AUSTRALIAN INSTITUTE OF CONVEYANCERS (NSW DIVISION) 2017 EDUCATION PROGRAM Formation of Contract and the Role of Agents PRESENTED BY: TONY CAHILL 15 MAY, 2017 HORNSBY RSL CLUB 4 High Street, Hornsby
Formation of contract and the role of agents Legal Commentator and Author TABLE OF CONTENTS About the author... iii A problem 1 Some (hopefully uncontroversial) statements of basic principles 1 Statutory provisions for contracts passing interests in land 2 Section 23C or section 54A? 4 The scope of an agent s authority in relation to land transactions 10 Breach of warranty of authority 12 Agents (not only estate agents) and the formation of real estate contracts 14 i
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ABOUT THE AUTHOR started practice in 1981. After 13 years with a medium-sized city law firm, Tony commenced practice on his own account at Chatswood until June 2002. Tony is currently undertaking a sabbatical from private practice to concentrate on projects in continuing professional education. Tony is a member of the Law Society s Property Law and Environmental, Planning and Development Committees. He has been a member of the Re- Draft Committees for the 2000 and 2004 editions of the Contract for the Sale of Business, and the Contract for the Sale of Land since the 1992 edition. Tony was a co-author with Russell Cocks and Paul Gibney of the first New South Wales edition of 1001 Conveyancing Answers, and is currently a coauthor of Conveyancing Service New South Wales and Annotated Conveyancing and Real Property Legislation New South Wales, both published by LexisNexis. Tony has been a part-time lecturer at the University of Technology, Sydney, in subjects including construction law, legal studies, and real estate law, and is a part-time lecturer at the Sydney and Northern Sydney Institutes of TAFE in various law subjects. iii
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Formation of contract in real estate transactions A problem You regularly act for clients who are, in broad terms, remote from your office. You have adopted a practice when acting for such clients of having them execute a form of authority in these terms: AUTHORITY TO EXECUTE Pursuant to Sections 23C and 54A of the Conveyancing Act 1919 I [purchaser s name] hereby authorise [practitioner s name], Licensed Conveyancer, to execute on my behalf the Contract for Sale of Land for the purchase of [address] from [vendor s name] for the purchase price of $500,000. Dated this [date] [Purchaser s signature]. Your colleague says such an authority is not sufficient. Your initial thoughts? Some (hopefully uncontroversial) statements of basic principles 1. An agent can enter into a contract which binds the principal (including one dealing with an interest in land). Estate agents do so regularly in the context of residential tenancy agreements; auctioneers do so during the course of an auction; attorneys under a power of attorney often enter into contracts; an artificial person such as a company can only act through the steps taken by one or more agents. 1
2. An attorney under a power of attorney is an agent for the donor of the power. 3. If the prescribed form of power of attorney is used, the attorney is given wide powers. Under the Powers of Attorney Regulation 2016, the wording is: My attorney may exercise the authority conferred by Part 2 of the Powers of Attorney Act 2003 to do anything on my behalf I may lawfully authorise an attorney to do. 4. A solicitor (and by extension a conveyancer) can in some situations be the agent for their client. Statutory provisions for contracts passing interests in land Contracts dealing with interests in land have, for reasons of public policy (not least of which being the power attaching to land ownership and the attendant risks of land fraud) have long been subject to special rules. The successor in New South Wales to the Statute of Frauds is Div 3 of Pt 2 of the Conveyancing Act 1919. Division 3 Assurances of land 23B Assurances of land to be by deed (1) No assurance of land shall be valid to pass an interest at law unless made by deed. (2) This section does not apply to: (a) (b) (c) (d) (e) (f) an acknowledgment under section 83 of the Wills, Probate and Administration Act 1898, a disclaimer made in accordance with any law relating to bankruptcy in force before or after the commencement of the Conveyancing (Amendment) Act 1972, or not required to be evidenced in writing, a surrender by operation of law, and a surrender which may, by law, be effected without writing, a lease or tenancy or other assurance not required by law to be made in writing, a vesting order, any other assurance taking effect under any Act or Commonwealth Act. 2
(3) This section does not apply to land under the provisions of the Real Property Act 1900. 23C Instruments required to be in writing (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a) (b) (c) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person s agent thereunto lawfully authorised in writing, or by will, or by operation of law, a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person s will, a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person s will, or by the person s agent thereunto lawfully authorised in writing. (2) This section does not affect the creation or operation of resulting, implied, or constructive trusts. 23D Creation of interests in land by parol (1) All interests in land created by parol and not put in writing and signed by the person so creating the same, or by the person s agent thereunto lawfully authorised in writing, shall have, notwithstanding any consideration having been given for the same, the force and effect of interests at will only. (2) Nothing in this section or in sections 23B or 23C shall affect the creation by parol of a lease at the best rent which can reasonably be obtained without taking a fine taking effect in possession for a term not exceeding three years, with or without a right for the lessee to extend the term at the best rent which can reasonably be obtained without taking a fine for any period which with the term would not exceed three years. 23E Savings in regard to secs 23B, 23C, 23D Nothing in section 23B, 23C, or 23D shall: (a) (b) (c) (d) invalidate any disposition by will, or affect any interest validly created before the commencement of the Conveyancing (Amendment) Act 1930, or affect the right to acquire an interest in land by virtue of taking possession, or affect the operation of the law relating to part performance. Section 54A of the Act is also relevant: 3
