraging them to rescind.
In cross-examination, Mr Redelman was reluctant to accept that the statement about wanting to get out of the contracts was a true reflection of his intentions at the time. However, I am satisfied that it is an accurate reflection of Mr Redelman's intended course of action in the event that the contemplated joint venture proceeded. I note that the intention is further stated in Mr Redelman's email to Mr Katz of Qualitas on 13 May 2016, which included "revised sales prices" well above the existing contract prices.
However, according to Mr Caldwell-Eyles, Mr Kalowski had by about 12 April 2016 "all but shut down his mind to a JV".
On 15 April 2016 Sotherby's sent an email to one of the purchasers (Mr Selleck) who had asked for an update as to what was happening with the development. The email included the following: I spoke with the developer the [sic] morning, they are getting close to selecting a builder and have told me they will have an official update in the next 7-10 days.
That statement is difficult to reconcile with Mr Kalowski's evidence to the effect that it would not be the vendor who would finish the apartments. Mr Kalowski agreed in cross-examination that the vendor was not on 15 April 2016 getting close to selecting a builder, and he accepted that the email was false. Mr Selleck sent an email directly to Mr Kalowski on 13 May 2016 asking for information "in an attempt to gain some clarity and allow me to plan my housing arrangements". Mr Kalowski did not reply to the email, and did not instruct Sotherby's to do so on behalf of the vendor. Mr Kalowski agreed in cross-examination that since 10 February 2016 no further information had been provided to the purchasers.
On 1 June 2016 Sotherby's sent an email to purchasers which included the following: … I have been onto the developer every possible moment to get an update for me to send everyone.… The information I have been told as of today: Is that the developer is in Negotiations with a JV partner to finish the project. They are close in agreeing all the terms of the deal and completion. I have been told a formal update will come end of this week, start of next week.
Despite the terms of the email an agreement between the vendor and Parker Logan was not quickly finalised. Mr Kalowski agreed in cross-examination that at that time it remained his preference to effect an outright sale.
On 22 July 2016 Mr Kalowski sent an email to Mr Redelman which included the following: Please accept my apologies for not proceeding with the joint venture. As I said in an earlier email, it was an agonising decision for me to make… Unfortunately the death of my mother has crystallised my thoughts, and reinforced my position that I want to be "out" of this project. When the opportunity arose to achieve this direction I had to take it. I hope you understand.
The opportunity referred to was an offer to "sell outright" for $6.2 million. Mr Kalowski had accepted such an offer on 21 July 2016. Mr Kalowski gave evidence that this offer would not have involved the "collapsing" of any contracts for sale.
However, at about the time Mr Kalowski's father died in early August 2016, and after being "mucked around" by the purchaser, Mr Kalowski changed his mind about the sale, and again considered proceeding with Mr Redelman.
On 12 August 2016 the vendor entered into a Project Delivery Agreement with OZD and Mr Redelman. OZD was incorporated specifically for that purpose.
The vendor entered into the agreement as "Owner"; OZD entered into the agreement as "Developer"; and Mr Redelman entered into the agreement as "Guarantor". The following provisions of the agreement should be noted: 2.1 Appointment The Owner appoints and authorises the Developer to undertake the Development and to undertake and provide the Development Services in accordance with this document. The Developer accepts the appointment and agrees to undertake the Development Services in accordance with the terms of this document. … 2.3 Relationship between the parties The parties acknowledge and agree that no general law partnership, tax law partnership for income tax or GST purposes, joint venture, trust, agency or other association will be created between the Owner and the Developer by this document. … 2.7 Risks The Developer assumes and is fully responsible for all risks associated with the Development. … 5.1 Responsibility for Project Costs (a) The parties agree that, subject to clause 5.2, the Developer will be responsible for 100% of the Developer's Project Costs from the Effective Date without any contribution to such costs being required to be made by the Owner. (b) The Owner is responsible for Owner's Project Costs for the period up to and including the Effective Date. … 7.1 Developer's warranties The Developer acknowledges that prior to the date of this document it has satisfied itself by its own inquiries and warrants that: (a) the Developer has undertaken an assessment of the risks of the Development (including, without limitation all commercial risks associated with the costs of the Development, market conditions, interest rate fluctuations, and value and sale prices of the Lots) and to the maximum extent permissible at Law assumes all risks relating to the Development and other matters which may affect the profitability of the Development to the Developer; … 8.2 Refinance (a) The Developer must use its reasonable endeavours to refinance the Loans to Owner as soon as possible after the Effective Date and by no later than the date 90 days after the Effective Date. (b) The Developer is responsible for all costs of the Refinance. (c) The Owner is responsible for all interest and other charges on the Loans to Owner up until the Interest Calculation Date. (d) On and from the Interest Calculation Date, the Developer assumes liability for payment of all principal (with the exception of the amount required to repay the Loans to Owner as at the Interest Calculation Date) and all interest relating to the Loans to Owner and, when applicable, the Refinance and all other charges relating to the Refinance and must pay all such amounts strictly as required under the Mortgages or the loan facility documentation secured by the Mortgages and, when applicable, the Refinance Documentation. … 9.1 Completion The Developer must complete the Development: (a) without undue delay; (b) at its cost, (c) subject to clause 9.2, strictly in accordance with the Development Consent; and (d) strictly in accordance with the agreements of the Owner with End Purchasers for "upgrades" as advised to the Developer. 9.2 Variations of Development Consent The Developer may apply for variations of the Development Consent where: (a) the variations do not result in the Owner breaching its obligations under the Lot Sale Contracts and agreements for upgrades; … 11.1 Rescission of existing contracts (a) The Developer acknowledges having perused the Lot Sale Contracts entered into by the Owner with End Purchasers and agrees that they form valid legal obligations of the Owner to the End Purchasers. (b) The Developer undertakes not to do anything that would result in the Owner being in default to an of the [sic] End Purchasers under the Lot Sale Contracts. (c) Subject to clause 11.1(d), the Owner acknowledges the right of the Developer: (i) to take action in the Supreme Court in the name of the Owner for orders that Lot Sale Contracts may be lawfully rescinded; or (ii) to negotiate with End Purchasers for the mutual rescission of the Lot Sale Contracts. (d)(i) If the Developer wishes to commence proceedings in accordance with clause 11.1(c)(i), the Developer must first give to the Owner no less than 10 Business Days' prior written notice; and (ii) if the Developer wishes to enter into an agreement with an End Purchaser for mutual rescission, the Developer must first give to the Owner no less than 5 Business Days' prior written notice and must keep the Owner informed as to the results of those negotiations. The Developer must keep the Owner regularly informed of the progress of any negotiations with End Purchasers. 11.2 Indemnity by Developer The Developer agrees that it will unconditionally and irrevocably indemnify and keep indemnified the Owner against all Loss relating directly or indirectly to any action taken by the Developer, or anyone on behalf of the Developer, to have the Lot Sale Contracts or any of them rescinded. … 12.1 Developer Loans (a) On the date of this document, the Developer will lend to the Owner the sum of $325,000.00 (First Loan). (b) On or before 30 June 2017, the Developer will lend to the Owner the further sum of $65,000.00 (Second Loan). (c) On or before 30 November 2017, the Developer will lend to the Owner (Third Loan) such sum calculated in accordance with the following formula: TLA = $6,500,000 - $390,000.00 - LRA - D19.2 Where: TLA means the Third Loan Account; LRA means the outstanding amount of the Loans to Owner as at the Interest Calculation Date included in the Refinance under clause 8; and D19.2 means the amount, as at 30 November 2017, received by the Owner pursuant to the provisions of clause 19.2(c). For the avoidance of doubt, if TLA = Nil, then there is no Third Loan. If the Owner is paid more than that to which it is entitled, the overpayment is to be repaid to the Developer. … 13.2 Construction obligations The Developer must, in a professional and timely manner, and in accordance with the Development Consent and other requirements of this document, and at is own cost: (a) procure that the Works are constructed: (i) diligently and in a thorough and workmanlike manner with all reasonable expedition; (ii) in accordance with the Development Consent and all other relevant Approvals; … 13.3 Developer's risks The Developer is responsible for and accepts all risks and ongoing obligations in connection with construction of the Works as described in clause 13.2. … 19.1 Receipt of Gross Sale Proceeds The Owner and the Developer agree that until payment in full of the monies referred to in paragraphs (a), (b) and (c) of clause 19.2, the Gross Sale Proceeds from the Project are to be collected by the Developer and deposited into a proceeds account held jointly by the Owner and the Developer for that purpose. Alternatively, the Owner and the Developer may agree on a stakeholder account with an agreed stakeholder and on agreed terms. 19.2 Distribution The Owner and the Developer agree that the Gross Sale Proceeds are to be applied and distributed as follows: (a) Firstly - In payment of all loans secured by mortgage on the Project Land/Lots (which includes LRA). (b) Secondly - Towards payment of any GST payable in relation to a Sale of any Lot such GST to be distributed to the Owner and remitted by the Owner to the Australian Taxation Office. (c) Thirdly - To the Owner to such amount calculated by the following formula: ODA = $6,500,000.00 - LRA Where: ODA means the amount to be distributed to the Owner; and LRA means the outstanding amount of the Loans to Owner as at the Interest Calculation Date included in the Refinance under clause 8; (d) Fourthly - In payment of any outstanding Developer's Project Costs. (e) Fifthly - To the Developer as its fee for providing the Development Services.
On 12 August 2016 Sotherby's sent an email to purchasers in the following terms: I have been told (not through developer) that 22 Mary Street, Surry Hills Sold last night. I have called the developer to get a formal update. Still waiting for a response. However I wanted to send this to you first as the time between information I have received has just been way to [sic] long. Please bear with me and hopefully will send something through as soon as I find out. The good news is that progress is on its way.
