AUSTRALIAN INSTITUTE OF
CONVEYANCERS (NSW DIVISION)
2017 EDUCATION PROGRAM
Formation of Contract and
the Role of Agents
PRESENTED BY:
TONY CAHILL
15 MAY, 2017
HORNSBY RSL CLUB 4 High Street, Hornsby
AUSTRALIAN INSTITUTE OF CONVEYANCERS (NSW DIVISION)
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Formation of contract and the role of agents
Tony Cahill Legal Commentator and Author
TABLE OF CONTENTS
About the author ..................................................................................... iii
A problem 1
Some (hopefully uncontroversial) statements of basic principles 1
Statutory provisions for contracts passing interests in land 2
Section 23C or section 54A? 4
The scope of an agent’s authority in relation to land transactions 10
Breach of warranty of authority 12
Agents (not only estate agents) and the formation of real estate contracts 14
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ABOUT THE AUTHOR
Tony Cahill started practice in 1981. After 13 years with a medium-sized
city law firm, Tony commenced practice on his own account at Chatswood
until June 2002. Tony is currently undertaking a ‘sabbatical’ from private
practice to concentrate on projects in continuing professional education.
Tony is a member of the Law Society’s Property Law and Environmental,
Planning and Development Committees. He has been a member of the Re-
Draft Committees for the 2000 and 2004 editions of the Contract for the Sale
of Business, and the Contract for the Sale of Land since the 1992 edition.
Tony was a co-author with Russell Cocks and Paul Gibney of the first New
South Wales edition of 1001 Conveyancing Answers, and is currently a co-
author of Conveyancing Service New South Wales and Annotated
Conveyancing and Real Property Legislation New South Wales, both
published by LexisNexis.
Tony has been a part-time lecturer at the University of Technology, Sydney,
in subjects including construction law, legal studies, and real estate law, and
is a part-time lecturer at the Sydney and Northern Sydney Institutes of TAFE
in various law subjects.
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Formation of contract in real estate transactions
Tony Cahill
____________________________________________________________
A problem
You regularly act for clients who are, in broad terms, “remote” from your
office. You have adopted a practice when acting for such clients of having
them execute a form of authority in these terms:
AUTHORITY TO EXECUTE
Pursuant to Sections 23C and 54A of the Conveyancing Act
1919
I [purchaser’s name] hereby authorise [practitioner’s name],
Licensed Conveyancer, to execute on my behalf the Contract for
Sale of Land for the purchase of [address] from [vendor’s name]
for the purchase price of $500,000.
Dated this [date]
[Purchaser’s signature]
…………………………………………….
Your colleague says such an authority is not sufficient.
Your initial thoughts?
Some (hopefully uncontroversial) statements of basic principles
1. An agent can enter into a contract which binds the principal
(including one dealing with an interest in land). Estate agents do so
regularly in the context of residential tenancy agreements;
auctioneers do so during the course of an auction; attorneys under a
power of attorney often enter into contracts; an artificial person such
as a company can only act through the steps taken by one or more
agents.
Formation and execution of contracts Tony Cahill
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2. An attorney under a power of attorney is an agent for the donor of
the power.
3. If the prescribed form of power of attorney is used, the attorney is
given wide powers. Under the Powers of Attorney Regulation 2016,
the wording is:
My attorney may exercise the authority conferred by
Part 2 of the Powers of Attorney Act 2003 to do
anything on my behalf I may lawfully authorise an
attorney to do.
4. A solicitor (and by extension a conveyancer) can in some situations
be the agent for their client.
Statutory provisions for contracts passing interests in land
Contracts dealing with interests in land have, for reasons of public policy
(not least of which being the “power” attaching to land ownership and the
attendant risks of land fraud) have long been subject to “special” rules.
The successor in New South Wales to the Statute of Frauds is Div 3 of Pt 2
of the Conveyancing Act 1919.
Division 3 Assurances of land
23B Assurances of land to be by deed
(1) No assurance of land shall be valid to pass an interest at law unless
made by deed.
(2) This section does not apply to:
(a) an acknowledgment under section 83 of the Wills, Probate
and Administration Act 1898,
(b) a disclaimer made in accordance with any law relating to
bankruptcy in force before or after the commencement of the
Conveyancing (Amendment) Act 1972, or not required to be
evidenced in writing,
(c) a surrender by operation of law, and a surrender which may,
by law, be effected without writing,
(d) a lease or tenancy or other assurance not required by law to
be made in writing,
(e) a vesting order,
(f) any other assurance taking effect under any Act or
Commonwealth Act.
Formation and execution of contracts Tony Cahill
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(3) This section does not apply to land under the provisions of the Real
Property Act 1900.
23C Instruments required to be in writing
(1) Subject to the provisions of this Act with respect to the creation of
interests in land by parol:
(a) no interest in land can be created or disposed of except by
writing signed by the person creating or conveying the same,
or by the person’s agent thereunto lawfully authorised in
writing, or by will, or by operation of law,
(b) a declaration of trust respecting any land or any interest
therein must be manifested and proved by some writing
signed by some person who is able to declare such trust or
by the person’s will,
(c) a disposition of an equitable interest or trust subsisting at the
time of the disposition, must be in writing signed by the
person disposing of the same or by the person’s will, or by
the person’s agent thereunto lawfully authorised in writing.
(2) This section does not affect the creation or operation of resulting,
implied, or constructive trusts.
23D Creation of interests in land by parol
(1) All interests in land created by parol and not put in writing and
signed by the person so creating the same, or by the person’s agent
thereunto lawfully authorised in writing, shall have,
notwithstanding any consideration having been given for the same,
the force and effect of interests at will only.
(2) Nothing in this section or in sections 23B or 23C shall affect the
creation by parol of a lease at the best rent which can reasonably
be obtained without taking a fine taking effect in possession for a
term not exceeding three years, with or without a right for the
lessee to extend the term at the best rent which can reasonably be
obtained without taking a fine for any period which with the term
would not exceed three years.
23E Savings in regard to secs 23B, 23C, 23D
Nothing in section 23B, 23C, or 23D shall:
(a) invalidate any disposition by will, or
(b) affect any interest validly created before the commencement of the
Conveyancing (Amendment) Act 1930, or
(c) affect the right to acquire an interest in land by virtue of taking
possession, or
(d) affect the operation of the law relating to part performance.
Section 54A of the Act is also relevant:
Formation and execution of contracts Tony Cahill
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54A Contracts for sale etc of land to be in writing
(1) No action or proceedings may be brought upon any contract for the
sale or other disposition of land or any interest in land, unless the
agreement upon which such action or proceedings is brought, or
some memorandum or note thereof, is in writing, and signed by the
party to be charged or by some other person thereunto lawfully
authorised by the party to be charged.
