Klein v McMahon

The plaintiff, Mr Klein, seeks orders for specific performance of a contract for the sale of certain land at Picton. The contract is dated 2 July 2015. It concerns Lot 1 in an unregistered plan of subdivision of Lot B in Deposited Plan 156341, which was owned by the defendants, Mr and Mrs McMahon.

Mr Klein is named as the purchaser in the contract. Mr and Mrs McMahon are named as the vendors. However, as referred to further below, it seems that Mr McMahon did not sign the contract; rather, Mrs McMahon, who was described in the contract as the Vendor’s Representative, signed the contract personally as well as for her husband.

The proposed subdivision was for two residential lots. The contract provided for Mr Klein to purchase proposed Lot 1 for $350,000. Mr Klein paid a deposit of $35,000 upon exchange of contracts. Half of the deposit was released to the vendors. That amount was paid into an account held by Mr and Mrs McMahon with the Commonwealth Bank of Australia.

The contract employed the 2005 edition of the Law Society/Real Estate Institute standard form, together with numerous special conditions. Special Condition 13 relevantly provided:

Printed clause 28, which applies where the land is described as a lot in an unregistered plan, remained in the contract. It relevantly provides:

The plan of sub-division was not registered within six months of 2 July 2015. The Wollondilly Shire Council did not issue the sub-division certificate until 17 August 2016. The sub-division was eventually registered on 23 December 2016. Each lot is approximately 505m2 in area.

However, on 25 August 2016, Mr Day of Day Legal Pty Ltd sent a letter to Ms Susan Hall of Hall’s Conveyancing, who was acting for Mr Klein in relation to the contract. The letter attached Notice of Appointment of Solicitor and a Notice of Rescission of Contract. The Notice of Appointment, which was apparently executed by both Mr and Mrs McMahon, appointed Mr Day as their solicitor to act for them in respect of the contract dated 2 July 2015. The Notice of Rescission of Contract was relevantly in the following terms:

On 25 August 2015 Hall’s Conveyancing sent a letter to Day Legal Pty Ltd in the following terms:

On the same day, Hall’s Conveyancing arranged for a caveat to be lodged over the defendants’ property, in order to protect the plaintiff’s interest under the contract for sale.

On 16 September 2015 Day Legal Pty Ltd responded to the Hall’s Conveyancing letter of 25 August 2015. The response included the following:

By 22 September 2015 Mr Klein had retained Dignan & Hanrahan as his solicitors. On that day, Dignan & Hanrahan sent a letter to Day Legal Pty Ltd which included the following:

The defendants then retained Shore Stack Lawyers. It seems that Dignan & Hanrahan sent a letter to that firm on 20 October 2015. That letter is not in evidence. However, on 20 October 2016 Shore Stack sent a letter to Dignan & Hanrahan which included the following:

The attached Notice of Rescission was relevantly in the following terms:

On about 28 October 2016 a lapsing notice in relation to the plaintiff’s caveat was sent to Hall’s Conveyancing.

The proceedings were commenced by Summons filed on 10 November 2016. A Statement of Claim was filed on 7 February 2017. The plaintiff claims that the contract for sale is valid and remains on foot. He contends that he did not repudiate the contract, and that the purported rescissions on 25 August 2016 and 20 October 2016 are invalid and of no effect. The plaintiff asserts that the purported rescissions were invalid because of the operation of s 66ZL of the Conveyancing Act 1919 (NSW), which applies to certain “off the plan” contracts. The plaintiff also contends that the defendants were not entitled to rescind pursuant to Special Condition 13 because the defendants had failed to proceed with all due dispatch to obtain the consent of the Council to the plan of sub-division and thereafter lodge the sub-division for registration. He seeks an order that the defendants specifically perform the contract and carry it into execution so far as it remains to be performed. The plaintiff asserted that he was ready, willing and able to complete the contract.

As already noted, the proposed sub-division has now been registered. The plans were lodged for registration on 6 December 2016 and became registered as Deposited Plan 1184023 on 23 December 2016.

The defendants filed separate Defences on 17 February 2017. By his Defence, Mr McMahon denied that he executed the contract for sale and agreed to sell the property to Mr Klein. Subject to that overarching allegation, Mr McMahon admitted that the plaintiff had not repudiated the contract, but asserts that one or other of the rescissions of 25 August 2015 and 20 October 2015 was effective. He asserted that s 66ZL of the Conveyancing Act had no application to the contract. Mr McMahon denied that the defendants did not proceed with all due dispatch to obtain the consent of the Council to the plan of sub-division. He did not admit that the plaintiff was ready, willing and able to complete the contract for sale.

Mrs McMahon admitted that she executed the contract for sale. Her Defence was otherwise in similar terms to those contained in the Defence filed by Mr McMahon.

