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 [2016] 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.

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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 [2010] NSWSC 237 at [179]).

 

In Ng v Filmlock Pty Ltd [2014] 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 [2014] 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 [26]:

“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 [58]:

“….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 [59]:

“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt [2013] HCA 56 at [109] (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.”

 

Second Notice to Complete Revives Terminated Agreement – Contract Sale of Land

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 [2005] 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 [86] 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 [2008] VSC 593 Byrne J accepted this analysis. See: also Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors [2014] VSC 57.

 

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 [2014] 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 [175] 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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$1,000,000 in damages for loss of sperm even though purchaser not out of pocket

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A wise senior building barrister once said to me that in analysing a legal problem you should “always start with the money” – that is analyse what methodology underlies  or underpins the claim for damages.

 

Too often little thought is given to how damages should be calculated before a proceeding is commenced.

In December 2013 the High Court in Clark v Macourt [2013] HCA 56  gave a decision concerning damages in a breach of contract case that has caused much discussion.

A person who provided assisted reproductive technology services to patients purchased the assets and practice of a company providing similar services.

The assets included a stock of frozen donated sperm.

A guarantor guaranteed the vendor’s obligations under the contract.

The vendor warranted that the identification of donors of the sperm complied with specified guidelines; however, of the stock of sperm delivered, 1,996 straws which the purchaser would have expected to be able to use were not as warranted and were unusable.

The vendor could not buy suitable replacement sperm in Australia but could in the USA.

The primary judge found that buying 1,996 straws of replacement sperm from the American supplier would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000. The purchaser could not have made any profit from the frozen donated sperm because ethically she could not charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the purchaser had outlaid to acquire it.

The question was,  how should the purchaser’s  damages for breach of warranty be fixed?     The primary judge gave judgment against the vendor and the guarantor for the costs  incurred in purchasing replacement sperm from the USA.

This was overturned by the NSW Court of Appeal which held that the purchaser had avoided any loss she would have suffered by purchasing replacement sperm and had charged each patient a fee which covered the costs of buying the sperm.

The High Court of Australia held 4:1  – that the appeal should be allowed and reinstated the decision of the primary judge with the consequence that the vendor’s loss and therefore the damages were $1 million.

The methodology underlying the decision was entirely uncontroversial:   the principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation, so far as money can do it as it would have been in if the broken promise had been performed.

Damages are assessed at the date of the breach. The case emphasises the importance of carefully considering  how the claim is pleaded:   in this case at the date of the breach the purchaser was in the position where she had to buy a $1 million worth of sperm to replace what she had lost.

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

 

What is the effect of a nominee clause?

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What is the effect of a purchaser of land nominating a nominee under a nomination clause contained in the contract: what rights and obligations does the nominee have?

The answer is none: the nominee has no contractual rights and no obligations.

In 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd [2009] VSC 133 the vendor misrepresented the lettable area of the property. The purchaser nominated the plaintiff as purchaser. The director of the purchaser was also the director of the nominee. It was alleged that the nominee purchaser relied on the representations. The nominee clause  provided as follows:

“If the contract says that the property is sold to a named purchaser ‘and/or nominee’ (or similar words) the named purchaser may, at least 14 days before settlement date, nominate a substitute or additional purchaser, but the named purchaser remains personally liable for the due performance of all the purchaser’s obligations under this contract.”

The contract authorised a substitute or additional purchaser.

The nominee purchaser brought an action for damages based on a breach of s 52 of the Trade Practices Act, s 9 of the Fair Trading Act and for negligent misstatement.

Judd J held that that the nomination did not have the effect of a novation and the plaintiff did not become a party to the contract of sale.

His Honour also found that by the time the plaintiff paid the purchase price and took the conveyance it was aware of the true lettable area of the property.

Thus, the cause of the plaintiff’s loss was either an informed choice to pay a price for the property and take the conveyance or, if the payment was involuntary, it was because the plaintiff was caused by its directors, in full knowledge of the true facts to make the payment in which case but for the nomination it would not have suffered any loss.  The loss was caused by the nomination – not the representations.  Judd J dismissed the proceeding.

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

 

Property Law ( Sale of Land) – Everything must be in writing

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It is extraordinary how often lawyers overlook the cardinal rule when dealing with land:

anything intended to have legal effect must be in writing. See: s.53 of the Property Law Act 1958 and s.126 of the Instruments Act 1958.

 

The most overlooked rule appears to be that where an agent is to sign a contract or enter into an agreement that will affect an interest in land the agent must also be authorised in writing to sign the contract or enter into the agreement.

In Federation Properties Pty Ltd v Tzioras [2001] VSC 135 Byrne J held that a contract for the sale of land was unenforceable because the agent who made the contract had not been authorised in writing.

Lawyers settling court proceedings should be particularly careful about ensuring that they have written instructions to sign terms of settlement. See: Grummitt v Natalisio  [1968] VR 156; Collin v Holden [1989] VR 510.

 

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/