Arnesen v Springs Beach Development Pty Ltd
[2008] QSC 283
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- Notable Unreported Decision
- Arnesen v Springs Beach Development Pty Ltd[2008] QSC 283
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Arnesen v Springs Beach Development Pty Ltd[2008] QSC 283
Arnesen v Springs Beach Development Pty Ltd[2008] QSC 283
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Trial |
ORIGINATING COURT: | |
DELIVERED ON: | 21 November 2008 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 13 October 2008 – 17 October 2008 |
JUDGE: | McMurdo J |
ORDER: |
|
CATCHWORDS: | CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – Where the parties executed an option deed over property that could be exercised only upon the registration of a particular plan for development with the Department of Natural Resources and Mines – Where the council approved the proposed development subject to conditions – Where the defendant did not find those conditions acceptable – Whether the obligations upon the defendant are affected by a subsequent contract between the parties – Whether the defendant was under an obligation to act reasonably – Where the defendant was obliged to take reasonable steps to procure approval, but was not obliged to proceed if it were genuinely unwilling to comply with the conditions of that approval BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Butts v O'Dwyer (1952) 87 CLR 267 Codelfa Constuction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Earle Cameron (Industrial) Pty Ltd v Comprador Properties Pty Ltd (1985) 3 BPR 9657 Meehan v Jones (1982) 149 CLR 571 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Strati v JAG Investments Pty Ltd (1980) 1 BPR 9600 Body Corporate and Community Management Act 1997 (Qld) Land Title Act 1994 (Qld), s 97A |
| COUNSEL: | Mr RG Bain QC with Mr D Clothier for the plaintiff Mr DA Savage SC with Mr D O'Brien for the defendant |
SOLICITORS: | Bain Gasteen for the plaintiff Wilson Ryan Grose for the defendant |
[1] The defendant is the registered owner of undeveloped freehold land on the coast just south of Agnes Water. In 2006 it proposed to subdivide this land, which has an area of approximately 10 hectares, into four lots, and it granted to the plaintiff an option to purchase one of them. It was agreed that the option could be exercised only once the plan of subdivision had been registered. No such plan has been registered and the defendant has purported to terminate the agreement by which the option was granted. The plaintiff claims that the option agreement is on foot, and he seeks to enforce it by requiring the defendant to procure the registration of the plan and thereby enable him to exercise the option.
The Option Deed
[2] The parties executed a deed, headed “Option Deed”, on 5 June 2006. By cl 2, the defendant granted to the plaintiff an option to purchase the proposed lot 4 shown on a certain survey plan, which I will call “the original plan”. It was by cl 2.2 of the option deed that it was agreed that the option could be exercised only once “the survey plan containing the Lot … has been registered at the Department of Natural Resources and Mines.”
[3] By cl 2.3, the exercise of the option was to constitute “a Deed for Sale and purchase of the Lot for the Purchase Price in accordance with the terms of the Contract of Sale.” The “Contract of Sale” was defined to mean the form of contract which was annexed to the option deed, which I will call “the contract document”. The “Purchase Price” was defined to be the price specified in the contract document, which was $3,900,000. By a further term of the option deed, the plaintiff was to pay a deposit of $390,000 no later than 23 June 2006, to be credited against the purchase price if the option was exercised.
[4] The plaintiff was entitled to exercise the option within a period of seven days from being told of the registration of the plan and the creation of the subject lot. In the event that the plaintiff did not exercise his option within that period, the option deed provided the defendant with a put option, entitling the defendant within the next seven days to require the plaintiff to purchase the lot at the same price. Again, upon exercise of the put option, the parties were to become bound in terms of the contract document.
[5] The subdivision was to be by the establishment of a community title scheme under the Body Corporate and Community Management Act 1997 (Qld) (“the BCCM Act”). The scheme land was to comprise the proposed four lots, each of between two and three hectares, and common property of approximately one-third of a hectare. The common property was the area through which each of the lots would have access to Springs Beach Road, which is to the south of the land. The proposed community management statement provided that each lot would be used for the building of but one house, and “on a footprint no larger than 1,000m2”.
[6] Before turning to the contract document, I should note what were not express terms of the option deed. There was no express term that the defendant would procure the registration of the survey plan and the establishment of the community title scheme. So although the option to purchase was exercisable only in that event, there was no express term that the defendant would bring it about. Nor was there any express term as to the extent to which, or the time within which, the defendant was to endeavour to bring this about, or the circumstances in which the defendant would be relieved from doing so.
[7] Instead those matters were the subject of express terms of the contract document. Their presence within the contract document is incongruous, because the contract document is not to have a contractual effect unless the call or the put option was exercised, which could not happen until after the plan and scheme were registered.
The contract document
[8] By cl 6.1 it is provided that the contract is subject to and conditional upon the registration of the plan and the community management statement creating the scheme and the issue of a separate title for the lot. Clause 5.3 of this document provides for settlement 28 days after advice to the plaintiff that these things have occurred.
