By Russell Cocks, Solicitor

First published in the Law Institute Journal

A contract of sale of land essentially involves two parties – the vendor and the purchaser. The common law undoubtedly recognises the right of the named purchaser to nominate an alternative purchaser. Additionally, most standard form contracts (including General Condition 18 of the 2008 prescribed contract of sale) include a contractual right to nominate although sometimes conditionally, such as by requiring the inclusion of the words ‘and/or nominee’ or compliance with time limitations.

Nomination often occurs in an environment where the named purchaser is ‘related’ to the nominated purchaser and little formality is associated with the nomination process. A non-prescribed form of nomination, simply reciting the essential terms of the contract and the fact of nomination, is completed and provided to the vendor, almost by way information only. In fact, the form of nomination is important to the vendor as it is the vendor’s authority to hand over a transfer of land to a person other than the contracting party. However, in all other respects, the vendor is essentially superfluous to the nomination process; almost a disinterested bystander. This is essentially because the legal consequences of the contract are not affected by the purchaser’s nomination. The vendor retains all contractual rights against the named purchaser and, correspondingly, gains no rights against the nominated purchaser.

This situation may be contrasted with the alternatives of assignment, or novation. The consequences of an assignment are that the assignee becomes a party to what is now a tripartite contract and a novation involves the original parties agreeing to replace their contract with a new contract between the vendor and a replacement purchaser. By contrast, a nomination does not bring the vendor and nominated purchaser into a contractual relationship and they remain separated by the wall established by the doctrine of privity of contract.

A vendor is therefore not overly concerned with the terms of the nomination as the vendor’s rights are not diminished. However, a nominee needs to consider how the nominee is going to enforce any rights against the vendor in the situation where the contract ‘runs off the rails’. In circumstances where the nomination is in a ‘commercial’ environment, the named purchaser (the party with the contractual and other rights arising from the contract) may be unwilling to ‘buy back’ into a contract that the purchaser had nominated itself ‘out’ of. Even in a situation where the named purchaser and nominee are ‘related’ and the named purchaser may therefore be willing to take up the cudgels on behalf of the nominee, the named purchaser may have no standing as it will generally be the nominee who is likely to suffer adverse consequences or damages, rather than the named purchaser.

The case of 428 Little Bourke Street P/L v Lonsdale Street Café P/L illustrates the problem. The named purchaser nominated the plaintiff, a company associated with interests related to the purchaser. During the course of the contract the purchaser and nominee became aware of various alleged misrepresentations. A decision was made by the representatives of the named purchaser/nominee not to pursue those issues during the course of the contract (and thereby perhaps face rescission and/or proceedings that would delay settlement). Settlement was conducted and then proceedings issued for breach of contract and breach of the Trade Practices Act and Fair Trading Act in respect of alleged misrepresentations in relation to the net lettable area of the premises.

The party who would suffer loss if these claims were successful was the transferee as subsequent owner of the property and therefore proceedings were issued by the nominee as plaintiff. These proceedings were summarily struck out as failing to disclose a cause of action. Relying on the doctrine of privity, the Court held that the nominee lacked the ability to enforce a contract that it was not a party to, thereby defeating the contractual claims. In relation to the claims based on breach of statute, the Court held that by the time the plaintiff nominee resolved to settle the contract it knew of the alleged deficiencies in the property and it chose to settle, notwithstanding the fact that as a non-party to the contract it had no obligation to do so. Thus the cause of the plaintiff’s loss was its own decision, not the alleged misrepresentations. It could have, as a mere nominee, walked away from the contract but it chose to proceed, thereby inflicting damage upon itself.

Vendors will never voluntarily agree to nominees ‘inheriting’ contractual or statutory rights, but can they be ‘conscripted’? Section 134 Property Law Act allows for the assignment of a ‘legal thing in action’ – legal rights. Could it be argued that a nomination amounts to an assignment of the purchaser’s contractual and statutory rights and that the nominee, whilst not a party to the contract, is nevertheless able to enforce it?

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

It is relatively common for a purchaser of land to want to nominate an additional or substitute purchaser to complete the purchase. Most commonly this arises in a family situation where one spouse or family member has signed the contract and desires to add another spouse or family member or in a commercial situation where the named purchaser would prefer to complete the purchase in the name of another associated entity.