(2) This section applies to contracts whether made before or after the
commencement of the Conveyancing (Amendment) Act 1930 and
does not affect the law relating to part performance, or sales by the
court.
(3) This section applies and shall be deemed to have applied from the
commencement of the Conveyancing (Amendment) Act 1930 to
land under the provisions of the Real Property Act 1900.
Section 23C or section 54A?
In my view the reference in the authority reproduced above to both section
23C and section 54A is “muddying the waters”. The sections cover different
situations (as suggested by the fact that they are not within the one
subdivision of the Act).
They have different criteria (s23C is more strict in its requirements than
s54A). In particular, the former section requires an agent to be “lawfully
authorised in writing”, the latter merely “lawfully authorised”.
If the authority is to be limited in its operation to the signing of contracts for
the sale and purchase of land, section 54A is the relevant section. The
distinction between the two sections is explained in Baloglow v
Konstantinidis [2001] NSWCA 451. That case involved the acrimonious
dissolution of a property development partnership between a solicitor and an
accountant. The Supreme Court made consent orders winding partnership
up and appointing receiver. The former partners wanted to terminate the
receivership and to see if they can agree on a figure for which B would sell
his partnership interests to K. There was a meeting between the solicitors for
K and B at which proposals for such a sale discussed and allegedly agreed
on. K claimed that an enforceable agreement was made at the meeting by
which K promised to pay B $1.05 million in return for the transfer to K of
specified partnership assets and removal of the receiver. B disputed the
making of an agreement. K brought specific performance proceedings B
denied that any concluded enforceable agreement was made and
alternatively relied on sections 23C and 54A of the Conveyancing Act .
Formation and execution of contracts Tony Cahill
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Konstantinidis was successful both at first instance and on appeal.
The lead judgment in the Court of Appeal was delivered by Priestley JA. At
paragraph [101] His Honour observed:
Some things about s 23C are regarded as mysterious, both as to
its relationship with s 54A and to the relationship between pars
(a), (b) and (c) of s 23C(1) itself: see in particular the 3rd edn
(1992) of Meagher, Gummow & Lehane: Equity Doctrines and
Remedies, at pars 704-754 (and for present purposes especially
pars 709, 710).
After setting out the sections His Honour continued (at [104] ff):
104 One simple point of distinction between the two sections is
that both paragraphs (a) and (c) of s 23C(1) require an agent
acting in the circumstances of the paragraph to be “thereunto
lawfully authorised in writing”, a requirement that does not
appear in s 54A. Bergin J does not appear to have dealt with
this requirement of s 23C in her reasons, or perhaps considered
that the doctrine of the “perfect agreement”, which she held
operated in favour of Mr Konstantinidis so far as s 54A was
concerned, applied also to the s 23C point. However, in my
opinion it does not. A “perfect agreement” may be made as
much by an agent as by a principal, but if that occurs in
circumstances to which either par (a) or (c) of s 23C(1) applies,
then that agent must have been authorised in writing
105 There is no sign in Bergin J’s reasons that this point was
raised with her, but it was recognised as a difficulty (if par (c)
applied) by counsel for Mr Konstantinidis in their written
submissions in the appeal. (Orange AB 37, par 19.) It was
common ground in the appeal that there was no evidence that
Mr Xenos had been authorised in writing, although as already
mentioned, in my opinion it was established by a combination
of the concession made on Mr Baloglow’s behalf and the
circumstances proved in evidence, that Mr Xenos was
authorised to make the agreement which Bergin J found had
been made.
106 The submission put in the appeal for Mr Konstantinidis in
answer to the s 23C point was that the section did not apply to
the transaction. The written submissions for Mr Baloglow did
not deal with this but said the matter would be developed in
oral submission. In the oral submissions Mr Douglas QC,
senior counsel for Mr Baloglow, referred the court to (and
handed up to the court) an article by Mr R.P. Austin in (1974)
48 ALJ 322 and also a further article by Mr N. Seddon in
(1987) 61 ALJ 406 dealing with the operation of s 23C. Mr
Douglas referred principally to par (a) of s 23C(1) and in doing
so recognised the possibility that s 23C(2) might apply to the
Formation and execution of contracts Tony Cahill
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agreement made at the meeting in which case subs (1) would
have no application to the case (transcript of argument p 49).
Subsection (2) if applicable, would have this effect also upon
the agreement made at the meeting, if it fell within par (c) of
subs (1).
107 When Mr Oslington came to deal with this aspect of the
case he in turn handed up some written material to the court
being pages from New South Wales Conveyancing Law and
Practice dealing with s 23C.
108 All the materials which were handed up
discussed Adamson v Hayes (1973) 130 CLR 236 in detail and
both Mr Seddon’s article and the pages from the New South
Wales Conveyancing Law and Practice made frequent
reference to the extensive discussion of the same subject matter
in Meagher, Gummow & Lehane, Equity Doctrines &
Remedies. The parties did not develop what was to be drawn
from these materials to any extent, but rather left them at large
with the court to consider, within the general outlines of the
arguments.
109 The greater attention given to s 23C in the appeal (because
of the requirement that the agent be authorised in writing) than
appears to have been given to it at the trial makes it necessary
to consider more closely than Bergin J did, both the nature of
the agreement made on 28 July 1999 and the applicability or
otherwise of s 23C to that agreement.
…
115 Without the burden of authority, I would have thought that
each of pars (a), (b) and (c) of s 23C(1) was dealing with a
different kind of assurance or disposition of some kind of
interest in land. This is clearly suggested by the heading of
Division 3 and the opening words of s 23C(1). Those opening
words would indicate to the ordinary reader that what followed
them would deal in one way or another with interests in land.
However, decisions in the House of Lords on statutory
provisions very similar to ss 23C and 54A and observations by
Gibbs J in Adamson v Hayes (1973) 130 CLR 276, not forming
part of the ratio decidendi, have led commentators on the New
South Wales sections to conclude that s 23C(1)(c) applies to
personalty as well as realty. The arguments and relevant
materials are discussed in Meagher, Gummow & Lehane, op
cit, par 710 where the conclusion I have mentioned is reached,
“though with some hesitation”. (This view is carried into the
6th edition (1997) of Meagher & Gummow’s “Jacobs Law of
Trusts in Australia”, pars 621 and 703.)
