Maloy v Jelacic [2003] NSWSC 23

New South Wales Supreme Court

CITATION : Maloy v Jelacic [2003] NSWSC 23 HEARING DATE(S) : 11/12/02, 12/12/02 JUDGMENT DATE : 10 February 2003 JURISDICTION: Equity Division JUDGMENT OF : Barrett J DECISION : Specific performance ordered.

CATCHWORDS : CONVEYANCING - matters arising between contract and completion - contract conditional on vendors obtaining building certificate - whether vendors complied with requirement to take all reasonable steps - whether purported rescission by vendors valid - whether purchaser entitled to specific performance AJDJ Pty Ltd v Pacific West Developments Pty Ltd [2002] ANZ Conv R 267 CASES CITED : Bryan v Maloney (1995) 182 CLR 609 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 Schenk v ACN 081 123 140 Pty Ltd [2002] ANZ Conv R 280 PARTIES : Patricia Margaret Maloy - Plaintiff John Jelacic and Nigel David Pridham - Defendants FILE NUMBER(S) : SC 4478/02 COUNSEL : Mr P.B. Walsh - Plaintiff Mr S.Y. Reuben - Defendants SOLICITORS : Champion Legal - Plaintiff George Bassil & Associates - Defendants

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BARRETT J

MONDAY, 10 FEBRUARY 2003

4478/02 – PATRICIA MARGARET MALOY v JOHN JELACIC & ANOR JUDGMENT 1 These proceedings concern a contract for the sale of a residential property at 64 Hancock Drive, Cherrybrook. The contract was made on 26 November 2001 between the defendants, Mr Jelacic and Mr Pridham, as vendors and the plaintiff, Mrs Maloy, as purchaser upon a sale by auction. The defendants had built a house on the site. It was virtually complete when the property was auctioned on 26 November 2001, although certain final approvals remained to be obtained from the Hornsby Shire Council. Some persons who had shown interest in bidding at the auction expressed concern about this. As a result, the contract for sale contained two special conditions as follows which were inserted in handwritten form shortly before the auction: "19. The within Contract is subject to and conditional upon the vendor obtaining a Building Certificate from Hornsby Shire Council. 20. Completion is to take place on the later to occur of the following: (a) 42 days of the date hereof; or (b) within 21 days of the vendors providing the purchaser with a copy of the Building Certificate referred to in special condition 19 hereof: provided further in the event of the said Building Certificate not issuing within six months from the date hereof, either party may rescind this contract and in which respect clause 19 [of the printed conditions] shall apply." 2 It will be necessary to examine the circumstances relevant to satisfaction of the first of these special conditions and the operation and effect of both. For the moment it is sufficient to record that between the date of the contract and July 2002, the defendants were in contact with Council officers about matters relevant to the obtaining of the certificate required by the special conditions and had done some further work on the property with a view to bringing about a state of affairs in which the Council would be willing to issue the certificate. By 8 July 2002, the defendants had not made any application for the issue of the certificate and no certificate had been issued (in fact, an application was not made until 4 October 2002). By notice given on 8 July 2002, the defendants purported to rescind "pursuant to our right specified in Special Conditions 19 and 20". 3 By her summons filed on 9 September 2002, the plaintiff seeks a declaration that she is entitled to have the contract specifically performed and carried into execution, together with certain orders directed towards securing performance by the defendants. The latter, for their part, filed a cross-claim on 30 October 2002 by which they seek a declaration that they have, by notice dated 8 July 2002, validly rescinded the contract. The validity of the purported rescission is logically the first matter to be considered. 4 It is common ground that the defendants were obliged to do whatever was reasonably necessary on their part to cause the certificate envisaged by special conditions 19 and 20 to be issued by the Council. Clause 29 of the printed form of contract provided as follows: "29.1 This clause applies only if a provision says this contract or completion is conditional on an event. … 29.4 If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen. … " 5 Special condition 19 is a provision of the kind referred to in printed clause 29.1. This is because it says that the contract itself "is subject to and conditional upon" the act (or event) of obtaining by the defendants to which it refers. To this extent, printed clause 29.4 makes explicit one aspect of the obligations that would in any event form part of the contract in accordance with principles most recently referred to by members of the High Court in Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at 