In such circumstances the nomination takes place in what might be described as ‘innocuous’ circumstances. The named purchaser is not seeking to make a gain or profit, simply adjusting the purchase to better suit its purposes. In such circumstances a vendor ought to have no concern as the purchaser remains responsible for performance of the contract and the vendor retains all contractual rights against the purchaser in the case of a default. The vendor is entitled to be provided with a written direction, signed by the named purchaser and confirmed by the nominated purchaser, authorizing the vendor to transfer the property to the nominated purchaser and thereupon the vendor fulfils its contractual obligations by handing over a Transfer of Land in favour of the nominated purchaser at settlement. It is true that this exercise does require the vendor to consider one further, relatively simple, document in the conveyancing process – the form of nomination – but the exercise hardly seems sufficient to justify a claim for additional costs when taken in the context of a conveyancing transaction generally. Such transactions do not involve the named purchaser receiving any ‘additional consideration’ and do not attract additional duty. It is for the nominated purchaser to satisfy the SRO by statutory declaration that no additional duty is payable and just as the vendor has no obligation to determine how much duty, if any, a purchaser is liable to pay, so too the vendor has no obligation to determine how much additional duty, if any, the nominated purchaser is liable to pay. The vendor need not concern itself with the duty declaration and is only obliged and entitled to be satisfied that the form of nomination has been signed and accepted.

Sometimes a nomination may take place in ‘commercial’ circumstances. A purchaser may have secured a bargain and proposes to on-sell the property to another party without completing the contract. Such transactions involve ‘additional consideration’ and are structured so that the named purchaser receives a premium or reward for nominating the new purchaser. Such transactions are truly described as ‘on-sales’ and additional duty is payable, but again it is not the responsibility of the vendor to ensure the payment of duty – this is a matter between the nominated purchaser and the SRO. Indeed the nominated purchaser may well accept that additional duty is payable and will complete the transaction on that basis. Again the vendor, despite any personal disappointment with the turn of events, is only entitled to be satisfied that the form of nomination is in order and need not be concerned with any duty issues.

The copyright contract recognises the purchaser’s right to nominate, but places two restrictions on it (GC5). The words ‘and/or nominee’ must be used and the nomination must be made at least 14 days before settlement. The new 2008 contract removes these restrictions and recognises an unrestricted right to nominate, as does the common law. A purchaser under the current copyright contract may avoid these restrictions by simply relying on the unrestricted common law right rather than the restricted contractual right and purchasers under the 2008 copyright contract will enjoy a similar unrestricted contractual right.

A practice does exist of inserting special conditions that ‘complicate’ the nomination process. Such conditions serve no useful purpose and those that require a purchaser to pay costs in respect of the nomination appear to be in breach of s 42(3) of the Property Law Act. This section states that ‘no contract of sale relating to land shall contain a clause or condition stipulating for the payment by the purchaser to the vendor or to the legal practitioner of the vendor any costs or expenses’ except certain stipulated exceptions, such as costs arising from default. A purchaser who wishes to nominate but is confronted with one of these restricting conditions ought to simply point out that the purchaser is not seeking to nominate pursuant to the contract but rather is exercising the unrestricted common law right to nominate. Further, any condition that seeks to impose a monetary penalty on nomination is in breach of s 42(3).

It is to be hoped that the arrival of the 2008 copyright contract, which gives an unrestricted right to nominate, will encourage participants in the conveyancing process to recognise that nomination can be a simple exercise and that its unnecessary complication brings the practice of conveyancing into disrepute. After all, vendors are generally totally oblivious to these issues and the whole exercise smacks of an attempt to complicate a simple process for the purposes of inflating costs.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The prescribed Contract of Sale of Real Estate has now been in use for 12 months. The contract was prescribed pursuant to the Estate Agents (Contracts) Regulations 2008, which came into effect on 28 September 2008.

These regulations bind estate agents but not other participants in the conveyancing industry, such as lawyers and conveyancers. However the regulations have been the traditional vehicle for establishing a standard form of contract that has wide acceptance across the industry. Both the Law Institute and the Real Estate Institute have produced versions of the prescribed contract, as have most proprietary conveyancing software programs. Thus the new contract has been widely adopted in the first 12 months, and its widespread use is likely to extend into the future.

