Monday, 20 August 2018

Who is an agent for the purposes of section 32 of the Sale of Land Act, 1962?

Who is an agent for the purposes of section 32 of the Sale of Land Act, 1962?
1.     This topic arises out of the decision in Lo v Russell [2016] VSCA 323 about section 31 of the Sale of Land Act, 1962 and the (ultimately successful) termination of a contract of sale of real estate by sending a cooling off notice to a real estate agent rather than directly to the vendor.

2.     Readers will recall that the Court of Appeal concluded that in the particular circumstances of that case that the real estate agent was the vendor’s agent for the purposes of section 31, and therefore that the service of a cooling off notice under section 31 was a valid termination of the contract of termination.

3.     The Victorian government has since passed legislation amending the Sale of Land Act 1962 to fix a perceived problem with section 31. The definition of estate agent was inserted (by Act No 13 of 2017) into section 30 (1) of the Sale of Land Act 1962 to have the same meaning as in the Estate Agents Act 1980. In other words, a real estate agent is an agent for the purposes of Part II of the Sale of Land Act, 1962 (which includes section 31 and 32). Further, section 31(3) was specifically amended to include real estate agents as a place to deliver a cooling off notice.

Agency / Requirements under section 32K of the Sale of Land Act 1962
4.     In Downing v Lau [2018] VCC 33, Judge Marks concluded that a vendor was entitled to forfeit the deposit in that case, due to the failure by the purchaser to pay the 10% deposit.

Relevant background
5.     The dispute arose out of the purchase at auction by the defendant, John Lau (“Lau”) on Saturday, 19 March 2016 of a potential development property in Earl Street, Kew (“the Property”). At the time of the auction, the Property had an old weatherboard house on it. Lau hoped to build seven or eight units on the site.

6.     By a contract (“the Contract”) Lau agreed to purchase the Property from the plaintiff Sarah Downing (“Downing”) for $3,050,500 with a six month settlement period. He handed a cheque for the deposit of $305,050 to the vendor’s real estate agent (“the Agent”).

7.     The next day, Sunday 20 March 2016, Downing’s husband Jason emailed a Dropbox link containing documents about the Property to Lau. The documents included a VCAT decision made 8 August 2014 (“VCAT decision”), that allowed a four building development on the Property.

8.     The documents in the Dropbox link also included the current planning permit that was issued by the Boorondara Council on 2 September 2014 (“Planning Permit”) after the VCAT decision. It gave permission to develop the Property to build four double storey buildings on it.

9.     On Monday 21 March 2016 Lau asked for a further three month period until settlement. It was refused. The deposit cheque was cancelled.

10.  On 29 March 2016, Lau’s solicitors sent a letter on his behalf saying that he was rescinding the Contract, because the s32 statement attached to the Contract had failed to disclose the Planning Permit, in breach of s32D of the Sale of Land Act 1962 (Vic) (‘the Act’).

11.  On 7 April 2016, Downing’s solicitors sent a letter on her behalf treating the purported rescission as a repudiation of the Contract, and accepting the repudiation.

12.  In September 2016, Downing resold the Property for $185,000 less than the price at which it was sold to Mr Lau.

13.  Downing sued Lau for the $305,050 deposit due under the contract, or alternatively for damages for breach of the contract.

14.  Section 32K of the Act relevantly provides:
(1) This section applies if a vendor—
(b) Fails to supply all the information required to be supplied to a purchaser, either in a section 32 statement or attached to the section 32 statement, as required by this Division; ...
(2) The purchaser may rescind any contract for the sale of land which has been entered into on the basis of information contained in the section 32 statement or attached to the section 32 statement at any time before the purchaser accepts title and becomes entitled to possession or to the receipt of rents and profits.

            (4) Despite subsection (2) ... the purchaser may not rescind a contract       for the sale of land if the court is satisfied that—
(a) the vendor has acted honestly and reasonably and ought           fairly to be excused for the contravention; and
(b) the purchaser is substantially in as good a position as if all     the relevant provisions of this Division had been complied       with.

15.  The parties agreed that the Planning Permit ought to have been disclosed in the s32 statement, as it falls within the description of an approved proposal directly and currently affecting the land under s32D(a) of the Act (see: Bonacci v Ruyten [2000] VSC 138 and Overton v Baker [1997] 2 VR 297 at 315).