142. The defendants were under a positive contractual obligation towards the plaintiff to take all steps on their part reasonably necessary to procure the issue by the Council of the relevant certificate so that the plaintiff might have the benefit of the contract, coupled with a negative obligation not to hinder or prevent satisfaction of the condition in special condition 19. The positive aspect is aptly described as an obligation to take all reasonable actions that were appropriate or needful to be done to ensure that the certificate was issued by the Council to the defendants: cf AJDJ Pty Ltd v Pacific West Developments Pty Ltd [2002] ANZ Conv R 267 6 A recent summary of principles regulating the exercise of a right of rescission of the kind given by special condition 20 is to be found in the following passage in the judgment of Bryson J in Schenk v ACN 081 123 140 Pty Ltd [2002] ANZ Conv R 280 referring to a contract conditional on the registration of a strata plan: "Each of many decisions in this field is a decision on the particular contract in question, but some recurringly important general principles, which are applicable in the present case, were stated in Plumor Pty Ltd Handley (1996) 41 NSWLR 30 at 34 and 35 by McLelland CJ in Eq. The principles there stated and now relevant are to the effect that a party to a contract is not entitled, as against the other party, to rely on an event resulting from the first party's wrongful act; that if the failure by the rescinding party to obtain some relevant consent or registration within the contractual period resulted from any default by him in the performance of express or implied obligations, that party is not entitled to exercise a right of rescission otherwise available; and that causation of the failure to obtain consent or registration by the wrongful act must be proved unless the terms of the contract make obtaining the consent or registration a condition for the exercise of the right of rescission. Another important principle, stated by McLelland CJ in Eq at p35 and p36, is that the plaintiff bears the onus of proof on the issue of whether not obtaining the requisite consent or registration within the period specified resulted from a breach by the rescinding party of contractual obligations. This principle must be taken with the qualification, expressed by McLelland CJ in Eq in Hunyor v Tilelli (1997) 8 BPR [97667] 15,629 at 15,631: 'It is necessary however to bear in mind that all evidence is to be weighed according to the proof which it was reasonably within the means of one party to produce or of the other to contradict. This has particular significance in respect of evidentiary facts which are peculiarly within the knowledge of one party rather than the other ...' (and McLelland CJ in Eq referred to authority). … There are also circumstances in which the purchaser may be entitled to equitable relief against a rescission even though the rescission was made in accordance with the terms of the parties' contract. There are a number of grounds for equitable intervention. In summary the right of rescission must be exercised reasonably but this summary should not be substituted for the law as stated in Selkirk v Romar Investments Ltd [1963] 1 WLR 1415 at 1422; and see Woodcock v Parlby Investments Pty Ltd (1988) 4 BPR 9568 (Young J). Part of the passage in Selkirk was referred to and followed by Gibbs J in Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575 at 590." 7 There is, of course, no dispute in the present case that the circumstance by reference to which the right of rescission conferred by the proviso to special condition 20 was exercisable arose when, at the end of the six months period, a building certificate had not been issued; or that, in a purely literal sense, it was then open to the defendants to rescind, as they purported to do by the notice of 8 July 2002. The contest between the parties in relation to the purported rescission centres upon the question whether the defendants' conduct was such as to disentitle them to exercise the contractual right of rescission made available by special condition 20. That question is to be answered by examining the defendants' conduct and assessing it against the criteria already identified. 