One significant structural change was the elimination of the Contract Note. Previous regulations had allowed for two forms of contract: the ‘full’ Contract of Sale and the shorter Contract Note. The current regulations do not include the shorter version. Another structural change was to abandon the tool of incorporating conditions into the contract by reference to Table A and including all of the standard conditions in the printed document.

The Law Institute of Victoria form of contract follows the regulations and includes the signing clause on the front page. The Real Estate Institute of Victoria form moves the signing clause to the back of the document. There is no particular significance in this difference. The signing clause includes provision for any person signing the contract to also print that person’s name after the signature. This was designed to assist with identification of signing parties but experience to date indicates that most people are not going to the trouble of printing names. This is perhaps a product of the heady environment in which contracts are signed, with participants in the process riding a wave of emotion rather than calm reflection.

The Particulars of Sale page contains all of the specific information that needs to be inserted in relation to the transaction. The second half of this page has room for inclusion of information relating to GST, settlement, sale subject to lease, terms contract, sale subject to mortgage, special conditions and finance, generally in a ‘fill in the box’ format. Many contracts do not require some or all of this information and it is permissible to delete reference to boxes that do not apply to the particular transaction. For instance, the sale of a typical residential property does not require any information about GST, registration of a plan, lease, terms contract or subject to mortgage and it is permissible to delete all reference to these possibilities.

If this method is adopted the contract becomes a much simpler document and it is possible to include all of the Particulars of Sale on one page. Whilst it is permissible to leave in all the boxes, or strike them out if inapplicable, it is also quite acceptable to delete them altogether if they are not relevant.

The General Conditions (1 to 28) appear to have been well received. General Condition 2 replaces the old procedure of delivery of requisitions with contractual warranties and most practitioners appear to have caught on that requisitions are now a thing of the past. General Condition 2.1 warrants that the General Conditions are in the prescribed form and so it is inappropriate for any of the General Conditions to be amended. The General Conditions can be changed, but this must be by Special Condition and in this way changes will be transparent.

Many lawyers are married to their Special Conditions and unfortunately some lawyers have simply adopted the habit of inserting all their old Special Conditions into the new contract. Most of these Special Conditions were a waste of time in the old contract. For instance, it is not necessary to say that the deposit will be held in accordance with the Sale of Land Act because that is what the Act requires. Inserting those Special Conditions into the new contract is an equal waste of time. Special Conditions that refer to Table A (no longer applicable to the contract) merely show that the lawyer has not thought about the contract and belittle the profession.

One Special Condition that agents like to see in a contract is an Auction Condition. But the conduct of an auction is governed by Act and Regulation and the procedure to be followed is not a matter between vendor and purchaser. Auction Conditions are unnecessary and probably unenforceable anyway.

One glitch appears at General Condition 12 in relation to stakeholding. This condition is aspirational, in that it cannot override the stakeholding provisions of the Sale of Land Act. It was designed to facilitate release of deposit in situations where there is no mortgage and to establish a benchmark of 80 per cent debt as being a reasonable maximum below which purchasers should agree to release of deposit. The condition requires 28 days to have elapsed since the day of sale but it probably should have required 28 days from service of details (which will be the same if there is no mortgage, as notice of that is given by annexing a title search showing a clear title). Release of deposit remains a vexed question and a terrible waste of resources but will only be cured by legislative change.

General Condition 24 is a new provision designed to isolate minor disputes arising in relation to the state of the premises at settlement. Some lawyers exclude it by Special Condition but, by and large, it appears to have been accepted.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

A sub-committee (consisting of Richard Park, Murray McCutcheon, Russell Cocks and David Lloyd)of the Property Committee of the Law Institute has been working on a new form of contract of sale of land that is expected to become available for general use from 30 September 2007.

The use of a particular form of contract by a legal practitioner is not compulsory by any law. However it has long been common practice to use the form of contract produced by the Law Institute. Use of a widely accepted form of contract has the virtue of making the common terms of the agreement instantly recognizable and avoids the need for every term of the contract to be analysed in detail. The form of contract developed by the Law Institute was adopted by the government as part of the supervisory regime affecting estate agents. The preparation of a contract creating legal relations between parties is legal work. However the government permitted estate agents to prepare such documents, provided that the document is in the form prescribed by the Estate Agents (Contracts) Regulations 1997 or a form prepared by a legal practitioner. Those regulations prescribe the form developed by the Law Institute, The regulations sunset in 2007, hence the need for a new form of contract.

