The omnipotence of legislation versus self-reliance is a question which, in various forms, has produced volumes of academic discourse over centuries. On one hand, Australian legislation is the manifestation of a duly elected government that is responsible and representative of the populace. It is the written codes (and we mean no implications or connotations by the use of this word) by which the inhabitants of this country must abide. On the other hand, self-reliance adheres to the notion that parties, who are fully informed and cognisant of their contractual capabilities, should be able to make arrangements, agreements and understandings with one another with minimal interference or guidance. It is inevitable that self reliance will, at times, conflict with legislative provisions. Such a condensing of the jurisprudence and theorising which underpins these tremendous ideals would no doubt have Adam Smith, John Austin, Jeremy Bentham and the like turning in their graves. However an introduction, although admittedly disappointingly brief, to such ideals was necessary to provide a ‘backdrop’ for the issues discussed in this article. Namely, the ability to contract out of a statute.
Whether parties may contract out of legislative provisions is always a problematic question, which perplexes most practitioners at some point in time. At first glance the answer is simple, right? Contracts must confirm with the legislation as the rule of law deems it so. However, the judiciary has long recognised the need to enforce contracts made between, as aforesaid, fully informed parties. At times, these contracts may conflict with legislative provisions. In essence, the judiciary recognises that in certain circumstances parties should be able to ‘snub’ the applicable law by contracting out of it if the legislation does not serve their own self-interest. It must be recognised that obvious limitations are accepted – in no way do we advocate that people may be able to contract out of criminal liability! Which leads us to the answer, or does it?
As the above paragraph alludes, whether parties may be able to contract out of legislative provisions will depend on the legislation itself. Certain acts expressly provide for contracting out. An obvious example is the proportionate liability regime contained in the Civil Liability Act 2002 (NSW)(WA) and (TAS). A less obvious example is the replacement rules of the Corporations Act 2001 (Cth). In such circumstances the answer is clear. However, the legislation itself is not always so transparent as to whether contracting out is permissible. The correct answer, according to the findings of the Victorian Supreme Court of Appeal per Justices Mandie, Harper and Emerton in Solid Investments Australia Pty Ltd v Clifford & Anor (Solid Investments), appears to lie in determining the intention of the legislation in question. In other, more familiar words, utilising a purposive approach to statutory interpretation. The basis of this analysis was succinctly explained by Justice Bongiorno in his judgement of the case heard in the Trial Division of the Supreme Court.
Justice Bongiorno found that Section 9AE(2) of the Sale of Land Act 1962 (Vic) (the Act) cannot be amended or altered by a contract as it must be strictly interpreted. In other words Section 9AE(2) cannot be contracted out of.
Section 9AE(2) of the Act essentially provides that in an “off the plan” contract for the sale of land, the vendor must state in the contract the period in which the plan of subdivision must be registered by, or rely on the default provisions of the Act, being 18 months.
The Facts
In Solid Investments, the contract of sale provided for the plan of subdivision to be registered by 30 months from the contract date (Registration Period). Where the Registration Period is expired and where the plan of subdivision has not been registered, the purchaser had the option to rescind the contract. However, as is common in “off the plan” contracts of sale currently used throughout Victoria, there was a clause contained in the contract that allowed for an extension of the Registration Period in circumstances where there is an intervening delay. This may be due to factors such as a failure to obtain consents, approvals, or meet with conditions from authorities; or as a result of any strikes, lockouts, riots, or acts of God (Extension Clause).
The plan of subdivision was not registered by the Registration Period. As such, the vendor exercised its rights to extend the contract in accordance with the Extension Clause. This was executed by written notice to the purchaser. The purchasers did not agree with the vendor’s ability to extend the contract under the Extension Clause, and as a result served a rescission notice upon the vendor in accordance with section 9AE(2) of the Act. The purchasers argued that the Extension Clause was “ineffective to permit the extension of the Plan Registration Date in the manner contemplated by its terms because of section 9AE of the Sale of Land Act 1962 ”. The vendor refused to accept the rescission notice and insisted upon completion of the contract. The purchasers then filed an originating motion in the Supreme Court of Victoria pursuant to section 49 of the Property Law Act 1958 (Vic) seeking declaratory relief on the basis that the rescission notices were valid.
The Decision
As discussed above, Justice Bongiorno found that section 9AE of the Act could not be contracted out of. He was of the view that the Extension Clause prejudiced purchasers. Justice Bongiorno provided two main reasons to support this view.
