council and vendor win stormwater flooding appeal
LegalMarch 22, 2022

Sale of land: council and vendor win stormwater flooding appeal

In a recent decision, verdicts obtained by the purchaser of a residential property against the local council and the vendor for stormwater inundation to the property have been overturned by the New South Wales Court of Appeal.

Facts

Michael Della Franca (“the vendor”) was the owner and occupier of a residential property in Burwood, New South Wales (“the property”).

A stormwater pipe ran under the property. It drained stormwater from the street. It had been in place since 1904. Burwood Council (“the council”) was the owner of the pipe.

The pipe became blocked and suffered damage. Consequently, it no longer effectively drained stormwater from the street. During prolonged or heavy rainfall, water backed up on the street and overflowed into the property and neighbouring properties.

In June 2002, the council passed a resolution (“the 2002 resolution”), which said:

A) That Council proceed to negotiate the creation of an easement over the existing pipeline [with the vendor] and then proceed to reline the existing pipe in its current location beneath the house.


B) That, should Council be unable to gain consent from the [vendor], it proceed with compulsory acquisition of an easement over the existing pipeline. (Future development of the property should include the establishment of an easement adjacent to the side boundary for drainage purposes).

The council notified the vendor of the 2002 resolution.

Negotiations between the council and the vendor for an easement for the pipe were unsuccessful.

On 4 February 2003, the council issued 2 notices (“the 2003 notices”) to the vendor. The 2003 notices said that the council had resolved to carry out maintenance on the pipe and intended to enter the property to inspect and repair the pipe.

On 14 February 2003, the council wrote to the vendor, stating that the council “has chosen not to pursue the second option”. The “second option” was resolution B of the 2002 resolution, being: (1) compulsory acquisition of an easement over the pipeline; and (2) the requiring of an easement adjacent to the property’s side boundary for a new drainage pipe as a condition of the grant of any future application for development consent. The council’s letter went on to say that the council would act in accordance with the 2003 notices.

The vendor replied that he would seek to restrain the council from entering the property to repair the pipe.

The council wrote again to the vendor in March 2003. It noted that the parties had been unable to agree “on the matter of Council’s rights in relation to the existing pipeline”. It advised the vendor that it had “agreed to defer the proposed drainage works through your property until this matter could be resolved”.

Afterwards, the council took no steps to implement the 2002 resolution. Nor did it act on the 2003 notices.

In 2004, the council granted the vendor development consent for the construction of a patio at the rear of his house. Contrary to resolution B of the 2002 resolution, the council did not require the vendor to grant the council a drainage easement over the property as a condition of the development consent.

In August 2010, the vendor obtained a certificate from the council under s 149(2) and (5) of the Environmental Planning and Assessment Act 1979 (NSW) (now s 10.7(2) and (5)) (“the s 149 certificate”).

In the part of the s 149 certificate headed “Section 149(2) details”, item 7 asked whether “the land was affected by a policy adopted by the Council … that restricts the development of the land because of the likelihood of … flooding …” The council’s answer to the question was “No”. Item 7A asked “[w]hether development on the land … for the purposes of dwelling houses … is subject to flood related development controls”. The council’s answer was “No”. Item 7A also asked whether “development on the land … for any other purpose is subject to flood related development controls”. Again, the council’s answer was “No”.

In the part of the s 149 certificate concerning s 149(5), the council provided “advice on other matters affecting the subject land of which Council is aware”. No information concerning the pipe, the council’s ownership of it and rights over it or the occasional overflow of stormwater into the property was disclosed.

On 17 March 2011, the vendor sold the property to Elisa Lorenzato (“the purchaser”).

The s 149 certificate was attached to the contract of sale.

The purchaser served requisitions on the vendor. Requisition 6 asked whether the vendor was “aware of … any unregistered easements … which affect the property”. Requisition 7 asked whether the vendor had “received any notification from the … local Council that the land or part of it is to be … resumed”. Requisition 8 asked whether there was “any outstanding notification, claim or requirement of … a … local authority”. Requisition 19 asked whether the vendor was “aware of any restrictions on the use or development of the land”.

Clause 10 of the contract said that the purchaser could not make a requisition “in respect of … a service for the property being a joint service … or any other service for another property passing through the property (‘service’ includes … drainage …)”.

