Reported Decision : (2004) NSW ConvR 56-085 New South Wales Supreme Court CITATION : Adderton v Festa Holdings Pty Ltd & Ors [2003] NSWSC 1065 HEARING DATE(S) : 14 November 2003 JUDGMENT DATE : 26 November 2003 JURISDICTION: Equity Division JUDGMENT OF : Gzell J DECISION : On-seller not obliged to provide alternative insurance cover. Declaration that contract for sale terminated and deposit forfeited. Order for repayment of deposit refused. CATCHWORDS : CONTRACTS - Building, Engineering and Related contracts - Other matters - Residential building works - Failure of contractor to take out insurance under the Home Building Act 1989 - Failure of original owner to attach insurance certificate to contract for sale of dwelling - Whether on-seller obliged to obtain alternative insurance cover - CONVEYANCING - Relationship of Vendor and Purchaser - Matters arising between Contract and Conveyance - Whether on-seller entitled to give notice to complete and terminate contract for sale - Whether failure to obtain alternative insurance cover a defect in title - Whether an order for repayment of deposit under the Conveyancing Act 1919, s 55(2A) should be made Building Services Corporation Act 1989 Home Building Act 1989 LEGISLATION CITED : Building Services Corporation Legislation Amendment Act 1996 Home Building Regulation 1997 Home Building Amendment Bill 2000 Conveyancing Act 1919 HIH Casualty and Insurance Ltd v Jones [2000] NSWSC 359 Adolfson v Jengedor Pty Ltd (1995) 6 BPR 14,147 Sullivan v Dan (1996) 7 BPR 14,974 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 Wilson v Kingsgate Mining Industries Pty Ltd [1973] 2 NSWLR 713 CASES CITED : Gogard Pty Ltd v Satnaq Pty Ltd (1999) 9 BPR 17,171 Golding v Vella (2001) 10 BPR 18,919 Terry v Permanent Trustee Australia Ltd (1995) 6 BPR 14,091 Mearns v Parras Holdings Pty Ltd (1994) NSW ConvR 55-705 Pratt v Hawkins (1991) 32 NSWLR 319 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Peter Alan Adderton - Plaintiff Festa Holdings Pty Ltd - 1st Defendant PARTIES : Lawrence Moraschi - 2nd Defendant Doyle Spillane Pty Ltd - 3rd Defendant Stephen Richard Doyle - 4th Defendant Peter Raymond Spillane - 5th Defendant FILE NUMBER(S) : SC 1253/03 COUNSEL : A Iuliano - Plaintiff M Henry - 1st and 2nd Defendants Colin Biggers & Paisley - Plaintiff SOLICITORS : John Byrnes & Associates - 1st and 2nd Defendants Wood Marshall Williams - 3rd, 4th and 5th Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J WEDNESDAY 26 NOVEMBER 2003 1253/03 PETER ALAN ADDERTON v FESTA HOLDINGS PTY LTD & 4 ORS JUDGMENT 1 This case involves rival claims to terminate a contract for sale of a dwelling. The contracts were exchanged on 17 September 2002. The solicitors for the first defendant purchaser issued requisitions on title including requisition 18B which asked whether any residential building work had been done on the property under a contract entered into or commenced after 21 March 1990 and, if so, requested details of insurance applicable to the work under the Building Services Corporation Act 1989. By requisition 29 the solicitors for the first defendant requested a copy of the homeowner's warranty insurance for the dwelling. 2 The name of the Building Services Corporation Act 1989 was changed to the Home Building Act 1989 by the Building Services Corporation Legislation Amendment Act 1996. The insurance provisions in Pt 6 were completely changed by the amending Act. 3 The solicitors for the plaintiff vendor provided answers to requisitions. In answer to requisition 29, reference was made to the reply to requisition 18B. That requisition was answered in the affirmative as to the carrying out of residential building work and as to the insurance, reference was made to attached correspondence. That correspondence revealed that the plaintiff had purchased the dwelling from Windy Dropdown Pty Ltd, said to be a developer, the building work having been performed for it by WDD Constructions Pty Ltd. No insurance had issued with respect to the residential building work carried out by WDD Constructions Pty Ltd. 4 The solicitors for the first defendant responded alleging that they had not received proper answers to their requisitions. Correspondence ensued in which the solicitors for the first defendant alleged that their client was entitled to receive statutory insurance protection and the plaintiff was under an obligation to obtain alternative insurance if WDD Constructions Pty Ltd had not complied with the Home Building Act 1989. 