On 18 August 2016 OZD sent a letter to purchasers in the following terms: We would like to introduce ourselves. We have been engaged to take over the building of the project at 20-22 Mary Street, Surry Hills NSW ("the Site"). As you may know, the previous builder was placed into administration on 19 January 2016. Hence our task is to assess what has been done already and then to decide the viability of the project going ahead. Depending on the outcome of our investigations, unfortunately some or all of the existing construction may need to be demolished or rectified. We are aware that on…2014 you entered into a Contract with Silver Star Fashions Pty Ltd ("SSF") to purchase Apartment…at the proposed development at the Site. Background SSF was established in about 1967 and has, until recently, been involved in the business of manufacture and wholesale of ladies fashion. In about 2008, SSF decided to develop the building in which it conducted its business. In about 2009, development consent was granted by the Land and Environment Court for demolition of the existing building and its replacement with a mixed use residential and retail development. A number of modifications were made and approved to the original design, the last one being in 2015. Thereupon the dream of the 'Emiliano' development was born. Unfortunately, bringing its dream into reality has not been without its challenges. While SSF was successful in its prior business, it was not so skilled at the development game culminating in the problems facing it presently. Future progress We cannot, as yet, give an estimate of when the project may be completed if at all; but we will keep you up to date with our findings. Given the uncertainties facing the project, we would like to offer you the opportunity to get out of (rescind) your contract and recover your deposit. SSF has advised us that it would be devastated if you incurred a financial loss. If you decide to get out of the contract, your deposit and any interest earned on it will be refunded to you in full. Naturally, if you wish to remain a purchaser, we will do our best to complete the project in a timely fashion (again emphasising that currently we cannot give you an estimate of the completion date or whether the project will go ahead in its current form). Please let us know what you decide. You can do this by writing to us at the abovementioned address. @@A copy of this letter has been sent to your solicitors.
The purchasers of 7 of the 16 apartments ultimately agreed to the rescission of their contracts for sale. The purchasers under the remaining nine contracts are the defendants in these proceedings.
OZD engaged Parker Logan to undertake the construction work on the project. On 6 September 2016 Parker Logan estimated that construction would be finished by 30 November 2017. Shortly thereafter, Parker Logan received advice from a quantity surveyor that a realistic construction period would be twelve months. The construction work actually re-commenced in October 2016 following a cleaning of the site, and the replacement of the existing formwork structure.
On 16 September 2016 OZD's solicitors sent letters to the solicitors or conveyancers acting for the purchasers who had not yet agreed to rescission. The letters are not in identical terms. It can be seen, however, that by each of those letters OZD conveyed: 1. that there were concerns that the existing building work might not comply with Australian Standards, and engineers were to carry out investigative work; 2. that OZD was prepared to extend the sunset date by 30 months to 30 June 2019; 3. that there was a prospect that OZD's funders might not finance the project; and 4. that there may be a need to reduce the size of some of the apartments to ensure the viability of the project.
Some of the letters spoke of a need for deposits to be released for the purpose of the investigative works, and requested that the deposit be released accordingly. It was put to Mr Redelman in cross-examination that it was false to state that there was a necessity for deposits to be released for that purpose. Mr Redelman maintained that the statement was true. However, it appears that investigative works were carried out by structural and geotechnical engineers without being funded by released deposits. Agreement was not able to be reached with any of the remaining purchasers for the release of their deposit.
Further correspondence then passed between OZD's solicitors and the solicitors and conveyancers acting for the purchasers. It is not necessary to refer to any of the details of the correspondence. It is sufficient to note that despite the fact that a number of the purchasers said that they noted the intention to extend the sunset date to 30 June 2019, or agreed to such an extension, no extension was ever effected. The sunset date for each of the contracts remained 31 December 2016. Mr Redelman gave evidence in cross-examination to the effect that by October 2016 a decision had been made to proceed with the project "in its current form" and seek rescissions of the contracts once the sunset date had passed.
On 15 November 2016 Taylor Thomson Whitting, structural engineers, sent a report to Parker Logan. The report included the following: A site inspection was carried out by Hung Nguyen on 06/10/2016. The purpose of the inspection was to establish the current status of the structural work completed by SX Project. Inspection was limited to a visual walk through inspection to accessible areas only. No site measurement or material testing was undertaken. Foundation and Basement Level … 3. Wall joint and slab junction will require some concrete repair work. Refer to attached photos for the extent. … New Ground floor, Level 1 and ASF wall above level 1 … 4. Wall joint and slab junction will require some concrete repair work. Refer to attached photos for the extent. 5. Concrete repair will be required for level 1 slab soffit and PT anchorage. Refer to attached photos for the extent. … Recommendations For those completed concrete elements, we do require concrete test results and PT extension results for level 1. We understand that APS will continue with the project which would be easy to obtain the PT extension. If the concrete tests are not available, we recommend some hammer testing. There are few areas where structural defects were noted during inspection that requires to be addressed: Honey comb in concrete Wall joints in AFS wall Exposed reinforcement Corrosion and water damage Specification for repair works can be provided on request.
Mitchell Brandtman, quantity surveyors, provided a report in November 2016 in which the opinion was expressed that the proposed construction budget, under the building contract between OZD and Parker Logan, of $5.54 million (excluding GST), was achievable under current market conditions. The quantity surveyors recommended a construction contingency of $277,000 (excluding GST) to cater for unforeseen site issues or changes to finishes. Accordingly, the total recommended budget was about $6.19 million.
On about 28 January 2017 Boskovitz & Associates sent Notices under s 66ZL(4) of the Conveyancing Act to the remaining purchasers. The notices are in substantially identical terms. One of the Notices is in the following terms: We are serving this notice on behalf of Silver Star Fashions Pty Limited ("SSF"). Please take notice that, as the Strata Plan (as defined in the Contract) was not registered by the Registrar General on or before 31 December 2016, and will not be registered on or before 6 March 2017, SSF will be rescinding the Contract on 6 March 2017 in accordance with clause 54.5 of the Contract. We set out below the reasons for the delay in completing the development and the reasons why SSF will be rescinding the Contract. Reasons for the delay in completing the development The builder engaged by SSF to undertake the development was SX Projects Pty Limited ("SX Projects"). Demolition and early works at the site commenced in September 2014. Substantive works to construct the development commenced in early 2015. As at December 2015, Coutts Costs Consulting ("Coutts") - the quantity surveyor responsible for sending progress reports to the NAB (the bank providing SSF with construction finance for the project) - estimated that the development would be completed by late September 2016. Unfortunately, however, on 19 January 2016, SX Projects was placed into administration. SSF terminated its building contract with SX Projects shortly thereafter. In February 2016, SSF sought tenders from builders to complete the construction of the development. On 22 March 2016, SSF received tenders from Lahey and GrowthBuilt. Lahey quoted a contract price of $6,797,970 to complete the development, with an estimated completion date of 19 April 2017. [A copy of the Lahey tender is provided herewith.] GrowthBuilt quoted a contract price of $6,942,756 to complete the development, with a proposed on site construction programme of 30 weeks. [A copy of the GrowthBuilt tender is provided herewith.] It should be noted that GrowthBuilt's construction programme did not include: • time until site mobilisation: 4-6 weeks; • registration of strata plan and obtaining occupation certificate: 6 - 8 weeks; or • delays due to wet weather and potential industrial disputes arising out of the failure of SX Projects: 2 - 4 weeks. SSF's construction loan facility with the NAB had a limit of $7.962 million. [A copy of the Facility Details is provided herewith.] As at 1 April 2016, SSF had drawn down $2.23 million on this facility, leaving only $5.733 million in available funds - far below the contract price of both the Lahey and GrowthBuilt tenders. [A copy of the relevant NAB statement is provided herewith.] Thus, as a direct consequence of the failure of SX Projects, SSF was put in a position where: (i) it did not have sufficient funds to complete the development - there being a shortfall of approximately $1 million to $1.2 million (plus additional interest costs); and (ii) the development could not be completed by the contractual sunset date of 31 December 2016. From March 2016, SSF met with various builder-developers with a view to finding either a joint venture partner to enable it to complete the development or a buyer who could take over the development entirely. During this process, SSF entered into negotiations with OZD Pty Limited, a developer associated with the building company Parker Logan Property Pty Limited ("PLP"). On about 11 August 2016, SSF entered into a Project Delivery Agreement with OZD to enable the development to be completed. Reasons why SSF will be rescinding the Contract Since August 2016, PLP has sought numerous tenders from subcontractors for the construction of various parts of the development. PLP has received tenders for approximately 60% of the development's remaining construction works. These tenders demonstrate that the costs of completing the development will far exceed the original budget. For example: • the December 2015 Coutts progress report estimated that the cost of completing the formwork, slabs and slab reinforcement would be $435,100 (including the supply of concrete and reinforcing materials) whereas the quote obtained by PLP to complete these works is for $548,740 (excluding the supply of concrete and reinforcing materials) (quoted by Fafelu Construction Group) • the December 2015 Coutts progress report estimated that the cost of completing the electrical works would be $188,696 whereas the two quotes obtained by PLP to complete these works are for $456,373 (quoted by V & C Electrical) and $386,238 (quoted by Industrie Electrical Group). Furthermore, PLP has retained structural engineers to investigate the works carried out by SX Projects on the development. The engineers have discovered that the concrete in some of the walls constructed by SX Projects was not compacted properly. This defect will require rectification, which will add further costs to the project. Finally, since August 2016, OZD has approached several different financiers in an endeavour to obtain the necessary construction finance to complete the development. A number of financiers have indicated to OZD that they do not consider the project in its current form to be viable, and that the funding risk is too great. To date, OZD has received only one offer of finance - on terms which include a 1% loan fee and interest of 11.95% p.a. By way of comparison, the interest rate on SSF's NAB construction loan was 5.19% p.a. in April 2016. The greatly increased construction costs, together with the substantially higher costs of obtaining finance, mean that the project is no longer viable in its current form. For all of the reasons set out above, SSF will be rescinding the Contract on 6 March 2017.
At the same time the Notices were served, offers were made on behalf of the vendor to each of the remaining purchasers to rescind the contracts, pay an amount for legal costs, and refund the deposit. The offers stated that if the purchaser did not consent to the rescission, the vendor would commence proceedings under s 66ZL of the Conveyancing Act. The offers further stated that if the vendor was successful in such proceedings it would seek an order for costs against the purchaser on the basis that the purchaser unreasonably withheld consent to the rescission. Again, a deal of correspondence followed, but it is not necessary to refer to any of the details of the correspondence.
The development has since proceeded to completion. The strata plan was registered on 23 January 2018. The Court was informed that an Occupation Certificate issued about a week before the hearing. It appears from Mr Redelman's affidavit of 14 May 2018 that the issue of the Occupation Certificate was itself delayed by about six months.

