Pollak v Yapp

BELL P: I agree with the reasons of and orders proposed by White JA.

PAYNE JA: I agree with White JA.

WHITE JA: This is an appeal from orders of the Equity Division (Darke J) for specific performance of a contract for the sale of land entered into between the respondents as vendors and the appellant as purchaser (Yapp v Pollak [2019] NSWSC 449). The contract was made on 30 June 2018. The land consists of a three-level residential property in Forbes Street, Woolloomooloo. The purchase price is $2,765,000. The stipulated date for completion was 1 October 2018. The primary judge recorded that the contract has not proceeded to completion owing to a dispute concerning Special Condition 49 of the contract. That condition provides:

The primary judge dismissed a cross-claim brought by the purchaser in which he sought orders that the vendors specifically perform and carry into effect Special Condition 49 of the contract by satisfying all of the development consent conditions of a development approval referred to in the contract and providing an occupation certificate in accordance with that Special Condition.

Other relevant terms were Special Conditions 34, 35 and 48. They provided:

The attached Requisitions on Title and the attached replies that formed part of the contract included requisition 15 that read as follows:

The attached answer was as follows:

Although Special Condition 49 referred to the “Development Approval annexed to the contract ...” only the plans the subject of the development approval were attached. The development approval in question was given by the Council of the City of Sydney (“the Council”) on 26 September 2017. The approved development was described as:

Conditions of the approval included the following:

Some but not all of the works authorised by the development approval had been carried out. On 12 June 2018, the vendors were advised by their builder that the certifier for the building works would not issue an occupation certificate in relation to the renovation works until the lower staircase at the property was replaced. There were other works authorised by the development approval that had not been attempted.

The purchaser inspected the property on 26 June 2018 in the company of the real estate agent. He observed that the property appeared to have been recently the subject of building works. On 28 June he went online and inspected council records, including an assessment of the development application and the development approval.

One of the vendors, Mr Orena, deposed that repair work to the lower staircase was completed in August 2018.

On 24 August 2018 Mr Hallal, the accredited certifier, issued an interim occupation certificate in respect of the property. Under the heading “Preliminaries” the interim occupation certificate identified the property and gave as a description of the works “Stage 1 – Internal Demolition and Construction of Internal Stairs Only”. After referring to the development consent and construction certificate (the issue of which is a required preliminary to the issue of an occupation certificate) the certificate identified the “Area of Occupancy” as “[XXX] Forbes Street, Woolloomooloo”. The certifier stated that:

The solicitors acting for the purchaser were Sachs Gerace Broome (“SGB”). The solicitors acting for the vendors were Cunningham Legal. On 29 June the parties negotiated upon the terms of Special Condition 49. It went through a number of iterations before assuming its final form. The purchaser asked that Special Condition 35 be omitted but this was not agreed to. On appeal, the purchaser submitted that Special Condition 49 should be construed contra proferentem such that any ambiguity should be resolved against the vendors.

As the clause was subject to detailed negotiations described in the primary judge’s reasons (Judgment [12]-[17]), I do not accept that submission. There is no identified proferens (Birrell v Dryer (1884) 9 App Cas 345 at 351-2, 354; Levison v Farin [1978] 2 All ER 1149 at 1156; North v Marina [2003] NSWSC 64; (2003) 11 BPR 21,359 at [61]-[65], [71]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [17]; Kim Lewison and David Hughes, The Interpretation of Contracts in Australia (2012, LawBook Co) at 306-308). In any event, for the reasons below, I do not consider there is any real doubt or ambiguity attending Special Condition 49 to which the contra proferentem rule of construction could be applied.

On 27 August 2018 Cunningham Legal forwarded to SGB the interim occupation certificate with respect to the property said to be “in satisfaction of Special Condition 49”. The dispute between the parties crystallised on 3 September 2018.

On 3 September 2018 SGB wrote to Cunningham Legal as follows:

Cunningham Legal replied on 5 September as follows:

The statutory provisions relating to the issue of interim and final occupation certificates are addressed further below. As at 30 June 2018 amendments had been made to the EPA Act that removed the provisions that provided for the issue of both kinds of certificate. Those amendments were then not scheduled to commence until 1 September 2018. On 1 September 2018 the operation of the amendments was deferred for a further year to 1 September 2019 (Environmental Planning and Assessment (Savings, Transitional and Other Provisions) Regulation 2017, cl 18(2)).

