Archive for category Sale of land
In the post of earlier today I referred to the Justice Legislation Miscellaneous Amendment Bill 1990; the reference should have been to the Justice Legislation Miscellaneous Amendment Bill 2018.
Deposits hold a special place in contracts for the sale of land and do not fall within the general rules about penalties. Where a purchaser defaults the deposit (customarily 10 per cent) can be forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract. The vendor can forfeit the deposit as a minimum sum even if it makes a profit on the resale. On the purchaser’s breach, a vendor is also not limited to recovering the amount of the deposit; but may recover any deficiency on resale (after taking into account the forfeited deposit).
The special treatment afforded to deposits “derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money…”.
Where the principles governing deposits and the law governing penalties interact is where the contract provides, for example, for a deposit of less than 10 per cent to be paid and, in the event of a default, for the whole of the 10 per cent deposit to be paid. In such cases the requirement to pay the additional amount on default has been held to be a penalty.
In Simcevski v Dixon (No 2)  VSC 531 Riordan J considered a contract for the sale of land that provided for the payment of a deposit equivalent to 5 per cent of the purchase price. Upon default by the purchaser, the vendor sought payment of a further 5 per cent of the purchase price relying on clause 28.4 of the contract which provided that:
‘If the contract ends by a default notice given by the vendor:
(a) the deposit up to 10% of the price is forfeited as the vendor’s absolute property, whether the deposit has been paid or not; and”
While His Honour accepted that the anomalous position of deposits in the law of penalties protected them in most circumstances, he held that the obligation in cl 28.4 to pay further sum of 5% of the price was void as a penalty because:
- the obligation to pay a further sum of 5% of the purchase price did not purport to be by way of a deposit because the words in cl 28.4, being ‘the deposit up to’, had been deleted; and
- the further sum of 5% was only payable ‘[i]f the contract ends by a default notice given by the vendor’.
His Honour said:
“In my opinion, the circumstances of this case lead to the position, described by the Court of Appeal, in Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd, as:
[t]he irresistible inference that arises from [the] evidence and the inherent circumstances of the … transaction is that the [payment is to be made] in order to punish the [breaching party] for the inconvenience its conduct caused to the [innocent party] … rather than to protect any legitimate commercial interest of the [innocent party] arising from a breach … by the [breaching party].
His Honour also held that cl 28.4 was not a penalty simply because it was not a liquidated damages clause (ie a clause that refers to a sum fixed by the contract as a genuine pre-estimate of damage in the event of breach), but rather because it imposed an obligation to pay without any limit on the vendor’s right to claim damages to the extent that they exceed that payment.
Drafters of contracts must make it clear what is and what is not a deposit and provide for that sum to be paid without any reference to a breach. The case contains an extensive discussion of all the relevant caselaw.
 See: Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd  AC 573; Kazacos v Shuangling International Development Pty Ltd (2016) 18 BPR 36,353.
 Workers Trust, 578-9.
 See, among others: Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 23,629; Iannello v Sharpe (2007) 69 NSWLR 452.
  VSCA 161.
Real estate agent not authorised to accept termination notice given under s.31 of Sale of Land Act 1962
A purchaser of land in Victoria may terminate the contract “at any time before the expiration of three clear business days” after signing the contract. See: s.31(2) of the Sale of Land Act 1962 (Vic). The termination notice must be “given to the vendor or his agent” or left at an address specified in the contract. See: s.31(3). Termination entitles the purchaser to the return of most of the moneys paid under the contract. See: s.31(4).
In Eng Kiat Tan and Cheng Lo v Thomas Russell  VSC 93 the Supreme Court of Victoria had to decide whether the vendor’s real estate agent was an “agent” for the purpose of being given a termination notice.
The High Court has said that the employment of a real estate agent to find a buyer of property does not necessarily create any authority to do anything which will affect the legal position of the employer; an agent does not even have implied authority to receive the purchaser money. See: Peterson v Maloney (1951) 84 CLR 91. In Brien v Dwyer (1978) 141 CLR 378 Gibbs J said that the expression “agent”, when used in relation to a real estate agent, was misleading because “Such so-called agents do not have a general authority to act on behalf of a vendor in relation to a contract.”