The sub-committee consulted with the REIV in accordance with past practice and to ensure wide acceptance of the new form. The form published by the LIV will continue to be known as the LIV/REIV contract and carry the logos of both Institutes. Conveyancers have also generally used the standard form of contract. The new Conveyancers Act 2006 makes it clear that conveyancers will in future be entitled to prepare contracts. It may be expected that the new form of contract will be the form most commonly used in conveyancing transactions into the future.

The most significant change is the merging of the Contract Note into the Contract of Sale, so that instead of two alternative documents, there will now only be one.

The existence of a separate Contract Note (really a mini-contract) is a quirk of history and has long been a part of the conveyancing process. The Contract Note incorporates all the provisions of the Contract of Sale (except the finance condition) and so replacing a Contract Note with a Contract of Sale has long been recognised as a pyrrhic exercise. Agents prefer to use Contract Notes as they give the impression of a ‘simpler’ document and so the new Contract has been designed to replicate the Contract Note by being a single sheet document. Formal recitals and signing clauses are on the front and all operative information will be completed on the back.

The other major change will be abandoning the practice of incorporating additional terms by reference to Table A of the Seventh Schedule of the Transfer of Land Act by the inclusion of all terms into the General Conditions. The operative part of the Contract will be a single sheet and the General Conditions (numbering approximately 26) will be appended by way of a booklet similar in style to the Memorandum of Common Provisions used in mortgages. In this way the parties will have all relevant conditions before them at the time that the contract is entered into.

The most significant change to the General Conditions will be the replacement of the right to requisition with a number of contractual warranties. An identity clause will also be standard, meaning that a purchaser will be required to accept that the property complies with title, subject to normal common law constraints. These changes recognise the practical effect of the disclosure obligations imposed on vendors by s 32 Sale of Land Act and in particular that a purchaser is thereby provided with the information required to make an informed decision in relation to the legal issues regarding the purchase of real estate prior to signing a contract.

The document is written in plainer English, although established words and phrases in the current documents have been retained where possible. An attempt has been made to provide solutions to some of the more common problems that have developed in the practice of conveyancing since the contract was last reviewed. However, regrettably, the sub-committee was not able to think of a condition that would encourage banks to answer the telephone.

HAPPY ANNIVERSARY

The prescribed Contract of Sale of Land has now been in use for 12 months. The contract was prescribed pursuant to the Estate Agents (Contract) Regulations 2008 that came into effect on 28 September 2008.

These Regulations bind estate agents but not other participants in the conveyancing industry, such as lawyers and conveyancers. However the Regulations have been the traditional vehicle for establishing a standard form of contract that has wide acceptance across the industry. Both the Law Institute and the Real Estate Institute have produced versions of the prescribed contract, as have most proprietary conveyancing software programs. Thus the new contract has been widely adopted in the first 12 months and its widespread use is likely to extend into the future.

One significant structural change was the elimination of the Contract Note. Previous Regulations had allowed for two forms of contract; the ‘full’ Contract of Sale and the shorter Contract Note. The current Regulations do not include the shorter version. Another structural change was to abandon the tool of incorporating conditions into the contract by reference to Table A and including all of the standard conditions in the printed document.

The LIV form of contract follows the Regulations and includes the signing clause on the front page. The REIV form moves the signing clause to the back of the document. There is no particular significance in this difference. The signing clause includes provision for any person signing the contract to also print that person’s name after the signature. This was designed to assist with identification of signing parties but experience to date indicates that most people are not going to the trouble of printing names. This is perhaps a product of the heady environment in which contracts are signed, with participants in the process riding a wave of emotion rather than calm reflection.

The Particulars of Sale page contains all of the specific information that needs to be inserted in relation to the transaction. The second half of this page has room for inclusion of information relating to GST, settlement, sale subject to lease, terms contract, sale subject to mortgage, special conditions and finance, generally in a ‘fill in the box’ format. Many contracts do not require some or all of this information and it is permissible to delete reference to boxes that do not apply to the particular transaction. For instance, the sale of a typical residential property does not require any information about GST, registration of a plan, lease, terms contract or subject to mortgage and it is permissible to DELETE all reference to these possibilities.