5 On 18 December 2002, the solicitors for the plaintiff gave a notice to complete making time of the essence and requiring completion on 6 January 2003. The solicitors for the first defendant responded by making time of the essence for the furnishment of proper replies to requisitions 18B and 29 by 14 January 2003. The solicitors for the plaintiff alleged that the first defendant's requirements were not requisitions on title and, if they were, they had been answered properly. 6 On 7 January 2003, the solicitors for the plaintiff served a notice of termination. By its cross claim, the first defendant alleged that on 23 January 2003, it terminated the contract although no evidence of that allegation was tendered. 7 When the contracts were exchanged, the Home Building Act 1989, s 92(1) provided that a person must not do residential building work under a contract unless a contract of insurance in compliance with the Act was in force in relation to that work in the name of the person who contracted to do the work and a certificate of insurance evidencing the contract in prescribed form had been provided to the other party. 8 The Home Building Act 1989, s 99(1)(b) then provided that a contract of insurance required by s 92 must insure a person on whose behalf the work was being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor, to recover compensation from the contractor for a breach of a statutory warranty in respect of the work or to have the contractor rectify any such breach. 9 The Home Building Regulation 1997, as in force at the time of contract, provided in Pt 5 cl 42(1) that the beneficiaries under an insurance contract had to be a person on whose behalf residential building work covered by the contract was done or to be done or a successor in title to such a person. Had WDD Constructions Pty Ltd taken out such a contract of insurance in favour of Windy Dropdown Pty Ltd, both the plaintiff and the first defendant would have been beneficiaries under the insurance. 10 In HIH Casualty and Insurance Ltd v Jones [2000] NSWSC 359, the respondents contracted with a builder for the construction of at least four home units on their land. The builder took out insurance with HIH in favour of the respondents. The Home Building Act 1989, s 96(1) then provided that a developer who did residential building work could not do the work unless a contract of insurance in compliance with the Act was in force in relation to that work. Section 101 then provided that such a contract of insurance had to insure a purchaser of the land and the purchaser's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work. The Home Building Regulation 1997, cl 42(2)(a) provided that a developer who did residential building work was not required to be a beneficiary under an insurance contract. 11 The certificate of insurance named the respondents as beneficiaries, but contained an exclusion to the effect that claims would not be paid if the beneficiaries were also developers. The Home Building Act 1989, s 3A provided that if residential building work was done in connection with an existing or proposed dwelling in a building or residential development where four or more of the existing or proposed dwellings were to be owned by an individual, partnership or corporation, that individual, partnership or corporation on whose behalf residential building work was done, was a developer who did the work. 12 HIH argued that the Home Building Act 1989, s 96 and s 101 applied to the exclusion of other provisions with the result that the exclusion of the developer in the certificate of insurance was appropriate. The respondents argued, successfully, that they were entitled to indemnity under the certificate of insurance because the builder was obliged by s 92 to take out a contract of insurance that, in terms of s 99, had to insure them as the persons on whose behalf the work was being done. 13 As is explained in the Explanatory Note to the Home Building Amendment Bill 2000, s 99(2) was inserted into the legislation to overcome that decision. It provides that a developer on whose behalf residential building work is being done, is not required to be insured. That amending Act also introduced s 96A(1) which provides that a developer must not enter into a contract for the sale of land on which residential building work has been done or is to be done on the developer's behalf, unless a certificate of insurance evidencing the contract of insurance required under s 92 by the person who did or does the work for the developer in a form prescribed by the regulations is attached to the contract for sale. 14 It was argued that Windy Dropdown Pty Ltd was a developer and was not required to be insured in terms of the Home Building Act 1989, s 99(2). 