[9] Clause 6.2 of the contract document provides as follows:
“Final Registration Date
Subject to clause 6.3, if the Scheme is not established by the Final Registration Date, then either party may terminate this Contract by notice in writing to the other such notice to be effective from the date of receipt thereof, and in the event of such termination, all moneys paid by the Buyer as Deposit and Interest (if any) shall be refunded in full to the Buyer and neither party shall have any claim whatsoever against the other.”
The Final Registration Date is specified by the contract document as 1 November 2007.
[10] Clause 6.4 of the contract document is as follows:
“Planning or Building Restrictions
If the Local Authority or any other statutory body having jurisdiction refuses to grant or revokes any development permit or approval or certificate or other permit relating to the Land the subject of this Contract or refuses to seal or approve the Plans or the [community management statement], or imposes any conditions on the sealing of such Plans with which the Seller shall be unable or unwilling to comply, or if for any other reason outside the Seller’s control the development of the scheme Land becomes unviable, the Seller may terminate this Contract by notice in writing to the Buyer or his Solicitors and upon termination all monies paid by the Buyer shall be refunded without deduction and neither party shall have any claim against the other for any costs, expenses or otherwise by virtue of this Contract or its termination pursuant to this clause.”
[11] Clause 10.1 provides that the defendant will develop “the Scheme Land” substantially in accordance with the original plan, which is annexed to the contract document. On its face, this is an express promise to procure the registration of the plan (subject to cls 6.2 and 6.4).
The defendant’s obligation
[12] Before going to the facts of why no plan of subdivision has been registered, there is a substantial issue as to the extent to which the defendant was obliged to pursue the registration of the plan of subdivision and the establishment of the scheme.
[13] The plaintiff’s pleaded case is that the option deed contains an implied term that:
“The defendant will do everything necessary on its part, or alternatively will take reasonable steps, to cause:
(a)the creation of a separate title for Lot 4 on or before 1 November 2007;
(b)the creation of the Scheme on or before 1 November 2007.”
It is alleged that this term must be implied to give business efficacy to the option deed.
[14] The defendant denies the existence of that implied term, on the basis that it would be inconsistent with cl 6.4 of the contract document, which the defendant says must be given effect as if it appeared in the option deed.
[15] Absent any effect being given to cls 6.2 and 6.4 of the contract document, I accept that it would be necessary to imply an obligation upon the defendant to do something to procure the registration of the plan and the establishment of the scheme. Without any such obligation, the option deed would lack business efficacy. However, it would not be necessary to imply a term whereby the defendant was to do everything which was necessary to procure that result. And such a term would not satisfy another requirement for a term which is to be implied in fact, according to BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[1] which is that the term be no more than is reasonable and equitable between the parties.
[16] Ordinarily in this context, and absent the impact of an express term, there would be an implied term that the present owner should do all that was reasonable on its part to procure the position by which the land could be sold: Butts v O'Dwyer.[2]Thus in Strati v JAG Investments Pty Ltd,[3] where a contract for the sale of land was made subject to an approval of a plan of subdivision, McClelland J said:[4]
“Where a contract for the sale of land is made subject to a condition, there arise, subject to any sufficient indication to the contrary, implied obligations binding each party (a) to take all reasonable steps available to him to procure fulfilment of the condition and (b) to refrain from taking any step which would prevent or inhibit fulfilment of the condition.”
That statement was followed in Earle Cameron (Industrial) Pty Ltd v Comprador Properties Pty Ltd,[5] where Hodgson J added this:[6]
“In certain circumstances, a test of reasonableness might involve a lesser obligation than one of necessity. If it should turn out that some necessary step involves an unforeseen burden on the party, it may be that while that step is necessary, it is not reasonable in the circumstances that the party should have to take it: see Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497 at 511-2.”
[17] Ultimately the argument for the plaintiff seemed to advance only his alternative case, which is for the implication of a term for the taking of reasonable steps to procure the necessary registration. [7] That argument was sought to be supported by an express term of the option deed which is as follows:
“6.2Each party to this Deed will perform and do all such further acts and things and execute and deliver all such documents, Deeds and instruments as may reasonably be required by any other party effectively to carry out and to give effect to the positions and intention of this Deed.”
[18] The question then is whether this was affected by cl 6.4 of the contract document. At least if that clause had been included within the option deed itself, it would affect the alleged implication because in relevant respects the implied term would be inconsistent with that express term.[8] In particular, according to cl 6.4, the defendant would not have to proceed with the subdivision upon any condition for the sealing of the plan of subdivision with which it was “unwilling to comply”, which is a matter of the defendant’s subjective view rather than an objective question of reasonableness. And the general provision in cl 6.2 of the option deed would have to be read subject to the specific provision of cl 6.4.