116 Accepting, with some hesitation in my turn, Meagher,
Gummow & Lehane’s conclusion, the question becomes
whether Mr Baloglow’s agreement to sell his interest, by the
machinery then agreed on, involved “a disposition of an
equitable interest or trust subsisting at the time of the
disposition” (my underlining). I do not think it was, for reasons
Formation and execution of contracts Tony Cahill
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similar to those explained in the following paragraphs from
Meagher, Gummow & Lehane (op cit):
“[711] Assuming that s 23C(1)(c) extends (as its equivalents
elsewhere plainly do) to equitable interests in personalty, it is
clear that a direct assignment of such an interest (within the
first category referred to by Romer LJ in Timpson’s Executors
v Yerbury, [1936] 1 KB 645 …) must be writing complying
with the section and is ineffective if it is not. [712] If A, being beneficially entitled to personalty, is also the
owner of it at law, he may, subject to the principles discussed
in Chapter 6, assign the personalty in equity to B while
retaining the legal title. It could be argued that such an
assignment whether voluntary (where writing would usually be
required in any event: see [614] et seq) or for consideration
requires writing under s 23C(1)(c). Whereas in equity A was
formerly entitled to the personalty, B now is: that is, A has
disposed of his subsisting equitable interest to B. [713] Although there seems to be no authority directly in point,
it seems unlikely that that argument would find much favour.
Where A owns property legally and beneficially, it appears to
be wrong to say that he has two estates in the property, one
legal and the other equitable and that, when he equitably
assigns the property to B while retaining the legal title, he
disposes of one of those estates. The correct analysis seems to
be that A creates in B an equitable estate distinct from the
estate held by A before he entered into the transaction. That is,
A has not disposed of an equitable interest subsisting at the
time of the disposition: he has created (out of, but distinct from
his legal and beneficial ownership) an equitable interest which
did not previously subsist. Section 23C(1)(c) therefore does not
apply. [714] If that reasoning is accepted, it applies equally to
equitable dealings, falling within categories (3) and (4)
described by Romer LJ in Timpson’s Executors v Yerbury , supra, with legal property and that leads to the conclusion that
s 23C(1)(c) does not apply to equitable dispositions of legal
interests in personalty. 117 I think similar reasoning properly applies to the
circumstances of the present case, involving an equitable
disposition of an equitable interest in personalty. Although the
High Court in the Canny Gabriel case thought the interest there
(either identical or very closely analogous to that in the present
case) was sui generis they were nevertheless quite clear that it
was an equitable interest (at (1974) 131 CLR 321 at 328).
118 In the present case, whatever Mr Baloglow’s interest was
in the partnership assets, at the moment of concluded
agreement on 28 July 1999, that interest changed from one
which belonged to him alone to one which from that moment
he held on trust for Mr Konstantinidis and what passed to Mr
Konstantinidis were equitable rights not in existence until then.
Formation and execution of contracts Tony Cahill
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On this approach s 23C(1)(c) had no application to the
agreement of 28 July 1999.
119 A further reason for the same conclusion, or perhaps
merely a simpler expression of it, is that I doubt whether what
Mr Baloglow had to sell on the day of the meeting was
then disposed of. There was an agreement to dispose of it, in
the manner then agreed. The disposal would take place when
the agreement was carried into effect.
120 The conclusion stated in par 118 has two separate bases:
that there was no relevant disposition within the meaning of par
(c) and that in any event the operation of subs (2) prevented
any operation of subs (1). This second basis stems from what
was said by Lord Radcliffe in Oughtred v Inland Revenue
Commissioners [1960] AC 206. Lord Radcliffe there expressed
the view that a specifically enforceable agreement to assign an
interest in property creates an equitable interest in the assignee
constituting the assignor an implied or constructive trustee for
the assignee.
121 On Lord Radcliffe’s approach, subs (1) of s 23C would not
apply to the agreement in the present case because of subs (2).
In the materials the parties in the present case handed up to the
court, and in the further materials mentioned in what was
handed up, there was considerable discussion about the
correctness or otherwise of Lord Radcliffe’s approach. (Many
commentators, including Meagher, Gummow & Lehane, op cit,
par 739, thought Lord Radcliffe was right.) Then in Neville v
Wilson [1997] Ch 144, Nourse LJ delivered the judgment of
the English Court of Appeal (the other two judges being Rose
and Aldous LJJ). In the reasons the various opinions
in Oughtred were analysed; oversimplified, the facts were that
an agreement (not in writing) was made between persons with
equitable interests in particular shares assigning those interests
to other persons; it was held that s 53(2) of the Law of Property
Act 1925 (which was in the same terms as s 23C(2) applied to
dispense with the requirement of s 53(1) of that Act. The
Court’s reasons, after consideration of Oughtred, contained this
passage:
“We do not think that there is anything in the speeches in the
House of Lords which prevents us from holding that the effect
of each individual agreement was to constitute the shareholder
an implied or constructive trustee for the other shareholders.
In this respect we are of the opinion that the analysis of Lord
Radcliffe, based on the proposition that a specifically
enforceable agreement to assign an interest in property creates
an equitable interest in the assignee, was unquestionably
correct:” (at 157) 122 A little later it was said:
“So far as it is material to the present case what subsection (2)
says is that subsection (1)(c) does not affect the creation or
operation of implied or constructive trusts.” (at 158)
Formation and execution of contracts Tony Cahill
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123 This would seem to settle the controversy, so far as
England is concerned at any rate, about the correctness of Lord
Radcliffe’s approach. With respect, it seems to me to be
supportable, and should be adopted here.
124 In Underhill and Hayton “Law Relating to Trusts and
Trustees” 15th ed, 1995, (and thus published before Neville v
Wilson was decided), Oughtred was analysed and the view
expressed:
“… where A contracts to sell his equitable interest to B the
nature of his ‘interested’ constructive trusteeship, vitally
dependent upon the contractual obligations being carried out
(particularly payment of the purchase price) means that A is
not at the outset a simple bare trustee, so there is a true sub-
trust and not a full assignment of A’s equitable interest to B so
that s 53(1)(c) is inapplicable.” (at 207) 125 This seems to me to be an analysis applicable to the
circumstances in the present case and which I think should be
adopted. It fortifies me in the view I had earlier reached about
the agreement in the present case not falling within s 23C. So
too does the discussion in Meagher, Gummow & Lehane (op
cit) in pars 739-743, notwithstanding the authors’ caveat in par
743, the need for which, although not done away with, must at
least be to some extent diminished, by Neville v Wilson.
