Grandview on Berwick Pty Ltd v Bruce [2004] NSWSC 580

New South Wales Supreme Court

CITATION : Grandview on Berwick Pty Ltd v Bruce [2004] NSWSC 580 HEARING DATE(S) : 17/06/04 JUDGMENT DATE : 2 July 2004

JUDGMENT OF : Gzell J DECISION : Summons dismissed with costs.

CATCHWORDS : CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - Standard condition for arbitration of disputes in building contract - Special conditions for resolution by expert - Whether standard condition limited to pe-completion claims and special conditions limited to post-completion claims - Plaintiff claimed special conditions should prevail over standard conditions - Defendant claimed no conflict LEGISLATION CITED : Strata Schemes Management Act 1996 Ryan v Fergerson (1909) 8 CLR 731 CASES CITED : Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1967-1968) 118 CLR 429 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 PARTIES : Plaintiff/ Cross Defendant- Grandview on Berwick Pty Ltd Defendant/ Cross Claimant- Paula Margaret Bruce FILE NUMBER(S) : SC 1938/03 COUNSEL : Plaintiff/ Cross Defendant- Mr Julian Van Aalst Defendant/ Cross Claimant- Mr Paul Bolster SOLICITORS : Plaintiff/ Cross Defendant- Szabo & Associates Solicitors Defendant/ Cross Claimant- Verekers Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

