Urban House v Purnell Bros [2007] NSWSC 1248 | Case summary

6434/05 URBAN HOUSE PTY LTD & ANOR v PURNELL BROS PTY LTD JUDGMENT Introduction 1 On 25 August 2004, contracts were exchanged for the purchase by the plaintiffs, Urban House Pty Ltd and SCN Holdings Pty Ltd, of a block of land in Bankstown, New South Wales, from the defendant, Purnell Bros Pty Ltd. 2 The land had been used as a used car sale yard and, previously, as a service station. There was an extensive concrete hardstand area on the land together with a brick and metal building containing several offices and amenities. 3 Settlement of the contract had been extended and was finally due to take place on 26 September 2005. But on 22 September 2005, the building was damaged by fire and the solicitors for Urban House and SCN gave notice of rescission of the contract relying upon the Conveyancing Act 1919, s 66L. On 31 October 2005, the solicitors for Purnell gave notice of termination for failure to complete the contract. 4 Urban and SCN paid $600,000 under the contract. Those moneys have not been returned to them. 5 The only issues in the proceedings are whether Urban and SCN were entitled to give their notice or whether they are otherwise entitled to relief against forfeiture of the deposit under the Conveyancing Act 1919, s 55(2A). The relief sought in Purnell's amended cross-claim depends upon the answers to these questions. Legislation 6 The Conveyancing Act 1919, s 66L enables a purchaser to rescind a contract for sale of land if the land is substantially damaged between contract and settlement. It is in the following terms: "(1) Where land is substantially damaged after the making of a contract for the sale of the land and before the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice in writing served on the vendor before the completion of the sale and - (a) within 28 days after the purchaser first became aware of the damage; or (b) within such longer period as may be agreed to by the vendor and purchaser. (2) A notice under subsection (1) which is served - (a) by a solicitor or an agent acting for the purchaser; or (b) on a solicitor or an agent acting for the vendor, shall be deemed to have been served by the purchaser or on the vendor, as the case may be. (3) A notice under subsection (1) may be served - (a) in any manner prescribed by section 170; or (b) in any manner prescribed by the contract to which it relates for the service of notices under that contract. (4) Where the purchaser rescinds a contract for the sale of land pursuant to the right conferred by subsection (1) - (a) all money paid by the purchaser under the contract shall be repaid to the purchaser; and (b) the vendor and purchaser shall be relieved from all liability under the contract, except a liability arising out of a breach of any term or condition contained or implied in the contract occurring before the date of rescission. (5) Subsection (4) does not affect any provision in a contract relating to an adjustment between the vendor and purchaser where the purchaser has received the benefit of possession of the land. (6) A purchaser is not entitled to exercise the right conferred by subsection (1) if the damage was caused by a wilful or negligent act or omission on the part of the purchaser." 7 The Conveyancing Act 1919, s 66K specifies the time at which risk in respect of damage to land passes to the purchaser. It provides that the risk does not pass until completion of the sale, or the time stipulated in the contract, being a time after the purchaser enters into, or is entitled to enter into, possession, whichever first occurs. 8 The Conveyancing Act 1919, s 66L is to be contrasted with s 66M. It provides that where land is damaged after contract and before the risk has passed to the purchaser, the purchase price shall be reduced on completion by such amount as is just and equitable in the circumstances. The provision applies whether or not the land is substantially damaged. There is, like s 66L(6), a provision excluding abatement for damage caused by the wilful or negligent act or omission of the purchaser. 9 Thus, the abatement provision may be enlivened whether or not the damage is substantial, but the rescission provision in the Conveyancing Act 1919, s 66L may only be enlivened if the damage is substantial. That concept is defined in s 66J(2) in terms of materiality. It provides: "For the purposes of this Division, land damaged after the making of a contract for sale of the land is substantially damaged if the damage renders the land materially different from that which the purchaser contracted to buy." 10 The Conveyancing Act 1919, s 66J(1) provides that land includes buildings and other fixtures. 