The plaintiff, Mr Klein, seeks orders for specific performance of a contract for the sale of certain land at Picton. The contract is dated 2 July 2015. It concerns Lot 1 in an unregistered plan of subdivision of Lot B in Deposited Plan 156341, which was owned by the defendants, Mr and Mrs McMahon.
Mr Klein is named as the purchaser in the contract. Mr and Mrs McMahon are named as the vendors. However, as referred to further below, it seems that Mr McMahon did not sign the contract; rather, Mrs McMahon, who was described in the contract as the Vendor's Representative, signed the contract personally as well as for her husband.
The proposed subdivision was for two residential lots. The contract provided for Mr Klein to purchase proposed Lot 1 for $350,000. Mr Klein paid a deposit of $35,000 upon exchange of contracts. Half of the deposit was released to the vendors. That amount was paid into an account held by Mr and Mrs McMahon with the Commonwealth Bank of Australia.
The contract employed the 2005 edition of the Law Society/Real Estate Institute standard form, together with numerous special conditions. Special Condition 13 relevantly provided:
The vendor shall proceed with all due dispatch to obtain consent of the council to a plan of subdivision substantially in the form attached and thereafter will lodge the subdivision plan at Land and Property Information NSW for registration as a deposited plan. If the subdivision plan has not been registered as a deposited plan within 6 months after the date hereof either party may at any time thereafter, but prior to the subdivision plan being registered as a deposited plan, rescind this agreement by notice in writing given to the other. In no event shall the vendor be liable for any delay in such lodgement or registration unless it is due to a failure to do all things reasonable to achieve registration.
Printed clause 28, which applies where the land is described as a lot in an unregistered plan, remained in the contract. It relevantly provides:
28.2 The vendor must do everything reasonable to have the plan registered within 6 months after the contract date, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation.
28.3 If the plan is not registered within that time and in that manner -
28.3.1 The purchaser can rescind; and
28.3.2 The vendor can rescind, but only if the vendor has complied with clause 28.2.
The plan of sub-division was not registered within six months of 2 July 2015. The Wollondilly Shire Council did not issue the sub-division certificate until 17 August 2016. The sub-division was eventually registered on 23 December 2016. Each lot is approximately 505m2 in area.
However, on 25 August 2016, Mr Day of Day Legal Pty Ltd sent a letter to Ms Susan Hall of Hall's Conveyancing, who was acting for Mr Klein in relation to the contract. The letter attached Notice of Appointment of Solicitor and a Notice of Rescission of Contract. The Notice of Appointment, which was apparently executed by both Mr and Mrs McMahon, appointed Mr Day as their solicitor to act for them in respect of the contract dated 2 July 2015. The Notice of Rescission of Contract was relevantly in the following terms:
Vendors: Peter John McMahon & Maree Cathie McMahon
Purchaser: Wilhelm Charles Peter KLEIN
Property: 98B Menangle Street, Picton
Contract: Dated 2 July 2015
WHEREAS
A Pursuant to the Contract dated 2 July 2015, the Vendors agreed to sell and you agreed to purchase the Property upon the terms set out in the Contract,
B Pursuant to Additional Condition 13 of the Contract, the Contract was expressly conditional upon the registration of a proposed subdivision plan within 6 months of the date of the Contract, and
C The said proposed subdivision plan was not registered within 6 months of the date of the Contract.
NOW TAKE NOTICE
That the Vendors hereby rescind the Contract.
DATED 25th day of August, 2016.
On 25 August 2015 Hall's Conveyancing sent a letter to Day Legal Pty Ltd in the following terms:
We refer to the above matter and your email of today's date. We are instructed that our client does not consent to your Notice of Rescission.
The vendor is in breach of Section 66ZL of the Conveyancing Act 1919 section (4) as the vendor has not given the purchaser 28 days' notice of the proposed rescission which specifies why the vendor is proposing to rescind the contract for sale.
As you have not complied with section 66ZL of the Conveyancing Act, the rescission notice is invalid and the contract is still on foot.
