Court of Appeal (WA)|2016-10-25|Before: Buss P, Murphy JA, Mitchell JA

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [2016] WASCA 177 (25 October 2016)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [2016] WASCA 177

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [No 3] [2015] WADC 115

Strata titles - 'Off the plan' contract - Purchaser protection provisions - Whether use restriction on proposed strata plan varied - Distinction between use restriction endorsed on strata plan and restrictions imposed by local planning scheme - Whether 7.7% increase in floor area a difference in a material particular and therefore a notifiable variation - Whether vendor breached implied term of good faith requiring vendor to 'honestly comply with the law' or engaged in unconscionable conduct - Whether purchaser's right to avoid contract extinguished by vendor's termination for breach of contract

Australian Horizons (Vic) Pty Ltd v Ryan Land Co Pty Ltd [1994] VicRp 70; [1994] 2 VR 463

Bankmist Holdings Pty Ltd v Azina Holdings Pty Ltd [2009] WASC 230

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Ellison v Lutre Pty Ltd [1999] FCA 399; (1999) 88 FCR 116

Ethnic Interpreters and Translators Pty Ltd v Sabri-Matanagh [2015] WASCA 186

Harvey Fields Private Estates Pty Ltd v 33 Malcolm Street Pty Ltd [2012] WASC 218

Heyman v Darwins Ltd [1942] AC 356

Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409

Landmark Property Enterprise Pty Ltd v Monash Property Developments Pty Ltd [2015] VSC 266; [2015] V Conv R 54-868

Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211; (2008) 38 WAR 276

McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457

Re Dingjan; Ex parte Wagner (1995) 183 CLR 323

Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147

Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102

1 In 2007, the respondents, Mr and Mrs Jorgensen, entered into a contract with the appellant, Strzelecki Holdings Pty Ltd, for the purchase of a proposed strata-titled apartment 'off the plan'. The registered strata plan differed in a material particular from the strata plan proposed by the contract, in that the area of common property shown on the registered plan was reduced by 266 sqm. There was no dispute that this was a notifiable variation within the meaning of s 69C of the Strata Titles Act 1985 (WA) (Act) and that Strzelecki was required to inform the Jorgensens of that notifiable variation. When Strzelecki failed to do so, s 69D(1) of the Act gave the Jorgensens the right to avoid the contract.

2 Before the Jorgensens exercised their right to avoid the contract, Strzelecki terminated the contract for the Jorgensens' failure to settle the sale of the apartment within the contractually stipulated time. However, that termination did not extinguish the Jorgensens' statutory right to avoid the contract, which they subsequently exercised. On this basis, the trial judge correctly dismissed Strzelecki's claim for damages for breach of contract and declared that the Jorgensens had avoided the contract and were entitled to a return of their deposit.

3 Therefore, while Strzelecki has established a number of its grounds of appeal concerning other aspects of the trial judge's reasoning, it has not succeeded in impugning the primary court's orders. Strzelecki's appeal against those orders must be dismissed.

4 On 7 May 2007, the Jorgensens entered into an agreement with Strzelecki for the purchase of apartment 14 at The Oceanic Retreat in Mandurah (Contract). At that time The Oceanic Retreat was a proposed apartment development of a four level building with a basement car park, ground floor commercial tenancies and 56 apartments on levels 1 and 2 which were proposed for 'short-term accommodation'. The purchase price for apartment 14 was $650,000, with a $65,000 deposit payable within 30 days. The Contract was expressed to be conditional upon certain events occurring. One of those events was the registration of the proposed strata plan annexed to the Contract (Contract Plan) within 48 months of the contract date. The Contract also contained a condition that:

The purchaser acknowledges that the property is zoned tourism which limits occupancy by any individual to a maximum of 90 days.

5 By 2008, the market value of the apartments had collapsed and short-stay apartments were no longer selling. Between 2008 and 2010, Strzelecki took various steps seeking to remove the short-stay restriction on the use of the apartments which it had not sold. This included lodging strata plans endorsed with a restriction of use that applied only to the sold apartments with the Department of Land Information (Landgate). Those plans were never registered under the Act. The plan which was ultimately registered was lodged with Landgate on 17 December 2010 (December Plan). The December Plan was endorsed with a restriction of use applying to all apartments, that they must not be occupied by the proprietor or any other person for periods which total three months in any year.

6 The Oceanic Retreat building was constructed and, on 6 January 2011, Strata Plan 58148 was registered under the Act (Registered Plan).

7 On 17 January 2011 Strzelecki advised the Jorgensens that a separate certificate of title had issued for apartment 14. Settlement was due within 15 business days of the issue of the title. On 22 March 2011, Strzelecki advised that it was ready, willing and able to settle the sale of apartment 14. The sale did not settle and, on 1 April 2011, Strzelecki issued a default notice under the Contract. On 21 April 2011, Strzelecki gave the Jorgensens notice purporting to terminate the Contract for breach.

8 On 1 June 2011, Strzelecki commenced the primary proceedings in the District Court claiming damages and a declaration that it was entitled to payment of the Jorgensens' deposit. The Jorgensens resisted the claim for damages on several bases. The Jorgensens contended that Strzelecki had breached s 69C of the Act, giving them a right to avoid the Contract under s 69D of the Act. The Jorgensens also contended that Strzelecki's attempts to remove the short-stay restriction on some of the apartments were in breach of an implied contractual term of good faith and were unconscionable. The Jorgensens counterclaimed, primarily seeking a declaration that the Contract had been terminated and the deposit should be returned to them.

9 The trial judge found that the Contract contained an implied term that the parties act in good faith, which required each to comply with honest standards of conduct [195]. He found that, on 12 November 2011, Strzelecki lodged a proposed strata plan (November Plan) with Landgate that differed in material particulars from the Contract Plan [267], [386]. The differences found by the trial judge were:

the 'change to the use restriction';
the incorporation of 266 sqm from common property in the basement carpark into the ground floor commercial strata lot (Lot 57); and
the increase in the area of the strata lot for apartment 14 from 92 sqm to 98 sqm.