Before the primary judge, the purchaser contended that Special Condition 49 requires that the respondents not only replace the lower staircase in accordance with the development approval, but also complete the remainder of the works the subject of the development approval. Only after all such works have been completed and a final occupation certificate provided in respect thereof could the respondents call for completion.

The primary judge began his reasoning by referring to the principles of construing written commercial agreements as set out by the High Court in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16] and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3; [1982] HCA 24. There was no issue in relation to those well-known principles and it is unnecessary to restate them.

The primary judge observed Special Condition 49 was an exception to Special Condition 35 (Judgment [37]).

The primary judge interpreted the first sentence of Special Condition 49 to be a disclosure that works had been undertaken on the Property pursuant to the development approval, but in one respect – the lower staircase – those works were not in accordance with the approval (Judgment [38]). His Honour regarded the disclosure as referring to the works for which development approval had been given which had been carried out. The second sentence was found by the primary judge to carry the promise to replace the lower staircase in accordance with the approval. In this sense, this promise was the “exception” to Special Condition 35, in that it was the only part of the “present state” of the Property that the respondents undertook to alter (at Judgment [39]).

The primary judge reasoned that the third sentence of Special Condition 49 was concerned with the work the vendors had promised by the preceding sentence to do, rather than any remaining uncompleted work the subject of the approval. In other words, the primary judge found that the warranty in the third sentence (that all development consent conditions would be complied with before completion) was given only in respect of the work to be done in replacing the lower staircase (at Judgment [40]). The primary judge then said:

The primary judge rejected the purchaser’s submission that this would render the warranty superfluous and said that the warranty would survive completion. His Honour observed that the purchaser’s submission also assumed a redundancy. If the vendors’ obligation was to complete all the works the subject of the development approval, there would be no need for the specific promise in the second sentence to replace the staircase (Judgment [42]). His Honour observed that construction arguments founded on redundancy are never strong (Teele v Federal Commissioner of Taxation (1940) 63 CLR 201 at 207; HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 at [154]).

The purchaser also contended before the primary judge that Condition 1 of the development approval requires all of the works the subject of the approval to be completed. The primary judge disagreed. He reasoned that the approval is permissive rather than mandatory in nature and that the effect of Condition 1 is not to require the doing of all works the subject of the approval but to require that any such works actually done are in conformity with the approved plans and two drawings specified in Condition 1 (and any variations thereto as a consequence of Condition 2) (at Judgment [43]-[44]). The primary judge also said that the argument advanced was underpinned by the purchaser’s submission that completion of the works was necessary to satisfy all development consent conditions.

The purchaser argued that the occupation certificate contemplated by Special Condition 49 could only be a final occupation certificate and that given that such a certificate was only obtainable on the completion of all of the works the subject of the approval, Special Condition 49 ought to be read as requiring all the works to be completed. The primary judge rejected this submission and held that an interim occupation certificate satisfied the description of “an occupation certificate” in s 109H of the Environmental Planning and Assessment Act 1979 (NSW) (the “EPA Act”), and that the parties did not specify that only a final occupation certificate would be required by Special Condition 49 (Judgment [47]). Nor was the primary judge persuaded by the submission that the interim occupation certificate was deficient because it “merely confirms that the internal stairs may be occupied” (Judgment [47]).

The purchaser’s principal case both before the primary judge and on appeal was that Special Condition 49 required the vendors to complete all of the works the subject of the development approval and obtain a final occupation certificate in respect of those works. As to the first of these contentions, before the primary judge the purchaser’s submissions focused upon the third sentence of Special Condition 49, that is:

The purchasers submitted that this was a warranty that all of the works that were subject of the development approval would be completed in accordance with the development consent conditions.