Should the vendor seek to sell this property to another party, the purchaser will seek an injunction against the vendor restraining the sale of the property and seeking damages.
Please advise the agent that they are to hold the deposit as the contract is still legal and binding on both parties. Please also advise the Vendor that they are to return the balance of the deposit released to them to the Agent to hold.
On the same day, Hall's Conveyancing arranged for a caveat to be lodged over the defendants' property, in order to protect the plaintiff's interest under the contract for sale.
On 16 September 2015 Day Legal Pty Ltd responded to the Hall's Conveyancing letter of 25 August 2015. The response included the following:
…In your concluding paragraph you state…"Please also advise the Vendor that they are to return the balance of the deposit released to them to the agent to hold".
As you are well aware, a sum was released to the Vendors from the deposit pursuant to Additional Condition 7 of the Contract.
There is no provision of the Contract whatsoever requiring the Vendors to return any part of the deposit.
Your demand for repayment of the Contract is a direct repudiation of the Contract by the Purchaser.
Consequent upon the Purchaser's repudiation of the Contract, the Vendors hereby terminate the Contract.
As the Contract is at an end, the balance of the Deposit is forfeited to the Vendors.
…
By 22 September 2015 Mr Klein had retained Dignan & Hanrahan as his solicitors. On that day, Dignan & Hanrahan sent a letter to Day Legal Pty Ltd which included the following:
…
Our client denies that there has been any repudiation for a number of reasons. Firstly the sentence in the letter from Hall's Conveyancing which is relied upon as "a direct repudiation of the Contract by the Purchaser" is in the context of the letter in which the Purchaser is rejecting the Vendor's purported rescission of the Contract and seeking to enforce his rights to proceed with the Contract.
Secondly, for there to be a repudiation of the Contract that would justify the Vendor to terminate the Contract, the effect of the breach by the Purchaser must be such as to deprive the Vendor of substantially the whole benefit of the Contract…
Thirdly, the deposit forms part of the total consideration for the Contract and despite the fact that the Purchaser agreed to release the deposit to the Vendor, it does not pass to the Vendor until completion.
…
We are instructed that the Purchaser rejects the Notice of Termination of the Contract and advise that unless we receive notice that the Vendor is prepared to proceed with the Contract or to comply with the provisions of Section 66ZL of the Conveyancing Act 1919 within a period of seven (7) days, an application will be made to the Supreme Court for an injunction and orders for specific performance of the Contract and this letter will be used in support of our application for indemnity costs.
The defendants then retained Shore Stack Lawyers. It seems that Dignan & Hanrahan sent a letter to that firm on 20 October 2015. That letter is not in evidence. However, on 20 October 2016 Shore Stack sent a letter to Dignan & Hanrahan which included the following:
We refer to your letter dated 20 October 2016 in which you assert that there is a binding contract between our parties. This is not accepted for reasons previously communicated.
Among other things we note that our clients' previous solicitor served on you a notice of rescission dated 25 August 2016.
We are not privy to some of the conversations that passed between our clients' previous solicitors and your office. Accordingly, for avoidance of any doubt, we serve on you a new notice of rescission dated 20 October 2016, which is enclosed.
Even if your contention that both Vendors executed the contract is correct (which on our instructions is denied), we take the view that the contract between our respective parties has been rescinded either by the earlier notice of rescission dated 25 August 2016 or by the notice of rescission enclosed. In all the circumstances, we take the view that your client no longer has, if he ever had, a contract for sale of land which is enforceable against our clients.