Giles JA explained the operation of the two sections in this way (at [161] ff):
161 I will state at the outset the application of s 23C which seems to me to
be correct, namely -
(i) so far as land was the subject of a step, the only interest
in land created within s 23C(1)(a) was any equitable interest
arising because equity would specifically enforce the
contract, and s 23C(1)(a) does not apply to such an interest; (ii) again so far as land was the subject of a step, there was
agreement to dispose of an interest in land, with the
disposition to come when the agreement was performed, but
no interest in land was disposed of within s 23C(1)(a); and (iii) so far as an equitable interest subsisting at the time was
the subject of a step, arguably Mr Baloglow’s equitable
interest in 4 Denison Street, Manly, again there was
agreement to dispose of that interest, with the disposition to
come when the agreement was performed, but the interest
was not disposed of within s 23C(1)(c).
162 If this analysis be correct, it permits a harmonious relationship between
s 54A of the Conveyancing Act and s 23C. The former arises at the stage of
agreement to create or dispose of an interest in land. It has its own
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requirement of writing, less stringent than the requirement in s 23C in that a
note or memorandum of the agreement is sufficient and the signing agent
need not be authorised in writing. The latter arises at the stage of
performance of an agreement or where there is no prior agreement, and in
keeping with the importance attached to property rights has a more stringent
requirement of writing in that the creative or dispositive instrument itself
must be in writing and the signing agent must be authorised in writing.
Section 54A excepts the operation of the law relating to part performance,
material to an executory agreement, while s 23C excepts the operation of the
law relating to trusts, material to property rights. Section 23C is in a Part of
the Conveyancing Act dealing with property and a Division of that Part
dealing with assurances, and otherwise concentrates on property rights, see
s 23C(1)(b) dealing with declarations of trust and 23C(1)(c) dealing with
disposition of subsisting equitable interests. There is no encouragement in
its language to make it apply to executory agreements under which property
rights are to be created or disposed of when the agreement is performed.
The scope of an agent’s authority in relation to land transactions
In Paterson v Clarke [2002] NSWSC 1206; Young CJ in Eq considered the
scope of an estate agent’s authority to enter into a contract for sale of land..
In particular, his Honour considered whether the agent had authority to
exchange in the face of a letter from the solicitors for the vendor advising
that the agent was not to effect exchange. His Honour found that the
authority of the agent had been made out, and declared that the contract was
on foot. It appears that a relevant consideration was that the party seeking to
argue that there was a problem with exchange did not raise any issue with
the circumstances until a significant time after the events at the time of the
exchange.
It is worth looking at the analysis of the nature of the agent’s authority in
Paterson v Clarke. The authority of an agent to perform a particular task will
typically be:
➢ express (or actual) – clearly stated and identifiable from the grant
of authority; or
➢ implied – not spelt out in the grant of express authority, but a
necessary consequence of that grant; or
➢ ostensible (or apparent – sometimes described as agency by
estoppel) – the principal does something which makes it seem that
Formation and execution of contracts Tony Cahill
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the agent has authority, despite the principal not giving the agent
express authority.
So an estate agent who has been granted express authority to seek a buyer
for a property would have implied authority to take photographs of the
property. An estate agent who lacks express authority to enter into a
residential tenancy agreement will have ostensible authority because of the
notorious and almost invariable practice of real estate agents signing such
agreements on behalf of the landlord/principal rather than attending the
landlord to obtain the principal’s signature. An estate agent would not,
however, have ostensible authority to sign a lease of commercial premises.
On the question of the agent’s authority to effect an exchange of contracts,
Young CJ in Eq observed (at [17]–[20]):
17 Mr Evans put that the agents had no authority to exchange contracts
and thus there was no contract. He further puts that as an exchange
was needed under conveyancing practice in New South Wales, one
needed to see that there had been a ceremony conducted at a
particular point in time which amounted to an exchange; thus, the
fact that part of the contract signed by the purchasers found its way
to the vendor’s solicitors files in due course was immaterial.
18 Mr Evans submitted that the agents had no actual implied
ostensible or apparent authority to exchange contracts.
19 As to actual authority, he pointed to the exclusive agency
agreement signed by the defendant on 15 January 2002. This
agreement provided that the agent was the sole agent in
consideration of the agent promising to use their best endeavours
to sell the property; that the agent was entitled to a commission if
the principal entered into a contract for the sale of the property and
that:
6. The agent is not authorised to enter into or sign a contract
for sale on behalf of the principal.
20 Mr Evans puts great store on clause 6. However, to my mind it
cannot be conclusive in solving the question of authority. This is
because there is a clear distinction between making a contract and
exchanging parts of a contract signed by the vendor or purchaser
as the case may be. This distinction has always been taken. Thus in
section 84AB(3) of the Property, Stock and Business Agents Act
1941 (now repealed and replaced in almost identical words by s
64(1)(c) of the Property, Stock and Business Agents Act 2002), the
legislature has said that a real estate agent may participate in the
exchange or making of contracts for the sale of residential property.
Again, as was conceded in this case, solicitors have general
authority to exchange contracts, but it is quite clear that apart from
express authorisation a solicitor has no general authority to make a
contract on behalf of the client: Pianta v National Finance and
Trustees Ltd (1964) 180 CLR 146.
Formation and execution of contracts Tony Cahill
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The Court of Appeal dismissed the appeal: Clarke v Paterson [2003]
NSWCA 160.
Breach of warranty of authority
The decision of Hall J in Hearse v Staunton [2010] NSWSC 954 also raised
issues relating to contractual formation (and in particular, variation of a
contract once formed). The draft contract was prepared naming Mrs Pallister
as purchaser. Her name was subsequently deleted, and the name of her
husband substituted in handwriting. Shortly prior to exchange,
correspondence between the solicitors for the parties (from Staunton and
Thompson for the purchaser; Lander and Lander for the vendors) indicated
that changes were sought to the draft contract. That letter also indicated
“Vanessa Joan Pallister will probably be added as a joint purchaser pursuant
to Section 18(3) of the Duties Act prior to completion”. After exchange there
was a second relevant letter:
We enclose an unstamped Transfer for execution by the Vendors. Please return
the Transfer to us for stamping purposes.
Please note that we have added Mrs Pallister as a joint purchaser pursuant to
S.18(3) of the Duties Act, 1997. Please amend the counterpart Contract
accordingly.