16.  The consequence was that Lau was entitled to rescind the contract, unless the Court was satisfied of the matters in s32K(4): that Downing acted honestly and reasonably and ought fairly be excused for failing to disclose the Planning Permit in the s32 statement, and that the purchaser was substantially in as good a position as if the planning permit had been disclosed.

17.  Judge Marks conducted an analysis of the requirements to be met under section 32K. She noted that “As stated in Fifty-Eighth Highwire v Cohen & Anor [1996] VicRp 57; [1996] 2 VR 64 (‘58th Highwire’) at 71-72 and 77, a vendor seeking to establish a case under s32K(4) of the Act must establish that:
(1) the vendor has been honest (a subjective inquiry);
(2) the vendor has been reasonable (an objective inquiry);
(3) in the exercise of judicial discretion, the vendor ought fairly be excused for the contravention; and
(4) the purchaser is substantially in as good a position as if all the relevant provisions of Division 2 of the Act (being s32) had been complied with.

18.  The vendor bears the burden of establishing the s32K(4) factors.

19.  Judge Marks concluded that it was not disputed that the vendor had been honest.

20.  Her Honour also concluded that it was not disputed that when a vendor is found to have acted honestly and reasonably, it follows that without more, he or she ought fairly be excused for the contravention: Curtain v Aparo (1988) V ConvR 54-316, per Gobbo J.

21.  The issues before the Court in this case were whether:
·      The vendor was reasonable; and
·      The purchaser was substantially in as good a position as if the details of the planning permit had been provided in the s32 statement.

22.  The test to be applied in deciding if the vendor acted reasonably is an objective one. Did the vendor act with due care and attention and without negligence: Payne & Anor v Morrison (1992) V ConvR 54-428. This test has recently been applied by Digby J in McHutchison v Asli [2017] VSC 258 at [19].

23.  In the circumstances of the case, Judge Marks was satisfied of those matters. As a result, Her Honour concluded that Lau was not entitled to rescind the contract and Downer was entitled to recover the amount of the deposit, which was due before the contract came to an end, as a debt and interest on it.

24.  The conveyancer was apparently at fault in not including a question about the relevant planning permit in her questionnaire about the s32 statement, and was arguably negligent in that respect. The purchaser argued that the negligence of the vendor’s conveyancer ought to be taken into account in determining whether the vendor acted reasonably in the circumstances.

25.  This is where the question of agency arose.

26.  After conducting an analysis of the question of agency in general, Her Honour then analysed whether the decision in Lo v Russell affected the question of agency in this particular case.

27.  The purchaser submitted that the effect of s30 was one of identification of the conveyancer as the vendor in s32. He argued its effect was that the vendor and her agent were to be treated as one and the same for the purposes of Part II of the Act.

28.  S30 of the Act includes the definition, for the purposes of Part II of the Act that ‘vendor includes any person acting as agent for the vendor’.

29.  ‘Agent’ is not defined in the Act. Elsewhere the Act makes reference to ‘estate agents’ and ‘licenced estate agents’, including in s31, which does not apply to a contract where the purchaser is an estate agent within the meaning of the Estate Agents Act 1980: see Lo v Russell [2016] VSCA [37].

30.  The question was whether this definition adds anything to the analysis in relation to agency conducted by Her Honour. The purchaser submitted that it did. The vendor claimed it did not.

31.  The purchaser referred to Lloyd & Rimmer, Sale of Land Act Victoria, where the learned authors state (S.32K.320):
In none of the reported cases on the subject of the second element has reference been made to the definition of vendor in s30, which includes a person acting as agent for the vendor. Plainly enough a solicitor, estate agent or conveyancer preparing a section 32 statement on instructions from the vendor can be said to be acting in the capacity of an agent of the vendor for the purposes of s 32. Taking the s 30 definition of vendor into account, it seems inevitable that for the purposes of the second element of s 32K(4) a vendor should not be entitled to escape the consequences of negligence on the part of an agent in terms of the drafting of the section 32 statement, as the negligence is by virtue of the s 30 definition effectively that of the vendor personally. In these circumstances, it should not be open for a court to find affirmatively that vendor has acted reasonably for the purposes of S43K(4) where the vendor’s agent has been guilty of negligence in relation to the drafting of the section 32 statement. [Emphasis added]

32.  In footnote 388 to that section, the learned authors say that the statements in 58th Highwire are distinguishable as statements of obiter dictum on vicarious liability, and similarly seek to distinguish Beach J’s statement in Paterson at [31] that:
So long as a vendor acts reasonably in relation to the preparation of an appropriate section 32 statement he or she will not be held vicariously liable for the negligence of his or her solicitor or real estate agent.