FRIDAY 2 JULY 2004

1938/03 GRANDVIEW ON BERWICK PTY LTD v PAULA MARGARET BRUCE JUDGMENT 1 The defendant entered into a contract with the plaintiff to purchase a residential lot in a building to be constructed. On completion of the contract, the defendant withheld $44,000. The plaintiff sought a declaration that she was not entitled to do so and orders consequent upon that declaration. 2 Special condition 45.1 of the contract required the plaintiff, before completion, to construct the building in accordance with a development consent of the local authority, finished as specified in a schedule of finishes. Special condition 38 provided that completion was to take place no later than 15 business days after the plaintiff served notice on the defendant of the registration of a strata plan. 3 Clause 7 of the standard conditions of the contract provided that the defendant could make a claim before completion by serving it with a statement of the amount claimed. Clause 7.1 enabled the plaintiff to rescind if the total amount claimed exceeded 5% of the purchase price. Clause 7.2 provided that if the plaintiff did not rescind, the parties were to complete and the lesser of the amount claimed and 10% of the purchase price was to be paid to a deposit holder until the claims were finalised or lapsed. Clause 7.2.3 provided that claims were to be finalised by an arbitrator appointed by the parties or by the President of the Law Society of New South Wales. 4 In reliance upon clause 7 of the standard conditions, the defendant gave written notice prior to completion of her claim for $44,000 noting that it was less than 5% of the purchase price and arose in consequence of a failure to comply with special condition 45.1. 5 Special condition 47.1 provided that the plaintiff was responsible for all defects or faults due to faulty material, design or workmanship that might appear in the residential lot up to three months after the formation of the owners corporation that were notified in writing to it within that period. Special condition 47.3 provided that prior to completion a purchaser could not request the plaintiff to rectify or repair any defect or fault unless it was a major defect, defined in special condition 30(i) to mean a structural defect or fault that, because of its nature, required immediate attention as it might cause danger to persons in the residential lot or might render it uninhabitable. Special condition 47.5 provided that in the event of any disagreement the parties should endeavour to settle but if they could not agree, the matter was to be resolved in accordance with special condition 52. 6 That condition provided a regime for resolution of disputes arising under a provision of the contract that made reference to special condition 52. If the parties could not agree, the dispute was to be submitted to an expert appointed by an agreed body or one selected by the President of the Law Society. That person was to act as an expert and not as an arbitrator. 7 Special condition 45 contained specific reference to special condition 52. Special condition 45.3 provided that the defendant was not entitled to make any claim for compensation, objection or requisition, delay completion or rescind or terminate the contract in respect of any minor variations in or increases to the gross area of the residential lot. A minor variation was a reduction of 2.5% or less. If the difference in gross floor area of a lot on completion exceeded 2.5% the defendant was entitled to rescind under special condition 45.5. Special condition 45.6 enabled the plaintiff to substitute for an item in the schedule of finishes another item of equivalent or higher standard with respect to which the defendant was not entitled to make any claim for compensation, objection or requisition, or rescind or terminate the contract under special condition 45.7. 8 Special condition 45.8 provided: "A disagreement arising under this Special Condition 45 before the expiration of 3 months after completion is to be resolved in accordance with the provision of Special Condition 52." 9 The plaintiff submitted that special condition 52 set up a dispute resolution mechanism inconsistent with the arbitration for which provision was made in clause 7. It was submitted that the inconsistency should be resolved in favour of the regime under special condition 52 because clause 7 was contained in the standard conditions of the Law Society and the Real Estate Institute of New South Wales 2000 edition of their contract for sale of land and special condition 52 was contained in the special conditions to which the parties had agreed. 10 In Ryan v Fergerson (1909) 8 CLR 731 it was held that in construing a contract containing written terms and printed terms in common form, if there was any doubt as to the meaning of the whole, greater weight should be given to the written terms inasmuch as they embodied the language in terms selected by the parties themselves. It was submitted that a similar approach should be taken where there was a conflict between standard conditions and special conditions upon which the parties had agreed. Furthermore, special condition 32(c) provided that in the event of any conflict between the special conditions and the printed conditions of the contract, the special conditions were to apply. 11 The plaintiff submitted that disputes under special conditions 45 and 47 were to be determined by an expert under special condition 52 and since the defendant's written notice specified that the whole of her claim was based on a failure to comply with special condition 45.1, she was denied entitlement to rely upon clause 7 and was not, therefore, entitled to withhold the $44,000. 12 There is, in my view, a clear distinction between clause 7 and special condition 47. The former is confined to claims made before completion, the latter is limited to claims made after completion. Special condition 47.1 was only enlivened if the defendant gave written notice to the plaintiff, but special condition 47.3 denied her the entitlement to give such a notice before completion, unless it was with respect to a major defect. 13 Clause 7 and special condition 47 performed distinct tasks. The former provided the defendant with a right to rescind prior to completion if a pre-completion claim exceeded 5% of the purchase price. Pre-completion claims below that level were to be resolved by arbitration if not settled. The latter created a post-completion defects liability period requiring the plaintiff to make good defects notified during that period and restricting pre-completion requests for rectification to major defects. The fact that a different dispute resolution regime by expert was chosen did not create a conflict. Post-completion claims for rectification stood in a different position from pre-completion claims for faulty workmanship. 14 Clause 7 was not unlimited in scope. There were, on any view, restrictions upon it in special condition 45.3 which excluded claims for minor variation in floor area of the residential lot, in special condition 45.5 which made rescission the only remedy for variations in floor area greater than 2.5% and in special condition 45.7 which excluded claims for substitution of items in the schedule of finishes. 15 Special condition 33(f) amended clause 7.1.3. That suggests that the parties were of the view that clause 7 had some work to do. 16 If special condition 45.8 is construed to refer to any disagreement that arose pre-completion or post-completion up to the end of the three month period to which reference was made, a conflict between it and clause 7 arose. If, on the other hand, special condition 45.8 only applied to disagreements that arose post-completion and before the expiration of the three month period, no such conflict arose. 17 The three month period in special condition 45.8 is similar to the three month period in special condition 47.1. An owners corporation is established on the registration of a strata plan (Strata Schemes Management Act 1996, s 8(1)). 18 In Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 512, Lord Tomlin said that the court should so balance matters that, without violation of essential principle, the dealings of men might as far as possible be treated as effective and the law might not incur the reproach of being a destroyer of bargains. At 514, Lord Wright said that a court should construe commercial contracts fairly and broadly, without being too astute or subtle in finding defects. Sir Garfield Barwick cited Lord Tomlin in concluding that a narrow or pedantic approach to the interpretation of commercial contracts was not warranted in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1967-1968) 118 CLR 429 at 437. In Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110, Gibbs J concluded that Lord Wright's approach to the interpretation of commercial contracts should not be confined to businessmen drawing documents for themselves but extended to commercial contracts drawn by legal advisers. 19 In my view it makes business sense to construe special condition 45.8 as limited to the three month period after completion. That interpretation maintains congruence between special condition 47 and special condition 45 and maintains the deliberate role of clause 7 with respect to pre-completion claims. 20 It follows that in my view the defendant was entitled to invoke clause 7 of the standard conditions of the contract and the summons should be dismissed with costs.