By Russell Cocks, Solicitor

First published in the Law Institute Journal

Legal practitioners are licensed to provide legal advice. Estate agents are licensed to sell real estate. Both professions operate, in part, in the real estate industry and at times the distinction between their respective roles may become blurred. Indeed, the 1990s saw a push in Victoria for lawyers to take a more active role in the industry, along the lines of the Scottish model where lawyers are actively involved in the marketing of real estate. This desire to broaden their area of influence may well have been a response by lawyers to the perceived contraction of their work base resulting from the rise of conveyancers. The fact that an agent’s commission will usually be between 10 and 20 times the average legal bill for a transaction might also have played some part.

A lawyer wishing to gain an estate agent’s licence could reasonably expect to be able to satisfy the various formality requirements and so it is possible to hold both a licence to practice law and a licence to sell real estate. Not many lawyers choose to do so, but it is possible. Anecdotal evidence suggests that most lawyers prefer to practice in an environment that recognises the different skills associated with the provision of legal advice, as opposed to the marketing skills associated with a sales environment. This may be described as a collaborative method of practice, with the lawyer developing a working relationship with one or more estate agents designed to deliver the two separate skill sets to the client from two distinct sources. However this method of practice is susceptible to allegations of conflict of interest and the lawyer must take care to ensure that the client is aware that the lawyer’s loyalties lie with the client, notwithstanding a close working relationship between lawyer and agent. The dark side of this collaborative model is inappropriate referral by one participant to the other, sometimes involving payment for that referral, but such situations are rare.

However a lawyer might also be involved in the sale of real estate on behalf of a client without holding an estate agent’s licence. Section 5(2)(e) Estate Agents Act 1980 recognises an exception to the obligation to hold an estate agent’s licence for:

Any Australian legal practitioner (within the meaning of the Legal Profession Act 2004) for the purpose only of carrying out the ordinary functions of an Australian legal practitioner.

The breadth of this exception was tested in Noone v Mericka & Ors [2012] VSC 101.

Peter Mericka is an Australian legal practitioner and has for a number of years conducted a legal practice known as Lawyers Real Estate. This practice ‘combined’ the role of lawyer and real estate agent and offered vendors a ‘one-stop shop’ with a fixed fee for both the sale of the vendor’s property and the legal work associated with that sale. This is akin to the Scottish model and the costs for this ‘combined’ service were more than a lawyer’s standard conveyancing fee but considerably less than a standard estate agent’s commission. Mericka gained an estate agent’s licence in 2010 but had conducted his business prior to that time on the basis of the exception in s 5(2)(e). This drew the attention of Consumer Affairs Victoria, which is the regulatory authority pursuant to the Estate Agents Act, and alleged that Mericka had contravened the Act by selling real estate without holding an estate agent’s licence.

Sifris J. concluded that whilst the ordinary functions of an Australian legal practitioner might include the selling of real estate on behalf of a client ‘where it is required or is incidental to the provision of legal services to a particular client’ the activities of Mericka did not come within the exception. These activities involved ‘ongoing and systematic marketing and advertising in connection with the sale of clients’ properties’. It was the repetitive nature of the services offered which lead to the conclusion that the activities took the work outside of the ‘ordinary functions’ of a lawyer. Indeed the judge described this work as ‘engaging in the business of a real estate agent’.

The consequence was that Mericka had contravened the Estate Agents Act for that period of time during which he was unlicensed and had also engaged in misleading and deceptive conduct by advertising that he was entitled to sell real estate on behalf of clients without having an estate agent’s licence. Imposition of a penalty was adjourned to another day.

Sifris J. also decided that the exception could never apply to an incorporated legal practice as it is limited to an Australian legal practitioner and this, by definition, must be an individual, albeit an individual practising alone or in partnership. This anomaly should be addressed as there is no reason why a practitioner who has adopted the perfectly acceptable practising method of utilising an incorporated legal practice should be discriminated against. The same may be said for a practitioner practising in a multidisciplinary practice, another mode of practice recognised by the Legal Profession Act. Indeed the motivation for establishing a multidisciplinary practice is to encourage lawyers to expand their areas of practice into ‘nontraditional’ areas, and a multidisciplinary practice that involved the occasional sale of client’s property is a logical area for expansion.

