CIVIL Case No. X P Lauritsen Melbourne REASONS FOR DECISION ---

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1 !Undefined Bookmark, I IN THE MAGISTRATES COURT OF VICTORIA AT MELBOURNE CIVIL Case No. X Che-Sam Lo Plaintiff v Stamford Lawyers Brady Developments Pty Ltd 1 st Defendant 2 nd Defendant --- MAGISTRATE: WHERE HELD: P Lauritsen Melbourne DATE OF HEARING: 16, 24 September 2008 DATE OF DECISION: 28 January 2009 CASE MAY BE CITED AS: Che-Sam Lo v Stamford Lawyers and Brady Developments Pty Ltd REASONS FOR DECISION Catchwords: deposit held on trust rescission of contract - Transfer of Land Act Table A and s 9AE(2) of the Sale of Land Act APPEARANCES: Counsel Solicitors For the Plaintiff For the Defendant

2 HIS HONOUR: Introduction 1. On 31 March 2003, the plaintiff signed a contract to buy an off-the-plan apartment for $254,000. He paid a deposit of $25,400. The contract provided that if the plan of subdivision relating to the apartment was not registered within 24 months of 31 March 2003, then either party to the contract could rescind it by giving written notice to the other at any time prior to its registration. Shortly after 31 March, the parties varied the period from 24 months to 36 months. In October 2005, the vendor, HML Investments Pty Ltd (HML), sought a further extension of time. The plaintiff disagreed. By 10 April 2006, the plan was not registered. On that date, the plaintiff gave written notice of rescission and demanded the return of his deposit. HML rejected the demand. 2. The plaintiff seeks various forms of relief. Principally, he seeks the return of his deposit from the second defendant, Brady Developments Pty Ltd. He discontinued his claim against the first defendant, Stamford Lawyers (Stamford), by a notice dated 31 March This proceeding has had a somewhat difficult progress through the court. Among other things, it was adjourned after the hearing of the parties evidence to enable the second defendant to call further evidence. Then on the last day of the resumed hearing, the second defendant s counsel fell ill during lunch and could not resume his final submissions. Later, he filed a written submission, dated 5 November Issues 4. Relevant to the issues litigated before me, in his statement of claim 1, the plaintiff pleads: (a) the payment of a deposit to the first defendant, Stamford Lawyers, to be held on trust until the registration of the plan of subdivision; (b) that a term of the contract (special condition 14.1(a)) provided that if the plan was not registered within 24 months of the day of sale either party may rescind the contract by giving written notice to the other party at any time prior to the registration of the plan. He gave notice of rescission by letter dated 10 April 2006; (c) that if the agreement was rescinded under special condition 14.1, then special condition 14.7 required the vendor to refund the deposit moneys immediately. 5. In its notice of defence, the second defendant essentially: (a) denies the plaintiff s entitlement to the return of the deposit on three bases that the plaintiff had no right(s) to rescind the contract; he did not rescind the contract; and the rescission was ineffective; (b) asserts that the contract was rescinded by a notice dated April Dated 7 February DECISION

3 6. By an amended statement of claim dated 24 October 2008, the plaintiff pleaded that: (a) HML s conduct in extending the date for registration of the plan to 31 December 2006 amounted to a repudiation of the contract, which was accepted by the plaintiff; or (b) HML s conduct in so extending coupled with failing to engage a builder within a reasonable time and failing to obtain a building permit until 13 September 2003 amounted to repudiation, which was accepted. Circumstances Relevant contractual provisions 7. The plaintiff executed the contract on 31 March It contained a large numbers of conditions, general and special. There are two general conditions of particular relevance to this proceeding 9.1 and 10. The former provides that the general conditions in Table A of the Seventh Schedule of the Transfer of Land Act 1958 apply if the land is under the operation of that Act. The land was under the operation of that Act. The latter provides that in the case of a conflict between the conditions the order of priority is (a) special conditions in the contract; (b) general conditions in the contract; and (c) general conditions in legislation. 8. Table A provides a list of general conditions. It is clear that they are the conditions referred to in (c) above. Where there is a conflict, a condition in Table A has less priority than one in (a) or (b). By priority, I would understand that a condition in (a) would prevail over a condition in (b) or (c) if they conflict. 9. The contract contained several special conditions relevant to this proceeding. 10. Special condition 14.1(b) provides: If the Plan is not registered within 24 months from the Day of Sale, then either party may rescind this Contract by giving written notice to the other at any time prior to the registration of the Plan. 11. Special condition 14.7 provides: If the Contract is rescinded in accordance with Special Conditions 14.1 or 14.6, the Deposit (less any bank fees, government charges, costs, expenses, taxes and duties incurred) must be immediately refunded to the Purchaser by the Vendor. Each party will then cease to have any further Claim against the other. 12. Special condition 14.8 provided, relevantly: The Purchaser acknowledges that the Vendor may notify the Purchaser if registration of the Plan is delayed or potentially delayed beyond the period of 24 months from the Day of Sale due to: (a) (b) (c) (d) DECISION

