BEECH v McCAULEY SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, POWELL and COLE JJA 14 September 1994, 14 September 1994 [1994] NSWCA 22 Vendor and Purchaser — Matters arising after contract — Rescission — Grounds for Standard form of Agreement for Sale — C114, cl14A (Strata Title) Powell J This is an Appeal from a Judgment delivered by Brownie J on 10th June 1993, and from Orders made by his Honour, both on that day and, in addition, on 29 November 1993, in what might be described conveniently as a Vendor and Purchaser suit. In that suit, the Appellant, Mr Beech, had sought against the Respondent, Mr McCauley, the following (inter alia) Declaration and Orders: "(1) A declaration that the contract dated 30 July 1992 between the Defendant as Vendor and the Plaintiff as Purchaser of all that land within Folio Identifier 2/SP20238 was validly rescinded by the Plaintiff by Notice of Rescission dated 27 October 1992. (3) An order that the Defendant be directed to instruct Mr I Resnekov of Century 21 Resnekov Realty to pay the sum of $34,100.00 plus accumulated interest to the Plaintiff. (4) Alternatively to paral, para2 and para3 above, an order pursuant to Section S5 (2A) of the Conveyancing Act 1919 that the Defendant be directed to instruct Mr I Resnekov of Century 21 Resnekov Realty to pay the sum of $34,100.00 plus accumulated interest to the Plaintiff." while the Respondent, in the Cross-Claim which he had filed, sought (inter alia) the following Declarations and Order: - "(1) A declaration that the contract dated 30th July 1992 between the Cross-Claimant and Cross-Defendant was repudiated by the Cross-Defendant. (2) A declaration that the said contract was validly terminated by the Cross-Claimant. (3) A declaration that the deposit of $34,100.00 was validly forfeited by the Cross Claimant. (5) Damages." The contract in question was one which had been executed, and exchanged, immediately after the conclusion of a public auction at which the Appellant had been the successful bidder at $341,000.00. It related to a property which was described in "The Particulars" of the property as being (inter alia): - "THE PROPERTY described as (a) The following land: (i) Address (number, name, street and locality): 9 Little Wonga Road, Cremorne. (ii) Nature of improvements (vacant land, cottage, flats home unit and garage etc.): Town House 2 UNREPORTED JUDGMENTS (iii) Lot/Portion: 2 Section: Strata Plan: 20238 (iv) Title reference: Folio identifier 2/SP20238. The contract was in the standard form of Agreement for Sale - 1988 Edition approved by the Law Society of New South Wales ("the Law Society") and the Real Estate Institute of New South Wales ("the Real Estate Iustitute"), and, for that reason, I think it unnecessary to set out, in detail, the conditions contained in it. It is, however, relevant to note that Cl14 in the standard form provides: "14. Strata title. Where the title to the land is, or is intended at the date of completion to be, Strata Title: (a) the property shall be deemed to include the interest in the common property associated with the lot or lots comprising or forming part of the property; (b)unless the contrary intention appears in this agreement, the provisions of "C114A (Strata Title)' in the form last published by the Law Society of New South Wales and the Real Estate Institute of New South Wales as at the date of this agreement shall apply." Although "C114A (Strata Title)" was not physically included in the form of contract, the form last approved by the Law Society and the Real Estate Institute, as at the date of the contract, so far as is relevant, was in the following terms: - "14A As to any part of the property which is or is intended to be a lot or lots or otherwise part of a strata scheme under the Strata Titles Act, 1973, (in this clause called 'The Act') the Purchaser shall take title subject to the provisions of the Act and the Regulations thereunder and the following provisions shall apply: (f) the property is sold subject to a warranty that the Vendor is not aware of: (ii) any defects (whether patent or latent) in the common property (unless expressly or by necessary implication disclosed in this agreement) which may involve the Body Corporate in the expenditure of money for repair or replacement (other than for ordinary wear and tear) which expenditure, when apportioned to the lot or lots comprising or included in the property in accordance with the unit entitlement thereof would exceed one half of one percentum of the price; (g) without prejudice to any rights under paragraph (f) above should it be established prior to completion that there is any breach of warranty therein referred to or that there exists any circumstance which had the Vendor been aware of it would have occasioned such a breach, then the Purchaser shall be entitled by notice in writing to rescind this agreement." After the execution of the contract, the Appellant's solicitors commenced to carry out the inquiries usually made on behalf of a Purchaser, in the course of which inquiries it was ascertained that certain works affecting the common property of the building comprised in the Strata Plan had been carried out, which works, although the subject of a Building Approval issued by the Council of North Sydney, had not been carried out in accordance with the approved plans and specifications, or in accordance with the conditions to which the Building Approval was subject. So extensive were the departures from the approved plans and specifications that the cost of rectification was estimated variously as being between $30,000 and $45,000. Given that, in the building which was the subject of the Strata Plan, there were only two lots, it is apparent that the cost, even at the lower range, of rectifying the building works which would have to be borne URJ BEECH v McCAULEY (Powell J) 3 by the owner for the time being of each Lot in the Strata Plan would have been far in excess of that contemplated by Cl14A(f)(ii) of the contract. In addition to ascertaining the existence of those defective works, the Appellant's solicitor had ascertained the existence of a number of matters which, so he believed, entitled the Appellant to raise a variety of requisitions on title and, if those requisitions were not satisfactorily complied with, ultimately to rescind the contract. Those requisitions having been raised, correspondence between the solicitors for the Appellant and the Respondent in relation to them continued over a period of months, during the course of which the Respondent's solicitor had first purported to give a Notice to Complete but later withdrew it. In the event, on 27 October 1992, the Appellant's solicitor delivered to the Respondent's solicitor a formal Notice of Rescission in which Notice of Rescission the Appellant relied (inter alia) upon the defective works as justifying his rescission of the contract. It was following the delivery of that Notice of Rescission that the Summons, to which I have earlier referred, was filed on behalf of the Appellant. It would seem that, prior to the proceedings coming on for hearing before Brownie J, the Respondent had re-sold the property for a sum about $30,000.00 Tess than that provided for in the contract, that difference in price providing the basis for the Orders which his Honour was later to make on the Cross-Claim. The matter appears to have come before Brownie J on 4th June 1993, the hearing concluding on that day and his Honour reserving his Judgment, which Judgment, as I have earlier indicated, was delivered on 10 June 1993. On the hearing, a variety of grounds was advanced by the Appellant in support of his claim that he had validly rescinded the contract. In the circumstances in which in the hearing of this Appeal has proceeded, it is unnecessary to record all those grounds, it being sufficient to indicate that, among the grounds then advanced, was one based on the inter-action of the provisions of ClI4A(f)(ii), cll4A(g) of the contract. Despite the vigour with which those various grounds appear to have been advanced Brownie J, all of them failed, that based upon the provisions of Cl14A of the contract, as I read his Honour's judgment, upon the basis that, although it was difficult to accept that the Respondent was, in fact, unaware of the defects in the building, insofar as it involved the common property, he was not satisfied that the Appellant had established that the Respondent was in fact aware. With respect to his Honour, this, as it seems to me, involved an oversight by him of that part of Cl14A(g) which provided that it was open to the Appellant to rescind the contract if the circumstances which were proved were such that, if the Respondent had been shown to be aware of them, there would, in fact, have been a breach of the warranty contained in Cl14A(f) of the contract. Be that as it may, his Honour declined to make the positive Orders sought by the Appellant in prayers 1, 3 of his Summons, but, being satisfied that the circumstances were such as to justify him in so doing, he made, or proposed that there be made, an Order in terms of prayer 4 of the Summons