The vendor replied to the purchaser’s requisitions the day before completion. To requisition 6, the vendor answered, “No”. To requisition 7, he answered, “No, but purchaser should make own enquiries”. To requisition 8, he answered, “Not to the vendor’s knowledge but purchaser should make own enquiries”. To requisition 19, he answered, “Purchaser should make own enquiries”.

The contract was completed and the purchaser took possession of the property.

Between November 2011 and October 2012, stormwater overflowed into the property on 9 separate occasions, flooding the property’s garage and carport, backyard and pool. For the first time, the purchaser became aware of the pipe, the council advising her that the property was flooding because the pipe had “collapsed”.

The purchaser sued the council and the vendor for damages for negligent misstatement in the Supreme Court of New South Wales. She alleged that the council’s responses in the s 149 certificate were inaccurate and that the vendor’s replies to requisitions 6, 7, 8 and 19 were inaccurate or misleading. But for the inaccurate or misleading responses and replies, the purchaser would not have entered into the contract.

The trial judge gave judgment for the purchaser against both the council and the vendor (Lorenzato v Burwood Council (2020) ANZ ConvR ¶20-145; [2020] NSWSC 1659).

Concerning the claim against the council, his Honour held that the 2002 resolution: (1) was “a policy adopted by the Council … that restricts the development of the land because of the likelihood of … flooding …”; and (2) had not been abandoned, and was still current, when the council issued the s 149 certificate. Therefore, the answer that the council gave to item 7 in the s 149 certificate was incorrect.

The trial judge also dismissed the council’s argument that it had the benefit of s 43A of the Civil Liability Act 2002 (NSW). Section 43A provides that, in proceedings for civil liability in tort, the exercise by a public authority of a “special statutory power” does not give rise to liability:

unless the act or omission was in the circumstances so unreasonable that no authority having the special statutory power in question could properly consider the act or omission to be a reasonable exercise of … its power.

The trial judge said that the council was not exercising a power when it issued the s 149 certificate. Rather, it was performing a “statutorily imposed obligation”.

Concerning the claim against the vendor, the trial judge said that the vendor’s replies to the requisitions were misleading. The reply to requisition 6 was misleading because the council’s rights over the pipe were tantamount to an easement. The reply to requisition 7 was misleading because the 2002 resolution stated that a easement over the pipe would be acquired and that an easement along the side boundary would be acquired in the future. The reply to requisition 8 was misleading because the 2002 resolution and the 2003 notices were outstanding notifications, claims or requirements of a local authority. The reply to requisition 19 was misleading because the property was affected by restrictions on use and development because of the pipe and the 2002 resolution.

Both the council and the vendor appealed against the trial judge’s decision to the New South Wales Court of Appeal.

Decision

Basten, Macfarlan and Brereton JJA allowed both appeals.

Reasons

The council’s appeal

Basten JA addressed the issue of s 43A of the Civil Liability Act. His Honour said that “[a] power does not cease to be a power because there is a duty to exercise it”. His Honour concluded that the issue of the s 149 certificate was the exercise of a special statutory power within the meaning of s 43A. Furthermore, there was no evidence to support the proposition that the statements in the s 149 certificate were in breach of the standard imposed by s 43A. [14], [21], [28]

Macfarlan J said that the policy referred to in item 7 of the s 149 certificate was not site-specific. Rather, it was about the relationship of particular land to general flood-plain levels. Therefore, the 2002 resolution was not a policy. [83]

Even if the 2002 resolution was a policy, it did not restrict development of the property because of the likelihood of flooding. By indicating that council would, in the future, make development consent conditional on the grant of an easement, it could be said to have restricted development by indirect means. But item 7 was only concerned with policies that restricted development in a direct sense. [84], [85]

Furthermore, even if the 2002 resolution was a policy that restricted development because of flooding, the council had abandoned it by the time it issued the s 149 certificate. The council’s letter of 14 February 2003 said that the council would not be pursuing resolution B. Also, by saying that it would be acting in accordance with the 2003 notices, the council confirmed that the 2003 notices had superseded the 2002 resolution. [87], [88], [90]

For these reasons, there had been no misstatement in the s 149 certificate. [95]

Brereton JA held that the 2002 resolution: (1) was not a policy; (2) did not restrict development of the property; (3) did not restrict development because of the likelihood of flooding; and (4) even if it was such a policy, had been abandoned. [138]

The 2002 resolution was not a policy because it was not a generic statement of guidelines, principles or criteria. Instead, it was a specific decision concerning the property. Also, it did not restrict the development of land or, indeed, development at all. If it did restrict development, it did so because of the proposed acquisition of an easement and not because of the likelihood of flooding. And it had been abandoned, the council’s letter of 14 February 2003 indicating that the 2002 resolution was no longer being pursued. [139]–[143]