10 The trial judge found that the lodgement of the November Plan with Landgate gave rise to an obligation under s 69C of the Act for Strzelecki to give the Jorgensens full particulars in writing of the notifiable variation as soon as possible after Strzelecki became aware of the variation [275]. He found that Strzelecki did not notify the Jorgensens of the variation [276] - [277], giving rise to a right for the Jorgensens to avoid the Contract by notice in writing given to Strzelecki prior to settlement of the Contract [284].

As matters transpired, the Jorgensens were called upon to settle their contract on the basis that Strzelecki was 'ready, willing and able' to settle in circumstances where they were ignorant, by reason of Strzelecki's conduct, of the existence of a notifiable variation and the existence of a right to avoid the contract. In addition I conclude that Strzelecki was in breach of its duty of good faith which required that it honestly comply with the law.

In those circumstances the Jorgensens were, in my view, at a special disadvantage. The conduct of Strzelecki, giving rise to those circumstances was, in my view, unconscionable. The situation is not, in my view, ameliorated by the fact that when the Jorgensens were called upon to settle, the use restriction applicable to the strata plan that was ultimately registered was not different to that in the strata plan which accompanied the contract. Nor was it ameliorated by the fact that the Jorgensens, by their own endeavours, independent of Strzelecki, discovered the information which should have been the subject of a fully particularised written notice by Strzelecki provided months earlier [307] - [308].

12 The trial judge concluded that Strzelecki's purported termination of the Contract when it was 'still in breach in that it had not provided the information required of it' under the Act was 'wrongful' [309] - [311]. He found that there was no valid termination of the Contract by Strzelecki and that the Jorgensens' right to avoid the Contract was not extinguished [312].

Further, in my view, the conferral of a statutory right to avoid the contract necessarily casts a decision-making role on the purchaser as to whether or not to exercise that right. In other words, the purchaser must elect whether or not to do so [313].

14 After expressing the view that there had been no election because the Jorgensens had no knowledge that the right had accrued to them, the trial judge said:

It follows that the purported termination of the contract by Strzelecki did not and could not, as a matter of law, have extinguished the Jorgensens' right to avoid the contract [314].

15 The trial judge found that the Jorgensens gave notice in writing which avoided the Contract on 6 September 2011, when they filed their amended defence in the primary proceedings [369].

16 The trial judge dismissed Strzelecki's action, declared that the Contract was avoided by the Jorgensens by notice in writing as at 6 September 2011 and ordered that the deposit and interest thereon be refunded to the Jorgensens.

17 On our reading of the trial judge's reasons summarised above, there were three separate bases for his decision:

Strzelecki's purported termination of the Contract was ineffective because Strzelecki was in breach of its implied contractual obligation of good faith, by failing to honestly comply with s 69C of the Act.
Strzelecki's purported termination of the Contract was ineffective because Strzelecki acted unconscionably in calling on the Jorgensens to settle the Contract in circumstances where they were ignorant, by reason of Strzelecki's conduct, of the existence of a notifiable variation and their right to avoid the Contract.
In the absence of an election by the Jorgensens, the purported termination of the Contract by Strzelecki did not and could not, as a matter of law, have extinguished the Jorgensens' right to avoid the Contract.

Each of those bases depends on the existence of a failure by Strzelecki to comply with an obligation under s 69C of the Act to give the Jorgensens full particulars of a notifiable variation of the Contract Plan.

18 Strzelecki appeals against the judgment on 11 grounds. As the grounds are expressed at some length, and it has not proved necessary to resolve all of the grounds, we will not set them out in full here. We will deal in more detail with particular grounds when resolving them.

19 In essence the grounds challenge the finding that a notifiable variation occurred by reason of the 'change to the use restriction' and the variation in the area of the strata lot for apartment 14. The grounds also challenge all three bases on which the trial judge held that Strzelecki's purported termination of the Contract on 21 April 2011 did not preclude the Jorgensens from avoiding the Contract on 6 September 2011.

20 The grounds of appeal do not challenge the conclusion that the transfer of 266 sqm of common property to Lot 57 was a notifiable variation, or the conclusion that Strzelecki did not give the Jorgensens written notice containing full particulars of that notifiable variation. To that extent at least, the appeal must proceed on the basis that Strzelecki did fail to comply with its obligations under s 69C of the Act.

21 During the course of the appeal hearing, Strzelecki applied for and was granted leave to amend its grounds of appeal to add grounds 6A and 10, discussed below. We granted leave because the Jorgensens were not materially prejudiced by the late grant of leave to introduce grounds which appeared reasonably arguable, so long as they were given an opportunity (which was granted) to make supplementary written submissions in relation to the new grounds.

22 We shall outline the statutory framework before dealing with the challenges to each aspect of the trial judge's conclusions.

23 The Act relevantly provides for land to be subdivided into lots and common property by the registration of a strata plan.[1] A strata plan is defined as a plan that:

(a) is described as such in its title or heading; and

(b) shows the whole or any part of the land comprised in the plan as being divided into 2 or more lots; and

(c) complies with section 5[.]

24 Section 5 of the Act requires a strata plan to contain a location plan and floor plan, a statement in respect of certain lot boundaries and a statement containing such particulars as may be necessary to identify the title to the parcel. The strata plan must have endorsed on it the name of the strata scheme, the address of the parcel and contain various other prescribed features. The strata plan must also be accompanied by a schedule specifying the proposed unit entitlement of each lot and the proposed aggregate unit entitlement.