…
The attached Notice of Rescission was relevantly in the following terms:
Vendors: Peter John McMahon & Maree Cathie McMahon
Purchaser: Wilhelm Charles Peter KLEIN
Property: 98B Menangle Street, Picton - Lot 1 in an unregistered plan which is part of Lot B Plan 156341 Part Folio B/156341
Contract: Dated 2 July 2015
WHEREAS
A The Contract dated 2 July 2015 relates to your purchase of the property described as 98B Menangle Street, Picton - Lot 1 in an unregistered plan which is part of Lot B Plan 156341 Part Folio B/156341 (the "Property");
B Pursuant to special condition 13 of the Contract, the Contract was conditional upon the registration of a subdivision plan in respect of the Property;
C The said proposed subdivision plan has not been registered even though more than a year has elapsed from the date of the Contract; and
D Special condition 13 of the Contract provides for the right of rescission of the Contract in these circumstances.
NOW TAKE NOTICE
As solicitors for the Vendors, we give notice that the Vendors hereby rescind the Contract.
Dated: 20th day of October 2016.
On about 28 October 2016 a lapsing notice in relation to the plaintiff's caveat was sent to Hall's Conveyancing.
The proceedings were commenced by Summons filed on 10 November 2016. A Statement of Claim was filed on 7 February 2017. The plaintiff claims that the contract for sale is valid and remains on foot. He contends that he did not repudiate the contract, and that the purported rescissions on 25 August 2016 and 20 October 2016 are invalid and of no effect. The plaintiff asserts that the purported rescissions were invalid because of the operation of s 66ZL of the Conveyancing Act 1919 (NSW), which applies to certain "off the plan" contracts. The plaintiff also contends that the defendants were not entitled to rescind pursuant to Special Condition 13 because the defendants had failed to proceed with all due dispatch to obtain the consent of the Council to the plan of sub-division and thereafter lodge the sub-division for registration. He seeks an order that the defendants specifically perform the contract and carry it into execution so far as it remains to be performed. The plaintiff asserted that he was ready, willing and able to complete the contract.
As already noted, the proposed sub-division has now been registered. The plans were lodged for registration on 6 December 2016 and became registered as Deposited Plan 1184023 on 23 December 2016.
The defendants filed separate Defences on 17 February 2017. By his Defence, Mr McMahon denied that he executed the contract for sale and agreed to sell the property to Mr Klein. Subject to that overarching allegation, Mr McMahon admitted that the plaintiff had not repudiated the contract, but asserts that one or other of the rescissions of 25 August 2015 and 20 October 2015 was effective. He asserted that s 66ZL of the Conveyancing Act had no application to the contract. Mr McMahon denied that the defendants did not proceed with all due dispatch to obtain the consent of the Council to the plan of sub-division. He did not admit that the plaintiff was ready, willing and able to complete the contract for sale.
Mrs McMahon admitted that she executed the contract for sale. Her Defence was otherwise in similar terms to those contained in the Defence filed by Mr McMahon.
The plaintiff filed a Reply in respect of Mr McMahon's denial that he had executed the contract. The plaintiff alleged that if that was so, the contract was executed for him by Mrs McMahon as his agent with his knowledge and permission. The plaintiff further alleged that Mr McMahon subsequently ratified the contract, or acquiesced in it, so as to make it binding upon him. Amongst the conduct said to amount to ratification or acquiescence were the purported rescissions of 25 August 2016 and 20 October 2016 effected by solicitors acting for both of the defendants. The Reply also contained claims, made in the alternative against Mrs McMahon, of misleading or deceptive conduct and breach of warranty of authority.
The defendants were initially represented in the proceedings by Ms Stack (of Shore Stack Lawyers and then of Hub Lawyers). However, on 13 September 2017 Ms Stack gave notice of her intention to file a Notice of Ceasing to Act. The defendants did not thereafter appoint a solicitor to act for them. At the hearing, Mr McMahon appeared for himself, and also sought to appear for Mrs McMahon who did not appear when the matter was called. No objection to that course was raised by Mr McNally of Senior Counsel, who appeared for the plaintiff.
An affidavit sworn by the plaintiff was read. He was not required for cross-examination. Two affidavits sworn by Mr McMahon were read. Mr McMahon was required for cross-examination. No evidence was adduced from Mrs McMahon. Aside from the documents contained in the exhibits to the affidavits of Mr Klein and Mr McMahon, some further documents were admitted into evidence, including a report of a valuer who expressed the opinion that the value of the lot the subject of the contract for sale was $515,000 as at 26 April 2017.