11 If it thinks it would be unjust or inequitable to require a vendor to complete the sale of land that is substantially damaged after the making of the contract and before the risk in respect of the damage passes to the purchaser, a court may refuse to enforce against the vendor, specific performance of the contract, order the repayment of any money paid by the purchaser under the contract and make such other orders as it considers appropriate under the Conveyancing Act 1919, s 66N. 12 These provisions are contained in Div 7 of the Conveyancing Act 1919. In terms of s 66O, the provisions apply notwithstanding any stipulation to the contrary in the case of a sale of a dwelling house, but are subject to any stipulation to the contrary in any other case. History 13 Division 7 was introduced by the Conveyancing (Passing of Risk) Amendment Act 1986. In his second reading speech in the Legislative Assembly of 20 March 1986, the Attorney-General and Minister for Co-operative Societies said the Bill was the product of the New South Wales Law Reform Commission's report on the passing of risk between vendor and purchaser of land of March 1984. 14 In par 2.2 of the Report, it was pointed out that in the absence of express agreement between vendor and purchaser, the vendor becomes a trustee of the property for the purchaser once there is a valid and binding contract between the parties and one consequence is that in the absence of want of reasonable care by the vendor in the use and management of the property, the purchaser bears any damage to, or diminution in value of, the property occurring prior to completion. In par 2.6 it was pointed out that it was rare to find agreements altering the incidence of that rule. 15 In considering of the effect of altering the rule so that the risk remained with the vendor until completion, the Report in par 2.6 drew upon the analogy of compensation for errors and misdescriptions: "By analogy with settled principles governing the right to compensation for errors and misdescriptions in the contract, the following would seem to be the position if the property is at the vendor's risk and is damaged between contract and completion. · Where the damage is so substantial that the property is materially different from that which the purchaser contracted to buy, or (amounting to the same thing) the damage is so substantial that it could not reasonably be assumed that the purchaser would have entered into the contract to purchase the property in its damaged condition, the vendor cannot enforce the contract against the purchaser. In this case the purchaser may rescind (terminate) the contract and recover all moneys paid under it, or (at the purchaser's option and subject to considerations of hardship to the vendor) proceed with the contract subject to an appropriate abatement (reduction) of the purchase price for the damage. · Where the damage is not so substantial as to fall within the first category, the vendor can usually enforce the contract against the purchaser subject to an appropriate abatement of the purchase price to compensate for the damage. Similarly, the purchaser is usually entitled to insist upon the vendor completing the contract subject to an abatement of the purchase price for the damage. In either case, where compensation is given or sought, the court may determine the most appropriate means of measuring compensation according to the circumstances of the case." 16 The law in relation to errors and misdescriptions is founded on what was said by Tindal CJ in Flight v Booth (1834) 1 Bing (NC) 370 at 377 (131 ER 1160 at 1162-1163). In that case the particulars of sale of leasehold premises stated that under the original lease no offensive trade was to be carried on and that the premises could not be let to a coffee-house keeper or working hatter. When produced, the lease prohibited a wide range of activity. It was held that there was such a material discrepancy between the particulars and the lease as to entitle the purchaser to rescind. Having discussed variances in the reported decisions, the Chief Justice said: "In this state of discrepancy between the decided cases, we think it is, at all events, a safe rule to adopt, that where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject matter of the contract that it may reasonably be supposed, that, but for such misdescription, the purchaser might never have entered into the contract at all, in such case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation. Under such a state of facts, the purchaser may be considered as not having purchased the thing which was really the subject of the sale." 17 In The Standard Contract for the Sale of Land in New South Wales, 2nd ed, LBC Information Services, Sydney, 1998 at [6.51], Professor Peter Butt points out that Flight v Booth has come to reflect a more general principle, that purchasers cannot be forced to accept (even with compensation) a property that is substantially or materially different from that which they contracted to buy. 18 The analogy with principles governing compensation for error or misdescription cannot be taken too far as the Commission recognised in par 2.7 of its Report: "Nor can the analogy with principles governing compensation for error or misdescription be pushed too far. There is an important distinction between compensation for an error or misdescription, and compensation for damage to the property in the circumstances under consideration. When there is an error or misdescription in the contract, compensation is awarded for a deficiency in the property which existed at the time the contract was entered into. Moreover, many of the cases turn on the specific wording of the clauses in contracts for the sale of land. The problem with which we are concerned involves compensation for damage to the property occurring between contract and completion and for which the vendor is not responsible." 