25 Common property is held by the proprietors of lots in the strata plan as tenants in common in shares proportional to the unit entitlement of their respective lots.[2]

26 A lot in a registered strata plan and its appurtenant share of common property may be the subject of a separate certificate of title issued under the Transfer of Land Act 1893 (WA), and dealt with as land held under that Act.[3]

27 A strata plan lodged for registration shall be accompanied by specified certificates or permits including, where required, a certificate of the Western Australian Planning Commission's approval of the strata plan under s 25 of the Act.[4] A strata plan lodged for registration may also include a management statement which, on registration, sets out the by-laws of the scheme.[5] The by-laws of a scheme have effect as if they were mutual covenants under deed between the strata company, the proprietors and the occupiers of lots to comply with the by-laws.[6]

Restriction on use by endorsement of a strata plan

28 Section 6(1) of the Act relevantly provides:

A [strata plan] lodged for registration under this Act may, by an appropriate endorsement that delineates the area or space affected and refers to this section, restrict the use to which the parcel or part of the parcel may be put.

Use by any proprietor, occupier or other resident of any lot that is part of the parcel in a manner that contravenes such a restriction is an offence against s 6(2) of the Act. The restriction may be added to, removed or varied by resolution without dissent of the strata company.[7]

29 Part V of the Act, which is entitled 'Protection of Purchasers', requires certain information to be given to the purchasers of a lot or proposed lot in a strata scheme. Section 69(1) of the Act requires that the purchaser be given the notifiable information provided for by s 69A and s 69B of the Act before he or she signs a contract to buy the lot or proposed lot. That information may be provided in a prescribed form or by ensuring that the notifiable information forms part of the contract.[8] In the case of a proposed lot, the information includes a copy of the proposed strata plan, the proposed unit entitlement of every lot within the scheme, the aggregate unit entitlement and the proposed by-laws of the scheme so far as they modify the by-laws set out in sch 1 and sch 2 of the Act.[9]

The vendor under a contract to sell a lot or proposed lot shall by notice in writing given to the purchaser inform the purchaser of full particulars of any notifiable variation.

Section 69C(2) of the Act requires this notice to be given as soon as the vendor becomes aware of the variation.

31 Section 69C(3) of the Act defines when a notifiable variation occurs, by reference to various events occurring before the registration of the purchaser as proprietor of the lot or proposed lot or earlier avoidance of the contract. Most relevant for this appeal is s 69C(3)(c), which provides that a notifiable variation occurs if:

the registered or proposed [strata plan] is varied in a material particular or the registered [strata plan] differs in a material particular from the proposed [strata plan.]

32 Section 69D of the Act provides for various circumstances in which a purchaser may 'avoid' a contract for the purchase of a strata lot or proposed strata lot. A right to avoid a contract may arise in relation to information which a vendor is required to provide under either s 69 or s 69C of the Act. As s 69C is presently relevant, it is convenient to focus the following summary on that provision.

33 The right to avoid a contract under s 69D may arise both where a vendor gives a purchaser information which substantially complies with s 69C of the Act at the required time, and where a vendor fails to do so.

34 Section 69D(2) of the Act provides for a right to avoid a contract which arises when a vendor gives a purchaser information which substantially complies with s 69C of the Act at the required time. In those circumstances, the purchaser has a right to avoid the contract within seven working days of being given the information, but only where:

the purchaser has been materially prejudiced (proof of which shall lie on him) by any matter referred to in the notice and has not agreed to be bound by that matter.

35 Section 69D(1) of the Act provides for a right to avoid a contract when a vendor fails to give a purchaser information which substantially complies with s 69C of the Act at the required time. In those circumstances, the purchaser has a right to avoid the contract by notice in writing given to the vendor before the settlement of the contract. For this purpose, settlement of the contract relevantly occurs when the purchaser pays the balance of the purchase price in exchange for the documents of title.[10] This right to avoid is subject to s 69D(3) of the Act, which applies where the vendor gives a purchaser information which substantially complies with s 69C of the Act after the required time. When s 69D(3) applies, the purchaser must exercise the right to avoid the contract within seven working days after the vendor gives the information to the purchaser.

36 The right which the Jorgensens claim in the present case is that provided for by s 69D(1) of the Act.

Upon the avoidance of a contract under section 69D, the vendor is liable to repay to the purchaser all moneys paid by the purchaser under the contract and such moneys shall be recoverable, by action as for a debt, by the purchaser accordingly.

Except as provided by sections 69D, 70(3) and (4) and 70A, this Part does not apply so as to render any contract illegal or void or to empower any party to avoid the contract.

39 Section 70A of the Act provides:

(1) A contract or arrangement is of no effect to the extent that it purports to exclude or restrict the operation of this Part or the rights and remedies conferred on a purchaser by this Part.

(2) A purported waiver of a right, remedy or benefit conferred on a purchaser by this Part is of no effect.

Was the 'change to the use restriction' a notifiable variation?

40 As noted above, the trial judge found that the lodgement of the November Plan with Landgate was a variation of the Contract Plan in a material particular by reason of the 'change to the use restriction'. The trial judge found that Strzelecki failed to give notice of that notifiable variation as required by s 69C, giving rise to a right for the Jorgensens to avoid the Contract under s 69D(1) of the Act which subsisted even though the Registered Plan restricted the use of all strata lots for the apartments.

41 While a number of grounds challenge this conclusion, it is only necessary to deal with ground 6A, which contends:

The trial judge erred at [266] by finding that on 12 November 2010, the appellant lodged a version of the strata plan that differed from the [Contract Plan] because the use restriction had been removed from 14 of the 56 apartments, when the [Contract Plan] did not include any use restriction.

Planning restrictions on use as permanent accommodation

42 It is convenient to begin consideration of this ground of appeal by identifying the source of the planning restrictions on the use of strata lots in The Oceanic Retreat at the date of the Contract, and how changes in those restrictions came about.

43 The subject land is within the scheme area of City of Mandurah District Town Planning Scheme No 3 (Scheme).[11] The Scheme is continued in force as a local planning scheme having the force of law as if enacted by the Planning and Development Act 2005 (WA).[12]

44 The subject land is located in the 'Mandurah Ocean Marina Development Zone' of the Scheme. Clause 4.12.2.1 of the Scheme relevantly provided that, where an Outline Development Plan had been prepared by the Council and approved by the Commission:

The permissibility of uses ... shall be in accordance with the land use intentions ... specified in the Outline Development Plan.

