Pazcuff Pty Ltd v Farmilo[2009] QSC 230

SUPREME COURT OF QUEENSLAND

1. On 5 November 2008, the applicant entered into a contract in writing with the first respondents for the purchase of six building units, namely Lots 11, 13, 14, 16, 17 and 21 on BUP 70791 County of Nares, Parish of Cairns (hereinafter the “unit contract”). On the same day the applicant entered into a contract in writing with the second respondent for the purchase of a Management and Letting business associated with the Reef Gateway Apartments (hereinafter “the rights contract”).

2. By this Originating Application, the applicant seeks a declaration that it has lawfully terminated each contract and that it is entitled to have the respective deposits repaid to it. The basis for this claim is that the applicant was not, in relation to the unit contract, given a disclosure statement signed by the first respondents prior to his entering into that contract. The giving of a disclosure statement is required by s 206 of the Body Corporate and Community Management Act 1997 (hereinafter “BCCMA”).  It is common ground that the performance of the rights contract was linked to the unit contract such that a valid cancellation of the latter meant that the former could also be validly terminated. 

3. The respondents oppose the application on the basis that upon the proper construction of the relevant terms of BCCMA, the first respondent did substantially comply with s 206 before the applicant entered into the contract.

Background facts

4. The facts are not in dispute and no oral evidence was called. The relevant circumstances and documents are contained in the affidavit of David Greenwood filed on 11 March 2009 and the affidavit of Peter William Farmilo filed on 23 April 2009.

5. In early August 2008, John Gallo, a director of the applicant, approached Peter Farmilo offering to purchase the subject units and the management business. Each of the parties retained separate solicitors to act in the transaction.

6. On 31 October 2008, the respondents’ solicitors sent a letter to the applicant’s solicitors enclosing the following documents for their consideration:-  

1. Residential units contract to which was attached the PAMD Form 30c Warning Statement, followed by the BCCMA Form 14 Contract Warning; and

2. BCCMA Disclosure Statements for the relevant lots; and

3. Contract for the sale of management business.^[1]

The respondents had not executed any of the documents but the letter was signed by a partner of the respondents’ solicitors.^[2]

7. On 4 November 2008, the applicant returned the documents duly executed by it though containing some amendments which were agreed to by the respondents.

8. On 5 November 2008, the first respondents signed the relevant documents including the disclosure statements in respect of the units. The signed documents identified in (a), (b) and (c) above were forwarded to the applicant’s solicitors on 6 November 2008.^[3]

9. The applicant relies upon these facts to contend that before it entered into the contract none of the disclosure statements were signed by the first respondents and thus there was no compliance with s 206 of BCCMA. The respondents contend that there has been substantial compliance with the section, arguing primarily that the signature by the respondents’ solicitors in the letter of 31 October 2008 was an effective signing for the purpose of the section. In the alternative, the respondents argue that there has at least been substantial compliance with the section.

10. These issues did not arise until 18 February 2009^[4] by which time there had been a number of concessions made by the respondents – a reduction in the purchase price of the rights contract, an extension of time for finance approval and an extension of time for the date of settlement.  However, the respondents do not argue that there is any question determinable by reference to waiver.  The issue between the parties turns solely on whether there has been compliance with the provisions of s 206. 

11. Section 206 relevantly provides:-

“206 Information to be given by seller to buyer

1. The seller (the seller) of a lot included in a community titles scheme … must give a person (the buyer) who proposes to buy the lot, before the buyer enters into a contract (the contract) to buy the lot, a disclosure statement.
2. The disclosure statement must –

(a)state the name, address and contact telephone number for –

(i)the secretary of the body corporate; or

(ii)if it is the duty of a body corporate manager to act for the body corporate for issuing body corporate information certificates – the body corporate manager; and

(b)state the amount of annual contributions currently fixed by the body corporate as payable by the owner of the lot; and

(c)…

(d)identify improvements on common property for which the owner is responsible; and

(e)list the body corporate assets required to be recorded on a register the body corporate keeps; and

(f)identify the regulation module applying to the scheme; and

(g)state whether there is a committee for the body corporate or a body corporate manager is engaged to perform the functions of a committee; and

(h)include other information prescribed under the regulation module   applying to the scheme.

(3)The disclosure statement must be signed by the seller or a person authorised by the seller.

(4)The disclosure statement must be substantially complete.

…

(7)If the contract has not already been settled, the buyer may cancel the contract if –

(a)the seller has not complied with subsection (1); or

(b)…

(8)The seller does not fail to comply with subsection (1) merely because the disclosure statement, although substantially complete as at the day the contract is entered into, contains inaccuracies.”

12. The section does not prescribe any form which must be followed in making out the disclosure statement. All that is required is that the information identified in subsection (2) above must be disclosed and that the statement must be “signed by the seller or a person authorised by the seller”. The applicant does not express any concern about the content or the form of any of the disclosure statements. Each of them was, in fact, in a form which appears to have been designed by Cairns Search Agents who claim to be, with others, the copyright owner.^[5]  The document contains the following paragraph:-

“2.  This disclosure statement is commissioned by the vendor or the vendor/s agent or solicitor MacDonnells (Solicitors) and is designed to accompany a unit sale contract for (Lot No.) “Reef Gateway Apartments””.

