After a decade, the Supreme Court has revisited the only major case on cooling-off and has decided in a split decision that a purchaser's knowledge and conduct is relevant in determining whether the purchaser has an ongoing right to cool off where the Vendor's Statement (aka 'Form 7') is defective. Rod Foster Jones from Tindall Gask Bentley reports on the case and its consequences.
Most conveyancers are familiar with the 1997 Decision of the Supreme Court in Myles Pearce & Co Pty Ltd v Leuci1 and Martin'. That Decision confirmed a purchaser's right to rescind a contract pursuant to Section 5 of the Land and Business (Sale and Conveyancing) Act and Regulations thereto (the Act and the Regulations) in the absence of a valid Vendor's Statement.
The effect of that Decision has commonly been thought to be that any defect in the Vendor's Statement (being the Form 1 prescribed by the Regulations as modified and completed to suit the circumstances of the property) means that the purchaser's right to rescind (or 'cool off) was extended until after a complete and accurate Vendor's Statement was served on the purchasers. Of course, that right does not survive settlement. However, the Supreme Court of South Australia in its recent Decision of Astill and Anor v South Esplanade Developments Ltd2 has modified the commonly understood effect of the Myles Pearce Decision. Myles Pearce confirmed a statutory "self help" right of the purchaser to elect to rescind the contract by delivering a Notice of Rescission in the absence of a valid Form 1. However, as the Supreme Court has noted in the Decision of Astill, a purchaser may by their conduct be held to have elected to affirm the contract despite giving a Rescission Notice relying on a defective Form 1.
In an Appeal to the Full Court of the Supreme Court of South Australia, the purchaser plaintiffs (Mr and Mrs Astill) were seeking to uphold their alleged statutory right to rescind a contract to purchase land on which an apartment was being constructed by the defendant vendor.
The contract was dated 18 February 2003 for an off-the-plan apartment to be constructed on that land. The purchasers were given a vendor's statement which contained various defects. The apartment was constructed and a Title issued and by a letter dated 8 June 2005 the vendor advised of a settlement date of 17 June 2005.
However, by Notice dated 15 June 2005, the purchasers gave notice to the vendor of their intention not to be bound by the contract relying on the right to rescind provided by Section 5 of the Act.
Completion did not take place and on 18 July 2005 the vendor terminated the contract alleging the purchasers had repudiated the contract. The purchasers then brought proceedings in the District Court and claimed that they were entitled to rescind the contract due to the defective nature of the Form 1 and claimed a return of deposit. At trial the vendor acknowledged that the Form 1 was defective, but pleaded that even if the Form 1 was defective, and that the prescribed period for rescission had not yet expired, the purchasers had lost any right to rescind due to their conduct.
The District Court held that the vendor was entitled to terminate the contract due to the purchasers' default. The purchasers appealed the Full Court of the Supreme Court on the question as to whether the statutory right to rescind can be waived or lost as a result of their alleged conduct.
In considering this question, the Supreme Court considered the purpose of the cooling-off period. It was observed by the majority (2-1) that most purchasers would only obtain full knowledge of the material facts from the Vendor's Statement. Some purchasers, such as Mr and Mrs Astill, may, despite any defect in the Vendor's Statement, obtain full knowledge of the relevant defects in the Vendor's Statement and in those circumstances there is no reason why they should not be able to elect, either expressly or by their conduct, to be bound by the contract. Put another way, the majority held that as Mr and Mrs Astill obtained the correct facts in respect of the property, which the Vendor's Statement failed to provide, then the ordinary principles of election could apply to them.
The facts in Astill were such that the purchasers had become aware of the defects in the Vendor's Statement and the vendor relied on the conduct of the purchaser in assuming a contract between them to be binding and continuing and suffered detriment as a result. Whether or not it was unconscionable for the purchasers to rescind the contract in those circumstances was said by the Supreme Court to be a matter for Trial but that the purchaser could not in these circumstances apply for summary judgement for return of the deposit by relying on a Rescission Notice under Section 5 of the Act by claiming a defective Vendor's Statement. Under the previously commonly understood principles of Myles Pearce, it was thought that this could be done.
As Justices Bleby and Sulan noted, where a vendor genuinely believes the Vendor's Statement to be correct and the purchaser knows it to be defective, the purchaser may engage in conduct, such as making requests of the vendor to alter the property or engage in further negotiations, that would induce the vendor to believe that the parties were bound by the Agreement which neither could terminate. If the vendor in those circumstances acts to their detriment, having been induced by conduct or statements of the purchaser, then the purchaser may be prevented from exercising their right to cool-off, despite the defective Vendor's Statement.
Therefore, purchasers can no longer simply rely upon the statutory right to rescind if they have conducted themselves in a way that brought to their own attention correct information that was otherwise absent in the Vendor's Statement.
What must the purchaser know? It appears from the joint judgment of Justices Bleby and Sulan that "knowledge of the relevant facts which the statement fails to reveal" is sufficient. It is not necessary that the purchaser also knows that the Vendor's Statement is defective or that he/she consequently has the right to cool off.
The Decision does not define the conduct that removes the right to cool off. The conduct must occur when the purchaser has knowledge of the relevant facts and involve an affirmation of the contract or an election to proceed. In Astill, the purchaser allegedly sought changes to the building work that to be undertaken by the vendor/developer for the purchaser. Sitting on one's hands will not amount to conduct but failing to speak up to stop the vendor prejudicing its position may constitute unconscionable behaviour that estops a purchaser from denying that it has affirmed the contract. Disentitling conduct will depend on the circumstances.
As always, vendors and their agents or conveyancers need to ensure that the Vendor's Statement is correctly prepared and to provide amended statements where necessary. However, should a purchaser issue a Notice of Rescission based on a defective Vendor's Statement, and the principles of Myles Pearce, before accepting that Notice, the Supreme Court has left it open to the vendor to consider the conduct of the purchaser and whether the purchaser has thereby elected to affirm the contract, particularly if that conduct has caused the vendor to act in any way to their detriment. These are issues which will have to be carefully considered in light of the facts of each case.
The Decision re-inforces the need to make the prescribed inquiries after the apparent prescribed time in order to check whether or not the purchaser has the right to rescind and to advise the client accordingly. That need exists whether acting for the vendor's conveyancer or the purchaser's conveyancer.
The Decision in Astill does not mean that it is better that the purchaser remains ignorant of the defective nature of the Vendor's Statement. Because the purchaser merely needs to know the relevant facts (irrespective of knowing that he/she can still cool off), it is critical that the purchaser is warned by the conveyancer to be particularly careful to avoid any conduct that may indicate an intention to proceed.
Vendors and agents who discover that the Vendor's Statement may be defective are likely to seek to end the right to rescind by surreptitiously getting the purchaser to affirm the contract as an alternative to serving a new, complete and accurate, Vendor's Statement that would alert the purchaser to the ongoing right to rescind.
The Decision also opens the door to unscrupulous behaviour such as alleged conversations, threatened litigation and generally bullying of purchasers.
1. (1997) 193 LSJS 491
2. 1SAS2C3 1 ANZ Conv R5 34
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.