In Eng Kiat Tan the purchasers gave the termination notice to the real estate before the expiration of three clear business days after signing the contract. The vendor refused to accept that the contract had been terminated pursuant to the Act. The sale price was $4,480,000. The vendor resold the land to another purchaser for $4,070,000. The purchasers commenced a proceeding seeking recovery of the deposit and the vendor counterclaimed seeking the balance of the deposit and the loss suffered on the resale of the property. The purchasers claim failed and the vendor’s claim succeeded.
The purchaser argued that s.31 was remedial legislation and that the expression “agent”in s.31 must extend to the vendor’s real estate because, among other things, the purchaser had only three days to make inquiries as whether a person was or was not an “agent” with authority to accept the termination notice. The purchaser also referred to Lloyd and Rimmer’s Sale of Land Act Victoria where the authors say that for the purpose of s.31 “agent” includes but is not limited to the estate agent engaged by the vendor in connection with the sale.
The vendor argued that s 31 did not create a statutory authority to receive a termination notice: the purchaser had to establish that the vendor’s real estate had actual or ostensible authority to accept the termination notice and there were no facts which established any authority in the vendor’s real estate agent beyond that usually granted to real estate agent.
The trial judge held that s.31 did not create a statutory authority in a real estate agent to accept a termination notice.
Purchasers need to ensure that the sale contract identifies the person or persons upon whom a termination notice under s. 31 can be given or the place where a notice can be left.
Vendors who terminate contracts for the sale of land on the ground of a default by the purchaser often claim interest on moneys that have not been paid calculated from the date of the breach to the date of termination. Clause 25 of the general conditions of the standard form of contract concerning the sale of land prescribed by the Estate Agents (Contracts) Regulations 2008 (Vic) provides that:
“A party who breaches this contract must pay to the other party on demand:
…… ; and
(b) any interest due under this contract as a result of the breach.”
Does clause 25(b) entitle a vendor to interest on the contract price from the date of a breach by a purchaser to the date the vendor terminates the contract?
Two cases in the Supreme Court of Victoria suggest that the answer to this question is “yes”. In Portbury Development Co Pty Ltd v Mackali  VSC 69 the plaintiff sold a property for $1,600,000 with a deposit of $60,000, with the balance of purchase price payable on a nominated date. The defendant failed to complete and the plaintiff terminated the contract. The court accepted that the plaintiff’s termination was valid. The plaintiff’s claim included damages being, among other things, the difference between the contract price and the value of the property at the time of termination and “interest between default and rescission” based on a clause similar to clause 25. The court awarded the amount of interest claimed to the plaintiff, noting that such interest was under the terms of the condition payable on demand and remarking at :
“By the notice of rescission the plaintiff made an appropriate demand for that interest. Accordingly, the plaintiff is entitled to judgment against the defendant for the sum of interest claimed by it.”
In Pettiona v Whitbourne  VSC 205 the facts were similar to those in Portbury. The price of the property was $5,850,000. The purchaser failed to pay the balance of purchase price on the date nominated for settlement. A notice of default was served and the contract was terminated. The plaintiff claimed, amongst other things, interest on the unpaid balance for the period of default. The claim for interest, which was made under the terms of the contract, was not disputed by the defendant.
A recent case in the County Court of Victoria suggests that the answer to the question posed is “no”. In Yvonne Maria Van Der Peet Bill v Allan James Clarke  VCC 1721 Judge Macnamara declined to follow Portbury and Pettiona in deciding that a vendor of land was not entitled to interest from the date of the breach to the date of the termination of the contract. At  His Honour analysed the issue as follows:
“To put it in a nutshell, how can interest be awarded upon an alleged principal sum that ultimately was never payable?”
In answering that question His Honour said it was necessary to go to “some fundamental principles of the law of vendor and purchaser” and “one of Sir Owen Dixon’s most celebrated judgments” in McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 477-479. In McDonald the guarantors of a purchaser’s obligations under a terms contract contended that upon termination by the vendor the contract was cancelled as to the future and, because there would be no transfer of the property, the purchaser’s obligation to pay an outstanding instalment of the purchaser price came to an end. The High Court accepted the guarantors’ contention. Because the guarantors’ obligation was a secondary one their obligation was also terminated.