13. It is common ground that none of the disclosure statements were signed by the first respondents until a time after the applicant had signed the several documents. The first respondents do not suggest there was any formal or specific authorisation by them for their solicitors to sign any such statement. Nor did the solicitors in fact sign the disclosure statements or any way specifically verify the statement’s contents. It might well be that the solicitors secured the information by authorising Cairns Search Agents to make the necessary inquiries. One could easily infer that this was the process followed. But the question is whether the solicitors signing of the letter of 31 October 2008^[6] was done with the authority of the first respondents and was sufficient to verify the unsigned document.

14. The authority of a solicitor to make agreements or to verify information on behalf of a client is not open-ended. The legal effect of a solicitor’s action will depend on whether the solicitor has the actual, or an ostensible, authority to bind the client. In Nowrani Pty Ltd v Brown^[7] McPherson J said (at p 586):-

“The mere fact that a person is a solicitor confers no implied authority to make contracts on behalf of one who happens to be his client: Pianta v National Finance & Trustees Ltd (1964) 38 A.L.J.R. 232; Rymark Australia Development Consultants Pty Ltd v Draper [1977] QdR 336, 344.  Nor, apart from express authority, does a solicitor have authority to agree to a variation of his client’s contract; see George v Pottinger [1969] QdR 101, 107.  …  The proposition contended for by Mr Douglas went the length of saying that a solicitor retained to bring to completion a contract for the sale of land, has, by virtue of that retainer alone, authority (1) to extend the time for completion of the contract; and (2) to elect to (or not to) avoid, rescind or determine the contract.  If that is so, solicitors are certainly very powerful people, and one should think twice before retaining them.”

Also at p 587 his Honour said:-

“For ostensible authority it is necessary to show that there was some holding out of (the solicitor) by the defendant as having her authority to make the variation agreement.”

15. McPherson J made reference to Legione v Hateley^[8] and to Sargent v ASL Developments Ltd^[9] where the High Court on separate occasions considered when a client was bound by the actions of, or by the information held by, his or her solicitor.  In neither of those cases, nor in the principles identified, was there any suggestion that a solicitor signing a letter in the course of a general authority constituted the verification of a statement of the kind mandated by s 206.
16. There is no evidence of any specific conduct by the first respondents from which it could be inferred that their solicitors had authority to bind them to the terms of the disclosure statement. The text of the solicitors’ letter of 31 October 2008 (ex “DG3”) does not contain terms suggestive of authority to verify the contents of the disclosure statement, rather the text is consistent with the solicitors being authorised to prepare the contractual documents and to secure their execution. That letter also contains a paragraph directing the applicant’s attention to the disclosure statement and various warnings given pursuant to the Property Agents & Motor Dealers Act 2001 (PAMDA) and BCCMA.  This direction was no more than what was required of the solicitors in compliance with s 366B(4) of PAMDA. 
17. Neither in that direction, nor in the above quoted paragraph taken from the disclosure statement, is there any direct authority to the solicitors to verify the information contained in the disclosure statement. Nor, in my view, is there anything in the circumstances by which such authority can be inferred.

18. The relevant provisions of BCCMA are designed to meet the consumer protection objectives of the Act. In so doing, they are allied to the similarly designed provisions of PAMDA. For example, Part 2 of Chapter 5 of PAMDA relevantly places obligations both on sellers of residential property and lawyers who act on a seller’s behalf, by which warnings are brought to the attention of intending buyers. These objectives were discussed by de Jersey CJ in MNM Developments Pty Ltd v Gerrard^[10] who said as follows:-

“[16] The context of the requirement set up by s 366 tells against a liberal interpretation of that requirement.  Chapter 11 of the Act, in which s 366 occurs, contains a detailed set of technical requirements plainly directed to ensuring a form of consumer protection for purchases of residential property.  One of the objects of the Act, stated in its preamble, is “to protect consumers against particular undesirable practices”.  That protection extends, in cases like these, to giving a purchaser a right to terminate even for quite technical contraventions, and whether or not the purchaser has suffered any material disadvantage.  See, for example, s 366(4)(a), s 366(4)(b) (including the example) and s 367(2)…

[21] Finally, had the parliament intended to sanction a situation like this, it would have done so by using language less prescriptive than, “as its first or top sheet”.  It is those terms which to my mind compellingly exclude the respondent’s position.  The legislature has considered an exacting obligation justified to secure the goal of consumer protection.”

19. I am informed that there are no decided cases dealing directly with s 206 of BCCMA but once it is accepted that consumer protection is the rationale for its existence then that fact must determine the approach to its proper construction.

20. Mr Philp of Senior Counsel argues that the objectives of BCCMA do not highlight particularly the consumer protection intentions. He contrasts the primary objective of PAMDA as being “to protect consumers against particular undesirable practices” with the more sedate secondary objectives in s 4(g) of BCCMA “to provide an appropriate level of consumer protection for owners and intending buyers” against the background in s 4(a) of “balancing the rights of individuals”. These objectives, he contends, were met by the transmission of the disclosure statement in the solicitor’s letter and the details warnings provided by the letter.

