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«Remedies for Breach of Contract for Sale of Land Melbourne 2 October 2008* Speaker: John Arthur Barrister-at-Law Isaacs Chambers Melbourne, VIC ...»

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Remedies for

Breach of Contract

for Sale of Land

Melbourne

2 October 2008*

Speaker: John Arthur

Barrister-at-Law

Isaacs Chambers

Melbourne, VIC

Telephone: (03) 9225 8291

Liability limited by a scheme approved under Professional Standards Legislation

* revised March, 2011

Continuing Professional Development Seminars

Post Office Box 598, North Melbourne, VIC 3051

Telephone: (03) 9328 2688

Website: www.cpds.com.au

Table of Contents

Introduction

The Different Meanings Of The Word “Rescission”

Rescission For Breach Of Condition Or Breach Of An Essential Term

Statutes Which Create Causes Of Action For Statutory Misrepresentation Or Misleading And Deceptive Conduct................ 9 Essential Pre-Requisites To The Exercise Of A Right To Rescind

Loss Of The Right To Rescind

The Consequences Of Rescission

Relief From Forfeiture In Favour Of A Purchaser Following A Valid Termination Of A Contract By A Vendor

Tanwar – Victorian Position

Other Remedies

Vendor’s Right To Damages

Purchaser’s Right To Damages

Specific Performance

Conclusion

Bibliography

Introduction:

1.1 Traditionally a distinction has been drawn between a right and a remedy. A right (in the sense of a cause of action) is viewed as a prerequisite to a remedy, thus it has been said for every right there is a remedy. The right is the primary, and the remedy is the secondary, obligation. There is also the distinction between remedies and procedure. Remedies are the ends which the administration of justice seeks to achieve and the procedure is the means for achieving those ends. Remedies may be classified as substitutional, specific or declaratory; in personam or in rem. Some are discretionary and others as of right. Remedies may have legal, equitable or statutory origins (see Principles of Remedies, Covell & Lupton, B/worths, 1995, pp. 2-4;

Remedies, Kercher & Noone, LBC, 1990, pp. 1-6).

Where a contract for the sale of land “goes off” by reason of one party‟s 1.2 default, the remedies which may be available to the innocent party will depend upon the right infringed and will include, rescission, termination, damages and/or specific performance, as well as analogous remedies under the Sale of Land Act 1986 (Vic) and the Trade Practices Act 1974 (Cth)* and Fair Trading Act 1999 (Vic)*. The party may need to invoke the remedy of rectification or in some circumstances, other ancillary equitable remedies, such as an injunction.

1.3 In this seminar, there will be a general discussion about the remedies available for breach of contract for sale of land, identifying the circumstances where they may become available and the pre-conditions to their grant.

Rescission:

1.4 Probably the most common, and arguably, the most important, remedy or right in the context of disputes surrounding contracts for the sale of land is that of rescission or termination. Depending upon the circumstances, the * see now, s. 18 Australian Consumer Law (which is Sched. 2 to the Competition and Consumer Act 2010 (Cth.)) remedy may be available to either vendor or purchaser. Often, the determination of which party has this right is a „watershed‟ issue, which will determine what other rights or remedies flow; which of the parties is innocent;

where the deposit should go and which party must pay damages. Often the question will simply be: by whose default did the contract “go off”?

1.5 As is discussed below, loss of bargain, or expectation, damages are only recoverable if the contract is at an end.

1.6 The failure to properly exercise the remedy, may result in the right being lost and may affect what other remedies are available. The right must be validly exercised – clearly, unequivocally and in proper form.

1.7 A claim to rescission is a right of action but is not itself a chose in action (and consequently cannot be assigned separately from the property affected by the transaction that is sought to be rescinded).