[19] In many respects, the contract document seems to have been drawn for a different type of transaction. Its terms would seem more appropriate for a contract of sale, the completion of which was subject to the registration of the plan and establishment of the scheme. Thus the contract document commences with this:
“1.The Seller intends to subdivide the land by way of a standard format plan into four lots…”
And as already mentioned, cls 6.1, 6.2 and 6.4 refer prospectively to the registration of the plan and the establishment of the scheme, as do several other clauses. Clearly those clauses could have no effect as terms of a contract of sale in this case, because by then those things would have happened. The question is whether they were apparently intended to have any contractual effect before the exercise of the (call or put) option.
[20] The plaintiff’s case accepts that some of the provisions of the contract document would affect the defendant’s obligations prior to the exercise of the option. In particular, the implied term pleaded by the plaintiff, set out above at [13], is alleged to be necessary having regard to not only the option deed itself but to certain provisions of the contract document, including cls 6.1, 6.2 and 10.1. This explains the specification of 1 November 2007 within the pleaded term, because that is the “Final Registration Date” in cl 6.2 of the contract document. It would appear to follow from the plaintiff’s case, that if the scheme was not established by that date, either party could terminate the option deed. Thus, rather than saying that none of the provisions of the contract document which refer prospectively to the registration of the plan and the establishment of the scheme had a contractual effect prior to an exercise of the option scheme, the plaintiff’s case is that they do have effect, save for cl 6.4. The logical basis for excepting cl 6.4 is not apparent.
[21] The drafting of these two documents, the option deed and the contract document, is obviously flawed. However, that is no justification for ignoring these provisions of the contract document, and cl 6.4 in particular. On an objective view, the parties intended that the defendant would be allowed to terminate the contract under which the option was exercisable in any of the circumstances described in cl 6.4. After all, the parties did agree upon the terms of the contract document when they executed the option deed, to which it was annexed. Their apparent intention was to have those provisions of the contract document, which described prospectively the registration of the plan, take effect prior to that registration. That apparent intention was clearer for the fact that none of these provisions of the contract document would be inconsistent with any express term of the option deed. To imply a term of the option deed which is inconsistent with these provisions, and in particular cl 6.4, would defeat the apparent intention. Accordingly, any implied term that the defendant should take reasonable steps to create a separate title and the scheme before 1 November 2007 would have to be qualified according to cl 6.4.
[22] It was submitted for the plaintiff that if cl 6.4 has effect, nevertheless it requires the defendant to act reasonably in deciding whether the conditions of approval were acceptable, because it could not have been intended that the defendant could decide to “not proceed … at its whim” and that this would render the contract illusory. I do not accept that argument. The contract would not be illusory absent a criterion of reasonableness because it is to be implied that the defendant would act honestly in deciding whether or not it was willing to accept the conditions imposed by a relevant authority: see eg Meehan v Jones[9]. In that case, where the completion of a contract for the purchase of land was conditional upon the purchaser receiving approval for finance “on satisfactory terms and conditions”, Wilson J held that although the purchaser was obliged to make reasonable efforts to secure finance:
“the question whether he is able and willing to assume the burden involved in accepting particular terms may well be answered by reference to subjective considerations which cannot readily be the subject of objective assessment as to their reasonableness.”[10]
[23] In the present case then it may be accepted that the defendant was obliged to take reasonable steps to procure the necessary approvals for this subdivision. However, effect should be given to cl 6.4, so that the defendant was allowed to withdraw if it was genuinely unwilling to comply with the conditions of the required approval.
The attempts to obtain approval
[24] On 22 December 2005, PMM Group (“PMM”), a firm of town planners acting for the defendant, lodged an application for a development permit for a subdivision according to the original plan.
[25] On 30 March 2006, the Environmental Protection Agency wrote to the defendant, stating that some of the land was in an erosion prone area and would be required to be surrendered as a condition of any subdivision. Thereafter the defendant and PMM continued to correspond with the local authority (then the Miriam Vale Shire Council), the Environmental Protection Agency and the Department of Natural Resources and Mines.
[26] In mid-July 2006 (after execution of the Option Deed), the defendant agreed to amend the original plan, to exclude the erosion prone land which was to be surrendered to the Crown. This reduced the size of the proposed Lots 1 to 3, but not of Lot 4.
[27] On 25 September 2006 the council published its decision to approve the application subject to certain conditions. On 29 September 2006 it published an amended version of that decision. The relevant conditions, set out in the Decision Notice, were as follows:
“1.The site is to be developed generally in accordance with [the original plan amended by the exclusion of the erosion prone area]…
- The 1,000 sqm building envelopes shall be located on the upper slopes of each lot but shall ensure that no part of any building that may subsequently be constructed on the lots may be visible above the tree-line when viewed from a point immediately adjacent to the northern property (Springs Beach). Diagrams demonstrating compliance with this requirement shall be provided to the satisfaction of the Chief Executive Officer prior to the sealing of the plan or diagram.
