By Russell Cocks, Solicitor

First published in the Law Institute Journal

A caveator’s arguments in support of the contract upon which his caveat was based were not well received by the court in the recent case of Damco Nominees P/L v Moxham [2012] VSC 79, with the result that the contract was found to have been terminated. Consequently the caveatable interest based on the contract no longer existed and the court ordered the caveat to be removed. It could reasonably be anticipated that final orders, when formulated, would have included a costs order against the purchaser, so the exercise would have been an expensive one.

The arguments made by the caveator are reasonably common and are discussed in 1001 Conveyancing Answers – indeed, they may have sourced from that publication – so the case serves as a guide as to how the court may regard those arguments in the future.

The facts

The caveator had entered into a contract to purchase the property for $1.9m. The property was a potential residential development site and the contract gave the purchaser nearly one year to complete, with a view to allowing the purchaser to seek planning approval et cetera, a reasonably common scenario. The contract was not in the standard form commonly in use but rather was in a form specifically created by the solicitor for the vendor. Whilst not all of the terms of the contract are recited in the judgment, it is possible to conclude that the contract adopted many of the standard conditions, some with subtle changes, and added further conditions. Thus the contract included ‘general condition 40’ whereas the standard contract only has 28 general conditions.

This issue formed the first point of contention between the parties in that the caveator claimed to have signed an earlier contract in standard form and that the ‘second’ contract had only been signed one month later for the purpose of ‘cleaning up’ the ‘first’ contract. The second contract was vaguely attacked on the grounds of ‘unconscionability’ but the court gave short shrift to this argument, partly because to have accepted those arguments would have entirely undermined the caveator’s defence of the caveat as that defence was entirely based on the rights said to arise from the second contract. Thus the dispute was limited to the second, non-standard contract.

Nomination

The first indication that the purchaser might be in ‘trouble’ came two months prior to the date for settlement. The purchaser asked the vendor to give a second mortgage for 10% of the purchase price, but the vendor declined. One month prior to settlement the purchaser notified the vendor that he intended to nominate an associated company. The contract included a general condition setting out a nomination procedure involving submission of a deed and payment of a fee. The purchaser did not submit a deed in accordance with the general condition and objected to payment of the fee. Here the purchaser adopted two arguments set out in 1001 Conveyancing Answers.

The purchaser claimed not to be bound by the nomination provisions of the contract as the purchaser was nominating pursuant to its ‘common law right’. The vendor argued that no such right existed in this case as ‘the contract contained a complete code for nomination’. The point does not appear to have been argued in detail and no cases supporting the common law right are cited in the judgment, however Mukhtar AsJ was inclined to accept the vendor’s argument. However this is not authority to support the proposition that the standard form contract contains such a code. This contract was not in standard form and general condition 31 setting out the nomination procedure specifically stated ‘Nomination only under this condition’, whereas the standard contract merely provides that ‘the purchaser may nominate’.

The second attack on the nomination process in the contract related to the fee. Section 42(3) Property Law Act prohibits the imposition by a vendor on a purchaser of ‘any costs and expenses’ other than those arising from a default. The standard form contract does not provide for a fee for nomination and an attempt by a vendor to impose such a fee on the purchaser as a precondition to a nomination could be met with this s 42(3) prohibition. However this particular contract included as part of the specified nomination process an obligation by the nominee to pay the fee. By this method the vendor sidestepped the prohibition as the fee was not imposed on the purchaser. Such a fee could not be enforced by the vendor against the nominee, who is not a party to the contract, but failure by the nominee to pay the fee would give the vendor the right, as against the purchaser, to refuse the nomination.

Nomination is a common event in Victorian conveyancing. The approach of the drafters of the standard contract was to keep it as simple as possible. Therefore s 42(3) applies to the standard contract. That does not prevent individual vendors imposing a different nomination regime, as was done in this case.

Default notice

The purchaser failed to settle and the vendor issued a notice. It is fair to say that the notice was more detailed than the standard one page notice usually employed and revealed that considerable care had been taken in drafting. In addition to interest, it claimed costs on default, which were specified in the contract as $385, and costs on rescission of $1,100, including a courier fee for personal service. The notice was unsuccessfully attacked on a number of fronts:

1. that it had been served on the nominee as well as the purchaser;
2. that it contained an incorrect arithmetic addition resulting in an error of $310;
3. that the notice claimed ‘proper legal costs’ rather than ‘reasonable costs’ referred to in the contract;
4. that the $1,100 costs claimed in respect of the notice were excessive. Extensive evidence was called on this point and Mukhtar AsJ was satisfied that, in this case, that amount was a reasonable reflection of the costs arising from the purchaser’s failure to settle;
5. that the interest claimed was calculated on the balance of purchase price plus adjustments, GST and default interest agreed to be paid in return for an extension of time. This failed as the judge held that this was the amount, however constituted, that was owed by the purchaser to the vendor at the time the notice was issued and the vendor was entitled to interest on that amount;
6. that the termination condition in the contract incorrectly referred to the ‘buyer’s’ costs. This was rejected as an obvious error. It should have said ‘seller’s’.

The court concluded by proclaiming ‘the caveator’s claim as baseless’, having previously described the attacks on the notice as designed to ‘expose compositional errors’ and one of the letters from the solicitor for the purchaser to the solicitor for the vendor as ‘bumptious’. All in all – NOT WELL RECEIVED.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.