The plaintiff filed a Reply in respect of Mr McMahon’s denial that he had executed the contract. The plaintiff alleged that if that was so, the contract was executed for him by Mrs McMahon as his agent with his knowledge and permission. The plaintiff further alleged that Mr McMahon subsequently ratified the contract, or acquiesced in it, so as to make it binding upon him. Amongst the conduct said to amount to ratification or acquiescence were the purported rescissions of 25 August 2016 and 20 October 2016 effected by solicitors acting for both of the defendants. The Reply also contained claims, made in the alternative against Mrs McMahon, of misleading or deceptive conduct and breach of warranty of authority.

The defendants were initially represented in the proceedings by Ms Stack (of Shore Stack Lawyers and then of Hub Lawyers). However, on 13 September 2017 Ms Stack gave notice of her intention to file a Notice of Ceasing to Act. The defendants did not thereafter appoint a solicitor to act for them. At the hearing, Mr McMahon appeared for himself, and also sought to appear for Mrs McMahon who did not appear when the matter was called. No objection to that course was raised by Mr McNally of Senior Counsel, who appeared for the plaintiff.

An affidavit sworn by the plaintiff was read. He was not required for cross-examination. Two affidavits sworn by Mr McMahon were read. Mr McMahon was required for cross-examination. No evidence was adduced from Mrs McMahon. Aside from the documents contained in the exhibits to the affidavits of Mr Klein and Mr McMahon, some further documents were admitted into evidence, including a report of a valuer who expressed the opinion that the value of the lot the subject of the contract for sale was $515,000 as at 26 April 2017.

The first issue to consider is whether a binding agreement for sale was made between the plaintiff and the defendants. This issue arises because of Mr McMahon’s denial that he executed the contract for sale which was exchanged on 2 July 2015.

Mr McMahon deposed, and maintained in the witness box, that he did not sign the contract. He said that his wife told him at some stage that she had signed his name on the contract. I accept Mr McMahon’s evidence on these matters. This evidence was not, in the end, challenged by the plaintiff. The plaintiff instead took the position that Mrs McMahon signed the contract for her husband, acting as his agent in that regard.

Mr McMahon made a number of concessions in the course of his cross-examination. He accepted that he and his wife wished to subdivide their property and sell the part upon which their residence stood. He said that they decided to sell the property for $350,000. Mr McMahon accepted that he and his wife had signed an agency agreement with a real estate agent to market that lot for sale. He seemed to accept that he knew the property was to be marketed at a price of $350,000. At one point Mr McMahon said that he “was aware that there was a sale done”, although he did not know who the buyer was. He later said he could not recall whether his wife told him that the property had been sold.

Mr McMahon agreed that, apart from his own business of selling books, he leaves everything of a financial or business nature to his wife to deal with. He further agreed that his wife was acting as his representative during the whole transaction “right from putting it on the market to registering the plan of sub-division”. Mr McMahon did not distinctly agree that he was happy for his wife to do what was necessary in order to get the deal done, but said he was “happy for her to be happy”.

Mr McMahon nevertheless maintained that he did not know that his wife might sign documents on his behalf. He said that he never gave her permission to sign on his behalf. Mr McMahon denied that he knew that a contract had been entered into, although he seemed to accept that he suspected that there was a contract. He also accepted that he knew that there was a buyer.

In my opinion it should be inferred from the evidence that a relationship of principal and agent arose between Mr and Mrs McMahon, whereby Mrs McMahon was authorised to act for Mr McMahon in effecting a sale of the proposed sub-division lot upon which their residence stood. Mr and Mrs McMahon had discussed the transaction and agreed that they would sell the property for $350,000. The property was marketed at that price. Mr McMahon later became aware that there had been a sale to a buyer at that price. It is very likely that Mrs McMahon told him about that. As was apparently customary, Mr McMahon was content to leave to his wife the carrying out of the transaction. That included doing things on his behalf. As he said, Mrs McMahon was acting as his representative throughout the transaction.

I should add that whilst it seems that Mr McMahon did not see the contract until much later, he at least suspected that a contract for sale had been entered into. Mr McMahon, as a co-owner of the property, must have known that he would be a party to any such contract. Mr McMahon agreed that he was content for the sale to proceed. His attitude of acquiescence is consistent with him knowingly leaving the conduct of the transaction to his wife.

It should be concluded that Mrs McMahon, with the knowledge and approval of her husband, was placed in the position of a representative for Mr McMahon in the sale transaction. That status is reflected in her description on the front page of the contract as Vendor’s Representative. In my opinion there was a general conferral of authority by Mr McMahon to do what was required on his behalf to bring the transaction to fruition. The authority so conferred extended to signing documents on his behalf (including a contract for sale), as required in furtherance of the transaction. A transaction of the type contemplated would ordinarily require documents to be signed by Mr McMahon as one of the vendors. In these circumstances, it does not matter that Mr McMahon may not have expressly authorised his wife to sign documents, or the contract, on his behalf (see Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 per Jordan CJ). It was not suggested that Mr McMahon imposed a prohibition upon his wife in that regard.