- Building envelopes shall achieve a minimum 10m side and rear setback on each of the lots.
- At all times the maximum 1,000 sqm building footprint is to fit within the volumetric envelope created by the side boundary setbacks and the site lines referred to in the preceding conditions to the satisfaction of the Chief Executive Officer prior to the sealing of the plan or diagram.
- The building envelopes shall be secured through both a caveat on title and through a by-law in the community management statement and such mechanism shall be to the satisfaction of the Chief Executive Officer prior to the sealing of the plan or diagram.”
[28] At this point it is necessary to more fully describe the land and the proposed subdivision. It was and is undeveloped bushland, accessible from Springs Beach Road which runs along its southern boundary. From there the land slopes downhill towards the sea. At its northern boundary it abuts an area described as an esplanade but where there is no constructed road, and to the north of that there is a beach. In general, the slope of the land is steeper at the northern (beach) end.
[29] The four lots were to be created by three new boundaries extending through the land roughly from north to south. At the southern end was to be the common area. At the northern end, as already discussed, there was an erosion prone area to be excluded from Lots 1, 2 and 3. The lots were numbered from the western end of the land.
[30] The length of each lot, in roughly a north-south direction, was to be very much greater than its width. Lot 4 was relatively wide at its northern end but most of this part of Lot 4 was to remain undeveloped because the council imposed other conditions to preserve the vegetation on that part of the land. In essence then, each of the four lots ran from its northern point near the beachfront, uphill over some hundreds of metres to its southern boundary. It was in this context that the council required, in condition number 2 set out above, that the building envelopes be located “on the upper slopes of each lot”, and that:
“…no part of any building…be visible above the tree-line when viewed from a point immediately adjacent to the northern property boundary (Springs Beach)”.
[31] On 9 November 2006, the defendant filed a notice of appeal in the Planning and Environment Court, appealing against those and other conditions. By December 2006 the defendant and the council, through their respective solicitors, were negotiating a settlement of the appeal, which was set down for hearing on 5 March 2007.
[32] The defendant continued to negotiate with the council, and in the course of that, the council indicated that it would require the registered plan of subdivision to show the location of the building envelopes and a registered covenant (rather than a caveat, as required by its Decision Notice), that each lot would be built upon only within that building envelope. This was to be a covenant under s 97A of the Land Title Act 1994 (Qld), by which the first and subsequent owners of a lot would be bound to build only within that area.
[33] By this time each of the lots was the subject of an option to purchase or a contract of sale, conditional upon this subdivision. On 21 February 2007, the defendant’s solicitors wrote to tho prospective purchasers, including the plaintiff, informing them of the council’s requirements for a “precise building footprint” to be identified upon the survey plan and the subject of a registered covenant. Each purchaser was asked to indicate the desired location of the footprint. The solicitors for the plaintiff protested, suggesting that this would result in the lot being sold to the plaintiff in breach of a clause of the contract document, which entitled him to a transfer “free from defects and encumbrances”. Nevertheless, the plaintiff did specify a proposed footprint, as did the other purchasers. The defendant was not prepared to accept the precise location of the footprint proposed by the plaintiff, because this was said to be a likely impediment to a sale to someone else if the plaintiff did not exercise his option. With that change, the defendant had PMM prepare a plan of survey showing the locations of the proposed building envelopes.
[34] On 2 March 2007 an order was made by consent in the Planning and Environment Court, allowing the appeal subject to amended conditions. These were the orders as to the conditions:
“(A)Condition 2 be deleted and replaced with the following:-
‘2.The 1,000 sqm building envelope shall be located on the upper slopes of each lot but shall ensure that no part of any building that may subsequently be constructed on the lots exceeds 9m in height and protects the landscape values of the locality. Diagrams demonstrating Springs Beach sight lines shall be provided to Council prior to the sealing of the plan.’
(B)Condition 3 be deleted and replaced with the following:
‘3.Building envelopes shall achieve a minimum 3m side and rear setback on each of the lots.’
(C)Condition 5 be deleted and replaced with the following:
‘5.The building envelopes shall be secured through both a covenant on title and through a by-law in the community management statement and such mechanism shall be to the satisfaction of the Chief Executive Officer prior to the sealing of the plan or diagram.’”
[35] At this stage the council had not been provided with the plan which showed the proposed locations of the building envelopes. That was provided to the council with a letter from PMM a few days later, which stated that the plan complied with the conditions in all respects and asked for it to be sealed by the council.
[36] On 7 March 2007 the council’s solicitors wrote to the defendant’s solicitors as follows:
“The material lodged by your client is not sufficient to enable Council to determine whether or not the conditions of the approval have been met. Your client, as Applicant, should provide sufficient material to enable Council to determine:
1.whether the area of each lots building envelope is no more than 1,000 square metres;
2.that the building envelopes are on the upper slopes of the land; and
3.that the building envelopes achieve the minimum 3 metre side and rear setbacks.