His Honour also considered the decision of the New South Wales Court of Appeal in Carpenter v McGrath (1996) 40 NSWLR 39 which he said accorded with the general principles that emerged from McDonald. In Carpenter the purchaser failed to complete a contract to buy land and the trial judge awarded damages to the vendor which included a claim for interest from default until termination. On appeal the Court of Appeal disallowed the claim for interest from default until termination. The Court’s reasoning was in effect that once the contract ended the vendor could not have sued for the purchase price and was relegated to a claim for the loss of the bargain. The interest operated to increase the amount payable on completion and because the purchase moneys were not payable interest could not be claimed.
Judge Macnamara said that while Portbury and Pettiona supported the award of interest, general principle flowing from the analysis in McDonald pointed away from an award being made and therefore the claim for interest failed.
A question that is unresolved is whether the position might have been different if the vendor had re-sold the land rather than retaining it because the vendor would, in determining the loss on any resale, arguably have been entitled to treat the purchase price as constituted both by the contract price and the interest payable under the contract.
In Cassegrain v Gerard  HCA 2 the High Court of Australian had to decide whether a wife’s title as a joint proprietor with her husband was defeasible by reason of the husband’s fraud. The case contains an interesting discussion about when the fraudulent acts of an agent can be attributed to the principal and also the nature of a joint tenancy.
Section 42(1) of the Real Property Act 1900 (NSW) provides that the estate of a registered proprietor is paramount. It provides that, subject to some exceptions:
“Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded“. (emphasis added)
Section 118(1) provides that:
“Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
(d) proceedings brought by a person deprived of land by fraud against:
(i) a person who has been registered as proprietor of the land though fraud; or
(ii) a person deriving (otherwise as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.”
The vendor transferred the land to the husband and wife as joint tenants for consideration to be satisfied by debiting the husband’s loan account with the vendor. The husband knew that the vendor did not owe him the amount recorded in the loan account. The husband then transferred his interest in the land to his wife for a nominal consideration. The questions were whether the wife’s title, first as joint proprietor with her husband, or second deriving from or through her husband under the subsequent transfer, was defeasible by the vendor.
Much attention was given in argument to whether the husband was the wife’s “agent”. In Assets Company Ltd v Mere Roihi  AC 176 at 210 Lord Lindley that:
“the fraud which must be proved in order to invalidate the title of a registered purchaser for value … must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents.” (emphasis added)
The argument was about whether the fraud was “brought home” to the wife because the husband was fraudulent and was her “agent”. It was not disputed that the husband acted fraudulently in both the first and second transfers.
The court rejected the contention that the husband’s fraud could be sheeted home to the wife as a matter of agency. The court referred to the statement by Street J in Schultz v Corwill Properties Pty Ltd 1969] 2 NSWR 576 where his Honour said :
“It is not enough simply to have a principal, a man who is acting as his agent, and knowledge in that man of the presence of a fraud. There must be the additional circumstance that the agent’s knowledge of the fraud is to be imputed to his principal. This approach is necessary in order to give full recognition to (a) the requirement that there must be a real, as distinct from a hypothetical or constructive, involvement by the person whose title is impeached, in the fraud, and (b) the extension allowed by the Privy Council that the exception of fraud under s 42 can be made out if ‘knowledge of it is brought home to him or his agents’.”
There was no evidence that the wife was knowingly engaged in the husband’s scheme to deprive the vendor its land for nothing.
The majority (French CJ, Hayne, Bell and Gaegler JJ) held that the wife’s title as joint tenant was not defeasible by showing that the husband had acted fraudulently because the fraud had not been brought home to her.
Keane J dissented on this issue. His Honour decided that the land was acquired by the wife and the husband as joint tenants and as joint tenants they acquired a single estate. The title was acquired by fraud “sheeted home” to the wife, not because the wife claimed the title through her husband, but by virtue of the joint tenancy of the single estate to which they were entitled.
The vendor succeeded in recovering the land because the whole court decided that s.118(1)(d)(ii) applied: the wife had acquired an interest as tenant in common as to half from the husband who had been registered as proprietor through fraud.
