Yapp v Pollak

Supreme Court of NSW|2019-04-10|Before: Darke J, Mr P

Introduction

These proceedings were commenced by Summons filed on 9 January 2019. On 1 February 2019 orders were made for the matter to proceed on pleadings and, due to some urgency, the matter was set down for hearing on 10 April 2019.
The plaintiffs are the registered proprietors of a three level residential property in Forbes Street, Woolloomooloo, being the land contained in Folio Identifier 1/611013. On 30 June 2018 the plaintiffs entered into a contract for the sale of the land to the defendant for a price of $2.765m. The completion date was stipulated as 1 October 2018, but the contract has not proceeded to completion. A dispute has arisen concerning Special Condition 49 of the contract which provides: Notwithstanding clause 35, the vendor discloses works have been carried out in accordance with the Development Approval annexed to the contract, however, the lower staircase requires replacement. The vendor agrees to ensure the replacement of the lower staircase is carried out in accordance with the Development Approval prior to settlement. The vendor warrants that all Development Consent Conditions will be satisfied on or before completion and will provide an occupation certificate to the purchaser prior to settlement. The purchaser cannot make a claim or requisition or rescind or terminate in respect of this work.
The plaintiffs contend that they have complied with their obligations under Special Condition 49 by carrying out the replacement of the lower staircase and providing an interim occupation certificate to the defendant. The plaintiffs seek orders in the nature of specific performance of the contract.

Summary of salient facts

On 26 September 2017 the Council of the City of Sydney ("the Council") issued a development approval (D/2017/1171) in respect of the property for certain alterations and additions. The Conditions of Consent included the following: CONDITIONS OF CONSENT Note: Some conditions are to be satisfied prior to issue of a Construction Certificate, some are to be satisfied prior to issue of Occupation Certificate and others during the course of construction. Prior to the issue of the Construction Certificate, sufficient information must be forwarded to the certifying authority (whether Council or a private accredited certifier) illustrating compliance with the relevant requirements of the Building Code of Australia and conditions of consent. If Council is to be the certifying authority, please contact the Building Unit to discuss the requirements prior to submission of the application for construction certificate. (1) APPROVED DEVELOPMENT (a) Development must be in accordance with Development Application No. D/2017/1171 dated 25 August 2017 and the following drawings prepared by Building Design and Technology Pty Ltd: Drawing Number Drawing Name Date A1.01 Proposed Site and Floor Plans (Rev.A) 17/8/2017 A1.02 Elevations and Section (Rev.A) 17/8/2017

and as amended by the conditions of this consent. (b) In the event of any inconsistency between the approved plans and supplementary documentation, the plans will prevail. (2) DESIGN MODIFICATIONS The design of the building must be modified as follows: (a) The proposed removal of the existing window on the primary Forbes Street façade is not approved, and is to be deleted. (b) The alignment of the rear wall of the proposed ground floor extension is to match the angled alignment of the first floor rear wing addition. (c) The eave extending from the rear wall of the proposed ground floor rear addition is to be deleted and replaced with a lightweight shading device separate from the roof form. (d) The proposed ensuite adjoining existing bed 2 is to avoid contact the existing fireplace and chimney breast which are to be retained. (e) A Schedule of Materials, Colours and Finishes is required. The modifications are to be submitted to and approved by Council's Area Planning Manager prior to the issue of a Construction Certificate. … (27) OCCUPATION CERTIFICATE TO BE SUBMITTED An Occupation Certificate must be obtained from the Principal Certifying Authority and a copy submitted to Council prior to commencement of occupation or use of the whole or any part of a new building, an altered portion of, or an extension to an existing building.