The documentation lodged to date does not enable Council to ascertain this information. We understand from Council that the one building envelope area that can [be] easily calculated appears to exceed 1,000 square metres.”
[37] On the following day, 8 March 2007, PMM prepared a document, containing a contoured plan and drawings of cross-sections through each of the four lots, in order to demonstrate what could or could not be seen of houses if constructed upon the designated building envelopes. Through each lot there was a section running from its northern boundary. The section through each of Lots 1, 2 and 3 extended more than half-way through the lot towards the south. The section through Lot 4 ran more in a south-easterly direction. The contoured plan showed the subdivision and the location of the building envelopes and contours. The document as a whole thereby showed the locations of the envelopes relative to the slope of the lots and the visibility or otherwise of houses at those positions if viewed from the northern boundary. I will call this the cross-section document. It was sent by PMM to the council on the day it was prepared.
[38] Yet the council remained unpersuaded that the plan it was asked to seal complied with the conditions. On 13 March 2007, a council officer wrote to PMM to advise that the matter was being considered by the Mayor and the council’s CEO. On that day, the defendant had its solicitors file further proceedings in the Planning and Environment Court, seeking declarations that it had complied with the conditions or alternatively an amendment of the conditions to delete the words “the upper slope of” from condition 2.
[39] The point which appears to have prompted these fresh proceedings was that the plan, as some prospective purchasers had requested, designated more than one area within a lot for proposed building, although the total of these areas was no more than 1,000 sqm for a lot. This was because some purchasers wanted to construct structures for barbeque areas or sheds close to the northern boundary to be near the beach. At that time, apparently the council had no objection to the proposed locations of the houses, which were further up the hill.
[40] There is a diary note dated 13 March 2007 made by Mr Pollock of PMM of his conservation with Mr Perfect of the council of that day. Neither gave evidence but the diary note was tendered by consent. It is as follows:
“Rec’d call from Garry Perfect
- spoken to [council’s CEO and the Mayor]
- no to building envelopes – want one envelope/lot
- location preferred around 40m mark
- believes [the Mayor] is not going to budge
- 40m contour is generally consistent with Red Rock.”
The reference to “Red Rock” was to a nearby development, which had been undertaken by a company related to the defendant. The references to 40 metres were the subject of some debate in the submissions. I am unable to determine whether Mr Pollock was noting what Mr Perfect was saying in those respects, or instead was noting his own argument as put to Mr Perfect. But as I will discuss, the house sites indicated by the plan lodged for sealing, and in turn the cross-section document, showed for Lots 1, 2 and 3 that the house would be at about the 40 metre contour.
[41] Directions in these new proceedings in the Planning and Environment Court were made by consent on 4 April 2007. The council was ordered to provide notice of its grounds for refusing to seal the plan. The council did so, by a letter from its solicitors dated 20 April 2007. It is unnecessary to set out all of the matters identified by that letter, but relevantly these were the council’s objections:
“… 2The Survey Plan does not comply with Condition 2 of the development approval as:
(a)it provides for more than one building envelope on each proposed lot;
(b)the building envelopes depicted on the plan are not located on the upper slopes of each proposed lot;
(c)the information provided with the Survey Plan fails to adequately demonstrate that any part of a building which may be constructed on the building envelopes will protect the landscape values of the locality.”
[42] On 24 April 2007, the council’s solicitors wrote to the defendant’s solicitors, enclosing copies of a number of documents for the purpose of further negotiations. Importantly, they included a copy of the cross-section document but upon which two lines had been drawn. There was a red line along the 30 metre contour. There was a dotted blue line across all four lots, at contour levels ranging from 40 to 60 metres. This document became exhibit 2 in these proceedings.
[43] Mr Baevski is a director of the defendant and was its only witness. I accept that he effectively controls the defendant and that his state of mind represents its state of mind. He says that he was told by PMM that council officers had said that no building envelope was to be to the north (downhill) of that blue line. I upheld the objection of the plaintiff that this was hearsay as evidence of what the council had said. However, I infer that it was the council which drew the blue line on the cross-section document. I do because there is nothing to indicate why anyone on the defendant’s side of the argument would have done so, and there is uncontested evidence that the cross-section document went to the council without the blue line, and came back from the council, through its solicitors, with that line. In turn I infer that the council indicated to PMM, with whom it was having much or most of its dealings about this development, that this blue line defined the area which the council was maintaining to be the “upper slopes” of the site. Blue lines were also shown on the cross-sections, corresponding with the location of the blue line drawn on the contour plan on the same document. Clearly the council did not accept that the house sites indicated by the plan lodged for sealing (and the identical sites indicated by the cross-section documents) had been located according to the conditions.