If this method is adopted the contract becomes a much simpler document and it is possible to include all of the Particulars of Sale on one page. Whilst it is permissible to leave in all the boxes, or strike them out if inapplicable, it is also quite acceptable to delete them altogether if they are not relevant.

The General Conditions (1 to 28) appear to have been well received. GC 2 replaces the old procedure of delivery of requisitions with contractual warranties and most practitioners appear to have caught on that requisitions are now a thing of the past. GC 2.1 warrants that the General Conditions are in the prescribed form and so it is inappropriate for any of the General Conditions to be amended. The General Conditions can be changed, but this must be by Special Condition and in this way changes will be transparent.

Many lawyers are married to their Special Conditions and unfortunately some lawyers have simply adopted the habit of inserting all their old Special Conditions into the new contract. Most of these Special Conditions were a waste of time in the old contract. For instance, it is not necessary to say that the deposit will be held in accordance with the Sale of Land Act because that is what the Act requires. Inserting those Special Conditions into the new contract is an equal waste of time. Special Conditions that refer to Table A (no longer applicable to the contract) merely show that the lawyer has not thought about the contract and belittle the profession.

One Special Condition that agents like to see in a contract is an Auction Condition. But the conduct of an auction is governed by Act and Regulation and the procedure to be followed is not a matter between vendor and purchaser. Auction Conditions are unnecessary and probably unenforceable anyway. One glitch appears at GC 12 in relation to stakeholding. This condition is aspirational, in that it cannot override the stakeholding provisions of the Sale of Land Act. It was designed to facilitate release of deposit in situations where there is no mortgage and to establish a benchmark of 80% debt as being a reasonable maximum below which purchasers should agree to release of deposit. The condition requires 28 days to have elapsed since the day of sale but it probably should have required 28 days from service of details (which will be the same if there is no mortgage, as notice of that is given by annexing a title search showing a clear title). Release of deposit remains a vexed question and a terrible waste of resources but will only be cured by legislative change.

GC 24 is a new provision designed to isolate minor disputes arising in relation to the state of the premises at settlement. Some lawyers exclude it by Special Condition but, by and large, it appears to have been accepted.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Umbers v Kelson confirms a silly decision.

The case concerned a finance condition in a contract for the sale of a business. The wording in that condition is effectively the same as the wording in the finance clause in the standard contract of sale and so the case has important ramifications for contracts for the sale of land.

However the circumstances surrounding the case make it dangerous to regard the decision as strong authority in relation to finance conditions generally and the legal analysis, with respect, appears defective.

THE FACTS

The purchaser had not obtained finance and sought an extension, adding that if the extension was not granted, the vendor ‘may treat this letter as written notice ending the contract’. The vendor in fact was prepared to grant the extension, but the agent failed to communicate that to the purchaser. The parties thereafter treated the contract as at an end, however one month later the agent re-enlivened negotiations and the purchaser undertook a trial of the business.

Negotiations continued for another 2-3 months, during which time the purchaser first stated that he had sufficient cash resources to complete, but then claimed to be unable to obtain finance. Ultimately the vendor resold the property and claimed damages for loss on resale. It is fair to say that the vendor was the innocent party and entitled to succeed.

MAGISTRATES COURT

The initial hearing was conducted on the basis that the parties assumed that the purchaser’s letter had terminated the contract. The issue was raised, but not argued, as it was not in contention. However there was no specific finding by the Magistrate that the letter had ended the contract, although the Magistrate’s reasons were, by his own admission, ‘slightly garbled’.

The decision was based on the purchaser’s subsequent conduct and the vendor was successful on an estoppel argument.

SUPREME COURT

On appeal, the Judge heard all the evidence and then decided that he wanted submissions on whether the letter had ended the contract. He concluded that the purchaser had ‘tried to have his cake and eat it’ and that the letter had not been effective to terminate the contract. It had merely given the vendor the option to do so.