The second plaintiff gave evidence that some but not all of the works the subject of the consent were carried out. This was explained on the basis that the plaintiffs were unable to afford to undertake all of the works.
By June 2018 the plaintiffs had decided to sell the property. Cunningham Legal was retained to act for the plaintiffs on the sale.
On about 12 June 2018 the plaintiffs were informed by their builder that the certifying authority in respect of the development, Phoenix Building Approvals Pty Ltd ("Phoenix"), would not issue an interim occupation certificate because only part of the staircase had been removed and replaced in accordance with the development approval. The plaintiffs were informed that the certifier was in all other respects satisfied with the works.
On 27 June 2018 Cunningham Legal issued a draft contract to the selling agents, Richardson & Wrench. Amongst the special conditions in the draft were Special Conditions 35 and 49 in the following terms: 35 Condition of Property The property, together with appurtenances hereto is sold in its present state of repair and the purchaser acknowledges that it buys the property relying on its own inspection, knowledge and enquiries that it does not rely on any warranties or representations made to it by or on behalf of the vendor. The purchaser shall not call upon the vendor to carry out any repairs whatsoever in relation to the property sold. … 49 Works The vendor discloses works have been carried out in accordance with the Development Approval annexed to the contract, however, the lower staircase requires further works. The vendor agrees to ensure the repairs or replacement to the lower staircase are carried out prior to settlement. The purchaser cannot make a claim or requisition or rescind or terminate in respect of this work.
The defendant inspected the property with the agent on 26 June 2019. He obtained a copy of the draft contract from the agent on 28 June 2018. The defendant deposed that he thereafter went "online" and inspected the records of the Council, including the development approval in respect of the property.
On 29 June 2018 (at 1:29pm) Sachs Gerace Broome ("SGB"), who were acting for the defendant, sent an email to Cunningham Legal in the following terms: Please find letter attached for your urgent attention. I understand it is intended that exchange occur this afternoon. The attached letter included the following: We act for Mr Joseph Pollak a potential purchaser of the abovementioned property. We refer to the proposed contract for the sale and purchase of land as provided to our client by the estate agent (contract) and the property generally and request the following additional information: Are your clients aware of any building works which have been completed in relation to the property without Council approval? … 8. Please provide copy interim or final occupation certificate issued under the Environmental Planning and Assessment Act 1979; 9. In respect to the contract we request the following amendments be made: … (e) Special condition 35: the last sentence be deleted; … (l) Special condition 49: the 'further works' to be detailed in this clause. Please provide amended special condition for our client's approval.
Later on 29 June 2018 (at 3:40pm), Cunningham Legal sent an email to SGB which attached a letter that included the following: We refer to your correspondence of even date. We are instructed to reply as follows: Yes, renovations to the staircase. … 8. Such certificate is not yet available. The vendors will endeavour to provide such a certificate on completion. … 19. We propose the following wording "The vendor discloses works have been carried out in accordance with the Development Application annexed to the Contract, however, the lower staircase has not yet been replaced. The vendor agrees to ensure the lower staircase is replaced in accordance with the Development Application prior to settlement. The purchaser cannot make a claim or requisition, or rescind or terminate the contract in respect of this work."
Cunningham Legal sent a further email to SGB (at 4:42pm) in the following terms: We refer to previous correspondence. We are instructed to amend special condition 49 to include the words "The vendors will provide an occupation certificate on settlement." Please confirm your client is agreeable to this alteration.
SGB sent an email in response (at 5:07pm) which attached a letter which included the following: We refer to your letter of even date and are instructed to respond as follows (adopting your numbering): 8. Our client requires final occupation certificate be provided before completion. Completion is to be conditional upon final occupation certificate being provided to our client; … 13. Special Condition 35: the last sentence to be deleted; … 19. Insert second last sentence: The vendor warrants that all development consent conditions will be satisfied on or before completion.
Cunningham Legal sent an email in response (at 5:55pm) which included the following: We are instructed to reply as follows: 8. Special condition 49 to read as follows: Notwithstanding clause 35, the vendor discloses works have been carried out in accordance with the Development Approval annexed to the contract, however, the lower staircase requires replacement. The vendor agrees to ensure the replacement of the lower staircase is carried out in accordance with the Development Approval prior to settlement. The vendor warrants that all development consent conditions will be satisfied on or before completion and will provide an occupation certificate to the purchaser prior to settlement. The purchaser cannot make a claim or requisition or rescind or terminate in respect of this work. … 13. Not agreed; … 19. Please see above.
The terms of Special Condition 49 as set out in the email were incorporated, in handwriting, into the contract for sale which was exchanged on the following day. The development approval was not in fact annexed to the contract. However, copies of the two drawings (the "approved plans") which are referred to in Condition 1 of the consent were attached. The contract contained Special Condition 35 which was in the same terms as it was in the draft contract provided by Cunningham Legal. It was preceded by Special Condition 34 which is in the following terms: 34 Faults and Defects The purchaser acknowledges that the property is sold in its present condition and state of repair and subject to all faults and defects of quality both hidden and apparent.
The plaintiffs proceeded to have works undertaken in respect of the staircase in the property. These works were completed in early August 2018. Mr Joseph Hallal of Phoenix carried out an inspection on 17 August 2018. A Record of Inspection prepared by Phoenix includes the following in relation to that inspection: Inspection Result/Action Taken … Undertook Final inspection of the works to determine that all works had been completed as per the approval. All works were undertaken as per the approved drawings and consistent with the CC consent. I have advised the applicant of all the certification required for the Occupation Certificate.
On 23 August 2018 an Occupation Certificate Application was made to Phoenix by the second plaintiff. An interim occupation certificate was sought. The application form contained a description of the "works as per the Development Consent" in the following terms: Internal demolition and construction of internal stairs only. It was further indicated that the occupation certificate was for "Part of the Building" being "Stage 1 internal demolition & stair".
Phoenix issued an interim occupation certificate on 24 August 2018. The certificate included the following: INTERIM OCCUPATION CERTIFICATE PRELIMINARIES CERTIFICATE NO.: 838-1017 PROPERTY: 149 Forbes Street, Woolloomooloo NSW 2011 DESCRIPTION OF WORKS Stage 1 - Internal Demolition & Construction of Internal Stairs Only APPLICANT: George Orena APPROVAL DATE: 24/08/2018