and a further Order that the Respondent pay the Appellant's costs - those Orders do not, however, appear ever to have been entered. Although the appeal papers do not reveal that this was so, it would appear to be the case that his Honour's attention was later drawn to the fact that the only Order which he had made, or proposed, in his Judgment of 10 th June 1993 left the Cross-Claim undisposed of. It further appears as if there may well have been a formal hearing of that Cross-Claim at a later time, for, among the appeal papers, appears what is described as a form of "Short Minutes of Order" - said to have 4 UNREPORTED JUDGMENTS been entered on 21st March 1994 - which contains the following - singularly inelegant, and procedurally aberrant - provisions: "The Court orders that: (1) Damages be awarded in favour of the Defendant pursuant to his cross claim in the amount of $35,060.07. (2) These damages be set off pursuant to s91 of the Supreme Court Act against the Plaintiff's deposit of $34,100.00 currently held by Century 21 Resnekov Realty. (3) The Plaintiff to instruct Century 21 Resnekov Realty to pay the said deposit to the Defendant. (4) Judgment be entered for the Defendant against the Plaintiff in the amount of $960.97. (5) The judgment of Brownie J dated 10 June 1993 be amended so that the word "Plaintiff" on page 11 line 13 read "Defendant'"." When the Appeal was called on for hearing today, Mr D H Lloyd QC appeared with Mr R C Williams for the Appellant, as they had done at the trial before Brownie J, while Mr I M Wales, who had previously appeared for the Respondent, appeared, as a matter of courtesy, to inform the Court that his instructions, and those of his instructing solicitor, had been withdrawn in circumstances of which he advised the Court, and in respect of which he sought the Court's Order that his instructing solicitor be at liberty to file a Notice of Ceasing to Act, which Order was then made. In the circumstances, it seemed to the Court that it was unnecessary to examine, in detail, all the grounds upon which the Appellant had sought at first instance to support his claim that he had validly rescinded the contract for sale, which grounds he sought also to advance on the hearing of the Appeal, as it seemed to the Court that it was sufficient if it could identify one ground upon which that rescission might be justified. As will be apparent from what I have earlier recorded, it is my clear view that, whatever may have been the validity of the other grounds of appeal taken by the Appellant, that which he sought to base on the provisions of cl14A(f)(ii), cll4A(g) of the Contract was well founded. For those reasons I would propose that the appeal be allowed. Bearing in mind that the Respondent - so we have been informed - is now serving a lengthy sentence of imprisonment and, no doubt, by reason of that fact, is quite indifferent to, and unlikely to comply with, any Order which this Court might direct to him, it might be appropriate to invite Mr Lloyd to make submissions as to the particular Declarations and Orders which he considers it appropriate for the Court to make. Handley JA I agree. Cole JA I also agree. (The Court heard submissions of Mr Lloyd as outlined above.) Handley JA: For the reasons given by Powell JA, with which Cole JA and I have agreed, this Appeal should be allowed. I would propose that the Court would make the following formal Orders in order to dispose of the Appeal: - (1) APPEAL allowed. (2) SET ASIDE the Judgment and all Orders on the Cross-Claim made in the Equity Division. (3) In lieu: - URJ BEECH v McCAULEY (Cole JA) 5 (a) DECLARE that the contract dated 30 July 1992 between the Respondent as Vendor, and the Appellant as Purchaser, of all the land within Folio Identifier 2/SP20238 was validly rescinded by the Appellant by Notice of Rescission dated 27th October 1992. (b) DECLARE that the Appellant Martin Conway Beech is entitled by virtue of such rescission to a return of his deposit together with all interest accrued thereon from the agent Mr I Resnekov of Century 21 Resnekov Realty. 4. ORDER the Respondent pay the Appellant's costs of the Appeal and the costs of the proceedings in the Equity Division. 5. ORDER that the Respondent is to have a certificate under the Suitors Fund Act 1951. 6. ORDER that the Appellant is to have liberty to apply to the Equity Division for any consequential relief should that become necessary. Counsel for the Appellant: D H Lloyd QC and R C Williams Solicitors for the Appellant: Jonathan Hassett Counsel for the Respondent: No appearance