21. Mr Jonsson of Counsel for the applicant points to the centrality of the disclosure to the fulfilment of the objective of consumer protection. He relies firstly on s 207 of BCCMA by which the contract includes the disclosure statement and all material accompanying the statement. Secondly, by s 208, the information in the disclosure statement may be relied upon by the buyer as if it had been warranted. Thirdly, by s 209, the buyer may, if the contract has not been settled, cancel the contract if the disclosure statement is inaccurate or its accuracy cannot be verified upon reasonable inquiry.

22. Consumer protection is clearly one of the significant motivations for the enactment of the provisions of Chapter 5 of BCCMA. It demands of the seller of lots, or proposed lots, the disclosure of information which a buyer could not easily ascertain for himself or herself. It imposes significant safeguards by imposing on the seller warranty for the truth of the information and it provides a significant sanction in that the contract may be cancelled if the information is not accurate. As well, these provisions incorporate the warning statements required under the PAMDA.

23. I accept the submissions made on behalf of the respondents that the provisions of ss 207-209 do indicate the centrality of the disclosure statement to the contractual rights and obligations of the parties. As such, the requirement that the provision of the disclosure statement be a legal and binding act of the seller is made clear.

24. Once this is accepted, the question then is whether the disclosure statement provided by the first respondents complied with the provisions of s 206 of BCCMA.

25. The first respondents argue that by reason of s 206(8) there has been substantial compliance with the requirements of the section. The argument is that subsection (8) qualifies not only the content of the disclosure statement but also its execution as required by subsection (3). The argument thereafter contends that the solicitor’s signature on the accompanying letter, the likely circumstances of the preparation of the disclosure statement and the general authority of the solicitor is sufficient compliance with the terms of the Act.

26. The applicant contends, having regard to the purpose of the disclosure statement and its centrality to the contract, that verification of its contents must be given by the seller or a person duly authorised by the seller. In this connection, the applicant refers to s 48A of the Acts Interpretation Act 1954 which is in the following terms:-

“48A Verification of documents

If an Act requires that, for a purpose of the Act or another law, a document, or information or a document include in, attached to or given with a document, be verified in a specified way, the purpose is not fulfilled unless the requirement is satisfied.

27. The legislature has not prescribed any form to be used in making a disclosure statement but the scope of the information to be disclosed is mandated by s 206(2). Such information must be substantially complete as at the date of the contract. If information is later found to be inaccurate, this does not invalidate the statement. This fact does not, in my view, lessen the importance of the disclosure statement in the contractual arrangement. Rather it seems to me, to be no more than a reflection of the fact that some information comes to the knowledge of the seller only upon inquiry of others. Read as a whole, the provisions of Parts 1A and 1 of Chapter 5 of BCCMA bespeak a statutory objective of providing an appropriate level of consumer protection. Even though these provisions do not contain punitive sanctions such as exist in PAMDA, the evident purpose of the provisions calls for a strict approach to the fulfilment of their terms.

Conclusion

28. In the absence of any contention as to the contents of the disclosure statement, the only issue between the parties is the manner of its verification. In this regard I take the view that the terms of s 206 properly construed requires that there be personal verification by the seller, whether by the seller’s own hand or by another person specifically authorised to do so. In this instance, there is no evidence of the respondents having given specific authority to their solicitors and as a consequence verification in the sense envisaged by s 48A of the Acts Interpretation Act and by the statutory purpose, has not therefore been fulfilled.  The result of this finding is that the requirements of s 206(1) of BCCMA have not been complied with. The applicant was therefore entitled to cancel the unit contract and with it the rights contract as well and to recover the deposits paid.

Orders

29. I make the following orders:-

The Court –

1. Declares that the first respondents failed to give the applicant a disclosure statement complying or, alternatively, substantially complying with s 206(1) of the Body Corporate and Community Management Act 1997 before the applicant entered into a contract dated 5 November, 2009 for the purchase from the first respondents of Lots 11, 13, 14, 16, 17 and 21 on BUP 70791, County of Nares, Parish of Cairns, (the ‘Unit Contract’) by failing to give to the applicant a disclosure statement signed by the first respondents, or a person authorised by the first respondents, before the applicant entered into the Unit Contract.

2. Declares that the applicant has lawfully cancelled the Unit Contract pursuant to s 206(7) of the Body Corporate and Community Management Act 1997.

3. Declares that the applicant is entitled to be repaid the whole of the deposit paid by the applicant under the terms of the Unit Contract in the sum of $10,000.00.

4. Declares that the applicant has lawfully terminated the contract dated 5 November 2008 for the purchase by the applicant from the second respondent of the management and letting business known as Reef Gateway Apartments (the ‘Rights Contract’) for non-fulfilment of the condition relating to completion of the Unit Contract.

5. Declares that the applicant is entitled to be repaid the whole of the deposit paid by the applicant under the terms of the Rights Contract in the sum of $10,000.00.

6. Orders that the first and second respondents pay the applicant’s costs of and incidental to this application to be assessed on the standard basis.