DEVELOPMENT CONSENT REFERENCE NO.: D/2017/1171 DATE OF ISSUE: 26 September 2017 ISSUING AUTHORITY: City of Sydney Council

CONSTRUCTION CERTIFICATE REFERENCE NO.: 838-1017 DATE OF ISSUE: 20/11/2017 ISSUING AUTHORITY: Joseph Hallal

AREA OF OCCUPANCY DATE OF INSPECTION: 17/08/2018 AREA OF OCCUPANCY: 149 Forbes Street, Woolloomooloo NSW 2011

CERTIFYING AUTHORITY CERTIFIER: Joseph Hallal - Accreditation No BPB 0159 ACCREDITED BY: Building Professionals Board ▪ A current Development Consent is in force; STATEMENT: ▪ A current Construction Certificate has been issued with respect to the building plans & specifications; ▪ The building is suitable for occupation or use in accordance with its classification under the Building Code of Australia class 1a; ▪ The health & safety of the occupants has been considered;

The occupation certificate was sent by Cunningham Legal to SGB on 27 August 2018 "in satisfaction of special condition 49".
On 3 September 2018 SGB sent a letter in reply which included the following: The occupation certificate provided is said to be for "Stage 1 - Internal Demolition & Construction of Internal Stairs Only". Special condition 49 contains a warranty by the vendor that all development consent conditions will be satisfied. Kindly confirm that all development consent conditions in relation to development application no. D/2017/1171 have now been satisfied, and if so, provide copy occupation certificate.
On 5 September 2018 Cunningham Legal sent a letter to SGB which included the following: The occupation certificate provided certifies that the works to the internal stairs have now been completed to a satisfactory standard and is fit for occupation. The development application remains open as not all approved works were carried out and provides a future opportunity for the purchaser to make alterations to the property without obtaining a new Development Application approval. A final occupation certificate may be obtained once the development application lapses.
SGB replied on 12 September 2018 by letter which included the following: The content of your letter is not satisfactory considering the warranty provided by your client, and relied upon by our client, that all development consent conditions will be satisfied on or before completion. The development consent conditions include, without limitation, that the development must be in accordance with Development Application No. D/2017/1171 dated 25 August 2017 and the drawings numbered A1.01 and A1.02 prepared by Building Design and Technology. Both these said drawings are annexed to the Contract. We are instructed that our client requires confirmation, on or before completion, that all development consent conditions in relation Development Application No. D/2017/1171 have been satisfied and an occupation certificate be provided.
At about that time, the plaintiffs retained new solicitors, Day Legal. On 20 September 2018 Day Legal sent an email to SGB. A further email was sent on 21 September 2018. The second email contained a request that confirmation be provided that the purchaser was content to proceed to completion on the specified Completion Date with the property in its present condition.
On 21 September 2018 SGB sent an email to Day Legal which included the following: Our clients position has not changed, that is, Dr Joseph Pollak, requires confirmation that all development consent conditions in relation to Development Application No. D/2017/1171 have been satisfied and an occupation certificate be provided. Our client relies on the warranty provided by your client that all development consent conditions will be satisfied on or before completion.
Day Legal responded on 27 September 2018. It was contended that the vendor's obligations under Special Condition 49 had been complied with, and it was stated that the purchaser's interpretation of the provision was incorrect.
Further correspondence between the solicitors followed, with each maintaining that their interpretation of Special Condition 49 was correct. It is not necessary to refer to the detail of this correspondence. Most, if not all, of the contentions raised by the solicitors were advanced by the parties at the hearing.
On 10 October 2018 Day Legal served a Notice to Complete upon SGB. The notice called for completion to occur by 26 October 2018, but the notice was withdrawn on 18 October 2018. In any event, completion did not take place. On 21 February 2019 SGB served a Notice to Perform upon Day Legal. The notice called for the plaintiffs to provide an occupation certificate evidencing the satisfaction of all development consent conditions in relation to the development approval within 14 days. No further occupation certificate has been provided by the plaintiffs.

Submissions