The primary judge rejected that submission and I agree with his Honour’s reasons for so doing. His Honour said:

On appeal, Mr Stoljar SC, who appeared with Mr Farland for the purchaser, also relied upon the first sentence of Special Condition 49 as informing the scope of the warranty in the third sentence of Special Condition 49. He submitted that when read with the answers to the requisitions that formed part of the contract and the development approval that is taken to be part of the contract, the first sentence is a representation (a disclosure) that all of the works the subject of the development approval had been carried out and, except in respect of the lower staircase, had been carried out in accordance with the development approval. The purchaser referred to the answer contained in the requisition attached to the contract which stated that the building work that had been carried out in the last seven years was “demolition of carport, addition of ground floor area at the rear and internal alterations.” This was said to be in materially the same terms as the description of the development that had been approved.

As noted above (at [8]), the Council described the “Approved Development” as “alterations and additions to an existing dwelling including demolition of existing carport, new ground floor rear addition and internal alterations.” (Emphasis added)

The descriptions are not identical. The summary of the approval in the development consent is that the approved development is to alterations and additions to the dwelling which “include”, not which “comprise” the demolition of existing carport, new ground floor rear addition and internal alterations. The vendor’s answers to the requisitions contained in the contract do not impliedly convey that all of the work the subject of the development approval had been carried out. They therefore do not support a construction of the first sentence of Special Condition 49 that the vendor disclosed that all work had been carried out, rather than that some work had been carried out.

The better construction of the first sentence, and one which is consistent with the third sentence of the clause, is that the vendors represented that any works that had been carried out were carried out in accordance with the development approval (except for the lower staircase), rather than that all work permitted by the approval had been carried out.

The terms of the development approval and the plans forming part of that approval were a contractual document. The actual state of the building at the time of contract was an objective matter that was known to both parties, or at least is taken to have been known to both parties by reason of the purchaser’s inspection of the property. Special Condition 35 contained an acknowledgment that the purchaser bought the property relying on his own inspection. Moreover, Special Condition 34 contained an acknowledgment by the purchaser that the property was sold in “its present condition”. A comparison between the plans that formed part of the contract and the building would have revealed that some of the works for which development approval had been given had not been carried out. One of the vendors, Mr Orena, deposed that:

Some of the work referred to by Mr Orena that had not been carried out was not work that was the subject of the development consent, namely a third level bedroom and an “above garage outdoor living area”. Nor were we referred to anything shown on the plans that were the subject of the development approval that referred to ducted air conditioning. Nonetheless, it would be apparent on inspection that the kitchen extension shown on the plans and the “bath/walk-in robe en suite” conversion shown on the first floor plan had not been carried out.

That is, the fact that works that were permitted to be carried out pursuant to the development approval had not all been carried out would have been apparent on an inspection of the building.

As the primary judge said, had it been intended that the vendors would promise to complete all of the works the subject of the development approval, words to that effect could easily have been included. Instead, Special Condition 49 was confined to a promise by the vendors that the lower staircase would be replaced.

It was common ground at trial and on appeal that the development approval was permissive and not mandatory. No question arose in relation to the power of the Council under s 9.34(1)(a) and item 13 of Part 1 of Schedule 5 of the EPA Act to give a development control order requiring the completion of authorised works.

The next matter advanced before the primary judge was that Special Condition 49 required the vendors to provide a final, and not an interim, occupation certificate prior to settlement. The assumption in the purchaser’s submissions, which was pressed on appeal, was that a final occupation certificate can only be issued when all of the works the subject of a development consent have been completed. If this assumption is correct in relation to alterations made to an existing building (not involving a change of use of the building), and if it is correct that on its proper construction Special Condition 49 requires the provision of a final, and not an interim, occupation certificate, then the (asserted) requirement for a final occupation certificate would support the purchaser’s contention that the vendors were required to carry out all of the works for which development approval had been given.

However, neither premise is established. For the reasons below, in the case of alterations to a portion or portions of an existing building, or extensions to an existing building, there is no inference under the sections of the EPA Act with which this appeal is concerned that a final certificate can only be issued when all of the works permitted by the development approval have been completed.

Nor can Special Condition 49 be read as requiring the vendors to provide a final occupation certificate rather than an interim occupation certificate. As the primary judge observed, both fall within the description of “an occupation certificate” in Special Condition 49 because that term takes its meaning from s 109H of the EPA Act, which relevantly provides that both “final” and “interim” occupation certificates are a “kind of occupation certificate”.

