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Vendor beware! Your time may be up

Feature Articles

Cite as: Jan/Feb 2011 85(1/2) LIJ, p.44

Sales of lots on unregistered plans of subdivision may be rescinded if the plans are not registered by a specified date, but Supreme Court decisions on this issue have left some uncertainties.

By Tim Messer

Sales of real estate “off the plan” are now commonplace in Victoria. However, such sales were prohibited before the enactment of the Sale of Land (Allotments) Act in 1985.1 When the legislature first allowed vendors to sell lots on an unregistered plan of subdivision, it did so on terms designed to protect purchasers. In Clifford v Solid Investments,2 the nature and extent of the protection afforded purchasers by s9AE(2) of the Sale of Land Act 1962 (“the Act”) was considered by the Supreme Court.

History of s9AE(2)

Section 9AE(2) of the Act came into effect in 1985. In its original form, the section provided as follows:

“If the plan of subdivision is not approved within 12 months after the date of the prescribed contract of sale of an allotment on that plan of subdivision, the purchaser may, at any time after the expiration of that period of 12 months but before the plan is so approved, rescind the contract.”

Section 9AE(2) was amended in 1989 to extend the period for registration of the plan of subdivision from 12 to 18 months.3 (The term “registered” was substituted for “approved” in s9AE(2) by separate amending legislation.)

Section 9AE(2) was further amended in 1991.4 Following the 1991 amendment, the section provided (and continues to provide) as follows:

“If the plan of subdivision is not registered within 18 months after the date of the prescribed contract of sale of a lot on that plan of subdivision, or, if the contract specifies another period, before the end of that specified period, the purchaser may, at any time after the expiration of that period but before the plan is so registered, rescind the contract.”

A development in Geelong

Solid Investments was the owner of waterfront property at Eastern Beach in Geelong. In 2006, Solid intended to build a multi-storey residential apartment complex on the property. The complex was to be known as “Edgewater Geelong”.

On 31 July 2006, Solid sold one residential apartment in the Edgewater complex to Clifford. Two days later, Solid sold another apartment to Clifford and Bayley. At the time of each sale, the relevant plan of subdivision establishing the complex had not been registered. Accordingly, each contract of sale was a prescribed contract within the meaning of ss9AA–9AF of the Act.5 As purchasers “off the plan”, Clifford and Bayley were entitled to the benefit of s9AE(2).

Special Condition 4 of each contract dealt with registration of the plan of subdivision. The effect of the special condition was as follows:

  • Each contract was subject to registration of the plan of subdivision.
  • If the plan was not registered by the date that was 30 months from the day of sale (“plan registration date”), the purchaser might at any time after that date but before registration avoid the contract.
  • The vendor reserved to itself the right to rescind the contract before registration of the plan.

If registration of the plan of subdivision was, or was in the opinion of the vendor, likely to be delayed as a result of any one or more of a series of nominated events, the vendor might extend the plan registration date by such a period as it reasonably determined from time to time (“special condition 4.4”).

Faced with delays in the completion of the Edgewater development, Solid decided to invoke special condition 4.4. On 17 October 2008, the solicitors for Solid gave notice that the plan registration date was extended to 31 March 2009. (The original plan registration date was 31 January 2009 in the case of the first sale, and 2 February 2009 in the case of the second.) On 16 March 2009, Solid again extended the plan registration date, this time to 30 April 2009.

Clifford and Bayley, who disputed the entitlement of Solid to extend the plan registration date, elected to rely on s9AE(2) of the Act. On 27 March 2009 their solicitors gave notice that each contract was avoided.

Solid denied that Clifford and Bayley were entitled to rescind. To resolve the impasse, proceedings were started by Clifford and Bayley in the Supreme Court under s49(1) of the Property Law Act 1958.

The central issue

Resolution of the dispute between the parties turned on the answer to the following question: for the purposes of s9AE(2), precisely what period was specified in each contract for registration of the relevant plan of subdivision? Clifford and Bayley argued that the answer to the question was “the period ending 30 months from the day of sale”. In so doing, reference was made to Re Karounos6 and Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Ltd.7 In Karounos, Sheppard J considered the operation of s149(8) of the Bankruptcy Act 1966. That section provided as follows:

“The Court may, at any time before the expiration of five years from the date of the bankruptcy, on the application of the Registrar, the Inspector-General, the trustee or a creditor, order that the period at the expiration of which an objection entered under paragraph (3)(c) will lapse be such period, being a period exceeding five years, commencing on the date of the bankruptcy as is specified in the order.”

