In the recent case of Buckworth v Gladio Pty Ltd  NSWCA 54 the New South Wales Court of Appeal considered a right to rescind a 2013 contract for the sale of shares, ownership of which carried the right to exclusive occupancy of a company title apartment. Buckworth was the vendor (the Vendor) and Gladio was the purchaser (the Purchaser) of the shares. The appeal focussed on two main issues:
- whether there was consent by the building owner to the sale of shares (required under clause 6.1) or whether consent was conditional upon the Purchaser accepting and agreeing to be bound by certain house rules introduced after the exchange of the contract; and
- whether the Vendor was in breach of an acknowledgment and agreement in the contract that it was a condition of the contract that the books and records of the building owner were properly kept (clause 10(g)).
Approval of sale - clause 6.1
The contract was subject to a clause requiring the written consent of the building owner. Despite some initial reluctance (given that the Purchaser was a company and not an individual), a position was reached by the board of the building owner which was given effect to by the amendment of the house rules such that a director of a corporate shareholder at the time of the purchase of the shares would be bound by the articles and house rules as if the director was a shareholder. A restriction also applied to the use of the apartment only by the director / the director's immediate family at the time of the purchase of the shares. A further house rule was inserted to purportedly give effect to an arrangement subject of correspondence between the Vendor and the building owner in 2009 about an airconditioning unit.
This was expressed by the managing agent in an email to the Vendor's solicitor that stated; 'Please be advised that the board of directors ... have given approval to the above sale proceeding provided you instruct your client of the amended rules and regulations here attached'. The Vendor's solicitor forwarded this to the Purchaser's solicitor.
At first instance, it was held that the approval was conditional, on the basis that the email contained the clear implication that the approval incorporated or was subject to the two new house rules and required the Purchaser's acknowledgment.
The Court of Appeal held otherwise, finding that the email only required the Vendor's solicitor to instruct or inform the Vendor as a matter of courtesy. There was no requirement for the Vendor to notify the Purchaser, or for the Purchaser to acknowledge that it would be bound by the new house rules. Consequently, the approval was not conditional, satisfied clause 6.1 of the contract and no right of rescission arose.
Condition to keep proper books and records - clause 10(g)
At first instance the Purchaser established that the building owner's books, in particular its minutes, had not been properly kept as they failed to record a decision or resolution that must have been reached. Inconsistencies between the 2009 correspondence about the airconditioning unit and the minutes of board meetings (in that a letter imposed additional conditions not minuted at the prior board meeting) gave rise to an inference that that proper books were not kept. It was held that clause 10(g) was a condition of the contract and had been (for want of a better expression) breached by the Vendor, notwithstanding that it imposed no obligation on the Vendor.
On appeal it was held that there was no error on the part of the primary judge on this ground, therefore the Purchaser was entitled to rescind or terminate due to the Vendor's breach.
The findings on the books and records issue and the implications for this sale serve as a reminder that clauses which may seem innocuous or insignificant can have profound effects.
In the media
Latest GBCA partnership to boost healthy building in
The Green Building Council of Australia (GBCA) will collaborate with the International WELL Building Institute (IWBI) to promote good health and wellbeing in the design, construction and operations of buildings, fitouts and communities in Australia (24 March 2016). More...
Why BASIX water requirements should be replicated across
NSW has outperformed the nation in water efficiency and according to the authors of a new report the reason is its BASIX rating system for housing and the rest of the country should emulate it (15 March 2016). More...
Housing construction to fall sharply over the next two
The Housing Industry Association expects new home building activity will begin to slowly decline in the latter part of 2016, before falling sharply in 2017 and 2018 (16 March 2016). More...
Practice and courts
ABCB NCC Seminars 2016
The national seminars, running in February and March 2016 are presented by the ABCB and Standards Australia. These seminars will be held in each Australian capital city and will provide valuable information to building and plumbing practitioners on the changes included in the NCC 2016, which comes into effect on 1 May 2016. Visit the ABCB website.
BPB: Announcement of regulations applying to the sale of
properties with swimming pools
Minister for Local Government Paul Toole has announced regulations applying to the sale of properties with swimming pools to take effect from 29 April 2016. More...
BPB: Recognising national building surveying
qualifications: have your say
The Building Professionals Board proposes to amend its Accreditation Scheme to recognise nationally-accredited building surveying qualifications (23 March 2016). More...
Kay v 3D Design & Build Pty Ltd  NSWCATAP
APPEAL – denial of procedural fairness – failure to give opportunity to respond to disputed evidence – determination of application at a directions hearing. More...
MSP Consulting and Building Constructions Pty Ltd v
Karkoulas  NSWCATAP 69
APPEAL – Civil and Administrative Tribunal (NSW) – home building claim – conditional stay of decision granted – stay lapsed due to failure to comply with condition – whether appeal as of right established – ground of appeal on apprehension of bias not established – whether leave to appeal under section 80(2)(b) Civil and Administrative Tribunal Act 2013 (NSW) required – whether leave pursuant to clause 12 of schedule 4 of the Civil and Administrative Tribunal Act 2013 (NSW) should be granted – leave to appeal refused – appeal dismissed. More...
Strata Plan 79215 v Nazero Constructions Pty Ltd 
DAMAGES – contract – building – breach of statutory warranties in Home Building Act 1989 (NSW) – where judgment for liability entered with damages to be assessed – where defendant did not appear for assessment hearing – whether expert reports addressed defects the subject of liability judgment and reasonable costs of remedying those defects – no question of principle. More...
The Owners – Strata Plan No. 69743 v TRT
Constructions Pty Ltd  NSWSC 375
BUILDING AND CONSTRUCTION – Home Building Act 1989 – statutory warranties – two preliminary issues – whether there was a contract between defendant and the Developer – contract found to be operational - whether plaintiff's claim statute barred – court held plaintiff's claim not commenced within time – unnecessary to deal with further issues. More...
S & R Richards P/L v Valley Patios & Decks P/L
& Anor  NSWDC 22
PRACTICE & PROCEDURE – Second defendant's application for security for costs. More...
Buckworth v Gladio Pty Ltd  NSWCA
CONTRACT – purchase of shares in company entitling exclusive use of apartment in company title building – contract requiring written consent of company to transfer of shares to purchaser – whether communication of "approval" satisfied provision of contract – whether the purchaser entitled to terminate contract by reason of breach of a condition that the company's books not properly kept. More...
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.