19 The Commission at par 4.3 accepted that there was a very strong case for protecting a purchaser against the consequence of a rule of law that did not accord with an assumption that lay people might reasonably make. 20 The purpose of the legislation, then, is to afford that protection, especially to an uninsured and unrepresented purchaser who is unlikely to know that on the making of a contract for sale of land, he or she bears the risk of damage to, or destruction of, the property. 21 As was said in par 4.44 of the Report, the protection was to be provided by the provision stating that the risk of damage or destruction should not pass to the purchaser until completion (the Conveyancing Act 1919, s 66K), supplemented by provisions containing a more detailed statement of the legal consequences that flow from that provision. Interpretation 22 The structure of the legislation was considered by Needham J in Shadlow & Anor v Skiadopolous & Anor (1988) NSW ConvR ¶55-383. But it was a case that involved the Conveyancing Act 1919, s 66M and is of little assistance with respect to s 66L. 23 The same can be said for the analysis of Div 7 of the Conveyancing Act 1919 by Sheller JA in Stephenson v State Bank of NSW (1996) 39 NSWLR 101 save for his Honour's observation at 113 that the purpose of Div 7 is to protect uninsured purchasers. 24 It was submitted that the modern statement of the rule in Flight v Booth required an objective test and the same approach should be applied to Div 7 of the Conveyancing Act 1919. At [6.53] of his work on the standard contract for sale of land, Professor Butt says that in applying Flight v Booth and the more general principle it now represents, the courts prefer objective factors to subjective factors. The test is not so much whether the purchaser would not have entered the contract but for the error or misdescription, but whether it might reasonably be expected that the purchaser would not have entered the contract but for the error or misdescription. 25 But the learned author goes on to say that does not mean that a purchaser's actual intention can never be relevant, although views differ over whether purchasers should be permitted to give evidence that but for the error or misdescription they would not have entered into the contract. The Professor says that the purchaser's purpose in buying is a relevant consideration if that purpose was known to the vendor. But it is wrong to approach the matter solely by considering the purchaser's state of mind. 26 In Hamilton v Monroe (1951) 51 SR (NSW) 250, Sugerman J held that where a misdescription of land arose out of the non-disclosure of a restrictive covenant substantially affecting the use of the land, the rule in Flight v Booth is not determined by considering, merely, the effect of the covenant on the immediate use to which the purchaser intended to put the property. At 252, his Honour said: "Even if it be correct to make the assumption that the plaintiffs' immediate intention when the contract was made was to purchase and use the property for residential purposes only, it is wrong to direct attention to this alone and to disregard other possibilities. One such possibility is that the plaintiffs might thereafter desire to make some different use of the property, either exclusively of, or concurrently with, the use permitted by the covenants. Another is that, should the plaintiffs come to sell the land, they might desire that potential purchasers be not restricted to a limited class but include those persons who might wish to make some other or further use of the property." 27 While I do not accept that because this approach is adopted with respect to the rule in Flight v Booth and Div 7 of the Conveyancing Act 1919 was drawn by analogy with that rule, it follows that the same approach should be adopted with respect to Div 7, I do not see why, as a matter of principle, Div 7 should not be interpreted in the fashion mentioned by Professor Butt and by Sugerman J. 28 It seems to me that a purchaser's actual intention with respect to the land is a material factor to be taken into account. If Urban and SCN proposed, immediately, to redevelop the land and the fire occurred immediately prior to their exercising their right to demolish the building under cl 50 of the contract for sale, it might be concluded that the damage had not rendered the land materially different from that which Urban and SCN contracted to buy. 29 If, on the other hand, Urban and SCN intended to lease the land prior to commencing any redevelopment and severe fire damage occurred before the lessee entered into possession, it might be concluded that the land was materially different from that which they had contracted to buy. 30 In each of those cases, the subjective intention of the purchasers is a material factor in arriving at the conclusion whether or not substantial damage has occurred for the purpose of the legislation. 