HopgoodGanim has successfully acted for the Receivers and Managers of Queensland’s Port of Airlie Boathouse development in defending an attempt by a purchaser of a proposed lot to avoid their contract pursuant to Section 27(2) of the Land Sales Act 1984 (Act).

Section 27(2) gives a purchaser the right to avoid a contract for the sale of a proposed lot if the vendor has not given a registrable instrument of transfer within 3½ years after the date of the contract.

The landmark Queensland Court of Appeal decision of Meridien AB Pty Ltd & Anor v Jackson & Ors was handed down yesterday and unanimously upheld Meridien’s appeal with costs. The Court of Appeal held that the proper construction of Section 27(2) did not permit a purchaser to avoid their contract in circumstances where they refused to settle and the 3½ year sunset period subsequently expired. This case is the first of its kind and clarifies the meaning of Section 27, giving some assurance and comfort to developers.

Relevant facts

On 2 January 2008, the parties entered into a contract of sale for an apartment in the proposed Boathouse development at Airlie Beach (Contract). Meridien AB Pty Ltd and Meridien Airlie Beach Pty Ltd (Meridien) (as vendor) subsequently nominated 28 February 2011 as the settlement date. Meridien also confirmed that it was prepared to forward transfer documents and settlement figures to the purchasers on their undertaking to use the transfer documents for stamping purposes only prior to settlement.

On 18 February 2011, the purchasers purported to terminate the Contract based on alleged misleading and deceptive conduct by Meridien. Meridien denied the allegations and informed the purchasers that it was ready, willing and able to settle, but would not attend at settlement as doing so would be futile given the purchasers’ refusal to settle. Neither party tendered on the settlement date or at any time thereafter.

On 30 June 2011, Meridien commenced proceedings in the Supreme Court of Queensland against the purchasers (as well as against 10 other purchasers for separate proposed lots) seeking specific performance and damages for breach of Contract.

In accordance with Section 27, Meridien was required to provide a registrable instrument of transfer to the purchasers by 2 July 2011 (ie, 3½ years from Contract date). On 25 November 2011, the purchasers elected to avoid the Contract pursuant to Section 27 of the Act on the basis that Meridien had not provided the registrable instrument of transfer by 2 July 2011. Meridien disputed that right on the basis that the purchasers refused to be given the transfer.

Supreme Court decision

On 5 March 2012, the purchasers applied for summary judgment based on the argument that their election pursuant to Section 27 of the Act entitled them to avoid the contract. They were successful. Justice Martin found that the language of Section 27 of the Act was “clear and unambiguous”. His Honour agreed that the purchasers were entitled to avoid the Contract as Meridien had not provided a registrable instrument of transfer within the timeframe required by Section 27. This finding was made despite Meridien having commenced proceedings before the expiration of the sunset period and being able to provide a registrable instrument of transfer should it be successful in those proceedings.

Meridien appealed Justice Martin’s decision.

Appeal

On appeal, Meridien argued that Section 27 of the Act was ambiguous and that on its proper construction, a purchaser did not obtain a right to avoid a contract in circumstances where the vendor was ready, willing and able to provide a registrable instrument of transfer in return for payment of the purchase price on settlement.

Among other things, Meridien argued that Justice Martin’s construction of Section 27:

  1. provided a disincentive for developers to sell lots “off the plan” as it made them vulnerable to purchasers who deliberately delay settlement in order to enable them to avoid contracts under Section 27; and
  2. allowed a purchaser to benefit from their own breach of contract if the vendor decided to seek specific performance instead of immediately terminating the contract for the purchaser’s breach.

Court of Appeal’s Decision

The Court of Appeal unanimously upheld Meridien’s appeal.

The purchasers had contended that despite their refusal to settle, Meridien was obligated to provide a registrable instrument of transfer to the purchasers and ought to have protected their interest via a caveat over the apartment. The Court of Appeal considered that such an argument was “unattractive and unworldly” and held that it would be highly improbable that a defaulting purchaser would accept a stamped registrable transfer from the vendor and hold it on the vendor’s behalf.

The purchasers also contended that the legislature had stipulated the 3½ year period to cover all contingencies concerning a contract, including resolution of proceedings. This was rejected with the Court of Appeal finding that it was not practically possible given that such arguments would usually arise in close proximity to the settlement date of the contract and require additional time to be resolved.

The Court also disagreed with Justice Martin’s findings and held that the language of Section 27 of the Act is not “clear and unambiguous”. The Court made the following points about the construction of Section 27:

  • Section 27 was not intended to be read literally and contemplated that a registrable instrument of transfer will not be provided by the vendor to the purchaser except in return for the balance purchase price.
  • It is unlikely that Section 27 was intended to operate to permit a purchaser, who refuses to settle, to avoid the contract and benefit from their own wrongdoing.
  • The “purchaser” referred to in Section 27 is one which, at the time of giving the required notice, was not wrongfully refusing to perform those obligations under the contract which were dependent upon the obligations of the vendor to provide it with a registrable instrument of transfer.
  • This construction did not detract from the consumer protection purpose of Section 27 and was consistent with the mischief Section 27 seeks to address by preventing vendors from delaying indefinitely before providing a buyer with registrable title.
  • Section 27 had to be considered in its context as a provision relating to conveyancing. In this regard, the Court’s construction was consistent with conveyancing practice and furthered the legislative intent and objectives of the Act to facilitate property development in Queensland.

In February 2012, Section 27 was amended to include the words “other than as a result of the purchaser’s default” after the words “the instrument was made”. However, the Court confirmed that the amendment merely clarified the existing position that a purchaser may only rely on Section 27 if the buyer is not in default or has not failed to settle in accordance with the contract. It was said that the amendment removes ambiguity and provides certainty in respect of instruments to which it relates.

Effect of Decision

The Court of Appeal’s decision confirms that a purchaser will be unable to rely upon its own refusal to settle as a basis for asserting that a vendor has failed to provide a registrable instrument of transfer under Section 27.

While the decision reflects the amendments made to Section 27, it remains important with respect to developers’ rights in respect of contracts that may not be strictly covered by the amendments and furthers the policy objective of the Act to facilitate property development in Queensland.