New South Wales Supreme Court CITATION : Mitchell v Pattern Holdings Pty Limited [2001] NSWSC 199 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4171 of 2000 HEARING DATE(S) : 14 March 2001 JUDGMENT DATE : 26 March 2001 PARTIES : John James Mitchell (Plaintiff) Pattern Holdings Pty Limited (Defendant) JUDGMENT OF : Windeyer J COUNSEL : Mr T.G.R. Parker (Plaintiff) Mr S.T. White with him Miss N. Obrart (Defendant) SOLICITORS : Blake Dawson Waldron (Plaintiff) Freidman Reeves (Defendant) CATCHWORDS : CONTRACTS - contract for purchase of strata unit "off the plan" - vendor contracted "to make all reasonable efforts to procure the registration by the Registrar General of the Strata Plan" - termination clause if strata plan not registered within twelve months - vendor must fulfil obligation to make all reasonable efforts to secure registration before acting on termination clause - CONTRACTS - sale of unit in proposed strata plan - draft strata plan attached - contract required registration of strata plan "substantially in accordance with attached draft" - Council required reduction in the size of the balcony of the penthouse unit on plan - whether then substantially in accordance with draft - ESTOPPEL - whether facts sufficient to establish representation relied on and conduct based on representation. Commonwealth v Verwayen (1990) 170 CLR 394 CASES CITED : Hawes v Cuzeno Pty Ltd (unreported 14 December 1999 Bryson J NSWSC) Woodcock v Parlby Investments Pty Limited (1989) NSW Conv R 58,295 DECISION : See paragraph 37 1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J MONDAY 26 MARCH 2001 4171/00 JOHN JAMES MITCHELL V PATTERN HOLDINGS PTY LIMITED JUDGMENT Introduction 1 The plaintiff as purchaser and the defendant as vendor entered a contract for the sale and purchase of a unit in the development of a block of flats in Tamarama. This contract was made subject to the registration of a strata plan within twelve months. The strata plan was not registered and the defendant issued a notice of termination. The plaintiff contends first, that the defendant was not entitled to issue that notice because it had not made all reasonable efforts to register the plan, and secondly, that the defendant should be estopped from relying on the notice because it led the plaintiff to assume that is would not issue the notice and the plaintiff relied on that assumption to his detriment. The plaintiff seeks an order for specific performance. The facts 2 At all relevant times the defendant, Pattern Holdings Pty Limited ("Pattern Holdings"), owned the property 6 Silva Street, Tamarama. There was a building on the property which the defendant planned to convert into four strata units. Council approval to the development was sought. Before approval had been given, the defendant began to develop the property and advertise the units for sale. 3 The plaintiff was introduced to the property by Elders Real Estate, Double Bay. Mr Freund of that office showed him the property and explained its proposed development. Through Mr Freund he was introduced to Mr Hughes, the principal of the defendant. 4 The plaintiff agreed to purchase Unit 2 for $550,000. Contracts were exchanged on 26 July 1999. This will be referred to as "the contract". 5 The crucial clauses of the contract are in the Special Conditions under the heading "Registration of Strata Plan". These are: 1. Definitions …. "Strata Plan" means the strata plan substantially in accordance with the draft strata plan (a copy of which is annexed hereto). …. 2. Registration of Strata Plan 2.1 Completion of this contract is subject to and conditional on registration by the Registrar General of the Strata Plan. 2.2 The vendor must use all reasonable endeavours to procure the registration by the Registrar General of the Strata Plan. …. 2.4 If the strata plan is not registered within 12 months of the date of making this agreement either party may rescind in which event the provisions of Clause 19 shall apply. 6 Following the exchange of contracts the plaintiff was encouraged to provide input, and capital, toward the development of unit 2 and he did so. He visited the unit regularly and selected floorboards, fittings and a lighting scheme. He clearly expected to move in and live in the unit as soon as development was complete and consent had been obtained. 7 The strata plan was not registered within 12 months of the agreement and on 11 August 2000 Pattern Holdings issued a notice of termination. No point was taken that it was not a notice of rescission. The solicitors for Pattern Holdings, Messrs Potts Latimer, cited clause 2.4 in the covering letter which accompanied the Notice. 8 On 20 September 2000, the Council consented to an application by Pattern Holdings for strata subdivision. This subdivision is based on a strata plan that is different from the strata plan annexed to the contract. There are some internal adjustments but the important matter is that the rooftop balcony, a feature of unit 4 on the plan, has been reduced in depth from four metres to one and a half metres. The overall area of that balcony has been reduced by approximately ten square metres from about 15.95 square metres to 5.98 square metres. The sequence of events that delayed the eventual grant of consent and resulted in the reduction in the size of the balcony is crucial in this case and so should be set out on in some detail. 