MSD Securities Pty Ltd & ors v MFB Properties (NQ) Pty Ltd & ors (No 2)

This decision will be of interest to commercial practitioners. In his judgment, Bond J considers not only the definition of an “instalment contract” and whether “payment” extends to the transfer of non-monetary assets, but also the question of whether a contract which is made voidable due to events which were not known at the time of an order for specific performance can be avoided. His Honour held that both these questions should be answered in the affirmative. Justice Bond also considered the question of whether the part payments made under the contract, as a matter of construction, were absolute or conditional upon the conveyance of the property. His Honour concluded that they were conditional and could therefore be recovered, the condition having failed.

Bond J

18 August 2017

In October 2016, Flanagan J conducted a trial in respect of a dispute between the applicant purchasers and the respondent vendors. [1]. The dispute concerned various contracts to acquire land (Lots 1, 2 and 3) and an associated resort business in North Queensland (conducted on Lot 4) for $4 million. [1]. On 28 November 2016, Flanagan J made orders that the relevant contracts be specifically performed. [2]. In December 2016, those orders were stayed pending the outcome of the present proceeding. [4].

By their application in the present proceeding, the purchasers sought orders pursuant to rr 667(2)(f) and 668 of the Uniform Civil Procedure Rules 1999 to release them from their obligations to complete the purchase as required by the judgment of Flanagan J. [5]. The purchasers’ contentions were as follows:

1. the contract in respect of Lots 1, 2 and 4 was an instalment contract within the meaning of s 73 of the Property Law Act 1974;
2. the vendor had, without the consent of the purchaser, mortgaged Lot 1, contrary to s 73(1) of the Property Law Act. This was not known at the time Flanagan J gave judgment;
3. the contract was therefore voidable by the purchaser at any time prior to completion pursuant to s 73(2);
4. on becoming aware of the mortgage, the purchaser exercised its right to avoid the contract, and as the remaining contracts were all expressly interdependent with that contract, the purchasers were permitted to terminate all other contracts, which they did;
5. there was, therefore, a sufficient basis to justify the orders sought pursuant to rr 667(2)(f) and 668 of the UCPR; and
6. it was appropriate to make consequential orders for repayment of $2 million part-payments already made and for associated adjustments and allowances. [7]–[12].

Bond J first considered whether the contract in respect of Lots 1, 2 and 4 was an instalment contract within the meaning of s 73 of the Property Law Act. That section 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. [53]. An instalment contract, as defined in s 71, is an executory contract for the sale of land in terms of which the purchaser is bound to make payment or payments (excluding a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments. [54].

The purchasers argued that the contract for the sale of Lots 1, 2 and 4 was an instalment contract because, as a result of a variation, the purchaser under the contract had become bound to pay, and indeed did pay, $2 million by way of transfer of two houses and a vessel, with a further amount of $2 million deemed to be outstanding. [28], [55]. Further, title to the lots was not to be conveyed until the further payment was made (which did not occur). 

His Honour accepted these arguments, and rejected the vendors’ argument that the definition of instalment contract should be read as referring only to monetary payments and not payments by way of transfer of assets. [58]. His Honour said that the “ordinary and natural meaning of payment is sufficiently broad to encompass payments of the nature dealt with in this case”. [58].

Accordingly, his Honour concluded that the contract in respect of Lots 1, 2 and 4 had become voidable when the vendor granted a mortgage over Lot 1. [61]–[85]. His Honour rejected a contention that the purchaser had consented to the grant of the mortgage. [85].

His Honour also considered the effect which the grant of specific performance had on the right to avoid. His Honour stated that a “right of rescission is capable of being exercised after a judgment for specific performance”.  [87]. This is because “the contract for the sale of land is regarded as having continued to exist and is not regarded as having merged in the judgment for specific performance”. [87]. Further, no question of election between inconsistent rights arose in this case as the purchasers did not become aware of the mortgage until after specific performance had been ordered. [89].

As for whether a sufficient basis had been shown to justify orders pursuant to rr 667(2)(f) and 668 of the UCPR, Bond J was of the view that it was “sufficient for the purchasers to prove, as they did, that the purchasers did not know at any time before the judgment of either the facts which gave them the right to avoid which they now seek to exercise, or of the right itself”. [95]. His Honour was therefore prepared to make an order vacating the relevant paragraphs of the specific performance order made by Flanagan J. [96].

Finally, Bond J considered whether consequential orders should be made ordering repayment of the value of the properties transferred by the purchasers to the vendors (ie the $2 million part-payments). His Honour examined “the possibility of recovery at law of an amount reflecting the agreed value of the part-payment which was made”. [101]. In McDonald v Dennys Lascelles (1933) 48 CLR 457, Dixon J (with whom Rich and McTiernan JJ agreed) treated the issue as a question of construction. [102]. On this approach, when a contract stipulates for payment of part of the purchase money in advance, the question is whether the vendors right to retain the money is absolute or conditional upon the subsequent completion of the contract. [102].

Bond J, applying these principles, stated that the question in the present case was whether the $2 million part-payment, as a question of construction, was absolute or conditional. [114]. His Honour concluded that “the intention of the parties, objectively construed, was not that the part-payment was made absolutely. It was made conditionally on performance by the vendors of their promise to convey property at the contemplated settlement”. [116]. That condition having failed, the payment was recoverable. [117], [128].

Bond J also considered whether the purchasers would have been able to recover in equity. Although ultimately the point was not decided, his Honour’s reasons contain an interesting discussion about whether the right to recover in equity is available in addition to the right to recover at law, or only as an alternative to it. [129]–[135].

His Honour made orders accordingly. [136]–[137].

J English