Clause 4.12.3.1.1 of the Scheme relevantly provided that, where an Outline Development Plan had been prepared by the Council and approved by the Commission:

[S]ubsequent development shall not be determined by Council unless the criteria contained in the approved Outline Development Plan ... are complied with.

4.12.3.1.2 Prior to determining land use applications not provided within an Outline Development Plan or where a proposal is not strictly in accordance with the terms, conditions and provisions of an Outline Development Plan ... Council will be required to advertise and deal with the proposal as set in Clause 7.3.

4.12.3.1.3 All subdivision and further development shall accord with an approved Outline Development Plan.

45 Clause 7.7.1 of the Scheme provided for a requirement for planning approval under the Scheme in the following terms (subject to presently immaterial exceptions):

In order to give full effect to the provisions and objectives of this Scheme, all development, including a change in the use of land, except as otherwise provided, requires the prior approval of the Council in each case. Accordingly, no person shall commence or carry out any development, including a change in the use of any land, without first having applied for and obtained the planning approval of the Council pursuant to the provisions of this Part.

46 Development (including a change in the use) of land in contravention of this requirement for planning approval was an offence against cl 9.2.1 of the Scheme and s 162 and s 218 of the Planning and Development Act.

47 Clause 7 of the Scheme goes on to provide for the advertising and determination of applications for planning approval.

48 At the time the Contract was made, an approved Outline Development Plan designated the subject land 'Tourist Commercial Mixed Use (100% Tourist)'.[13]

49 Planning approval in respect of The Oceanic Retreat was granted by the City of Mandurah on 14 July 2005. That consent approved the use of the subject land for the purposes of:

Short Stay Accommodation, Cafes, Restaurants, Tapas Bar and Microbrewery (GB 217).

50 Under the above provisions, the position at the date of entry into the Contract was as follows. Planning approval had been granted for the use of the subject land for the above purposes, which did not include the use of apartments as permanent dwellings. The owner or occupier of one of the apartments in The Oceanic Retreat would commit an offence if he or she used the apartment as a permanent dwelling without first obtaining planning approval under the Scheme. The designation of the subject land under the Outline Development Plan would either have precluded, or at least made unlikely, the grant of planning approval for use of the apartments as a permanent dwelling if an application for planning approval had been made.

51 As noted above, the Contract contained a special condition in which the Jorgensens acknowledged that apartment 14 was 'zoned tourism'. That special condition is in the form of an acknowledgment by the purchaser of a planning restriction which applies to the land, rather than a promise by the vendor to secure a result.

52 The proposed management statement incorporated into the Contract contained proposed by-law 34, which provided that no proprietor will occupy or permit any other person to occupy lots 1 - 56 for periods that total 3 months or more in any 12-month period.

53 The Contract Plan did not contain any endorsement under s 6 of the Act. That is, the Contract Plan did not impose any restriction on the uses to which the apartments in The Oceanic Retreat could be put.

54 Counsel for the Jorgensens submitted that, when the Contract is viewed as a whole, it should be construed as proposing for registration of a strata plan that restricted the use of all apartments (appeal ts 91 - 92). We take that to mean that the Contract implicitly provides for the registered strata plan to be endorsed under s 6 of the Act to preclude permanent occupancy of the apartments. We do not accept that such a term should be implied in the Contract. On no view was the inclusion of such an implied term necessary to give business efficacy to the Contract.[14] There was no need for an endorsement on the strata plan to restrict use which was, at the time of entry into the Contract, prohibited by the planning legislation and proposed by-laws.

55 The trial judge made a number of findings about the steps which Strzelecki took to secure an amendment to the approved Outline Development Plan under the Scheme. Strzelecki applied to the City of Mandurah for an amendment to change the use restriction applicable from 100% tourist accommodation to a ratio of 70/30 short-stay tourist and permanent accommodation. Strzelecki actively canvassed the City of Mandurah and Tourism WA in support of that application, and advertised apartments for sale on the basis that they might be permanently occupied [241].

56 The result of Strzelecki's efforts was the approval of an amended Outline Development Plan by the Council on 25 May 2010 and by the Commission on 7 July 2010. Under the amended plan, the subject land was designated 'Tourist/Commercial (75% Tourist; 25% Residential)'.[15]

57 The November Plan was lodged with Landgate on 12 November 2010. The November Plan was endorsed with the following use restriction:

Use Restriction

Pursuant to [s 6(1) of the Act], Lots 1 to 7 inclusive & 14 to 28 inclusive are designated as short term stay accommodation by the City of Mandurah and must not be occupied by the proprietor or any other person for periods which total three months in any year.

An endorsement in the same terms restricted the use of lots 29, 32 - 35 and 42 - 56. The apartments to which the proposed use restriction applied were those that Strzelecki had already sold.

58 The trial judge understood it to be common ground that the November Plan differed from the plan provided for in the Contract 'in that the use restriction had been removed from 14 of the 56 apartments', and that this was a difference in a 'material particular' [266] - [267].

59 However, this finding was in error. It assumes that the Contract Plan restricted the use to which apartments in The Oceanic Retreat could be put. As we have noted, the Contract Plan was not endorsed with any restriction of use. The effect of the endorsement on the November Plan, if that plan had been registered, would have been to impose a new restriction of use on lots 1 - 7, 14 - 29, 32 - 35 and 42 - 56. However, neither the Contract Plan nor the November Plan contained any endorsement restricting the use of lots 8 - 13, 30 - 31 or 36 - 41. To the extent that there was any change to a restriction on the use of the latter lots, that was the result of the amendment of the Outline Development Plan under the Scheme. The amendment of the Outline Development Plan was not a 'notifiable variation' for the purposes of s 69C of the Act.