9 An application for development consent was first made on 23 December 1998. This application was substantially in accordance with the strata plan annexed to the contract. In particular it included a rooftop balcony with a depth of four metres. After writing to nearby residents advising them of the application, the Council received 3 letters objecting to the application, all of which complained about the extension of the roof line of the building to incorporate the balcony. The Council also obtained a building code assessment from Stephen Grubits & Associates, primarily to assess the proposed development for fire safety. They concluded by report of 26 February 1999 that the application contained insufficient detail to determine if the development was safe. There were a number of other reports obtained by the Council, which eventually considered the application on 8 May 1999. Development consent was advised on 19 May 1999 subject to various conditions, those relevant being: 5. To reduce impact on surrounding properties, the proposed changes to the roof including the installation of a room and a balcony to be deleted from the application. …. 10. Inadequate details have been provided to allow proper assessment with regard to fire and life safety. In accordance with the report prepared by S. Grubits and Associates … engineering solutions are to be submitted … prior to the issue of the construction certificate. 10 The consent also stated that "building work must not commence until … a Construction Certificate has been issued from Council or an Accredited Certifier" and "[y]our Construction Certificate will not be issued until all the conditions of consent are satisfied". Building work was done in contravention of this provision. 11 On 11 June 1999, Pattern Holdings requested a review of Conditions of Consent No 5 and No 8. Condition 8 required a contribution of $56,064 to the Council's Housing Trust Fund. Again the Council issued a letter to residents advising them of the application for review and again it received a letter of objection from a neighbour regarding the impact of the rooftop balcony. 12 On 21 July 1999, the Council's Development & Building Unit made a report on the development recommending a variation to the original conditions permitting a rooftop balcony of reduced depth. On 27 July 1999, the Council approved the request for variation with the limitation of the reduced balcony recommended by the Development & Building Unit. On 9 August 1999, the Council wrote to Pattern Holdings advising that Condition 5 was varied so as to read "To reduce the impact on surrounding properties the roof balcony depth is to be reduced to a maximum of 1.8 metres". The effect of this was to allow the other changes proposed to the roof area but to reduce the size of the balcony. Condition 8 was re-affirmed. 13 Trevor R Howse & Associates ("Howse"), an "Accredited Certifier", were engaged to deal with Condition of Consent No 10. They wrote to Council on 24 September 1999 seeking clarification on Condition 10. The Council responded on 25 October 1999 and on 2 November 1999 Howse issued a construction certificate (dated 29 October 1999). 14 On 26 October 1999, Pattern Holdings paid the levy to the Council's Housing Trust Fund, together with a long service levy and a damage deposit. Pattern Holdings continued to build a larger balcony in contravention of the condition of consent. The Council received a number of letters of complaint relating to this illegal building work. These complaints were referred to Howse who wrote to Pattern Holdings on 23 November 1999 requesting that the rooftop balcony be constructed in accordance with the Council's conditions and advising the company that failure to comply with the consent could result in orders being issued by the Council. 15 There were further complaints as Pattern Holdings continued to ignore the Council's condition. On 18 February 2000, Howse wrote to Pattern Holdings again advising that failure to comply could result in orders against the company and that Howse could not issue an occupation certificate on completion unless the building work complied with the Council's development consent. 16 On 28 February 2000, Pattern Holdings applied to the Council for strata subdivision of the property. The Council's statutory planner then discovered that the plans used by Howse to support its construction certificate were incorrect in that dimensions of both the balcony and the rooftop room exceeded the conditions of consent. An undated internal note from the statutory planner stating "[p]lease ensure a condition is placed on any consent (to application for strata subdivision) that requires an Occ. Cert. Being issued". This note meant that Pattern Holdings could not obtain strata subdivision unless the development complied with the amended conditions of consent. 17 On 8 March 2000, Pattern Holdings wrote to Council objecting to Condition 5. This was not a formal application to modify consent and was not dealt with by Council as such. On 16 March 2000, Pattern Holdings lodged a part completed application to modify consent, dealing with Condition 5. 