By doing so the Judge decided the case on grounds entirely different to those argued at the hearing and whilst the parties had an opportunity to make submissions, that can be but a poor substitute for arguments in the context of a hearing. The vendor’s willingness to grant an extension is clear evidence that the vendor accepted the letter as capable of ending the contract and an argument based on misleading and deceptive conduct would have been open to the purchaser but could not be pursued in the unusual circumstances of the case.

COURT OF APPEAL

Hansen JA. delivered the judgment of the Court. He confirmed that ‘it is apparent from his reasons’ that the Magistrate concluded ‘that in the absence of a response to the 18 July letter, that the letter operated to terminate the contract’.

He was referred to a number of cases relating to termination notices and relied upon Catley v Watson. That case related to a notice of rescission of a contract of sale of land under the provisions previously contained in Table A and established a test that a reasonable person ‘would be left in no doubt as to its meaning’ and that the reasonable person would have ‘knowledge of the relevant circumstances of the transaction’ in making that decision.

His Honour concluded that the letter failed that test, that it left determination of the contract up to the vendor and was thereby equivocal. But the facts are entirely against this conclusion. The purchaser clearly thought that the letter ended the contract if an extension was not granted and the vendors also did so and they tried, unsuccessfully, to grant the extension. The representatives of the parties at the hearing assumed that to be the case, as did the Magistrate. It was only the afterthought of the Judge on appeal that first doubted the question and the test applied appears to be more the test of ‘a reasonable judge’ with years of finely tuned analytical skills, rather than ‘a reasonable person’. To penalise the polite use of the phrase ‘you may treat this letter as’ in lieu of ‘this letter is’ smacks of a legalistic, rather than reasonable test.

Further, the analogy with rescission notices appears misplaced. A notice terminating a contract based on a finance condition is a positive notice that takes immediate effect – it ends the contract instantly (unless an extension is granted). A rescission notice is a negative notice given upon default and will only end the contract if the other party fails to remedy that default and gives a period of time (usually 14 days) for the default to be remedied. Requiring absolute precision when specifying a breach that a party is required to remedy is reasonable, but imposing such a strict requirement on a notice terminating the contract based on a finance condition is a false analogy. The operative event has occurred – finance has not been obtained. The vendor is not required to take action, so absolute precision is not required. That failure to be absolutely precise results in sudden death cannot be the outcome anticipated by ‘a reasonable person’.

The right result may have been reached, but by a wrong, and dangerous, route.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many contracts for the sale of land are subject to the purchaser obtaining approval of a loan. In most cases the purchaser will have undertaken preliminary inquiries in relation to the availability of finance and the application process will be something of a formality and result in an approval. Occasionally the purchaser will have overestimated their ability to borrow, or the financier will be dissatisfied with the security property, and the application will be unsuccessful. In those circumstances the contract comes to an end and any deposit paid is usually refunded.

Justice Smith in the Supreme Court of Victoria in the recent case of Umbers v Kelson [2008] VSC 348 had cause to consider the meaning of a relatively common form of finance condition that provided as follows:

“This contract is subject to the lender approving the finance of the purchase of the business by the approval date or any later approval date allowed by the vendor. The purchaser may end the contract if a loan is not approved by the approval date only if the purchaser has

1. made immediate application for the loan;
2. has done everything reasonably required to obtain the approval of the loan;
3. serves written notice ending the contract on the vendor on or before two business days after the approval date; and
4. is not in default under any other condition of this contract when notice is given.

Money must immediately be refunded to the purchaser if the contract is ended.”

The approval date specified in the contract was within one month of the date of the contract.

This form of finance condition is similar, but not identical, to the condition set out in the standard contract of sale of real estate. As can been seen by reference to ‘the business’ in the condition, it comes from a contract for the sale of a business, rather than land but, for all intents and purposes, it has the same meaning and effect as the standard finance condition in the contract of sale of real estate (now General Condition 14).

If the loan is not approved by the approval date it is common practice for the solicitor for the purchaser to write to the solicitor for the vendor to seek an extension. Such a request, without more, is presumed to place an obligation on the vendor to respond, hopefully with an extension, but if not then with notification that the contract has come to an end. Such a course of action is potentially hazardous as the vendor might not promptly respond and then claim that the purchaser has not exercised its right to end the contract within the specified time and has now lost that right.

