Australia: Consequences of errors in transfers during sale of property

Last Updated: 9 November 2015
Article by Gary Newton and Jackie Cheung

In brief - Vendors should ensure that all details of property transfer are correct

While the purchaser of a property is responsible for preparing the transfer, a vendor who fails to advise the purchaser of any errors in the transfer may be disentitled from terminating the contract.

Contract of sale between purchaser and vendor

The case of Jaswil Property Pty Ltd ATF Jaswil Unit Trust v Barrak Corporation Pty Ltd [2015] NSWSC 391 considered the validity of a termination of contract which arose by reason of the failure of the purchaser to settle by the completion date due to an inappropriately executed transfer provided on behalf of the vendor company.

The purchaser and plaintiff, Jaswil Property Pty Ltd, entered into a contract with the vendor and defendant, Barrak Corporation Pty Ltd, for the purchase of land at 63 Victoria Road, Parramatta ("the land"). Completion of the contract was due on 30 January 2015. The said land is subject to a development approval granted by Parramatta City Council and the intention of Jaswil Property is for the development of apartments in accordance with the development consent.

During the course of the conveyance, Barrak Corporation was represented by Mr Benjamin Barrak of Barrak Lawyers, who was also the sole director and secretary of Barrak Corporation, while Legal One were the representatives for Jaswil Property.

The contract provided for the sale of a house and garage, which were sold subject to an existing tenancy to Ms Najat Barrak, the sister of Mr Barrak. From the contract, it appeared that the signatory for Jaswil Property signed pursuant to section 127 of the Corporations Act 2001 (Cth) and Mr Barrak signed on behalf of Barrak Corporation.

It is important to note, however, that there was no identification of Mr Barrak's signature, nor was there any indication as to the capacity in which he had signed the contract.

Incorrect transfers provided by purchaser

In preparation for the completion, Legal One submitted a signed transfer ("the first transfer") on 24 October 2014 "for signature by the vendor and holding upon escrow for stamping at settlement". The standard form of execution was used for transferor's execution.

On this occasion, the transferor noted on the transfer was incorrectly spelt and this was subsequently brought to Legal One's attention by Mr Barrak. An amended transfer ("the second transfer") was provided to Barrak Lawyers with the correct spelling of the defendant's name on 26 October 2014.

On 23 January 2015, a further transfer ("the third transfer"), which had been stamped and which was on the same terms as the second transfer, was submitted to Barrak Lawyers. Legal One indicated that the signed and stamped transfer was for "signature by the vendor and holding upon escrow for settlement".

Vendor serves Notice to Complete on purchaser

While the evidence suggests that the parties were working towards completion to occur on 30 January 2015, by 29 January 2015 Legal One advised Barrak Lawyers that Jaswil Property's incoming mortgagee was not in a position to settle.

On 2 February 2015, Barrak Lawyers served a Notice to Complete on Jaswil Property, requiring completion to take place on or before 3pm on 17 February 2015. Between 12 to 13 February 2015, further discussions took place between Barrak Lawyers and Legal One, which resulted in completion being rescheduled for 16 February 2015.

Evidence was also presented that during the discussions, Mr Barrak advised Legal One that their client, Jaswil Property, had placed a number of items of construction equipment on the land for excavation and construction works. In his capacity as solicitor for the tenant, Mr Barrak advised that the tenant did not consent to any works on the land and requested that the unauthorised equipment be removed.

Purchaser's mortgagee refuses to accept transfer in its existing form

On 16 February 2015, the representatives for both parties and the incoming mortgagee for Jaswil Property, Westpac, attended settlement. The representative for Barrak Corporation was, in fact, Ms Barrak, the tenant and sister of Mr Barrak.

Despite the fact that Legal One and Westpac had all necessary things for completion to be effected, Westpac did not accept the transfer in its existing form as it had been signed for the defendant by an unidentified individual as opposed to the company itself.

In particular, Westpac indicated that the transferor's execution clause must be signed pursuant to the Corporations Act 2001 (Cth) and advised that the problem could be resolved if authority was obtained from Mr Barrak to amend the attestation clause.

Subsequently, Ms Barrak advised that she "left a message for the solicitor" and left the premises. Further efforts were made to contact Mr Barrak throughout the afternoon, but these were unsuccessful.

Which side was responsible for the failure to settle?

On 17 February 2015, Legal One and Mr Barrak had a telephone conversation to discuss arrangements for completion. During this conversation and in further correspondence that day, Mr Barrak insisted that the purchaser acknowledge liability for completion not being effected due to the use of a wrong execution clause in the transfer.

