Ma v Francis

This is a case about the proper construction of Section 66T(c) of the Conveyancing Act, 1919 (NSW). It concerns a contract for sale of land that is said to have been entered into between the plaintiff as vendor and the defendants as purchasers at an on-site auction on Saturday 26 May 2018. The purchase price was $5.7 million and the deposit was $570,000. On 31 May 2018, the defendants served a notice of rescission pursuant to Section 66U of the Act and sought the return of the deposit. The plaintiff contended that because of the operation of Section 66T(c), there was no ‘cooling off’ period entitling the defendants to exercise a right of rescission. On 14 June 2018, the plaintiff purported to terminate the contract and forfeit the deposit.

The factual issue that lies behind the question of statutory construction relates to the conduct of a public auction. In particular, it requires determination as to what constitutes a public auction and when a public auction takes place. It also focuses on the distinction between a property being ‘withdrawn’ from auction and one that is ‘passed in’ at auction. In order for the plaintiff to have the benefit of Section 66T(c), the contract for sale must be made ‘on the same day as the property was offered for sale by public auction but passed in’ (emphasis added).

In this case, there was only one registered bidder, namely the defendants. The auctioneer and agent knew this. Their strategy was to take the defendants aside before any auction took place and seek to conclude an agreement with them in private. It was not in the vendor’s interests for the auction to take place when there was only one bidder. Nor was it in the vendor’s interest for the property to be passed in, especially in circumstances where there was only one bidder. I have concluded that there was no public auction in the sense intended by Section 66T(c) and no ‘passing in’ of the property. On 26 May 2018 the property was not ‘offered for sale by public auction but passed in’.

The most reliable evidence of the sequence of events on 26 May was that set out in the almost contemporaneous email on 31 May from the auctioneer (Mr Robinson) to the vendor’s agent (Mr Foote). The events were fresh in Mr Robinson’s mind; he understood that the purchaser was trying to rescind the contract; and he was careful to include everything that he considered to be material.

The email was relevantly in the following terms:

Mr Robinson’s email then included a further statement, which I regard as less likely and less reliable. It was a piece of self-defence, effectively to assure the vendor’s agent that nothing the auctioneer had done constituted the basis on which the purchaser might have been justified in rescinding the contract and recovering the deposit. Mr Robinson said that he told the crowd:

If Mr Robinson made that self-serving statement, which I doubt, it amounts to nothing more than his opinion on the central question for determination. In substance, it is the plaintiff’s argument before me.

Mr Robinson’s evidence in cross-examination, taken together with his email, made the facts reasonably clear. He agreed that he and the agent took the registered bidder aside ‘prior to the commencement of the auction’. Their object was to get agreement on price ‘prior to the commencement of the auction’. He agreed that ‘at this stage’, namely when they took the defendants aside, the auction had not commenced. It never did commence.

The negotiations with the defendants took place upstairs. The auction was proposed to take place downstairs, where the crowd of people attending the auction had gathered. Mr Robinson left the negotiations at one stage, went downstairs and made an announcement to the assembled crowd. At that point, in his mind, the auction ‘had not commenced’. He understood that, if a public auction were conducted, the defendants were going to be the only registered bidders. The announcement ‘was to ensure that [the] strategy was going to run true’. It was, in part, to ‘maintain a bit of competitive tension in respect of the negotiations’ which were taking place with the defendants upstairs.

Mr Robinson’s announcement included the words ‘the full show is not going to take place just now’. Those words were intended to convey to the crowd who had gathered for the auction that he was ‘not going to call for any bids’.

Mr Robinson may have informed the crowd that we are ‘effectively passing the property in’. He used this language in his email but tellingly, omitted the adverb ‘effectively’ from his affidavit. He knew the property was not being passed in in a formal sense. Hence, his use of the adverb. For this and many other reasons, I found Mr Robinson’s affidavit evidence (as affidavits so often are) less reliable that his contemporaneous email taken together with the concessions given by him during cross-examination.

Another aspect of Mr Robinson’s affidavit that I did not find plausible or probable are certain contentions about what he supposedly said to Mr Francis, the first defendant. Mr Robinson said that he told Mr Francis that they should go downstairs and ‘pass the property in to make sure it is under auction conditions’. I reject this evidence. I regard it as a regrettable fabrication, made well after the event, designed to advance the plaintiff’s case. I accept Mr Francis’ denial of it. I did not regard Mr Robinson as a satisfactory witness.