54A Contracts for sale etc of land to be in writing (1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged. (2) This section applies to contracts whether made before or after the commencement of the Conveyancing (Amendment) Act 1930 and does not affect the law relating to part performance, or sales by the court. (3) This section applies and shall be deemed to have applied from the commencement of the Conveyancing (Amendment) Act 1930 to land under the provisions of the Real Property Act 1900. Section 23C or section 54A? In my view the reference in the authority reproduced above to both section 23C and section 54A is muddying the waters. The sections cover different situations (as suggested by the fact that they are not within the one subdivision of the Act). They have different criteria (s23c is more strict in its requirements than s54a). In particular, the former section requires an agent to be lawfully authorised in writing, the latter merely lawfully authorised. If the authority is to be limited in its operation to the signing of contracts for the sale and purchase of land, section 54A is the relevant section. The distinction between the two sections is explained in Baloglow v Konstantinidis [2001] NSWCA 451. That case involved the acrimonious dissolution of a property development partnership between a solicitor and an accountant. The Supreme Court made consent orders winding partnership up and appointing receiver. The former partners wanted to terminate the receivership and to see if they can agree on a figure for which B would sell his partnership interests to K. There was a meeting between the solicitors for K and B at which proposals for such a sale discussed and allegedly agreed on. K claimed that an enforceable agreement was made at the meeting by which K promised to pay B $1.05 million in return for the transfer to K of specified partnership assets and removal of the receiver. B disputed the making of an agreement. K brought specific performance proceedings B denied that any concluded enforceable agreement was made and alternatively relied on sections 23C and 54A of the Conveyancing Act. 4
Konstantinidis was successful both at first instance and on appeal. The lead judgment in the Court of Appeal was delivered by Priestley JA. At paragraph [101] His Honour observed: Some things about s 23C are regarded as mysterious, both as to its relationship with s 54A and to the relationship between pars (a), (b) and (c) of s 23C(1) itself: see in particular the 3rd edn (1992) of Meagher, Gummow & Lehane: Equity Doctrines and Remedies, at pars 704-754 (and for present purposes especially pars 709, 710). After setting out the sections His Honour continued (at [104] ff): 104 One simple point of distinction between the two sections is that both paragraphs (a) and (c) of s 23C(1) require an agent acting in the circumstances of the paragraph to be thereunto lawfully authorised in writing, a requirement that does not appear in s 54A. Bergin J does not appear to have dealt with this requirement of s 23C in her reasons, or perhaps considered that the doctrine of the perfect agreement, which she held operated in favour of Mr Konstantinidis so far as s 54A was concerned, applied also to the s 23C point. However, in my opinion it does not. A perfect agreement may be made as much by an agent as by a principal, but if that occurs in circumstances to which either par (a) or (c) of s 23C(1) applies, then that agent must have been authorised in writing 105 There is no sign in Bergin J s reasons that this point was raised with her, but it was recognised as a difficulty (if par (c) applied) by counsel for Mr Konstantinidis in their written submissions in the appeal. (Orange AB 37, par 19.) It was common ground in the appeal that there was no evidence that Mr Xenos had been authorised in writing, although as already mentioned, in my opinion it was established by a combination of the concession made on Mr Baloglow s behalf and the circumstances proved in evidence, that Mr Xenos was authorised to make the agreement which Bergin J found had been made. 106 The submission put in the appeal for Mr Konstantinidis in answer to the s 23C point was that the section did not apply to the transaction. The written submissions for Mr Baloglow did not deal with this but said the matter would be developed in oral submission. In the oral submissions Mr Douglas QC, senior counsel for Mr Baloglow, referred the court to (and handed up to the court) an article by Mr R.P. Austin in (1974) 48 ALJ 322 and also a further article by Mr N. Seddon in (1987) 61 ALJ 406 dealing with the operation of s 23C. Mr Douglas referred principally to par (a) of s 23C(1) and in doing so recognised the possibility that s 23C(2) might apply to the 5
agreement made at the meeting in which case subs (1) would have no application to the case (transcript of argument p 49). Subsection (2) if applicable, would have this effect also upon the agreement made at the meeting, if it fell within par (c) of subs (1). 107 When Mr Oslington came to deal with this aspect of the case he in turn handed up some written material to the court being pages from New South Wales Conveyancing Law and Practice dealing with s 23C. 108 All the materials which were handed up discussed Adamson v Hayes (1973) 130 CLR 236 in detail and both Mr Seddon s article and the pages from the New South Wales Conveyancing Law and Practice made frequent reference to the extensive discussion of the same subject matter in Meagher, Gummow & Lehane, Equity Doctrines & Remedies. The parties did not develop what was to be drawn from these materials to any extent, but rather left them at large with the court to consider, within the general outlines of the arguments. 109 The greater attention given to s 23C in the appeal (because of the requirement that the agent be authorised in writing) than appears to have been given to it at the trial makes it necessary to consider more closely than Bergin J did, both the nature of the agreement made on 28 July 1999 and the applicability or otherwise of s 23C to that agreement. 