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Supreme Court of New South Wales |
40407/94; ED 4077/91
13 December 1996
THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL
MAHONEY P, SHELLER JA; SIMOS AJA
CATCHWORDS: REAL PROPERTY - inconsistency of special conditions in agreement of sale - house built in accordance with plans approved by Council - whether purchaser's refusal to complete was a repudiation of the contract - effect of builder's certificate of completion
EX TEMPORE/RESERVED: Reserved
ALLOWED/DISMISSED: Allowed
The respondent agreed to purchase a property from the appellant and paid a deposit. The contract contained special condition 25, which stated that a house and garage which were being built on the subject land were to be constructed in accordance with the plans and specifications approved by the Council, and special condition 26, which specified that the house was to be built in accordance with the Schedule of Finishes. The parties agreed that the issue of a Builder's Certificate of Completion would be deemed to be conclusive evidence that the vendor had fully complied with its obligations under that special condition.
The Schedule of Finishes included a concrete floor which had not been approved by the Council. The house was built with a timber floor raised on piers, in accordance with Council specifications, and a Certificate of Completion was issued on 6 July 1990. The purchaser insisted that a concrete floor was required.
On 27 July 1990, the vendor's solicitor issued a notice to complete, which was not complied with. On 14 September 1990, the vendor's solicitor claimed that the purchaser had wrongfully repudiated the contract, purported to accept that repudiation, terminated the contract and forfeited the deposit.
The vendor began proceedings seeking declarations that the agreement had been validly terminated and the deposit forfeited, and claimed damages. The purchaser cross claimed for declarations that the letter of 14 September 1990 amounted to a repudiation on the part of the vendor, that she had accepted that repudiation and that she was entitled to a refund of the deposit. Windeyer J dismissed the summons with costs and made the declarations sought by the purchaser in her cross claim. The vendor appealed from that decision.
HELD:
1. The Certificate of Completion substantially in accordance with the approved plans not only evidenced the vendor's compliance with special condition 25 but also compliance with special condition 26. The parties had agreed that this would be the effect of the certificate. The subordination of the vendor's obligation under special condition 26 to the issue of the certificate under special condition 25 indicated that special condition 25 was predominant.
2. The parties, having given conclusive effect to the builder's certificate, cannot go behind it, absent fraud; Dobbs v National Bank of Australasia Limited [1935] HCA 49; (1935) 53 CLR 643 at 651 and 657. Because there was no fraud in this case, there is no reason why the purchaser should not be held to her agreement.
3. (per Mahoney P) Without a change in the Council consent, the building could not have been constructed with the concrete flooring contemplated by special condition 26. Having regard to the terms of the contract and its context, the governing obligation upon the vendor was to provide a house with the wooden floor that was constructed.
ORDERS
1. Appeal allowed;
2. Set aside the orders and declarations made by Windeyer J on 15 June 1994;
3. In lieu thereof declare that the purchaser wrongfully repudiated the agreement for sale dated 5 December 1989, that the vendor lawfully terminated the agreement on 14 September 1990 and that the deposit paid by the purchaser thereunder was on 14 September 1990 lawfully forfeited to the vendor;
4. Dismiss the purchaser's cross claims;
5. Remit the matter to the Equity Division for the assessment of damages;
6. Order the purchaser to pay the vendor's costs of the proceedings at first instance and of this appeal but to have a certificate under the Suitors Fund Act 1951 if so qualified.
JUDGMENT
The purchaser's contention was that the building had to comply with, as it was described, the Schedule of Finishes and accordingly had to have a concrete slab floor on the ground level; that the building did not have such; and that accordingly the contract had not been performed in a respect fundamental to it.
I agree with the construction of the agreement adopted by Sheller JA. The vendor could not, in reality, comply with special condition 25 and with the Schedule of Finishes referred to in special condition 26. The two were, in a real sense, inconsistent. The plans and specifications approved did not in terms say that the flooring was to be of timber on piers and not a concrete slab but it is plain from the plans which were given to the purchaser at the relevant time and were approved by the Council that it was not the intention that the building be built with the use of a concrete slab. The contrary was intended. It is therefore necessary to determine what was the true intention of the parties, derived from the terms of the agreement construed in its relevant context.
In my opinion it was the intention of the parties, as evidenced by the contract, that the building should be constructed as the vendor contended. Without a change in the Council consent, the building could not be constructed with a concrete slab flooring. What was understood by the vendor was (as far as this may be relevant and referred to in the process of construction) that there should be a wooden floor on piers. The purchaser did not (as far as this is relevant) subjectively intend that there be a concrete slab; the judge's findings indicate that the provision for a concrete slab in the Schedule of Finishes was not adverted to by the purchaser until long after the agreement was made and the disputes had arisen.