The vendor validly terminated the contract in due course because of
purchaser default, and pursued a claim for damages. Mr Pallister was
insolvent; Mrs Pallister successfully argued that she was not a purchaser
under the contract. The vendors then sued the firm named as solicitors for
the purchaser claiming breach of warranty of authority. The reasoning is
summarised by Hall J at [21]:
21 The plaintiffs allege that, by the letter of 19 January 2005, Staunton &
Thompson represented that they had authority to contract on Mrs Pallister’s
behalf by adding her to the contract as a co-purchaser of the property. On the
basis that Staunton & Thompson did not in fact have any such authority from
Mrs Pallister, they claim damages on the basis of alleged breach of warranty of
authority. The claim against the third, fourth and fifth defendants is, accordingly,
one for the damages that would have otherwise been recoverable from Mrs
Pallister had such authority been granted to Mr Staunton.
The vendor failed. The key reasoning is at [109] to [111]:
Formation and execution of contracts Tony Cahill
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109 In those circumstances, the question is whether Mr Staunton impliedly so
warranted. In my opinion, the answer to that question is that he did not impliedly
warranted that he had Mrs Pallister’s authority to contract on her behalf in
relation to the sale of the Clontarf property. In relation to that conclusion, the
following matters are noted:-
(1) It is, of course, for the plaintiffs to establish on the probabilities that the
implication relied upon ought to be drawn.
(2) The terms of the letter of 19 January 2005 are not, in themselves, capable
of supporting the implication of an unqualified assertion or warranty that Mr
Staunton had Mrs Pallister’s authority to act as her agent in making her a party
to the contract. The letter does not convey either that Mr Staunton was acting
for Mrs Pallister nor indicate that he had received her instructions in relation to
any aspect of the contract. The letter was entirely consistent with the fact that he
continued to act only on Mr Pallister’s instructions.
(3) In the circumstances of the present case, where the alleged agent is a
solicitor and the subject matter of the relevant transaction is the sale of land, as a
matter of principle, the solicitor does not have implied or ostensible authority
from his or her client to amend or make a contract on behalf of the client in
relation to a contract for the sale of land: Pianta v National Finance & Trustees
Limited (1964) 180 CLR 146 per Barwick CJ at 151; Ciavarella (supra) at
[104] to [106], per Young CJ in Eq (as his Honour then was); Notter (supra) at
[50] per White J. The solicitor for the plaintiffs, being experienced in
conveyancing matters, may be taken as being aware of that long-established
principle.
(4) In circumstances in which there was no express warranty or
representation, and where the principle in (3) applies, I consider that the dicta of
Higginbotham CJ in Maffey v Hobart (1888) 14 VLR 888 at 886 is apposite,
wherein it was stated:-
“Where a person deals with another who is an agent of the apparent
contracting party, the obligation generally rests upon him to ascertain the
authority of a person with whom he deals.”
In the present case, as noted above, there was neither a representation that Mr
Staunton acted for Mrs Pallister nor was any clarification sought or inquiry made
on behalf of the plaintiffs of Mr Staunton as to his authority to act for Mrs
Pallister. Nor did Mr Staunton’s correspondence or communications suggest that
he had any particular or general authority from Mrs Pallister to obtain a variation
of the existing contract for sale so as to make her a co-purchaser.
Formation and execution of contracts Tony Cahill
– 14 –
110 I am of the opinion that, taking the letter of 16 January 2005 as a whole,
and in context, including in particular, the letter of 16 December 2004, the letter
of 19 January 2005 was neither an express or implied unqualified assertion by
Mr Staunton that he was authorised by Mrs Pallister to act as her agent for the
purposes of making her a party to the contract for sale. I consider the proper
construction of the letter is that Mr Staunton was saying in it that Mrs Pallister
was to be added to the transfer as a transferee on a specified basis, as had been
foreshadowed was likely in the letter of 16 December 2004. The evident, indeed,
express purpose was a desire to gain the permitted exemption under s.18(3)
available for a related person transferee but who is not a party to the contract.
111 Accordingly on its proper construction, I do not consider that the letter
written by Mr Staunton on 19 January 2005 constituted or contained either an
express or implied representation that he had authority from Mrs Pallister to act
on her behalf so as to bind her as a party to the contract for the sale of the Clontarf
property.
The vendor appealed to the Court of Appeal: Hearse v Staunton [2011]
NSWCA 139. The appeal was dismissed. Young JA made these
observations (at [3] to [6]): 3. I am concerned that conveyancing solicitors would so easily agree
with another solicitor's suggestion that a contract should be amended by
simply writing in the name of a second purchaser.
4. I am not sure what is meant by the simple request to "amend" the
contract. Normally once a contract is made, it can only be "amended"
formally by variation, rescission and replacement with a new contract or
novation. Assuming that the solicitors intended a variation, complications
arise when the variation is adding a party. What probably happens is that a
new contract is made to replace the former contract.
5. However, the argument proceeded on the basis that this was not
the appropriate analysis. If that is correct, then the appellants' case runs foul
of what Pape J said in Lee v Irons [1958] VicRp 71; [1958] VR 436, 447
that a party seeking to rely on the cause of action of wrongful warranty of
authority must show that he or she entered into the contract relying on the
warranty of authority.
6. On the other hand, if my analysis is correct, both solicitors must be
taken to have known the law that solicitors, save in exceptional cases, have
no authority to make a contract on behalf of a client (let alone a non-client).
Pianta v National Finance & Trustees Ltd [1964] HCA 61; 180 CLR 146
reinforces this view taken both by the primary judge and Whealy JA.
Agents (not only estate agents) and the formation of real estate
contracts
Many estate agents do not understand the significance of:
➢ the fact of exchange;
Formation and execution of contracts Tony Cahill
– 15 –
➢ being able to identify whether or not, at any given instant, a contract
has been “made” or not;
➢ the importance of a “ceremony” rather than a “pantomime”, to
borrow the language of Allen J in Harris v Fuseoak Pty Ltd (1995)
7 BPR 14,511;
➢ the distinction between having the power or permission to perform
a function and having the authority to do so.
I have agents put it to me that “the vital thing is to get the purchaser to sign
something” (preferably, I presume, a complete contract), or indicating that
the main importance of exchange of contracts is to make certain the agent’s
entitlement to commission.
Speaking to those in the industry about concepts such as “equitable
interests”, “caveatable interests”, “risk passing in relation to proposals from
government departments”, “crystallising the instant at which vendor
warranty is to be tested”, or “calculating completion dates” is akin to water
off a duck’s back.
There is occasionally slightly more interest when you point to “calculating
cooling off periods”, or asking the question “if a prospect phoned you and
offered $20,000 more for the property, could you say with certainty that a
contract has or has not been made with another buyer?”.