In my opinion, a binding agreement for sale arose upon exchange of contracts on 2 July 2015. The signing of Mr McMahon’s name on the contract by Mrs McMahon was an act done within the scope of the authority conferred upon her as his representative in the transaction.

In light of that conclusion, it is not necessary to consider any question of ratification, or the other matters raised in the Reply.

The next issue to consider is whether the contract for sale was rescinded by the defendants on either 25 August 2016 or 20 October 2016.

The rescissions were each based on Special Condition 13. That condition provides for a right of rescission by either party if the sub-division plan has not been registered as a Deposited Plan within 6 months after 2 July 2015. However, as submitted by the plaintiff, the position is affected by s 66ZL of the Conveyancing Act.

That section was introduced into the Act by the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW). The relevant transitional provisions, contained within cll 15 and 16 of Part 9 to Schedule 9 of the Conveyancing Act, provide as follows:

Section 66ZL itself provides:

The land the subject of the contract for sale in this case was described as Lot 1 in a proposed sub-division of Lot B DP 156341. The land is plainly “residential property” within the meaning of s 66Q(1)(a) of the Conveyancing Act. The land is not taken outside the concept of “residential property” by the operation of s 66Q(2). The land is thus a “residential lot” within the meaning of s 66ZL. Moreover, the residential lot (the subject lot) had not been created at the time the contract was entered into. Accordingly, the contract for sale is an “off the plan contract” within the meaning of the section.

Further, Special Condition 13 is in my opinion a “sunset clause” within the meaning of s 66ZL. It makes provision for the contract to be rescinded if the subject lot is not “created” by a certain date (being six months after 2 July 2015). That is, it provides for rescission if the plan creating the lot has not become a registered plan by that date (see s 66ZL(2)). In my view, the date is a “sunset date” within the meaning of the section. It is the latest date by which the subject lot must be created before the right to rescind arises under the sunset clause.

Subsections 66ZL(3) and (4) operate to restrict the circumstances in which a vendor may rescind an off the plan contract under a sunset clause if the subject lot has not been created by the sunset date. A rescission of that nature may only occur if:

None of those circumstances apply to the present case. The defendants did not serve any notice in accordance with s 66ZL(4), and they did not seek an order from the Court under s 66ZL(6). I am not aware of any regulation that would permit the defendants to otherwise rescind the contract for sale under the sunset clause. It follows that the defendants’ purported rescissions were not effective.

It is not necessary to consider whether the rescissions would have been effective absent the operation of s 66ZL.

The defendants seemed to accept that the plaintiff had not repudiated the contract. They were correct to do so. The Hall’s Conveyancing letter of 25 August 2016, and in particular its final paragraph concerning the deposit, did not in my view amount to a repudiation of contract. The defendants’ purported termination of the contract on 16 September 2016 was accordingly invalid.

For the above reasons, the contract for sale remains on foot. The Court will make a declaration to that effect.

The plaintiff gave evidence that he was ready, willing and able to complete the purchase. He deposed that he had arrangements in place to borrow $300,000, and pay the balance from personal funds. This evidence was not challenged. I note that there was also some documentary evidence that suggested that the plaintiff was at times able to renew his finance approval for the purchase. Further, in circumstances where the value of the lot seems to be considerably greater than the purchase price of $350,000, I am comfortably satisfied that Mr Klein is now, and has at all relevant times been, ready, willing and able to perform his essential obligations under the contract (see Mehmet v Benson (1965) 113 CLR 295 at 307 per Barwick CJ).

The defendants did not raise any other matters to suggest that there was any bar to an order for specific performance, or that specific performance should be declined on discretionary grounds. However, Mr McNally informed the Court, fairly, that the plaintiff understood that payment of the balance of the purchase price might not be enough to enable the defendants to effect a discharge of the first mortgage that exists on the property. It seems that about $411,000 is presently owed. That may be so, but I do not see any reason to withhold specific performance on the ground of impossibility. The mortgage is, presumably, registered over both of the lots created by the sub-division. Moreover, there is good reason to think that the defendants will now make every effort to complete the sale, and thus avoid the risk of further proceedings in which the plaintiff makes a claim for loss of bargain damages.

The Court will therefore make an order for specific performance of the contract for sale. The parties will of course have liberty to apply in the event that difficulties arise in the course of performance of the contract. It is not necessary to consider the plaintiff’s alternative claim for damages in lieu of specific performance.

There seems to be no reason why costs should not follow the event. The Court will therefore order that the defendants pay the plaintiff’s costs of the proceedings.