Chan v Dainford Ltd

In the Supreme Court of Queensland, Dainford Ltd. as vendor brought actions against Mr. and Mrs. Chan respectively as purchasers, seeking specific performance of contracts for the purchase of home units in a building to be known as "Peninsula" on the Gold Coast. The contracts were made on 19 August 1981 before "Peninsula" was built and therefore before a building units plan was registered under the Building Units and Group Titles Act 1980 Q. ("the Building Units Act"). Sheahan J. gave judgment for the purchasers. The Full Court set aside those judgments and in lieu thereof decreed specific performance. Special leave to appeal to this Court was granted, limited to certain grounds. The issue for determination on these appeals, as we would state it, is this: were the respective purchasers entitled to avoid their contracts pursuant to s. 73 of the Property Law Act 1974-1978 Q.? The relevant provisions of that section read as follows:

(1) A vendor under an instalment contract shall not without the consent of the purchaser sell or mortgage the land the subject of the contract.

(2) Where land is mortgaged in contravention of this section -

(a) the instalment contract shall be voidable by the purchaser at any time before completion of the contract;

(b) the vendor shall be guilty of an offence against this Act and liable to a penalty not exceeding five hundred dollars.

The purchasers submit that Dainford contravened s. 73(1) on 10 September 1981, after the contracts were made. On that day, Dainford gave to A.G.C. (Advances) Ltd. a bill of mortgage over the parcel of land on which "Peninsula" was to be built to secure the repayment with interest of advances made by the mortgagee. The mortgage was registered on 26 February 1982. Upon registration of the building units plan on 5 November 1982, certificates of title for the respective lots were issued subject to the registered mortgage. Neither purchaser had given consent to this mortgage. Dainford offered to provide on settlement the relevant certificate of title and a duly executed partial release of the mortgage. On 29 November 1982 the respective purchasers elected to avoid their contracts in reliance on s. 73 of the Property Law Act.

On 2 December 1982 Dainford and certain other companies gave the mortgagee a guarantee to secure the repayment of advances to be made by the mortgagee to Anileki Pty. Ltd. It was submitted that the registered mortgage stood as security for Dainford's obligation and the land became subject to a further charge accordingly. For reasons that will presently appear, it will not be necessary to determine the effect of the guarantee. It suffices to note that neither purchaser consented to the giving of the guarantee. On 9 December 1982, the actions for specific performance were commenced.

The first question is whether each of the contracts was an "instalment contract" on 10 September 1981 when Dainford gave the mortgage. The term "instalment contract" is defined in s. 71(2)(b) of the Property Law Act to mean -

an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange therefor.

The contracts were in common form. Each identified the unit sold as a numbered lot "as outlined on the Plan marked "A" annexed hereto". The subject of each contract is identified by cl. 1 read in the context of the recitals:

(a) The Vendor is or is entitled to be the registered proprietor of certain land described in the First Schedule hereto.

(b) The Vendor intends to construct a multi-storey building to be called "Peninsula" on the said land in accordance with plans and specifications to be prepared by the Vendor's architect.

(c) The Purchaser wishes to purchase from the Vendor the estate in fee simple in that part of the said building hereinbefore referred to as "the said unit".

(d) A separate freehold title to the said unit is to be conveyed to the Purchaser by virtue of "The Building Units and Group Titles Act 1980 ".

1. The Vendor shall sell to the Purchaser and the Purchaser shall purchase from the Vendor the estate in fee simple in the said unit free from encumbrance other than as herein notified and the easements created or implied by the said Act and together with such rights as are appurtenant thereto.

Clause 3(a) provided for settlement to take place within thirty days after notice from the vendor or its solicitors to the purchaser or his solicitor "that the relevant Building Units Plan has been registered at the Real Property Office, Brisbane".

The Full Court upheld a finding made by Sheahan J. that, by the terms of the contract (which were to be found in loan agreements as well as in the common forms already mentioned) the purchasers were bound to pay 30 per cent of the purchase price - more than a "deposit" - without becoming entitled to a conveyance in exchange therefor. Section 71(2)(a) so defined deposit as to exclude any amount exceeding 10 per cent of the purchase price. The element of the definition of "instalment contract" on which the judgments in the Full Court differed from the judgment of the trial judge was whether the contracts were "for the sale of the land". That is the element to which argument has been directed on these appeals.

When the contracts were made, there were no lots in existence. There was then no "estate in fee simple in the said unit" which, by cl. 1 of each contract, Dainford agreed to sell and the respective purchasers agreed to purchase. There was then no land which could be the subject of an immediate sale. When a lot comes into existence, there is no doubt that it is land for the purposes of the Property Law Act. A lot under the Building Units Act comes into existence by subdivision, horizontal and vertical, of the land of which it has become a part (s. 8(1)) and, like "any other land held under the provisions of the Real Property Acts", it may "devolve, or be transferred, leased, mortgaged or otherwise dealt with": s. 8(3).