115 Without the burden of authority, I would have thought that each of pars (a), (b) and (c) of s 23C(1) was dealing with a different kind of assurance or disposition of some kind of interest in land. This is clearly suggested by the heading of Division 3 and the opening words of s 23C(1). Those opening words would indicate to the ordinary reader that what followed them would deal in one way or another with interests in land. However, decisions in the House of Lords on statutory provisions very similar to ss 23C and 54A and observations by Gibbs J in Adamson v Hayes (1973) 130 CLR 276, not forming part of the ratio decidendi, have led commentators on the New South Wales sections to conclude that s 23C(1)(c) applies to personalty as well as realty. The arguments and relevant materials are discussed in Meagher, Gummow & Lehane, op cit, par 710 where the conclusion I have mentioned is reached, though with some hesitation. (This view is carried into the 6th edition (1997) of Meagher & Gummow s Jacobs Law of Trusts in Australia, pars 621 and 703.) 116 Accepting, with some hesitation in my turn, Meagher, Gummow & Lehane s conclusion, the question becomes whether Mr Baloglow s agreement to sell his interest, by the machinery then agreed on, involved a disposition of an equitable interest or trust subsisting at the time of the disposition (my underlining). I do not think it was, for reasons 6
similar to those explained in the following paragraphs from Meagher, Gummow & Lehane (op cit): [711] Assuming that s 23C(1)(c) extends (as its equivalents elsewhere plainly do) to equitable interests in personalty, it is clear that a direct assignment of such an interest (within the first category referred to by Romer LJ in Timpson s Executors v Yerbury, [1936] 1 KB 645 ) must be writing complying with the section and is ineffective if it is not. [712] If A, being beneficially entitled to personalty, is also the owner of it at law, he may, subject to the principles discussed in Chapter 6, assign the personalty in equity to B while retaining the legal title. It could be argued that such an assignment whether voluntary (where writing would usually be required in any event: see [614] et seq) or for consideration requires writing under s 23C(1)(c). Whereas in equity A was formerly entitled to the personalty, B now is: that is, A has disposed of his subsisting equitable interest to B. [713] Although there seems to be no authority directly in point, it seems unlikely that that argument would find much favour. Where A owns property legally and beneficially, it appears to be wrong to say that he has two estates in the property, one legal and the other equitable and that, when he equitably assigns the property to B while retaining the legal title, he disposes of one of those estates. The correct analysis seems to be that A creates in B an equitable estate distinct from the estate held by A before he entered into the transaction. That is, A has not disposed of an equitable interest subsisting at the time of the disposition: he has created (out of, but distinct from his legal and beneficial ownership) an equitable interest which did not previously subsist. Section 23C(1)(c) therefore does not apply. [714] If that reasoning is accepted, it applies equally to equitable dealings, falling within categories (3) and (4) described by Romer LJ in Timpson s Executors v Yerbury, supra, with legal property and that leads to the conclusion that s 23C(1)(c) does not apply to equitable dispositions of legal interests in personalty. 117 I think similar reasoning properly applies to the circumstances of the present case, involving an equitable disposition of an equitable interest in personalty. Although the High Court in the Canny Gabriel case thought the interest there (either identical or very closely analogous to that in the present case) was sui generis they were nevertheless quite clear that it was an equitable interest (at (1974) 131 CLR 321 at 328). 118 In the present case, whatever Mr Baloglow s interest was in the partnership assets, at the moment of concluded agreement on 28 July 1999, that interest changed from one which belonged to him alone to one which from that moment he held on trust for Mr Konstantinidis and what passed to Mr Konstantinidis were equitable rights not in existence until then. 7
On this approach s 23C(1)(c) had no application to the agreement of 28 July 1999. 119 A further reason for the same conclusion, or perhaps merely a simpler expression of it, is that I doubt whether what Mr Baloglow had to sell on the day of the meeting was then disposed of. There was an agreement to dispose of it, in the manner then agreed. The disposal would take place when the agreement was carried into effect. 120 The conclusion stated in par 118 has two separate bases: that there was no relevant disposition within the meaning of par (c) and that in any event the operation of subs (2) prevented any operation of subs (1). This second basis stems from what was said by Lord Radcliffe in Oughtred v Inland Revenue Commissioners [1960] AC 206. Lord Radcliffe there expressed the view that a specifically enforceable agreement to assign an interest in property creates an equitable interest in the assignee constituting the assignor an implied or constructive trustee for the assignee. 121 On Lord Radcliffe s approach, subs (1) of s 23C would not apply to the agreement in the present case because of subs (2). In the materials the parties in the present case handed up to the court, and in the further materials mentioned in what was handed up, there was considerable discussion about the correctness or otherwise of Lord Radcliffe s approach. (Many commentators, including Meagher, Gummow & Lehane, op cit, par 739, thought Lord Radcliffe was right.) Then in Neville v Wilson [1997] Ch 144, Nourse LJ delivered the judgment of the English Court of Appeal (the other two judges being Rose and Aldous LJJ). In the reasons the various opinions in Oughtred were analysed; oversimplified, the facts were that an agreement (not in writing) was made between persons with equitable interests in particular shares assigning those interests to other persons; it was held that s 53(2) of the Law of Property Act 1925 (which was in the same terms as s 23C(2) applied to dispense with the requirement of s 53(1) of that Act. The Court s reasons, after consideration of Oughtred, contained this passage: We do not think that there is anything in the speeches in the House of Lords which prevents us from holding that the effect of each individual agreement was to constitute the shareholder an implied or constructive trustee for the other shareholders. In this respect we are of the opinion that the analysis of Lord Radcliffe, based on the proposition that a specifically enforceable agreement to assign an interest in property creates an equitable interest in the assignee, was unquestionably correct: (at 157) 122 A little later it was said: So far as it is material to the present case what subsection (2) says is that subsection (1)(c) does not affect the creation or operation of implied or constructive trusts. (at 158) 8