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

Land deposits must be held in trust pending settlement or prior release: s 24 Sale of Land Act. Vendors (and particularly their agents) often seek prior release pursuant to s 27 of the Act. A recent case has raised the possibility that release of the deposit may also have some unexpected consequences for the purchaser’s legal rights against the vendor.

Pamamull v Albrizzi (Sales) Pty Ltd (No 2) [2011] VSCA 260 concerned an attempt by a purchaser to avoid a contract of sale of land on the basis that an encroachment on one boundary constituted a defect in title. The purchaser had purported to rescind the contract shortly prior to settlement, but the vendor had rejected that purported rescission, had in turn rescinded the contract, resold the property at a loss and issued proceedings against the purchaser for forfeiture of the deposit and the loss on resale.

The trial came on for hearing in the Supreme Court but the purchaser was not in a position to proceed. His solicitor applied to withdraw and the purchaser sought an adjournment, which was opposed by the vendor. The purchaser’s defence had been based on the partial encroachment onto the land sold by an adjoining property constituting an easement over the property sold which should have been disclosed in the Vendor Statement. The failure to disclose was said to justify statutory avoidance by the purchaser. The judge granted the purchaser a short adjournment but then found in favour of the vendor, however the purchaser was given the right to return in two days to show why judgment should not proceed.

The purchaser returned in the company of the inimitable Wikramanayake SC, who informed the court that the Vendor Statement argument was ‘wrong’ and ‘of no merit’ but that the purchaser had a good defence based on an argument that the partial encroachment over adjoining land by the land sold constituted a defect in the vendor’s title entitling the purchaser to rescind the contract. That argument was not accepted, essentially as the judge was not satisfied that there was any evidence before him as to this encroachment, and judgment was confirmed.

The purchaser appealed to the Court of Appeal and, in relation to the argument concerning the failure of the judge to grant a longer adjournment, was successful. The Court of Appeal held that it would have been reasonable to grant an adjournment of two weeks to allow the purchaser to retain and instruct new solicitors. However the Court of Appeal decided nevertheless that, as the purchaser’s claim had such little chance of success, it would be futile to order a retrial and judgment was confirmed.

The Court of Appeal considered the defect in title argument and the analysis followed the traditional route of starting with Flight v Booth [1834] EngR 1087 to establish that a substantial error or misdescription in title boundaries may constitute a defect in title such as to justify avoidance. This however depends upon the subject matter of the transaction, requiring reference to the contract of sale, which in turn brings into play any contractual conditions that relate to misdescription. This contract contained what might be described as a traditional ‘identity’ condition which seeks to forgive any misdescription but which will always be subject to the Flight v Booth limitation in relation to a ‘substantial’ error. The Court of Appeal concluded that the contractual terms forgave a minor error and that the error in this case was ‘not of such substantiality as to found an entitlement to avoid’.

There is nothing unusual in this analysis except that the Court of Appeal also referred to the fact that the purchaser had agreed to release of the deposit and in doing so ‘was deemed to have accepted title’ and might thereby be regarded as having ‘waived those rights or elected to proceed under the contract.’ The proposition was not considered at length but must be taken as a warning to purchasers that consent to release of the deposit may constitute an acceptance of title and thereby prevent any subsequent argument based on a substantial defect in title.

A purchaser who signs a deposit release that includes reference to accepting title will thereby lose the ability to thereafter claim a title defect. Further, signing a deposit release that does not refer to acceptance of title might arguably be deemed to be implied acceptance. Section 27(2)(b) does not provide that a purchaser who releases the deposit thereby accepts title, but it does provide that the deposit release procedure is only available ‘where the purchaser has accepted title or may be deemed to have accepted title’. Thus a purchaser who signs a release may face an argument that the purchaser has impliedly accepted that the statutory precondition to release has been satisfied. Whether some all embracing statement to the effect that the purchaser does not accept title, will save the purchaser is uncertain.