When the contract was entered into the amendments to the EPA Act concerning occupation certificates were to commence on 1 September 2018. That was before the date of completion of 1 October 2018. When Division 6.3 of Part 6 of the EPA Act commences it will provide for only the issue of one kind of occupation certificate (EPA Act s 6.4). Section 6.9(1) and (2)(a)(ii) will relevantly provide:

“New building” will be defined in s 6.1 in similar terms to the existing definition in Part 4A of the EPA Act.

For the reasons below, the question whether the purchaser can lawfully occupy the whole of the premises does not depend upon whether the occupation certificate is final or interim. In the case of an existing building whose use is unchanged, an occupation certificate is required for the occupation or use of an altered portion of the existing building, or an extension to it.

If the parties are to be taken to have contracted on the basis of the legislation in force at the date of contract, there was time for the vendors to obtain an interim occupation certificate rather than a final certificate, as they did. But the issue is a red herring. If the works for an altered portion or portions of the building were complete and satisfied the requirements in the consent, the vendors could obtain a final certificate for those works, even if other works permitted by the development approval had not been carried out.

For these reasons I would reject the purchaser’s principal contention.

On appeal the purchaser advanced an alternative case. In the course of opening, counsel for the purchaser submitted that the interim occupation certificate related only to certain demolition and stairs when even on the plaintiff’s evidence there had been significantly more work than the demolition and the stairs. The vendors submitted that this case had not been raised before the primary judge. It was not specifically pleaded.

The purchaser submitted that the primary judge found that the interim occupation certificate merely confirmed that the internal stairs could be occupied. He initially submitted in writing that this meant that the rest of the property could not be occupied lawfully.

The primary judge reasoned as follows (at [46]-[47]):

As discussed at [42] above, the primary judge was right in finding that the reference to “an occupation certificate” in Special Condition 49 did not require the provision of a final occupation certificate.

It does not appear that the primary judge finally determined whether the occupation certificate provided was limited to confirming that only the internal stairs could be occupied. His Honour’s statement in the penultimate sentence of para [47] that “Even if the certificate is so limited” suggests that his Honour was not expressing a concluded view on that question. Rather, his Honour argued that even if the certificate were so limited, nonetheless the occupation certificate provided would suffice.

The only reasonable business-like construction of Special Condition 49 is that the occupation certificate to be provided to the purchaser must be one that permitted the lawful occupation by the purchaser of the entirety of the property being purchased. Although not elaborated upon in submissions before the primary judge, nor in the written submissions in support of the appeal, the purchaser contends that the interim occupation certificate does not allow him lawfully to occupy the whole of the property. That raises the questions why is an occupation certificate required, and for what is an occupation certificate required?

Section 109C of the EPA Act relevantly provides:

The relevant prohibition is in s 109M of the EPA Act, which relevantly provides:

Section 109N(1) provides:

Section 109H relevantly provides:

The purchaser submitted that a final occupation certificate could not be issued until all of the works the subject of the development consent were complete. Much to the same effect, the vendors submitted that such a certificate could only be issued upon completion of all works described in the construction certificate. The construction certificate was not in evidence. For present purposes it may be assumed that the works certified in the construction certificate were the same works the subject of the development consent.

The purchaser referred to the Minister’s Second Reading Speech for the Environmental Planning and Assessment Act 2017 (NSW) (“the Amending Act”) (this being the Act bringing about the changes referred to at [43] above) where the Minister said:

The Lambert Report said:

Although these materials show there was confusion in the building industry about when final and interim occupation certificates could be issued, they do not throw any light on the interpretation of the existing provisions.

The requirements for the issue of either an interim occupation certificate or a final occupation certificate in respect of a new building are identically expressed in s 109H. An interim occupation certificate may be issued in respect of a partially completed new building whereas a final occupation certificate is to be issued once the new building is complete.

If the development consent were for the construction of a new building in the ordinary sense, or for a change of use of an existing building, then a final occupation certificate could only be issued on completion of the new building or the works required for the change of use. If the development consent were for the alteration of a portion or portions of, or an extension to, an existing building, a final certificate could be issued once the works for the alteration of a portion or the extension to the building had been completed.

