NSW Initiative to Remove Combustible Cladding from Buildings

Project Remediate is a new voluntary program introduced by the NSW Government to remove high-risk combustible cladding from Class 2 residential apartment buildings. It offers opportunities for Owners Corporations to fund and implement removal of cladding and to contractors with skills in management to take on roles as managing contractors and to material suppliers and consultants. 

The work creates business opportunities for managing contractors, sub-contractors, suppliers of replacement cladding. Consultants and banks will also benefit because remedial works will increase asset values and decrease risk for insurers. 

The tender process is open until June 2021. To benefit, Owners Corporations should register their interest and note the key dates for the project.  

A free course about Project Remediate is available to Strata managers and committee members to help owners make an informed decision about joining. It is free until 20 September 2021, after which it will be $140. 

Eligibility for the Project is based on being a Class 2 residential apartment building in NSW and having a high-risk combustible cladding façade which requires remediation. 

A Mortgagee’s Duty of Good Faith During a Pandemic

In HSBC Bank Australia Ltd v Wang & Ors [2021] QSC 58 the Court considered whether a mortgagee had breached their duty of good faith when exercising the power of sale during the pandemic. In 2019, the mortgagee, HSBC, obtained a default judgement for recovery of possession of the mortgaged property and they obtained a valuation and estimate of the property’s value.  In 2020, the property was marketed extensively but an unsuccessful auction occurred during the period in which state and international borders were closed. Later in September 2020, the mortgagee accepted a bid which was significantly below the assessed market value.

A few days before settlement, the mortgagors lodged a caveat claiming an equitable interest in the property as registered proprietors, that the mortgagee failed to act in good faith in the exercise of its power of sale by failing to properly market the property and selling it at an under value. The Court summarised the mortgagees duty as a duty to not act ‘recklessly or wilfully against’ the interest of the mortgagor. 

The mortgagee’s representative accepted the sale price based on the property market’s uncertain long-term focus, and because the offer was significantly better than the offer at the attempted auction. 

The mortgagors argued that the bank should have waited until the borders reopened to achieve a better price, but the Court disagreed and held that at the time there was no reason to suspect that any improvement in the market was imminent. 

Moreover, the Court held that the mere fact of a sale at an undervalue does not demonstrate a lack of good faith. Instead, the mortgagors would have had to demonstrate that the mortgagee failed to take reasonable steps to obtain a proper price that amounted to unconscionable conduct. 

This case is an illustrative example of the way in which a NSW Court might deal with similar issues arising in our jurisdiction, and the impact which the pandemic and border closures will have on the ability to sell property.

Repudiation and Rescission in a Contract for Sale

In the recent case of Anastasia Kalathas v 89 Ebley Street Pty Limited [2021] NSWSC 490 considered issues of rescission and repudiation in a contract for the sale of a property. 

In 2017, the parties entered a contract for sale of a commercial property which was yet to be built. The Contract had included a car space for the commercial premises, but the February Strata Plan did not include the car space, so the Purchaser sought to rescind the Contract. The Vendor registered the strata plan in February 2020 and issued a Completion Notice, an Occupation Certificate and a Notice to Complete – although it was found during the proceedings that at that time, the Vendor was not actually in a position to complete the Contract because there was no car space on the registered plan allocated to the Purchaser’s lot. 

The Purchaser was entitled to draw the conclusion that the Vendor was not proposing to convey a car space. As the car space was an essential term of the contract, the purchaser was entitled to terminate the Contract and entitled to return of the deposit. 

Moreover, the fact that the Vendor had registered a new strata plan and was later in a position to complete after the Purchaser had commenced proceedings did not assist them in their defence. The Court held that the Vendor had repudiated the contract and the Purchaser was thus entitled to the return of her deposit and an order that the Vendor pay her costs. 

Estoppel in Construction Contracts

Notice requirements and time limits are pervasive in construction contracts. However, a party may be estopped from relying on contractual time limits if they have engaged in conduct that gives rise to an assumption that compliance with contractual notice requirements is not necessary, or if they direct additional work that will fall outside the contractual notice requirements and time limits.

The recent case of Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93 considered whether a party could rely on estoppel in a construction contract. 

Valmont and Armani were parties to a construction contract in which Valmont was to provide construction and fit out works for a store at Sydney Airport. Valmont was tasked with installing joinery supplied by Armani, and Armani was going to engage a Chinese firm, Sun Bright, to supply that joinery. Sun Bright conceded that it could not meet the time stipulation, so Armani directed Valmont to supply the balance of the joinery, but Armani refused to pay for it because Valmont did not supply it within the time limit imposed by a clause of the Contract. 

Valmont pleaded that Armani should be estopped from relying on the clause. 