Consenting to release immediately upon sale would be outright dangerous, but consenting at any time prior to settlement would appear to expose a purchaser to an unnecessary risk. Failing to fully inform the purchaser of this risk would constitute professional negligence.

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 law is objective – based on principles enunciated in cases and set out in legislation, but clients want subjective answers to their immediate problems. Nowhere is this more evident than the simple legal environment of the common or garden conveyancing transaction. It’s easy for the law to proclaim that the property includes fixtures, but not chattels. What the client wants to know is – is the dishwasher a fixture or a chattel?

Unfortunately clients generally cannot afford to have their subjective inquiries answered by a Court. The law is an expensive beast to engage and by and large these disputes typically involve hundreds of dollars, at best. But for the client, this is a big issue and the lawyer is expected to provide the answer.

Dishwasher

Fortunately, one client was prepared to put up the money to find out whether a dishwasher is a fixture or a chattel. Before Farley v Hawkins the generally accepted view was that a dishwasher was a chattel, much the same as a washing machine. But that case decided that when the dishwasher is built into a kitchen bench and its removal will leave a gap in the façade, then the dishwasher is a fixture.

Two recent Victorian cases have also addressed relatively minor issues relating to specific circumstances to provide us with guidance as to how a Court might determine similar disputes in the future.

Major structural defect

Contracts of sale commonly allow a purchaser to obtain a building report as to the condition of the premises and include a special condition making the contract conditional upon the report revealing that the property is not subject to a ‘major structural defect’. Simple enough to say, but what does it mean? Clarke v Mariotis considered this in a conventional house sale when the building report revealed a ‘major concern’ with dampness under the floor of the residential building. The purchaser argued that this was a ‘major structural defect’ within the meaning of the special condition and that the purchaser was therefore entitled to avoid the contract. The vendor disagreed.

The Court accepted that dampness was a matter for concern and could, if unchecked, lead to a major structural defect. Rusting of structural support and rising damp in brickwork were probable consequences. It did not matter that the full extent of those consequences had not as yet manifest or that there might be steps that could be taken in the future to avoid those consequences. The present damp state of the sub-floor was, of itself, a ‘major structural defect’. The purchaser was therefore entitled to avoid the contract on the basis of the special condition.

Deterioration

Another common area of dispute arises after the purchaser undertakes a final inspection of the property in anticipation of settlement. Any one or more of a veritable plethora of complaints can arise from this exercise: broken windows, dirty carpets, abandoned furniture, overgrown garden, a frog pond instead of a swimming pool, the list goes on. These complaints, by definition, arise in the last few days before settlement and the client needs answers. The contract usually requires the vendor to deliver the property ‘in the same condition it was on the day of sale, except for fair wear and tear’ but what does that mean in the circumstances of any particular contract?

Perpetual Trustee Co. Ltd v Lindlirum P/L may assist in answering that question. This was the sale of a commercial property and a fence at the front of the property was removed by a third party between contract and settlement. The usual condition requiring the vendor to deliver the property in the condition sold was not included in the contract, as it was a mortgagee sale; however the purchaser argued that the vendor was obliged to deliver the property in the pre-contract condition as the fence was a fixture. The Court held that the purchaser’s only ‘right was to compensation, if anything’.

Whilst the absence of the usual condition requiring the vendor to deliver the property in the pre-contract condition means that this case is not direct authority for such cases, the Court’s dismissal of the purchaser’s complaint as only giving rights to compensation is indicative that Courts are unlikely to allow a purchaser to use a minor deterioration in the property to avoid the purchaser’s contractual obligation to settle.

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

Lawyers are not financial advisers but, when acting for a client in a commercial transaction, lawyers will be liable for the advice that they give, or fail to give, in relation to the commercial consequences of the client’s decisions.

