New South Wales Supreme Court CITATION : Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924 HEARING DATE(S) : 24/08/09 JUDGMENT DATE : 24 August 2009 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 24 August 2009 DECISION : Refer to paras 39-41of judgment. CATCHWORDS : CONTRACTS - building, engineering and related contracts – contracts for purchase of units off the plan - obligation on vendor to use all reasonable endeavours to register strata plan – failure to use all reasonable endeavours precluded vendor from rescinding contracts – contracts validly rescinded by purchasers LEGISLATION CITED : Environmental Planning and Assessment Act 1979 (NSW) Civil Procedure Act 2005 (NSW) CATEGORY : Principal judgment CASES CITED : Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 Masters v Belpate Pty Ltd [2001] NSWSC 169 Munro v Bodrex Pty Ltd [2002] NSWSC 122 Elishia Nicole Franczis Gauld & 10 Ors PARTIES : v Obsidian Holdings & 4 Ors FILE NUMBER(S) : SC 50176/07 COUNSEL : Plaintiffs: P Silver 2nd Defendant: R F O'Brien SOLICITORS : Plaintiffs: Slater & Gordon Defendants: n/a IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST WHITE J Monday, 24 August 2009 50176/07 Elishia Nicole Franczis Gauld & 10 Ors v Obsidian Holdings Pty Ltd & 4 Ors JUDGMENT 1 HIS HONOUR: In this proceeding the plaintiffs bring separate claims arising from seven contracts for the purchase of units off the plan for a proposed development in Hunter Street, Newcastle. 2 The first defendant was the vendor under each contract. The second to fifth defendants guaranteed the first defendant's obligations. The contracts were entered into between 20 February and 20 September 2004. They are in materially the same terms except as to the identity of the purchaser, the property to be purchased, and the purchase price. In each case, the deposit was released to the vendor. 3 Clause 51.4 of each contract provided: " Notwithstanding any other provision in this contract, the purchaser may rescind this contract by written notice to the vendor if: (a) the Development Approval has not been granted by 1 November 2004; or (b) the vendor or Vendor's Guarantor becomes Insolvent; or (c) the Development (including construction of the property) have [sic] not been completed by the 30 June 2007. " 4 "The Development" was defined to mean the works and other activities to be carried out on the Development Site including the Development Activities. The Development Activities included building, demolition, excavation or landscaping work in connection with the Development. 5 Clause 34.3 provided that if the purchaser validly rescinded the contract then the vendor was to return the deposit within 30 days. 6 Clause 34.4 relevantly provided that if the contracts were validly rescinded by the purchaser under clause 51.4, then at the same time as the deposit was refunded, the vendor was to pay the purchaser interest on the deposit at the rate of 30 percent per annum, calculated from the date of the contract, to, but excluding, the date on which the deposit was refunded to the purchaser. 7 The plaintiffs purportedly gave notice of rescission on 6 August 2007 under clause 51.4(c), that is, on the ground that the Development including construction of the property had not been completed by 30 June 2007. There is no dispute that the Development had not been completed by that date. Construction had not started. 8 But the defendants contend that the contracts were not rescinded by the plaintiffs' giving notice under clause 51.4. They say that the vendor had already rescinded under clause 31.3. That clause provides that: " If the Strata Plan is not registered on or before the Sunset Date, then either party may rescind by serving a notice. " 9 The Sunset Date was 31 December 2006. No Strata Plan was registered by that date. None has been registered. On 28 June 2007, the vendor purportedly rescinded each contract under clause 31.3 and returned the deposits. The plaintiffs say that the vendor's rescission was ineffective because the vendor was in breach of clause 31.2. That clause relevantly provides: " The vendor must: (a) use all reasonable endeavours to ensure that the Strata Plan is registered on or before the Sunset Date. ... " 10 The plaintiffs contend that the vendor did not use all reasonable endeavours to ensure that the Strata Plan was registered on or before 31 December 2006. If the reason the Strata Plan was not registered by that date was that the vendor was in breach of clause 31.2(a), or if such a breach materially contributed to the Strata Plan's not being registered by that date, then the vendor was not entitled to rely on clause 31.3 (Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 34; Masters v Belpate Pty Ltd [2001] NSWSC 169 at [58]-[66]; Munro v Bodrex Pty Ltd [2002] NSWSC 122 at [51]). 11 It is common ground that the reason the Strata Plan was not registered was that the building, the subject of the Development Approval, was not constructed. Schedule 5 to the contract contained a disclosure by the vendor that it intended the Development to have 77 residential apartments in the Strata Plan, a commercial strata scheme containing three retail commercial lots plus car-parking, and a separate commercial strata lot which might be used as a licensed premises or tavern. 12 Schedule 5 also stated that the mix of uses and the components and the numbering and configuration of lots might change from that shown in the draft strata plan. The vendor's obligations under clause 31.2 was not to ensure registration of the draft Strata Plan attached to the contract, but to use "all reasonable endeavours to ensure that the 'Strata Plan' was registered by 31 December 2006". The "Strata Plan" was defined to mean the "registered Strata Plan for the residential property, the subject of the contract". 