THE FACTS
The plaintiffs (Purchasers) purchased two lots
on an unregistered plan of subdivision (known as off-the-plan
sales). The Purchasers' contracts were relevantly identical and the
same questions arose under each of them.
The contracts were conditional upon registration of the plan of
subdivision. The contracts conferred on the Purchasers a right to
rescind the contracts if the plan was not registered on or prior to
30 months after the Date of Sale (the Plan Registration
Date). This is permitted under s9AE(2) of the
SLA.
Section 9AE(2) of the SLA provides:
(2) 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 the period but before the plan is registered, rescind
the contract.
However special condition 4.4 of the contract also purported to
give the Vendor a right to extend the Plan Registration Date in
certain circumstances by 'such a period as the Vendor may
reasonably determine from time to time'.
The Vendor relied on special condition 4.4 to extend the Plan
Registration Date three times by providing notice to the
Purchasers.
However after receipt of notice for the second extension of the
Plan Registration Date, the Purchasers' solicitors advised the
Vendor that the Purchasers did not accept the further extension of
the Plan Registration Date relying on s9AE(2). The Purchasers gave
notice at this time to the Vendor that they were exercising their
right to rescind the contracts.
Some time later, the Purchasers engaged building consultants to
conduct inspections of the apartments on the relevant lots and
prepared a list of defects.
THE ISSUES ON APPEAL
1. MEANING OF
'SPECIFIES ANOTHER PERIOD' UNDER S9AE(2) OF
THE SLA
1.1 Decision at first
instance
Justice Bongiorno reviewed the legislative history of section
9AE(2) to illustrate that the purpose of the provision was to
enable purchasers to know when they would become entitled to
exercise their right to rescind a contract if the plan of
subdivision was not registered in a specified time period. His
Honour held that the 'clear statutory purpose of s9AE was to
create certainty for a purchaser of lots on an as yet unregistered
plan of subdivision…that was the statutory trade-off for permitting
a vendor to sell lots "off the plan" before the plan was
registered'.[1]
His Honour held that once a contract of sale stipulated a period
by which a plan of subdivision must be registered before the
contract can be rescinded (in this case, 30 months after the Date
of Sale), that period could not subsequently be changed by
agreement between the parties or by the application of a provision
in the contract that permits a new plan registration date.
His Honour therefore held that the Purchasers were entitled to
rescind the contracts.
1.2 Decision on appeal
In determining the meaning of 'specifies another
period' under s9AE(2), the Court of Appeal relied on the
Macquarie Dictionary's definition of the words 'specify'
and 'period' and United Repairing Co Ltd v Glover[2] to
conclude that in order to 'specify another period' the contract
must mention a period of time specifically, the period of time
being fixed, definite and certain.
The Court of Appeal could not find any policy reason for
extending the meaning of 'specifies another period' to encompass
the Vendor's right under special condition 4.4 to specify another
Plan Registration Date at some time in the future, based on a wide
range of circumstances provided for in the contract.
Appeal Justice Mandie said: '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'.[3]
The Court of Appeal also endorsed the trial judge's
interpretation of the purpose of s9AE(2).
2. WHETHER S9AE(2) SLA
EXCLUDES RELIANCE UPON DOCTRINES OF ELECTION, WAIVER AND ESTOPPEL
TO DEFEAT THE RIGHT OF A PURCHASER TO RESCIND A
CONTRACT
2.1 Decision at first
instance
The Vendor argued that the Purchasers had affirmed the contracts
by engaging building consultants to inspect the apartments. Justice
Bongiorno relied on Everest Project Developments Pty Ltd v
Mendoza & Ors[4] in which Hargrave J expressed the view
that it would be inconsistent with the purpose and policy
underlying ss9AA to 9AH of the SLA to allow vendors to rely upon
the conduct of the purchasers as depriving them of their
unqualified right to rescind a contract under s9AE(1). His Honour
said the same reasoning applied to s9AE(2) and he adopted the
reasoning and conclusion of Hargrave J.
In any event, the Purchasers' engagement of building consultants
occurred after they had unequivocally rescinded the contracts and
therefore could not be relied upon as constituting a waiver or
election.
2.2 Decision on appeal
The Court of Appeal found it was unnecessary for the trial judge
to determine whether s9AE(2) excluded reliance upon doctrines of
election, waiver and estoppel to defeat the right of a purchaser to
rescind a contract. The Court of Appeal held there was no case of
waiver or election available to the Vendor, since by the time the
Purchasers had engaged building consultants, the Purchasers had
already unequivocally rescinded the contracts. The contracts could
not be affirmed once they had been unequivocally rescinded.
IMPLICATIONS
For vendors and purchasers, the 'balance of power' in
off-the-plan sales has tipped somewhat in favour of purchasers.
Vendors can no longer rely on a contractual right to extend the
plan registration date beyond the specified period in the contract,
be that either the statutory period of 18 months or another
specified period in the contract.
Current contracts should be carefully reviewed to see whether
vendors are at risk of purchasers rescinding and whether purchasers
are able to exercise their rights of rescission.
Given that delays in construction are common, it is likely that,
as a consequence of this decision, vendors will need to specify in
future contracts a period for plan registration that well exceeds
the statutory period of 18 months. This may, however, diminish the
'sales proposition' for purchasers.
For financiers, this decision may lead them to impose stricter
completion requirements on developers and to require a greater
minimum pre-sale requirement. Financiers will also need to reassess
the viability of funding off-the-plan developments to determine if
this decision has increased funding risk factors beyond an
acceptable level. Financiers should also review existing contracts
and, where necessary and practicable, require purchasers to enter
into a variation of existing contracts so that they provide for a
'compliant' plan registration.
Where the terms of contracts for off-the-plan sales are still
under negotiation, financiers should conduct pre-settlement due
diligence to ensure those clauses dealing with the plan
registration date comply with this decision.
[1] Clifford v Solid Investments Australia
Pty Ltd [2009] VSC 223 at para19.
[2] [1945] NZLR 160.
[3] Solid Investments Australia Pty Ltd v
Clifford [2010] VSCA 59 at para 31.
[4] [2008] VSC 366.
For more information, please contact:
Elpis Korosidis, Partner
Phone (direct): +61 3 9608 2115
Email:
e.korosidis@cornwalls.com.au