[44] On 8 June 2007, the council agreed to the defendant’s request that the proceedings in the Planning and Environment Court be placed in abeyance whilst the defendant considered its position.
[45] On 21 June 2007 the solicitors for the defendant wrote to all prospective purchasers, including the plaintiff, giving notice of termination of their agreements. They wrote that the defendant had not been able to obtain the consent of the council to the subdivision plan on terms and conditions which were satisfactory to the defendant, and to at least some purchasers. They added that despite the defendant’s best endeavours to overcome the council’s concerns, the defendant had not been successful and that “further negotiations with the council are no longer viable or practical for our client”. Some of the other lots were the subject of conditional contracts, effectively in terms of the (plaintiff’s) contract document. In particular, those contracts contained a clause identical to cl 6.4. The notices of termination, including that given to the plaintiffs, were given in express reliance upon that clause.
[46] The plaintiff disputed, and continues to dispute, the validity of that termination. The plaintiff lodged a caveat and commenced these proceedings on 14 August 2007.
[47] A month later the defendant’s proceedings in the Planning and Environment Court were withdrawn and the defendant has taken no further step to obtain the sealing of the plan of subdivision.
Did the council’s conditions matter?
[48] The defendant’s case, expressed in terms of cl 6.4, is that it was unwilling to comply with the conditions as to the building envelope or alternatively that those conditions made the development “unviable”. Mr Baevski gave evidence which supports each of those arguments but which is strongly challenged.
[49] The plaintiff’s case is that Mr Baevski, and thereby the defendant, was willing to comply with the conditions when the defendant consented to the order of the Planning and Environment Court on 2 March 2007, but that he later became interested in an alternative development, and that this is the true reason for the defendant’s attempt to terminate the option deed and the contracts on the other lots.
[50] The relevant condition from that order of 2 March 2007 is condition 2, set out above at [34]. The council’s position was that the plan did not comply with that condition in three respects. The first was that more than one building envelope had been proposed for each lot. The second was that the building envelopes had not been located on the “upper slopes” of each lot. The third, which appears to be the result of those two, was that it was not then demonstrated that any part of a building to be constructed on the building envelopes would “protect the landscape values of the locality”.
[51] Undoubtedly the defendant was willing to comply with those conditions when it consented to the order which imposed them. But as the plaintiff’s argument appears to accept, that did not preclude a subsequent termination of the option deed by the defendant if by that time, the defendant had become unwilling to comply with the conditions (assuming that cl 6.4 was a term of the option deed).
[52] Mr Baevski gave evidence that prior to submitting the plan for sealing by the council, he and a person from PMM had met with the CEO of the council who then approved a plan which was relevantly the same. There is no documentary evidence that this occurred and I am not persuaded that it did occur. In the subsequent correspondence between the defendant and the council, and between their respective solicitors, there is no mention of this approval by the CEO. I find, as the plaintiff argues, that no plan showing the location of the building envelopes was presented to the council prior to the consent order being made.
[53] Mr Baevski’s evidence is that he believed that the building envelopes were located consistently with condition 2. He said that he understood the limitation of a building envelope of 1,000 sqm per lot to permit the envelope to be made up of several areas, if they were, in aggregate, no more than that size. He said that this accorded with his experience with a nearby development. I accept that the various envelopes on the plan presented to the council were within the limit of 1,000 sqm if measured in that way.
[54] On Lot 4 there was but one area designated as the building envelope. As discussed, on each of Lots 1, 2 and 3 there was a small area for a shed or other structure which was located almost adjacent to the northern boundary. A further problem with this notion of a number of areas comprising the one building envelope was that they could not be said to be upon the “upper slopes of each lot”, because these were at the lowest part of each lot. Therefore the plan which was presented to the council for sealing, immediately after the consent order, was inconsistent with the order at least in that respect. But this was not the principal impediment imposed by the council; rather that was the council’s requirement that the houses be constructed further up the hill from the house sites as depicted in that plan.
[55] At least on Lots 1, 2 and 3, the proposed house site was arguably upon the “upper slopes” of the lot. The contour plan which is part of exhibit 2 shows that on each of these lots, the house would be no closer to the lowest point of the lot than to its highest point. As already noted, the land sloped downhill fairly consistently from the south to the north although the slope became somewhat steeper as the land became lower. There was no significant area of level land between two distinct slopes. On this site, the upper slopes of a lot could be understood to refer to that which, measured by height, was more than half way up the hill.
[56] As for the plaintiff’s Lot 4, the proposed building envelope was much lower than the house sites on the other lots and it was closer to the lot’s lowest point than to its highest point. However, the different shape and topography of Lot 4 provided some basis for an argument that the proposed building envelope was still within the “upper slopes”, although not within the higher half of the lot.