Date of termination confirmed as the date for assessing damages for breach of contract for sale of land
The general rule is that damages for a breach of a contract for the sale of land are assessed at the date of the breach. The task is usually to compare the contract price with the value of the land a the time of the breach. If the value is greater than the contract price, the vendor has suffered no loss. But if the value is less than the contract price, it may be inferred that the discrepancy is an element of the vendor’s loss (Vitek v Estate Homes Pty Ltd  NSWSC 237 at ).
In Ng v Filmlock Pty Ltd  NSWCA 389 the NSW Court of Appeal heard an appeal by a purchaser of land from a judgment where the trial judge had assessed the vendor’s loss as being the difference between the contract price and the price obtained on a resale. The contract restricted the use of the resale price as an element in the quantification of loss to a resale within 12 months of termination but otherwise the vendor was entitled to damages for breach of contract. The resale took place more than 12 months after termination and therefore the general law applied. The land had declined significantly in value by the time of the resale.
The vendor argued that there was no available market as at the date of the breach of contract and therefore the resale price was relevant to the calculation of loss. The argument was based on a proposition said to be derived from the decision of the English Court of Appeal in Hooper v Oates  Ch 287: the correct date for assessment of damages for breach of contract is the date of breach only where there is an immediately available market for the subject matter of the sale.
Emmett JA, after noting that the English Court of Appeal did not explain what was meant by an “immediately available market”, said at :
“While a sale of land might take longer than the sale of other types of assets, it does not follow that there should be a departure from the general rule, which focuses on the value of the land as at the date of termination of the contract. There is good reason for that approach where the damages sought by the innocent seller are loss of bargain damages. The critical date is when the bargain was lost.”
While the appeal was successful the court accepted that in an appropriate case the interests of justice may require that “the date of breach” rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. See: Johnson v Perez (1988) 166 CLR 351 at 367.
Gleeson JA said at :
“….whether a market value may be assessed in the case of land as at “the date of breach” is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role.”
And at :
“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt  HCA 56 at  (Keane J). A vendor claiming damages assessed at a date later than “the date of breach” must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima face or “usual” measure of damages.”
A vendor who has terminated a contract for the sale of land should be wary of serving a second notice to complete because the second notice revives the agreement that has been terminated.
In Rona v Shimden  NSWSC 818 a vendor under a contract of sale claiming to have terminated the contract, gave notice to complete which was expressed to be without prejudice to its contention that the contract was terminated. White J at  analysed the position as follows:
The giving of a notice to complete may give rise to an estoppel which precludes the party giving the notice from asserting that the contract has been terminated. Here, the purchaser did not do anything consequent upon the service of the notice which could create such an estoppel. Estoppel aside, the service of a notice to complete without prejudice to a prior notice of termination takes effect as an offer to revive the agreement, capable of being accepted by performance in accordance with the terms of the notice to complete: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 at 9184, 9187.
In Naval and Military Club v Southraw  VSC 593 Byrne J accepted this analysis. See: also Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors  VSC 57.
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Section 118 of the Transfer of Land Act 1958 and s.74P of the Real Property Act 1900 (NSW) provide for payment of compensation to a party who has suffered “damage” (TLA) or “pecuniary loss” (RPA) where a person lodges a caveat “without reasonable cause”. In New South Wales s.74P also extends to a caveator who, without reasonable cause, refuses or fails to withdraw a caveat after being requested to do so. See: s.74P(1)(c).
As to the meaning of “reasonable cause” in Bedford Properties Pty Ltd v Surgo  1 NSWLR 106 Wootton J said at 109:
The drastic nature of the power is relevant in considering what is “reasonable cause” for its use, just as the dangerous character of a thing is relevant to deciding what is reasonable care in handling it. Before exercising such a power, a person can reasonably be expected to get proper advice, and be reasonably sure of his ground. If he does not, he may find that he has acted at his peril. This is all the more so when he knows, as Mr Richards knew, and indeed intended, that his action will prevent an important transaction involving a large sum of money.
In the recent case of Arkbay Investments Pty Ltd v Tripod Funds Management Pty Ltd  NSWSC 1003 Robb J said that it was “salutary to record” Wootton J’s observations in deciding that a caveat had been lodged without reasonable cause and had caused pecuniary loss.
In Arkbay there was no evidence that when the caveator lodged the caveat it had an honest belief on reasonable grounds that it had an interest in the relevant property. His Honour held that the lodging of the caveat had caused loss by reason of a delay in the settlement date for sale of the property.