4 (e). (f) Any other direct or indirect act, matter or thing beyond the reasonable control of the Vendor which causes the registration of the Plan to be delayed. 13. In any of the above circumstances, the Vendor will be entitled to extend the period for registration of the Plan to a reasonable period determined by the Vendor. The Purchaser must not make any Claim, delay or refuse settlement, retain any part of the Price at settlement or rescind this Contract in respect of matters arising from this Special Condition. 14. In view of the significance placed by the defendant upon them, condition 5 and subcondition 6(2) of Table A provide: 5. Time shall be of the essence of this contract. However, if either party defaults under this contract the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless the default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within fourteen days of service of the notice and the offender fails to comply with the notice. 6. (2) If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded. Contractual variation 15. Shortly after the payment of the deposit moneys, the plaintiff received a letter from Stamfords enclosing a document entitled Acknowledgment of Variation of Contract. He signed the document on 26 May It was returned by his solicitors. The document read: I, Che-Sam Lo of 30 Victoria Street, Footscray, Victoria being the Purchaser of Unit 703, Q Apartments Elizabeth Street, Melbourne agree with the Vendor, HML Investments Pty Ltd, that the Contract of Sale for this Unit be amended by replacing the expression 24 months with the expression 36 months in Special Condition 14.1(b) of the Contract of Sale. 16. The Day of Sale was 31 March No issue was raised about this variation. Accordingly, if the plan was not registered within 36 months from 31 March 2006, then either party could rescind the contract. Progress of the building works 17. Originally, there was a four-storey building on the land at Elizabeth Street. It was made of concrete building and clad with sandstone. HML s plan was to strip away the cladding and add another ten storeys. 18. During 2003, MHL engaged Rixtam Constructions Pty Ltd (Rixtam) to undertake the redevelopment. Without unforeseen problems, it should have taken Rixtam about 2 years to complete it. Rixtam took possession of the site in August In September 2003, a building permit was issued. Legally, construction work cannot start until a building permit is issued although a builder may undertake preparatory 3 DECISION

5 work in anticipation of its issue (e.g. the erection of site sheds). Rixtam s building contract was varied on 11 August The OCBC Bank provided finance to HML for this project. In January 2005, it engaged a company, of which David Stewart (Stewart) is a director. The company s task was to report monthly on the progress of the project in order to allow the bank to release moneys to HML. Stewart is a quantity surveyor. In order to make the company s report, he inspected the site with a representative of Rixtam each month and determined the progress. When Stewart went to the site in January 2005, there had been a substantial amount of cleaning up done to the building s exterior. This had revealed a defect in the concrete called concrete cancer. It required repairing. Rixtam had claimed $1,500,000 from HML to repair the defect. At this visit, Stewart formed the view that the project was 7 months behind where it ought to have been. He did so by comparing Rixtram s planned programme of works with the current state of the works. 20. When Stewart visited the site in August 2005, an additional 1½ to 2 storeys had been added. But there was only one person on site. He formed the view that there had been no progress in the development during July and certified that nothing should be paid to Rixtam. 21. Stewart next visited the site in January His company had now been engaged by Westpac Finance to undertake the same work as it had performed for OCBC Bank. No work had been performed between his last visit in August 2005 and this visit. Accordingly, no money was paid to Rixtam between those dates. By January 2006, Rixtam was about 10 months behind their programme. 22. Stewart expected that the owner would have engaged a structural engineer to inspect and advise on the condition of the structure of the existing building. He would also expect the results of the inspection be conveyed to the builder for the purposes of the latter quoting. In the absence of the issue of concrete cancer, Stewart would have expected these works to take about 2 years to complete. 23. As a means of carrying out their contractual arrangement, Rixtam and HML appointed a building superintendent. He certified extensions of time for Rixtam to complete the works totalling 162 days. There are two reasons why such extensions are granted they involve variations to the contracted works requested by the owner; or they involve reasons beyond the control of the builder. Although some of those 162 days were certified during the period that Stewart was involved, he did not know how many days occurred in that period or why. An unknown number of days of extension related to the concrete cancer. These were claimed by Rixtam as a variation. 162 days translates to 8 or 9 months because week ends, rostered days off and public holidays are excluded from the calculation of days. Correspondence between the parties 24. Stamfords wrote to the plaintiff on 10 October The letter read, relevantly: We refer to previous correspondences regarding the progress of the construction of the Q Apartments. We are instructed that for reasons beyond our client s control, completion of the development and registration of the Plan has been further delayed. In accordance 4 DECISION