Brereton JA also agreed with Basten JA that, in answering item 7, the council had not acted unreasonably within the meaning of s 43A of the Civil Liability Act. Therefore, the council had not incurred any liability in its issue of the s 149 certificate. [147]

The vendor’s appeal

Macfarlan JA held that the vendor had not been required to refer to the council’s rights over the pipe in answering requisition 6. This was because cl 10 of the contract precluded the purchaser from making a requisition about the pipe. The pipe was a “service for the property … passing through the property”. As for requisition 7, the vendor’s reply was not misleading because the 2002 resolution had been abandoned. As for requisition 8, neither the 2002 resolution nor the 2003 notices were outstanding at the time the vendor replied to the requisition. Nor was the vendor affected by any other outstanding claim. As for requisition 19, the vendor’s non-answer could not be regarded as incorrect or misleading. [115], [117], [118]–[121], [123]

Brereton JA said that the answer to requisition 6 was literally correct, because the council’s rights over the pipe did not constitute an easement. Furthermore, cl 10 of the contract precluded a requisition concerning a drainage service passing through the property. The answer to requisition 7 was not false because the 2002 resolution had been abandoned. The requisition did not require disclosure of a notification that was no longer operative. Concerning requisition 8, the 2002 resolution and the 2003 notices were not outstanding and any claim by the council to have the right to enter the property to perform works was not a claim of the kind envisaged by the requisition. Concerning requisition 19, the 2002 resolution did not restrict development of the land. The existence of the pipe was not a restriction on user. [159], [162], [164], [165]

Therefore, the vendor’s answers to the requisitions were not negligent misstatements. [166]

Editorial comment

In this case, a residential property was purchased for $3 million. Before completion, the purchaser obtained information about the property from a council-issued planning certificate attached to the contract of sale and from the vendor’s replies to requisitions. Neither the planning certificate nor the replies to requisitions disclosed the existence of a blocked and broken drainage pipe running under the property. Nor did they disclose that, because of the blocked and broken pipe, stormwater inundated the property during periods of heavy or prolonged rainfall. And, of course, the pipe was not visible to the purchaser. And so the purchaser, oblivious to the problems, completed the sale — to her considerable detriment.

The NSW Supreme Court held that the council and the vendor were liable to the purchaser and awarded the purchaser substantial damages. However, the NSW Court of Appeal reversed the Supreme Court’s decision, with the result that the purchaser had to bear the losses she incurred because of the inundations.

The decision is good news for councils. Following the trial decision, it appeared that councils would have to disclose site-specific information in planning certificates. However, the NSW Court of Appeal has ruled that a “policy” of the kind referred to in a planning certificate is not site-specific. A council does not have to keep, retrieve and disclose information pertaining only to individual properties. It need only disclose broad, regional policies affecting the property.

Furthermore, the Court of Appeal held that the issue of a planning certificate in NSW has the benefit of s 43A of the Civil Liability Act. It is the exercise of a “special statutory power”. This means that an issuing council will not be liable unless it acted unreasonably.

The Court of Appeal also upheld the vendor’s appeal. It ruled that the vendor’s replies to requisitions were not false or misleading. Despite the problems with the pipe, regular flooding of the property over many years and much correspondence and negotiation with the council, none of the requisitions succeeded in extracting information about those matters from the vendor. The vendor was able to answer all the requisitions truthfully and accurately and yet disclose nothing about the pipe or the flooding.

Perhaps purchasers need to include more targeted enquiries in their requisitions — requisitions covering the kind of problems that occurred in this case. And they should also ensure that replies to requisitions are received within a reasonable time. Practitioners acting for vendors and purchasers should read the NSW Court of Appeal’s judgment in Carter v Mehmet (2021) ANZ ConvR ¶21-168; [2021] NSWCA 286 to better understand their obligations when serving or replying to requisitions.

Source: Della Franca v Lorenzato; Burwood Council v Lorenzato (2021) ANZ ConvR ¶21-169; [2021] NSWCA 321, 16 December 2021.


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Paul Tuohy - Wolters Kluwer
Content Management Analyst — Wolters Kluwer
Paul has several years of experience in legal practice, but for the better part of 30 years has written for CCH Australia Ltd, both in a full-time capacity and also as a consultant.
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