Midstyle Nominees Pty Ltd v Barker and Anor; Midstyle Nominees Pty Ltd v Jordon

[2014] HCATrans 257

[2014] HCATrans 257

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P20 of 2014

B e t w e e n -

MIDSTYLE NOMINEES PTY LTD (ACN 103 482 328)

Applicant

and

MICHAEL HEWITT BARKER

First Respondent

CAROL ANNE BARKER

Second Respondent

Office of the Registry
  Perth  No P21 of 2014

B e t w e e n -

MIDSTYLE NOMINEES PTY LTD (ACN 103 482 328)

Applicant

and

MICHAEL JOHN JORDON

Respondent

Applications for special leave to appeal

GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 14 NOVEMBER 2014, AT 12.39 PM

Copyright in the High Court of Australia

____________________

MR B. DHARMANANDA, SC:   May it please the Court, I appear with MR A. J. PAPAMATHEOS for the applicants.  (instructed by Herbert Smith Freehills)

MR C.G. COLVIN, SC:   May it please the Court, I appear with MR R.J.S. FRENCH for the respondents.  (instructed by K & L Gates)

GAGELER J:   Thank you, Mr Dharmananda.

MR DHARMANANDA:   May I refer to the applicant as the seller and the two respondents as the buyers.  The order made by the Court of Appeal at application book 80 to 81 in the Barker action and 82 to 83 in the Jordon action - as is apparent from them the Court of Appeal held that the two contracts of sale made in breach of section 13 of the Sale of Land Act (1970) when the seller was not the registered proprietor of the land were not void.  That is the answer the Court of Appeal gave to question (1) in each of the actions.

May I just stay with page 80, dealing with the Barker action?  The Court of Appeal also ordered in answer to question (2), that the Act did not itself confer on the buyer, either expressly or impliedly, a right to rescind or avoid the contract on the ground that the seller entered into the contract in contravention of section 13(1) of the Act, but yet, in paragraphs 4(2)(b) and (c) at application book 80, the Court of Appeal went on to hold that:

The contract was enforceable by the [buyer] but unenforceable by the [seller] –

and -

The contract remained unenforceable by the [seller] upon the [seller] becoming, and after the [seller] became, the registered proprietor of the Land.

We submit the Court of Appeal’s ruling that the contracts were enforceable by the buyers, but forever unenforceable by the seller was incorrect for essentially three reasons.  First, the ruling creates an asymmetry between the contractual rights and obligations of the buyers and the contractual obligations and rights of the seller.

GAGELER J:   Yes, but it is the ‑ ‑ ‑

MR DHARMANANDA:   On the Court of ‑ ‑ ‑

GAGELER J:   Mr Dharmananda, it is the seller who is the contravener of the statutory provision.

MR DHARMANANDA:   That is so, your Honour, but if, as the Court of Appeal found, the contract is not void and if, as the Court of Appeal found, the contract is enforceable by the buyer and it is a contractual arrangement, then the correlative right of the seller, if unenforceable, creates an asymmetry.

KEANE J:   Not if the statutory provision that renders it voidable is a provision for the protection of the buyer.

MR DHARMANANDA:   In our submission, the buyer is wholly protected if the buyer is able to avoid or refuse enforcement of a contract up until the time that the seller obtains title, which is the vice to which the section is directed.

GAGELER J:   So your complaint is really with the way in which the policy underlying the section has been understood.

MR DHARMANANDA:   That is so.  We say that the Court of Appeal’s ruling does not provide a common law sanction for breach of the section that meets its scope and purpose.  It goes beyond that.  We say that the ruling as to the applicable common law sanction for a breach of section 13 gives a buyer – if it gives a buyer a right to resist performance of their obligations under contracts they freely made for reasons entirely unrelated to the scope and purpose of the section does not meet the policy or purpose of the section.

GAGELER J:   Well, if that is your point, is not your problem for receiving a grant of special leave that this particular provision is unique to Western Australia?

MR DHARMANANDA:   In our submission, there are two reasons why special leave ought to be granted.  This provision, albeit unique in Western Australia, is exciting a significant amount of attention in Western Australia and it is likely to do so as the markets go up and fall.  It is a statutory provision, the effect of which ought to be properly construed rather than leave it as it has been left with the asymmetry that we have identified by the Court of Appeal.  The second point, we say, is that the decision is open to sufficient doubt to warrant the grant of special leave in the administration of justice.

It is important, your Honours, to start with the text of the legislation, and the text can be found conveniently in application book pages 37 to 39 in the decision of Justice of Appeal Buss at paragraph 16 of his Honour’s judgment.  In section 11 “sell” is widely and inclusively defined.  It refers to any activity preparatory to making an agreement to sell.  Then section 13(1) provides the sale of a lot to a person - if the sale is with respect to five or more lots in a subdivision or two or more lots in a strata title subdivision - is ineffective if the seller is not the registered proprietor.  It is noteworthy that a sale is not prohibited if made to a buyer of five or more lots in a subdivision or two or more lots in a strata title subdivision pursuant to section 13(1)(c).