60 There was no evidence of any change to the management statement contained in the Contract, and it was common ground that the management statement lodged with the Registered Plan was in materially the same terms as that annexed to the Contract.[16]

61 Neither party contended that the addition of an endorsement on the strata plan restricting the use of lots 1 - 7, 14 - 29, 32 - 35 and 42 - 56 involved a change in a material particular by reason of its impact on the proprietors of those lots. Given the restrictions in place at the time of entry into the Contract, which were contemplated by the Contract, the addition of an endorsement that would impose the same restriction on a lot in the strata scheme could not be regarded as a material change. The Jorgensens' complaint rather concerned the removal of a restriction. As we have noted, to the extent that restrictions were removed, the removal did not occur by the proposed strata plan being varied.

62 For the purpose of dealing with ground 6A we will assume (without deciding) in the Jorgensens' favour that the lodgement of the November Plan involved the variation of a proposed strata plan for the purposes of s 69C(3)(c) of the Act. On that assumption, the variation did not involve a use restriction being removed from any of the apartments. The trial judge erred in finding that the November Plan differed from the Contract Plan in a material particular in respect of the change of use restriction. The addition of the restriction of use endorsement on the November Plan could not constitute a notifiable variation for the purposes of s 69C of the Act.

63 Ground 6A is made out. It is therefore unnecessary to deal with Strzelecki's other grounds challenging the trial judge's findings concerning the alleged change in use restriction.

Was the change in the lot area of lot 14 a notifiable variation?

64 The Contract Plan provided for lot 14 to have an area of 91 sqm, comprising 61 sqm of apartment, a 15 sqm balcony and a 15 sqm parking bay. Special condition 7 of the Contract provided that the Jorgensens:

must not make any objection, requisition or claim for compensation nor terminate this Contract in respect of any variation in the actual floor area of the property as shown on the Strata Plan as registered with [Landgate] of less than TEN PER CENT (10%) to the floor area of the Property shown on the Proposed Strata Plan.

Clause 7 also provided for an adjustment in the purchase price if the area varied from that indicated in the floor plan by more than 10%.

65 The Registered Plan showed lot 14 in the same configuration as the Contract Plan. However, the area of the lot was 98 sqm, comprising 69 sqm of apartment, a 13 sqm balcony and a 16 sqm parking bay. The apartment was 8 sqm larger, the balcony 2 sqm smaller and the parking bay 1 sqm larger than shown on the Contract Plan. The percentage increase in the total area of the strata lot for apartment 14 was 7.7%. The change in area did not affect the unit entitlement of the strata lot for apartment 14.

66 The trial judge stated his finding in the following terms:

As to the issue of the size of apartment 14, had there been a 7.69% decrease in its size, there could be no argument that it was a notifiable variation. In my view a variation, being an increase in area of the same magnitude, must also be regarded as a variation in the proposed strata plan in a material particular [385].

The trial judge erred in fact and law in finding that the [Jorgensens] were entitled to avoid the Contract after 21 April 2011 by reason of the 7.6% increase in the dimensions of apartment 14, as that was not a variation to a proposed strata plan, alternatively it was not a variation in a material particular.

68 The ground is cast in terms of a finding by reference to the November Plan, in which the area of the strata lot for apartment 14 was also 98 sqm. The argument that the increase in area contained in the November Plan was not a variation to a proposed strata plan is of no moment in the present case, as the Registered Plan provided for the same change in area. The change in the area of lot 14 was clearly a difference between the proposed and registered strata plan for the purposes of s 69C(3)(c) of the Act.

69 The contentious question is whether the Registered Plan differs 'in a material particular' from the Contract Plan; ie whether the change in area to Jorgensens' lot 14 is 'material' for the purposes of s 69C(3)(c) of the Act.

70 A similar issue arose in Harvey Fields Private Estates Pty Ltd v 33 Malcolm Street Pty Ltd.[17] In that case one of the issues Kenneth Martin J had to consider was whether an increase in the aggregate floor area of a residential unit from 177 sqm to 190 sqm (7.34%) constituted a change in a material particular giving rise to a notifiable variation under s 69C(3)(c) of the Act. In the context of that case, he held that the change was material. In reaching that conclusion, Kenneth Martin J was influenced by a contractual provision equivalent to special condition 7 of the Contract, which provided for a 5% threshold for changes in area, and other provisions which operated by reference to a variation in floor area of more than 5% [123] - [124]. In assessing whether the change in area was material, he regarded the 5% threshold figure found in the special conditions as an 'objectively significant threshold for the floor area increase' [155].

71 We accept that an increase, as well as a decrease, in the area of a strata lot may constitute a material difference. The question of whether the purchaser has been 'materially prejudiced' by the change arises, under s 69D(2)(b) of the Act, at a later stage if notice has been given in substantial compliance with s 69C of the Act. In considering whether notice is required, the question is only whether there has been a change in a material particular and the fact that an increase in area may be to the benefit of a purchaser does not preclude a conclusion that there has been such a change. It is also clear that not every change in the area or configuration of a strata lot requires notification. The change must be in a 'material particular', and whether a change in area or configuration is material is a question of fact and degree.

72 In answering that question, a contractual provision such as special condition 7 of the Contract is a relevant, but not controlling, consideration. A clause of this kind is not controlling because, under s 70A of the Act, a contract cannot exclude the obligation to notify where a plan is changed in an objectively material particular. However, in assessing the objective significance of a change, it will be relevant to consider how the parties have decided to treat such a change in the contract. In the present case the express terms of the Contract indicated that variations in area of less than 10% are not treated as significant. A variation of less than 10% may also reasonably be regarded as of limited significance for the purchaser. Having regard to all the circumstances, including those contractual provisions, the 10% threshold figure found in the conditions does present as an objectively significant threshold for the floor area increase.

73 In our view, in the present case the variation of 7.7% in the area of the strata lot for apartment 14, in a manner which the Contract contemplated could occur without any variation in the purchase price, was not a material change in the strata plan. The trial judge erred in reaching the contrary conclusion, and in not recognising the significance of special condition 7 of the Contract for the consideration of the issue.