A more cautious approach is for the solicitor for the purchaser to write, within the specified time, advising that finance has not been approved and that the purchaser accordingly ends the contract unless the vendor agrees to an extension of time for approval. Readers are no doubt nodding in acknowledgement that that is indeed their practice, or perhaps thinking that it will become their practice in light of the previous paragraph.

Unfortunately that practice did not meet with the approval of Smith J. The words used were:

“We seek an extension of one month…In the event that an extension is not agreed to, you may treat this letter as written notice ending the contract.”

His Honour concluded that this formula failed to terminate the contract in the event that the vendor did not agree to the extension. The purchaser tried to “have his cake and eat it” and so the vendor’s inaction simply meant that the finance condition expired and the contract became unconditional as to finance.

Arguably a letter that stated ‘in the event that an extension is not agreed to, the contract is ended’ would achieve the desired result, but it seems unfortunate that the courteous mode of expression adopted by the solicitor for the purchaser should lead to an outcome entirely outside of the anticipation of the parties.

Exercising an abundance of caution, perhaps the process of making a request for an extension of time for approval of finance ought to be separated entirely from the termination process, so that the purchaser does not risk the possibility of trying to “have its cake and eat it”. Thus a request for extension should be made by or on the day set for approval and another letter sent terminating the contract if that extension is not received within 2 days of that request. However, adopting His Honour’s style of colloquial analysis, perhaps the purchaser might then be accused of “playing with fire” as now there is not one crucial date to be complied with, but two.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

One of the fundamental concepts in relation to a contract of sale of land is that the contract must be in writing and signed by the parties (or at least ‘the party to be charged’). This requirement can be traced back to the Statute of Frauds of 1677 and can now be found (if you know where to look) in s 126 of the Instruments Act. The requirement that a contract be signed was designed to prevent fraud by preventing one party to an agreement claiming or denying that an enforceable contract existed in situations of uncertainty. By requiring a signature the law created certainty.

The world has come a long way in 350 years and we are now in the electronic age. Indeed, in relation to contracts for the sale of land, we are now in the age of electronic conveyancing and the long awaited EC system has been operational since November 2007 and conducted its first settlement in May 2008. Independently of any title registration system, there are various commercial transactional providers, such as EBAY, that facilitate buying and selling of assets as valuable as aeroplanes and, as reported recently in the press, are now facilitating the sale of real estate. Communication between representatives such as estate agents, lawyers and conveyancers is now consistently undertaken electronically and the question of whether a contract of sale of land that has been signed and exchanged electronically is enforceable will no doubt occupy the attention of a Victorian Court in the not too distant future. The question therefore will be; is a contract of sale of land enforceable if it is signed electronically?

A preliminary distinction needs to be made between a digital signature and an electronic signature. A digital signature involves an encryption device and implies the existence of an authentication network standing behind the signature. This is the process utilized in Electronic Conveyancing for execution of the transfer and involves a trusted third party signing the transfer of land on behalf of the parties. This no doubt satisfies the requirements of the Statute of Frauds.

On the other hand, an electronic signature stands alone and acts purely as a representation of the signature of the party. It is not made by hand, as is the case of a traditional signature, but rather is formed by the placing of the hand on a key, or even conceivably by voice recognition software generating the appropriate ‘keystrokes’. Does a party who ‘signs’ an email that in all other respects constitutes an enforceable contract of sale of land become bound by that electronic signature?

At common law (including the Statute of Frauds) the answer is ‘no’. But s 126 of the Instruments Act was amended in 2004 to provide that the requirements of s 126 ‘may be met in accordance with the Electronic Transactions (Victoria) Act 2000’. This Act in turn provides in s 9 that the requirement of any law for a signature is ‘taken to have been met in relation to an electronic communication if’:

1. the signature identifies the person and indicates approval of the information;
2. the method of communication was appropriate in the circumstances; and
3. the person has consented to the use of electronic communication.

Thus it may be concluded that where two parties to a contract communicate with each other electronically then, subject to any other underlying contractual limitations, any agreement that they reach in relation to the sale of real estate will be binding on them when they have each sent to the other an electronic communication (email) that includes an electronic representation of their signatures. This would be satisfied by the mere typing of the name of the party at the end of the communication and certainly by the inclusion of a more formal ‘signature box’.