The Court of Appeal held that notice of an intended departure from an assumption as to a state of affairs must be given within a reasonable amount of time, and is not effective if it is given after the time at which the relevant party would have been required to give the requisite notice under the contract. 

Furthermore, the Court held that it would be unconscionable for Armani to rely in the contractual time limit, particularly as notice requirements were not strictly adhered to. A key takeaway from this case is that if a party believes that the other party may be under an incorrect assumption that compliance with certain contractual requirements are not necessary, then the party should negative that assumption as soon as possible.

Landlord Pursuing Guarantor

Baron + Associates was recently retained in litigation involving a tenant of a shop in Bondi Beach owned by our client and the tenants’ guarantor. The tenant vacated the shop prior to the termination date and as a result our client sought recovery of unpaid rent, reimbursement of costs to make good the premises, interest, and costs.

The tenant and guarantor sought to have the lease declared invalid on the grounds of purported misleading and deceptive conduct on the part of the landlord, specifically claiming that the signature of one guarantor was not made in the presence of a witness, and that the lease did not contain a deposited plan of subdivision, a subdivision certificate, or a survey. They also claimed that the lessee had returned the Lessors Disclosure Statement with a notation that they required the shop to include a separate electricity meter. These defences were rejected by the Tribunal in the original NCAT hearing and the tenant and guarantor pursued an appeal. 

The appellant raised several grounds of appeal, one of which was that the Tribunal erred in failing to find that the landlord engaged in misleading and deceptive conduct for reasons including the claim that it failed to correct the guarantor’s purported understanding that the premises were to be separately metered for electricity.

There was no evidence that any issue was raised by the tenant and or guarantor with the agent or any person concerning his request that the shop contain a separate electricity meter. As a result, the appellant was unable to establish that he was misled or under a misapprehension of which the lessor was aware and the Appeal was dismissed with the result that the original Tribunal’s order in favour of the Landlord for $750,000 (the maximum amount claimable in this jurisdiction) became enforceable.

Case Demonstrating the Importance of Being Aware of the PPSA and What is a Fixture

The Personal Property Securities Act 2009 (‘PPSA’)(Cth) was implemented in 2012 to promote consistency, accessibility, and certainty in transactions, by placing an emphasis on the substance of transactions rather than the form. Section 12 of the Act defines a ‘security interest’ as an ‘interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation.’ 

In the case of Forge Group Power Pty Ltd (in liq) v General Electric International, Inc[2016] NSWSC 52, General Electric (GE) leased 4 mobile gas turbines to Forge for a fixed term. However, administrators were appointed to Forge when they became insolvent, and the issue was whether the lease was a PPS lease within the PPSA. The court considered whether GE was regularly engaged in the business of leasing goods so that the exclusion would not apply to the lease.

The court held that in assessing whether a person is regularly engaged in the business of leasing goods, regard is to be had to activity wherever it occurs and not only to activity in Australia, which was relevant in this case because GE was an American company. The test applies at the time the lease was entered into. Here, GE was regularly engaged in leasing goods as this was a proper component of their business and was reinforced by the fact that they advertised and promoted their desire to lease turbines, and they were contractually obliged to third-parties to supply rent replacement turbines if needed.personal

To avoid the application of the PPSA, GE tried to claim that the Turbines had become fixtures, and would thereby be excluded from the legislation. However, the Court held that the Turbines did not become fixtures, having regard to the objective intention with which they were placed and the degree and object of annexation. Specifically, the Turbines did not become fixtures because they were designed to be demolished and moved to other sites easily and in a short time, the power station was a temporary one, and the attachment to the land was for the better enjoyment of the turbines, not for the better enjoyment of the land. 

As such, the Lease was a PPS lease and GE lost ownership of the turbines as Forge had a superior right to the turbines, which became part of the asset pool available to Forge’s liquidators. This cost GE $40 million worth of assets. The case is thus a prime example of the need to consider the PPSA in commercial transactions. 

Issues of Long-term Brand Licensing Deals

A licencing deal between Bega Cheese Ltd and Fonterra Brands Pty Ltd from 20 years ago was recently litigated in  Fonterra Brands (Aust) Pty Ltd v Bega Cheese Ltd ([2021] VSC 75) ending a three year dispute. The Court considered whether the trademark and licencing agreement between the companies prevented Bega from using its trademark on any products or only certain cheese products, and whether Fonterra breached a contractual obligation by failing to effectively market and promote Bega-branded products. 

The Trademark and Licensing Agreement (TMLA) of 2001 granted Fonterra a ‘sole and exclusive’ licence to use the BEGA trademark on, or in relation to certain cheese and butter products. The term was 25 years. Up until 2017, Fonterra was the only supplier of products which bore the BEGA trademark to grocery retailers in Australia. However, in that year, Bega acquired ‘Mondelez International,’ which comprised peanut butter, Vegemite, cheese and cream cheese spread products.  Bega notified Fonterra that it wanted to launch its own products under the BEGA trademark. 