The first issue to consider is whether a binding agreement for sale was made between the plaintiff and the defendants. This issue arises because of Mr McMahon's denial that he executed the contract for sale which was exchanged on 2 July 2015.
Mr McMahon deposed, and maintained in the witness box, that he did not sign the contract. He said that his wife told him at some stage that she had signed his name on the contract. I accept Mr McMahon's evidence on these matters. This evidence was not, in the end, challenged by the plaintiff. The plaintiff instead took the position that Mrs McMahon signed the contract for her husband, acting as his agent in that regard.
Mr McMahon made a number of concessions in the course of his cross-examination. He accepted that he and his wife wished to subdivide their property and sell the part upon which their residence stood. He said that they decided to sell the property for $350,000. Mr McMahon accepted that he and his wife had signed an agency agreement with a real estate agent to market that lot for sale. He seemed to accept that he knew the property was to be marketed at a price of $350,000. At one point Mr McMahon said that he "was aware that there was a sale done", although he did not know who the buyer was. He later said he could not recall whether his wife told him that the property had been sold.
Mr McMahon agreed that, apart from his own business of selling books, he leaves everything of a financial or business nature to his wife to deal with. He further agreed that his wife was acting as his representative during the whole transaction "right from putting it on the market to registering the plan of sub-division". Mr McMahon did not distinctly agree that he was happy for his wife to do what was necessary in order to get the deal done, but said he was "happy for her to be happy".
Mr McMahon nevertheless maintained that he did not know that his wife might sign documents on his behalf. He said that he never gave her permission to sign on his behalf. Mr McMahon denied that he knew that a contract had been entered into, although he seemed to accept that he suspected that there was a contract. He also accepted that he knew that there was a buyer.
In my opinion it should be inferred from the evidence that a relationship of principal and agent arose between Mr and Mrs McMahon, whereby Mrs McMahon was authorised to act for Mr McMahon in effecting a sale of the proposed sub-division lot upon which their residence stood. Mr and Mrs McMahon had discussed the transaction and agreed that they would sell the property for $350,000. The property was marketed at that price. Mr McMahon later became aware that there had been a sale to a buyer at that price. It is very likely that Mrs McMahon told him about that. As was apparently customary, Mr McMahon was content to leave to his wife the carrying out of the transaction. That included doing things on his behalf. As he said, Mrs McMahon was acting as his representative throughout the transaction.
I should add that whilst it seems that Mr McMahon did not see the contract until much later, he at least suspected that a contract for sale had been entered into. Mr McMahon, as a co-owner of the property, must have known that he would be a party to any such contract. Mr McMahon agreed that he was content for the sale to proceed. His attitude of acquiescence is consistent with him knowingly leaving the conduct of the transaction to his wife.
It should be concluded that Mrs McMahon, with the knowledge and approval of her husband, was placed in the position of a representative for Mr McMahon in the sale transaction. That status is reflected in her description on the front page of the contract as Vendor's Representative. In my opinion there was a general conferral of authority by Mr McMahon to do what was required on his behalf to bring the transaction to fruition. The authority so conferred extended to signing documents on his behalf (including a contract for sale), as required in furtherance of the transaction. A transaction of the type contemplated would ordinarily require documents to be signed by Mr McMahon as one of the vendors. In these circumstances, it does not matter that Mr McMahon may not have expressly authorised his wife to sign documents, or the contract, on his behalf (see Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 per Jordan CJ). It was not suggested that Mr McMahon imposed a prohibition upon his wife in that regard.
In my opinion, a binding agreement for sale arose upon exchange of contracts on 2 July 2015. The signing of Mr McMahon's name on the contract by Mrs McMahon was an act done within the scope of the authority conferred upon her as his representative in the transaction.
In light of that conclusion, it is not necessary to consider any question of ratification, or the other matters raised in the Reply.