Breach of implied term of good faith and unconscionable conduct

75 For reasons which we have explained above, the only contravention of s 69C of the Act established by the evidence concerned the removal of 266 sqm designated as common property in the Contract Plan. The trial judge's conclusion that Strzelecki had breached an implied term of good faith and acted unconscionably was based on his findings about the change to the use restrictions in the strata plan. As the conclusion that a change of use restriction gave rise to a notifiable variation was in error, the trial judge's conclusion about the implied term of good faith and unconscionable conduct falls away.

76 Further, the Jorgensens' case at trial was that the breach of the alleged implied term and unconscionable conduct was constituted by Strzelecki's conduct in procuring the amendment to the Outline Development Plan, advertising strata lots for sale on the basis that they could be used as permanent residences, and lodging the November Plan.[18] No other conduct was pleaded as amounting to a breach of the alleged implied term or as constituting unconscionable conduct. The case at trial was run on the basis of the pleadings.

77 The conduct pleaded as constituting the breach of an implied term of good faith and unconscionable conduct concluded at the point when the November Plan was lodged. The trial judge's findings of breach of implied term and unconscionable conduct were based on his findings as to Strzelecki's conduct after the November Plan was lodged. The trial judge's findings of breach and unconscionable conduct were not those asserted by the Jorgensens. It was not open to the trial judge to reach those conclusions when the Jorgensens' case was not conducted in that way and, as a result, Strzelecki's witnesses were not asked whether they deliberately failed to give notice or sought to avoid doing so.

78 Therefore, irrespective of whether there was a breach of s 69C in respect of the change of use restriction, the trial judge's findings of a breach of good faith and unconscionable conduct did not arise on the pleadings or from the manner in which the trial was conducted and were not open. Grounds of appeal 2(a) and 6(c), which assert that error, are made out.

79 We also note that the trial judge's finding of breach of an implied term was not based merely on a breach of s 69C of the Act but on a failure to honestly comply with the law. This finding of dishonesty appears to have been premised on a deliberate contravention of s 69C of the Act. At least to a significant extent, the trial judge's finding of dishonesty appears to have been based on his inference that the reason for Strzelecki lodging a strata plan with a use restriction applying to all apartments was a query raised by Landgate as to compliance with s 69C of the Act [298], [306]. However, that inference was not open on the evidence. Landgate's query was made on 22 December 2010.[19] The December Plan, endorsed with a use restriction applying to all apartments, had already been lodged on 17 December 2010.[20] The inference that Landgate's query prompted the change in the form of the restriction of use endorsement was not open on the evidence, being contrary to the established facts. Ground of appeal 5, which asserts this error, is also made out.

80 In light of the above conclusions, the Jorgensens have not made out their allegations of breach of an implied term and unconscionable conduct, and the trial judge's findings as to those matters cannot stand. It is unnecessary to deal with other issues raised by the grounds of appeal which attack those findings, including the existence and content of the implied term and the existence and consequences of unconscionable conduct.

Effect of the statutory right to avoid the Contract

81 Given the above conclusions and the absence of any notice of contention, the remaining question is whether the trial judge's orders can be supported on the third basis identified at [17] above. That is, whether the orders were justified because, in the absence of an election by the Jorgensens, Strzelecki's purported termination of the Contract did not and could not, as a matter of law, have extinguished the Jorgensens' right to avoid the Contract.

82 The only ground of appeal which attacks this third basis on which the trial judge found for the Jorgensens is ground 10, which contends:

The trial judge erred in concluding at [313] - [314] that on a proper construction of the [Act] a failure by the vendor to comply with the obligation to give notice under s 69C, of itself, precludes the vendor from exercising its rights to terminate the contract.

83 Strzelecki submits that the trial judge appears at [312] to have accepted the proposition that if there was a valid termination of the Contract at common law, the statutory right to avoid the Contract under s 69D would be extinguished. We do not accept that submission. The trial judge had earlier identified two questions which he saw as arising from Strzelecki's submissions:

Was termination by Strzelecki valid?; and
If so, did the right to avoid conferred by statute survive the termination? [295]

84 The second of these questions arose from the Jorgensens' pleaded case that Strzelecki was obliged to and failed to give notice that substantially complied with s 69C of the Act, and that they had exercised their entitlement to avoid the Contract which was therefore void.[21] That pleading, and the submissions advanced in support of the pleading,[22] did not depend on an argument that Strzelecki was not entitled to terminate the Contract because of a failure to comply with s 69C of the Act.

85 At [312] the trial judge, after finding that Strzelecki's purported termination of the Contract was wrongful by reference to its breach of an implied term and unconscionable conduct, said:

In answer to the questions posed earlier, I find that there was no valid termination of the contract by Strzelecki and that the Jorgensens' right to avoid the contract was not extinguished.

86 This is really only an answer to the first question quoted above: the termination by Strzelecki was not valid. The second question only arose if the termination was valid, and the trial judge found that it was not.

87 At [313] - [314], the trial judge deals with what he described as a further matter, which was that 'the conferral of a statutory right to avoid the contract necessarily casts a decision-making role on the purchaser as to whether or not to exercise that right'. He concluded that:

It follows that the purported termination of the contract by Strzelecki did not and could not, as a matter of law, have extinguished the Jorgensens' right to avoid the contract [314].

88 We read this passage of the trial judge's reasons as dealing with the second question quoted at [83] above. That is, the trial judge is saying that even if the Contract had been terminated the termination could not, as a matter of law, have extinguished the Jorgensens' right to avoid the Contract. In other words, the right to avoid the Contract conferred by the Act would have survived termination even if (contrary to his primary findings) Strzelecki had validly terminated the Contract.

89 Therefore, we do not read the trial judge as finding that valid termination of the Contract extinguished the Jorgensens' statutory right to avoid the Contract. Further, in our view termination for breach of a contract for the sale of a strata lot does not, on the proper construction of the Act, extinguish the purchaser's right to avoid the contract under s 69D(1) of the Act.

