A recent decision vividly illustrates that a vendor cannot rely upon the expiry of a Notice to Complete to terminate a Contract for the Sale of Land unless they are ready, willing and able to pass legal title to the property at the time specified for settlement.

The decision is Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32, a decision of the Court of Appeal, Supreme Court of New South Wales (The Court: Beazley P, Sackville AJA & Emmett AJA).

The Notice to Complete

The Purchaser (Jaswil Properties) failed to complete the Contract for the Sale of Land at Parramatta by the completion date specified in the Contract which was 30 January 2015.

The Vendor (Barrak Properties) served a Notice to Complete on the Vendor on Monday 2 February 2015 to make time of the essence. It specified that completion was to take place ‘on or before 3 pm on Tuesday 17 February 2015 and in this respect time is of the essence of the Contract’. It warned the Purchaser that ‘If you fail to complete this Contract as required by this Notice the vendor will be entitled to terminate the Contract’.

The problem with the Transfer at the Settlement

On 16 February 2015, the parties attended at the GlobalX settlement room to settle the sale. The Vendor’s outgoing mortgagee had the Certificate of Title and Discharge of Mortgage; the Vendor had the Transfer; the Purchaser had an order on the agent to release the deposit; the Purchaser’s incoming mortgagee had the settlement cheques for the balance price.

All was going well with the settlement until the Purchaser rejected the Transfer because it was incorrectly executed by the Vendor. It was executed as follows:

Certified correct for the purposes of the Real Property Act 1900 by the transferor:

Signature of transferor: [Mr Barrak’s signature]

[To the left was provision for the signature to be witnessed]

I certify I am an eligible witness and that the transferor signed this dealing in my presence.

Signature of witness: [Ms Barrak’s signature]

Name of witness: [Ms Barrak’s full name]

Address of witness: [Ms Barrak’s street address]

If the Vendor were an individual, then the Transfer would have been correctly executed in this way. But the Vendor was a company, and the attestation clause should have been as follows:

Certified correct for the purposes of the Real Property Act 1900 and executed on behalf of the corporation named below by the authorised person(s) whose signature(s) appear(s) below pursuant to the authority specified.

Corporation: BARRAK CORPORATION PTY LTD ACN 091 064 176

Authority: section 127 of the Corporations Act 2001

Signature of authorised person: [Mr Barrak’s signature]

Name of authorised person: Benjamin Barrak

Office held: Sole director and sole company secretary

The incoming mortgagee did suggest to the Vendor’s settlement agent that ‘This is easily fixed, just ring your principal and he can authorise you to hand write the attestation clause into the transfer’. The settlement agent tried to, but was unable to contact Mr Barrak (who was the Vendor’s solicitor as well as its sole director) to obtain the authority, and so the settlement did not proceed.

The Purchaser’s solicitor re-booked the settlement the next day at 2:30 pm on 17 February 2015. But the Vendor’s solicitor cancelled because it was unable to arrange the attendance of its outgoing mortgagee, which needed 3 clear days’ notice.

The Vendor did not withdraw its Notice to Complete, as it could have done. Instead, it contended that its Notice to Complete ‘stands valid and is considering its position in light of the above, and the history of this matter’.

To advance its position, the Purchaser served a Notice to Complete on 20 February 2015.

The Vendor served a Notice of Termination on 26 February 2015.

The Purchaser commenced proceedings on 6 March 2015 for relief against termination of contract.

The Primary Judge’s findings

The primary judge (Bergin CJ in Eq) focused on the Purchaser’s default to support her finding that the Notice of Termination was validly served.

It is the Purchaser’s obligation under the contract to serve a form of Transfer upon the Vendor.

She found that the Purchaser was in default because it had served the Transfer in the wrong form for the settlement on 16 February 2015. She stated that the Vendor was entitled to sign the Transfer as it was presented. Therefore the failure to settle was the Purchaser’s fault.

Further, she found that the Purchaser’s service of a fresh Transfer with the appropriate execution clause at 11:30 am on 17 February 2015 for a settlement booked at 2:30 pm that day was not ‘reasonable in the circumstances’. She explained - ‘a prudent purchaser, who has already failed to complete within the time provided for in the Contract’ should have ‘planned the settlement the previous week’ so that there was ample time to settle ‘within the time period stipulated in the Notice to Complete’ if ‘the problem was exposed’.

The decision is reported as Jaswil Properties Pty Ltd ATF Jaswil Unit Trust v Barrak Corporation Pty Ltd [2015] NSWSC 391.

The Court of Appeal’s findings

The Court of Appeal overturned the primary judge’s findings. The Court focused upon the Vendor’s responsibilities. It stated the applicable law as:

It is a fundamental principle of land law that a party who seeks to terminate a contract for breach of an essential stipulation, must itself be ready, willing and able to complete.

The Court made these findings:

  • Was the fresh Transfer served at 11:30 am 17 February in the approved form?

The Court found that the fresh Transfer was in the approved form, as it contained an attestation clause which complied with s 127(1) of the Corporations Act

  • Where should the blame lie for the failure to settle?

The Court found that the Vendor was to blame by not being ‘ready, willing and able to complete the sale on 17 February 2015’ because it was not able to provide a discharge of mortgage ‘to ensure that legal title to the property would pass to the purchaser as required by the essential terms of cl 16.3 of the contract’.

  • Was the Purchaser in default by not serving the correct Transfer earlier?

No. The Court stated that her Honour’s advice to arrange an earlier settlement to expose any problems was ‘perhaps sage conveyancing advice’, but it did not reflect any legal principle.

  • Was the Vendor entitled to execute an invalid form of transfer?

The Court stated that the Vendor cannot assert that ‘its only obligation was to execute the form of transfer submitted by the Purchaser’. The Court stated that the Vendor had an obligation ‘to bring the defect to the Purchaser’s notice’ or ‘to change the wording in the printed execution clause to ensure that the transfer was in registerable form’.

  • What should the Vendor have done on 17 February 2015?

The Court stated that the steps taken by the Purchaser to re-schedule the settlement to 17 February 2015 ‘were appropriate and necessary’. Because the Vendor ‘remained under the same obligation to settle by the time specified in the notice’, it should have withdrawn the Notice to Complete if it was not able to attend at the time specified in its Notice to Complete to hand over the documents to pass legal title.

Therefore the Vendor was not entitled to serve a Notice of Termination of the Contract.

Postscript – It Ain’t What You Sign (It’s The Way That You Sign It)

Conveyancers acting for vendors and purchasers need to ensure that the attestation clause in the Transfer is appropriate for the vendor. And if the vendor is a company, the requirements of s 127 of the Corporations Act need to be observed.

A vendor relying upon a Notice to Complete to terminate a contract must have the documents of title available in order to be ready, willing and able to pass legal title at the time specified for completion in the Notice to Complete.