It may be, as Mr Gray submitted, that by use of the powers given by special conditions 26 and 27, the terms of the vendor's obligation could have been changed so that it was obliged to have on the land a house with a concrete slab floor. But that was never done and neither party adverted to it at the time.
There was no explanation in the evidence of how the provision in the Schedule of Finishes came to specify a concrete slab floor. But having regard to the terms of the contract and its context, I agree with Sheller JA that the governing obligation of the vendor was to provide a house with the wooden floor on piers that was constructed.
If this be so, then it is not necessary to enter upon the interesting questions dealt with by Mr Gray and Mr Williams in their written submissions as to the effect of the certificate of completion provided by the builder.
I agree with the orders proposed by Sheller JA.
SHELLER JA:
SALE OF LAND
By an agreement of sale dated 5 December 1989 Valentine Penn Leach agreed to purchase a property known as Lot 72 Powell Way, Settlers Green, Westleigh for $329,000 from Lanlex No 29 Pty Limited. The purchaser paid a deposit of $16,450. The contract was in a standard form and contained special conditions which included the following:
"25. This Agreement is conditional upon completion by the Vendor of the construction of the house and garage (hereinafter called `the Building') presently being erected on the subject land substantially in accordance with the plans and specifications approved or to be approved by the Council and in the event of the Building not being completed and a Certificate of Completion (hereinafter called `the Builder's Certificate') from the Treadstone Company Pty Limited (hereinafter called `the Builder') being issued by the Builder within nine (9) months from the date hereof, then either party not being in default hereunder may by notice in writing to the other rescind this Agreement whereupon the provisions of Condition 19 shall apply.
26. The Vendor agrees to proceed with all due diligence to cause the Building to be constructed in a proper and workmanlike manner and in general accordance with the finishes set out in the Schedule of Finishes annexed hereto but subject to requirements of the Council or other competent authority. It is agreed that the issuing of a Builder's Certificate by the Builder in respect to the Building shall be deemed to be conclusive evidence that the Vendor has fully and completely complied with its obligations under this Special Condition.
27. The Vendor reserves the right without being required to give any notice thereof to the Purchaser to alter any manner in which the property is specified to be finished in the Schedule of Finishes to a manner of finish of equivalent quality.
.......
31. Completion of this Contract shall take place within fourteen (14) days after the Vendor has served on the Purchaser the Builder's Certificate........"
There is a drafting or typographical error after the third parenthesis in special condition 25 where the word "not" is missing. Clearly the special condition must be read as if the word "not" had been there inserted.
The Schedule of Finishes mentioned in special condition 26 provided in part as follows:
"Floors Structural concrete raft slab downstairs, panel flooring to timber joists upstairs. Ceramic tiling as selected to bathroom, ensuite, WC and laundry floors (ref. interior colour scheme)."
A concrete raft slab is a weight supporting slab extending under a building, which we were told is placed on the ground or, as it was put, floats on the soil.
Plans were lodged with Hornsby Shire Council on 21 July 1989 and were approved on 22 August 1989. On 6 July 1990 the builder, Treadstone Company Pty Limited, issued a certificate of completion stating:
"2. It has completed construction of the Building on the Land referred to in the Schedule hereto, in a proper and tradesmanlike manner, and substantially in accordance with the plans and specifications approved by Hornsby Shire Council."
PURCHASER'S FAILURE TO COMPLETE
The house so completed did not have a structural concrete raft slab floor downstairs but a timber floor. In the course of correspondence the vendor's solicitor made it clear that a concrete floor would not be provided and the purchaser's solicitor made it clear that one was required. On 27 July 1990 the vendor's solicitor served a notice to complete. On 2 August 1990 the purchaser's solicitor indicated that their client was not required to complete in accordance with the notice. On 14 September 1990, after some further correspondence, the vendor's solicitor wrote asserting that the purchaser's insistence on the construction of a concrete floor constituted a wrongful repudiation of the contract and indicated that the vendor accepted the repudiation, terminated the contract and forfeited the deposit. The vendor began these proceedings for declarations that the agreement for sale of land of 5 December 1989 had been validly terminated pursuant to the notice of 14 September 1990, and that the deposit was forfeited. The vendor also claimed damages. The purchaser cross claimed for declarations that the vendor had repudiated the contract by its solicitor's letter of 14 September 1990, that the purchaser had accepted the repudiation and the contract had thereby been terminated and that the purchaser was entitled to a refund of the deposit paid.