90 Strzelecki initially relied on its opening written submissions at trial for the proposition that the valid termination of a contract at common law extinguishes the statutory right to avoid a contract under s 69D(1) of the Act. Those submissions were supplemented by written submissions which Strzelecki was given leave to file after the hearing of the appeal.

91 Strzelecki submitted that to construe the 'statutory entitlement to terminate' as surviving a valid common law termination would alter the 'common law position that once a contract is validly terminated, there is nothing to avoid'.[23] Strzelecki does not cite any authority to establish the common law position for which it contends. Strzelecki submits that there is nothing in the Act to justify construing it in a manner which disturbs basic common law principles of contract law.

92 In addition, Strzelecki submitted that such an approach would be contrary to authority, citing Bankmist Holdings Pty Ltd v Azina Holdings Pty Ltd[24] and Harvey Fields.[25]

93 Strzelecki also contended that an outstanding obligation to provide notice under s 69C does not preclude a vendor from terminating a contract at common law. Strzelecki contends that a contrary construction would produce a perverse outcome such that a vendor's termination for gross and flagrant repudiation by the purchaser would be ineffective if the vendor failed to give notice of trivial matters. Strzelecki submits that, once a contract is terminated, the purchaser is left with its rights at common law, as is the position under the Act where the contract has in fact settled.

94 Strzelecki contended that s 69D, by referring to the avoidance of a contract 'before settlement', necessarily contemplates a contract that is still on foot. Strzelecki contended that, in its ordinary meaning, the phrase 'avoid the contract' refers to a contract that remains on foot.

95 Whether the statutory right to 'avoid' or set aside a contract may be exercised after the contract has been terminated is a question of statutory construction.[26] The ordinary principles of statutory interpretation apply to that exercise.[27]

96 As the heading and text of pt V of the Act make clear, the purpose of the relevant provisions of the Act is to protect purchasers of strata lots. The Act provides for a sanction for failing to substantially comply with the obligation to inform a purchaser of a notifiable variation. The sanction is to give the purchaser the right to 'avoid the contract' irrespective of whether the purchaser is prejudiced or has agreed to be bound by the variation in the contract.[28]

97 Where notice is given in compliance with s 69C of the Act, the right conferred by s 69D(2) is also to 'avoid the contract' when certain criteria are satisfied.

98 In determining the consequences for the parties' rights and obligations of the exercise of the statutory right to 'avoid' a contract, it is relevant to consider the common law and equitable principles which form part of the context in which the provisions of the Act were enacted.

99 The common law and equity distinguish between the effects of termination of a contract for breach or repudiation, on the one hand, and the rescission of a contract for frustration, fraud, misrepresentation or mistake on the other hand.[29] Termination for breach operates to discharge the parties from their obligation to perform their respective contractual duties. However, the terms of the contract continue to inform the rights and liabilities arising from past conduct of the parties, which may be enforced in the courts (usually by action sounding in damages for breach of contract).[30] By contrast the common law and equitable remedies of rescission set aside the contract from the beginning.[31] From the point of rescission, the rights and liabilities of the parties, including those arising from past conduct, are generally determined as if the contract was never made.

100 In our view, the right to 'avoid' a contract, conferred by s 69D(1) of the Act, is a right of the same nature as the remedy of rescission on the grounds described above. That is certainly suggested by the use of the term 'avoid', which as a legal term has the ordinary meaning of to make void or of no effect.[32] It also accords with the protective purpose of the legislation, as it precludes a vendor from evading the consequences provided by s 69D(1) for a breach of s 69C by terminating the contract before the purchaser becomes aware of the failure to notify which gives rise to the purchaser's right to avoid the contract.

101 Recognising that a contract terminated for breach continues to inform the rights and obligations of the parties in relation to each other means that there remains utility in exercising the power to avoid a contract. In the present case, when Strzelecki terminated the Contract for the Jorgensens' failure to settle, the obligations of both parties to perform the Contract came to an end and Strzelecki was entitled to sue the Jorgensens for damages for breach of contract. Strzelecki's right to receive, and the Jorgensens' obligation to pay, damages were to be determined by reference to the terms of the Contract. That legal position changed when the Jorgensens exercised their right to avoid the Contract. From that point in time, the Contract was set aside and the rights and liabilities of the parties were no longer to be determined by reference to the Contract. From the point of avoidance, the parties' rights and obligations were to be determined as if they had never entered into the Contract.

102 For this reason, we do not accept Strzelecki's submission that, once the Contract was validly terminated, 'there was nothing to avoid'. The termination of the Contract for breach did not prevent the Jorgensens from exercising the statutory right to avoid the Contract. That construction accords with basic common law and equitable principles as to the legal effect of a termination of a contract for breach.

103 Strzelecki's counsel referred to the history of the Act, in which provisions broadly similar to those at issue in this case were originally contained in s 68 of the Act as enacted. Section 68(5) of the Act gave the purchaser of a strata unit the right to 'avoid the contract' in certain circumstances. We have not found that history, or Parliamentary material relating to subsequent amendments to the Act, to materially assist in resolving the question of whether a contract may be avoided under s 69D after it has been terminated for breach.

104 We do not accept that the construction we have adopted is inconsistent with the decisions in Bankmist or Harvey Fields. Those cases do not decide the question of whether the statutory power to avoid a contract under s 69D(1) of the Act may be exercised after the contract is terminated for breach. In any event, the decisions are not binding on this court.

105 The approach we have adopted to the construction of the term 'avoid' is consistent with Landmark Property Enterprise Pty Ltd v Monash Property Developments Pty Ltd,[33] to which Strzelecki referred. Although that case arose in a different statutory context, the circumstances and statutory language were similar to those of the present case. Section 29M of the Sale of Land Act 1962 (Vic) prohibited a mortgagor from selling land subject to a mortgage under a 'terms contract' unless the contract satisfied certain requirements. It was admitted that the contract at issue in that case did not satisfy the requirements of s 29M. Section 29N of that Act provided for the contract to be 'voidable by the purchaser at any time before the completion of the contract'. Crofts J held that the contract could be avoided under s 29N even after it had been purportedly terminated:

Clearly, if a vendor terminates a contract of sale, the termination is termination of the contract in futuro and not ab initio. It follows, therefore, that the operation of provisions such as s 29N of the SLA cannot be defeated by such termination as there remain contractual rights and obligations subsisting prior to the vendor's termination [57].

