Reported Decision : (2003) NSW ConvR 56-046 New South Wales Supreme Court CITATION : Azar Building & Construction Services Pty Ltd & 2 Ors v Liristis Holdings Pty Ltd (Receivers & Managers Appointed) [2002] NSWSC 1085 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2949/01 HEARING DATE(S) : 14 November 2002 JUDGMENT DATE : 14 November 2002 Azar Building & Construction Services Pty Ltd (First Plaintiff) PARTIES : Sam Hanna & Co Pty Ltd (Second Plaintiff) J & J Hanna & Co Pty Ltd (Third Plaintiff) Liristis Holdings Pty Ltd (Receivers & Managers Appointed) (Fourth Defendant) JUDGMENT OF : Bergin J COUNSEL : Mr A Gruzman (Plaintiffs) SOLICITORS : McBride Harle Martin (Plaintiffs) CATCHWORDS : [CONTRACTS] - Sale of land - Defendant produced an up to date s 149 Certificate one week after contracts were exchanged - Plaintiffs purported to rescind contract - Whether defendant failed to disclose a matter affecting the land - Whether plaintiffs unaware of matter affecting land at the time of the contract - Whether plaintiffs would have entered into contract had they known of the matter - Whether contract validly rescinded - Whether plaintiff entitled to return of deposit. Conveyancing Act 1919 (NSW) LEGISLATION CITED : Conveyancing (Sale of Land) Regulation 2000 (NSW) Environmental Planning & Assessment Act 1979 (NSW) DECISION : Declarations and orders made. - 6 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN J 14 NOVEMBER 2002 2949/01 AZAR BUILDING & CONSTRUCTION SERVICES PTY LTD & 2 ORS v LIRISTIS HOLDINGS PTY LTD (RECEIVERS & MANAGERS APPOINTED) JUDGMENT 1 This litigation arises out of a dispute in relation to the plaintiffs' entitlement to the return of a deposit paid to the defendant on the exchange of contracts for the sale of the defendant's land at 260 Belgrave Esplanade, Sylvania Waters. 2 This hearing date was fixed on 12 June 2002. Yesterday a director of the defendant, Tony Liristis, sought leave to apply for a vacation of the hearing date. I refused to vacate the hearing date for the reasons given in my judgment of 13 November 2002. 3 This morning Mr Liristis was present in Court and Ms K. Lowder, a solicitor of the firm Henry Davis York, appeared for the receivers of the defendant and sought an adjournment for two weeks so that the receivers could consider their position. I was informed that the receivers were appointed on 14 October 2002. I refused that application but allowed an adjournment until 2.00pm. At 2.00pm Ms Lowder appeared and indicated that the receivers had instructed her that they had no interest in the proceedings and that they would not be entering an appearance. A letter from Henry Davis York to the solicitors for the plaintiff (Ex. A) advises that the receivers neither oppose nor consent to the orders sought by the plaintiffs in the proceedings. 4 At 2.00pm the matter was called again and, although Mr Liristis was present in Court at 10.00am, there was no appearance at 2.00pm. The matter proceeded to hearing at that time in the absence of the defendant with Mr A Gruzman, of counsel, appearing for the plaintiffs. The plaintiffs in these proceedings are Azar Building & Construction Services Pty Ltd, Sam Hanna & Co Pty Ltd and J & J Hanna & Co Pty Ltd. The plaintiffs, as purchasers, entered into an agreement for the sale of the defendant's land with the defendant, Liristis Holdings Pty Ltd on 12 April 2001. 5 The Contract for the Sale of Land, Exhibit C (the Contract), states the sale price as $1.1 million with a deposit of $110,000 payable on exchange and the balance of $990,000 on settlement. The plaintiffs paid the deposit of $110,000 on 12 April 2001. The contract was required to comply with the Conveyancing (Sale of Land) Regulation 2000 (the Regulation). 6 Pursuant to s 52A of the Conveyancing Act 1919 (NSW), as amended, the defendant, as vendor under the contract, was deemed to have included in the contract such terms and warranties as may be prescribed. Pursuant to cl 7 of the Regulation, the prescribed warranty for the purposes of the Contract and for the purposes of s 52A (2) (b) is the warranty set out in Pt 1 of Sch 3 of the Regulation. 7 Under cl 5 of the Regulation a prescribed document is that specified in Sch 1 which is a s 149 Certificate. The prescribed warranty in Sch 3 Pt 1 was that the land was not subject to any adverse affectations. Thus the defendant warranted by the inclusion of the s 149 Certificate those matters contained in the s 149 Certificate attached to the Contract. The s 149 Certificate attached to the contract was dated 1 March 1999 and stated that the Council was not aware of any other matters which were required to be disclosed under s 149(2) of the Environmental Planning & Assessment Act 1979 (NSW). 