TRIAL
Windeyer J heard the proceedings in the Equity Division and, on 15 June 1994, dismissed the summons and made the declarations sought by the purchaser in her cross claim. The vendor was ordered to pay the purchaser's costs of the proceedings. The vendor appeals from that decision.
Windeyer J made the following findings:
* In November 1989 the purchaser and her husband, who represented her throughout, inspected the schedule of finishes, a sale brochure and some plans for the proposed house. It was not suggested that they ever saw the plans and specifications approved by the Council.
* When the contract was signed the land had been cleared, footings constructed and some perimeter brickwork to ground floor level had been done. Thereafter the ground floor was not constructed with a concrete raft slab but as a timber floor. The purchaser and her husband were aware of this from a relatively early stage and never made any complaint about it until they decided to use it as a reason to refuse to complete.
* The purchaser said that by August 1990 she had decided she did not want to have the house in question: it was too badly built. That had little to do with the concrete floors; she had found another house she wanted to buy.
* The vendor could not have built a home with the specified concrete floor for the same cost. As the site was sloping there would have been some difficulty in building with the floor provided in the schedule because that would have required the land to be cut at the street side and filled as it sloped towards the rear. It would however have been possible to construct the floor with a suspended slab.
* The builder, Treadstone Company Pty Limited, was one of a number of companies, including the vendor, which Mr Hunt, a director of the vendor, controlled.
Dealing with the dispute before him, Windeyer J said:
"The vendor says that the only right of the purchaser is against the builder which issued the certificate. In this it relies on Dobbs v The National Bank of Australasia Limited [1935] HCA 49; (1935) 53 CLR 643. The answer to that I think is that the builder had no doubt about what it had contracted to do for the vendor but the vendor has not been in a position to sell what it contracted to sell. The purpose of the clause is to trigger the settlement provisions leaving possible arguments about defects to be dealt with under special condition 29. But the clause could never be construed to allow it to be used to prove something known by the persons seeking to use it to be false as that would be to rely upon it for an improper purpose or a fraud on the power to rely on the certificate. If the certificate was given before a roof were in place, the plaintiff could not rely on it as it would not be providing the house; and if the Schedule of Finishes provided for a tile roof and the roof was tin, the plaintiff could not rely on a certificate to establish that the tin roof was a tile roof. In the same way, it cannot rely on a certificate to establish that a timber floor is a concrete floor nor can it rely on special condition 27 and say that the floor is a floor of equivalent quality. For a start, there is evidence that it is not, although of course a suspended concrete floor probably would have been. The fact is, that the vendor has never purported to exercise its right to alter the finish because it appears that, unknown to the purchaser, it never intended to build with a raft concrete floor. In fact, as I understood the evidence, the Council plans provided for a timber floor."
APPEAL
There were three grounds of appeal which I can summarise as follows:
1. The trial Judge erred in deciding that the contract required the vendor to build a house with a concrete raft slab floor on the ground level.
2. The trial Judge erred in deciding that the vendor was not entitled to rely upon the certificate issued by Treadstone as a sufficient answer to the purchase's complaint that the ground level of the house was not a concrete raft slab.
3. The trial Judge erred in deciding that the purchaser was not estopped from complaining that the ground level of the house was not constructed as a concrete raft slab.
The vendor did not press the third ground of appeal.
MEANING OF THE AGREEMENT
The vendor accepted that special conditions 25 and 26, in the circumstances existing at the time the contract was made, were inconsistent. Special condition 25 made the agreement conditional upon completion by the vendor of the construction of the building substantially in accordance with the plans and specifications approved or to be approved by the Council. The only plans and specifications approved by the Council then or thereafter were plans which provided for a ground floor raised on piers. The approved plans did not provide for a concrete raft slab. This inconsistency raised the question whether special condition 25 or special condition 26 was paramount. The vendor submitted that special condition 25 was paramount.
I would expect the purchaser to require, as special condition 25 contemplated, that the building be erected substantially in accordance with the approved plans and specifications; see ss 317B (1A) and 317AE of the Local Government Act 1919 as then in force. An examination of the approved plans makes plain that a structural concrete raft slab would have amounted to work in connection with the erection of the building, which did not conform with the approval. There was evidence that a raft slab was inappropriate for the topography of the land and would not have been approved by the Council. It is not to the point that the building could have been built with a suspended concrete floor which may or may not have complied with the approval. Although it is accepted that the timber floor complied with the approval, there were reasons why a concrete floor was preferable.
If one treats special condition 26 as predominant, the vendor was obliged to cause the building to be constructed with a structural concrete raft slab downstairs and complete the work not in compliance with the Council approval. The purchaser would have been contractually bound to accept this. I do not think this accords with the intention of the parties to be derived from the contract as a whole and the special conditions in particular.
