Adelaide Law School Research Paper No. 2015-08 - SSRN papers

Adelaide Law School Research Paper No. 2015-08

Electronic copy available at: http://ssrn.com/abstract=2607397

South Australia Editor: Paul Babie* VENDOR’S STATEMENTS, THE RIGHT TO COOL OFF AND REMEDIES: LE CORNU AND KURDA V PLACE ON BROUGHAM PTY LTD Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 confirms that a Vendor’s Statement is not invalid due solely to the non-existence of the property the subject of such statement. Yet, once a Vendor’s Statement is rendered invalid on other grounds, the right to cool off remains open, allowing the purchaser a choice between electing to affirm or rescission. In either case, though, the vendor retains the right to claim estoppel.

INTRODUCTION In Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32, the South Australian District Court considered the right to cool off in the event of an ostensibly defective Vendor’s Statement. The District Court held a Vendor’s Statement to be validly given even though a lot to be sold off the plan had not yet been constituted by subdivision. On the basis that it omitted an encumbrance, however, the choice between electing to affirm, or rescission, faced the purchaser. On the basis of that choice, though, rested the ability of the vendor to claim estoppel.

FACTS Le Cornu involved a dispute over a deposit of $299,990 paid to the defendant/vendor, Place on Brougham, by the plaintiffs/purchasers, Le Cornu and Kurda, pursuant to a contract for pre-purchasing a unit in a North Adelaide property development. The plaintiffs entered the contract with the intention of on-selling the unit at a profit.1 The defendant served the required Vendor’s Statement at the time the contract was signed, before development had begun,2 but in November 2007 the plaintiffs served a notice of cooling off,3 purportedly rescinding the contract. Despite extensive advertising, the plaintiffs had been unable to find a buyer and were unable to follow through with settlement of the contract with the defendant.4 They had discovered purported defects in the Vendor’s Statement in June or July 2007, and were instructed about their rights to cool off, and yet did not serve a notice of cooling off until October 2007. In the meantime, the plaintiffs had continued to advertise the property, including after purporting to cool off.

DECISION Judge Cuthbertson in the District Court of South Australia dealt with two principal issues: first, whether the Vendor’s Statement was invalid due to the property in question not yet being in existence; second, whether the plaintiffs had elected to be bound by the contract and so were estopped from denying its existence. In relation to the Vendor’s Statement, the main argument against validity [AQ: is validity correct here?]had been that, at the time of entering the contract, the property in question was subdivided in a way that did not reflect the proposed plans for development. As such, the plaintiffs argued, it was not *

Adelaide Law School, The University of Adelaide.

1

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [13].

2

Disclosure of property details required to be served at least 10 days before settlement under s 7 of the Land and Business (Sale and Conveyancing) Act 1994 (SA). 3

Land and Business (Sale and Conveyancing) Act 1994 (SA) s 5.

4

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [92]-[94].

() 1 Prop L Rev 1


1

South Australia

possible to create a complete and accurate Vendor’s Statement about a title to land that was not extant. For that reason, it was claimed, the required disclosure had not occurred.5 Judge Cuthbertson found against the plaintiffs on this point. While the Real Property Act 1886 (SA) did not “directly answer” the question, surrounding and related provisions did. Judge Cuthbertson proffered three reasons for this: first, the Real Property Act affirms the validity of contracts for land on which division is contemplated but not yet completed;6 second, as “off-plan” sales are a common occurrence, vendors so selling would be in an unstable position if the right to cool off was preserved until they had carried out a substantial portion of the project;7 and, third, the Land and Business (Sale and Conveyancing) Act 1994 (SA), s 10(1), provides for the reissue of a Vendor’s Statement in light of changed circumstances between the time of the statement and the contract, but not between contract and settlement.8 Thus, as long as the Vendor’s Statement was accurate at the time of service, it would not be invalid even if the property to be sold was not extant because there is no obligation to provide particulars of a non-existent property.9 Judge Cuthbertson noted that in such circumstances both vendor and purchaser could benefit from an early enforceable contract.10 Still, while the non-existence of the property the subject of the title was not enough to invalidate the Vendor’s Statement, the omission of mention of a fixed and floating charge held by National Australia Bank over the whole property was.11 This had the effect of preserving the plaintiffs’ right to cool off. Yet, despite this, and even if the Vendor’s Statement had been invalid for the reason of the absence of the underlying property the subject of the title, the plaintiffs were held to have elected to complete the contract, and were also estopped from denying its validity. On the issue of election, Judge Cuthbertson applied the High Court decision in Sargent v ASL Developments Ltd (1974) 131 CLR 634, holding that the plaintiffs, when they discovered any invalidating omissions in the Vendor’s Statement, had two inconsistent paths open to them: elect to affirm, or rescind. And by continuing to act as though they considered the contract binding by openly advertising the property for sale, the plaintiffs elected to affirm it at the expense of their right to rescind.12 This election had certainly taken place through conduct after July 2007, by which time the plaintiffs had full information about the defects in the Vendor’s Statement and their rights to cool off.13 Judge Cuthbertson distinguished the facts in Le Cornu from the New South Wales decision of Cockburn v Key Urban Pty Ltd [2009] NSWSC 458, in which the purchaser had continued to advertise and negotiate for the sale of property even after a purported rescission had been made on the basis of defects in a Vendor’s Statement. In that case election was held not to apply because no occasion had arisen in which the purchaser had to choose between electing to affirm and rescission; simply, it was found that no binding contract to sell the land had been entered and so the vendors were not purporting that they would eventually have title to pass.14 In Cockburn, it was held that the purchaser had merely been establishing a contingency plan in case their rescission argument was rejected at trial.15 5