8 An important element of context relevant to that question is special condition 18 of the contract: "The Purchaser acknowledges that they have read the Interim Occupation Certificate which is annexed hereto and further also acknowledges that they have read and understand the contents of condition no. 25 of Hornsby Shire Council Development Approval No. 370/99 in respect of Fire Control Team conditions annexed hereto requiring the creation of a Restriction as to User in accordance therewith. The Purchaser further acknowledges and understands the contents of the letter of submissions prepared by Ken Willis & Associates, Consulting Town Planners, addressed to the General Manager Hornsby Shire Council dated 16 November 2001 in support of an application pursuant to S96(1A) Modification of Consent No. 370/99 in respect of the subject land annexed hereto seeking to modify and to reduce the impact of condition no. 25 Fire Control Team conditions as contained in Hornsby Shire Council's Development Approval No. 370/99 and in respect of which the Vendors will prior to completion create the modified Restriction as to User and shall comply with Council's requirements in relation thereto and shall create and register such instrument pursuant to S88B of the Conveyancing Act 1919 as amended and the Purchaser hereby agrees not to make any objection, requisition or claim for compensation by reason of any delay occasioned by the compliance of the Vendor with such requirements of Hornsby Shire Council in relation to the approval, consent and registration in respect thereof whatsoever." 9 The annexed interim occupation certificate included the following: "The following matters are outstanding: 1. Compliance with condition No 25 of Development Consent No. 370/99." 10 The development consent (also annexed) contained a clause 25 headed "Fire Control Team Conditions" running to 19 subclauses covering two pages. These provisions were concerned with measures to reduce risk of serious damage by fire, the property being in a wooded area with bushland adjoining. Of particular significance in the particular circumstances is clause 25.18: "Any timber deck is to be constructed from hardwood and a minimum gap of 8mm is to be allowed between decking timbers. No part of the deck is to form an integral part of the dwellings structural integrity i.e. no cantilever beams are to be used. The area under any timber deck is to be kept free of all combustible materials." 11 The "letter of submissions" referred to in special condition 18 was another annexure to the contract. It is a letter dated 16 November 2001 sent to the Council by Mr Willis, who had prepared and lodged the development application on behalf of the defendants in 1999. He was a consultant town planner retained by them in relation to their building project. In the letter of 16 November 2001, Mr Willis stated that clause 25.18 was the only aspect of condition 25 of the development consent causing difficulty: whereas the condition required, in clause 25.18, that timber decking be of hardwood with a spacing of not less than 8mm, the decking in place was of treated pine with a spacing of about 5mm. Mr Willis went on to say, however, that the clause 25.18 requirement was more stringent than the relevant Australian standard, AS 3959, although condition 25 was, he said, "obviously intended to require compliance of the structure with AS 3959". On that basis, he regarded it as "commonsense" that condition 25 should be varied (this assessment may have been based on the fact that a related requirement referred to in clause 25.19 was expressed by reference to compliance with AS 3959). On the defendants' behalf, he sought several modifications, including modification of clause 25.18 by deletion of "from hardwood and a minimum gap of 8mm is to be allowed between decking timbers" and insertion instead of "in accordance with Clause 3.13 of AS 3959". 12 I mention next another aspect of condition 25 of the development consent, namely, the defendants' stated intention of creating a restriction as to user as required by condition 25. It is not necessary to set out in full the relevant clauses of condition 25. It is sufficient to say that they contemplate the creation, pursuant to s.88B of the Conveyancing Act 1919, of a restrictive covenant in favour of the Council to ensure certain physical matters in relation to the land of a fire precautions kind. Special condition 18 made it clear that settling of the terms of the necessary s.88B instrument would be an element of the process of satisfying the condition 25 requirements, whether in their original form or as they might be varied as a result of the application made by Mr Willis. 13 It is clear that, as matters stood when the contract for sale was concluded on 26 November 2001, the interim occupation certificate the defendants then held would not be superseded or supplemented by a building certificate of the kind contemplated by special conditions 19 and 20 unless certain further work was done in relation to flyscreens, gutter guard encasing of poles in fire proof material and, in addition, either clause 25.18 of the development consent was satisfied by changing the construction of the deck to accord with the specifications set out in that clause or the attempts to obtain variation of clause 25.18 in the manner proposed in Mr Willis's letter proved successful. It is also clear, in my judgment, that, at the time the contract was concluded, the defendants' were prepared to do the work on the peripheral aspects and that their preferred solution with