Two recent Victorian cases have considered the extent of these duties in the context of two reasonably common scenarios. In both cases the lawyers were assisted in their defence by the LPLC, which presumably therefore assessed the lawyers’ conduct as blameless, however in both cases the lawyers were held liable to the client in contract and tort. Whilst both decisions may appear to be ‘harsh’, the lesson to be learned is that lawyers advising clients in commercial transactions must be alive to possible commercial consequences of those transactions and ensure that the client is adequately advised in respect of those consequences. This may not require the lawyer to give that commercial advice, but it will require the lawyer to ensure that the client is aware that the client must seek that commercial advice from experts, such as accountants.

Spiteri was a claim by a client arising from an ‘investment’ transaction whereby the client proposed to lend money to a company undertaking a residential development in the expectation of receiving a share of the profits arising from that development. The development failed and the client sued the lawyer for his losses. The key issue was the security provided to protect the investment. The lawyer’s initial advice was that the security, being shares in the development company, was inadequate. Additional security by way of shares in an associated company, said to have $4m ‘equity’ in another development was offered and an agreement, referred to as a Joint Venture Agreement, was signed. Ultimately both developments failed and the shares and personal guarantees of the directors were worthless.

Undoubtedly the best security in such situations is a mortgage over the land. That this was not available was a red light. Additionally, the loan proposal had morphed into a Joint Venture Agreement. Finally, the ‘equity’ in the other project was never investigated. In describing the retainer the Judge said ‘the solicitor is not expected, nor required, to advise the client about the financial or commercial viability of, or risks associated with, the transaction’ however ‘that advice was “inextricably intermingled” with the obligation of the defendant to exercise reasonable care to advise the plaintiff as to the adequacy of the security’ and that the client ‘should first seek expert advice’ as to the value of the security. In other words, whilst the lawyer is not obliged to give financial or commercial advice, the lawyer is obliged to warn the client that the client should seek such advice from others expert in that field. In Spiteri the lawyer had made it clear that he was not giving that advice, he simply failed to warn the client that such advice was necessary. The ‘equity’ in the second project should have been investigated to ascertain whether it did in fact provide security for the client’s ‘loan’.

Snopkowski was an even simpler fact scenario. The client instructed the solicitor to transfer a half share in a property owned by the client to the client’s wife. The practitioner, aware that such a transaction was exempt from stamp duty, did so with alacrity and rendered a nominal bill. However, as a result of the transaction, the client was obliged to pay Capital Gains Tax and claimed that ‘loss’ from the lawyer. Whilst accepting that the lawyer was not obliged to give taxation advice, the Tribunal concluded that in such circumstances ‘a legal practitioner would advise the client to seek advice from an accountant’ and that ‘[A]t the very least she should have asked whether he had obtained any advice from the accountant concerning Capital Gains Tax and if receiving a negative response should have advised him to do so’.

It is the nature of our society that the extent of a lawyer’s duty to the client, both contractual and tortious, will expand. One response might be to attempt to limit the contractual duty by entering into ‘limited retainers’ but the likely outcome of any such contractual reduction will be a judicial extension of the tortious duty – a yin & yang relationship. Indeed it may be that the duty even extends to informing the client that the tooth fairy does not exist, as a recent NSW case has concluded that ‘the solicitor nonetheless, as part of its duty of care to the client, was obliged to caution the client against the extraordinarily unrealistic rate of return which they expected on their proposed investment’. The client had been promised a return of $275,000 per annum on a capital investment of $150,000. It is not enough to tell the client that the lawyer is not giving financial or commercial advice; the lawyer must recognise situations that expose the client to loss and warn the client that the client must seek advice from other experts.

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

Conveyancing has traditionally been haunted by three systemic inefficiencies:

1. requisitions and the answers thereto;
2. deposit release; and
3. bank settlement procedures.