13 An application for Development Approval for the construction of a 12-story mixed-use building containing 77 residential apartments, and a tavern and ground floor retail or commercial tenancies and associated car-parking spaces was submitted to the council on 17 October 2003. 14 Following review of that application by council officers, amendments to the application were made to reduce the number of apartments to 72, deleting the tavern, and making certain changes to the proposed basement and to car-parking. Consent to the amended Development Application was given on 1 June 2004. From that time, the vendor could have applied for a construction certificate and, on obtaining the construction certificate, could have commenced construction work. 15 The unchallenged evidence is that had the Development then proceeded, there was sufficient time for the work to have been completed, the requisite certificates obtained, and the Strata Plan registered prior to 31 December 2006. 16 On 18 November 2004, an application was made under s 96(2) of the Environmental Planning and Assessment Act 1979 (NSW) to make modifications to the proposed building as approved by the development consent of 1 June 2004. That application was approved on 9 February 2005. Had application then been made for a construction certificate, and had building work been commenced, there was still sufficient time for the building to be completed, the requisite certificates obtained, and the Strata Plan registered prior to 31 December 2006. In fact, no construction certificate was obtained, nor, it seems, applied for; and no construction work was done. 17 On 31 May 2006 an application was submitted to the council to modify the Development Consent to make changes to internal configurations so as to accommodate conversion of the proposed building to serviced apartments. The council advised a new Development Application would be required. 18 The defendants adduced no evidence as to why no steps were taken to obtain a construction certificate and as to why construction work was not started. These were matters peculiarly within the vendor's, that is to say, the first defendant's, knowledge. As Hodgson CJ in Eq (as his Honour then was) said in Masters v Belpate (at [59]): " ...because the relevant facts are peculiarly within the knowledge of the vendor, there may be an evidentiary onus on the vendor to lead evidence as to what happened, because if the vendor does not do this, inferences may be drawn against the vendor, for example by unexplained delays. " (Citation of authority omitted.) 19 There was no appearance for the corporate defendants. 20 The second defendant Mr O'Brien appeared in person. Orders had been made for the defendants to serve evidence, but I was informed that no affidavits or witness statements were served, and none was available to be read. Mr O'Brien said that this was due to the defendants' impecuniosity as they had not been able to pay their lawyer and hence had not been able to comply with the court's timetable. 21 Mr O'Brien outlined the evidence he wished to adduce. This was to the effect that the vendor did all in its power to obtain all necessary approvals, and so far as was within its power, succeeded in doing so. But the vendor was unable to carry out the building work because it was unable to obtain construction finance. 22 Mr O'Brien said that the proposed financier or financiers required a particular level of pre-sales before construction finance would be approved. He said that because of adverse changes to the property market in Newcastle, these could not be obtained, and necessary finances could not be raised. He submitted that this evidence would demonstrate that the vendor did all it could to ensure the Strata Plan was registered, but it was unable to do so through the lack of necessary funds. 23 This contention was not pleaded. And, of course, it was not raised in any witness statement or affidavit. It is a matter likely to take the plaintiffs by surprise and the plaintiffs would be entitled to a reasonable opportunity to investigate and perhaps to test whatever facts might be deposed to in this regard. The facts to be relied upon should have been deposed to in affidavits or witness statements within the timetable laid down. 24 The plaintiffs could not be expected to meet such a case without an adjournment. Given the apparent impecuniosity of the defendants, I am not satisfied that the prejudice to the plaintiffs from an adjournment would be met by an order for costs. In any event, the application to adduce such evidence and the consequential likelihood of an adjournment is to be considered, having regard to the requirements of ss 56, 57 and 58 of the Civil Procedure Act 2005 (NSW). In making orders or giving directions for the management of the proceedings, including such an application as that made by Mr O'Brien, the court is required to act in accordance with the dictates of justice. 25 One of the matters to which the court may have regard is the degree of injustice that would be suffered by the party as a consequence of the order or direction made. In deciding whether the defendants (or rather Mr O'Brien) should be a permitted to adduce such evidence with the consequent likelihood of an adjournment, the court seeks to facilitate the just, quick and cheap resolution of the real issues in the proceedings. The just resolution of the real issues in the proceedings requires that the parties be given an adequate opportunity to put their case, including by adducing evidence. But directions are given, and timetables are laid down, for that very purpose - so as to put the opposite party on notice of the case which it has to meet. A party is not entitled to multiple opportunities to put forward its case where delay in adducing the evidence will cause prejudice to the other party, will inhibit the efficient disposal of the business of the court, and operate to the detriment of other litigants whose cases may need to be postponed by reason of an adjournment. 