The plaintiffs submitted that they have complied with their obligations under Special Condition 49, properly construed. That is to say, they have complied with the condition by replacing the lower staircase in accordance with the development approval and providing an occupation certificate to the defendant. Accordingly, the plaintiffs submit that they are entitled to call for completion of the contract. The defendant on the other hand submitted that in order for the plaintiffs to comply with Special Condition 49, and thus be in a position to call for completion, the plaintiffs must undertake the balance of the works the subject of the development approval and then provide an occupation certificate.
Both parties referred to, and called in aid of their positions, the often cited statements made in recent times by the High Court concerning the principles of construction of written commercial agreements. In particular, reference was made to Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. Reference was also made to the discussion of the principles by Leeming JA in Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [71]-[86] (see also Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109). Both parties submitted that their interpretation was supported by the clear words of Special Condition 49, read in their context, and having regard to the surrounding circumstances known to the parties and the commercial purpose of the contract. The defendant emphasised that it is not open to a court to depart from clear contractual language in order to arrive at what is regarded as a more business-like interpretation (see, for example, Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]; Miwa Pty Ltd v Siantan Properties Pte Ltd (2011) 15 BPR 29,545; [2011] NSWCA 297 at [18]).
The plaintiffs submitted that Special Condition 49 is a specific and limited exception to Special Condition 35. That condition provides that the plaintiffs cannot be called upon to carry out any repairs. It was submitted that the third sentence of Special Condition 49 (upon which the defendant placed some emphasis) must be read in the context of the preceding two sentences and the final sentence. It was put that the first sentence is a disclosure that works have been carried out but one matter, namely the lower staircase, requires further attention. The second sentence contains a promise by the plaintiffs to replace the lower staircase in accordance with the development approval. The fourth sentence precludes the defendant from making claims in respect of that work. It was then submitted that the third sentence contained both a warranty that all development consent conditions in respect of that work will be satisfied by completion, and a promise to provide an occupation certificate in respect of that work prior to completion.
The plaintiffs submitted that it would be a commercially unreasonable or inconvenient (if not an absurd) result if the third sentence was construed as containing a promise by the plaintiffs that they would complete all of the remaining works the subject of the development approval. It was pointed out that the only works specifically referred to in the negotiations prior to exchange of contracts were those concerned with the staircase.
The defendant submitted that when the contract is read as a whole (including the deletion of Special Condition 43), it was clear that the defendant had contracted to purchase a "wholly compliant building". It was put that it was a purpose of Special Condition 49 that the defendant receive a compliant building. It was submitted that the warranty referred to in the third sentence of Special Condition 49 should be construed as a promise by the plaintiffs that all conditions of the development consent would be satisfied by the time completion is to occur. The defendant submitted that fulfilment of the promise requires the plaintiffs to complete all of the works the subject of the development consent. As I understood the submission, this was so because otherwise Condition 1 of the consent (referred to above at [6]) could not be said to have been satisfied. It was submitted that if the plaintiffs' construction was accepted, the warranty would have no work to do over and above that which is required by the preceding sentence.
The defendant submitted that once it is accepted that the plaintiffs must comply with all development consent conditions, it is clear that the occupation certificate required to be provided under Special Condition 49 is a final occupation certificate (see s 109H of the Environmental Planning and Assessment Act 1979 (NSW), which provision continues to apply by virtue of cl 18(2) of the Environmental Planning and Assessment (Savings, Transitional and Other Provisions) Regulation 2017 (NSW)). It was pointed out that the requirement for an occupation certificate appears in the same sentence as the warranty that all development consent conditions will be satisfied. The defendant further submitted that, in any case, the occupation certificate in fact given by the plaintiffs cannot satisfy Special Condition 49 because it provides no more than confirmation that the internal stairs may be occupied.