123 This would seem to settle the controversy, so far as England is concerned at any rate, about the correctness of Lord Radcliffe s approach. With respect, it seems to me to be supportable, and should be adopted here. 124 In Underhill and Hayton Law Relating to Trusts and Trustees 15th ed, 1995, (and thus published before Neville v Wilson was decided), Oughtred was analysed and the view expressed: where A contracts to sell his equitable interest to B the nature of his interested constructive trusteeship, vitally dependent upon the contractual obligations being carried out (particularly payment of the purchase price) means that A is not at the outset a simple bare trustee, so there is a true subtrust and not a full assignment of A s equitable interest to B so that s 53(1)(c) is inapplicable. (at 207) 125 This seems to me to be an analysis applicable to the circumstances in the present case and which I think should be adopted. It fortifies me in the view I had earlier reached about the agreement in the present case not falling within s 23C. So too does the discussion in Meagher, Gummow & Lehane (op cit) in pars 739-743, notwithstanding the authors caveat in par 743, the need for which, although not done away with, must at least be to some extent diminished, by Neville v Wilson. Giles JA explained the operation of the two sections in this way (at [161] ff): 161 I will state at the outset the application of s 23C which seems to me to be correct, namely - (i) so far as land was the subject of a step, the only interest in land created within s 23C(1)(a) was any equitable interest arising because equity would specifically enforce the contract, and s 23C(1)(a) does not apply to such an interest; (ii) again so far as land was the subject of a step, there was agreement to dispose of an interest in land, with the disposition to come when the agreement was performed, but no interest in land was disposed of within s 23C(1)(a); and (iii) so far as an equitable interest subsisting at the time was the subject of a step, arguably Mr Baloglow s equitable interest in 4 Denison Street, Manly, again there was agreement to dispose of that interest, with the disposition to come when the agreement was performed, but the interest was not disposed of within s 23C(1)(c). 162 If this analysis be correct, it permits a harmonious relationship between s 54A of the Conveyancing Act and s 23C. The former arises at the stage of agreement to create or dispose of an interest in land. It has its own 9
requirement of writing, less stringent than the requirement in s 23C in that a note or memorandum of the agreement is sufficient and the signing agent need not be authorised in writing. The latter arises at the stage of performance of an agreement or where there is no prior agreement, and in keeping with the importance attached to property rights has a more stringent requirement of writing in that the creative or dispositive instrument itself must be in writing and the signing agent must be authorised in writing. Section 54A excepts the operation of the law relating to part performance, material to an executory agreement, while s 23C excepts the operation of the law relating to trusts, material to property rights. Section 23C is in a Part of the Conveyancing Act dealing with property and a Division of that Part dealing with assurances, and otherwise concentrates on property rights, see s 23C(1)(b) dealing with declarations of trust and 23C(1)(c) dealing with disposition of subsisting equitable interests. There is no encouragement in its language to make it apply to executory agreements under which property rights are to be created or disposed of when the agreement is performed. The scope of an agent s authority in relation to land transactions In Paterson v Clarke [2002] NSWSC 1206; Young CJ in Eq considered the scope of an estate agent s authority to enter into a contract for sale of land.. In particular, his Honour considered whether the agent had authority to exchange in the face of a letter from the solicitors for the vendor advising that the agent was not to effect exchange. His Honour found that the authority of the agent had been made out, and declared that the contract was on foot. It appears that a relevant consideration was that the party seeking to argue that there was a problem with exchange did not raise any issue with the circumstances until a significant time after the events at the time of the exchange. It is worth looking at the analysis of the nature of the agent s authority in Paterson v Clarke. The authority of an agent to perform a particular task will typically be: express (or actual) clearly stated and identifiable from the grant of authority; or implied not spelt out in the grant of express authority, but a necessary consequence of that grant; or ostensible (or apparent sometimes described as agency by estoppel) the principal does something which makes it seem that 10