8 After exchange of the Contract Mr Peter Azar, a principal of the plaintiff Azar Building & Construction Services Pty Ltd, on behalf of the plaintiffs met with Mr Scott Lee from Sutherland Shire Council and Wayne Bentley, the plaintiffs' architect, to discuss development of the site and to put forward a concept plan. The plaintiffs' architect had prepared a sketch plan, which is in evidence before me as exhibit E. That plan includes shops and apparently residential space together with a basement for parking. 9 On 18 April 2001 John Orford & Associates, solicitors for the defendant, wrote to the plaintiffs' solicitors. That letter was received by the plaintiffs' solicitors on 19 April 2001. The letter referred to the exchange of contracts and enclosed an "updated s 149 Certificate for your reference". The s 149 Certificate, the original of which is in evidence before me as exhibit D, is dated 12 April 2001 and contained the following: Acid sulphate soils. This property is subject to the provisions of clause 22 of the Sutherland Shire Local Environmental Plan 2000 and is classified as the following: Class 3 C attachment 3. 10 The Sutherland Shire Local Environmental Plan 2000 defined "acid sulphate soils" as actual or potential acid sulphate soils, as defined in the Acid Sulphate Soils Assessment and Management Guidelines. Those Guidelines are not in evidence before me, but it is clear from the evidence that the defendant's land was within an area described as the "Acid Sulphate Soils Planning Maps" kept by the Sutherland Council. 11 Attachment 3 to the s 149 Certificate was clause 22 which provided: Development on land identified on acid sulphate soils planning maps: (1) a person must not, without development consent, carry out works described in the following table on land of the class specified for those works except as provided by subclause 3. 12 The class referred to in the s 149 Certificate in respect of this land was class 3 and the works identified in the table in cl 22(1) were firstly, works beyond one metre below the ground surface and secondly, works by which the water table was likely to be lowered beyond one metre below the ground surface. 13 Clause 22(3) provided that development consent was not required if a copy of a preliminary assessment of the proposed works undertaken in accordance with the Acid Sulphate Soils Assessment Guidelines (the Guidelines) had been given to Council and Council had provided written advice to the person proposing to carry out the works confirming that results of that preliminary assessment indicated that the proposed works need not be carried out pursuant to the plan prepared in accordance with the Guidelines. 14 Mr Gruzman submits that these matters were all new and were an additional burden upon the purchasers, the plaintiffs, that were not known to them at the time they entered into the Contract. The implied warranty, as stated, was that the land was not subject to any adverse affectations. 15 After taking advice the plaintiffs' solicitors wrote to the defendant's solicitors on 2 May 2001 in the following terms: We advise that our client hereby gives notice of its desire to rescind the contract for sale. This notice is given for breach of warranty by the vendor under the provisions of the Conveyancing Act. The land is directly affected by a matter which should be disclosed but which is not disclosed in the contract. In particular our client does refer to the s 149 certificate provided by you and dated 12 April 2001. That certificate does disclose that the property is affected by the provisions of clause 22 of the Sutherland Shire Local Environmental Plan 2000 and is classified as set out in attachment 3 to the certificate (acid sulphate soils). 16 The letter went on to advise that the plaintiffs instructed the plaintiffs' solicitors that there had been a breach by failure to disclose the existence of a matter affecting the land, secondly, that the plaintiffs were unaware of the existence of the matter when the contract was entered into and thirdly, that the matter was such that the plaintiffs would not have entered into the contract had they been aware of its existence. The plaintiffs' solicitors required the return of the deposit. 17 Clause 19(3) of the Regulation provides as follows: (3) A contract or option may not be rescinded on the grounds referred to in subclause (1)(b) or (2) unless: (a) the breach constitutes a failure to disclose to the purchaser the existence of a matter affecting the land, and (b) the purchaser was unaware of the existence of the matter when the contract or option was entered into; or (c) the matter is such that the purchaser would not have entered into the contract or option had he or she been aware of its existence. 