However it is relatively rare for parties to communicate directly in relation to the negotiations for the sale of real estate. Usually estate agents will be involved and also party representatives such as lawyers and conveyancers. Parties will not be bound by the actions of these participants in the process unless those third parties are authorised in writing by the party. However such an authorization could itself be communicated electronically. Thus, not only will a party who electronically signs a contract be bound to that contract, a party will also be bound if the party’s representative has been electronically authorised to sign on behalf of the party and does in turn electronically sign the contract. It is certainly possible to conduct the whole contractual process in cyberspace.

A few cases in Australia and England have considered these issues and there are no doubts that arguments can be raised on the way. However, essentially it appears that even concepts – such as the importance of signed documents – going back as far as the 17th Century are capable of adapting to the electronic age.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The caveat is the Torrens system’s safety valve. The principle of indefeasibility allows an interest in land, once registered, to effectively destroy competing interests, but the caveat gives a competing interest holder a momentary chance to assert their interest. Unfortunately, caveats are not used frequently enough.

Callinan J. recently said:

It used to be the practice of careful conveyancers, acting for persons acquiring registrable estates or interests in Torrens title land, to lodge with the officials in charge of the Register, a caveat as soon as the agreement for the relevant dealing was made, in pre-emptive protection of their clients’ prospective legal estates or interests pending completion of their agreements and registration of the instruments perfecting them.

Colloquial evidence from the Titles Office suggests that caveats are lodged in respect of only about 25 per cent of transfers, so purchasers are engaging in high risk tactics. There can be no excuse for not lodging a caveat in a commercial transaction, but presumably caveats are not lodged in residential transactions because of the cost. The Titles Office fee is $47.30. A fair charge for preparing and lodging a caveat might be $50, so for the sake of $100 purchasers risk having their interest in the land defeated and solicitors are risking a negligence action as a result.

Black v Garnock is a recent example of the risks involved. A purchaser’s claim was defeated by a subsequent Sheriff’s writ. The failure to caveat was certainly not the only reason the purchaser lost, but that failure was heavily relied upon by the majority in the High Court in finding against the purchaser. The practical result was that the purchaser, who had completed the transaction in the face of the writ, would be required to pay out the judgment creditor’s claim so that the purchaser’s transfer could proceed to registration. No doubt the purchaser will seek compensation from their solicitor.

Sheriff’s writs are relatively rare, but competing claims arising during the life of a contract are common and the failure to caveat can cost a purchaser (and the solicitor) dearly. Preston-Lalor Credit Co-op Ltd v Razzi and Bunning Building Supplies P/L v Sgro are cases where ‘innocent’ purchasers were unable to proceed to registration as a result of a caveat lodged during the period between settlement and lodging of the purchasers’ transfer, in the latter case, just 35 minutes before. Both cases involved typical domestic conveyancing scenarios and the purchasers did not caveat. In a perfect world of ‘instant registration’ at settlement, this would not occur. But the reality is that even when solicitors lodge for registration there is a time delay, and colloquial evidence suggests that when lenders take the documents for lodging, delays of up to six months are not uncommon. When you realise that the person in front of you in the queue at the Titles Office might be lodging a competing caveat, there is good cause not to sleep at night.

There is just no sense in exposing the purchaser (and solicitor) to this risk, particularly when the antidote is so cheap. Acknowledging that an extra $50 in a competitive residential conveyancing marketplace might mean the difference between receiving instructions and not, at least advise those clients who do instruct you that they should give you instructions to lodge a caveat. In your first letter explain that there are risks of competing interests arising during the contract period and that a caveat provides protection from those interests. Consider offering not to charge for preparing the caveat, but seek authority to include the fee in your disbursements. Even if the client does not give those instructions, you have warned them and you may then enjoy a good night’s sleep.

Just another short note on caveats – a recent case, Riverview Projects Pty Ltd v Elleray & Anor [2007] VSC 150, acknowledged the right of a ‘domestic partner’ to lodge a caveat against a property owned not by the other domestic partner but against a property owned by a company substantially controlled by the other domestic partner and in which the caveator had no interest. This caveat was permitted notwithstanding that the caveator had previously acknowledged in writing that the caveator did not, and would not in the future, have any interest in that property.

Tip Box

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