A penalty of $750 is prescribed for a breach of the section.  It is important to note, in our submission, that the section does not, in terms, in express terms, say anything about what are the consequences if a contract for sale of a lot is made in breach of the section.  It also says nothing about what are the consequences, for example, if a lot is advertised in breach and then subsequently proprietorship is obtained and then a contract is made. 

The question of whether because the advertising occurred in breach there is an enduring problem for the seller so that a contract then made cannot be enforced is another issue that we say highlights that one has to focus on the policy or purpose of the provision rather than say, because the seller is breaching the section the seller should perpetually be disentitled to exercise its ordinary common law rights.  The common law sanction, we submit, that properly arises for a breach of the section has to be determined, not by reference to the actual words used because they are silent on the issue, but by drawing an inference from those words and by reference to the scope and purpose of the provision.

GAGELER J:   It is very difficult to see Justice Buss’ judgment as ignoring any of those principles.  You take issue with the way in which his Honour has interpreted what Parliament has done, and what underlay what Parliament has done.

MR DHARMANANDA:   We do, your Honour.  We say that the error that Justice of Appeal Buss fell into was he stated the test, but he made two errors, in our submission.  The first was to start with a prima facie position that ordinarily there would be unenforceability, and secondly, in his Honour’s reasons, he does not address what we have described as the temporal point.  His Honour instead points out a number of matters which he says points to unenforceability.  We would accept that.  But none of those points, in our submission, takes the next step of saying why it is perpetually unenforceable, even after the seller has obtained title.  That is the error to which we point.

Your Honours, as to purpose, can I make a reference to Walker v Clough Property Claremont Pty Ltd (2010) 41 WAR 477 - that is tab 4, I think, of the materials your Honours have. Might I refer your Honours to page 492, paragraph 61 of Chief Justice Martin’s reasons, where his Honour there said:

the evident purpose of the section is consumer protection.  From the categories of exclusion to which I have referred, it can be inferred that the purpose of the section is to protect prospective purchasers from the risk of the inability of a seller who is a subdivider to provide good title to the subdivided lot, at least where there is likely to be an imbalance between the bargaining power and/or commercial sophistication of the buyer and seller.  That risk will not arise if the seller is the registered proprietor ‑ ‑ ‑

GAGELER J:   At the time of contract?  How does your temporal point fit with that observation?

MR DHARMANANDA:   In our submission, once the seller obtains title the risk is no longer there.  If the logic of the section is to ensure developers with title deal – if the developer obtains title and if the logic of the section is to ensure that the buyer does not have anything but a hollow claim against the seller, then when the seller obtains title, the buyer has a good claim to get transfer of title from the seller, and so the vice to which Parliament was directed is no longer there.

We submit that when the language, scope and purpose of the section is considered, there is no warrant for the conclusion that a seller is forever not entitled to enforce a contract made in breach of the section.  We submit that a seller is able to enforce the contract once the seller becomes the proprietor.  The purpose of the section is to ensure that the consumer buyers are not prejudiced by buying land from a developer who does not have title.  That purpose is served if buyers are able to enforce contracts they have made, and if sellers are equally able to enforce contracts they have made once the seller becomes the proprietor.

The statutory purpose was not to give to buyers of land the ability to resist enforcement of their contract, not because the seller cannot transfer title, but because the buyers have changed their mind, for example, because market prices have fallen.  Giving a buyer the right to resist the seller’s enforcement of a contract in such circumstances we submit is neither necessary nor required by the language, scope and purpose of the section.  We submit the trial judge’s analysis was correct - and may I take your Honours to page 23 of the application book and paragraph 74 of his Honour’s judgment where his Honour Justice Beech said:

The central object of s 13 is to protect buyers from the risk – inherent in contracting with a non‑owner – that the buyer will be left with only a personal claim for damages against a selling party who has no title to the land.  Once the seller has title, the risk to that buyer is eliminated.  The buyer is dealing with a seller with good title.  The mischief at which the section is aimed then does not exist.  I do not consider that the legislation reveals an intention to give a buyer greater protection than is necessary to avoid the mischief, for that buyer, at which the section is aimed.

We submit that that is the proper analysis of the section and it is for that reason that the trial judge found as he did on that same page, 23, his answer to question (2) that “for so long as, and only for so long as” the seller was not the proprietor, is there an ability to avoid the contract.

We submit that the true principle is that the common law sanction does not apply whenever a person makes a contract in breach of a statute to render the contract unenforceable by the party in breach in perpetuity.  We submit it is not a matter of starting with a predisposition or assumption that a contract made in breach of a statute is void or voidable.  It is instead always a matter of construing the relevant statute. 