Valuation evidence

As mentioned earlier, the evidence establishes that the value of each residential unit the subject of the relevant contracts is currently well above the purchase price. The valuation evidence before the Court was not the subject of dispute. Reports from Mr Mannell of Egan National Valuers and from Mr Field of National Property Valuers were received in evidence. Both valuers expressed their opinions as to the values of the various apartments as at 31 December 2016. In addition, Mr Field provided his opinion as to the values of the apartments as at 8 February 2018, and Mr Mannell provided his opinions as to the values as at 17 July 2018.
The evidence is summarised in the table below: Apartment Purchaser Purchase Price 31 Dec 2016 value (Mr Mannell) 31 Dec 2016 value (Mr Field) 1 Feb 2018 value (Mr Field) 17 July 2018 value (Mr Mannell) 102 First Defendant $725,000 $900,000 $900,000 $990,000 $925,000 103 Second Defendant $775,000 $925,000 $950,000 $1.050m $950,000 203 Third Defendant $899,000 $1.085m $1.1m $1.2m $1.025m 301 Fourth Defendant $810,000 $1.010m $1.010m $1.1m $1m 302 Fifth and Sixth Defendants $685,000 $850,000 $850,000 $935,000 $850,000 303 Seventh Defendant $925,000 $1.1m $1.125m $1.225m $1.1m 403 Eighth and Ninth Defendants $859,000 $1.135m $1.135m $1.235m $1.150m 501 Tenth Defendant $775,000 $950,000 $950,000 $1.050m $1m 701 Eleventh and Twelfth Defendants $1.65m $1.9m $1.975m $2.150m $1.975m

Evidence given by the purchasers

In respect of each relevant contract one or more affidavits, sworn by either a purchaser or in one case a relative of the purchaser, were read. Generally speaking, these affidavits contained material that described: 1. the circumstances in which the purchaser came to enter into the contract; 2. the perceptions of the purchaser about the apartment, the development, and the neighbourhood; 3. the effects upon the purchaser of the delay in the development; 4. the communications between the purchaser and the vendor, and later OZD; and 5. the effect that rescission of the contract would have upon the purchaser.
It is not necessary to set out a summary of this evidence. Particular aspects of the evidence are referred to later in these reasons as required as part of the assessment of whether the vendor should be permitted to rescind the contracts.