The next issue to consider is whether the contract for sale was rescinded by the defendants on either 25 August 2016 or 20 October 2016.
The rescissions were each based on Special Condition 13. That condition provides for a right of rescission by either party if the sub-division plan has not been registered as a Deposited Plan within 6 months after 2 July 2015. However, as submitted by the plaintiff, the position is affected by s 66ZL of the Conveyancing Act.
That section was introduced into the Act by the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW). The relevant transitional provisions, contained within cll 15 and 16 of Part 9 to Schedule 9 of the Conveyancing Act, provide as follows:
15 Section 66ZL applies to existing contracts
Section 66ZL applies to an off the plan contract regardless of whether the contract was entered into before, on or after the commencement of that section.
16 Retrospective application of section 66ZL
(1) Section 66ZL is taken to have effect on and from 2 November 2015.
(2) The rescission of an off the plan contract under a sunset clause by a vendor on or after 2 November 2015 is taken not to have been done in accordance with the contract unless the required notice was given, and the rescission occurred, in accordance with section 66ZL.
(3) Regulations made under section 66ZL within 12 months after the commencement of that section, may take effect at any time on or after 2 November 2015.
(4) Expressions used in this clause have the same meaning as they have in section 66ZL.
Section 66ZL itself provides:
(1) In this section:
"off the plan contract" means a contract for the sale of a residential lot (the "subject lot" ) that has not been created at the time that the contract is entered into.
"residential lot" means a lot (whether a strata lot or otherwise) that is residential property within the meaning of section 66Q.
"sunset clause" means a provision of an off the plan contract that provides for the contract to be rescinded if the subject lot is not created by the sunset date.
"sunset date" means the date set out in the off the plan contract as the latest date (subject to any extension provided for in the contract) by which the subject lot must be created.
(2) For the purposes of this section, a lot is created when the plan creating the lot becomes a registered plan.
(3) A vendor may rescind an off the plan contract under a sunset clause if the subject lot has not been created by the sunset date, but only if:
(a) each purchaser under the contract, at any time after being served with the notice under subsection (4), consents in writing to the rescission, or
(b) the vendor has obtained an order of the Supreme Court under this section permitting the vendor to rescind the contract under the sunset clause, or
(c) the regulations otherwise permit the vendor to rescind the contract under the sunset clause.
(4) It is a term of an off the plan contract that a vendor who is proposing to rescind the contract under a sunset clause must serve each purchaser under the contract notice in writing at least 28 days before the proposed rescission that specifies why the vendor is proposing to rescind the contract and the reason for the delay in creating the subject lot.
(5) A sunset clause cannot automatically rescind an off the plan contract and, if it purports to do so, it is to be read as if it instead permits the contract to be rescinded on or after the sunset date in accordance with this section.
(6) The Supreme Court may on the application of a vendor under an off the plan contract make an order permitting the vendor to rescind the contract under a sunset clause but only if the vendor satisfies the Court that making the order is just and equitable in all the circumstances.
(7) In determining whether it is just and equitable in all the circumstances the Court is to take the following into account:
(a) the terms of the off the plan contract,
(b) whether the vendor has acted unreasonably or in bad faith,
(c) the reason for the delay in creating the subject lot,
(d) the likely date on which the subject lot will be created,
(e) whether the subject lot has increased in value,
(f) the effect of the rescission on each purchaser,
(g) any other matter that the Court considers to be relevant,
(h) any other matter prescribed by the regulations.
(8) The vendor is liable to pay the costs of a purchaser in relation to the proceedings for an order under this section unless the vendor satisfies the Court that the purchaser unreasonably withheld consent to the rescission of the off the plan contract under the sunset clause.
(9) Nothing in this section limits any right that a purchaser may have to rescind an off the plan contract under a sunset clause.
(10) Notice may be served on a purchaser by serving it on a person who is authorised under the off the plan contract as a representative of the purchaser.
(11) A provision of an off the plan contract has no effect to the extent that it is inconsistent with this section.