The true principle was explained in ACCC v Baxter Healthcare Pty Limited (2007) 232 CLR 1 and I think my friend has made reference to that case. May I take your Honours to paragraph 46 of the judgment at page 29 ‑ ‑ ‑

GAGELER J:   Where it says:

Ultimately, the question is one of statutory construction.

MR DHARMANANDA:   Yes, your Honours.  May I then also point out to your Honours, this case is put against us as authority that supports a proposition that illegality can operate against one party and not against the other.  We would accept that and that is the position in Baxter because sections 46 and 47 could have been contravened by a trading entity but not by a State entity. However, may I draw your Honours’ attention to what fell from their Honours at page 28, paragraph 44 where, in the middle of that paragraph, the Court said:

There is nothing unusual about a circumstance in which making or giving effect or a contract involves an offence by one party to the contract but not by the other.

However, later on in that same paragraph, they said in the last sentence -

Differential application of legislation to parties to a contract is commonplace, although working out the legal consequences may be complex.

So the complexity was recognised by the Court in Baxter as to the difficulty of having one party committing an offence making a contract and another party wishing to enforce the contract.  In Baxter, that issue did not fall to be decided and, indeed, if your Honours turn to paragraph ‑ ‑ ‑

GAGELER J:   What are you trying to get out of this, Mr Dharmananda?

MR DHARMANANDA:   The point we are making, your Honour, is that a liability – there may be a contravention by one party and not by the other party.  You can start with that premise, but then once you have a contractual arrangement, like here, you still have to unravel and deal with the complexity of how do you say that the buyer can enforce the contract but the seller cannot enforce the contract and the rights and obligations are inter se as between those parties.  So that complexity, in our submission, was not addressed by the Court of Appeal when it said that the seller was perpetually unable to enforce, but the buyer could always enforce at the buyer’s option.

GAGELER J:   Well, your initial point about asymmetry becomes a point about complexity and the complexity ultimately is to be resolved by reference to the statute, is it not?

MR DHARMANANDA:   Yes, your Honours.

KEANE J:   The cases that you are taking us to – Baxter and Yango Pastoral and all the other cases in this line of territory ‑ in all those cases this Court has provided some guidance as to how one approaches resolution of these issues.  I am just wondering why you think that this is an appropriate case to provide different guidance, rather than simply a case in which the court below has applied the principles and simply reached a result that your client does not agree with.

MR DHARMANANDA:   We say two things, your Honour, in answer to that.  The first is that in none of those cases has the temporal issue, as we have described it, been confronted and been dealt with.  The second point is that categorisation into three categories and an assumption being made that if it falls within the first category that somehow makes the relevant arrangement always unenforceable, we submit is question begging and that issue ought also to be clarified by the Court. 

Can I, on that point, refer your Honours to page 9 of the application book, paragraph 24, where his Honour Justice Beech refers to Justice of Appeal Giles’ decision in Bondlake Pty Ltd v Owners – Strata Plan No 60286.  The passage that his Honour has quoted makes clear that even if you are in category 1 or 2, the separate question of the common law sanction has to be addressed.  So categorisation does not get you to the answer.

That point, in our submission, is the point that is alive by reason of the section and its clear target which is about having title on the part of the seller, not about providing an ability on the part of the buyer to get out of a contract the buyer freely made on the basis that there has been an illegality which taints the transaction where that illegality no longer subsists. 

Could I say something about the Court of Appeal’s approach at pages 64 to 65, paragraphs 133 to 134, and 73, paragraphs 166 to 169 – that section 13 does not give a buyer the right to avoid a contract until title is obtained by the seller.  We submit that that – the analysis there is not correct.  The required task is to identify, by a process of construction and inference, what, if any, common law sanction is required by the language and scope and purpose of the section. 

Further, as we have submitted in our reply submissions at paragraph 22, which is in application book 118, the common law

consequence of a contract made in breach of a statute includes that the contract is void and unenforceable.  “Void” may mean voidable.  That is a potential common law consequence of illegality.  There is nothing ‑ ‑ ‑

GAGELER J:   Mr Dharmananda, I do not know if you can see that the light – the red light is on.  Are you able to finish your submissions at this point?

MR DHARMANANDA:   Yes, your Honours.  May it please the Court.

GAGELER J:   Thank you.  Mr Colvin, we do not need to hear from you.

The narrow conclusion of the Court of Appeal was to the effect that contravention of a statutory provision unique to Western Australia resulted in a contract being unenforceable at the suit of the contravening party.  There is insufficient reason to doubt the correctness of that conclusion to warrant the grant of special leave to appeal to this Court.  An appeal to this Court would raise no novel question of general contractual importance.  Special leave is refused with costs in each matter.

The Court will now adjourn to 10.15 am Eastern Time on Tuesday, 2 December.

AT 1.02 PM THE MATTERS WERE CONCLUDED