Determination

I have already concluded that upon the true construction of the contracts, mutual rights of rescission arose under cl 54.5 when the Strata Plan was not registered by 31 December 2016 (see [25] above). I therefore do not accept the contention advanced by the defendants that the conditions necessary for the exercise of a right of rescission under cl 54.5 were not satisfied due to breaches by the vendor of its obligations under cl 54.2.
I am also unable to accept the contention advanced by the defendants that service of a valid notice under s 66ZL(4) of the Conveyancing Act is a condition precedent to the exercise of a right to rescind under a sunset clause. Section 66ZL(4) inserts into an off the plan contract a term requiring a vendor to serve a notice upon each purchaser if the vendor is proposing to rescind the contract under a sunset clause. A failure by a vendor in that situation to serve the notice would thus be a breach of the contract. The failure would also mean that there could be no consensual rescission that satisfied the requirements of s 66ZL(3)(a). However, I do not think that a failure to serve a notice would also preclude the vendor from obtaining an order from the Court permitting it to rescind, as envisaged by s 66ZL(3)(b). Unlike s 66ZL(3)(a), s 66ZL(3)(b) is not in terms circumscribed by reference to the requirement to serve the notice. In my opinion, the Court has power to permit a rescission under a sunset clause even if a notice is not served as required by the term imposed by s 66ZL(4).
That is not to say that the failure to serve a notice could not be relevant to the question whether permission to rescind should be given. It seems to me that the failure to serve a notice might be relevant to that question. So, too, might the contents of a notice that is served. The relevance of these matters would of course depend upon the circumstances of the particular case at hand.
In light of the above, the Court will not proceed to make a determination as to whether the notices served on about 28 January 2017 were valid notices in accordance with the term imposed in each contract by s 66ZL(4). However, as the basis of the challenge to validity was that the notices contained inaccurate and incomplete information about the reasons for seeking rescission and the reasons for the delay in creating the subject lots, those matters will be considered, to the extent that they are relevant, in relation to the question whether permission to rescind should be given.
Similarly, any breaches by the defendant of its obligations under cl 54.2 of the contracts may be relevant to the question whether permission to rescind should be given. As I observed earlier, s 66ZL relieves a purchaser under an off the plan contract from needing to challenge the exercise by the vendor of a right of rescission under a sunset clause. For example, it is no longer necessary for a purchaser to assume the burden of establishing that breaches by the vendor relevantly caused the event that gave rise to the right to rescind. The defendants did not, at least formally, mount such a challenge or assume such a burden here. The complaints they raised about the vendor's performance of its obligations under cl 54.2 of the contracts may nonetheless be relevant to the question whether permission to rescind should be given.
I turn now to that question. Section 66ZL(3)(b) provides that a vendor may rescind an off the plan contract under a sunset clause where the subject lot has not been created by the sunset date, if the vendor obtains an order from the Court under s 66ZL permitting the vendor to do so. Section 66ZL(6) makes it clear that such an order may only be made if the vendor satisfies the Court that making the order is just and equitable in all the circumstances. Section 66ZL(7) then stipulates that in determining whether it is just and equitable in all the circumstances, the Court is to take into account certain matters. Those matters include "any other matter the Court considers to be relevant".
In a different context the expression "just and equitable", found in a statute that required a court not to make an order unless it was satisfied that in all the circumstances it was just and equitable to make the order, was held by the High Court to be a qualitative description of a conclusion reached after examination of a range of potentially competing considerations (see Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52 at [36]). The High Court further stated that the expression does not admit of exhaustive definition, and that it is not possible to chart its metes and bounds.
Section 66ZL(7) specifies matters that must be taken into account. It does not specify the weight, or relative weight, that ought be given to those matters. Those issues are left to the discretion of the Court, which must be exercised judicially (see Mallet v Mallet (1984) 156 CLR 605 at 608).
I propose to approach the question by considering the matters identified within s 66ZL(7). I appreciate, of course, that the Court is considering the question separately in relation to nine different contracts. However, the similarities that exist between the terms of the contracts, the times when the contracts were made, and the communications between the vendor and the purchasers, as well as the manner in which the case was conducted, means that in practical terms there are few significant differences in the way each of the s 66ZL(7) factors affects the assessment pertaining to particular contracts.

Section 66ZL(7)(a)