In the case of a new building (in the ordinary sense), or works for the alteration of the use of an existing building, an interim occupation certificate could be issued if the building or works were only partially complete, provided the area to be occupied could be certified as ready for occupation and the work done complied with the requisite standards. In the case of an altered portion of an existing building or an extension to an existing building, an interim occupation certificate could be issued if the works were partially complete, but the altered portion or extension were ready for occupation and the work done complied with the requisite standards.

The building in question (as a whole and in the ordinary sense) is not a new building. It is an existing building. There was no proposed change of use of the building. The building and each part of it was to be continued to be used as a residence. I do not accept the submission faintly made for the purchaser that because the definition of “building” includes “part of a building” (EPA Act, s 1.4) that a change of use of a part of a building, e.g. from a bedroom to a study or a study to a bathroom, involved a change of use. The use of the building for residential purposes was unchanged. An occupation certificate was only required in respect of an “altered portion” of the building or an “extension to” the building.

Counsel could not assist with any authority on the meaning of the expression “altered portion of ... an existing building”. In my view, that expression requires first the identification of a “portion” of an existing building and then a determination as to whether that portion has been altered. That is, it refers to the alteration of a portion of a building, rather than alterations within a portion of a building. Remodelling a kitchen by changing bench tops and the oven and stove, even though these may be fixtures, does not involve the alteration of the portion of a building that comprises the kitchen. On the other hand, moving a wall to change the dimension of the kitchen would be to alter a portion of the building. The altered kitchen would then answer the definition of “new building” in s 109H(7).

Accordingly, for this argument of the purchaser to succeed he must show that the occupation certificate issued was confined to authority to occupy the staircase and that there was some other altered portion of the building or extension to the building not covered by the occupation certificate such that he could not lawfully occupy the whole building.

The first is not established. Accordingly, the second does not arise. If it did I consider that it should not be allowed to be raised on appeal having regard to the pleadings and conduct of the trial.

As can be seen above, s 109H(3)(d) provides that an interim occupation certificate can only be issued if requirements of the regulations are complied with. The same requirement arises in relation to the issue of a final occupation certificate (s 109H(5)(d)).

The Environmental Planning and Assessment Regulation 2000 deals with the form of an application for an occupation certificate. Regulation 149(1) provides:

The form of application completed in the present case included a requirement of the applicant to “describe works as per the Development Consent”.

This requirement is not found in reg 149(1)(a)-(e), but was presumably a requirement of the certifying authority expressed in the concluding words of reg 149(1), being a requirement in the form approved by the certifying authority. That requirement is understandable having regard to reg 154(1B). Regulation 154 relevantly provides:

It does not follow from the fact that the certifying authority required the applicant for the occupation certificate to describe the works to be approved as per the development consent, being a matter to which the certifying authority had to give regard pursuant to reg 154(1B), that the extent of the authority to occupy the building or relevant part thereof was confined to the area the subject of the description of works.

Regulation 155 prescribes the form that an occupation certificate must take. Regulation 155(e) provides:

The vendors submitted that a final occupation certificate could only be issued on completion of all works described in the construction certificate, following the issue of the development consent. They submitted that if a final certificate were issued at an earlier stage this would create confusion by suggesting that works that might subsequently be done had the characteristics set out in reg 155(e).

This would be true if reg 155(e) applied to the building as a whole. But “building” includes parts of a building (EPA Act, s 1.4). There is no reason that a final certificate of occupation could not be issued authorising occupation of completed alterations to a portion of a building or completed extensions to a building, even if approved work for alterations of other portions of the building or extensions to it had not been completed or even commenced.

Evidence was admitted without objection of an email from the vendors’ builder to the vendors on 12 June 2018 that:

Although not forming part of the occupation certificate, the certifier provided with the occupation certificate a document called “Record of Inspection”. The record identified three inspections having taken place on 16 November 2017, 29 November 2017 and 17 August 2018. The first was a “pre-commencement” inspection. The second was a “Framing Inspection”. The Record of Inspection also included a final inspection on 17 August 2018. It was described as follows:

It is apparent from this record that the certifier was satisfied that all works undertaken pursuant to the development consent and the construction certificate were compliant.