6 with Special Condition 14.8 of the Contract of Sale, our client gives notice that it exercises its rights to extend the period of registration of the Plan to 31 December Accordingly, please note that the due date for registration of the Plan pursuant to Special Condition 14.1(b) is now 31 December The plaintiff replied on 21 October: I refer to your letter dated 10 th Oct Obviously, it s your 2 nd time to request for extension and registration of the Plan has been further delayed again. Please note clearly that: 1. I do not agree and do not accept your client s unreasonable explanation. 2. Due to your client s default, I would like to terminate the contract of sale. 3. I am seeking the compensation, return of 10% deposit, rental guarantee, all interest and legal costs. Our legal advisor will contact you for all details of compensation and cost, shortly. 26. The plaintiff s solicitors wrote on 24 October 2005 to Stamfords confirming that he will not accept any further extension to the date for registration of the plan. Stamfords replied on 31 October. The plaintiff s solicitors responded on 24 November 2005 re-iterating the plaintiff s stance and stating Our client has instructed us to rescind the Contract if the Plan of Subdivision is not registered by 31 March On 27 October 2005, HML agreed to sell the land to the second defendant. On 21 February 2006, HML and the second defendant executed a deed of assignment whereby the benefit of the contract of sale between HML and the plaintiff was assigned from 21 February. Notice of the assignment was given by letter dated 12 April. 28. On 13 April 2006, the plaintiff s solicitors wrote to the second defendant s solicitor enclosing copies of earlier correspondence and concluded by saying We advise that we have been instructed to rescind the Contract. Accordingly, we request that you refund the deposit with any interest to our office within 7 days. 29. Thereafter, letters passed between the solicitors culminating with the service of a Notice of Default and Rescission upon the plaintiff s solicitors by letter dated 7 February On 27 February, the second defendant s solicitor advised that the contract is rescinded with the deposit moneys of $25,400 and accrued interest of $3, being transferred to the second defendant. 30. The Plan of Subdivision was registered on 21 December Discussion Validity of the plaintiff s purported rescission 31. The defendant submits that the notice of rescission relied upon by the plaintiff was not a notice contemplated by Table A of Schedule 7 of the Transfer of Land Act It submits that the conditions in Table A apply to the agreement by virtue of the agreement s general conditions including sub-condition 9.1. It submits that the proper 5 DECISION