the agent has authority, despite the principal not giving the agent express authority. So an estate agent who has been granted express authority to seek a buyer for a property would have implied authority to take photographs of the property. An estate agent who lacks express authority to enter into a residential tenancy agreement will have ostensible authority because of the notorious and almost invariable practice of real estate agents signing such agreements on behalf of the landlord/principal rather than attending the landlord to obtain the principal s signature. An estate agent would not, however, have ostensible authority to sign a lease of commercial premises. On the question of the agent s authority to effect an exchange of contracts, Young CJ in Eq observed (at [17] [20]): 17 Mr Evans put that the agents had no authority to exchange contracts and thus there was no contract. He further puts that as an exchange was needed under conveyancing practice in New South Wales, one needed to see that there had been a ceremony conducted at a particular point in time which amounted to an exchange; thus, the fact that part of the contract signed by the purchasers found its way to the vendor s solicitors files in due course was immaterial. 18 Mr Evans submitted that the agents had no actual implied ostensible or apparent authority to exchange contracts. 19 As to actual authority, he pointed to the exclusive agency agreement signed by the defendant on 15 January 2002. This agreement provided that the agent was the sole agent in consideration of the agent promising to use their best endeavours to sell the property; that the agent was entitled to a commission if the principal entered into a contract for the sale of the property and that: 6. The agent is not authorised to enter into or sign a contract for sale on behalf of the principal. 20 Mr Evans puts great store on clause 6. However, to my mind it cannot be conclusive in solving the question of authority. This is because there is a clear distinction between making a contract and exchanging parts of a contract signed by the vendor or purchaser as the case may be. This distinction has always been taken. Thus in section 84AB(3) of the Property, Stock and Business Agents Act 1941 (now repealed and replaced in almost identical words by s 64(1)(c) of the Property, Stock and Business Agents Act 2002), the legislature has said that a real estate agent may participate in the exchange or making of contracts for the sale of residential property. Again, as was conceded in this case, solicitors have general authority to exchange contracts, but it is quite clear that apart from express authorisation a solicitor has no general authority to make a contract on behalf of the client: Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146. 11
The Court of Appeal dismissed the appeal: Clarke v Paterson [2003] NSWCA 160. Breach of warranty of authority The decision of Hall J in Hearse v Staunton [2010] NSWSC 954 also raised issues relating to contractual formation (and in particular, variation of a contract once formed). The draft contract was prepared naming Mrs Pallister as purchaser. Her name was subsequently deleted, and the name of her husband substituted in handwriting. Shortly prior to exchange, correspondence between the solicitors for the parties (from Staunton and Thompson for the purchaser; Lander and Lander for the vendors) indicated that changes were sought to the draft contract. That letter also indicated Vanessa Joan Pallister will probably be added as a joint purchaser pursuant to Section 18(3) of the Duties Act prior to completion. After exchange there was a second relevant letter: We enclose an unstamped Transfer for execution by the Vendors. Please return the Transfer to us for stamping purposes. Please note that we have added Mrs Pallister as a joint purchaser pursuant to S.18(3) of the Duties Act, 1997. accordingly. Please amend the counterpart Contract The vendor validly terminated the contract in due course because of purchaser default, and pursued a claim for damages. Mr Pallister was insolvent; Mrs Pallister successfully argued that she was not a purchaser under the contract. The vendors then sued the firm named as solicitors for the purchaser claiming breach of warranty of authority. The reasoning is summarised by Hall J at [21]: 21 The plaintiffs allege that, by the letter of 19 January 2005, Staunton & Thompson represented that they had authority to contract on Mrs Pallister s behalf by adding her to the contract as a co-purchaser of the property. On the basis that Staunton & Thompson did not in fact have any such authority from Mrs Pallister, they claim damages on the basis of alleged breach of warranty of authority. The claim against the third, fourth and fifth defendants is, accordingly, one for the damages that would have otherwise been recoverable from Mrs Pallister had such authority been granted to Mr Staunton. The vendor failed. The key reasoning is at [109] to [111]: 12
109 In those circumstances, the question is whether Mr Staunton impliedly so warranted. In my opinion, the answer to that question is that he did not impliedly warranted that he had Mrs Pallister s authority to contract on her behalf in relation to the sale of the Clontarf property. In relation to that conclusion, the following matters are noted:- (1) It is, of course, for the plaintiffs to establish on the probabilities that the implication relied upon ought to be drawn. (2) The terms of the letter of 19 January 2005 are not, in themselves, capable of supporting the implication of an unqualified assertion or warranty that Mr Staunton had Mrs Pallister s authority to act as her agent in making her a party to the contract. The letter does not convey either that Mr Staunton was acting for Mrs Pallister nor indicate that he had received her instructions in relation to any aspect of the contract. The letter was entirely consistent with the fact that he continued to act only on Mr Pallister s instructions. (3) In the circumstances of the present case, where the alleged agent is a solicitor and the subject matter of the relevant transaction is the sale of land, as a matter of principle, the solicitor does not have implied or ostensible authority from his or her client to amend or make a contract on behalf of the client in relation to a contract for the sale of land: Pianta v National Finance & Trustees Limited (1964) 180 CLR 146 per Barwick CJ at 151; Ciavarella (supra) at [104] to [106], per Young CJ in Eq (as his Honour then was); Notter (supra) at [50] per White J. The solicitor for the plaintiffs, being experienced in conveyancing matters, may be taken as being aware of that long-established principle. (4) In circumstances in which there was no express warranty or representation, and where the principle in (3) applies, I consider that the dicta of Higginbotham CJ in Maffey v Hobart (1888) 14 VLR 888 at 886 is apposite, wherein it was stated:- Where a person deals with another who is an agent of the apparent contracting party, the obligation generally rests upon him to ascertain the authority of a person with whom he deals. In the present case, as noted above, there was neither a representation that Mr Staunton acted for Mrs Pallister nor was any clarification sought or inquiry made on behalf of the plaintiffs of Mr Staunton as to his authority to act for Mrs Pallister. Nor did Mr Staunton s correspondence or communications suggest that he had any particular or general authority from Mrs Pallister to obtain a variation of the existing contract for sale so as to make her a co-purchaser. 13