If you believe the industry might have rectified the problem after the strong
comments of Allen J in Harris v Fuseoak Pty Ltd, I would commend for
consideration (by all players in the property industry) the more recent
decision of Barrett J in Golding v Vella [2001] NSWSC 567. In that case the
conduct of a salesperson in “assisting” the purchasers to exchange (an
attempt which proved ineffective) led His Honour to observe (at [53]):
53 [The purchasers] had very little idea of the legal significance of the
events of the evening of 19 April 1999. Ms Cox, I suggest, was in
essentially the same position. It was very much a case of the blind
leading the blind so far as the legal consequences and legal
requirements were concerned. The recognition in s.84AB of the
Property, Stock and Business Agents Act 1941 that there is a
legitimate role for real estate agents in the exchange or making of
contracts for the sale of residential property is founded on an
assumption that such agents and their employees will familiarise
themselves with at least the basic legal concepts. Such an
assumption was not borne out in this particular case.
It is worth reiterating that, in the absence of express authority, a solicitor (or,
by analogy, a conveyancer) does not have authority to make a contract on
Formation and execution of contracts Tony Cahill
– 16 –
behalf of a client, nor to make a material or significant alteration to a
counterpart of the proposed contract after signature by their client. The
“classic” authority is the High Court decision of Pianta v National Finance
and Trustees Ltd (1964) 180 CLR 146. Later cases confirming this
proposition include Longpocket Investments Pty Ltd v Hoadley (1985) 3
BPR 9606 at 9611 and Iannello v Sharpe [2006] NSWSC 713.
The authority of a solicitor/agent to amend and enter into contracts for the
sale of land was one of the issues raised in the decision of Iannello v Sharpe
[2006] NSWSC 713; [2007] NSWCA 61. That case involved a contract
drafted with a deposit of 5 per cent of the purchase price on p 1, the
identification of the purchaser as “Malcolm Sharpe or nominee”, and a
special condition in these terms:
Notwithstanding anything else herein contained, the vendor shall accept
on exchange of this agreement payment of $225,000, being part of the
deposit. The parties expressly agree that if the purchaser defaults in the
observance or performance of any obligation hereunder which is or has
become essential, the balance of the deposit, namely $225,000, shall
become immediately due and payable and the purchaser shall forfeit the
whole of the sum of $450,000 pursuant to clause 9 hereof to the vendor.
Prior to exchange, the vendor’s solicitor, on instructions, deleted the phrase
“or nominee” and amended the deposit figure on p 1 by changing the amount
to 10 per cent of the price.
The changes to the purchaser’s signed copy were made after the purchaser
signed the contract. Contracts were exchanged, the purchaser defaulted and
the vendors terminated the contract, claiming the amount paid at exchange,
the top-up sum, and damages.
The vendor was unsuccessful at first instance on the basis that there was no
evidence before the Court that the changes to the purchaser’s signed copy
were made with the authority of the purchaser.
Windeyer J considered that the deletion of the phrase “or nominee” may or
may not have been significant or material. His reasoning appears at [9]:
It is not really necessary for me to decide whether or not the deletion of
the words “or nominee” was a significant or material alteration. In
ordinary terms, Mr Sharpe could have required the vendor to transfer to
his nominee. That might have had some stamp duty consequences, but
probably no more than those which would have arisen had the words
remained.
This finding was not challenged on appeal (CA at [15]).
Formation and execution of contracts Tony Cahill
– 17 –
The change to the amount of deposit was found at first instance to be
significant and substantial because (at [9]):
… it is generally regarded at law in conveyancing matters that no penalty
arises if there is provision for forfeiture of a deposit of up to 10 per cent.
It is also significant because the change would give some work to special
condition 14 of the contract because it would have allowed the deposit to
be paid by two instalments, yet the amount of $225,000 not paid on
exchange would still remain part of the deposit and become liable to
forfeiture upon termination if that termination occurred as a result of
default by the purchaser. Had the deposit figure remained at $225,000
then that would have been the amount of the deposit liable to forfeiture
under clause 9 and the vendor would have been left to any right in
damages to claim any additional amount.
The legal issue raised by the lack of evidence of authority is succinctly stated
at [10]:
There can be no doubt that a solicitor is not authorised unless authorised
in writing to make a contract on behalf of a client purchaser. There is
equally no doubt in my view that if authorised he can agree to and make
alterations to the document, even after it has been signed by the purchaser.
In this case, however, there is no evidence of such authorisation and the
only evidence is that of the defendant after the contract was signed by
him. Mr McGrath [the purchaser’s representative] did not tell him that the
words “or nominee” had been deleted, nor that the deposit was changed
from five per cent to ten per cent on the front page of the contract. There
is no evidence, and he was not asked whether he authorised the change.
That statement of principle caused the Court of Appeal no difficulty.
The final result at first instance was that a purchaser “with no merit
whatsoever” received a refund of his $225,000, and an order for costs.
The key issue on appeal was the status of the amendment to the deposit on
p 1 of the contract.
The Court of Appeal came to a different conclusion as to whether the
alteration to p 1 was a material change. The rationale appears in the leading
judgment of Hodgson JA (at [18]–[21]):
18 In my opinion it is clear that the alteration did not make any
difference to the amounts required to be paid under the contract or
to the time and circumstances in which they were required to be
paid. Both before and after the alteration, Special Condition 14 had
the effect that $225,000.00 was payable on exchange of contracts,
and a further $225,000.00 was payable “if the purchaser defaults in
the observance or performance of any obligation hereunder which
is or has become essential”.
19 The circumstance that, on the front page, $450,000.00 was said to
be the deposit rather than $225,000.00 does not make any
difference to this. The circumstance that, on the front page, the
Formation and execution of contracts Tony Cahill
– 18 –
balance is said to be $4,050,000.00 rather than $4,275,000.00 also
makes no difference to the effect of the contract, because cl.16.7
requires the purchaser on completion to pay “the price (less any
deposit paid)”; so the purchaser would still be paying
$4,275,000.00 on completion, if only $225,000.00 had been paid
as a deposit, even though the balance stated on the front page is
$4,050,000.00.
20 Mr. Inatey SC for the purchaser did not contest the above
propositions in any significant way; but he submitted that the
alteration did make a material change because it had the effect of
making the whole $450,000.00 properly characterised as a deposit
and therefore not subject to the rules concerning penalties.
Alternatively, he submitted that, if the alterations did not make that
change, the position both before and after the alteration was that
the provision in Special Condition 14 about the second
$225,000.00 was a stipulation for damages on default, not for a
deposit, and was invalid as a penalty. He relied particularly on Luu
v. Sovereign Developments Pty. Limited [2006] NSWCA 40.
