Australia: Residential Contracts - Court Takes Aim At PAMDA

The Supreme Court decision of Hedley Commercial Property Services Pty Ltd v BRCP Oasis Land Pty Ltd [2008] QSC 261) highlights the ongoing practice issues affecting all residential sales in Queensland under the Property Agents and Motor Dealers Act 2000 (PAMDA).


The Court examined a put and call option deed (Deed) between 2 commercially sophisticated parties relating to a purchase of a development site. The buyer sought declarations that it had validly withdrawn from the Deed with the seller on the basis of contraventions of PAMDA requirements for contracts for the sale of residential property. This Legal Update focuses on the court's review of matters under Chapter 11 of PAMDA that will resonate for participants in the property industry in Queensland and particularly developers, agents and lawyers.

Key matters examined by the Court include:

  • What amounts to "residential property" under PAMDA
  • Confirmation that multiple directions to the statutory warning statement are required
  • The manner in which directions to the warning statement and contract can be given
  • The impact of changes to contract conditions after proposed relevant contracts are issued
  • Requirements for emailing of contracts
  • How the conduct of the parties may amount to a waiver of statutory termination rights.

Contract Requirements

PAMDA sets out a 2 phase process for residential contract issuing and execution. The first phase involves issuing proposed relevant contracts and their delivery by the seller to the buyer. The second phase involves the delivery of the executed relevant contract to the buyer and triggering of the statutory cooling-off period. In each phase there are process requirements that, if not met, can be fatal to the contract. Even minor or technical non-compliances can establish termination or withdrawal rights.

Phase 1 – Proposed Relevant Contracts

The Court considered whether the requirements for directing a buyer's attention to the statutory warning statement and proposed relevant contract (the Deed) as required by PAMDA had been satisfied.

Contract documents had been emailed by the seller's lawyers to the buyer's lawyers. The email contained a direction to the PAMDA Form 30c Warning Statement but did not expressly direct attention to the Deed although it attached the Deed. The parties then agreed to changes to the Deed and a second email was sent with an amended Deed but without any further reference to the warning statement. The buyer executed the Deed and signed the warning statement.

Justice Fryberg came to several conclusions about the process requirements for issuing directions to the statutory warning statement.

The direction required by PAMDA can be constituted by more than a single communication (in this case 2 emails). The legislation does not prescribe the form or the precise content of the direction required.

Not all changes to contracts after initial delivery will necessitate a fresh direction to be given or the contracts to be re-issued. If there is little delay between the first issuing of the documents and their subsequent amendment and re-delivery to the buyer for execution, minor changes to conditions may not require contracts to be re-issued. However, where there are substantial contract negotiations or delay between the first issue of a proposed relevant contract for execution and its ultimate delivery in an amended form to a buyer, a failure to re-issue the direction to the warning statement and contract creates a termination risk.

The requirement for giving a direction to the warning statement and the contract applies where the proposed relevant contract is ready to be given to the buyer for signature. It does not apply where parties are simply exchanging drafts in the course of negotiations.

When emailing documents, the requirement that the email contains only a single document protected against unauthorised change will arguably not be met by sending a document in a PDF format; it was suggested by the Court that a password protection would be required. However, Justice Fryberg questioned the need for this measure at all, saying it "may be that consideration can be given to its repeal before some buyer takes unfair advantage of it".

Phase 2 – Relevant Contracts

The Court also turned its attention to the process for delivery of executed relevant contracts to the buyer.

Despite amendments in 2005 to PAMDA, arguments have continued in some quarters about whether a second direction to the warning statement and contract is required to be given by a seller when returning the buyer's copy of the signed contract. Justice Fryberg was clear on this point: two directions are required – one when issuing proposed relevant contracts and another when delivering the signed relevant contract to the buyer. A direction given for a proposed relevant contract does not constitute the direction required by section 365 of PAMDA for relevant contracts.

This is perhaps the fault most commonly seen in the administration of the contract process and one which may give the buyer the right to "withdraw" its offer to purchase the property (even after execution of the contract).

The requirement to give a second warning can be explained as accommodating the situation where the buyer prepares and signs a contract before sending it to the seller for signature. The provisions for issuing proposed relevant contracts only apply to contracts prepared by the seller. This also emphasises to the buyer that its cooling-off period starts from receipt of the executed contract.

The Court also raised the possibility that drawing the buyer's attention to the warning statement could be done other than by including an express reference to the warning statement in the covering letter if attention were drawn to it by some other means – for example, by flagging it for signature. This would be a dangerous fall-back to rely on though.

In Hedley's case the email sent by the seller's lawyers when the seller returned the executed contract did not mention the warning statement nor did it direct the buyer's attention to it. The Court found that in that situation, no effective direction had been given and the buyer was entitled (unless it had waived the right) to withdraw from the contract.

Waiver of Rights

The issue of waiver (which has been considered in other recent PAMDA cases) may arise in either phase 1 or phase 2. The Court considered whether in phase 1, the buyer's conduct in signing the warning statement after receipt of the documents by the buyer's solicitor, could be seen as a waiver of the seller's non compliance with the requirement to give the direction to the warning statement and contract. The Court said "there seems no reason in principle why a buyer should not waive the direction, and once its attention is in fact focussed on the Warning Statement at the appropriate time, and it signs that statement with full knowledge of its contents, to insist upon withdrawal of the proposed relevant contract under section 366C might be thought to be the emptiest formality".

So, the possibility exists that a buyer who signs a warning statement acknowledgement after seeing its solicitor could be taken to have waived technical non-compliance within the requirement to direct the Buyer's attention to the warning statement.

The buyer's conduct in phase 2 also came under scrutiny and its ability to withdraw from the Deed (even though the seller had not given an effective direction to the warning statement or contract) was questioned. Consenting to the making of an application by the seller for exemption under the Land Sales Act was enough to amount to a waiver. The consent was intended to convey to the seller and to the Office of Fair Trading that the buyer was a party to a binding contract (the Deed).

That conduct was inconsistent with the continued existence of the statutory right to withdraw. The Court was not prepared, however, to treat the buyer's request for the seller to sign a consent to making of a development application in the same way – that did not create the necessary inconsistency with the continued statutory right of withdrawal to found a waiver of that right at law.
Parties to contracts need to be careful about making assertions about their contractual rights. An unqualified assertion made by a buyer to a third party that it is bound to a contract could be enough to forfeit a right to withdraw that it may enjoy because of technical non-compliance with PAMDA under section 365.

Justice Fryberg's critique of PAMDA and its deficiencies is overdue. The focus on process and not substance in PAMDA does not advance consumer protection objectives. This view is reflected in the lyrical concluding comments of His Honour:

"It matters not that in the present case such a direction would have been empty and purposeless. The Act clearly requires that unless it be given or until it be given, the parties, or at least the buyer, are not bound by the contract. Form triumphs over substance. Unless the magic words are written or the magic spell is cast, the buyer is not bound. Well may it laugh at the seller who failed to learn all the details of the PAMDA book of incantations."

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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