The first matter is the terms of the off the plan contract. The provisions of each contract are relevantly the same. The terms of cll 54 and 58 which contain and govern the operation of the right of rescission under the sunset clause (cl 54.5) have been set out and discussed above. It is appropriate to view those provisions in the context of the whole of the contract in which they appear, and the circumstances in which the contract was made.
The subject matter of each contract is a residential lot in a strata scheme that was not in existence when the contract was made. By cl 31 of each contract, completion of the contract was not due until after registration of the Strata Plan. Unless the sunset date of 31 December 2016 was extended pursuant to cl 58, mutual rights of rescission would arise under cl 54.5 if the Strata Plan was not registered by 31 December 2016.
The vendor submitted that it was significant that when the contracts were made there was no certainty that completion of the contracts would occur, and that the contract thus entailed risks for both parties, depending upon movements in the property market. It was put that such risk was upon the vendor in a falling market and upon the purchaser in a rising market, and that these risks were managed by means of the rights of rescission under cl 54.5 which were voluntarily granted by each party. I would add here that cl 54.5 is expressly subject to cl 58 which confers upon the vendor, in certain circumstances, the right (but not the obligation) to extend the sunset date.
The defendants emphasised cl 54.2 which was said to impose an onerous obligation upon the vendor. It was submitted that while it is true that when the contracts were made there was no certainty that settlement would occur, the purchasers had the right to expect that the vendor would proceed with all due expedition and thus attempt to have the Strata Plan registered by the sunset date. It was submitted that the conduct of the vendor (including what is described as its abandonment of the project), caused delays and thus changed the nature of the risk the parties had attempted to address in their contracts.
The issues surrounding the conduct of the vendor do not strictly arise under the heading of the first matter under s 66ZL(7). Nevertheless, it is convenient to turn now to those issues, which fall within some of the other matters identified under s 66ZL(7).
The defendants were critical of numerous aspects of the manner in which the vendor proceeded with the development. It was submitted that when the bulk of the contracts were entered into in June and July 2014, the vendor had no construction finance in place and had not entered into a construction contract, or even selected a builder. It was pointed out that when a construction contract was entered into in September 2014 it covered only "early works", and when those works had finished, significant delays were occasioned to the "main works" due to a failure to obtain the required construction certificate. The defendants submitted that after the National Australia Bank finance was obtained, and work had resumed in July 2015, the works were further delayed due to the actions of the builder yet no steps were taken by the vendor to rectify the situation. The defendants further submitted that the vendor was dilatory in dealing with the failure of the builder in January 2016. In that regard, the defendants were particularly critical of the vendor's failure to act promptly to have a replacement builder complete the works. It was put that the primary focus of the vendor was instead upon formulating an escape plan for itself. The defendants submitted that about 7 months were lost whilst the vendor negotiated its exit from the project. Finally, it was submitted that these failures on the part of the vendor amounted to breaches of cl 54.2 of the contracts, and "caused the sunset date to elapse".
The vendor submitted that, with the assistance of Fox Johnston and SIPD throughout, it took every reasonable step to cause the development to be carried out with all due expedition. In relation to finance it was pointed out that the vendor had discussed the matter with the National Australia Bank which indicated that achieving a number of pre-sales was a necessary condition for obtaining approval. In relation to the builder it was pointed out that a tender had been awarded to SX Projects Pty Ltd by July 2014. The vendor submitted that the delay in the obtaining of the construction certificate was the fault of the Council. It was submitted that there was little the vendor could do in practical terms, short of the drastic step of seeking to dismiss the builder, to hasten progress between July 2015 and the end of that year. As for the period after SX Projects Pty Ltd went into administration, it was submitted that the vendor obtained quotes from potential replacement builders but these came in at amounts that would require the vendor to borrow more money. It was submitted that in the circumstances that would be problematic.
My assessment of the vendor's conduct in relation to its obligations under cl 54.2 leads me to conclude that the true position differs from the positions advanced by the parties.
I accept that cl 54.2 places a significant burden upon the vendor. The clause is expressed in imperative terms; it mandates that the vendor cause the relevant activities (which, as pointed out by the vendor, extend to work ancillary to or associated with building work on the site) to be carried out with "all due expedition". Expedition is there employed in its sense as meaning promptness or speed in accomplishing something. The vendor must do what it can to cause the Development Activities to be carried out with all due expedition, although "not beyond the bounds of reason, and not to the point of ruin" (see Churnin v Pilot Developments Pty Ltd (2003) 11 BPR 21,603; [2003] NSWCA 391 at [57]-[58]). It should be noted that the clause makes no reference to the sunset date. The promise it contains enures until the relevant activities have been carried out unless performance of the promise is discharged in the meantime. The vendor was under an obligation of that nature from no later than 13 June 2014 when it entered into the contract in respect of apartment 103.
In my opinion, at least some of the delays that occurred in the carrying out of the development can be seen to have been caused by failures on the part of the vendor to cause the Development Activities to be carried out with all due expedition as required by cl 54.2.
There is force in the vendor's submission that it required pre-sales in order to secure finance. However, the manner in which it went about obtaining pre-sales itself contributed to delays in 2015. This is because four of the pre-sales were obtained on the basis that the apartment was a two bedroom apartment, yet was only approved as a one bedroom apartment. The first such contract was the contract for apartment 103 entered into on 13 June 2014. It may be inferred that it was hoped that approval would be obtained, but that aspect of the s 96 application was rejected on 18 July 2014. In the meantime, contracts in respect of apartments 303, 403 and 203 had been entered into.
In order to overcome this difficulty it was necessary to lodge a further s 96 application. This was not done until January 2015, after it was ascertained that the Council's requirements had changed so as to make approval more likely. The s 96 application was approved on 3 March 2015. There is evidence that "the delay in the receipt of the s 96 approval" caused a flow on delay to the approval of funds from the National Australia Bank until March 2015, and a delay in the issuing of the Public Domain Plan (PDP). Approval of the PDP was evidently required in order for the second construction certificate to issue. The absence of that construction certificate was the immediate cause of the cessation of works by SX Projects Pty Ltd on about 20 March 2015. The builder did not resume work on the site until about 13 July 2015, following the issuing of the Construction Certificate on 23 June 2015.
In my view there was a failure by the vendor to cause the Development Activities to be carried out with all due expedition in the period from about 20 March 2015 to about 13 July 2015 when no works were undertaken on the site. I should add that I do not accept that the delay in obtaining the Construction Certificate was due to fault on the part of the Council.
In relation to the period from 13 July 2015, there is evidence that suggests that delay in the order of about two weeks was occasioned by problems arising from a failure of the architects to prepare suitably coordinated documents for the purposes of the tender for building services. These inadequacies in the drawings led to difficulties for SX Projects Pty Ltd which SIPD seemed to accept would be "claimable" by the builder, and brought about some delays. These delays could also be said to be the result of a failure by the vendor to cause the Development Activities to be carried out with all due expedition. In my opinion, the vendor could not avoid that conclusion on the basis that it was the fault of one of its consultants. Clause 54.2 is not a provision that, for example, requires a developer to do everything reasonably necessary to achieve a result; it is a promise to cause something to happen, namely, the carrying out of the Development Activities with all due expedition (compare Masters v Belpate Pty Ltd (2001) 10 BPR 18,527; [2001] NSWSC 169 at [63]-[64]). Otherwise, I essentially agree with the submission of the vendor that there was little it could practically do in the period between July 2015 and the end of that year to hasten progress.
A suggestion was made by the defendants that delays in making payments to SX Projects Pty Ltd may have contributed to its failure. I do not accept that such a conclusion can be drawn from the evidence before the Court. The placing of the builder into administration should be regarded as an event entirely outside the control of the vendor. It was an event that would obviously cause the project to be delayed. However, the vendor, faced with the event, remained under a contractual obligation to cause the Development Activities to be carried out with all due expedition. The discharge of that obligation required the vendor to take steps to have the development proceed by other means.
The evidence shows that the vendor was advised to resubmit tenders and get another builder to finish the job. SIPD appears to have held the view that it would likely take about two and a half months to get a new builder on to the site. On 11 February 2016 Mr Kalowski approved the issue of a further tender. He was also considering other options, including a sale of the property.
By the end of March 2016 tenders had been received from two builders. Mr Kalowski gave evidence that taking into account amounts already spent, the new tenders "represented an increased cost of some $2 million on the project". Despite the fact that the National Australia Bank had given an indication of support to the vendor in the wake of the failure of SX Projects Pty Ltd, Mr Kalowski did not make any approach to the Bank for any additional finance. This is probably explained by the fact that by the end of March 2016 Mr Kalowski had decided that he wanted the vendor to remove itself from further involvement in the project. Over the following four months, the vendor considered various options including a joint venture of some sort with Mr Redelman, but no agreement was concluded until 12 August 2016. Construction work did not resume until October 2016, some 10 months after the original builder had ceased work.
In my opinion about half of that delay can be attributed to a failure on the part of the vendor to cause the Development Activities to be carried out with all due expedition. In making that assessment I have accepted that the circumstances which confronted the vendor, and Mr Kalowski personally, presented issues that were formidable and far from straightforward. I have also taken into account that Mr Kalowski found the situation somewhat overwhelming and he faced distressing personal issues concerning his elderly parents at that time. However, it seems to me that the obligation imposed upon the vendor by cl 54.2 of the contracts required the situation to be addressed much more quickly than it was.
The above analysis leads to the conclusion that since 13 June 2014, when the contract in respect of apartment 103 was made, the vendor failed to discharge its obligations under cl 54.2 in a number of respects, and those failures caused significant delay in the development. The evidence shows in my view that delays totalling about 9 months can properly be regarded as having been caused by the vendor's failures to comply with cl 54.2.
However, I do not think that the evidence enables a conclusion to be reached that these breaches relevantly caused the failure to have the Strata Plan registered by 31 December 2016.
The breaches caused delays in the order of about 4 months in 2015. I am prepared to assume that had those delays not occurred, the construction would have reached a more advanced stage by the end of the year when SX Projects Pty Ltd ceased work. Nevertheless, the nature of the evidence adduced does not permit a sound assessment of the extent of the likely advancement, or the effect it would have upon the remaining time needed to complete construction. The tenders received from Growthbuilt and Lahey Constructions suggest that somewhere between 7 and 12 months was needed to complete the works from the position left by SX Projects Pty Ltd. Given the qualified nature of the Growthbuilt estimate, and the evidence that there was at least some defective work, a period close to 12 months seems reasonable. That accords with the estimate given by the quantity surveyor to Parker Logan in September 2016.
There was no realistic prospect of getting a new builder on to the site before April 2016. In addition, an allowance needs to be made for certification of work at the conclusion of construction, and the steps required in order to achieve registration of a strata plan. Unless the remaining construction was done within about 7 months, the Strata Plan would not have been registered by 31 December 2016. I do not think that the evidence justifies a finding that had the delays of about 4 months not occurred in 2015, construction of the remaining work could have been done within a 7 month period. Accordingly, I am unable to conclude that breaches by the vendor of cl 54.2 relevantly caused the failure to have the Strata Plan registered by 31 December 2016.

Section 66ZL(7)(b)