31 I am fortified in this conclusion by the fact that Bryson J took subjective intention into account in arriving at his view that substantial damage had not been caused to a dwelling house for the purposes of the Conveyancing Act 1919, s 66L in Bakhos v Fenner & Anor [2007] NSWSC 641 at [43]. 32 Professor Butt and Sugerman J point out, however, that in the case of error or misdescription it would be wrong to confine consideration to the purchaser's state of mind. In my view, a similar caution is required when considering the operation of the Conveyancing Act 1919, s 66L. 33 There may be a change in circumstance following a contract for sale that frustrates a purchaser's intention and requires the purchaser to consider other possible uses of the land. If Urban and SCN bought the land to erect high-rise residential accommodation and the residential real estate market suddenly fell, they might have had to change their plans and think of leasing the building until the market recovered. A subsequent fire might render that alternative use of the land out of the question. 34 In my view, consideration needs to be given to the possible uses of the land and whether any diminution in those uses by reason of damage sustained between contract and completion can be regarded as rendering the land materially different from that which the purchaser contracted to buy, thereby entitling the purchaser to terminate the contract. Circumstances 35 The contract for sale was for $4 million with a deposit of $400,000. Settlement was to take place twelve months after contract, on 24 August 2005. On that day, in consideration of a further payment of $200,000 in reduction of the balance of the purchase price, Purnell offered to extend settlement to 22 September 2005, time being of the essence. Urban and SCN accepted that offer on 25 August 2005. 36 On 21 September 2005, the solicitors for Urban and SCN sought an extension until 3 October 2005. On the next day, they sought an extension until 24 October 2005. The response of 22 September 2005 referred only to the first request and refused an extension to 3 October 2005, requiring settlement to take place on Monday 26 September 2005. 37 The notice of termination given by Purnell's solicitors on 31 October 2005 relied upon a failure to complete on 22 September 2005. 38 The contract contained a quotation of $92,000 plus GST from Rainbow Group Pty Ltd to demolish the building; remove underground fuel tanks; strip the site of all necessary concrete or asphalt to allow for remediation work; to carry out remediation of petroleum hydrocarbon contamination resulting from the use of the site as service station; and to provide a site audit certificate confirming the remediation to a standard suitable for high density residential or retail use. 39 Urban and SCN agreed to purchase the land jointly with a view to developing it at a future time as a commercial/residential development. Raymond Hanna, a director of SCN, said the development was to cost between $12 million and $13 million. 40 Development consent was granted by Bankstown City Council on 1 September 2005 for 53 residential units and two levels of commercial use. The consent would lapse five years from the date of issue of operational consent. Operational consent would issue following the Council's satisfaction that approval had been obtained from Bankstown Airport for the proposed overall building height and the submission of a letter from the owner of the land to the east of the site granting consent to the removal of trees located within three metres of the common boundary. The first condition had been satisfied but agreement with the neighbour had not. If agreement could not be reached it would require the movement of the building by three metres. 41 Purnell was insured and could claim on its insurer for the cost of rectification of the fire-damaged building. It had not received any moneys from its insurer at the time of trial. 42 There was in evidence some correspondence between Arthur Deiri, the principal of L J Hooker, Bankstown, Mr Hanna and Peter Kazzi, a director of Urban, about a proposed lease of the land to Junior Properties for a four-year term commencing in October 2005. Mr Hanna gave evidence that Urban and SCN intended to commence construction work on the site when the lease terminated in 2009. 