Determination

It is uncontroversial that the relevant task is to ascertain what reasonable business persons in the positions of the parties would have understood Special Condition 49 to mean. It is also clear that the language of Special Condition 49 needs to be read in its entirety and in the context of the contract as a whole. It is necessary to consider the language used by the parties, the surrounding circumstances known to them, and the commercial purposes or objects to be secured by the contract. The contract here is an agreement for the sale of land, being a residential property.
It is immediately apparent that Special Condition 49 operates as an exception to Special Condition 35. Special Condition 35 concerns the condition of the property the subject matter of the sale. It contains an acknowledgement by the vendor that he purchased the property relying on his own inspection, knowledge and enquiries (see also Special Condition 34). Special Condition 35 further provides that the purchaser cannot call upon the vendor to undertake any repairs to the property sold.
The first sentence of Special Condition 49 then contains a disclosure by the vendor that works have been undertaken pursuant to the development approval. Even though the development approval was not annexed to the contract as stated, the approved plans were, and both parties were aware of the existence of development approval D/2017/1171. To my mind, the language of the disclosure should be understood as being to the effect that works have been carried out pursuant to the development approval but in one respect these works have not been done in accordance with the approval, with the result that the lower staircase requires replacement. The details of the nature and extent of the works that have been carried out is not specified.
The second sentence of Special Condition 49 contains a promise by the vendor to ensure that the replacement of the lower staircase is carried out in accordance with the development approval prior to settlement (due three months after exchange). In substance, this is the content of the exception to Special Condition 35.
The third sentence of Special Condition 49 has two components. First, a warranty by the vendor that all development consent conditions will be satisfied on or before completion; and secondly, a promise by the vendor to provide an occupation certificate to the purchaser prior to settlement. In my opinion, reasonable business persons would be likely to understand this sentence as being concerned with the work the vendor has promised by the preceding sentence to do, rather than any work the subject of the development consent that has not been carried out. The third sentence largely takes its colour from the immediately surrounding text, including the fourth sentence of Special Condition 49. The subject matter of that sentence is "this work", which in my view is a reference back to the work the vendor has promised to do, namely, the replacement of the lower staircase.
So construed, Special Condition 49 contains a warranty by the vendor that all development consent conditions in respect of that work will be satisfied on or before completion, and a promise by the vendor that an occupation certificate in respect of that work will be provided prior to settlement.
The defendant submitted that this construction would give no work to the warranty. It is said that the construction involves repetition: a promise to ensure that the lower staircase is replaced prior to settlement in accordance with the development application, and a warranty that all development consent conditions in respect of that work will be satisfied on or before completion, such that the warranty would be superfluous. I do not think that is so, as in my view the warranty would not merge on completion. In any event, the construction advanced by the defendant suffers from a similar problem. If the warranty was regarded as a promise to complete the works the subject of the development consent, there would be no need for the specific promise to replace the lower staircase in accordance with the development approval. Of course, as stated by Dixon J (as his Honour then was) in Teele v Federal Commissioner of Taxation (1940) 63 CLR 201 at 207 construction arguments founded on redundancy are "never strong". It is not uncommon for parties to contracts to employ language repetitively, or use superfluous words (see HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 at [154]). In the present case Special Condition 49 evolved into its final form during negotiations carried on in the course of a single day.