- By allowing the vendor to extend the Extension Period “the vendor is able to transfer the risk of certain delays in completion of the project to the purchasers”
- Any extension of the Extension Period will cause purchasers to “lose the certainty which they would have had had the contract merely extended the time for registration of the plan of subdivision from the statutory period of 18 months to 30 months”.
The vendor argued that it was “commercially sensible” to construct the Extension Clause in such a way whereby each time the Plan Registration Date is extended, it would create a new specified period in accordance with section 9AE of the Act.
It was held that an acceptance of the vendor’s argument would lead to a result in which Justice Bongiorno emphasised is:
“inconsistent with the clear statutory purpose of section 9A, which was to create certainty for a purchaser of lots on an as yet unregistered plan of subdivision. The creation of that certainty for a purchaser was, in effect, the statutory trade-off for permitting a vendor to sell lots “off the plan”—before the plan was registered ”.
An “off the plan” contract for sale of land is inherently uncertain by nature. The purchaser takes a risk with respect to buying property sight unseen and is entrusting the vendor to deliver the property pursuant to the contract. As the Extension Clause counteracted the certainty which section 9AE of the Act affords the purchaser, Justice Bongiorno made the declaratory relief sought by the purchasers. The Court of Appeal upheld this decision and dismissed the appeal with costs.
Consumer Protection
This decision is in step with the modern consumer protection policy affected by governments and courts in Australia. Ironically, in the case of the Sale of Land Act this process is somewhat circular. Section 9AE(2) of the Act, as initially enacted, allowed a purchaser to rescind an “off the plan” contract of sale after 12 months from the day of sale, if the plan of subdivision was not registered. Later, 12 months was changed to 18 months. Finally, the Act was amended to provide for the vendor to specify another period or in default 18 months. As a result, it became common practice for solicitors to insert an Extension Clause into their “off the plan” contracts.
Following Solid Investments, section 9AE(2) now provides certainty to a purchaser in an “off the plan” contract sale. The date specified in the contract will be the date in which the plan of subdivision must be registered by, and subsequently the completion of the contract, or else the purchaser can rescind the contract and move on. The decision of Solid Investments has confirmed that Extension Clauses are no longer valid in “off the plan” contracts in Victoria.
Statutory Interpretation
Restricting the ability to contract out of legislating in respect of the Sale of Land Act was further reinforced in the recent case of Everest Project Developments Pty Ltd v Mendoza & Ors (Everest). In summary, Everest considered the application of Section 9AA of the Act, which provides that the deposit monies payable by the purchaser who buys an unregistered plan of subdivision must be paid to a legal practitioner, a conveyancer or a licensed estate agent acting for the vendor, or into a special purpose account in an authorised deposit taking institution in Victoria.
The purchases entered into a contract of sale for an off the plan purchase of an apartment, and paid a small holding deposit to the vendor at the time of signing the contract of sale. The holding deposits were refunded at a later date, upon the purchaser providing a 10 percent deposit bond of the purchase price. A special condition in the contract permitted the vendor to retain monies secured by deposit bonds prior to registration of the plan of subdivision (Deposit Bond Special Condition). Before the development was completed, the vendor was placed into external administration. The purchasers’ purported to rescind their contracts of sale claiming, among other things, that the Deposit Bond Special Condition had breached section 9AA of the Act.
Justice Hargrave held that the contract of sale contravened section 9AA of the Act and accordingly the purchasers were entitled to rescind the contract. This is not withstanding the fact that the holding deposits were repaid to the purchasers and any money received under the deposit bonds was to be held on trust by the vendor’s solicitors.
The court in Everest reaffirmed that failure to strictly observe the requirements of the Sale of Land Act would result in an “off the plan” contract of sale being rescindable at the purchaser’s leisure. This should serve as a warning to vendors that they cannot receive deposit money under a contract of sale of and before the plan of subdivision is registered.
Section 9AE(2) – Future Repercussions
If strict compliance with the Act is required, will mutual consent and agreement (such as by deed of variation) be acceptable to a court where a vendor seeks to extend the date in which plan of subdivision must be registered by? The answer most likely will be yes. However, what if the agreement for extending the date in which the plan of subdivision must be registered by is made under power of attorney in which the head of power is obtained through the contract, in a similar way to the previous body corporate power of attorney clauses where included in “off the plan” contracts of sale, prior to the commencement of the Owners Corporation Act 2006 (Vic)? Only time will tell how the courts will deal with any such enterprising practices of solicitors. , If courts lay dormant on the issue, maybe Parliament will intervene, as was the case in the enactment of the Owners Corporation Act 2006 (Vic).