18 There is no doubt that the defendant failed to disclose to the purchasers, the plaintiffs, the requirement contained in clause 22 of the Sutherland Shire Local Environmental Plan 2000. It seems to me that the classification of this land in the Acid Sulphate Soils Planning Maps could reasonably be described as an adverse affectation. What the plaintiffs found out by the s 149 Certificate of 12 April 2001 was that they were required to obtain development consent, if they had not already provided a preliminary assessment which the council had effectively approved under cl 22(3). The nature of the works for which development consent was required obviously included the works proposed by the plaintiffs, that is, excavation of the ground beyond one metre below the ground surface. The extent of the requirements of the Acid Sulphate Soils Assessment Guidelines is unknown as they are not before me. But it is obvious that a developer would have to comply with a number of matters within those Guidelines, or alternatively establish matters consistent with the Guidelines to obtain development consent for the development proposed, as sketched in exhibit E. 19 I am satisfied that the classification of the land as described in the s 149 Certificate dated 12 April 2001 does amount to the land being subject to an adverse affectation. I am also satisfied that the plaintiffs have established that the defendant failed to disclose to them the existence of a matter affecting the land. 20 The principals of each of the plaintiffs, Mr Azar in respect of Azar Building & Construction Services Pty Ltd, Mr Samir Hanna, in respect of Sam Hanna and Co Pty Ltd, and Mr Joe Hanna, in respect of J & J Hanna & Co Pty Ltd each gave evidence that at the time the Contract was entered into they were unaware that the land was affected by acid sulphate soils, or was subject to the provisions of cl 22 of the Sutherland Shire Local Environmental Plan 2000. Each of them gave evidence that the time at which they received the s 149 Certificate after the Contract was exchanged was the time they became aware of that matter. 21 I am satisfied that the plaintiffs have established that they were unaware of the existence of the matter when the contract was entered into. Each of the directors has given evidence that if they had been aware that the land was so affected they would not have caused their companies to enter into the Contract. Thus, the third matter that needs to be proved has been proved. 22 I am satisfied that the plaintiffs have validly rescinded the Contract and in the circumstances I am satisfied that the plaintiffs are entitled to the return of the deposit in the sum of $110,000, together with interest accrued on that sum. I declare that the contract for the sale of land dated 12 April 2001 between the plaintiffs as purchasers, and the defendant as vendor, has been validly rescinded by notice dated 2 May 2001. 23 I order that the defendant by itself, its servants or agents, return the deposit together with any accrued interest to the plaintiffs by delivering a bank cheque to the plaintiffs' solicitors by 12 noon 21 November 2002. 24 If the defendant by itself, its servants or agents, fails to return the deposit together with any accrued interest by that time, the solicitors, John Orford & Associates, as stakeholder, are ordered to deliver a bank cheque to the plaintiffs' solicitors in the amount of the deposit and any accrued interest by no later than 5pm on 22 November 2002. 25 The plaintiffs seek an order that the defendant pay the plaintiffs' costs on an indemnity basis. That application is based upon an Offer of Compromise dated 13 September 2002 by which the plaintiffs offered to compromise the claim on certain terms. That Offer was faxed to John Orford & Associates on 13 September 2002. This matter was before the Court on 10 September 2002 and it is apparent from correspondence dated 11 September 2002 between the plaintiffs' solicitors and the defendant's solicitor, Mr John Orford, that the barrister, Mr David Alexander, appeared for the defendant on that day and served a Notice of Intention to Cease Acting. The Notice as a solicitor was served on the defendant and was dated 3 September 2002. It stated that after seven days from 3 September 2002 John Orford & Associates Solicitors would file in the Registry of the Court a notice that it had ceased to act as the defendant's solicitor. 26 On 10 September 2002 there was filed an affidavit in the usual form annexing an affidavit of service of a Notice of Intention to Cease Acting as a Solicitor. Mr Gruzman informs me that the Notice of Ceasing to Act was filed on 10 September 2002. The Offer of Compromise was therefore served on a solicitor who at that time was not acting for the defendant. However, on 18 September 2002 John Orford & Associates informed the plaintiffs' solicitors that they had forwarded the plaintiffs' Offer of Compromise to the defendant's last known address. The Offer of Compromise did not expire until early October. 27 Although this is a borderline case, having regard to these circumstances I am not satisfied that I should exercise my discretion to award indemnity costs. I order the defendant to pay the costs of these proceedings. The orders may be taken out forthwith. **** Last Modified: 11/18/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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