Posted on March 24, 2023 by Stuart Simington and Dimitrious Havadjia 13

Pollution can constitute ‘substantial damage’ and allow a purchaser to rescind

The Conveyancing Act 1919 (CA Act) and many contracts for the sale of land provide for circumstances where a party can rescind or terminate the contract prior to completion.

One of those reasons is outlined in section 66L of the CA Act, which allows a purchaser to rescind the contract if the land or buildings are ‘substantially damaged‘ after the contract is signed and before completion (or another time as agreed between the parties).

Previous litigation on this section has often involved fire damage to the buildings on the land. However, for the first time, in Retirement Village Bargo Pty Ltd v Anwar [2023] NSWSC 209 the Supreme Court of NSW considered whether pollution of the land can constitute substantial damage.

Relevant Background of the Case

Mr Boyke Anwar (the Vendor) owned a property in Bargo, which was 45 acres of mainly native vegetation, with a small area cleared for use as a horse training facility and farming (the Property). The Vendor had made some attempts to remove existing waste on the Property before listing it for sale in early 2018.

Retirement Village Bargo Pty Ltd (the Purchaser) inspected the Property in March 2018, including by flying a drone overhead. The Purchaser observed that there were fallen trees, car parts and old buildings (the Existing Waste) across the cleared area of the Property.

The parties exchanged contracts of sale in May 2018. The contract included a 20-month settlement period. The Vendor refused to include a clause requiring the Vendor to clear the Existing Waste prior to completion. However, the Vendor gave an oral undertaking to the Purchaser that he would continue to clean up the Existing Waste.

In June 2019, while removing the Existing Waste, the Vendor noticed that the removal work had left several holes and depressions in the Property. The Vendor paid to bring clean soil to fill the holes; it was not clear whether the soil was clean. A further 18-20 truckloads of rubbish, which contained asbestos, was then dumped on the land (the Rubbish). The Vendor engaged others to clean up the Rubbish. However, they did not replace the Rubbish with clean soil and instead replaced some of it with other waste, including bricks, titles, and pebbles (the Further Waste). Much of the topsoil was also removed during this process.

In September 2019, the Purchaser discovered the Rubbish and Further Waste during a pre-settlement inspection. After receiving confirmation of the presence of asbestos on the Property in October 2019, the Purchaser served a notice relying on section 66L of the CA Act rescinding the contract.

What constitutes substantial damage?

Section 66J of the CA Act provides that damage is substantial if ‘the damage renders the land materially different from that which the purchaser contracted to buy‘. This is a question of fact.

The concept of “damage” may be satisfied by damage caused either by natural forces, or malicious or accidental human action. This could include weather causing fallen trees on land, fences or buildings and other events which might trigger insurance claims.

Is the subjective intention of the purchaser relevant?

In previous cases relying on section 66L, the Court has considered that the subjective intention of the purchaser is a ‘material factor‘ in establishing whether the land was materially different.

In this case however, the Court found it was unnecessary to consider the purchaser’s intention because section 66L was considered not to be limited to circumstances where a particular use of land of relevance to the purchaser is affected, but rather extends to substantial damage discernable from an objective comparison between the possible uses of the land before and after the damage occurred.

Did the Rubbish and Further Waste constitute substantial damage?

The Court found that the Rubbish and Further Waste, and particularly the asbestos contamination, made the Property substantially damaged.

The Court noted that the Property’s current use was farming and residential, both of which would be impacted significantly by the presence of asbestos and the removal of the existing topsoil. The Court also noted that future uses of the Property would be impacted, as any development applications would be considered in light of the now-present pollution and contamination.

In the circumstances, the Purchaser’s rescission was valid.

Implications

Allowing for objective factors to be sufficient to demonstrate substantial damage makes it easier for purchasers to rely on section 66L, as there is no need for the damage to directly impact the particular intended use by that purchaser, if the possible objective uses are substantially affected.

Additionally, while it may not be a startling proposition, the case is clearly indicates that pollution of land can constitute substantial damage. Purchasers should exercise due caution if a settlement period is extended where pollution events like illegal dumping might occur.

If you wish to discuss any aspect of this post, please contact Stuart Simington on 02 8235 9704 or Dimitrious Havadjia on 02 8235 9724.

You can read the full text of the decision here.