An order under s149(8) had been made by consent some three years earlier. The order did not fix a finite period for the extension; rather, it was open-ended. The bankrupt applied to set aside the order; the application was allowed. Sheppard J observed as follows (at 585):

“The initial question is whether, for the purposes of s149(8), the order in question specifies a period, being a period exceeding five years commencing on the date of the bankruptcy. I was referred to dictionary meanings of the words ‘specify’ and ‘period’. The Macquarie Dictionary defines the word ‘specify’ as meaning to mention or name specifically or definitely or to give a specific character to. It may also mean to name or state as a condition and to make a specific mention or statement. ‘Specific’ means, inter alia, specified, precise or particular or peculiar or proper to something as qualities, characteristics, effects. One of the meanings of ‘period’ is any specified division or portion of time. That is the meaning which I think the word bears here, particularly in the light of the various periods of time which are mentioned in the section.

“In United Repairing Co Ltd v Glover 8 the New Zealand Court of Appeal was concerned with a number of questions, one of which was whether an order made under s3(5) of the Factories Amendment Act 1936 (NZ) was expressed to be for ‘a specified period’. In the course of his judgment, Myers CJ said (at 164) that the expression ‘specified period’ must mean that the period must be fixed, definite and certain. Likewise Kennedy J said (at 170) that ‘specified’ meant definitely or specifically mentioned; determined; fixed; or settled.”

In Gantry Acquisition Corp, the Full Court considered the meaning of the word “specify” appearing in the Corporations Law. Burchett J noted as follows:9

“Judicial attempts to expound the meaning of the word ‘specify’ have repeatedly fixed upon unambiguous clarity as being connoted by it: [case citations omitted]. In Jolly v District Council of Yorketown,10 Barwick CJ and Owen J at 351 equated ‘specify’ with ‘state in explicit terms’, a sense closely corresponding with that adopted by Kitto J in the same case at 352 and by Higgins J in his dissenting judgment in Federated Engine-Drivers and Firemen’s Association of Australasia v BHP Co Ltd.11 In that last case, Barton J said (at 272): ‘Things specified must be specific things. Here all is general.’ Those words might have been written for the present case.”

The decision at first instance

At first instance, the proceeding was heard by Bongiorno J. His Honour handed down judgment on 2 June 2009; Clifford and Bayley were successful.

His Honour considered the history of s9AE(2), referred to previously. Having done so, his Honour observed that in its original form s9AE(2) enabled a purchaser to sign a contract of sale in the certain knowledge that if the relevant plan of subdivision was not registered within 12 months they had an unfettered right to rescind until the plan was, in fact, registered.

Turning to the section in its current form, his Honour held that, while the parties to a contract were permitted to stipulate some period other than 18 months, the certainty which the section in its original form gave a purchaser was not thereby reduced. According to his Honour, the expression “specified period” used in s9AE(2) of the Act meant a period that was fixed, definite and certain. His Honour held that special condition 4.4 did not fix a definite and certain period within which registration of the plan of subdivision must occur.

Accordingly, on a proper construction of s9AE(2), the period specified by each contract within which registration of the plan of subdivision was to occur was the period ending 30 months from the day of sale.

Solid argued that even if Clifford and Bayley were prima facie entitled to invoke s9AE(2) they had, in fact, elected to affirm the contracts and were bound to complete. (Solid relied on the conduct of Clifford and Bayley in engaging a building consultant to inspect the subject apartments and to prepare defect lists in anticipation of settlement. Such conduct occurred after the giving of notice under s9AE(2) by their solicitor on 27 March 2009.)

His Honour rejected this argument. In so doing, his Honour followed Everest Project Developments Pty Ltd v Mendoza.12 In that case, Hargrave J concluded that the Act excluded reliance on doctrines of election, waiver and estoppel to defeat the right of a purchaser to rescind under s9AE(1). Bongiorno J held that the principle stated in the Everest case applied equally to a purchaser rescinding under s9AE(2).

In any event, according to his Honour, the conduct of Clifford and Bayley relied on by Solid could not amount to an election to affirm. This was because all the conduct occurred after Clifford and Bayley had unequivocally stated an intention to rescind.

The decision on appeal

Solid appealed from the decision of Bongiorno J. The Court of Appeal delivered its decision on 24 March 2010; the appeal was dismissed.

Solid relied on a number of grounds of appeal. However, according to Mandie JA (with whom Harper JA and Emerton AJA agreed), the real question was whether special condition 4.4 could be said to specify “another period” on a proper interpretation of s9AE(2) of the Act. As to the resolution of this question, Mandie JA said as follows:13

“In the present case, I cannot identify any reason of policy for extending the meaning of ‘specifies another period’ so as to encompass the specification of a period by reference to an ascertainable event, let alone so as to permit the creation of machinery for the identification of the period at some time in the future, such machinery to be activated by the vendor on the basis of a set of wide contractually provided circumstances. On the contrary, the section on its face and in its context must be taken to have intended to establish an identifiable period at the time the contract is entered into and I would also endorse the reasoning of the trial judge as to why that is so.”

His Honour concluded that special condition 4.4 did not specify “another period” and that Bongiorno J was not in error in holding that Clifford and Bayley had lawfully rescinded their contracts in reliance on s9AE(2) of the Act.