[57] Mr Baevski said that he believed that each of these house sites was high enough to be within the upper slopes. I am not sure that he held that belief when the consent order was made. But if he did not, he believed that the council could be persuaded to accept the location of these sites. Either way, in consenting to condition 2, Mr Baevski was not then willing to accept the location of the house sites in different places from those on the plan to be sealed, and in particular, at places significantly further up the hill.
[58] This was because the location of the houses higher on the lots would substantially affect their sea views, as well as making them further from the beach. I accept Mr Baevski’s evidence that the location of the houses above the blue line on exhibit 2 would have denied them the sea views which would be enjoyed from the proposed house sites, and that this would greatly diminish the value of the lots. The impediment to the view would have been the trees on the lots, and undoubtedly the purchasers had chosen their particular house sites because immediately below them was a relatively steep slope which thereby provided a better view from the designated areas. That their value would be diminished if houses could not be built with sea views is obvious and requires no expert opinion, although Mr Baevski does have extensive experience in developing other land in the region. The fact that the houses would be so much further from the beach would also tend to diminish the values of the lots. And whether or nor their values would be diminished by these factors, I accept that Mr Baevski at least believed that to be the case and, if it be relevant, his belief was reasonable.
[59] As I interpret the term “upper slopes” of a lot, the council was effectively seeking to impose a further condition, beyond the terms of condition 2, by insisting that the house sites be located uphill of the blue line on exhibit 2, or at least by insisting upon some uphill relocation of the house sites shown on the proposed plan for Lots 1, 2 and 3. Accordingly, there was no inconsistency between the defendant’s consent to condition 2 and an unwillingness to comply with a requirement that the house sites be relocated. Alternatively, if the council was correct in saying that the house sites were not on the upper slopes, nevertheless Mr Baevski believed that they did comply with condition 2 or at least that they arguably did. So again, there was no inconsistency between his agreeing to the order of 2 March 2007 and his dissatisfaction with the council’s subsequent requirements.
[60] The defendant’s predicament was that if it agreed to relocate the house sites and the land was then subdivided accordingly, but one or more of its purchasers did not complete, then the defendant would be left with land which could be used only for a house but at a place where it would have no sea views and would be far from the beach. The defendant would be left with land of less value for its being subject to the registered covenant for that house site. It is relevant then to consider whether any purchasers would have had at least an arguable basis for not going ahead had the defendant agreed to relocate the house sites.
[61] Section 213 of the BCCM Act required that each buyer be provided with a disclosure statement prior to entering into the contract. By s 213(2)(e), the disclosure statement was to be accompanied by the proposed community management statement. It is common ground that each purchaser received a disclosure statement in the terms of that provided by the defendant to the plaintiff. The then proposed community management statement contained a cl 4.1, whereby each owner was to “play a part in achieving the Environmental Objective” by “… ensuring that the dwelling is built on a footprint no larger than 1,000 sqm”. The “Environmental Objective” was said to be:
“that within the context of the development of the coastal residential community of The Cove at Springs Beach, to retain, rehabilitate, conserve and manage the Scheme in accordance with the principles of ecologically sustainable development for the long term benefit of the environment and the landholders.”
However, this draft community management statement contained no provision requiring the dwelling to be built on the “upper slopes” or indeed on any particular part of a lot.
[62] Section 214 of the BCCM Act requires a seller to give a further statement to the buyer upon becoming aware that information contained in the disclosure statement was inaccurate or would not be accurate if now given as a disclosure statement. One of the council’s conditions required an amendment to that draft community management statement. In particular, condition 5 required the insertion of a by-law in the community management statement which limited the location of the house to that shown on the registered plan. Accordingly, the defendant was obliged to give to its purchasers a further disclosure statement.
[63] Section 214(4) provides that a buyer may cancel the contract if it has not been settled and the buyer would be materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate. Therefore, each buyer was able to cancel his or its contract if that buyer was materially prejudiced by the introduction of a by-law which restricted the construction of a house to the location shown in the registered plan. If that was a location substantially further up the hill, so that there could be no or little view of the sea from the house, then there would have been a strong basis for a buyer to cancel the contract under s 214(4).
[64] Mr Baevski said that he believed that the other purchasers would not complete if required to build at such a location. I find that he had a reasonable apprehension that if he met the council’s requirement for a relocation of these house sites, he would be left with most of the subdivision still in the defendant’s ownership, but with no alternative development available because of the establishment of this scheme.
[65] The plaintiff argues that it is not demonstrated that the council was requiring that the building envelopes be uphill of the blue line. I have inferred that the council had indicated such a requirement when it drew the blue line on the cross-section document. Perhaps it had not gone as far as requiring that relocation. But on any view it was requiring a relocation of the house sites to further up the hill from where shown on the plan which it was asked to approve, and there was at least a reasonable apprehension by the defendant that the houses would have to be built at locations which would deprive them of sea views.
