Hassarati v Annania [1999] NSWSC 517

New South Wales Supreme Court CITATION : Hassarati v Annania [1999] NSWSC 517 CURRENT JURISDICTION : Common Law Division FILE NUMBER(S) : 11699 of 1998 HEARING DATE(S) : 23/03/99 JUDGMENT DATE : 3 June 1999

Michael John Hassarati PARTIES : Christine Hassarati (applicants) Frank Joseph Anania Amanda Josephine Anania (respondents) JUDGMENT OF : Hidden J at 1

LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 559 of 1996 LOWER COURT JUDICIAL OFFICER : Magistrate L J Brennan

COUNSEL : P. Ramos (applicants) O. G. Watt (respondents) SOLICITORS : Malfanti & Kaye (applicants) Peter C Prior & Co (respondents) CATCHWORDS : Appeal from Local Court by stated case; Contract for Sale of Land; Whether vendors or purchasers entitled to rescind; no question of principle ACTS CITED : Local Government Act CASES CITED : McNally & Waitzer [1981] 1 NSWLR 294 DTR Nominess Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 DECISION : Appeal allowed - matter remitted to Local Court

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

HIDDEN J Thursday 3 June 1999 No: 11699 of 1998 Michael John Hassarati & Anor v Frank Joseph Annania & Anor