26 Whatever Mr O'Brien might say orally in giving evidence as to the reasons the vendor was unable to proceed with the construction could have been put in writing and been served in accordance with the timetable laid down, or in any event, within a reasonable time before the hearing commenced. 27 I do not think that the dictates of justice require, or indeed permit, the application to adduce such evidence. 28 In any event, it does not appear to me that the obligation of the vendor to use all reasonable endeavours to ensure the Strata Plan was registered by the Sunset Date was to be measured by what the vendor could afford. 29 The vendor's obligations under clause 31.2, and indeed under other clauses, were not expressed to be subject to finance. 30 I was not referred to any case, and in the time available today I have not found any case, in which such an argument as the defendants would wish to propound has been upheld. 31 Clause 32.1 of the contract required the vendors to use all reasonable endeavours to cause the Building to be constructed in a proper and workmanlike manner and in accordance with all laws and the requirements of authorities. 32 The subject matter of the sale was an apartment and car space in a building the vendor was to erect. 33 What the vendor was required to do by way of use of reasonable endeavours under clause 31.2 to ensure registration of the Strata Plan to be judged objectively, having regard to its contractual obligations as a whole. Clause 31.2 is to be construed on the basis that the vendor has the ability to perform its obligations under the contract, including its obligations to construct the Building. In this respect it may be observed that the vendor's obligation under clause 32.1 "to use all reasonable endeavours" was as to the manner in which the Building work was to be carried out. I do not consider that it would be an answer to the charge that the vendor breached clause 32.1(a) to say the vendor did not have the finances to achieve the registration of the Strata Plan. 34 The uncontradicted evidence adduced by the plaintiff of a town planner and builder demonstrates that the vendor did not use all reasonable endeavours to ensure registration of the Strata Plan by 31 December 2006. 35 It follows that the vendor's notice of rescission of 28 June 2007 was not effective. The plaintiffs validly rescinded each contract on 6 August 2007. They were entitled pursuant to clause 34.4, to interest at the rate of 30 percent per annum from the date of each contract up to 27 June 2007, being the date before the date on which the deposits were refunded. That conclusion requires recalculation of the amounts claimed by the plaintiffs. 36 The plaintiffs are not jointly entitled to a judgment for the sum of each of the deposits paid under the seven contracts. The first plaintiff is entitled to interest at the rate of 30 percent per annum from 20 February 2004 to 27 June 2007 on the sum of $260,000 and thereafter interest at the prescribed rates from 29 June 2007, being the day after the return of the deposit. Such calculation of interest does not infringe s 100(3)(b) of the Civil Procedure Act because interest will not be given in respect of a period for which interest was payable as of right under the contract. The other plaintiffs are entitled to interest on the same principles. The matter will have to be stood down in order that the amounts for which judgment is to be entered can be recalculated. 37 It appears from a company search with which I was provided that an administrator has been appointed to the third defendant, and that it is subject to a deed of company arrangement. The terms of that deed are not before me. It is possible, although unlikely, that the terms of the deed would not bar the plaintiffs' claim. No application for leave to proceed against the third defendant is before me, and notice of any such application would need to be given to the deed administrator. 38 If, as I suspect is the case, the proceedings against the third defendant are stayed, I ought not to give judgment against the third defendant. I will reserve liberty to the plaintiff to apply in case the proceeding against the third defendant is not stayed, or in case it is thought that leave should be sought to proceed against the third defendant. 39 I direct that judgment be given in favour of the first plaintiff, the second and third plaintiffs, the fourth and fifth plaintiffs, the sixth plaintiff, the seventh plaintiff, the eight and ninth plaintiffs, and the tenth and eleventh plaintiffs, for the amounts of interest on the deposits paid under each of the seven contracts to which they were parties in accordance with these reasons, including interest under s 100 of the Civil Procedure Act at the prescribed rate (see Uniform Civil Procedure Rules, Sch 5) from 29 June 2007 to today. 40 Such judgment is to take effect from today and can be entered in the registry. I give liberty to any affected party to apply in respect of the calculation of the amount for which judgment is to be entered. Such judgment is to be entered against each of the first, second, fourth, and fifth defendants. 41 I order that the first, second, fourth and fifth defendants pay the plaintiffs' costs. As indicated, I give liberty to the plaintiffs to apply. The exhibits may be returned after 28 days. ****** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.