21 Mr. Orlov for the vendors submitted that, both before and after the
alteration, Special Condition 14 was a provision for payment of a
deposit by instalments; and he relied particularly on Ashdown v.
Kirk [1999] 2 Qd.R. 1 and Romanos v. Pentagold Investments Pty.
Limited (2003) 217 CLR 367 at [19]-[20]. He submitted that in
Ashdown, default by the purchaser accelerated the vendors’
entitlement to a second instalment of the deposit to the date of
default, so that the provision that the instalment be paid on default
did not alter its character as a deposit. In a case such as the present,
what operated as an earnest for performance of the contract was the
purchaser’s unconditional promise to pay the balance of the
deposit.
On the status of the “deposit top-up clause”, Hodgson JA (at [27]–[32])
considered there were two distinguishing issues between the present case
and the decision of the Court of Appeal in Luu v Sovereign Developments
Pty Limited [2006] NSWCA 40:
27 … First, Bryson JA was able to say that the front page made it
clear that the deposit was $65,000.00, and that the Special
Condition in that case related to something which the contract was
not treating as a deposit. Second, the amount in Special Condition
5 was payable on any default, no matter how trivial, so that its
character as a penalty was clear.
28 On the first matter, in the present case the reference to deposit on
the front page is expressly qualified by reference to Special
Condition 14; so it is not possible to say that the front page makes
it clear that the second $225,000.00 is not part of the deposit. It can
also be said that this is clearer in the altered form of the contract,
where the front page refers to the deposit as being $450,000.00 or
10% of the price.
29 The second matter is not directly relevant to the question of
whether the second $225,000.00 is a deposit; but rather is relevant
Formation and execution of contracts Tony Cahill
– 19 –
to the question whether, accepting it is not a deposit, it is or is not
a pre-estimate of damages. That is a question on which Mr. Orlov
did not address submissions; and in my opinion, accepting that the
obligation to pay the second $225,000.00 would only arise in
circumstances where the vendors have lost their bargain,
nevertheless it cannot be considered a pre-estimate of damages.
The first $225,000.00, which was undoubtedly a deposit, would be
greatly in excess of expenses that could be lost in connection with
the terminated contract; and there is no evidence to suggest that the
loss of the bargain would involve other loss, for example because
of some problem in effecting a re-sale for a similar price. In fact, it
appears that the re-sale was for a higher price; and although this is
not directly relevant, it tends to confirm that there was no reason to
anticipate that a later re-sale would be for a substantially lesser
price.
30 In those circumstances, the Court should conclude that, if the
second $225,000.00 is not part of a deposit, provision for its
payment would be a penalty and not enforceable. On that basis, the
significance of the second difference from the case of Luu
disappears.
31 Returning to the first possible point of distinction between Luu and
the present case, in my opinion the statement of principle in the last
sentence of par.[24] of the judgment in Luu is correct; so that the
name which the parties have chosen to give to a payment is not
determinative of whether or not it is a deposit. It is necessary also
to look at the character of the payment and/or the obligation to
make it. The first point of distinction between Luu and the present
case relates only to the name the parties have chosen to give to the
payment; and in my opinion the nature of the obligation to make
the payment is more important in determining its character than the
name chosen by the parties; although I do accept that in some cases
the name could be relevant, particularly where a deposit is payable
by instalments.
32 On that approach, in my opinion the obligation to make the second
payment of $225,000.00 is not an obligation to pay a deposit or part
of a deposit. There never would be a time when this second
$225,000.00 (as such) would be paid so as to show that the
purchaser is in earnest in committing himself to pay the rest. On
the contrary, the only time when Special Condition 14 obliges the
purchaser to pay this sum is when the purchaser has demonstrated
that he is not in earnest, and indeed the termination of the contract
means that he would not be able to complete the contract. The
obligation to pay the second $225,000.00 is inconsistent with the
characteristics of a deposit. In my opinion, this would equally be
so whichever version of the front page was operative.
The net effect of the Court of Appeal decision was that, since the alteration
to the quantum of deposit on p 1 was held to make no difference to the
amount of deposit, a contract was formed; the amount paid on exchange was
Formation and execution of contracts Tony Cahill
– 20 –
the deposit; that amount was validly forfeited to the vendor; the second
payment dealt with in the special condition was penal and unenforceable.
The decision of the Supreme Court in Zhang v VP302 SPV Pty Ltd [2009]
NSWSC 73; BC200900869 (23/2/09, White J) received some publicity in
the popular press (“Judge tears up $1m property contract” – Sydney Morning
Herald, 24 February 2009, page 3). The focus of the Herald article was a
successful claim by the purchasers that the estate agent’s advertising of the
property “had misled them into entering into the deal”. The case raises a
number of issues of importance.
The plaintiffs exchanged contracts in September 2003 to purchase from the
first defendant a four-storey terrace house off the plan in Victoria Park,
Zetland. The judgment provides some additional relevant information about
the purchasers (at [53] to [54]):
53 Both plaintiffs emigrated to Australia from China. The first
plaintiff, Mr Zhang, emigrated in 1998 when he was 28. He is a
chef by occupation. In about 2000 or 2001 he purchased a two-
bedroom flat in Campsie. He does not read English and his spoken
English is poor.
54 The second plaintiff, Ms Liu, emigrated to Australia in September
2001 aged 23. She is a waitress by occupation. She and Mr Zhang
became de facto partners at the end of 2003. She has a better
knowledge of English than Mr Zhang, but she is not fluent. Both
plaintiffs gave their evidence through an interpreter.
Ms Liu had never purchased property before.
The second defendant, Sydney Advance Realty, was the estate agency
engaged as the vendor’s listing and marketing agent, and was stakeholder
under the contract. The third defendant, Ms Huo, was the employed
salesperson who dealt with the purchasers. The strata plan was registered by
7 July 2005 (by which time the market had fallen substantially from its 2003
level). The purchasers failed to complete by the due date and failed to
comply with a notice to complete. The vendor terminated the contract on 24
August 2005. Two days later, the agent released the deposit and accrued
interest to the vendor. Shortly prior to the hearing the first defendant went
into voluntary administration; that defendant took no part in the hearing. The
contract nominated MSJ as the vendor’s solicitor; M was the principal of the
firm named in the contract as acting for the purchasers (and also the solicitor
with carriage of the matter).