The different meanings of the word “rescission”:

In the law, the word “rescission” may be used in a number of different senses, 2.1

rescission:

–  –  –

(largely drawn from the meanings of the term identified by Meagher Gummow & Lehane, Equity Doctrines & Remedies, 3rd Ed, para 2401-2405) It should be noted that the use of the word “rescission” in contexts other than 2.2 (c) above has been criticized on the basis that there is a clear distinction between rescission, or more correctly, discharge, or termination of future obligations on the one hand, and rescission ab initio on the other (eg. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 844; Halsbury’s Laws of Australia, para [110-9005]; Remedies, Kercher & Noone, 2nd Ed., LBC, pp. 257-258). In Victoria, the word “rescission” is used in the General Conditions in Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic) (“Table A”) (see clauses 6 and 7) which has in the past been incorporated into most land contracts in Victoria in the senses referred to in (a) and (b) above and in the Sale of Land Act (eg. ss. 9AE(1), 27(8)(b), 32(5)). cf. the new General Conditions in the form of contract prescribed under the Estate Agents (Contracts) Regulations 2008 (“the new conditions of contract”).





[References hereinafter to the new conditions of contract will be simply “GC”].

Rescission for breach of condition or breach of an 3.1

essential term:

–  –  –

3.3.2 Transactions and dispositions (not just contracts) may be set aside ab initio (and not merely in futuro) in equity which have been improperly procured by equitable fraud, innocent misrepresentation, undue influence, breach of fiduciary duty or other unconscionable conduct.

(ibid, Meagher Gummow & Lehane at para 2403-4)

Statutes which give a right to rescind a contract:

3.4 3.4.1 In the context of contracts for the sale of land, the principal statute is the Sale of Land Act 1962 (Vic.)(“SLA”) which gives the purchaser many different rescission rights. The SLA also often specifies consequences of rescission.

–  –  –

(* see, Everest Project Developments Pty Ltd v Mendoza & Ors [2008] VSC 366; Clifford & Anor v Solid Investments Australia Pty Ltd [2009] VSC 223; affd on appeal Solid Investments Australia Pty Ltd v Clifford & Anor [2010] VSCA 59)

Acceptance of repudiation:

3.5 3.5.1 A right of rescission or termination will be available to the innocent party if the other party repudiates the contract. This will invariably involve a breach of condition as discussed in section 3.1 above.

–  –  –

4.1.1 A contravention of s. 52 Trade Practices Act 1974 (Cth.)(“TPA”) may allow the Court to impose remedies very similar to rescission. This much litigated section extends to any conduct that is likely to mislead or deceive, as, for example, the making of negligent statements and false representations. Section 52 does not of itself create liability rather it establishes a norm of conduct and failure to observe that norm can be met by a range of remedies under the Act or under the general law. In the present context this includes, for contracts to be discharged and modified under s. 87 TPA where loss and damage has been, or is likely to be, suffered (viz. order declaring contract void or void ab initio (s. 87(2)(a), varying a contract (s. 87 (2)(b)) or refusing to enforce any provisions of a contract (s. 87(2)(ba))(see, generally, R. V Miller, Annotated Trade Practices Act, 33rd Ed., 2011, Thomson Reuters, Australia). If the party misled or deceived has suffered loss and damage as a result of the conduct, he or she may also recover damages under s. 82 Trade Practices Act. See now, s. 18 Australian Consumer Law (which is Sched. 2 to the Competition and Consumer Act 2010 (Cth.)) 4.1.2 In Victoria, the Fair Trading Act 1999 (Vic)(”FTA”) has enacted many of the provisions of the TPA. Comparable provisions to ss. 52 and 87 TPA can be found in ss. 9 and 158(2)(a), (b) and (c) FTA.

4.1.3 By way of example, a purchaser may seek to rescind a contract if in advertising land, a vendor or its agent has made representations misdescribing the property which induced the purchaser to enter into the contract to purchase it. The purchaser may seek to establish that the representations were misleading and deceptive in contravention of s. 52 TPA. If successful, and if avoided prior to completion, the Court would ordinarily order rescission, a refund of the deposit (eg Byers v Dorotea (1986) 69ALR 715) and interest. If after completion and the purchaser has retained the property, the damages would generally be based on the difference between the price paid for the property and its true value (Gates v City Mutual Life Association Society Ltd (1986) 160 CLR 1) and recoverable consequential losses.