The respective contracts were not contracts for the sale of the spaces in which it was proposed to construct the respective home units; they were contracts for the sale of lots. Although the lots were not in existence when the contracts were made, they were to be in existence at the time stipulated for their sale. The primary meaning of sale is an exchange of property, the subject of the sale, for money. A sale occurs at the time when the title to the subject of the sale is conveyed or transferred. A "contract for the sale of land" within the meaning of those words in the definition of "instalment contract", is a contract pursuant to which a sale is to occur in the future - a contract whereby the purchaser will become "entitled to receive a conveyance" of the land sold at a time subsequent to the making of the "payment or payments (other than a deposit)" mentioned in the definition. A contract for the sale of land is an agreement to sell land, but it is not a sale. A stipulation that the time for conveyance be deferred until after a sum greater than a deposit has been paid is critical to the definition of "instalment contract". The risk to which a purchaser is exposed by such a stipulation is the risk against which the substantive measures contained in Div. 4 of the Property Law Act are intended to provide protection. The "land", for the sale of which an instalment contract provides, is the "land" to be conveyed by the conveyance mentioned in the definition. If a contract falls within the definition, it is unnecessary to inquire whether or not the purchaser acquired an equitable interest in land when he entered into the contract.

In the present cases, the lots for which separate certificates of title were to be issued constituted the "land" which was to be the subject of each sale. The contracts made by the parties were, at the time when they were made, executory contracts for the sale of the respective lots to be completed after issue of the certificates of title. The sales for which the contracts provide were sales of the respective lots after registration of the building units plan - indeed, sales in which a "separate freehold title to the said unit is to be conveyed to the purchaser". The contracts were "instalment contracts" within the ordinary meaning of the terms used in the definition.

However, it was said in the Full Court that some of the substantive provisions of Div. 4 in which the term "instalment contract" appears have no operation on or with respect to a contract for the sale of a lot prior to the registration of a building units plan. That consideration led the Full Court to hold that, prior to registration of the plan, a contract for the sale of a lot was not an instalment contract. In this Court, the respondent submitted that some of the rights conferred by Div. 4 on a purchaser under an instalment contract are rights which Parliament could not have intended to be exercised by a purchaser under an executory contract for the sale of a lot prior to the registration of a building units plan. Reference was made to ss. 74, 75 and 76 of the Property Law Act which, together with s. 73, are the substantive provisions of Div. 4 that confer on a purchaser under an instalment contract a benefit or right to which he would not otherwise be entitled. Section 74 provides for a right to lodge a caveat forbidding the registration of an instrument affecting "the land the subject of the contract"; s. 75 provides for the right to require, after paying one-third of the purchase price, a conveyance with a mortgage back to the vendor to secure the balance; and s. 76 provides for the right to direct the vendor of unmortgaged land to deposit with a prescribed authority the title deed relating to the land the subject of the contract together with an appropriate instrument of transfer to be held in escrow pending discharge of the contract by performance or otherwise. If none of the provisions of Div. 4 was apt to confer a benefit or right on a purchaser under an executory contract for the sale of a lot made prior to the registration of a plan, it could be argued that the definition should be read down. McPherson J. read it down to include only an executory contract for the sale of land "in respect of which there was at the time it was entered into an existing certificate of title or deed of grant of the land agreed to be bought and sold" and the respondent seeks to maintain that construction. But there is no need to read down the definition of "instalment contract" in order to restrict the classes of purchasers to those who can take all of the benefits or exercise all of the rights conferred by the substantive provisions of Div. 4. If there be some purchasers under instalment contracts who are not included among the purchasers who can take some of those benefits or exercise some of those rights, the exclusion of those purchasers from the particular benefits or rights is effected by the substantive provision that confers them. The operation of the substantive provisions of Div. 4 is not extended by giving the definition of "instalment contract" its ordinary meaning. On the other hand, if a class of purchasers can take only some benefits or exercise only some rights, the circumstance that other benefits or rights cannot be taken or exercised is no warrant for reading down the definition to exclude them from the benefits or rights open to them.

It is unnecessary now to consider whether any benefit or right other than the right conferred by s. 73 can be exercised by a purchaser of a home unit under an instalment contract before the building units plan is registered, and we would reserve consideration of that question. For present purposes, it is sufficient to determine whether a vendor under an instalment contract for the sale of a lot who mortgages the parcel of land on which the building containing the relevant lot is to be built, mortgages that lot.

As a building is erected on land subject to mortgage, it becomes part of the mortgaged premises, increasing the mortgagee's security for his debt and enhancing the value of the mortgagor's equity of redemption: Reid v. Smith [1] . When a building units plan is registered in relation to a parcel of land subject to a registered mortgage, the certificates of title for the lots that are then issued are properly endorsed as subject to the registered mortgage. The lot described in a certificate of title is subject to the mortgage, for the lot is a subdivided part of the mortgaged premises. In such a case, where the mortgage is given prior to the erection of the building, no part of the building within the boundaries of a lot comes into existence free from the mortgage. Treating the lot as part of the land, the mortgage charges with the mortgage debt the lot which the vendor under the instalment contract has contracted to sell. The mortgage given by Dainford had the effect of charging with the mortgage debt the respective lots it had contracted to sell so soon as those lots came into existence. Those lots were mortgaged by Dainford after the instalment contract was entered into, and Dainford thereby contravened s. 73(1) of the Property Law Act. In the circumstances of the present case, it is not necessary to decide whether the contravention occurred when Dainford gave the mortgage, when the mortgage was registered, when the building of the respective lots occurred or when the building units plan was registered.

It follows that the purchasers were entitled to avoid their respective contracts. They elected to do so, and the vendor's actions for specific performance ought to have been dismissed. We would allow the appeals and restore the judgment of Sheahan J.