7 form of notice should do three things specify the default; require that it is remedied; and allow 14 days for the default to be remedied. 32. I do not accept this submission. The agreement allows for rescission in, at least, one specific circumstance and one general circumstance. The specific circumstance is set out in special condition 14.1(b). The general circumstance is set out in condition 5 of Table A. Special condition 14.1(b) simply provides that either party may rescind the contract by giving written notice to the other at any time prior to the registration of the plan. There is no express requirement as to the content of the notice. The only requirement relates to its form in writing. Since there is conflict between this special condition and condition 5 of Table A, then general condition 10 operates to give priority to the former. It is sufficient that the written document gives notice of rescission and no more. It is plain that the plaintiff did just that prior to the registration of the plan. Reliance upon special condition 14.8(f) 33. The burden of establishing the applicability of special condition 14.8(f) rests with the defendant. Reliance upon that special condition involves allegations which amount to an avoidance of the plaintiff s prima facie claim to relief 2. It is no answer to point to the plaintiff s failure to refer to the fact and terms of the variation of the date made in It does not matter that the additional allegation in that paragraph 10 of the statement of claim is incorrect because the primary allegation is correct. 34. The special condition requires something to cause a delay in registration. The nature of the something is qualified by the expression beyond the reasonable control of the Vendor. The defendant identifies things as satisfying the description concrete cancer; Rixtam abandoning or terminating the project; Rixtam in administration; the need to seek a new builder; and lack of progress. 35. There is an insufficient basis to find that the delay in registering the plan was due to a thing or things beyond the reasonable control of the vendor. The difficulty lies in the lack of evidence. The second defendant called two witnesses with very limited knowledge of the project Stewart; and Simon Pethica. Only Stewart possessed knowledge of the project before the second defendant purchased HML s interest. Owing to the nature of his involvement, what he said about the causes of the building project was limited and fell short of establishing that the delay was due to a cause or causes beyond the reasonable control of HML. 36. Following the contractual variation, the owner had until 31 March 2006 to register the plan. This could only occur following the completion of the re-development. Even with the additional time, the owner faced a difficult task. It engaged Rixtam in about August 2003 and obtained the building permit in September Since the builder could not start substantive building works until the permit was issued, the owner allowed about 31 months to complete the works and register the plan. Without complications, the building works would have taken 24 months to complete. 37. On Stewart s evidence, the existence of concrete cancer should have been discovered before HML engaged Rixtam as the builder. Its rectification would have delayed the project. It is unknown to what extent. Rixtam left the building site. The evidence does not reveal why. More importantly, it does not exclude HML as being 2 Stewart v Dillingham Constructions Pty Ltd [1974] VR 24 at DECISION

8 responsible. 38. On the evidence, I cannot be satisfied that the registration of the plan was delayed beyond 31 March 2006 due to any other 3 direct or indirect act, matter or thing beyond the reasonable control of HML. 39. In my opinion, the plaintiff validly rescinded the contract. Special condition 14.7 requires the repayment of the deposit moneys less certain deductions. There was no evidence concerning those deductions. Accordingly, the plaintiff is entitled to an order that the defendant pay him the sum of $25,400. Mandatory procedure 40. In its supplementary submissions, the second defendant submitted that the subject matter on which the plaintiff purported to rely to terminate the contract provided an exclusive code. It supported this submission by reference to special condition 14.8, which was described as mandatory and was said to expressly modify the special condition. It also referred to Table A and s 9AE(2) of the Sale of Land Act I do not agree with this submission. There are two relevant principles: (a) in construing contracts clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law 4 ; (b) an express provision for termination for breach in certain circumstances may be regarded as designed to augment rather than restrict or remove the rights at common law which a party otherwise would have had on breach There are no clear words rebutting the presumption. The presence of the special conditions contained in 14.1 and General Condition 10 are inconsistent with the notion that Table A provides a code. General Condition 10 of the Contract of Sale provides: In case of a conflict between the conditions the order of priority is: (a) any special condition in this contract (b) general conditions in this contract (c) general conditions in legislation. 43. I would understand (c) to include the conditions in Table A. 44. Clauses 5 to 7 of Table A deal with the rights of a party where the other defaults. Clause 5 is the critical provision. It is couched in the language of exclusivity. However, there are four 6 Special Conditions dealing with the termination of the contract. 3 That is, other than the matters referred to in paragraphs (a) to (e). 4 Concut Pty Ltd at 699. See also Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717 per Lord Diplock and Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 585 per Lord Goff. 5 Concut Pty Ltd at If one includes Special Condition DECISION