In relation to the election point, his Honour noted that, assuming they were entitled to do so, Clifford and Bayley had unequivocally stated an intention to rescind the contracts on or about 27 March 2009; this was common ground between the parties. His Honour then referred to the decision of the High Court in Sargent v ASL Developments Ltd14 and the well-established principle that, once made, an election, whether to rescind or affirm a contract, is binding. Clifford and Bayley, having clearly stated an intention to rescind, it was not open to Solid, according to his Honour, to rely on subsequent conduct as constituting an election to affirm the contracts.

Implications for practitioners

The most obvious implication of the Clifford case is that contracts for the sale of land “off the plan” must state a date for registration of the plan of subdivision that is “fixed, definite and certain”. If such date passes without the plan being registered, contractual provisions such as Special Condition 4.4 will not prevent a purchaser, should they wish, from invoking s9AE(2) of the Act. Accordingly, vendors, and those advising them, need to exercise care when specifying a “plan registration date” in a contract. There may well be tension between the requirements of the Act, as explained in Clifford, and commercial factors, such as the necessity for developers to achieve a certain number of pre-sales.

Otherwise, interesting issues are likely to arise for practitioners advising parties in respect of their rights under “off the plan” sales. The Court of Appeal found it unnecessary to decide whether the conclusion stated by Bongiorno J as to the availability of election, waiver and/or estoppel was correct.15

There is a measure of conflict on the non-Victorian authorities as to this issue.16 Accordingly, those advising purchasers who are entitled to rescind but decline to do so should be careful to explain the risk (assuming a subsequent change of heart) of an argument that an election to affirm has been made. Another issue is the ability of the parties to an “off the plan” sale to vary their contract to enlarge the date by which the plan of subdivision must be registered. This might be thought to be the obvious means of securing the position of a vendor faced with delays in registration, but having a purchaser willing to complete. However, whether any such variation will be effective, should the purchaser subsequently decide to rescind, is uncertain.17

Finally, practitioners should acquaint themselves with the provisions of the recently enacted Australian Consumer Law (ACL).18 In particular, the provisions dealing with unfair contract terms, which are already in force, are likely to assume importance in some property transactions. Under Part 2 of the ACL, a term of a consumer contract is void if the term is unfair and the contract is a standard form contract. The expression “consumer contract” includes a contract for the sale or grant of an interest in land to an individual whose acquisition of the interest is wholly or predominantly for personal use: cl 2(3). The meaning of “unfair” is supplied by clause 3 of the ACL. Clause 4 provides examples of unfair terms. One such example is a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract: cl 4(1)(b). It is not uncommon for “off the plan” contracts to contain unilateral termination clauses in favour of the vendor. Those drawing contracts on behalf of vendors will need to consider whether such clauses are unfair within the meaning of the ACL.

Conclusion

The Clifford case raises important issues for those practising in property law. Practitioners should be aware of both the clarification that has been provided, and the uncertainties that remain, as a result of the judgments given in the Supreme Court.



TIM MESSER is a Victorian barrister practising in commercial and property law.

1. See Russell Cocks, “Property: support for purchasers”, LIJ, September 2009, p69.

2. [2009] VSC 223 (Bongiorno J); Solid Investments v Clifford [2010] VSCA 59 (Court of Appeal).

3. Subdivision (Amendment) Act 1989, s19(zd).

4. Subdivision (Miscellaneous Amendments) Act 1991, s55(3)(a).

5. Sale of Land Act 1962, s9AA(7).

6. (1989) 89 ALR 580 (Federal Court).

7. (1994) 123 ALR 29 (Federal Court, Full Court).

8. [1945] NZLR 160.

9. Gantry, note 7 above, at 43-4.

10. (1968) 119 CLR 347 at 351.

11. (1913) 16 CLR 245 at 284-5.

12. [2008] VSC 366 at [98].

13. Solid, note 2 above, [2010] VSCA 59 at [31].

14. (1974) 131 CLR 634 at 656 (per Mason J).

15. Solid, note 13 above, at [36]. It should be noted that, in comments that were obiter dicta, Mandie JA observed that “there is something to be said for the correctness of the view expressed by the trial judge”.

16. See Astill v South Esplanade Developments (2007) ANZ ConvR 534 (Full Court); Tudor Developments v Makeig (2008) 72 NSWLR 624 (Court of Appeal).

17. See Clifford, note 2 above, [2009] VSC 223 at [20]. According to Bongiorno J, “if the parties to a prescribed contract wish to stipulate a period other than the statutory period provided by [s9AE(2)], that other period must be specified in the contract itself. Once so specified, it cannot be subsequently changed, so as to bind the purchaser, by any agreement between the parties”.

18. See Trade Practices Amendment (Australian Consumer Law) Act (No.1) 2010 (Cth) and Trade Practices Amendment (Australian Consumer Law) Act (No.2) 2010 (Cth).

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