respect to clause 25.18 was that based on Mr Willis's letter. As will be seen presently, they did not at that time appreciate what would be required, in terms of work, to satisfy clause 25.18 – indeed, the evidence suggests that neither of them was aware of what the clause said. They were pinning their hopes on Mr Willis's succeeding in his attempts to persuade the Council to vary that clause. The evidence of Mr Pridham (who, at that point, was much more closely involved in matter than was Mr Jelacic) is that it was not until January 2002 that he appreciated what would be involved, in terms of additional work, in satisfying clause 25.18. The aspect related to the creation of the restrictive covenant was not, I think, seen as presenting any difficulty. It was merely a matter of settling the actual terms of the instrument with the Council. 14 In January 2002, Mr Willis met at the site with Mr Gunnee, an Inspector with the New South Wales Rural Fire Service whose functions extended to advising the Council on fire protection matters. The Council's practice was apparently to work closely with the Rural Fire Service (specifically, Mr Gunnee) on planning matters involving properties exposed to particular bushfire risks. As a result of the meeting in January 2002, it appeared that Mr Gunnee's main concern related to the decking timbers. Mr Willis thought that there was little, if any, chance of the Council's modifying its position on the decking timbers and agreeing to the variation he had sought (the Council's file contains a note by Mr Gunnee dated 18 January 2002 stating that "Fire Control" had examined the application made by Mr Willis and "are NOT, at this time prepared to offer any variation to those conditions originally recommended" [emphasis in original]) . Mr Willis made this position known to Mr Pridham soon after 11 January 2002. 15 Mr Pridham's said in cross-examination that he spoke to Mr Gunnee in late January 2002 and asked whether, if the decking timber was replaced with hardwood, the Council's requirements with respect to condition 25 would be satisfied. The cross-examination continued: "Q. What do you say he said to you? A. He said it was more complicated than that. He had said that the bearers and joists to the house were an integral part of the structure and it didn't comply with condition 25. Q. When he told you that, what was your action? A. I said I'd ring him back. I didn't realise that that was another requirement. Q. On hearing it did you stop and think to yourself, if that's what I have to do to get the building certificate, I have to do it? A. No. Q. You didn't? A. No. Q. Why not? A. Because it is as close to impossible as you can probably get in the building department." 16 There is reference here to the part of clause 25.18 to the effect that no part of the deck was to form "an integral part of the dwellings [sic] structural integrity". That, plus the stipulation that no cantilever beams were to be used, meant that the deck had to be, in effect, free standing. In fact it was not. As was made clear particularly in the evidence of Mr Jelacic, the house had been constructed in such a way that the beams supporting the outside deck extended into and formed part of the walled dwelling area in such a way that, had the beams been cut at the point where they proceeded from the deck into the house itself, the deck would have collapsed. With that aspect of clause 25.18 in place, the clause presented a significantly greater obstacle than simply replacing treated pine floorboards with differently spaced hardwood boards. 17 Once Mr Pridham came to realise this, he turned his mind to the possibility of alternative measures that might obviate the need for both replacement of the decking timbers and the major building work involved in bringing the supporting beams into compliance with clause 25.28. Some time around the end of January, he spoke to Mr Gunnee again and canvassed with him the idea of installing a sprinkler system that would cause water to be sprayed on relevant timbers in the event of fire, thus (it was no doubt hoped) allowing the decking and beams to remain as they were and to secure an appropriate variation of the clause 25.18 requirements. Mr Gunnee was sufficiently receptive to this idea to give Mr Pridham the name of a consultant in the relevant field. Mr Pridham contacted the consultant, Mr McMcMonnies of Building Code and Bushfire Hazard Solutions Pty Ltd. 18 Mr McMonnies provided to Mr Pridham a report dated 19 February 2002 from which it is clear that Mr McMonnies had undertaken a quite comprehensive review of the situation against the background of the development consent conditions. The report commences: "This document relates to a Hornsby Shire Council Development Application approval No. 370/99 for the property known as 64 Hancock Drive Cherrybrook. The owner is seeking an alteration to Clauses 25.3.2, 25.18 and 25.19."