43 Two matters arose at trial - whether Urban and SCN ever intended to lease the land; and whether the fire damage to the building was substantial. Lease 44 Mr Hanna said the market for residential land fell and in January 2005 he and Mr Kazzi decided to seek a tenant for four years. They put the matter in the hands of Mr Deiri. 45 Mr Deiri also said that the Bankstown residential market, as with the Sydney market as a whole, fell in 2005. He said that in January 2005 he was asked by Mr Hanna and Mr Kazzi to obtain a lessee. 46 In evidence was an original letter written by Mr Deiri to Urban and SCN on 19 April 2005 stating that Junior Properties, a well-established company in the car sales industry, had agreed to take a lease for four years commencing on 17 October 2005 at $2,900 per week plus GST. The letter stated that the offer was subject to signing a formal lease agreement prepared by solicitors for Urban and SCN and agreed upon by Junior Properties and their legal representatives. 47 Also in evidence was an original letter of 18 May 2005 signed by Mr Hanna and addressed to Mr Deiri informing him that Urban and SCN had agreed in principle to the proposed rental offer submitted by Junior Properties for the land as it became available for tenancy after settlement, pencilled in for 25 August 2005. The letter said a full lease agreement and other relevant documentation would be prepared by the solicitors for Urban and SCN and submitted to Junior Properties' solicitor for their approval and execution. 48 Mr Deiri signed an original letter of 28 September 2005 addressed to Mr Kazzi and Mr Hanna stating that after a recent meeting with Junior Properties, they had raised a crucial concern and disappointment in relation to leasing the land as they had realised that the building had been substantially damaged by fire and more likely would not be ready for anticipated occupancy agreed as October 2005. Mr Deiri stated that Junior Properties had said that if occupancy was not granted by 21 October 2005, they would have no further interest in the land. Mr Deiri requested attention to the rectification of the building as soon as possible as he believed Junior Properties was a good and solid tenant. Mr Deiri requested that his office be advised immediately of the proposed resolution of the matter so he could forward the information to Junior Properties. 49 On Purnell's behalf, a number of arguments were raised in support of the submission that the letters were a fabrication and Urban and SCN had no intention of granting a lease of the land. 50 Urban and SCN were criticised for not calling a representative of Junior Properties. I was invited to draw an adverse inference in terms of Jones v Dunkel (1959) 101 CLR 298. I prefer to act on the evidence that was adduced at trial. 51 It was argued that the letters to which I have referred show that the negotiations never crystallised into a legal agreement and nor were draft documents for an agreement produced. But Mr Hanna said that their agreement was to grant a lease after settlement and it was then that formal documents would be drawn. That is consistent with the above letters, the fire intervened and no settlement was reached. 52 In his letter of 28 September 2005, Mr Deiri stated that Junior Properties had a deadline of 21 October 2005. Yet Urban and SCN sought an extension for settlement to 24 October 2005, without concern, it was submitted, for the impact that might have on lease discussions with Junior Properties. But the extension to 24 October 2005 was sought by Urban and SCN before Mr Deiri's letter of 28 September 2005 and, further, Mr Hanna said he did not think that a delay of three days would make any difference. 53 It was argued that simultaneously with what were said to have been negotiations to lease the land to Junior Properties, Urban and SCN entered into a substantial number of subcontract arrangements and other negotiations, including those with the National Australia Bank, all on the assumption that the property was to be developed immediately. 54 Subcontract agreements with an electrician, a concreter and a plumber were entered into with a commencement date for the work of October 2005. A subcontract agreement with a plasterer had a commencement date of March 2006 and a subcontract agreement with an air-conditioner had a commencement date of June 2006. All these subcontracts were attached to a quantity surveyor's report of August 2005. Mr Hanna said that they had an argument that the quantity surveyor's rates were too high and they entered into the subcontracts to establish lower rates. 55 The quantity surveyor's report was needed for the preparation of a valuation report of the "as is" market value of the property subject to development consent and an on completion gross realisation value report. The report was given in August 2005. Mr Hanna said that while he and Mr Kazzi had determined to lease the land for four years because of the decline in the residential property market, he wanted to weigh up the options. 