33.  Her Honour respectfully disagreed with this analysis. What was being referred to in 58th Highwire, and decided in Paterson, is precisely the same point as is for consideration in Downing v Lau: do you take the negligence of a solicitor or estate agent in preparing the relevant documents into consideration in deciding if the vendor is negligent?

34.  Her Honour concluded (at paragraph 102):
The conveyancer was not the agent of the vendor in the present case in preparing the s 32 statement. She was a retained expert.

35.  The purchaser claimed that the conveyancer was the vendor’s agent because she is named as conveyancer on the contract, and later she dealt on behalf of the vendor in relation to this transaction by sending a letter to the purchaser’s conveyancer.

36.  Her Honour found (at paragraph 104) that:
… being named conveyancer for the vendor on the contract does not mean she is an agent in the usual meaning of that term in relation to work she privately did for the vendor. In sending the letter to a third party on the vendor’s behalf she acted as agent for the vendor. But being an agent in one context does not make her an agent in another.

37.  If the conveyancer was not the agent, the definition in s30 takes matters no further.

38.  At paragraph 106, Her Honour found that:
The Court of Appeal has made this distinction clear recently. Lo v Russell [2016] VSCA 323 (‘Lo’) involved a direct dealing between an estate agent and purchaser. The Court of Appeal considered the question of whether a notice of termination sent by the purchaser to the vendor’s estate agent was effective under s31(3) of the Act, which provides that such a notice:
… shall be given to the vendor or his agent or left at the address for service of the vendor specified in the contract or the address of his agent within three clear business days after the purchaser has signed the contract.

39.  As Warren CJ, Tate JA and McLeish JA stated in Lo, at [45]-[46]:
Especially when ‘estate agent’ is used in s 31(5), it is more likely that ‘agent’ in s 31(3) has its ordinary meaning rather than the special meaning of ‘estate agent’. Secondly, s 15(1)(b) contemplates service of notices under the SLA on persons authorised by the person served to receive them. The better view is that, consistently with that provision, ‘agent’ in s 31(3) simply means a person authorised by the vendor to receive the notice for which s 31 provides. In other words, ‘agent’ in s 31(3) has its ordinary legal meaning.
Further, ... the word ‘agent’ does not accurately describe the legal status of an estate agent in relation to a vendor. The suggested special meaning of ‘agent’ is therefore based on a non-technical usage rather than the legal meaning of the word. There is a presumption that where a statute uses a word with an established legal meaning, that is the meaning that the word will bear unless the context suggests otherwise. In the present case, there is no indication in the statute that it adopts any meaning for ‘agent’ other than its established legal meaning, and the presumption that this is the correct meaning is therefore not displaced. [Citations omitted and emphasis added]

40.  In Lo, the Court of Appeal decided that a notice sent to the estate agent in that case did constitute notice to the vendor, but that was despite its construction of the word ‘agent’ in s31 of the statute. It was because of its construction of the sale contract (and it expressly noted that the outcome of that case depends on the operation of the contract there employed: at [62]). The contract referred to the ‘important notice’ and used the words ‘vendor or the vendor’s agent’ in describing whom the notice was to be given. At the top of the next page were found the details of the vendor’s estate agent. No other person was described in the contract using the term ‘agent’. The Court said:
a reasonable person in the position of the purchaser or the vendor reading the contract would infer that the ‘vendor’s agent’ to whom reference is made in the ‘important notice’ is the person with whom the purchaser has been dealing in place of the vendor and who is described immediately thereafter as the ‘vendor’s estate agent’. [55]

41.  Judge Marks disagreed with the contentions put on behalf of the purchaser that someone who is engaged to do some work, which is then adopted and presented as their own by the vendor, falls within the definition of vendor’s agent under s30. The Court of Appeal in Lo answers the point regarding s31, and there is no relevant distinction in applying its logic to s32.

42.  Judge Marks concluded that the vendor in that case acted reasonably. As a result, relief was granted under section 32K(4).

43.  As we all know, the Victorian state parliament subsequently amended sub-section 31(3) and part of section 30 (the definition of agent), and inserted new section 31A into the Sale of Land Act 1962 to alter the position so that estate agents are in fact agents for the purposes of section 31.

44.  However, the amendments have not made real estate agents an agent for the vendor for the purposes of section 32.

 WG Stark 
Hayden Starke Chambers