The plaintiff’s next witness, the agent, Mr Foote, was even less satisfactory. While Mr Robinson was disarmingly frank, sometimes against the vendor’s interest without appearing to realise it, Mr Foote was frequently non-responsive and sometimes evasive. He tried, unconvincingly, to maintain that he told Mr Francis that the purchasers were buying ‘under auction conditions’, despite the circumstances. The following passage is illustrative:

The strategy of Mr Foote and Mr Robinson was clear. In circumstances where there was only one registered bidder, they wanted to secure agreement on the price from the defendants without the auctioneer having to call for bids. But when asked whether, to his knowledge, the auctioneer ‘never called for bids’, Mr Foote insisted that ‘I cannot comment on that’. In fact, he well knew that the auctioneer never called for bids.

Mr Foote’s evidence became particularly unsatisfactory and defensive when it was suggested to him that the rationale for the strategy was that ‘once the auctioneer calls for bids and no bids are made, or only one bid is made, the balance of power shifts away from the vendor’. His response was unconvincing.

Mr Foote and Mr Robinson clearly believed that the most effective way to achieve the best possible price for the vendor was to enter into private negotiations with the defendants, rather than by conducting an auction in which there was only one registered bidder and having the property passed in. Their statements to the effect that the private negotiations with the defendants were designed to avoid ‘stress and embarrassment’ to the defendants, were disingenuous in the extreme.

An expert witness called by the plaintiff gave evidence to which there was no objection – presumably because the evidence, despite its arguable admissibility, assisted the defendants more than the plaintiff. The expert explained that there was no standard practice followed by auctioneers when there is only one registered bidder at an auction. He said that the usual options commonly utilised included the following:

In this case, what occurred was a combination of the expert’s first and last points. The auctioneer did not follow the course set out in the auctioneer’s second and third points. He did not conduct the auction and take bids. And he did not pass the property in and negotiate with the registered bidder ‘post-auction’. What he did do was to negotiate in private on an agreed price before any auction could take place. He then withdrew the property from sale.

Nor was the plaintiff assisted by the expert’s evidence as to the typical practice adopted by auctioneers in commencing an auction. None of the matters described by the expert occurred in this case. Counsel for the defendants conveniently summarised the evidence:

Nor was the expert’s evidence as to the meaning of ‘passed in’ helpful to the plaintiff. The expert explained that a property is passed in when it fails to sell at auction. His evidence was predicated on an auction taking place. He said that a property would fail to sell at auction, and therefore be passed in, in three situations, namely: where (1) there are no registered bidders; (2) no bids are received or accepted; or (3) bids do not reach the reserve price. None of these circumstances applied on the facts of this case. The property was not ‘passed in’ even on the basis of the evidence of the plaintiff’s expert.

Notwithstanding these findings, the plaintiff contended that the facts and circumstances met the criteria stipulated in Section 66T(c), namely ‘the contract is made on the same day as the property was offered for sale by public auction but passed in’. I have reached a different conclusion. Critically, the property was not ‘passed in’. Nor, in my view, was the property ‘offered for sale by public auction’.

The two expressions involve separate concepts but they are related. They are joined by the conjunction ‘but’. Read together, the sense is that the property must have been offered for sale at a public auction at which the property failed to sell. This must be followed by the passing in of the property. Thus there are two ingredients: a failed auction and a passing in. In order for there to be a failed auction, the auction must have commenced and been conducted. In order for there to be a passing in, there must have been an auction that commenced and was conducted. Neither occurred.

On no reasonable view of the facts did the auction commence. This conclusion is fortified, for what it is worth, by the expert evidence. Nor was a public auction conducted. There was therefore no failed auction and no passing in. The auctioneer and agent did not wish that to occur and took steps to ensure that it did not. Their strategy was to ensure that the property was not passed in at a public auction at which the property was offered for sale. Although it does not matter, their motive was not to avoid ‘stress and embarrassment’ to the defendants – which I regard as a dissembling characterisation – but to maximise the opportunity to obtain the highest sale price for the plaintiff.

The facts that I have found lead to the conclusion that Section 66T(c)does not apply. No reasonable construction of the words of Section 66T(c) permits a different outcome. The plaintiff’s attempt to fit the facts within the language of the section is strained. It does not accord with the natural meaning of the words of the statute, whether or not informed by the expert evidence. Nor does it accord with the syntax of the statutory language or the linguistic significance in the context of the conjunction ‘but’.

It is appropriate to conclude by stating that, in my view:

For those reasons, the plaintiff’s claim should be dismissed with costs.