18 On 21 March 2000, the Council's statutory planner called Pattern Holdings and informed them that there were four discrepancies in its application for strata subdivision in relation to the development consent: these included the incorrect balcony size. On 19 May 2000, the Council's statutory planner met with Pattern Holdings and informed them that the strata plan lodged needed modification, particularly with respect to the reduction in size of the balcony and modification of illegal work carried out. 19 On 6 June 2000, Pattern Holdings made a formal application to modify consent on a number of minor issues and the rooftop balcony. After again writing to residents of the area and receiving a number of complaints about the roof line, Council agreed to modify consent in respect of the minor ancillary works but not in respect of the balcony. The Council required rectification of the unauthorised work within 21 days. This decision was reached on 4 September 2000. 20 On 20 September 2000, Council consented to the strata subdivision application, after Pattern Holdings complied with the Condition of Consent No 5. Issues 21 It is admitted that the vendor could only rescind pursuant to Special Condition 2.4 if it had complied with its obligation under Special Condition 2.2. The principal question was whether it had done so. The second issue was whether or not the defendant should be estopped from relying on Special Condition 2.4 because it had represented to the plaintiff the unit belonged to him and it would not do so and thereby it caused the plaintiff to assume the condition would not be relied upon so that in reliance on this he expended money on improvements to the unit. The third claim of the plaintiff is that the issue of the notice was not bona fide nor in accordance with the contract, nor reasonable, and was reckless so as to preclude the defendant from relying upon it. The evidence 22 No affidavits were read by the defendant, but certain documentary evidence was tendered by it. The main evidence of the plaintiff consisted of his affidavit sworn on 10 October 2000 and an expert's report of Mr Ryan, a well qualified property consultant, experienced in Local Council planning and previously a valuer. The evidence of the plaintiff was directed towards his conversations with Mr Adam Hughes and the part he took in planning the upgrading of Unit 2 and the moneys expended by him on the project. The report of Mr Ryan was directed to the questions of delay in obtaining registration of the strata plan. It may be for this reason that the real defence to the plaintiff's claim was not apparent at least to me until Mr Ryan was cross-examined. It then became apparent that the real question to be determined was whether or not the strata plan which was ultimately approved was one "substantially in accordance with the draft strata plan" annexed to the contract. I assume that while has caused me some surprise it did not surprise counsel for the plaintiff as no opportunity was sought to lead further evidence on this subject. 23 Before dealing with these matters I should dispose of one other argument. The defendant had filed a cross claim, which was dismissed at its request at the beginning of these proceedings. This cross claim alleged a variation of the contract extending the time for registration of the strata plan if the plaintiff paid a further $60,000. Counsel for the plaintiff submitted that the allegation of this contract constituted an election by which the defendant waived its right to claim that the notice of termination issued on 11 August 2000 was valid. I do not accept the plaintiff's contention of waiver for two reasons: first, the defence, which claimed that termination was valid, was filed before the cross claim, so that any waiver could only operate to defeat the cross claim; and second, the doctrine of election can only arise when a party is "required to make an irrevocable choice between two alternative positions": Commonwealth v Verwayen (1990) 170 CLR 394 per Mason CJ at 408. When filing the Cross claim the defendant was not required to make such an irrevocable choice. 24 Thus the issues facing the Court for determination on the pleadings are whether the notice of termination was valid and whether the defendant is estopped from relying upon Special Condition 2.4. The strata plan 25 The difference in area between the rooftop balcony with a depth of 1.5 metres as opposed to that shown on the plan annexed to the contract of 4 metres was, as discussed, some 10 square metres. Mr Ryan conceded this was a substantial variation to that balcony. He conceded that a smaller balcony would reduce the marketability of the unit. The following passage appears on page 19 of the transcript: Q: You could expect, could you not, that if the balcony in respect of that penthouse unit was reduced in size of the kind we have been talking about, would have an adverse impact on the selling price of that unit? A: I would suggest that it would effect marketability, ease of sale, quickness of sale, more than it would measurably affect the price one could achieve. Q: Are you suggesting that a balcony on the top floor of this building which is reduced in size from 15.96 square metres to 5.98 metres wouldn't materially adversely affect the selling price of that unit? A: I didn't