By Russell Cocks, Solicitor
First published in the Law Institute Journal
Not many s 32 cases make it to the Supreme Court. McHutchison v Asli [2017] VSC 258 is an exception and it provides an authoritative answer to a reasonably common scenario.
The vendor was selling a property that was sewered by means of a septic tank system. That sentence sounds somewhat contradictory as the word ‘sewered’ implies that the property is connected to a system that removes waste from the property entirely, rather than collecting the effluent in an on-site tank for treatment and dispersal within the property. The property was a large property in an outlying suburb of Melbourne and, for people familiar with the local conditions, a septic system was perhaps the norm. However, the purchaser had no experience of local conditions and sought to avoid the contract on the basis of a breach of the vendor’s disclosure obligations pursuant to s 32 Sale of Land Act 1962.
The purchaser’s primary argument was that the vendor had breached s 32H in relation to disclosure of services. That section requires a vendor to disclose if particular services, including sewerage, are NOT connected to the property. In error, the vendor’s conveyancer deleted reference to sewerage in this part of the Vendors Statement which was conceded by the vendor to be incorrect and accepted by the Court as constituting a false statement that sewerage WAS connected. The vendor sought to excuse this false disclosure as a clerical error and relied upon the fact that a certificate from Yarra Valley Water indicated that sewerage was not connected. However provision of this certificate, which was described by the Judge as ‘opaque in the extreme’ in relation to sewerage service, could not overcome the false representation in the Statement itself that sewerage was connected. In this regard it was assumed throughout the judgment that reference to ‘connected’ meant that the property must be connected to an external sewerage system and a septic system could never satisfy the need to have sewerage ‘connected’.
The purchaser argued a second basis for avoiding the contract based on s 32D, the sub-section requiring disclosure of ‘notices’ affecting the land. Approximately 10 years before the subject sale and prior to the vendor becoming the owner of the property the Council had issued a permit for the installation of a septic system. The permit contained a number of conditions in relation to the ongoing inspection, maintenance and cleansing of the septic tank and was therefore claimed by the purchaser to be a ‘notice affecting the land’ that required disclosure pursuant to s 32D. Whilst there is no specific finding that these circumstances constituted a breach of s 32H at that point in the judgment where s 32H is discussed, the conclusion of the judgment refers to ‘contravention of the requirements of s 32(1), s 32D and s 32H’and so it may be concluded that failure to include the Planning Permit did in fact constitute failure to include a relevant ‘notice’.
The vendor argued that despite the conceded breach of s 32H and the contended breach of s 32D, the vendor ought to be allowed to rely on the ‘escape clause’ of s 32K and much of the judgment considers the applicability of this sub-section. The vendor bore the burden of establishing that the vendor had acted:
- honestly; and
- reasonably; and
- ought fairly be excused; and
- that the purchaser is substantially in as good a position notwithstanding the breaches.
The Court did not accept that the breach of s 32H had been caused by a ‘clerical error’ and was concerned that the vendor had not adduced evidence relating to the s 32 disclosure at the time the vendor had purchased the property some years before. Thus the ‘honestly’ burden was not satisfied.
Similar considerations militated against a conclusion that the vendor had satisfied the burden in relation to reasonableness and in the absence of honest and reasonable findings the Court was unable to conclude that the vendor ought fairly be excused.
It seemed fairly clear on the facts that a purchaser expecting a sewered property would not be in as good a position with a septic sewerage system, particularly one that carried obligations imposed by the Planning Permit.
For these reasons, the vendor’s defence failed.
The purchaser was entitled to end the contract, reclaim the deposit and claim legal costs.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.
Failure to correctly disclose services entitles avoidance.
A Planning Permit may constitute a notice under s 32D.
Proving all the elements of s 32K is difficult.