Fonterra claimed that the TMLA gave it the exclusive right to use the BEGA trademark and that Bega had no right to use the mark on products such as peanut butter. The Court disagreed. Additionally, Bega counter-claimed that Fonterra had breached terms of the TMLA by failing to market and promote Bega-branded products and the Bega brand, entitling them to terminate the agreement. Again, the court disagreed. 

The Court confirmed Bega’s right to use the Bega brand on peanut butter products purchased from Mondelez. Fonterra would retain the exclusive licence for the Bega Cheese brand for cheese and butter. This case demonstrates the difficulties which can arise under long-term contractual agreements.

Covid Public Health Orders – Not Sufficient to Frustrate the Sale of a Hotel in Sydney

On 31 January 2020, the Owner of The Quarryman’s Hotel contracted to sell the hotel and carry on the business in the ‘usual and ordinary course’ until completion on 31 March 2020. However, on 23 March last year, the Public Health (COVID-19 Places of Social Gathering) Order 2020 mandated the hotel to restrict trading to takeaway sales only. The purchaser did not want to proceed because they were concerned that the closure of the hotel would have serious consequences upon their ability to obtain revenue from the hotel, especially as there was uncertainty as to how long the shutdown would last or how the order would subsequently affect the hotel industry. The purchaser claimed that the contract had been frustrated by the Public Health Order. 

The Court held that frustration must depend upon the unexpected effect that the public health orders had upon the actual performance of the vendor’s obligations to carry on the hotel business until completion. 

It found that performance was significantly affected by the Order in March 2020 but the adverse effect of the public health orders and restrictions upon financial performance of the hotel was ‘a risk of the type the purchasers were prepared to take’ given the purchaser had industry experience. There was no frustration because the situation did not render performance of the contract ‘radically different’ to that what the parties had contacted for. 

As the purchaser had terminated the contract, they were ordered to pay damages in the amount of $900 000. 

This case is a reminder of the difficulty of proving that a contract was frustrated and resultingly, the importance of including specific terms relating to events such as a pandemic as a situation enabling termination of a contract. To review the full judgement of this case, see here.

Applicant Awarded a Credit Based on Incorrect Calculations in a Development Consent

The case of Buyozo Pty Limited v Ku-ring-gai Council [2021] NSWLEC 2 was an appeal by Buyozo Pty Ltd against Ku-ring-gai Council to modify a condition of a development consent and reduce the development contributions payable for the development of a storage shed.

The Applicant obtained development consent by way of a conciliation conference conducted pursuant to the Land and Environment Court Act 1979 (NSW) for the consolidation of three existing lots, and alterations and additions to a warehouse premises to create a self-storage facility and separate commercial premises.

A condition of the Development Consent was that development contributions were required under section 7.11 of the EP&A Act to the Council in accordance with the Ku-ring-gai Contributions Plan 2010 (KCP), based on the “gross floor area” of the development.

The Applicant lodged a modification application on the basis that the calculation of contributions was incorrect because the corridor areas of the development were mistakenly included in the calculations. The Court assessed the term ‘gross floor area’ in the Ku-ring-gai Local Environment Plan 2015 , and whether the applicant was entitled to a return of part of the contribution he had already paid. The Court upheld the appeal and the Applicant was provided a credit of $3113,091.32.

New Design and Building Practitioner’s Regulation

On 9 April 2021, the NSW Government enacted the Design and Building Practitioners Regulation which introduces mandatory minimum standards of insurance cover for practitioners and Continuing Professional Development requirements practitioners. The Act separates practitioners into the categories of design practitioners, principal design practitioners, building practitioners and professional engineers.

A practitioner will be adequately insured with respect to a declaration and work if they are:

  1. Indemnified by insurance that complies with the Regulation against any liability as a result of providing the declaration or doing the work, or
  2. Part of some other arrangement approved by the Regulation that provides indemnity against the liability.

A condition of registration is that the practitioner must provide evidence to the Secretary of the Department of Customer Services that they are adequately insured.

Additionally, a practitioner will be liable to pay compensatory damages arising from an act or omission of the practitioner or conduct of the practitioner that would constitute a breach, or failure to comply with a guarantee in the Australian Consumer Law or similar legislation.

The Regulation outlines the professional standards and qualifications that must be met by Practitioners in NSW from 1 July 2021. All Design and Building Practitioner will need to complete at lease three hours of approved and relevant education and training detailed in the Guidelines. Any practitioners who do not meet CPD requirement may be subject to disciplinary action by the Secretary unless any exemption is granted. For more information on the new Regulations, see here.