A new transfer ("the fourth transfer") with the correct execution clause for the transferor was provided to Barrak Lawyers with a covering letter stating that settlement was booked for 2:30pm. By 2:26pm, Mr Barrak advised that settlement could not be achieved as he was unable to organise the outgoing mortgagee to attend settlement.

Further discussions took place after 17 February 2015 regarding which party was liable for settlement not occurring by the due dates. With Barrak Corporation insisting on the validity of its own Notice to Complete, on 20 February 2015 Jaswil Property served a Notice to Complete on Barrak Corporation.

Notice of Termination served by vendor

On 26 February 2015, Barrak Corporation served a Notice of Termination on Jaswil Property on the grounds of Jaswil's failure to complete the contract under the terms of the contract and the Notice to Complete.

Jaswil Property then commenced proceedings in the Supreme Court on 6 March 2015.

Purchaser's responsibility for preparation of transfer

The court was required to determine which party bore liability for the failure to complete the contract.

In discussing clause 4.1 of the contract, the court observed that there is no doubt that the purchaser, Jaswil Property, had the contractual liability to prepare the transfer to be served on the vendor. As the vendor's solicitor is not empowered to execute a transfer on their behalf, it means that in a purchase from a vendor which is a corporation, the purchaser's solicitor should prepare a transfer with either:

  • an execution clause without the common seal of the corporation pursuant to section 127(1) of the Corporations Act
  • an execution clause with the common seal of the corporation pursuant to section 127(2) of the Corporations Act

Court finds that vendor entitled to serve Notice of Termination

A purchaser's solicitor is also required to know in advance of the preparation of the transfer which execution clause the vendor intends to utilise. This requirement gives rise to clause 4.2 of the contract, which provides that a vendor is to provide "any information needed for the form of transfer" that is not disclosed in the contract.

In these circumstances, the court found that the purchaser, Jaswil Property, had the obligation to include a form of transfer which has the proper clause for execution by the vendor and therefore, it was necessary for Jaswil's solicitors to enquire of Barrak Corporation as to the method it was going to adopt in executing the transfer before the completion of section (J) of the transfer.

In addition, as Jaswil Property served a transfer in the wrong form and requested for completion to be rescheduled for the day after 16 February 2015 once this problem was discovered, the court determined that the time frame provided to Barrak Corporation for a settlement was unreasonable in light of the fact that time was of the essence and the plaintiff was in default. Accordingly, the defendant was entitled to serve the Notice of Termination on 26 February 2015.

Court grants purchaser relief against termination of contract

While the court held that Barrak Corporation was entitled to serve the Notice of Termination and hence, terminate the contract, it observed that relief should be provided in favour of Jaswil Property. In particular, the court noted the following:

  • The purchaser's breach of the essential time stipulation was not wilful, but resulted from the unforeseen requirements of Westpac
  • Both parties failed to recognise that section (J) of the transfer did not refer to the vendor as a corporation or to the method of execution, either with or without a common seal
  • Once Mr Barrak raised matter of the spelling error on the first transfer, it appears that both parties were lulled into the belief that the transfer was otherwise in a proper form
  • It is unsatisfactory that a firm of solicitors is unable to be contacted at a time when a significant settlement is occurring, preventing both its employee and the purchaser�s solicitors from making contact with the principal

Vendor contributed to purchaser's breach of essential time stipulation

Ultimately, the court held that the failure of Barrak Corporation to turn its mind to the proper execution of the transfer which did not refer to the vendor as a corporation, or to the method of execution, contributed significantly to Jaswil Property's breach of the contract.

Jaswil Property was therefore entitled to be granted relief against forfeiture on the ground that the vendor had significantly contributed to the purchaser's breach of the essential time stipulation in completing the contract and therefore it was unconscientious for Jaswil Property to be precluded from obtaining relief against termination.

Consequently, Barrak Corporation was unable to terminate the contract and Jaswil Property was able to proceed with the purchase of the property.

Vendors who contribute significantly to purchaser's breach may be disentitled from terminating contract

In light of this case, practitioners and corporate vendors under a contract for sale should ensure that they pay proper attention to the execution clause of the transfer.

Although it is accepted that a purchaser is responsible for the preparation of the transfer, the vendor or their representatives should ensure that they promptly advise the purchaser or their representatives of any incorrect references or errors in the transfer submitted to the vendor at a reasonable time prior to completion.

It is important to note that the failure to do so may disentitle a vendor from terminating a contract if they are found to have contributed significantly to the purchaser's breach of the time stipulation under the contract.

Gary Newton
Property, acquisition, development and sale
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Gary Newton
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