110 I am of the opinion that, taking the letter of 16 January 2005 as a whole, and in context, including in particular, the letter of 16 December 2004, the letter of 19 January 2005 was neither an express or implied unqualified assertion by Mr Staunton that he was authorised by Mrs Pallister to act as her agent for the purposes of making her a party to the contract for sale. I consider the proper construction of the letter is that Mr Staunton was saying in it that Mrs Pallister was to be added to the transfer as a transferee on a specified basis, as had been foreshadowed was likely in the letter of 16 December 2004. The evident, indeed, express purpose was a desire to gain the permitted exemption under s.18(3) available for a related person transferee but who is not a party to the contract. 111 Accordingly on its proper construction, I do not consider that the letter written by Mr Staunton on 19 January 2005 constituted or contained either an express or implied representation that he had authority from Mrs Pallister to act on her behalf so as to bind her as a party to the contract for the sale of the Clontarf property. The vendor appealed to the Court of Appeal: Hearse v Staunton [2011] NSWCA 139. The appeal was dismissed. Young JA made these observations (at [3] to [6]): 3. I am concerned that conveyancing solicitors would so easily agree with another solicitor's suggestion that a contract should be amended by simply writing in the name of a second purchaser. 4. I am not sure what is meant by the simple request to "amend" the contract. Normally once a contract is made, it can only be "amended" formally by variation, rescission and replacement with a new contract or novation. Assuming that the solicitors intended a variation, complications arise when the variation is adding a party. What probably happens is that a new contract is made to replace the former contract. 5. However, the argument proceeded on the basis that this was not the appropriate analysis. If that is correct, then the appellants' case runs foul of what Pape J said in Lee v Irons [1958] VicRp 71; [1958] VR 436, 447 that a party seeking to rely on the cause of action of wrongful warranty of authority must show that he or she entered into the contract relying on the warranty of authority. 6. On the other hand, if my analysis is correct, both solicitors must be taken to have known the law that solicitors, save in exceptional cases, have no authority to make a contract on behalf of a client (let alone a non-client). Pianta v National Finance & Trustees Ltd [1964] HCA 61; 180 CLR 146 reinforces this view taken both by the primary judge and Whealy JA. Agents (not only estate agents) and the formation of real estate contracts Many estate agents do not understand the significance of: the fact of exchange; 14
being able to identify whether or not, at any given instant, a contract has been made or not; the importance of a ceremony rather than a pantomime, to borrow the language of Allen J in Harris v Fuseoak Pty Ltd (1995) 7 BPR 14,511; the distinction between having the power or permission to perform a function and having the authority to do so. I have agents put it to me that the vital thing is to get the purchaser to sign something (preferably, I presume, a complete contract), or indicating that the main importance of exchange of contracts is to make certain the agent s entitlement to commission. Speaking to those in the industry about concepts such as equitable interests, caveatable interests, risk passing in relation to proposals from government departments, crystallising the instant at which vendor warranty is to be tested, or calculating completion dates is akin to water off a duck s back. There is occasionally slightly more interest when you point to calculating cooling off periods, or asking the question if a prospect phoned you and offered $20,000 more for the property, could you say with certainty that a contract has or has not been made with another buyer?. If you believe the industry might have rectified the problem after the strong comments of Allen J in Harris v Fuseoak Pty Ltd, I would commend for consideration (by all players in the property industry) the more recent decision of Barrett J in Golding v Vella [2001] NSWSC 567. In that case the conduct of a salesperson in assisting the purchasers to exchange (an attempt which proved ineffective) led His Honour to observe (at [53]): 53 [The purchasers] had very little idea of the legal significance of the events of the evening of 19 April 1999. Ms Cox, I suggest, was in essentially the same position. It was very much a case of the blind leading the blind so far as the legal consequences and legal requirements were concerned. The recognition in s.84ab of the Property, Stock and Business Agents Act 1941 that there is a legitimate role for real estate agents in the exchange or making of contracts for the sale of residential property is founded on an assumption that such agents and their employees will familiarise themselves with at least the basic legal concepts. Such an assumption was not borne out in this particular case. It is worth reiterating that, in the absence of express authority, a solicitor (or, by analogy, a conveyancer) does not have authority to make a contract on 15
