The Supreme Court of WA has found that a seller of lots in a proposed strata development could enforce the sale contracts against two buyers, despite the contracts being illegal under s13 of the Sale of Land Act (WA) 1970 ("SLA").
The decisions in Midstyle Nominees Pty Ltd v Jordon and Midstyle Nominees Pty Ltd v Barker [2013] WASC 85 (19 March 2013) follow on from the Court of Appeal's decision in Walker atf Walker Superannuation Fund v Clough Property Claremont Pty Ltd (2010) 41 WAR 477.
Collectively, the decisions put buyers of subdivisional land on notice that they cannot rely on a technical s13 argument to back out of a sale contract, particularly where they have done little more than change their mind about their purchase.
Section 13 restricts who can sell subdivisional land. It is not enough simply to have the right to sell 5 or more broadacre lots, or more than 2 strata title lots, in a subdivision (or proposed subdivision). The seller does not have the right to sell unless he:
- Is the registered proprietor of the land (13)(1)(a));
- is the agent of the registered proprietor(13(1)(b));
- sells more than 5 broadacre lots, or more than 2 strata title lots, to one person (13(1)(c));
- is empowered by an act to execute a transfer of land to a purchaser; or (13(1)(d))
- is entitled to be the registered proprietor (13(1)(e))
The penalty for contravention of s13 is a fine of $750.
The definition of "sell", in s11 of the SLA, includes not just the final sale contract, but also the initial offering and the assignment of interests in the land.
In Walker, one of the purchasers' grounds of appeal was that the sale contract was void and unenforceable because the seller, who had title to the underlying land, but not yet to the lot which was being purchased, had breached s13 of the Act.
Martin CJ said that s13 was intended to protect consumers, partly because the restrictions in s13 did not apply to purchasers of more than 5 broadacre, or 2 strata title, lots (such being assumed to have a higher level of commercial sophistication).
Further, the Second Reading Speech of the SLA in 1970 stated that the purpose of s13 was to ensure that developers could not leave purchasers out of pocket by selling, or purporting to sell, land without also being capable of giving good title to that land.
Contrary to the submissions made by the buyer, Martin CJ said that s13 did not mean that if there were no registered proprietor for a particular lot at the time the contract was made (because the title to that lot was not yet available) that the purchaser was able to avoid the contract. The Walkers' appeal was dismissed.
However, in Midstyle the seller admitted its breach of s13 when it entered into sale of land contracts with two purchasers, Mr Jordon and Mr & Mrs Barker, by reason of it not being the registered proprietor of the land. However, the seller subsequently became the registered proprietor.
The question for the court was: what was the effect of the seller's admitted breach on the validity and enforceability of the contracts and how does the buyer's ability to avoid the contract, or the seller's ability to enforce it, advance the purpose or policy of the SLA?
Mr Jordan and the Barkers had given notice to the sellers that they sought to avoid their contracts. Subsequently, they argued that the contracts were either voidable (not void), or unenforceable, by reason of the seller's breach of s13.
The court accepted that as a general rule, if a contract is expressly or impliedly prohibited by statute, it will be illegal and void, but whether or not the rule was applied in a particular case depended on statutory construction.
In Midstyle, the parties agreed that s13 prohibited a seller from making a contract where it was not the registered proprietor. The prohibition in s13 is aimed only at the seller, and "...the question should be asked whether it is a purpose of the legislation that an act done in breach of the prohibition should make the contract made in consequence of it invalid or unenforceable" (Beech J).
He accepted the seller's submissions that s13 is directed at the risk to the buyer of a seller not having good title. If there is a right to avoid the contract because the seller does not have good title, that right is lost when the seller subsequently obtains title. Since in this casethe seller did obtain good title, the mischief at which the prohibition in s13 was aimed no longer existed.
Finding in favour of the sellers, Justice Beech said that he believed it was contrary to the intention of the SLA to find that the purchaser was able to avoid the sale contract if the seller was in breach of s13 at any time up until the date of settlement (that is, even if the seller subsequently obtained good title).
He said if that were the case, "as the facts of these cases illustrate, a buyer's avoidance of the contract can be unconnected to the seller's lack of title at the time of contracting. The avoidance may be based on movement in the market, long after the time when the contract was entered. I am not persuaded that the legislature intended to confer such an extensive right of avoidance on the buyer in order to deter breaches by sellers".
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