[66] Mr Baevski said that he was advised that the proceedings commenced in the Planning and Environment Court in April 2007 might or might not succeed. That evidence was not challenged and nor is it argued that the defendant was in breach of the option deed by not pursuing them.
[67] The plaintiff argues that the defendant purported to terminate the option deed because by then, it had decided to pursue a different development. The suggestion is that the defendant had made up its mind to pursue another subdivision involving a higher number of lots, with a certain joint venturer, by the time it purported to terminate the contracts for these four lots.
[68] In truth, the defendant is wanting to pursue that alternative development, and with that joint venturer it has taken steps towards obtaining the necessary approval from the local authority, which is now a different council as a result of an amalgamation. It appears that this council is more willing to allow such a development than its predecessor would have been. I accept Mr Baevski’s evidence that in the first half of 2007, this joint venturer was undertaking due diligence on two other projects which other companies of Mr Baevski were promoting, and that its joint venture for those projects began in July 2007. I accept that between April and June 2007, he was discussing a possible joint venture for the development of the subject land with that party, and that by June 2007, that party was providing some of the “holding costs” of this land. I accept also his evidence that he was attracted by a joint venturer who was then prepared to “help to fund the debt” of the defendant. Mr Baevski agreed that by the time that he purported to terminate these four contracts, including the plaintiff’s option deed, he was “confident in practical terms, if not legal terms” that there would be a joint venture for this alternative development of the land.
[69] The prospects of a more intensive development and of financial assistance from a joint venturer whilst that proposal was progressed were no doubt important to the defendant in deciding to terminate its contracts for the proposed four lots. But it does not follow that the defendant was unable to terminate them, and in particular, that it was unable to rely upon cl 6.4. The council was clearly refusing to seal the plan which had been presented to it. Had that plan been amended so that there was but one building envelope within each lot, but still with no change to the location of the house sites, it was clear that the council would have refused to seal the plan, because it maintained that the house sites had to be much further up the hill. If the council was simply applying condition 2 of the consent orders of 2 March 2007, I find that the defendant had become unwilling to comply with that condition, once it realised this would not allow houses to be located according to the plan which it had presented for sealing. Alternatively, if the council was thereby imposing a further condition, then from the same time the defendant was unwilling to comply with it. The defendant’s genuine resistance to the council’s stance was demonstrated by its immediately instituting further proceedings to challenge it in the Planning and Environment Court. Then once the prospect of the joint venture for an alternative development arose, the defendant became less inclined to continue with its challenge to the council’s condition and therefore, when considered with the legal advice received by the defendant as to its prospects against the council, the timing of the defendant’s termination of these four contracts is explained.
[70] But it far from appears that the defendant would have terminated the contracts, had the council given way and agreed to seal the plan which had been presented to it. In that event, no purchaser would have had an apparent basis for withdrawing, and the defendant would have been able to settle all four contracts within a month or so, thereby receiving almost $16 million. It is unlikely any expected profit from a more intensive development through a joint venture, which would require considerable time and expense as well as marketing, would have dissuaded the defendant from promptly completing these four contracts. It may be that the prospect of the alternative development changed a reluctance to an unwillingness, but still it was because the defendant was unwilling to comply with the condition that it terminated the option deed.
[71] It follows that the defendant was entitled to terminate the option deed as it did on 21 June 2007. Should it become relevant, and if it is not already clear from the above, I find that the defendant was reasonable in its unwillingness to comply with this condition. Accordingly, if cl 6.4 is subject to a criterion of reasonableness, as the plaintiff argues, nevertheless the defendant was entitled to terminate the option deed.
[72] It is unnecessary then to consider the defendant’s alternative argument, that cl 6.4 was engaged by the development becoming “unviable”. I would accept the plaintiff’s argument that the “viability” of the development, in the context of this provision, must be considered objectively, and that it is not sufficient that Mr Baevski believed it to be unviable. An acceptance of the council’s contention as to the house sites would have been likely to result in at least some purchasers not proceeding. But it is another matter whether this development, as defined by the subdivision and the establishment of the scheme, would have been unviable. On at least one view, that development remained viable in the sense that the land could have been subdivided and the scheme established.
Conclusions
[73] The defendant validly terminated the option deed. The plaintiff’s claim will be dismissed and his caveat will be ordered to be removed forthwith.
Footnotes
[1] (1977) 180 CLR 266 at 282-3, approved in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605-6; Codelfa Constuction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347 and 404.
[2] (1952) 87 CLR 267 at 280.
[3] (1980) 1 BPR 9600.
[4] (1980) 1 BPR 9600 at 9605.
[5] (1987) 3 BPR 9657.
[6] (1987) 3 BPR 9657 at 9663.
[7] Written submissions para 75.
[8] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283.
[9] (1982) 149 CLR 571 at 581, 589 and 597-598.
[10] (1982) 149 CLR 571 at 598.