MFB Properties (NQ) Pty Ltd & Ors v MSD Securities Pty Ltd & Ors

This case involved six contracts, two variations and a deed to sell land and a business.  Not all of the parties were parties to the contracts but they were all parties to the deed. The deed dealt with the mutual contemporaneity and conditionality of the individual parties’ obligations. One of the parties granted a mortgage over their land after some payments had been made (but prior to settlement). The question was whether the other party to that contract was entitled to avoid the contract. The right to do so would arise if the contract was an ‘instalment contract’ per s 73 of the Property Law Act 1974. However, the Court found that as the contract in question did not result in either party gaining any interest in land it was not an instalment contract. The appeal was allowed.

Sofronoff P and Morrison and McMurdo JJA

9 October 2018

Background

This case concerned a series of “peculiar and unusual instruments evidencing a transaction or transactions”. The contracts anticipated the sale and transfers of various property. [1]–[2]. An accompanying deed, entered into by all of the parties, indicated that the contracts were all to be “subject to contemporaneous settlement with each other”. [6]. On two occasions the agreement between the parties was varied. [7], [11]. In one of the variations, a clause contained an acknowledgement that transfers that had already taken place were “a part payment under the Transaction Deed”. [27].

The issue was whether this “part payment” meant that one of the contracts (or the transaction as a whole, evidence by all of the contracts) was an ‘instalment contract’. [1]. According to s 73 of the Property Law Act 1974 (Qld) (“the Act”), an instalment contract means:

“an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments.”

The relevance of this question arose because one of the parties granted a mortgage over a lot that had been sold to another party (although it was ready and willing to give clear title upon settlement of that sale). [13], [15]–[16]. Subsequently, the bank lodged a caveat over the lot. Then, having learned of the caveat, the party to whom the land had been sold “avoided the contracts in reliance upon s 73(2)(a) of the Property Law Act 1974”. [18]. That provision relevantly provides that a vendor under an instalment contract “shall not without the consent of the purchaser sell or mortgage the land the subject of the contract”. If there is a contravention of that section, “the instalment contract shall be voidable by the purchaser at any time before completion”. [19].

At trial, the primary judge had held that the contract for the sale of certain lots was an instalment contract, and that the granting of the mortgage engaged s 73(2)(a) of the Act and conferred an entitlement to avoid the contract. [21]. The appellants challenged the correctness of that conclusion. [23].

The Court of Appeal’s judgment

The Court of Appeal allowed the appeal, with Sofronoff P giving the reasons of the Court (Morrison and McMurdo JJA agreeing). [48]–[50]. In essence, the Court reasoned that it was “not possible to take each of the six contracts individually in order to determine the parties’ obligations”. Accordingly, the question became whether the variations rendered the contract (with all of the discrete contracts and the deed read together) an instalment contract per s 73 of the Act. [32].

Considering the contracts as a whole, the alleged ‘part payment’ identified was that a purchaser had become “bound to make, or became bound to procure” another party to make certain transfers. [36]. The alleged part payment was an obligation on the part of one party to cause another party to transfer property; it was “an obligation to cause another person to do an act”. [37]. Sofronoff P considered that “the evident intent of s 73” precluded the provisions’ operation in these circumstances. [38]–[42].

In his Honour’s view, s 73 reflects the long-standing view that a purchaser gains an equitable relationship in property by making a payment. The vendor then becomes a trustee of the land, and is precluded from dealing with the land in a way that is inconsistent with the purchaser’s equitable ownership. [39]. However, in this case, the party who gave the part payment was a third party who gave a transfer of property that did not result in their gaining any interest in the land.  Accordingly, they were not a purchaser of land, and could not be legally affected by any mortgage of the land. [42]. In summary, the protection offered by s 73 was a “protection on purchasers who have paid the vendor part of the purchase price. The protection is extended to the purchaser alone, because the land is to be conveyed to the purchaser alone”. [41].

Accordingly, the appeal was allowed. [44].

W Isdale