Bank settlement procedures, involving inordinate telephone waiting times and lack of accountability, are beyond the scope of this article; and requisitions have been solved by replacing requisitions with contractual warranties, a simple but effective solution.

Deposit release remains a significant inefficiency, particularly for the purchaser’s representative. At common law a vendor was entitled to the benefit of the deposit immediately upon payment, whilst remaining responsible to account to the purchaser for the deposit if the contract did not proceed. As part of the consumer protection push of the 1980s, section 25 of the Sale of Land Act was introduced to require deposits to be held in stakeholding, meaning that the deposit was to be held on trust for the vendor and purchaser and did not become available to the vendor until settlement. Acknowledging that vendors might, on occasion, have a need for the deposit prior to settlement, s 27 provides a release mechanism that the vendor may implement to gain access to the deposit prior to settlement.

Much has been written about this release mechanism. This article considers not so much the mechanism itself, but rather who should be responsible for the cost of implementing that mechanism. Essentially the protection is designed to ensure that a vendor will be in a position to discharge mortgages affecting the property at settlement and therefore a vendor may seek release of the deposit by satisfying the purchaser as to the amount owing pursuant to such mortgages. To do so the vendor would ordinarily obtain evidence in writing from the mortgagee as to the amount outstanding and provide that evidence to the purchaser with a request to release the deposit. Undoubtedly, the work associated with this part of the exercise falls to be performed by the vendor’s representative and the cost of that work will be borne by the vendor. Whether this charge is part of the representative’s overall fee or a separate charge will depend entirely on the contract between the vendor and the representative and will be influenced by market forces.

Next in the process is the consideration of the information provided and the response thereto. This falls upon the purchaser’s representative and has to date been regarded as within the ambit of the purchaser’s representative’s retainer and therefore a cost to be borne by the purchaser. But deposit release is of absolutely no benefit to the purchaser and may, in unusual circumstances such as the property being destroyed prior to settlement, be an actual detriment. It may well be asked: why would a purchaser ever consent to deposit release?

Recently a practitioner has been responding to requests for deposit release by advising the vendor’s representative that the practitioner’s retainer does not extend to advising the purchaser in relation to deposit release and that the practitioner is prepared to submit the information provided to support deposit release to the purchaser and obtain instructions in relation thereto provided that the vendor is prepared to pay the purchaser’s representative’s costs to do so. This suggestion has been met with shock and horror but, on careful reflection, it appears to be perfectly reasonable.

The terms of a retainer between purchaser and representative are negotiable. When costs were dictated by scale there may have been a standard level of performance, but scales have been dispatched to the dustbin of history. A purchaser’s representative is entitled to limit the retainer to matters that are necessary to diligently perform the work necessary to ensure that the purchaser becomes the registered proprietor. Performance of any additional work is not necessary and if a third party, such as the vendor, asks the purchaser’s representative to perform additional work then it is perfectly appropriate that the party making that request bear the costs associated with performing that work.

By submitting a request for release of the deposit the vendor is requesting the purchaser’s representative to consider the legitimacy of the information and the adequacy of the disclosure, and to advise the purchaser as to the virtue of consenting to release. Given that there is no benefit in the purchaser consenting to release, the vendor is asking the purchaser’s representative to assume a substantial burden and it is reasonable that the vendor bear the cost of that. The vendor is not obliged to pay for this service but if the vendor wants the deposit released then the costs associated with complying with the legislative requirements should fall on the party who will receive the benefit – the vendor.

A reasonable charge for the work involved might be $200 plus GST, which might be paid by way of authorised deduction at settlement.

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

Victorian estate agents might be contemplating adopting this famous Dire Straits song as their new anthem after the recent Court of Appeal decision of Icon Property P/L v Wood [2008] VSCA 123, a decision handed down on 26 June 2008.

Wood engaged Icon to sell an apartment. A purchaser signed a contract and paid a deposit by a cheque which was subsequently dishonoured. The vendor rescinded the contract and sued the purchaser for losses, but the purchaser was the typical ‘man of straw’ and the vendor recovered nothing.