9 45. Condition 14.1(b) and (c) enable the rescission of the contract. Under sub-condition (b), either party may do so if the plan of subdivision is not registered within 24 months of the day of sale. Under sub-condition (c), the vendor may rescind if any requirement imposed in relation to registration is in the opinion of the vendor too onerous for the vendor to perform or if certification or registration of the plan of subdivision is refused through no fault of the vendor. Condition 14.6 enables the vendor to cancel the contract at any time prior to the commencement of building works and registration of the plan of subdivision. Condition 14.7 requires the refund of the deposit (less certain charges) if the contract is rescinded under condition 14.1 or It further provides that, upon refund, each party will cease to have any further claim against the other. 46. Given the order of priority specified in General Condition 10, the language of exclusivity is misleading. There are special conditions which allow termination and restrict the parties relief. It would be impossible to conclude that the presumption is rebutted so that Table A exclusively controls the circumstances and procedure regarding termination. There are no clear words. The existence of the above special conditions negates such exclusivity. Repudiation 47. The plaintiff submitted that the act of HML in seeking an extension in October 2005 constituted a repudiation of its obligations under the contract and that repudiation was accepted by the plaintiff in his letter dated 21 October He relied upon Foran v Wight 7, which he submitted was on all fours with the circumstances of this proceeding. 48. In Koompahtoo Council v Sanpine Pty Ltd 8, the High Court discussed the concept of repudiation. A majority of the Justices in a joint judgment described two primary senses in which the term is used 9 -- referring to conduct which evinces an unwillingness or an inability to render substantial performance of the contract; or referring to any breach of contract which justifies termination by the other party. This latter sense is sometimes called renunciation. In the latter sense, there are two circumstances in which a party may terminate because of another s breach breach of an essential obligation; or breach of a non-essential obligation where the breach goes to the root of the contract 10. From the plaintiff s reliance upon Foran s case, it is unclear which sense he intends. 49. In Foran s case, settlement of the sale of land was due to occur on or before 22 June. In this respect, time was of the essence. On 20 June, the purchaser s solicitor rang the vendor s solicitor, advised that finance had been arranged for 22 June and inquired when settlement could occur that day. The vendor s solicitor said that settlement could not occur that day because the vendor had not registered a plan containing an easement. Registration of this plan was a special condition of the contract. There was no settlement on 22 June. On 24 June, the purchasers served a notice of rescission. The central issue was the validity of the purchaser s notice of rescission and this required an examination of the extent to which the purchaser needed to be ready and willing to settle on 22 June. 7 (1989) 168 CLR (2007) 233 CLR Gleeson CJ, Gummow, Heydon and Crennan JJ. 10 An intermediate obligation. 8 DECISION

10 50. Each of the five justices gave a judgment. Mason CJ alone dissented. A reading of the majority judgments indicates to me that the ratio of the case is contained in two propositions stated by Brennan J 11 : (a) if an executory contract creates obligations which are mutually dependent and concurrent and, before the time for performance of the obligations arrives, one party (A) gives the other party (B) an intimation that it will be useless for B to tender performance and B abstains from performing his obligation in reliance upon A s intimation, B is dispensed from performing his obligation and A s obligation is absolute provided that B had not repudiated the contract and was ready and willing to perform his obligation up to the time when the intimation was given; (b) if, at the time when the intimation was given, B was substantially incapable of future performance of his obligation or had already definitely resolved or decided not to perform it, then B was not ready and willing and A s failure to perform his obligation when the time for performance arrives is no breach of contract. 51. I do not see how those propositions assist the plaintiff. Foran s case concerned the extent to which a party needs to be ready and willing to perform its obligations having failed to do so in the face of the other party s intimation that it will not perform its obligations. Those issues do not arise in this case. 52. The plaintiff did not argue the question of repudiation beyond simply relying on Foran s case. As I said, the ratio of Foran s case does not assist him. If the plaintiff intended to assert that there was repudiation in the sense of renunciation, then I do not see in the evidence a sufficient basis to find an inability or unwillingness. This is so even if the repudiation is treated as anticipatory and not actual. If he intended to assert a breach of an essential obligation as to time then condition 5 of Table A creates the procedure that must be adopted. The plaintiff cannot rely on condition 5 to create the essentiality of time and then ignore the rest of the condition. I would reject the plaintiff s claim insofar as it relies upon repudiation in either sense. ORDERS: 53. I will order the second defendant to pay the plaintiff the sum of $25,400. I will reserve the questions of other relief including interest and costs. Either party has liberty to relist the proceeding before me to determine any of those questions. 11 At p DECISION