15 There are two problems with that submission. First, the insertion of s 99(2) of the Home Building Act 1989, took effect from 7 June 2000. While the contract for sale of the dwelling by Windy Dropdown Pty Ltd to the plaintiff was not in evidence, it must have been before 24 March 2000, the date on which the solicitors for the plaintiff issued requisitions on title to Windy Dropdown Pty Ltd. Secondly, there was no evidence that Windy Dropdown Pty Ltd was constructing dwellings on three or more other sites. It was not established that the Home Building Act 1989, s 3A was invoked. 16 In my view, WDD Constructions Pty Ltd was required by the Home Building Act 1989, s 92 to obtain a contract of insurance which, in terms of s 99, was required to insure Windy Dropdown Pty Ltd and its successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the residential building work carried out by WDD Constructions Pty Ltd. 17 However, there was no contract of insurance. The Home Building Act 1989, s 94 prescribes the effect of a failure to insure. There is nothing in that provision that requires the plaintiff to obtain alternative insurance cover for the first defendant. Indeed, s 94(1C)(a) provides that in considering whether it is just and equitable for a contractor, despite the absence of insurance, to be entitled to recover in respect of work done on a quantum meruit basis, regard may be had to the impact on the resale price of the property if no contract of insurance is provided. 18 The Home Building Act 1989, s 95(4) provides that if an owner builder fails to take out a contract of insurance, the contract is voidable at the option of the purchaser before the completion of the contract. A similar provision with respect to residential building work carried out otherwise than under a contract appears in s 96(3A) and a similar provision with respect to a developer appears in s 96A(3). There is no such provision in s 94. 19 The Home Building Act 1989, s 94(3) contemplates the subsequent obtaining of a contract of insurance for the work. In my view, however, that is a contract of insurance taken out by the builder in favour of the person for whom the residential building work was done. 20 In the absence of a requirement on the part of the plaintiff to obtain alternative insurance cover, I am of the view that his answers to requisitions 18B and 29 were appropriate. The plaintiff was entitled to give the notice to complete and to terminate the contract for sale upon the defendant's failure to complete. 21 It was argued on behalf of the plaintiff that even if there was an obligation upon him to obtain alternative insurance, that was not a proper subject of a requisition on title strictly so called that could prevent him from requiring the first defendant to complete until a reasonable time after he had complied with the requisition (Adolfson v Jengedor Pty Ltd (1995) 6 BPR 14,147). 22 The contract for sale of the dwelling extended the definition of the term "requisition". It did not, however, extend to a claim. In my view, the first defendant was entitled to resist completion of the contract for sale of the dwelling only if the absence of insurance of the residential building work was a defect in title to the property. 23 I doubt that the absence of such insurance goes to the title to the property. The first defendant contracted to acquire clear title to land and dwelling. There was no impediment to it acquiring that title. 24 In Sullivan v Dan (1996) 7 BPR 14,974, Bryson J held that the lack of compliance with the conditions of a development consent by a local council was not a defect in title. I regard a lack of insurance, if required, in like vein. 25 However, this is an issue that it is unnecessary for me to decide in view of my finding that the plaintiff was not obliged to remedy a lack of insurance by WDD Constructions Pty Ltd. It is an important question that ought not to be the subject of mere obiter dicta. 26 Clause 47 of the special conditions of the contract for sale provided that the deposit should be payable as to $150,000 forthwith and as to the remaining $150,000 on completion or default by the first defendant. Clause 37 provided that the plaintiff's agent should hold the deposit as stakeholder. The stakeholder is the third defendant. By clause 49 of the special conditions, the second defendant guaranteed the due and punctual payment to the plaintiff of all moneys due by the first defendant under the contract for sale. 27 The plaintiff seeks a declaration that the contract for sale has been validly terminated. In my view, he is entitled to that declaration. 