behalf of a client, nor to make a material or significant alteration to a counterpart of the proposed contract after signature by their client. The classic authority is the High Court decision of Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146. Later cases confirming this proposition include Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606 at 9611 and Iannello v Sharpe [2006] NSWSC 713. The authority of a solicitor/agent to amend and enter into contracts for the sale of land was one of the issues raised in the decision of Iannello v Sharpe [2006] NSWSC 713; [2007] NSWCA 61. That case involved a contract drafted with a deposit of 5 per cent of the purchase price on p 1, the identification of the purchaser as Malcolm Sharpe or nominee, and a special condition in these terms: Notwithstanding anything else herein contained, the vendor shall accept on exchange of this agreement payment of $225,000, being part of the deposit. The parties expressly agree that if the purchaser defaults in the observance or performance of any obligation hereunder which is or has become essential, the balance of the deposit, namely $225,000, shall become immediately due and payable and the purchaser shall forfeit the whole of the sum of $450,000 pursuant to clause 9 hereof to the vendor. Prior to exchange, the vendor s solicitor, on instructions, deleted the phrase or nominee and amended the deposit figure on p 1 by changing the amount to 10 per cent of the price. The changes to the purchaser s signed copy were made after the purchaser signed the contract. Contracts were exchanged, the purchaser defaulted and the vendors terminated the contract, claiming the amount paid at exchange, the top-up sum, and damages. The vendor was unsuccessful at first instance on the basis that there was no evidence before the Court that the changes to the purchaser s signed copy were made with the authority of the purchaser. Windeyer J considered that the deletion of the phrase or nominee may or may not have been significant or material. His reasoning appears at [9]: It is not really necessary for me to decide whether or not the deletion of the words or nominee was a significant or material alteration. In ordinary terms, Mr Sharpe could have required the vendor to transfer to his nominee. That might have had some stamp duty consequences, but probably no more than those which would have arisen had the words remained. This finding was not challenged on appeal (CA at [15]). 16
The change to the amount of deposit was found at first instance to be significant and substantial because (at [9]): it is generally regarded at law in conveyancing matters that no penalty arises if there is provision for forfeiture of a deposit of up to 10 per cent. It is also significant because the change would give some work to special condition 14 of the contract because it would have allowed the deposit to be paid by two instalments, yet the amount of $225,000 not paid on exchange would still remain part of the deposit and become liable to forfeiture upon termination if that termination occurred as a result of default by the purchaser. Had the deposit figure remained at $225,000 then that would have been the amount of the deposit liable to forfeiture under clause 9 and the vendor would have been left to any right in damages to claim any additional amount. The legal issue raised by the lack of evidence of authority is succinctly stated at [10]: There can be no doubt that a solicitor is not authorised unless authorised in writing to make a contract on behalf of a client purchaser. There is equally no doubt in my view that if authorised he can agree to and make alterations to the document, even after it has been signed by the purchaser. In this case, however, there is no evidence of such authorisation and the only evidence is that of the defendant after the contract was signed by him. Mr McGrath [the purchaser s representative] did not tell him that the words or nominee had been deleted, nor that the deposit was changed from five per cent to ten per cent on the front page of the contract. There is no evidence, and he was not asked whether he authorised the change. That statement of principle caused the Court of Appeal no difficulty. The final result at first instance was that a purchaser with no merit whatsoever received a refund of his $225,000, and an order for costs. The key issue on appeal was the status of the amendment to the deposit on p 1 of the contract. The Court of Appeal came to a different conclusion as to whether the alteration to p 1 was a material change. The rationale appears in the leading judgment of Hodgson JA (at [18] [21]): 18 In my opinion it is clear that the alteration did not make any difference to the amounts required to be paid under the contract or to the time and circumstances in which they were required to be paid. Both before and after the alteration, Special Condition 14 had the effect that $225,000.00 was payable on exchange of contracts, and a further $225,000.00 was payable if the purchaser defaults in the observance or performance of any obligation hereunder which is or has become essential. 19 The circumstance that, on the front page, $450,000.00 was said to be the deposit rather than $225,000.00 does not make any difference to this. The circumstance that, on the front page, the 17
balance is said to be $4,050,000.00 rather than $4,275,000.00 also makes no difference to the effect of the contract, because cl.16.7 requires the purchaser on completion to pay the price (less any deposit paid) ; so the purchaser would still be paying $4,275,000.00 on completion, if only $225,000.00 had been paid as a deposit, even though the balance stated on the front page is $4,050,000.00. 20 Mr. Inatey SC for the purchaser did not contest the above propositions in any significant way; but he submitted that the alteration did make a material change because it had the effect of making the whole $450,000.00 properly characterised as a deposit and therefore not subject to the rules concerning penalties. Alternatively, he submitted that, if the alterations did not make that change, the position both before and after the alteration was that the provision in Special Condition 14 about the second $225,000.00 was a stipulation for damages on default, not for a deposit, and was invalid as a penalty. He relied particularly on Luu v. Sovereign Developments Pty. Limited [2006] NSWCA 40. 21 Mr. Orlov for the vendors submitted that, both before and after the alteration, Special Condition 14 was a provision for payment of a deposit by instalments; and he relied particularly on Ashdown v. Kirk [1999] 2 Qd.R. 1 and Romanos v. Pentagold Investments Pty. Limited (2003) 217 CLR 367 at [19]-[20]. He submitted that in Ashdown, default by the purchaser accelerated the vendors entitlement to a second instalment of the deposit to the date of default, so that the provision that the instalment be paid on default did not alter its character as a deposit. In a case such as the present, what operated as an earnest for performance of the contract was the purchaser s unconditional promise to pay the balance of the deposit. On the status of the deposit top-up clause, Hodgson JA (at [27] [32]) considered there were two distinguishing issues between the present case and the decision of the Court of Appeal in Luu v Sovereign Developments Pty Limited [2006] NSWCA 40: 27 First, Bryson JA was able to say that the front page made it clear that the deposit was $65,000.00, and that the Special Condition in that case related to something which the contract was not treating as a deposit. Second, the amount in Special Condition 5 was payable on any default, no matter how trivial, so that its character as a penalty was clear. 