56 The valuation report was sent to financiers and an offer of finance for 12 months was accepted by Urban and SCN. Mr Hanna conceded that the cash flow analysis was wrong since construction was not to commence until after the four year lease had terminated. 57 Urban and SCN retained town planning consultants who had negotiations with the National Australia Bank. In January 2005 an application was made to Bankstown City Council seeking certain leniencies. It contained the statement that the development proposed the construction of a new building and small shop with two residential towers and that the commercial space was to be used by National Australia Bank as their regional offices. The statement was not withdrawn when the decision to lease was made. Nor did Mr Hanna give evidence that he informed the bank that construction of the building was to be delayed. 58 Ray Younan of Sezone Pty Ltd was a developer. In February 2005, he submitted to Mr Deiri an offer to purchase the commercial component of the proposed development, being the ground and first floors, including all car parking. In July 2005, Mr Younan said the offer still stood but it was very difficult to hold his disillusioned partners as nothing had been heard from Mr Deiri for three months. But Mr Deiri said he told Mr Younan about the lease but Mr Younan was, like most developers, "pushy". He gave no encouragement to Mr Younan. He did not negotiate with him. 59 Mr Deiri produced documents late during the trial. His said his dealings were verbal notwithstanding that he could not sue to recover commission in those circumstances. He jotted things down on pieces of paper. There were no documents in his file passing between him and Junior Properties. There were no original documents in his file nor copies of original documents despatched by him. He said his email was attached to his photocopier and the office procedure was for a secretary to copy any original correspondence and to place the copy on his desk for his attention. 60 Mr Deiri said the site was a highly desirable one and if Junior Properties did not want to take a lease: "ten other people would have." 61 What emerges from the evidence is that Mr Hanna was prepared to provide financial institutions with valuations based upon an assumed commencement of construction forthwith upon the satisfaction of the condition with respect to the trees in the development consent of Bankstown City Council and sought to raise immediate finance by use of them. He was clearly "testing the water" so far as the availability of finance for the development of the project was concerned. He failed to inform the subcontractors, the National Australia Bank and Bankstown City Council of the change in plan to lease first. 62 While Mr Hanna may be criticised for this conduct, I am not prepared to find that he and Mr Deiri fabricated the whole notion of a lease before construction. The residential market had fallen and there is a logic in the proposition that construction should have been delayed and options weighed during a four year period. The proffering of the valuation report, notwithstanding this change, can be viewed as obtaining information in the weighing-up process. 63 Mr Deiri was a garrulous witness, but he did corroborate much of Mr Hanna's testimony on the lease issue. His lack of correspondence is not inherently implausible when he says he does business verbally. I am not prepared to reject his evidence nor that of Mr Hanna. 64 As to the rule in Dunkel, it does not require a party to give cumulative evidence. The rule does not compel time to be wasted in calling unnecessary witnesses (Cubillo v Commonwealth (2000) 103 FCR 1 at 120). Mr Deiri was a sufficient witness in corroboration of Mr Hanna's testimony. 65 I reject the submission that the letters to which I have made reference were fabrications and that Urban and SCN had no intention of leasing the land for four years. Damage 66 Bassam Youssef is a builder who gave a report on rectification of the fire damage to the building. The roof had been breached in part and asbestos sheeting had fallen to the floor. An area of approximately 65m2 had been damaged and water and smoke damage had affected another 70m2 approximately. Mr Youssef recommended this area be demolished as one could not be certain of the structural adequacy of the steel members following the fire. He gave a quote, realised he had made a mistake, and increased his estimate for the restoration work to $378,400. He thought the work would take 12 weeks. 67 Mr Youssef's quote was excessive. He acknowledged this himself. The estimates were very approximate and he basically did not want the work and quoted a high price to perform it. He had also built into his quote the entire $92,000 of the Rainbow quotation notwithstanding that it involved more than just the demolition of the building but also remediation work necessitated by its use as a service station that had nothing to do with the consequences of the fire. 68 A building report was prepared by Edward Brincat, a civil engineer. He took the view that since there was no distortion of structural members or walls it was unnecessary to partially demolish the building. In his experience distortion was a sign of affectation of structural elements and in its absence there was no need to retain a metallurgist, or to carry out laboratory testing, or hardness tests. His estimate was based upon removal of affected materials and their replacement. 