The second matter identified in s 66ZL(7) is whether the vendor has acted unreasonably or in bad faith. The defendants submitted that the vendor acted unreasonably in seeking to rescind after having "abandoned the project". The defendants further submitted that the vendor should be taken to have acted unreasonably in relation to the letters sent by OZD to the purchasers in late 2016, and in relation to the s 66ZL(4) notices served in January 2017. It was claimed that the vendor is responsible for the actions of OZD in sending the letters because the vendor authorised OZD to negotiate with purchasers for the rescission of their contracts (see cl 11.1(c)(ii) of the Project Delivery Agreement). The defendants contended that the letters sent by OZD on 18 August 2016 and 16 September 2016 were in various ways misleading and designed to cause alarm or create uncertainty, with the aim of inducing purchasers to agree to rescind. The defendants further referred to particular instances of misleading communication (e.g. a letter sent on 11 October 2016 concerning apartment 103), and examples of failures to respond to reasonable requests for information. There was also a more general complaint about not keeping the purchasers informed about what was happening with the project. In relation to the s 66ZL(4) notices, it was contended that they were inaccurate, incomplete and misleading, primarily as to the reasons for delay in the project and as to the reasons why rescission was sought.
The vendor took issue with the allegation that it had abandoned the project, pointing out that it had "outsourced" the project to OZD, and remained the owner of the land and the vendor under the contracts. It was stated that the vendor's actions resulted in the Project Delivery Agreement which obliged OZD to complete the development. The vendor complained that the allegations concerning the misleading nature of communications were not mentioned in the pleadings, and should not be entertained. It was further put that unreasonableness for the purposes of s 66ZL(7)(b) was confined to unreasonableness in the construction of the development, and in any event there was no evidence that any of the defendants had acted differently on the faith of the communications. The vendor also took issue with the complaints about the s 66ZL(4) notices, which it said complied with the only two requirements of the sub-section and were not misleading. It was stated that OZD's reasons for wanting to have the contracts rescinded were irrelevant because it was not the vendor under, or otherwise a party to, the contracts.
The vendor's actions following the failure of SX Projects Pty Ltd ought not be simply characterised as an abandonment of the project. It is true that by 22 March 2016 Mr Kalowski had decided that he did not want the vendor to remain involved with the completion of the development. However, the vendor did not walk away from its obligations. Rather, it took steps that eventually resulted in an agreement pursuant to which an experienced developer undertook to complete the project. The vendor is entitled to some credit for that, fully accepting, of course, that it was no doubt acting in what it perceived to be its own commercial interests.
I do not agree that unreasonable conduct for the purposes of s 66ZL(7)(b) is confined to conduct that occurs in the course of the construction of a development. That limitation is not found in the terms of the legislation, and the parts of the Second Reading Speech referred to by the vendor do not convince me that the provision should be read so narrowly. In my opinion, s 66ZL(7)(b) encompasses any unreasonable conduct engaged in by the vendor in relation to the off the plan contract. That would include, but is not limited to, unreasonable conduct in the performance of the contract. So, for example, conduct in the course of communicating with a purchaser under such a contract about the performance of the contract or rights under the contract can fall within the provision.
By cl 11.1(c)(ii) of the Project Delivery Agreement, the vendor acknowledged the right of OZD to negotiate with purchasers for the "mutual rescission" of their contracts. The provision, when read with cl 11.1(d)(ii), appears to appoint OZD as an agent with authority to negotiate and then enter into an agreement with a purchaser for the mutual rescission of their contract, and to bind the vendor to such an agreement. On that basis, I am prepared to treat the conduct of OZD in conducting negotiations with a purchaser for the mutual rescission of his or her contract as conduct of the vendor capable of falling within s 66ZL(7)(b).
The letter sent by OZD to purchasers on 18 August 2016 must be considered to form part of the negotiations with purchasers for mutual rescission. The letter contained an offer to rescind the contract and return the deposit. In my view, the letter was misleading in at least one respect. The statement in the fourth paragraph to the effect that OZD's task was "to assess what has been done already and then to decide the viability of the project going ahead" was misleading in circumstances where Mr Redelman had already carried out an assessment of the feasibility of the project. That assessment was considered sufficient for OZD to assume obligations under the Project Delivery Agreement to complete the development, and for Mr Redelman to give a guarantee of the performance of those obligations. Even if, as Mr Redelman said in cross-examination, OZD was "still looking" at the viability of the project, the statement conveyed an erroneous impression.
The letter sent by OZD to purchasers on 16 September 2016 should also be considered to form part of the negotiations with purchasers for mutual rescission. In each letter it was stated that OZD reiterated its undertaking that the entirety of the deposit and interest accrued to date would be paid to the purchaser "if they rescind now". Some of the letters contained a statement to the effect that OZD intended to extend the sunset date by 30 months. Some of the letters contained a statement to the effect that OZD would grant an extension of the sunset date by 30 months in exchange of the release of the deposit. These statements were in my view misleading. OZD had not formed any intention to extend the sunset date, let alone by 30 months, even if a purchaser agreed to the release of the deposit. Mr Redelman's evidence was only that extending the sunset date "was something that we were considering in exchange for the release of the deposit". Further, there would have been no basis to extend the sunset date by that period in any event. Having considered Mr Redelman's evidence, in particular that given by him in cross-examination, I have come to the conclusion that the statements about extending the sunset date by 30 months were intended to convey that it may be a very long time before the contracts were completed, thereby encouraging purchasers to agree to "rescind now". The evidence is clear that it was OZD's intention to make agreements to rescind contracts with as many purchasers as possible. When it was put to Mr Redelman that when the letters were sent OZD's real aim was to get the purchasers to rescind, he responded: Well, the Project Delivery Agreement allowed for it. We were well within our rights.
The terms of the s 66ZL(4) notices are set out above at [110]. The sub-section operates where a vendor is proposing to rescind under a sunset clause in an off the plan contract. It requires that a notice specify, first, why the vendor is proposing to rescind, and secondly, the reason for the delay in creating the lot that is the subject of the contract.
The notices in this case deal with the second matter under the heading "Reasons for the delay in completing the development". Reference is made to certain aspects of the history of the development from the point when SX Projects Pty Ltd was engaged as the builder. The focus is upon the placing of the company into administration and the effect that event had upon the ability of the vendor to complete the development by 31 December 2016. Reference is also made to the estimates given by the tenderers (Lahey Constructions and Growthbuilt) of the time required to complete construction, and their tender prices. It was stated that "as a direct consequence of the failure of SX Projects Pty Ltd", the vendor did not have sufficient funds to complete the development, and the development could not be completed by 31 December 2016. In essence, the failure of SX Projects Pty Ltd was identified as the reason for the delay in creating the lot.
Whilst that factor is undoubtedly of significance, other factors of significance were not mentioned, such as the matters which I consider amount to failures by the vendor to comply with cl 54.2 of the contracts. Section 66ZL(4) refers to "the reason" for the delay in creating the subject lot, but I do not think that should be read as requiring a single causal factor to be identified. The reason for the delay may be, and commonly will be, a combination of factors that operate to produce the delay. The vendor, who is presumed to be in a position to identify the reason, should provide a reasonably accurate and complete description of the reason for the delay. In that way the reason is specified for the purposes of s 66ZL(4).
The notices given in this case can be fairly criticised for not providing a complete description of the reason for the delay, even if the notices contained a reasonably accurate summary of the position that existed once SX Projects Pty Ltd went into administration.
The other matter to be dealt with in a s 66ZL(4) notice is why the vendor is proposing to rescind. The notices in this case deal with that matter under the heading "Reasons why SSF [the vendor] will be rescinding the Contract". The reasons which are set out concern the viability of the project (at least in its "current form"). Particular reference is made to increased costs of construction and substantially higher costs of construction finance. These were not truly reasons why the vendor was proposing to rescind. By entering into the Project Delivery Agreement in August 2016 the vendor effectively passed the burdens of the risks associated with those matters to OZD and Mr Redelman as the guarantor (see cll 2.1, 2.7, 5.1, 9.1, 13.2 and 13.3). Under the Project Delivery Agreement the vendor also agreed to allow OZD to institute proceedings in the vendor's name for orders allowing the contracts for sale to be rescinded. In fact, the vendor had no real interest one way or the other in whether the contracts remained on foot or were rescinded. OZD, on the other hand, had a real financial interest in bringing about the rescissions of the contracts for sale. Under the terms of the Project Delivery Agreement it had the ability to pursue rescissions, either by negotiating an agreement with the purchaser or taking proceedings in the vendor's name for an order under s 66ZL for permission to rescind. The reasons given in the notices as to why the vendor was proposing to rescind are more properly seen as reasons why OZD wanted to bring about rescission. The submission made by the vendor that OZD's reasons for wanting to have the contracts rescinded were irrelevant because it was not the vendor or a party to the contracts highlights the divergence between the content of the notices and the statutory requirement that notices specify why the vendor is proposing to rescind.
I should add that insofar as the notices can be seen as specifying OZD's reasons for wanting to rescind the contracts, they are again incomplete. No mention is made of OZD's position under the Project Delivery Agreement. Further, to the extent that the notices suggest that a reason for wanting to rescind is that the project was no longer viable in its current form, the notices were in my view misleading. Mr Redelman said in the course of cross-examination that by 18 October 2016 it had been decided that OZD would proceed with the project in its current form, and seek rescissions once the sunset date had passed. He also agreed that at that time he thought that without rescissions "we would make a builder's margin, which was 5%". The notices are apt to create a misleading impression that the project would not be proceeding in its current form due to its unviability.
I also note in this context that on 11 October 2016 OZD's solicitors sent a letter to the solicitors acting for the purchaser of apartment 103 in which it was stated that the construction "will not be able to be completed in its current form due to various factors". Even if OZD had not yet made its decision to proceed with the project in its current form, I do not accept that as at 11 October 2016 it held the opinion that the project would not be able to be completed in its current form. Accordingly this letter, which was sent as part of negotiations for a mutual rescission, can also be regarded as misleading.
The defendants made a number of complaints about failures on the part of the vendor to respond to requests made by purchasers for information about the project, particularly in 2016. There undoubtedly were failures of this nature (see, for example, at [93] above) although, as submitted by the vendor, this did not involve any breaches of contract. The same can be said in relation to the more general complaint about the vendor not keeping the purchasers informed about what was happening with the project.
In my opinion, the vendor can be considered to have acted unreasonably within the meaning of s 66ZL(7)(b) by the sending of the letters to purchasers on 18 August 2016 and 16 September 2016, and the service of the s 66ZL(4) notices on about 28 January 2017. Those communications contained misleading statements. The letters were sent by OZD pursuant to the authority conferred by the vendor under cl 11.1(c)(ii) of the Project Delivery Agreement and, as I have said, this conduct can be treated as conduct of the vendor capable of falling within s 66ZL(7)(b). Service of the s 66ZL(4) notices may not have been pursuant to the authority conferred by cl 11.1(c)(ii), but the notices were served with the authority of the vendor. Mr Kalowski deposed that on 27 January 2017 he authorised OZD's solicitors to write to the purchasers in those terms.
The vendor can also be considered to have acted unreasonably within the meaning of s 66ZL(7)(b) by failing to discharge its obligations under cl 54.2 of the contracts, with the result that the development was significantly delayed. That is so even if, as I have found, the evidence does not enable a conclusion to be reached that the breaches relevantly caused the failure to have the Strata Plan registered by 31 December 2016. I would add that even if the breaches were not considered to be unreasonable conduct for the purposes of s 66ZL(7)(b), they are in any case relevant matters to be taken into account.
It was not submitted, and I have not found, that the vendor acted in bad faith in any respect.