In the meantime the agent sold the property to a second purchaser and that transaction settled in due course. When the agent accounted to the vendor, commission was deducted in respect of both the first (failed) sale and the second sale. The vendor issued proceedings in VCAT claiming a refund. The vendor gave evidence that the agent had agreed prior to the second sale that only one commission would be charged and the vendor appears to have been fairly convinced that that was the case as an attempt by the vendor to ‘discuss’ the question of commission with the agent resulted in an intervention order against the vendor. Nevertheless VCAT did not accept that evidence and found that the agent was entitled to commission on the first sale. However VCAT held that the agent did not hold an authority pursuant to s 49 Estate Agents Act to charge commission on the second sale and ordered a refund in respect of that commission.

Perhaps there was some justice in this result as the vendor made the sale and the agent made a commission. But when considered in the context of the first sale alone, the agent made the commission even though the vendor did not make the sale. Whilst this was the outcome, perhaps it was not the decision. Judge Bowman stated that ‘ultimately it was basically agreed between the parties’ that the agent was entitled to the first commission and although he said ‘in my view, that approach is correct’ there does not appear to have been any argument on the point, much less reference to authority.

Victorian estate agents have long been a protected species. The general common law principle of agent’s entitlement to commission requires the sale to be completed before the agent is entitled to a commission and this is the law in other States of Australia. But a long line of Victorian authority has established an agent’s entitlement to commission at an earlier point in time, generally referred to as ‘when a purchaser signs a document capable of becoming an enforceable contract’ if that document is subsequently signed by the vendor. This recognises that it is the agent’s function to find the purchaser and it is then for the vendor to complete the transaction. On this basis an agent will be entitled to commission if the vendor ‘lets a purchaser out of a contract’ or the contract falls over as a result of the action, or inaction, of the vendor, such as a defective Vendor’s Statement, resulting in the purchaser avoiding the contract. But this is not an absolute right and an agent will not be entitled to commission if the sale ‘goes off’ because a special condition (such as a loan condition) is not satisfied.

No Victorian case has considered an agent’s right to commission where effectively no deposit has been paid because the cheque bounced, but it has been considered in New Zealand where it was decided that an agent who failed to collect the deposit (or accepted a dishonoured cheque for the deposit) was not entitled to commission. This seems to be an eminently sensible result, as expecting a vendor to pay a commission when no deposit is paid seems ludicrous, and no less so if the deposit is constituted by a rubber cheque. Agent’s authorities in the past included reference to a 10% deposit. The fact that that requirement seems to have ‘fallen off’ the current authority does not reduce the implied expectation of a vendor that a purchaser will have shown an intention to be bound to the contract by paying the universally accepted deposit of 10%. In specific circumstances a vendor might agree to a lesser deposit, but the normal expectation, and an implied term of the retainer, would be payment of 10% (and not by a rubber cheque!).

The agent unsuccessfully appealed to the Court of Appeal, which confirmed the lack of authority in respect of the second commission. As such, the issue of the first commission was not a subject of the appeal, although none of the judges seemed to have a problem with the first commission and Redlich JA in brief reasons accepted the agent’s entitlement to the first commission. Virtually none of the authorities were discussed (other than in footnotes) and the case, despite first appearances, should not be regarded as authority that a rubber cheque will justify commission. The Fat Lady has not begun to sing the anthem.

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

Estate agents have always been given a degree of ‘poetic licence’ when it comes to describing the property that they are retained to sell on behalf of a vendor. To describe a property as ‘immaculate’ Walker & Anor v Masillamani & Anor [2007] VSC 172 – or as having ‘perfect presentation’ (Mitchell v Valherie (2005) 93 SASR 76) does not mean that the property is perfect in every aspect and completely free of all defects. Such sales descriptions fall within the definition of ‘mere puffery’ and the courts expect a prospective purchaser to exercise a reasonable level of cynicism when balancing such descriptions with the physical condition of the property revealed by inspection.