The importance of special condition 25 is emphasised by the second part of it and by special condition 31. The first part makes the agreement conditional upon completion of the construction of the building substantially in accordance with the approved plans and specifications. The second part provides that a party not in default may rescind the agreement if the building is not completed and a certificate of completion not issued by the builder within nine months from the date of the agreement. The builder's certificate is of completion substantially in accordance with the approved plans and specifications. If the vendor fails to achieve completion and certification within nine months the purchaser, "not being in default", may rescind. On the other hand special condition 31 requires completion of the agreement of sale within fourteen days of service on the purchaser of the builder's certificate.
It is surprising to find in a Schedule of Finishes concerned, for the most part, with the materials and fittings to be used, reference to a structural concrete raft slab which by its very nature pertains to the profile of the building. However that may be, the vendor agreed to cause the building to be constructed in general accordance with this as well as the other "finishes" set out in the schedule. The second sentence of special condition 26 explains how it works. The parties agree that the builder's certificate of completion substantially in accordance with the approved plans and specifications shall be deemed to be conclusive evidence that the vendor has fully and completely complied with its obligations under special condition 26, that is to say that the vendor has proceeded with all due diligence to cause the building to be constructed in accordance with the finishes. The word "deemed" indicates an artificial extension of what the certificate evidences on its face. The subordination of the vendor's obligation under special condition 26 to the issue of a certificate under special condition 25 emphasises that special condition 25 is predominant. Put in the simplest terms, a certificate of completion substantially in accordance with the approved plans and specifications not only evidences the vendor's compliance with special condition 25 but also evidences the vendor's full and complete compliance with its obligations under special condition 26. It has this effect, not because the builder is required to certify compliance with those obligations, but because the parties have agreed that the builder's certificate will have this effect. Special condition 27, which reserves to the vendor a limited right to alter the manner of finish, is consistent with the subordinate role of the obligations under special condition 26 to those under special condition 25. (Special condition 28 reserves to the vendor a similar right to alter any item specified in the Schedule of Finishes.)
In his reasons for judgment, Windeyer J said that special condition 26 could not be construed to allow it to be used to prove something known by the person seeking to use it to be false. That would be to rely upon it for an improper purpose or involve a fraud on the power to rely on it. With the greatest respect I do not agree that the special conditions work in this way. The builder certifies only as to completion in accordance with the approved plans and specifications. Once that has happened the vendor does not rely upon the certificate to achieve a purpose but relies upon the parties' agreement that the certificate will have this effect. The vendor is not exercising a power. It is relying upon a term of the contract. I see no reason why the purchaser should not be held to her agreement.
CONCLUSION
These observations lead me to two conclusions; first, that the contract for sale of land was conditional upon completion by the vendor of the construction of the building substantially in accordance with the approved plans and specifications and, secondly, that the parties agreed that the effect of the builder's certificate of such completion was to provide conclusive evidence that the vendor had fully and completely complied with its obligations under special condition 26. The parties gave this conclusive effect to the builder's certificate and, absent fraud, cannot go behind it; see Dobbs v National Bank of Australasia Limited [1935] HCA 49; (1935) 53 CLR 643 at 651 and 657; Cross on Evidence, Australian ed, loose leaf service, para 7265. In Lishman v Christie [1887] 19 QBD 333 at 338, Lord Esher MR said:
"The provision is that the bill of lading is to be conclusive evidence of the quantity of cargo received as stated therein. How is any quantity stated to have been received by a bill of lading? By the word `shipped' of course. What can be the meaning of such a provision but to get rid of the liberty of the shipowners to shew that the quantity stated to have been shipped was not really put on board and to make the bill of lading an estoppel? The provision is a good business provision for the purpose of avoiding disputes as to quantity shipped where there is no dishonesty on either side. Of course, if there were fraud, such a provision would not take effect, for fraud overrides all such provisions."
In the present case there was no fraud.
ORDERS
In my opinion the following orders should be made:
1. Appeal allowed;
2. Set aside the orders and declarations made by Windeyer J on 15 June 1994;
3. In lieu thereof declare that the purchaser wrongfully repudiated the agreement for sale dated 5 December 1989, that the vendor lawfully terminated the agreement on 14 September 1990 and that the deposit paid by the purchaser thereunder was on 14 September 1990 lawfully forfeited to the vendor;
4. Dismiss the purchaser's cross claims;
5. Remit the matter to the Equity Division for the assessment of damages;
6. Order the purchaser to pay the vendor's costs of the proceedings at first instance and of this appeal but to have a certificate under the Suitors Fund Act 1951 if so qualified.
SIMOS AJA: I agree with Sheller JA.
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