The land the subject of the contract for sale in this case was described as Lot 1 in a proposed sub-division of Lot B DP 156341. The land is plainly "residential property" within the meaning of s 66Q(1)(a) of the Conveyancing Act. The land is not taken outside the concept of "residential property" by the operation of s 66Q(2). The land is thus a "residential lot" within the meaning of s 66ZL. Moreover, the residential lot (the subject lot) had not been created at the time the contract was entered into. Accordingly, the contract for sale is an "off the plan contract" within the meaning of the section.
Further, Special Condition 13 is in my opinion a "sunset clause" within the meaning of s 66ZL. It makes provision for the contract to be rescinded if the subject lot is not "created" by a certain date (being six months after 2 July 2015). That is, it provides for rescission if the plan creating the lot has not become a registered plan by that date (see s 66ZL(2)). In my view, the date is a "sunset date" within the meaning of the section. It is the latest date by which the subject lot must be created before the right to rescind arises under the sunset clause.
Subsections 66ZL(3) and (4) operate to restrict the circumstances in which a vendor may rescind an off the plan contract under a sunset clause if the subject lot has not been created by the sunset date. A rescission of that nature may only occur if:
1. the vendor serves notice in accordance with ss 66ZL(4) upon the purchaser and the purchaser consents in writing to the rescission;
2. the vendor obtains an order from the Court under s 66ZL(6) permitting rescission under the sunset clause; or
3. the regulations otherwise permit the rescission under the sunset clause.
None of those circumstances apply to the present case. The defendants did not serve any notice in accordance with s 66ZL(4), and they did not seek an order from the Court under s 66ZL(6). I am not aware of any regulation that would permit the defendants to otherwise rescind the contract for sale under the sunset clause. It follows that the defendants' purported rescissions were not effective.
It is not necessary to consider whether the rescissions would have been effective absent the operation of s 66ZL.
The defendants seemed to accept that the plaintiff had not repudiated the contract. They were correct to do so. The Hall's Conveyancing letter of 25 August 2016, and in particular its final paragraph concerning the deposit, did not in my view amount to a repudiation of contract. The defendants' purported termination of the contract on 16 September 2016 was accordingly invalid.
For the above reasons, the contract for sale remains on foot. The Court will make a declaration to that effect.
The plaintiff gave evidence that he was ready, willing and able to complete the purchase. He deposed that he had arrangements in place to borrow $300,000, and pay the balance from personal funds. This evidence was not challenged. I note that there was also some documentary evidence that suggested that the plaintiff was at times able to renew his finance approval for the purchase. Further, in circumstances where the value of the lot seems to be considerably greater than the purchase price of $350,000, I am comfortably satisfied that Mr Klein is now, and has at all relevant times been, ready, willing and able to perform his essential obligations under the contract (see Mehmet v Benson (1965) 113 CLR 295 at 307 per Barwick CJ).
The defendants did not raise any other matters to suggest that there was any bar to an order for specific performance, or that specific performance should be declined on discretionary grounds. However, Mr McNally informed the Court, fairly, that the plaintiff understood that payment of the balance of the purchase price might not be enough to enable the defendants to effect a discharge of the first mortgage that exists on the property. It seems that about $411,000 is presently owed. That may be so, but I do not see any reason to withhold specific performance on the ground of impossibility. The mortgage is, presumably, registered over both of the lots created by the sub-division. Moreover, there is good reason to think that the defendants will now make every effort to complete the sale, and thus avoid the risk of further proceedings in which the plaintiff makes a claim for loss of bargain damages.
The Court will therefore make an order for specific performance of the contract for sale. The parties will of course have liberty to apply in the event that difficulties arise in the course of performance of the contract. It is not necessary to consider the plaintiff's alternative claim for damages in lieu of specific performance.
There seems to be no reason why costs should not follow the event. The Court will therefore order that the defendants pay the plaintiff's costs of the proceedings.
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Decision last updated: 13 November 2017