69 The demolition work was of asbestos roof sheeting to roof, box guttering to affected section of fire damaged roof only, damaged timber purlins, damaged fascia to northern elevation, external metal sheet cladding to northern elevation, two aluminium windows to northern elevation, timber wall framing to northern elevation, roof sheeting to front exterior awning approximately 42m2, damaged shop front - glass only, two air conditioners to front elevation located in glass shop front, fire affected render to front and northern elevation, two fluorescent light fittings, wall and ceiling linings, doors and frames to damaged offices and hallway, glass to rear windows to rear and middle northern offices, two air conditioners to rear northern offices and generally any fallen debris as a result of the fire. 70 Mr Brincat's estimate, including a supervision, profit and overheads element of 25% and 10% GST was $105,813.54 and the work could be completed in six weeks, in his opinion. 71 I do not have to make a decision on the amount or the time that would be required to restore the building to a leaseable condition. The evidence was lead in relation to the proportionality of the amount involved in comparison with the purchase price of the land. 72 That, in my view, is not a significant factor in this case. One cannot simply say that because Mr Brincat's estimate represented 2.64% of the purchase price, or that Mr Youssef's estimate represented 9.46% of the purchase price, that the damage was insubstantial. 73 The question is whether the land was rendered materially different from that which Urban and SCN contracted to buy. And that requires an analysis of the uses that might be made of the land. One use to which the land could be put was a lease. So that whether it was the intention of Urban and SCN to lease the land for four years or not, unless that user was excluded from consideration for some reason, it needed to be considered. 74 Before the fire, the building comprised an open area, eight enclosed offices, a kitchen and two bathrooms. Mr Brincap's plan of the areas affected by fire damage extended to four of the enclosed offices, the kitchen and the two bathrooms. 75 Counsel for Urban and SCN described the building after the fire as uninhabitable. The fire clearly had a significant impact on the use of the building. Less than half of it was unaffected by the fire. Even if I accepted Mr Brincat's estimate, considerable cost and time needed to be expended to render it capable of being leased. 76 It is not to the point to say that Urban and SCN could have acted under the Conveyancing Act 1919, s 66M and had the costs of rectification deducted from the balance of purchase price. If the damage was substantial, they were entitled to take the alternative course under s 66L. Submissions 77 On Purnell's behalf, it was submitted that the damage was insubstantial for a number of reasons. 78 First, it was submitted that the chief value of the land lay as a development site. That does not, in my view, exclude consideration of alternative uses of the site. 79 It was submitted that it was clear that Urban and SCN intended a large development and demolition of all the improvements on the land. That does not exclude the prospect of a lease of the building prior to its demolition. 80 It was submitted that the chief qualities of the land governing its material nature, were its objective and legal qualities permitting it to be developed into a multi-storey residential and commercial site. That does not exclude the granting of a lease prior to exploitation of those qualities. 81 It was submitted that nothing on the site had architectural, historical or heritage value. One does not need a heritage-listed building to conduct a car sales yard. 82 It was submitted that even assuming the office building on the site had economic value as a temporary leasing structure, the money and time required to return it to tenantable condition was small in proportion to the other factors in the development, and would have been borne by the vendors in any event. I have already dealt with this argument. 83 It was submitted that at the time of contract and up until termination, the property was disused. There was always the potential for vandalism, but neither party appeared greatly concerned about possible damage to the structure until the fire. That does not exclude the prospect of leasing the building in its then condition. 