28 The plaintiff seeks a further declaration that the deposit has been forfeited to him, an order that the first defendant pay him $150,000, an order that the second defendant indemnify him against any moneys that the first defendant is ordered to pay, an order that the third defendant pay $150,000 held by it to him and, in the alternative, orders against the fourth and fifth defendant who are, presumably, the principals of the third defendant. 29 Each of the third to fifth defendants entered submitting appearances except as to costs. 30 By its cross claim, the first defendant invoked the Conveyancing Act 1919, s 55(2A) and sought an order that the third defendant return the $150,000 paid to it as stakeholder. The first defendant had a claim under the Conveyancing Act 1919, s 55(2) for recovery of its expenses of investigating title. Since I am of the view that there was no obligation on the plaintiff to provide insurance, this claim fails. 31 In Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at 272, Street CJ in Eq said that the Conveyancing Act 1919, s 55(2A) did not give a court an overall discretionary supervision of monetary adjustments between parties and that a vendor who forfeited a deposit in strict enforcement of legal rights was not to be deprived of it under the provision unless it was unjust and inequitable to permit the retention. 32 In Wilson v Kingsgate Mining Industries Pty Ltd [1973] 2 NSWLR 713 at 735, Wootten J pointed out that the purpose of a deposit, in addition to being a part payment, is an earnest to bind the bargain entered into and creates, by fear of its forfeiture, a motive in the payer to perform the rest of the contract. His Honour went on to say that it was important that the court should not adopt an attitude in ordering the return of deposits under the Conveyancing Act 1919, s 55(2A) that would weaken the proper function of a deposit in providing a sanction for purchasers to treat the making and completion of a contract with due seriousness and good faith. 33 The first defendant accepts these propositions but points to the analysis of the authorities by Santow J in Gogard Pty Ltd v Satnaq Pty Ltd (1999) 9 BPR 17,171 at par 334 to par 346 and the discussion by Barrett J in Golding v Vella (2001) 10 BPR 18,919 at par 33 to par 37. It was submitted that a balance is to be struck by looking at all relevant circumstances to see whether it is fair and conscionable to give relief and that it was probably going too far to say that some special or exceptional circumstance must be found. 34 My attention was also drawn to Terry v Permanent Trustee Australia Ltd (1995) 6 BPR 14,091, Mearns v Parras Holdings Pty Ltd (1994) NSW ConvR 55-705 and Pratt v Hawkins (1991) 32 NSWLR 319. 35 It was submitted that insurance should have been in place; that the plaintiff did not requisition for an insurance certificate under his contract for sale with Windy Dropdown Pty Ltd; that the first defendant's solicitors had suggested that alternative insurance cover be taken out by the plaintiff and that the level of deposit at $300,000 was substantial. 36 On the other hand, there was no evidence that the plaintiff acted unconscionably in the circumstances of this case. He was willing and able to complete the contract at the time specified in the notice to complete. There was no default on his part, no misconduct and nothing in the nature of unfair dealing. 37 In my view, this is not a case in which it is unjust and inequitable for the plaintiff to forfeit the deposit or a case in which it is fair and conscionable to grant relief from that forfeiture. In my view, the plaintiff is entitled to the $150,000 plus interest held by the third defendant. 38 The termination of the contract left unaffected the debt of $150,000 due to the plaintiff by the first defendant upon its default (McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477). 39 While it is open to a court under the Conveyancing Act 1919, s 55(2A) to grant relief with respect to part of a deposit that has not been paid (Golding at par 33), I decline to do so for the reasons set out above. 40 While the balance of the deposit is a significant sum, the plaintiff has lost his bargain of $3 million for the dwelling and the size of the deposit is not sufficient, in my view, to warrant the grant of relief. 41 I will hear the parties on appropriate orders as to costs. I direct the parties to bring in short minutes of orders to reflect these reasons. 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