Reasons for judgment

1 HIS HONOUR: This is an appeal by way of stated case from the judgment of a magistrate in proceedings for breach of a contract of sale of land. The appellants are a married couple, as are the respondents. The respondents had entered into a contract to purchase a property at Cherrybrook from the appellants and had paid a deposit. The contract did not proceed to completion and it was the respondents who brought the action for breach of it. They were successful to the extent of recovering the deposit, together with interest. 2 The contract was entered into on 28 November 1994. At that time the house was still under construction, but was about 90 per cent complete. The contract was the standard 1992 edition, to which were attached twelve additional special conditions. The first of those conditions provided that settlement was to take place on 31 January 1995, time not being of the essence. However, it went on to provide that, after that date, the appellants could forward a notice to complete to the respondents requiring completion within 14 days from the date of postage of that notice, in which event time would be of the essence. 3 The agreed price of the property was $500,000 and the respondents were required to provide a deposit of five per cent of the purchase price, amounting to $25,000. By special condition 2, that deposit was released to the appellants upon exchange of contracts. 4 Special condition 10 provided that the appellants were to supply to the respondents, prior to completion, an unqualified certificate from Hornsby Council under s172 (since repealed) of the Local Government Act 1993. In negotiations prior to the exchange of contracts, the respondents had wished to insert a defects liability condition which, among other things, would have required the appellants to remedy any defects in the building work before completion. The appellants did not agree to such a condition. However, special condition 11 provided that the appellants should rectify at their own expense any "defects or other faults in the improvements on the property" of which the respondents notified them within three months after completion. 5 On 25 January 1995 an architect retained by the respondents inspected the building and was of the view that a number of matters, of varying degrees of significance, needed to be attended to before practical completion could be achieved. 6 On 30 January the respondents' solicitor wrote to the appellants' solicitor, setting out the architect's list of matters for rectification. Of course, completion did not take place on the date originally set for that purpose, 31 January. What did happen on that day was an inspection on behalf of Hornsby Council, as a result of which a certificate under s172 of the Local Government Act was issued to the appellants on 2 February. 7 On 1 February the appellants' solicitor replied to the letter from the respondents' solicitor, asserting that most of the matters raised by the architect did not amount to defects in title and suggesting a further inspection of the site. On the same day the respondents were served with a notice to complete in accordance with special condition 1, requiring settlement on 17 February, time being of the essence. 8 On 2 February the respondents' solicitor wrote to the appellants' solicitor, challenging the validity of the notice to complete on the basis that the appellants themselves were not "ready, willing and able" to do so. They were alleged to have been in breach of their contractual obligations in a number of respects. Among other things, it was said they had failed to complete aspects of the building work for which specific provision was made in the special conditions, and that they had not supplied the certificate under s172 of the Local Government Act . The appellants' solicitor replied on 3 February, maintaining that the appellants had met their obligations under the contract and that the s172 certificate would be supplied prior to completion. 9 An inspection of the property took place on 6 February, which was followed by an exchange of correspondence between the solicitors about the state of completion of the work. On 13 February the respondents' solicitor wrote to the appellants' solicitor, stating that the respondents treated the appellants' refusal to undertake rectification work and complete the construction of the house as a repudiation of the contract and that a notice of termination would be served. On the same day the appellants' solicitor replied, advising that the respondents' actions would be treated as an anticipatory breach of the contract and serving a notice of termination on their part. 10 The learned magistrate found for the respondents upon the basis that the appellants were in breach of the contract by their failure to supply the s172 certificate by 31 January, the date originally set for completion. Indeed, he noted that they were in no position to do so because the inspection for the purpose of the issue of the certificate did not take place until that day. Accordingly, it was held, the appellants were not entitled to give notice to complete, as they had done on 1 February. His Worship referred to the leading New South Wales authority on this subject, McNally v Waitzer [1981] 1 NSWLR 294 and, in particular, to a passage from the judgment of Hutley JA (at 304) which begins in this way: The correct rule, in my opinion, is simply that a vendor who is in default in respect of things which up until then should have been done cannot give a notice to complete, but he can give notice to complete prior to performing all those other things which he has to perform in order to complete the contract. 11 For the same reason, his Worship held that the appellants were not entitled to rescind the contract on the basis of anticipatory breach by the respondents. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, Stephen, Mason and Jacobs JJ said (at 433): A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach… 12 These principles are not in doubt but, with respect, I consider that his Worship fell into error in their application to the case at hand. Completion by 31 January was not of the essence. Indeed, from the respondents' solicitor's letter of 30 January, following the inspection by the architect retained by them, it was clear that settlement would not take place on that day. What special condition 10 required was the supply of a s172 certificate prior to the day upon which completion actually took place. In the event, that day was to be 17 February and the appellants were in a position to supply the certificate before then. 13 Accordingly, to adopt the words of Hutley JA in the passage from McNally v Waitzer quoted above, the appellants were not "in default" in respect of anything which "then should have been done" at the time notice to complete was given. As that passage makes clear, they were entitled to give notice before they had done everything which was required of them prior to completion. 14 The question remains whether the respondents were entitled to repudiate the contract, as they did by their solicitor's letter of 13 February, on the basis that some building work was incomplete or required rectification. His Worship observed that standard condition 7 of the contract provided a mechanism for resolution of disputes between the parties, of which the respondents had not availed themselves. He noted that the respondents had been unsuccessful in negotiating a clause requiring any defects in the building work to be attended to before completion, and that special condition 11 provided for the rectification of defects within 3 months after completion. 15 There was no express provision in the contract about the standard of workmanship or the quality of fittings. His Worship considered whether such a provision might be implied. He referred to standard condition 10 of the contract which, among other things, provided that the respondents could not "make a claim, objection or requisition or rescind or terminate" the contract in respect of "a promise, representation or statement about this contract, the property or the title, not set out or referred to in this contract…". He had regard to evidence of the process of negotiation of the contract. From his reasons, I take it that his Worship found that a provision that the building work be completed in a proper and workmanlike manner prior to settlement should not be implied. Certainly, he held that any such implied provision would not be an essential term, breach of which would entitle the respondents to rescind the contract: DTR Nominees (supra) at 430-1. 16 However, given that the decision turned on the fact that the appellants had not supplied the s172 certificate, his Worship did not have to determine whether the respondents were entitled to rescind the contract because of the state of the building work. He made no finding about the progress and quality of that work. It will be remembered that some of the matters complained of in the respondents' solicitor's letter of 2 February were the subject of special conditions of the contract (see para 8 of these reasons). To decide whether the respondents were entitled to rescind, it would be necessary to examine the evidence of the defects alleged, their significance, and the nature and extent of the appellants' contractual duty in relation to them. One matter which might need to be considered is whether special condition 11 was intended to be confined to defects which became apparent only after settlement. 17 It follows that the matter must be remitted to the Local Court for consideration in the light of the law as I have stated it. The questions whether the appellants were in breach of any terms of the contract, express or implied, and whether the respondents were entitled to repudiate the contract, remain open. 18 I shall consult counsel about the appropriate form of order and, if necessary, hear argument on costs. **********