This record was required to be provided to the Council together with the occupation certificate and so would be available on search to any person who sought to construe the occupation certificate. When read with the record of inspection, it is clear that the occupation certificate purported to relate to the whole of the building in Forbes Street, Woolloomooloo. That was described as the “Area of Occupancy”. The certification was that “the building” was suitable for occupation and use in accordance with its classification under the Building Code of Australia.

Because the occupation certificate purported to apply to the whole of the building, it necessarily applied to all such parts of the building as constituted altered portions of the building or extensions to the building.

If the alterations to portions (or parts) of the building or any extension to the building were complete, a final occupation certificate could have been issued, even though other works approved by the development approval had not been undertaken. It may be that the certifier laboured under the confusion referred to in the Lambert Report and evidenced by the parties’ submissions. However, the evidence as to what work was done or not done does not permit the drawing of a conclusion on this question.

The interim occupation certificate is as efficacious as a final certificate would be in permitting occupation of the area covered by the certificate: in this case, the whole building.

In any event, the onus was on the purchaser to show that the occupation certificate does not authorise occupation of the whole of the building. If, contrary to my view, the occupation certificate should be construed as applying only to occupation of the staircase, it was necessary for the purchaser to show that there was some other part of the works that constituted either an altered portion of the building, or an extension to the building, that was not covered by the certificate.

On appeal, the purchaser sought to do that by reference to the plans and from the evidence given by Mr Orena quoted at [35] above as to the works the subject of the development consent that had not been carried out.

Mr Orena was not cross-examined before the primary judge. It does not appear that any submissions were advanced to the primary judge to the required detail on this question. The vendors complain that this question was not raised before the hearing before the primary judge. It was only faintly raised in the course of counsel’s opening. The purchaser’s defence and cross-claim merely asserted that the vendors had “... not provided an occupation certificate in accordance with Special Condition 49 of the Contract”. Whilst the present contention falls within the width of that pleading, the pleading does not specifically identify the issue that was sought to be raised. Hence no direct evidence was given as to what works were done. The purchaser’s case was that the vendors were required to do all of the works that were permitted by the development approval. There was no pleading, nor any specific submission, that any particularly identified works going beyond “Internal Demolition and Construction of Internal Stairs” were done that amounted to the alteration of a portion of the building or an extension to the building.

The plans annexed to the development consent do suggest that alterations approved to the ground floor level involved the demolition of existing internal walls (apparently not load-bearing) to expand an existing living and dining room space into an adjacent room, the installation of a toilet on the ground floor and the erection of stairs, the extension of the kitchen and removal of a toilet adjacent to the kitchen and demolishing a concrete slab for the carport to provide a courtyard in place of a carport.

Condition 2(b) of the development approval indicates that there was to be a realignment of the rear wall of the proposed ground floor extension.

Prima facie, it appears to me that the proposed alterations to the ground floor, going beyond the kitchen extension, involved an alteration of portions of the building. But I would be reluctant to draw that conclusion in the absence of any evidence specifically directed to the question.

In relation to the first floor of the building, there was development consent to proposed changes which included demolishing an existing internal (and apparently non-load-bearing) wall between a bathroom and a study, and installing an en suite bathroom between two bedrooms. It appears from Mr Orena’s evidence quoted above at [35] that the “bath/walk-in robe en suite conversion” was not carried out. It might be inferred from this evidence that the conversion of the former bathroom and study to a larger bathroom involving the demolition of existing walls was carried out which, again, might be an alteration to a portion of the existing building.

No evidence specifically addressed to these questions was adduced. The primary judge was not asked to determine whether any of the works involved an alteration to a portion of the building, or an extension of the building. Were it necessary to decide, I consider that the issue sought to be raised on appeal was not sufficiently identified at trial and should not be permitted to be raised on appeal. It was only during the course of oral submissions on appeal that the particular issues raised by the purchaser’s contention that not all of the works that were done were covered by the occupation certificate were ventilated.

For the reasons earlier given, I consider that the occupation certificate allows occupation of all of the areas for which an occupation certificate may have been required, that is, all areas that may have comprised altered portions of the building or an extension to the building.

For these reasons I propose that the appeal be dismissed with costs.