say it wouldn't materially affect it. I said it would affect marketability rather than being able to measure the amount in 10,000 or 5,000 or $50,000 terms. Q: Leaving aside trying to work out the precise figures, it would have a material adverse effect on the selling price? A: It would have a material adverse effect, yes. 26 It is clear from the material included in Mr Ryan's report that the defendant expended a great deal of time and energy trying to build the larger balcony, even to the point of carrying out illegal and unauthorised work. It is clear that, from the defendant's perspective, there was a substantial difference between the two balconies. This is important because while the Council's original conditions of consent prohibited any work on the rooftop bedroom and balcony, from the date of the amended consent, 27 July 1999, the smaller balcony was approved. Once Trevor R Howse & Associates were engaged, the fire safety requirements met and levies paid, the defendant was in a position to finish the development and obtain approval for its strata plan. This all happened by October 1999. I accept it would have been unreasonable delay for the defendant not to have the strata plan registered in time unless it was entitled to pursue the larger balcony. It was this pursuit that delayed the registration of the strata plan and took it beyond the contract period. If the defendant was in a position to register a strata plan within that period substantially in accordance with the draft, albeit with a smaller balcony, then it would be unreasonable of it to delay that registration. The question is whether a strata plan with the smaller balcony would be substantially in accordance with the draft strata plan. Mr Ryan agreed that the defendant could not have convinced Council to consent to the larger balcony - that I think is clear. 27 I have come to the conclusion that the strata plan as approved is not substantially in accordance with that attached to the contract. Unit 4 is the most expensive unit in the development. I consider it reasonably obvious that a further 10 square metres of balcony with ocean views would substantially enhance its value. It was not unreasonable for the vendors to pursue this. The developer/vendor is entitled to rely on the draft strata plan in each of its sales and if that plan cannot be registered after proper efforts to obtain consent then it is not at fault. I have considered whether the absence of evidence from the defendants should bear on this so that without it I should conclude that there was no substantial difference. The question is one of objective fact: there is no evidence available other than inspection of the plan to show from the plaintiff's point of view the approved plan was substantially in accordance with the draft. The evidence of Mr Ryan and that inspection leads me to determine this issue in favour of the defendant. 28 Mr Ryan highlighted in his report a number of delays in the process of applying to modify the consent of Council. The fact is, however, that the consent was never modified and on the evidence never would be. If the Council's consent to subdivision on 20 September 2000 was consent to a larger balcony and it could be shown that by hurrying its application process the defendant could have got that consent by July - which has not been shown - then the plaintiff would have had a strong case. But the 20 September 2000 consent was not to the draft plan annexed to the contract but to a plan that I have decided is not substantially in accordance with that plan. On this main issue the plaintiff fails. 29 This conclusion in some ways seem hard on the plaintiff, because so far as the unit he was purchasing is concerned, the plan as registered accords with the plan annexed to the contract. As against that, however, it is to be borne in mind that contract provisions are negotiated for the benefit of both vendor and purchaser. The vendor was entitled to look at the development as a whole. The terminating of the contract on its terms, presumably on the expectation of obtaining a higher price from another purchaser which might make up for a lower price than expected on the top unit, should not necessarily be looked upon askance. Estoppel 30 Paragraph 10 of the statement of claim alleges that the defendant led the plaintiff to expect that:- (a) the Unit belonged to him; and (b) the defendant would not rely upon Special Condition 2.4 to rescind the Contract. The plaintiff does not give evidence of any express representation inducing either of these assumptions. Neither is there any evidence that the plaintiff made these assumptions or that he acted on them to his detriment. Conversations between the plaintiff and Mr Hughes certainly proceeded upon the basis that the parties were bound and the contract would be completed but no doubt that was the genuine expectation on both sides. 31 I consider the defendant's actions to be consistent with the relationship between a vendor/developer and purchaser while a contract is on foot, which was the legal position at the time. I do not accept that Mr Mitchell assumed that he owned a property before he had paid the full purchase price. Mr Mitchell does not state anywhere in his affidavit that he made that assumption. Nor is there any evidence that Mr Mitchell assumed the defendant would not rely on Special Condition 2.4 or that the defendants in some way induced that assumption. 