At  Robb J said:
“The onus is on the plaintiffs to show that the caveator acted without reasonable cause. For there to be reasonable cause it is not necessary that the caveator actually have a caveatable interest, but it is necessary that the caveator have an honest belief based upon reasonable grounds that the caveator has such an interest. Wootton J in Bedford Properties noted at 108 that an honest belief on the part of the caveator based on reasonable grounds may not be sufficient to provide a reasonable cause for lodging or maintaining a caveat, if the caveat is lodged “not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed.”
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From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation
Implied term that vendor must act in a reasonable manner when selling land pursuant to liquidated damages clause
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What duties does a vendor have in selling land pursuant to a liquidated damages clause in the sale contract following a default by the purchaser?
There are three possibilities:
- if a vendor acts unreasonably in failing to minimise loss arising from a purchaser’s breach, any damages will be reduced to the extent that the vendor’s loss would have been reduced had the vendor acted reasonably;
- the duty imposed on a vendor is similar to that imposed on a mortgagee exercising a power of sale granted under a security, the duty being to act in good faith;
- there is an implied term in the contract for the sale of duty that a vendor will exercise the power of resale in a reasonable manner.
In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd  VSC 57 Garde J rejected the first two possibilities and held that there was an implied term in the contract that the vendor would act reasonably in the exercise of its power of resale and that this implied term extended to all aspects of the resale. The contractual provision considered by the court was general condition 28.4 of the general conditions which provides:
“If the contract ends by a default notice given by the vendor:
(a) the deposit up to 10% of the price is forfeited to the vendor as the vendor’s absolute property, whether the deposit has been paid or not; and
(b) the vendor is entitled to possession of the property; and
(c) in addition to any other remedy, the vendor may within one year of the contract ending either:
(i) retain the property and sue for damages for breach of contract; or
(ii) resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and
(d) the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and
(e) any determination of the vendor’s damages must take into account the amount forfeited to the vendor.”
His Honour held that the implied duty to act in a reasonable manner in exercising the power of resale did not mean that a vendor had to put the interests of the defaulting purchaser ahead of his own. At  His Honour said:
“Where the interests of a vendor and the purchaser in breach are in conflict, for example as to the urgency or method of the resale, the vendor is entitled to prefer his own interests to those of the purchaser in breach, provided that in so doing the vendor acts in a reasonable manner. The obligation on the vendor to act in a reasonable manner has been held to apply to price, time of resale and conduct in the form or method of resale. It would also extend to the terms of resale to be offered by the vendor.”
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The vendor’s “section 32 statement” will not have to be attached to a contract for the sale of land following amendments to the Sale of Land Act 1962. See: s.4 of the Sale of Land Amendment Act 2014. The amendments have not yet commenced. The latest day on which the changes can commence is 1 July 2015. See: s.2(3). The effect of the amendments is to replace s.32 in its entirety. Many of the changes do no more than restate the existing law.
The vendor’s statement need not be attached to the contract but must be given to the purchaser before the purchaser signs the contract. See: s.32(1). Where vendor’s statements have been given before the Act commences it will not be necessary to give a new vendor’s statement provided the land is not withdrawn from sale. See: the transitional provisions contained in s.6.
Some of the changes are:
(a) the name of any planning overlay must be provided (s.32C(d)(iv));
(b) there must be disclosure where a notice, order, declaration, report or recommendation of a public authority or government department or approved proposal that is “directly and currently affecting the land” (s.32D(a));
(c) only non-connected services need be disclosed (s.32H);
(d) where an owners corporation affects the land the vendor can provide prescribed information rather than the owners corporation certificate (s32F);
(e) vendors have to make available to prospective purchasers of vacant residential land a “due diligence checklist” which is in a form approved by the Director of Consumer Affairs (see new division 2A).
The “due diligence checklist” must be published on the internet site for Consumer Affairs Victoria.
A purchaser may rescind the contract where false information is provided, or information not provided, or no s.32 statement is provided. See: s.32K.
David Lloyd of counsel gave an excellent presentation about the changes to the Act at a recent seminar hosted by Green’s List and those wishing to know more should contact Green’s List to view David’s presentation.