Section 66ZL(7)(c)

A number of factors can be seen as forming part of the reason for the delay in the creation of the lots the subject of the contracts for sale. I have already considered how delays that occurred in the carrying out of the development were caused by various failures on the part of the vendor to comply with its obligations under cl 54.2 of the contracts. I have concluded that delays totalling about 9 months can be attributed to those failures. That is a significant delay in the context of a project which in July 2014 was estimated to involve a construction period of little more than 12 months.
It is undoubtedly true, however, that the failure of SX Projects Pty Ltd also made a significant contribution to the delay in the period up to October 2016, when Parker Logan commenced work. That failure was an event entirely beyond the control of the vendor. It caused the progress of the construction work to be interrupted whilst alternative arrangements were made. About half of the 10 month period from December 2015 to October 2016 when no construction work was taking place can in my view be attributed to the failure of SX Projects Pty Ltd.
The lots were eventually created on 23 January 2018 when Strata Plan 96963 was registered. There does not appear to have been any substantial delay experienced in the period from October 2016 to January 2018, although there have since been delays in completing the works necessary for the issue of the Occupation Certificate.

Section 66ZL(7)(d)

This provision seems to assume that an application for an order under s 66ZL will be determined prior to the creation of the lot the subject of the contract. That will not always be the case, and is not the situation here. The subject lots were created on 23 January 2018. However, even if s 66ZL(7)(d) does not apply, I consider that the fact that the lots have been created is relevant to the determination of whether it is just and equitable in all the circumstances to make orders permitting the vendor to rescind the contracts for sale.

Section 66ZL(7)(e)

The table set out above at [114] demonstrates that each of the subject lots has increased in value since the date of the contract. The difference between the current values of the respective lots and the prices paid for the lots is set out below: Apartment Purchaser Purchase Price 17 July 2018 value Difference 102 First Defendant $725,000 $925,000 $200,000 103 Second Defendant $775,000 $950,000 $175,000 203 Third Defendant $899,000 $1.025m $126,000 301 Fourth Defendant $810,000 $1m $190,000 302 Fifth and Sixth Defendants $685,000 $850,000 $165,000 303 Seventh Defendant $925,000 $1.1m $175,000 403 Eighth and Ninth Defendants $859,000 $1.150m $291,000 501 Tenth Defendant $775,000 $1m $225,000 701 Eleventh and Twelfth Defendants $1.65m $1.975m $321,000

Section 66ZL(7)(f)

If rescission of the contracts for sale was permitted, the immediate effect on each purchaser would be that they would lose the benefit of a contract to purchase the subject lot for a price well below the current market value of the lot. The purchaser would instead receive a refund of the deposit paid, together with interest earned upon the deposit. A refund of stamp duty could also be obtained, but no interest would be paid on the refunded amount. Legal costs incurred by the purchasers in relation to the transaction would be wasted.
For most of the purchasers, losing the benefit of the contract would also cause considerable disappointment, given that they entered into the contracts with a view to living in the apartment, having chosen it as suitable for their own personal requirements. In some cases disappointment would also arise from the fact that the purchasers have waited a long time for the building to be constructed.
For a number of the purchasers, this was their first property purchase. Many of the purchasers are concerned that if their contract is rescinded they will face greater difficulty in finding a suitable replacement now that the market has moved higher.
The vendor submitted that the defendants were sophisticated purchasers, represented by solicitors, who knew at the time the contracts were entered into (prior to the introduction of s 66ZL) that the vendor could rescind if the Strata Plan was not registered by 31 December 2016. It was put that they took the risk that this could happen in a rising market, and failed to mitigate that risk by taking the opportunity to rescind when it was offered to them in late 2016 and early 2017. It was submitted that none of the defendants advanced cogent evidence of their financial position so as to establish that they would be incapable of re-entering the market to obtain a suitable replacement apartment.
I agree that none of the purchasers demonstrated an inability to obtain a suitable replacement apartment. However, the upward movement in the market since 2014 cannot be ignored. I accept that this factor renders it more difficult than it otherwise would be for purchasers to re-enter the market to acquire a comparable property. It is also true that the purchasers can be taken to have been aware of the possibility that the vendor could rescind if the Strata Plan was not registered by 31 December 2016. The purchasers should be taken to have been generally aware of the terms of the contracts. Nevertheless, I accept that for most of the purchasers, the contract was more than a mere financial transaction where risks and rewards are assessed on that basis alone. For these purchasers, entry into the contract was rather a means of pursuing social as well as economic goals, or what might be referred to as "lifestyle" choices. In a society where property ownership is highly valued and affords status to those who attain it, these considerations cannot be dismissed as insignificant or trivial. Considerations of that kind are present in various ways and to different degrees in relation to most of the purchasers.

Section 66ZL(7)(g) - other relevant matters

A matter of particular significance in this case is the position of the vendor following its entry into the Project Delivery Agreement. As submitted by the defendants, the agreement effectively means that the vendor no longer has any significant interest in the development, or this litigation. I stated earlier, in the context of the s 66ZL(4) notices, that the vendor has no real interest one way or the other in whether the contracts are rescinded. It is OZD which stands to benefit if rescission is permitted.
The vendor submitted that it was relevant to consider the evidence given by Mr Redelman about the likely financial outcome of the development for OZD. Mr Redelman's evidence is to the effect that due to increases in costs, OZD is facing very substantial losses, even if the contracts are rescinded and the lots are able to be sold for the expected higher prices. I have some doubt about whether these increased costs are to be borne by OZD as opposed to Parker Logan, but will make the assumption, favourable to the vendor's submission, that OZD bears that burden. In the circumstances where OZD carried the development to completion I agree that this is a relevant matter, but it needs to be considered in light of the fact that OZD, an experienced developer, entered into the Project Delivery Agreement after conducting a feasibility analysis that specifically took into account the possibility that the contracts would not be able to be rescinded.
It is also relevant to note that s 66ZL was enacted after the contracts for sale were entered into. The contractual framework was thus altered. I would observe, however, that a risk of legislative change is always present (even if unlikely), particularly in relation to a contact that envisages performance over a lengthy period. Of course, insofar as OZD is concerned, it was aware of the new legislation when it assessed the feasibility of the project and entered into the Project Delivery Agreement.
The vendor submitted that the purchasers, by paying their deposits, risked relatively little capital as compared to the vendor or OZD. That may be so, although it should be recognised that the deposits are nonetheless substantial sums ranging from $68,500 to $165,000. Moreover, it should not be overlooked that the achievement by a vendor of "pre-sales", that is, binding contracts for sale involving payment of substantial deposits, plays an important role in the facilitation of developments such as this. There is evidence that in this case the provision of finance by the National Australia Bank was conditional upon the vendor securing a certain number of pre-sales.
I have already dealt with the issues surrounding the conduct of the vendor. Those issues may be seen to fall within s 66ZL(7)(b) and/or s 66ZL(7)(c), but in any event can be considered under this heading.
The increased values of the lots the subject of the contracts has also been dealt with above. The vendor suggested that s 66ZL(7)(e) might not encompass the magnitude of any increase in value of a lot. I doubt that is so, but if that is the case it is another relevant matter that can be considered to fall under this heading.