However, two recent cases indicate that courts will not be so lenient and extend such licence to an agent who is describing the sales process, rather than the subject matter of the sale.

Bovino P/L v The Casey Group Holdings P/L [2010] VSC 391 concerned the sale of a caravan park for $8.6m. The agent submitted the property to two prospective purchasers and both purchasers made offers that were subject to the purchaser obtaining planning approval to redevelop the land. The agent concentrated his attention on the ultimate purchaser and evidence was given that the agent left a voice message on that purchaser’s phone to the effect that:

‘There is another purchaser’ and

‘You will have to make an unconditional higher or better offer’

The purchaser responded with a higher offer that, importantly, was not conditional upon planning approval.

The purchaser thereafter sought to avoid the contract on a number of grounds and the vendor sued for specific performance of the contract. Ultimately the issue came down to the question of whether the purchaser could characterise the conduct of the agent as ‘misleading and deceptive’ within the meaning of the Trade Practices Act (superseded by the Competition and Consumer Act – see schedule 2 item 18). The evidence as to the substance of the representations was accepted, principally because it appeared to have been confirmed in a later email by the agent to the vendor when discussing a request for an extension of time for performance. The agent wrote that he had ‘put a fair amount of pressure on them (the purchaser) to go unconditional’. The Judge relied upon this as confirmation that the agent had suggested that the existence of another purchaser meant that the purchaser would miss the property if the purchaser did not make an immediate, higher, unconditional offer and that such conduct by the agent was misleading and deceptive and justified avoidance of the contract by the purchaser.

Astvilla P/L v Director of Consumer Affairs Victoria [2006] VSC 289 concerned similar concepts under the Victorian Fair Trading Act, although the offence was committed by an in-house sales employee of the vendor rather than an external estate agent. The Court held that the creation of a false sense that the property was ‘a very popular house’ and could be sold ‘five times over’ (when in fact it had been on the market ‘for years’) and a false sense of urgency requiring immediate signing and payment of a deposit was misleading and deceptive conduct.

These representations related to both the property itself (that it was ‘popular’) and the sales process (that urgency was required). The representations relating to the property ‘went beyond mere puffery’ and those representations alone would have justified a finding of misleading and deceptive conduct, but the representations in relation to the need for urgency as the property might be sold to another purchaser were also factors in the decision.

Agents should therefore beware. Advising prospective purchasers that there are other willing purchasers competing for the property may amount to misleading and deceptive conduct unless the agent is able to prove the truthfulness of that representation. Auctions are all about exposing competing purchasers to the marketplace, as are private or boardroom auctions, but representing that there is genuine competition for a property when that is not the case may cross the line.

Other issues in bovino

Specific performance

The vendor sought specific performance of the contract. That remedy is discretionary and only granted if damages would not suffice. Whilst ordering a vendor to specifically perform a contract by transferring a particular property is a relatively common order, Abraham v Johns [2010] VSC 33, an order that a purchaser specifically perform a contract by paying the contract price is rare. Such an order ‘could require the continued supervision of the Court to ensure the fulfilment of the contract. Ibid at para 79. Damages will generally be the appropriate order against a purchaser. After all, the vendor is only interested in receiving the contract price; it is irrelevant where the money comes from.

Impecuniosity

As the purchaser successfully avoided the contract, the availability of an order for specific performance was not an issue; however judicial comment was made on the purchaser’s defence against such an order. The purchaser argued that they did not have the funds to complete the contract – that it was a typical ‘two dollar company’. That impecuniosity was shared by the guarantor (Clinton Casey) who claimed that his principal asset was an entitlement to share in distributions from a discretionary trust and therefore effectively valueless. The Judge found such arguments to be ‘without substance: Bovino P/L v The Casey Group Holdings P/L [2010] VSC 391 at para 70. They might also be of considerable concern to anyone engaging in commercial transactions with defendants.

Tip Box

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