6

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [29]; Real Property Act 1886 (SA), s 223LB(5).

7

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [28], [30]-[31].

8


9


10


11

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [71]-[72]; this information is required to be on the Vendor’s Statement under the Land and Business (Sale and Conveyancing) Act 1994 (SA), s 7(1)(b)(i). 12

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [124]-[125], [133], [153].

13

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [114], [127]-[133].

14


15

Le Cornu and Kurda v Place on Brougham Pty Ltd [2013] SADC 32 at [38], [46].

2

() 1 Prop L Rev 1


South Australia

Prima facie, Cockburn seems identical to Le Cornu. Yet Judge Cuthbertson distinguished it on two grounds. First, the advertising in Le Cornu carried an “implied representation” that the plaintiffs had the right to dispose of the property, which would only be true if the cooling-off was to no effect.16 While it is difficult to see why this was true of the advertising in Le Cornu but not of Cockburn, the cases were further distinguished by Judge Cuthbertson by the conduct of the plaintiffs: the key distinguishing factor seemed to be fairness to the defendant.17 In Le Cornu, as opposed to Cockburn, the plaintiffs sought to hide their rights and intentions of rescission from the defendant, with a view to making a profit by on-selling if possible. By doing so, they deprived the defendants of the opportunity to mitigate, and gave them no indication that settlement would not go ahead as planned. As such, the period of time in which the plaintiffs attempted to retain their right to cool off in reserve was critical to the success of the defendant’s election argument. Finally, Judge Cuthbertson applied Astill v South Esplanade Developments Pty Ltd [2007] SASC 231 concerning the availability of estoppel in the case of a defective Vendor’s Statement.18 By continuing to advertise the property for on-sale, and by doing nothing to correct the assumptions that this induced in the defendants – that the settlement would go ahead and that the cooling off period was expired – the plaintiffs acted unconscionably and were therefore estopped from denying the validly of the contract.19 The effect of the existence or otherwise of the property and any encumbrances affecting it on the validity of the Vendor’s Statement notwithstanding, the doctrines of election and estoppel have been affirmed as applying to a contract for the sale of land.

CONCLUSION Le Cornu confirmed that a Vendor’s Statement is not invalid due solely to the non-existence of the property the subject of such statement. In this case, the fact that a unit had been sold off the plan, but not yet the subject of a plan of subdivision, was not of itself sufficient to render invalid the Vendor’s Statement. Still, once the Vendor’s Statement was rendered invalid on other grounds, the right to cool off was left open, presenting the purchaser with a choice between electing to affirm, and rescission. This, in turn, however, left the vendor with the right to claim estoppel. Paul Babie Sincere thanks to Laira Krieg, LLB, 2015, who provided outstanding comments and research assistance in the preparation of this note, for which the author is extremely grateful.

16


17


18

Astill v South Esplanade Developments Pty Ltd [2007] SASC 231 at [99]-[102] (Bleby and Sulan JJ).

19


() 1 Prop L Rev 1

3