28 On the first matter, in the present case the reference to deposit on the front page is expressly qualified by reference to Special Condition 14; so it is not possible to say that the front page makes it clear that the second $225,000.00 is not part of the deposit. It can also be said that this is clearer in the altered form of the contract, where the front page refers to the deposit as being $450,000.00 or 10% of the price. 29 The second matter is not directly relevant to the question of whether the second $225,000.00 is a deposit; but rather is relevant 18
to the question whether, accepting it is not a deposit, it is or is not a pre-estimate of damages. That is a question on which Mr. Orlov did not address submissions; and in my opinion, accepting that the obligation to pay the second $225,000.00 would only arise in circumstances where the vendors have lost their bargain, nevertheless it cannot be considered a pre-estimate of damages. The first $225,000.00, which was undoubtedly a deposit, would be greatly in excess of expenses that could be lost in connection with the terminated contract; and there is no evidence to suggest that the loss of the bargain would involve other loss, for example because of some problem in effecting a re-sale for a similar price. In fact, it appears that the re-sale was for a higher price; and although this is not directly relevant, it tends to confirm that there was no reason to anticipate that a later re-sale would be for a substantially lesser price. 30 In those circumstances, the Court should conclude that, if the second $225,000.00 is not part of a deposit, provision for its payment would be a penalty and not enforceable. On that basis, the significance of the second difference from the case of Luu disappears. 31 Returning to the first possible point of distinction between Luu and the present case, in my opinion the statement of principle in the last sentence of par.[24] of the judgment in Luu is correct; so that the name which the parties have chosen to give to a payment is not determinative of whether or not it is a deposit. It is necessary also to look at the character of the payment and/or the obligation to make it. The first point of distinction between Luu and the present case relates only to the name the parties have chosen to give to the payment; and in my opinion the nature of the obligation to make the payment is more important in determining its character than the name chosen by the parties; although I do accept that in some cases the name could be relevant, particularly where a deposit is payable by instalments. 32 On that approach, in my opinion the obligation to make the second payment of $225,000.00 is not an obligation to pay a deposit or part of a deposit. There never would be a time when this second $225,000.00 (as such) would be paid so as to show that the purchaser is in earnest in committing himself to pay the rest. On the contrary, the only time when Special Condition 14 obliges the purchaser to pay this sum is when the purchaser has demonstrated that he is not in earnest, and indeed the termination of the contract means that he would not be able to complete the contract. The obligation to pay the second $225,000.00 is inconsistent with the characteristics of a deposit. In my opinion, this would equally be so whichever version of the front page was operative. The net effect of the Court of Appeal decision was that, since the alteration to the quantum of deposit on p 1 was held to make no difference to the amount of deposit, a contract was formed; the amount paid on exchange was 19
the deposit; that amount was validly forfeited to the vendor; the second payment dealt with in the special condition was penal and unenforceable. The decision of the Supreme Court in Zhang v VP302 SPV Pty Ltd [2009] NSWSC 73; BC200900869 (23/2/09, White J) received some publicity in the popular press ( Judge tears up $1m property contract Sydney Morning Herald, 24 February 2009, page 3). The focus of the Herald article was a successful claim by the purchasers that the estate agent s advertising of the property had misled them into entering into the deal. The case raises a number of issues of importance. The plaintiffs exchanged contracts in September 2003 to purchase from the first defendant a four-storey terrace house off the plan in Victoria Park, Zetland. The judgment provides some additional relevant information about the purchasers (at [53] to [54]): 53 Both plaintiffs emigrated to Australia from China. The first plaintiff, Mr Zhang, emigrated in 1998 when he was 28. He is a chef by occupation. In about 2000 or 2001 he purchased a twobedroom flat in Campsie. He does not read English and his spoken English is poor. 54 The second plaintiff, Ms Liu, emigrated to Australia in September 2001 aged 23. She is a waitress by occupation. She and Mr Zhang became de facto partners at the end of 2003. She has a better knowledge of English than Mr Zhang, but she is not fluent. Both plaintiffs gave their evidence through an interpreter. Ms Liu had never purchased property before. The second defendant, Sydney Advance Realty, was the estate agency engaged as the vendor s listing and marketing agent, and was stakeholder under the contract. The third defendant, Ms Huo, was the employed salesperson who dealt with the purchasers. The strata plan was registered by 7 July 2005 (by which time the market had fallen substantially from its 2003 level). The purchasers failed to complete by the due date and failed to comply with a notice to complete. The vendor terminated the contract on 24 August 2005. Two days later, the agent released the deposit and accrued interest to the vendor. Shortly prior to the hearing the first defendant went into voluntary administration; that defendant took no part in the hearing. The contract nominated MSJ as the vendor s solicitor; M was the principal of the firm named in the contract as acting for the purchasers (and also the solicitor with carriage of the matter). 20