I am also unpersuaded by the defendant's submission that the warranty requires the plaintiff to complete all of the works the subject of the development consent. The submission is underpinned by the contention that completion of the works is necessary in order to satisfy all development consent conditions. It was put that until all the works are complete, Condition 1 of the consent remains unsatisfied.
I do not think that is correct. The consent is in the nature of a permission to carry out certain development. Condition 1 mandates that any development be in accordance with the development application and the two drawings, as amended by the conditions of the consent, including Condition 2. However, it would be contrary to the permissive nature of consent to read Condition 1 as including a requirement that the entirety of the works be carried out. Accordingly, a failure to carry out all of the works does not leave Condition 1 unsatisfied; nothing that is required by Condition 1 remains to be done. The defendant accepted that the development consent was permissive in nature, but maintained that the obligation to complete all of the works sprang not from the consent, but from the terms of Special Condition 49. Nevertheless, the warranty contained in Special Condition 49 refers to satisfaction of the development consent conditions, so the scope of the warranty depends at least in part upon the content (or requirements) of the development consent conditions.
The defendant also submitted that the construction favoured by the plaintiffs involved the reading in of words of qualification. That is true, but only in the sense that the scope of the third sentence of Special Condition 49 is qualified having regard to the subject matter of the immediate context in which it appears. In any case, for the reasons just given, the language of the third sentence cannot be read as a promise to complete all of the works the subject of the development consent. Had such a promise been intended, appropriate words to that effect could easily have been included.
In my opinion, the construction of Special Condition 49 advanced by the plaintiffs is the better construction. It seems to me to better accord with the language of the contract as a whole. Reasonable business persons in the positions of the parties would have understood Special Condition 49 as providing for: 1. a promise by the vendor to ensure that prior to settlement the lower staircase is replaced in accordance with the development approval; 2. a warranty by the vendor that all development consent conditions in respect of that work will be satisfied on or before completion; 3. a promise by the vendor that an occupation certificate in respect of that work will be provided prior to settlement; and 4. an agreement by the purchaser not to make any claim or requisition, or seek to rescind or terminate the contract, in respect of that work.
It appears that the plaintiffs have complied with their obligations under Special Condition 49. They have had the lower staircase replaced, and have provided an occupation certificate in respect of that work. The plaintiffs are not required to complete all the works the subject of the development consent, or provide a final occupation certificate, whether in respect of such works or otherwise. The interim occupation certificate provided by the plaintiffs satisfies the description of "occupation certificate". That description is to be read in the light of the legislative background existing at the time the contract was entered into, including s 109(H)(1) of the Environmental Planning and Assessment Act which identifies an interim occupation certificate as one of two kinds of occupation certificate. The parties to the contract did not (despite the defendant's suggestion) specify that a final occupation certificate was to be provided. I do not accept that the occupation certificate provided by the plaintiffs is deficient because it merely confirms that the internal stairs may be occupied. Even if the certificate is so limited, Special Condition 49 envisages an occupation certificate that relates to the lower staircase works. In my opinion, the occupation certificate meets that description.
It follows from the above that the plaintiffs are entitled to orders for specific performance of the contract, and the defendant's cross claim should be dismissed. The Court will make orders to that effect. The Court will also order that the defendant pay the plaintiffs' costs of the proceedings.

Amendments 24 April 2019 - Amendment to appearance. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2019

At a glance

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Judgment (11 paragraphs)

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