84 It was submitted that the contract itself, apart from abundant additional evidence, indicated the development potential of the site and allowed for Urban and SCN to attend the property before settlement for the purpose of demolition (special condition 50). Again, the contract does not exclude the prospect of Urban and SCN entering into a lease of the land. 85 It was submitted that labelling the development consent "deferred" did not suggest that use of the consent was to be postponed for any substantial period. It meant only that the consent could not be acted upon until the two conditions precedent had been satisfied. The only condition precedent outstanding at the time of the fire was the removal of nine trees on one part of the boundary of the property. This matter does not bear upon the question whether, because the fire rendered the building incapable of being leased before rectification, there was a material difference in the land contracted to be acquired and the land in its damaged state. 86 It was submitted that Mr Hanna's evidence was that the intention to lease was only decided upon in January 2005. At the time of contract there was no suggestion that the primary purpose was other than development of the site. I have dealt with this argument. In my view, issues that arise after contract and before damage should be taken into account. They may be material to the resolution of the issue. 87 It was submitted that one can assume Urban and SCN were buying a development site. That was the objective material quality of the land. Any development involved demolition of the improvements that were burnt. Again, that does not exclude the prospect of a lease of the land prior to the commencement of the development. 88 It was submitted that a party buying the property as a development site would have been indifferent to the fire damage to the improvements, or would, at most, have sought a reduction in the purchase price. Urban and SCN were entitled to such reduction in any event by way of the abatement provision in the Act. I have already dealt with this issue. Further, a party buying the property as a development site, faced with the sudden downturn in the property market might well take the course proposed by Urban and SCN and lease out the property to weigh up the options during the period of the lease. 89 It was submitted that the fire damage was repairable (ie. it was not a case that the whole building required demolition). Moreover, fire damage was sustained to only part of one building, and that building occupied only a small portion of the site. I have described the demolition work Mr Brincat said was required. It was, on any view, considerable. Further, a site office in a car sales yard does not need to take up a great deal of space. It is preferable that it does not, in order that more vehicles may be put on site. 90 It was submitted that on Mr Brincat's evidence the damage could be repaired for $105,000 and the work performed within six weeks. The plaintiffs were not obliged to bear the $105,000. They were entitled to have that sum deducted from the purchase price under the Conveyancing Act 1919, s 66M(1) and s 66M(2). I have already dealt with this argument. 91 Finally, it was submitted that Mr Youssef's evidence was flawed and completely unreliable. It failed the requirements that an expert witness's evidence be given by way of report expressing reasons for each opinion expressed. It assumed demolition was required, but professed no expertise as to whether or not it was required. Information used to prepare the report was not available, having been destroyed and Mr Youssef was not able to recall all elements. Mr Youssef did not want the job and by his own admission was prepared to over-quote for it. Mr Youssef relied on the quote from Rainbow that was for an entirely different purpose. I have dealt with these criticisms. Further, I have indicated the significance to be placed upon the expert reports. Conclusion 92 I am not dissuaded from my view by the submissions on behalf of Purnell that the fire rendered the land materially different from that which Urban and SCN contracted to buy. The fire rendered the building on the land untenantable, thereby excluding a valuable user of the land. 93 My conclusion is fortified by my finding that in January 2005, as a result of the downturn in the residential property market in the Bankstown area, Mr Hanna and Mr Kazzi decided to defer construction of the development on the site and to lease out the land for four years giving them time to weigh up the options open to them. 94 In my judgment, Urban and SCN are entitled to a declaration that they validly rescinded the contract for sale and for an order that Purnell pay them $600,000. 95 It is unnecessary for me to consider the alternative argument that Urban and SCN were entitled to relief from forfeiture under the Conveyancing Act 1919, s 55(2A). 96 The cross-claim fails. Purnell must pay the costs of Urban and SCN. 97 I will hear the parties on an appropriate order as to interest. I direct the parties to bring in short minutes of order reflecting these reasons.

Urban House v Purnell Bros

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Cases Cited (4)

Cited By (3)