Formation and execution of contracts Tony Cahill
– 21 –
The plaintiffs sought an order for the return of the deposit from the agency
on four grounds:
➢ No contract was entered into. The plaintiffs claimed that the
contracts as exchanged between the respective solicitors included
terms to which the plaintiffs had not agreed, and their solicitor lacked
the requisite authority (at [5]);
➢ If a contract had been entered into, the plaintiffs were induced to do
so by misrepresentations, giving rise to contractual remedies and
constituting conduct in breach of s52 Trade Practices Act and s42
Fair Trading Act.
➢ Relief under various statutory provisions – the Contracts Review Act,
the undue harassment provisions of the trade practices and fair
trading statutes, and unconscionability under s51AA Trade Practices
Act, as well as general law unconscionability and undue influence (at
[8]);
➢ Conduct disentitling the issue of a Notice to Complete by the vendor
(at [9]). Four matters under this heading were relied on at the hearing:
▪ failure to supply proper answer to requisitions;
▪ sending replies to the purchaser’s former firm rather than the
firm then acting;
▪ the time for compliance with the notice being less than 14
days; and
▪ service of the notice only 8 days after service of an
occupation certificate (in breach of the Conveyancing (Sale
of Land) Regulation 2005 cl 6A and Schedule 2 item 2).
The purchasers succeeded under the misrepresentation ground, and also
under the Contracts Review Act. The purchasers failed to establish the first
and fourth grounds, and did not succeed in their claims under the remaining
statutory provisions mentioned at the third bullet point (at [121] to [130]).
The second and third defendants claimed the vendor’s termination was
effective because the purchasers were incapable of completing, and evinced
their intention not to do so (at [10]). This contention was upheld by the
Court, although in the light of the other findings there was no need for
detailed analysis. While the first defendant was not entitled to issue a Notice
Formation and execution of contracts Tony Cahill
– 22 –
to Complete, it was nevertheless entitled to terminate because the purchasers
had repudiated the contract (at [130]).
A preliminary point (at [11] to [17]) was a determination of the amount of
deposit paid. The plaintiffs alleged they had overpaid the deposit and the
second defendant had misappropriated funds. The issue was confused by the
purchaser having paid eight cash instalments (only two of which predated
the contract, five of the other six were outside the time allowed by a special
condition), the purchasers requesting the cash payments be put through the
accounts of the agency in batches of less than $10,000, and the salesperson
issuing both hand-written and computer-generated receipts covering the
same amounts (although prepared in a manner which did not make this
immediately clear). This issue was ultimately resolved adversely to the
purchasers.
The chronology (slightly simplified) leading up to exchange of counterparts
was as follows:
➢ 29 August: draft contract from MSJ to M.
➢ Sometime between 3 September and (probably) 8 September:
conference between the purchasers, M, and the salesperson. The
draft contract was amended to provide that the purchaser would
receive all interest on the deposit. A new special condition was added
regarding a $20,000 rebate.
➢ 8 September: letter from M to MSJ indicating M was instructed to
request 6 amendments, including the two noted above.
➢ 9 September: letter from MSJ to M attaching a replacement clause
dealing with interest and an expanded version of the rebate clause.
Each of these clauses differed from what had been discussed by M
with his clients. Interest would be payable to the purchaser unless a
party defaulted (in which case the interest would follow the deposit).
The rebate clause would cease to apply “if for some reason the
purchaser substitutes the cash deposit for a bond at any time prior
to settlement”.
➢ 10 September: M initiates exchange via DX, with the amendments
in the MSJ letter included.
➢ 11 September: MSJ dates both contracts, and submits the
counterpart, signed by the vendor to M. The counterparts were
identical.
Formation and execution of contracts Tony Cahill
– 23 –
Following Pianta v National Finance and Trustees Ltd [1964] HCA 61;
(1964) 180 CLR 146 at 152, White J found that M did not have actual
authority, express or implied, to bind his clients to a contract which included
those terms (at [32]). The more difficult question, and one which His Honour
considered was the subject of “surprisingly little authority”, was whether M
had ostensible authority to exchange contracts which included those terms
on behalf of the plaintiffs. His Honour opined (at [35]):
The trend of recent authority is that a solicitor does not have implied or
ostensible authority to commit his or her client to a contract by
negotiation or correspondence with the opposite party. That is different
from the question whether a solicitor has ostensible authority to bind his
or her client by an exchange of identical counterparts.
The judgment distinguishes a number of authorities (for example, CTM
Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588 and Longpocket
Investments Pty Ltd v Hoadley (1985) 3 BPR 9606 – the latter a Court of
Appeal decision, mentioned earlier in this paper) which had been interpreted
by many commentators as confirming that a solicitor does not have
ostensible authority to bind his or her client to a contract. Longpocket was
distinguished on the basis that, in that case, the counterparts were not
identical.
Relying on well-known English authorities dealing with the authority of
solicitors to choose the method of formation of the contract (in particular,
Eccles v Bryant [1948] 1 Ch 93 and Domb v Isoz [1980] 1 Ch 548), his
Honour held that a solicitor has ostensible authority, whatever his or her
actual instructions, to conclude a contract on behalf of his client by
exchanging identical counterparts (at [46], [48]). His Honour concludes his
analysis on the formation issue as follows (at [51]):
51 So far as I am aware, it is not usual conveyancing practice in this
State to require a solicitor who has been nominated by the vendor
or purchaser to act on the vendor’s or purchaser’s behalf to produce
evidence of his actual authority to exchange contracts on behalf of
his or her client. In my view, the vendor’s solicitors were entitled
to assume that Ma & Co had authority to forward by way of
exchange the contract which had been signed by the purchasers on
the execution page. They were entitled to assume that the
purchasers assented to all of the terms in the document so
forwarded. By holding out Ma & Co as the solicitors who would
act for them in effecting an exchange of contracts, the plaintiffs are
bound by the conduct of their agent in effecting the exchange. For
these reasons, I conclude that a binding contract came into
existence between the parties.
Formation and execution of contracts Tony Cahill
– 24 –
It is somewhat surprising that no reference appears in the judgment to the
decision of Iannello v Sharpe, either at first instance ((2006) NSW ConvR
¶56-162; [2006] NSWSC 713) or in the Court of Appeal ((2007) 69 NSWLR
452; 12 BPR 23,887; NSW ConvR 56-179; [2007] NSWCA 61;
BC200701919). There is no suggestion in Iannello that a lack of authority
to make amendments to a counterpart could be “cured” by the ostensible
authority grounding an exchange of counterparts. If that were so, the dispute
in Iannello could have been disposed of much more briefly. Indeed, with
respect, the weight of authority suggests the contrary.
* * * * *