32 There is evidence that on 20 September 2000, after the Notice of Termination had been served, John Hughes telephoned Mr Mitchell and informed him that the"[c]onstruction work on the unit is almost complete". It could not, I think, be thought that this was evidence of a representation or an assumption of Mr Hughes that the contract remained on foot or that the notice of termination was not to be relied upon. If anything, it could go only to waiver of the right to rely on the notice which was not pleaded or argued. Paragraph 14 of the statement of claim 33 This paragraph claims the issue of the termination notice was not bona fide, not in accordance with the contract, not reasonable and reckless. The basis on which it was said not to be bona fide was that an agent had been asked to give an estimate of the value of Unit 2 prior to the date upon which termination was available. The evidence of the agent, which I accept, was that she had been asked to value units 1 and 4 and while there was shown through Unit 2 and 3 and asked to give an estimate of their value, which she did. She said she had tried to obtain a sole agency agreement for these as a "try on", although she had been told they were not available. The defendant did not take any steps to sell Unit 2 prior to termination. The claim the issue of the notice was not bona fide - presumably being for the improper purpose of enabling the defendant to proceed with some negotiations already in train, was not made out. 34 I have already found that the issue of notice was authorised by the contract and nothing further needs to be said on that. No particular argument was put forward on lack of reasonableness. If the plaintiff had an entitlement under the contract to rescind and did so pursuant to that entitlement, no question of reasonableness arises. The fact that so far as Unit 2 is concerned this may enable the vendor to obtain a higher price does not mean it was not reasonable to issue the notice assuming for the moment that lack of reasonableness could be considered. Finally, recklessness could, as I understand it, go only to some recklessness in a vendor in seeking to include a clause which it knew it could not comply with. The clause in question is not of that sort. Had Council allowed the balcony sought the time limits could have been complied with. None of these matters raised is established and none prevents the vendor from relying on the notice. In making his submissions on these matters counsel for the plaintiff relied upon the decision of Bryson J in Hawes v Cuzeno Pty Ltd (unreported 14 December 1999). His Honour said: A vendor acting recklessly may lose a right to rescind: Woodcock v Parlby Investments Pty Ltd (1989) NSW Conv R 55-454. In that case there does not seem to have been any contractual provision corresponding with Printed clA6 or any express contractual condition for rescission. At 58,297 Young J noted ".. there is no promise by the vendor to build a building within a certain time in accordance with the particular standard of construction." When dealing with cl8 Young J cited earlier authorities which established, in cases where there was no condition like Printed Condition A6, that there are limits on the availability of the right of rescission. The limits appear from passages in Gardiner v Orchard (1910) 10 CLR 722 there cited and from the judgment of Gibbs J in Pierce Bell Sales Pty Ltd v Frazer & Anor (1974) 130 CLR 575 at 590. Disabling circumstances referred to include the necessity for bona fides, that the cancellation must be reasonable, and that the vendor must not be guilty of recklessness in entering into the contract. The plaintiffs' case does not rest on this principle, but on the terms of their contracts. 35 The High Court cases referred to dealt with the right to rescind under a contract for sale of land where a vendor unable or unwilling to comply with a requisition on title could give notice to the purchaser accordingly and if the requisition were not waived could rescind. As was pointed out by Young J in Woodcock v Parlby Investments Pty Ltd (1989) NSW Conv R 58,295 at 58,298 those circumstances are quite removed from the situation under consideration here. Finally Mr Parker argued that the defendant was in default because it could have tried harder earlier to get what it did not get even if these efforts would have produced no results. I consider the vendor did make reasonable efforts to gain approval for its plan. Those efforts failed so that Condition 2 could not be fulfilled, thereby triggering the right to rescind. 36 The defendant has offered to repay amounts totalling $4,112 paid by the plaintiff for electrical and lighting works plus interest thereon. I will include that in the orders but otherwise the orders will be those set out in the next paragraph. 37 Orders 1. The statement of claim be dismissed. 2. Plaintiff to withdraw Caveat No 7083221 within seven days. 3. Plaintiff to pay defendant's costs. 4. Exhibits may be returned. ********** Last Modified: 03/28/2001 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. 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