106 The construction of s 69D which we have adopted does not preclude a vendor from validly terminating a contract for the sale of a strata lot when it has an unfulfilled obligation to give notice to the purchaser under s 69C of the Act. A vendor may exercise its rights to terminate the contract and so bring its obligation to perform the contract to an end. However, the termination of the contract does not preclude the purchaser from subsequently exercising his or her right to avoid the contract, in accordance with s 69D of the Act.

107 Even after termination, the purchaser may lose the right to avoid a contract if he or she fails to exercise the right within 7 days after information that substantially complies with s 69C is given.[34]

108 The trial judge referred to the purchaser electing whether to exercise his or her right to avoid the contract. The general rule is that a contractual right of rescission is lost where the party, knowing of facts which would support rescission, elects to continue the contract.[35] That general rule has been applied to private statutory rights.[36] However, s 70A(2) of the Act provides that a purported 'waiver' of a right conferred on a purchaser by Part V of the Act is of no effect. In the present case there was no allegation of conduct by the Jorgensens amounting to an election, or creating an estoppel, before the avoidance of the Contract. It is therefore unnecessary to decide whether the right to avoid a contract under s 69D of the Act is lost where the purchaser makes an election between alternative and inconsistent rights (for example by terminating the contract or seeking damages for breach of the voidable contract).

109 Section 69D(1) of the Act, by providing for the right to avoid the contract at any time before the purchase price is exchanged for the title documents, is not inconsistent with the right surviving termination of the contract for breach. It merely limits the right to terminate to the time before performance of the contract is completed.

110 For these reasons the trial judge correctly held that Strzelecki's purported termination of the Contract did not, as a matter of law, extinguish the Jorgensens' statutory right to avoid the Contract. From the point when that right was exercised, the Jorgensens ceased to be liable to pay the damages claimed by Strzelecki for breach of the terms of the Contract (being the difference between the contract price and the sale price or value of apartment 14).

111 Under s 69E of the Act, the Jorgensens became entitled to a return of their deposit. This express provision distinguishes the present case from Landers v Schmidt,[37] where it was held that a statutory right to avoid a contract could be set up as a defence to an action for loss of bargain damages but did not entitle the purchasers in that case to recover their deposit.

113 While Strzelecki has succeeded in a number of its grounds, the failure of ground 10 means that it has not shown the orders made by the trial judge to be in error. Therefore, the appeal must be dismissed.

[2] Section 17(1) of the Act.

[4] Section 5B(1) and s 5B(2) of the Act.

[6] Section 42(6) of the Act.

[7] Section 6(3) of the Act. A resolution without dissent is defined in s 3AC of the Act.

[8] Section 69(2) and s 69(3) of the Act.

[11] The scheme text is annexure JJF15 to the affidavit of Joshua Fetherstonhaugh sworn 21 November 2014, read at ts 631.

[13] Attachment JJF16 to the affidavit of Joshua Fetherstonhaugh sworn 21 November 2014.

[14] See BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.

[15] Annexure JJF18 to the affidavit of Joshua Fetherstonhaugh sworn 21 November 2014.

[17] Harvey Fields Private Estates Pty Ltd v 33 Malcolm Street Pty Ltd [2012] WASC 218.

[18] Paragraphs 16 and 18 of the Re-amended Defence and Counterclaim.

[19] Exhibit F, annexure PA8 to the statement of evidence to be adduced from Paul Asphar.

[20] Exhibit F, annexure PA7 to the statement of evidence to be adduced from Paul Asphar.

[21] Paragraph 19A of the Re-amended Defence and Counterclaim.

[22] Paragraphs 18 - 20 of the defendant's closing submissions.

[23] Plaintiff's written opening submissions, par 84.

[24] Bankmist Holdings Pty Ltd v Azina Holdings Pty Ltd [2009] WASC 230 [132].

[25] Harvey Fields [95] - [96].

[26] See, for example, Re Dingjan; Ex parte Wagner (1995) 183 CLR 323, 361 - 363 where Gaudron J, with whom Mason CJ, Deane and Toohey JJ agreed, construed a statutory power to set aside or vary a contract which was unfair, harsh or against the public interest as exercisable after the contract had been terminated.

[27] As to which see, for example, Ethnic Interpreters and Translators Pty Ltd v Sabri-Matanagh [2015] WASCA 186 [64] - [65].

[29] Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 [193]; Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409, 416.

[30] McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, 469 - 470, 476 - 477; Heyman v Darwins Ltd [1942] AC 356, 362 - 363, 371 - 374, 379, 399.

[31] Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, 111; Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, 223 - 225.

[32] Macquarie Dictionary (6th ed), p 94.

[33] Landmark Property Enterprise Pty Ltd v Monash Property Developments Pty Ltd [2015] VSC 266; [2015] V Conv R 54-868.

[35] Sargent v ASL Developments Ltd (1974) 131 CLR 634, 642, 645 - 646, 656 - 658.

[36] Ellison v Lutre Pty Ltd [1999] FCA 399; [1999] FCA 399; (1999) 88 FCR 116; but cf Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211; (2008) 38 WAR 276 [105] and Australian Horizons (Vic) Pty Ltd v Ryan Land Co Pty Ltd [1994] VicRp 70; [1994] 2 VR 463, 498.

[37] Landers v Schmidt [1983] 2 Qd R 188, 197 - 198.

Development Act 2005

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [2016] WASCA 177 (25 October 2016)

At a glance

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Judgment (198 paragraphs)

STRZELECKI HOLDINGS PTY LTD -v- JORGENSEN [2016] WASCA 177 (25 October 2016)

Legislation Cited (4)

Cases Cited (9)