Mutual abandonment/discharge by agreement:

4.2

–  –  –

4.2.2 The parties to a contract for the sale of land may also expressly agree to its discharge. The usual requirements for an enforceable and binding contract must be present, including consideration.

Essential pre-requisites to the exercise of a right to 5.1

rescind:

–  –  –

5.3 Where rescission in equity is sought, the remedy is discretionary and the usual equitable defences apply, including laches and acquiescence.

Loss of the right to rescind:

6.

Under the Common Law and in Equity:

6.1 The right to rescind will be lost if the party with such right affirms the contract (Sargent v ASL Developments Ltd (1974) 131 CLR 634), or if there is waiver or estoppel (Cth v Verwayen (1990) 170 CLR 394).

Delay in exercising the right may raise an estoppel, or be regarded as an election to affirm the contract or conduct precluding rescission (Principles of Equity, 2nd ed at pp 933-4).

6.2 A right to rescind for innocent misrepresentation may be lost after completion. Even though the rule in Seddon’s case has been disapproved, the High Court has recently cited it with apparent approval (Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at

585) and it has been applied in the context of land contracts in the past (eg Svanosio v McNamara (1956) 96 CLR 186). The rule does not apply if there has been fraud or even equitable fraud (Taylor v Johnson (1983) 151 CLR 422 at 431).

6.3 A vendor may be precluded from rescinding if it has engaged in unconscientious conduct in exercising his or her contractual right to terminate (Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57;

(2003) 217 CLR 315).

–  –  –

6.4 Specific statutory provisions which confer rights of rescission will generally state when the right may be exercised and can also apparently be lost by affirmation (eg. Australian Horizons (Vic) Pty Ltd v Ryan Land Co Pty Ltd [1994] 2 VR 463)(cf. Everest Project

–  –  –

The consequences of rescission:

7.

7.1 The consequences of rescission for the innocent party are that certain remedies may become available, the foremost of which is a right to damages (which is discussed in sections 11 – 13 below).

7.2 As has been noted (in paragraph 3.1.1), where a party elects to rescind a contract for breach of condition both parties are discharged from further performance but, as noted above, rights are not divested or discharged which have already been unconditionally acquired.

Where a contract is rescinded because of matters which affect its formation, the parties are restored, as far as possible, to their precontractual positions.

7.3 A purchaser who rescinds the contract upon a breach committed by the vendor will be entitled to recover his deposit and any other moneys paid by him under the contract and will also be entitled to recover damages for the breach (ibid Voumard at p. 448). Damages are dealt with in more detail below.

7.4 Where the vendor validly rescinds a contract for a failure by the purchaser to comply with a condition or for breach going to the root of the contract, the deposit is generally forfeited to the vendor, the vendor is relieved from further performance and he or she is entitled to sue the defaulting purchaser for damages.

7.5 Indeed, if a vendor validly rescinds a contract upon the failure of a purchaser to complete in accordance with an essential time stipulation, then, in the absence of fraud, accident or mistake or other conduct of the vendor which has in some significant respect caused or contributed to the breach of the essential time stipulation, the contract will be at an end and the purchaser will have no basis for seeking specific performance (ibid Tanwar). Tanwar is discussed in more detail below.

7.6 Where a purchaser rescinds the contract for misrepresentation or some other vitiating factor which affects its formation, the usual remedy is for orders for rescission and repayment of the deposit (eg.

Simons & Anor v Zartom Investments Pty Ltd [1975] 2NSWLR30).

Damages are not available for innocent misrepresentation. The misrepresentation must be negligent or fraudulent (or a „statutory misrepresentation‟ under s. 52 Trade Practices 1974 (Cth.) or s. 9 Fair Trading Act 1999 (Vic.)) to attract damages.

7.7 The consequences of rescission or discharge by agreement depend upon the terms of the agreement. The parties can agree what will take place upon the contract being discharged.

Relief from forfeiture in favour of a purchaser following a 8.

valid termination of a contract by a vendor: Tanwar

Enterprises Pty Ltd v Cauchi:



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