Section 66ZL(7)(h)

There are no other matters prescribed by the regulations to be taken into account.

Is it just and equitable in all the circumstances to order that the vendor may rescind?

In order to be able to rescind any of the contracts for sale, the vendor must obtain an order permitting it to do so. The Court may only make such an order if the vendor satisfies the Court that making the order is just and equitable in all the circumstances. In determining that question the Court must have regard to the matters referred to in s 66ZL(7).
An order is sought in respect of each of the nine contracts the subject of the proceedings. The question must therefore be answered separately with respect to each contract. As noted earlier, however, in practical terms there are few significant differences in the way each of the s 66ZL(7) factors affects the assessment pertaining to particular contracts. That is the case even in relation to s 66ZL(7)(f). In my view, whilst there are differences concerning the effect rescission would have on the respective purchasers, none leads to any different outcome for any purchaser.
The focus of the enquiry is a requested exercise of a contractual right of rescission of a particular kind. That is to say, a right of rescission under a sunset clause in an off the plan contract. In the present case, a right of rescission of that nature arose under cl 54.5 of each contract once the Strata Plan was not registered by 31 December 2016. The vendor served notices under s 66ZL(4) on about 28 January 2017 and commenced these proceedings on 11 May 2017.
I have considered the terms of the nine contracts (which do not materially differ), including cll 54.2 and 54.5. I have found that the vendor failed in some respects to discharge its obligations under cl 54.2, insofar as the provision required it to cause the Development Activities to be carried out with all due expedition. I have further found that these failures caused significant delay in the development. The evidence showed that delays totalling about nine months can be attributed to those failures. The evidence did not in my view enable a conclusion to be reached that the breaches of cl 54.2 relevantly caused the failure to have the Strata Plan registered by 31 December 2016 such as would found a successful challenge to the exercise of the right of rescission at general law. However, as I have endeavoured to explain, s 66ZL relieves a purchaser from needing to mount a challenge of that nature to the exercise of a right of rescission under a sunset clause. A vendor who seeks to exercise such a right is required by s 66ZL to approach the Court and seek an order permitting the rescission. One of the factors to be taken into account in considering whether to make an order is the reason for the delay in creating the lot the subject of the contract. The vendor is of course the party to the contract best placed to adduce evidence to explain the delay.
That the vendor in this case was at various times in breach of its obligations under cl 54.2, and that those breaches caused considerable delay to the development, is a factor of considerable weight even if the evidence does not allow a conclusion that would at general law preclude the exercise of the right of rescission. I consider that the breaches were serious, and they caused significant delay. As I have said, I think that the breaches amount to unreasonable conduct within s 66ZL(7)(b), but the breaches are in any event relevant matters to take into account. Clause 54.2 was an important part of the bargain struck between the vendor and the purchasers. I will add that I accept that in the cases of some of the purchasers, the delay in the project generally would add to their disappointment in the event that rescission was permitted.
The vendor submitted that this was not a case (of the type referred to in the Second Reading Speech) where a developer has manipulated events or manufactured delays so as to obtain a commercial advantage. I accept that is so, but I do not agree that s 66ZL is really only directed to conduct of that type. Section 66ZL(7)(c) makes it clear that the reason for delay is a relevant matter that must be considered. It is not restricted to delay occasioned by particular types of conduct. I have considered the various factors that have contributed to the delay in the registration of the Strata Plan, including the failure of SX Projects Pty Ltd which itself made a significant contribution to the delay.
I have found that certain letters and notices that contained misleading statements were sent to the purchasers. In my view, the sending of these communications was conduct of the vendor, and was unreasonable. Of course, at least as far as the defendants are concerned, the misleading communications did not induce them to change their positions.
The subject lots are each valued at amounts that are well above the contract prices, albeit that the increases in value (both in absolute and proportionate terms) differ as between the various contracts. The defendants submitted (again by reference to the Second Reading Speech) that where a property has increased in value it is prima facie unfair to allow rescission. I do not adopt that approach, which I think entails adding a gloss to the words of the statute. An increase in value is but one of a number of factors to consider, even if it may in some cases be a factor of great significance. The loss of the benefit of each of the contracts in this case would deprive the purchasers of a valuable asset. I regard this as another factor of considerable weight. This loss is not counter-balanced by the refunds that the purchasers would receive following a rescission.
The disappointment that would be suffered by most of the purchasers if rescission is permitted is of lesser significance. So, too, is the waste of legal costs that would be occasioned by a rescission. Leaving those matters aside for the moment, I consider that rescission would cause each of the purchasers to be affected to their financial detriment. That detriment should be regarded in each case as of real substance. I also think that the upward movement in the market since 2014 would make it more difficult than it otherwise would be for the purchasers to acquire a comparable property.
On the other hand, denying permission to rescind would not bring about any financial detriment to the vendor. OZD is the entity that stands to be affected by the Court's determination as to whether rescission should be permitted. OZD stands to benefit if rescission is permitted because under the terms of the Project Delivery Agreement it would gain the benefit of any enhanced sale prices. Adopting, as a guide, the sum of the differences between current value and purchase price under the contracts, the gain to OZD might be in the order of about $1.86 million. Whether that gain would go towards reducing losses, rather than augmenting gains, seems to me to be of little moment. The fact is that a benefit of that order may be captured by OZD if rescission is permitted, but denied to it if rescission is not permitted.
I accept that this is a relevant matter to be considered. OZD is directly responsible for the completion of the development, and it assumed commercial risks accordingly. However, as noted earlier, it did so after conducting a feasibility analysis that specifically took into account the possibility that the contracts would not be able to be rescinded. OZD was aware of the new legislation when it entered into the Project Delivery Agreement. Moreover, there is force in the view, advanced by the defendants, that in any case the position of OZD does not differ in substance from that of any builder who agrees to a fixed price contract. In these circumstances, I do not afford much weight to this factor.
I have taken into account the various other matters referred to earlier in these reasons, including that s 66ZL was enacted after the contracts were entered into, the facilitative role of pre-sales in developments of this kind, and the fact that after the failure of SX Projects Pty Ltd the vendor took steps that eventually resulted in an agreement pursuant to which an experienced developer undertook to complete the project. I have also taken into account the fact that the subject lots now exist. The Strata Plan has been registered and an Occupation Certificate has been issued. There appears to be no impediment to the vendor proceeding to complete the contracts.
Having taken all of the s 66ZL(7) factors into account, and applied them to each of the nine contracts for sale, I have in each case come to the conclusion that the vendor has failed to satisfy the Court that making an order permitting rescission of the contract is just and equitable in all the circumstances. In my opinion it would not be just and equitable to permit the vendor to rescind any of the contracts, particularly in light of the vendor's conduct that made a considerable contribution to the delay in the development, the loss to the purchasers of the valuable benefit of the contact if rescission was permitted, and the fact that the vendor would not itself suffer any financial detriment if rescission was not permitted.
For the above reasons the vendor's Statement of Claim, seeking orders permitting rescission under s 66ZL of the Conveyancing Act, will be dismissed. It follows from that conclusion that the purchasers have not unreasonably withheld their consent to the rescission of their contracts. Accordingly, s 66ZL(8) operates to make the vendor liable to pay the purchasers' costs of the proceedings. The Court will also make costs orders to that effect. The defendants submitted that s 66ZL(8) provided for the purchasers' costs to be paid on an indemnity basis. The Court has not received full argument on this point, but my initial impression is that the sub-section does not so provide. It remains open to the defendants (or the vendor) to make an application within 14 days to vary the costs orders if that is considered necessary.

Amendments 26 September 2018 - Change of spelling for Counsel. 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: 26 September 2018

Conveyancing Amendment (Sunset Clauses) Act 2015(NSW)

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