On 12 July 2024, Justice Applegarth of the Queensland Supreme Court delivered a judgment for Brightman & Ors v Royal Pines Projects Pty Ltd [2024] QSC 149.

With the property market and building costs continuing to increase, the decision has particular implications and warnings for buyers and sellers of property.

The facts

The case arose from an application brought by certain purchasers of ‘off the plan’ apartments from developer Royal Pines Projects Pty Ltd. Key facts included:

• at the time of entry into the contracts the apartments had not been constructed and there was nothing for a valuer to inspect for the purposes of obtaining finance;
• the contracts were entered into between January 2021 and November 2023;
• the contracts were not subject to finance. However, the contracts did contemplate the involvement of a financier; and
• the contracts permitted the settlement date to occur on a date that was 14 days after the date on which the Respondent gave a notice of settlement.

On 1 July 2024, after sufficient construction of the apartments, the Applicants requested access for the purposes of valuations to obtain finance for completion. That same afternoon, the Respondent gave notice for each of the contracts requiring settlement on 16 July 2024 without responding to the access request. The Respondent failed to respond to a further request for access by the Applicants, and so on 5 July 2024 the Applicants sought an urgent listing before the Court. The matter was set down for hearing on 11 July 2024.

On 8 July 2024, the Respondent’s solicitors wrote to the Applicants setting out a ‘protocol’ for the buyer to obtain access for a valuer.

The core issues

A critical matter for determination was the scope of an implied term of a duty to co-operate in a commercial contract.

The Applicants alleged that:

• because the contract provided for a 14-day period to prepare for settlement (including arranging required funds) the Respondent was under an implied duty to reply promptly during the notice period and permit access to a valuer; and
• the Respondent breached this duty by delaying and denying the Applicants critical time needed to be ready for settlement, and the Respondent was therefore not entitled to rely upon a failure to settle on 16 July 2024.

The Respondent’s position was that it was not in breach because the contract was not subject to finance, and therefore the implied duty to co-operate would not extend to doing acts necessary for the buyer to ‘utilise the opportunity’ to obtain finance. The Respondent maintained that access could not be given before 8 July 2024.

Key findings

Justice Applegarth found and made a declaration in favour of the Applicants, relevantly holding that:

• there is a general implied duty to do all that is reasonably necessary to secure performance of the contract, and to co-operate so as to give the other party the benefit of the contract;
• even though the contracts were not ‘subject to finance’, the commercial reality was that finance was nonetheless required for the buyer to perform the contract and the Respondent would have been aware of this when entering into the contracts;
• the duty to co-operate is not a duty to bring about something that is desirable but which ultimately is not required by the contract. Necessity is the touchstone. What is required is an analysis of ‘…the benefits conferred by the contract and what is necessary to allow a party to perform its obligations and have those benefits’; and
• the necessity to obtain finance in order for a buyer to perform its fundamental obligation under the contract gives content to the seller’s duty to co-operate.

A critical issue giving rise to the content of the implied duty was that valuation could not occur until the lots had been sufficiently constructed. The outcome would likely have been different for a long-existing property that was able to be inspected well ahead of a settlement date.

In this case, the contract required as part of the scope of the implied duty of co-operation:

• timely response by the Respondent during the 14-day settlement notice period; and
• upon request, to permit access to a valuer for the purpose of enabling a buyer to obtain finance needed for completion.

By failing to do so, the Respondent breached the implied duty and was to be prevented from insisting upon performance of the contract on 16 July 2024. A declaration was made by the Court to that effect.

If you need a contractual interpretation, contact us. Our contract lawyers can be reached on 1300-862-529.

It can be a word, phrase, image (such as a logo), smell, number, sound, colour, movement, packaging or another symbol.  Protection may be best achieved with a combination of these. The law of trade marks has developed to assist organisations in communicating a badge of origin and allow for some exclusivity to ensure consumers know the source of goods or services. The law helps businesses to protect their unique branding and their hard-earned reputation.

The Australian Register of Trade Marks is operated by IP Australia, an agency of the Commonwealth Government. Registration allows you to assert exclusive rights over your trade mark and gives you the legal right to use the reserved ‘®’ symbol. Using the ® symbol without having registered your trade mark is unlawful.

Your business name can be a trade mark, but merely registering the business name on ASIC’s Business Names Register will not give you trade mark protection.  To ensure adequate protection, it is worth seeking advice as to whether to register your business name as a trade mark with IP Australia.

If you haven’t yet applied for registration, or your application has not been approved, you can still use the ‘^TM’ symbol as a way of warning competitors that you assert your rights over the trade mark. If a competitor tries to use an unregistered trade mark, you may in some cases be able to sue them for ‘passing off’ (i.e. for falsely pretending that there is a connection between their business and yours) or seek remedies under the Australian Consumer Law (schedule 2 of the Competition & Consumer Act 2010 (Cth)) for misleading and deceptive conduct in trade or commerce.

What can’t be a Trade Mark?

Generally, a trade mark won’t be accepted for registration if it is scandalous or illegal, or if it has any connotations that might deceive or cause confusion. It also can’t be substantially identical or deceptively similar to someone else’s trade mark.  A trade mark also needs to be inherently distinguishing, and not be a descriptor (for example a lawn mower supplier called “The Law Mower Company” would be not capable of trade mark protection due to it describing the goods being offered).

In fairness to competitors, your trade mark must also be sufficiently specific to your business. For instance, you generally can’t register trade marks that are geographical names, as that would prevent other local businesses from using the name of the location on their products. You also generally can’t register trade marks that are common surnames, or that are commonly used to describe the type of goods or services that you provide.

Benefits and Limitations of Trade Marks

A trade mark is a valuable business asset; and registering it can bring added value should you ever choose to sell your business. You are also entitled to sell or licence the trade mark to another person.  There are numerous ways to value trade marks and accounting standards can apply to how to identify and value the goodwill attached to a trade mark.

If a competitor uses a trade mark that is too similar to a trade mark that you have registered, you may be able to get a court order that prevents the competitor from using that trade mark and/or requires them to pay you compensation.

Unlike copyright, trade marks can last indefinitely, but must be renewed every ten years. You may lose the rights to the trade mark if you cease to use it.

Ordinarily, registering your trade mark only gives you exclusive rights within Australia. However, you may be eligible to register and protect your trade mark in up to 130 countries under the subsequent designation via the Madrid System administered by the World Intellectual Property Organization using IP Australia as an office of origin.  You may also consider applying directly within a country not otherwise covered under the Madrid System, or there may be practical considerations regarding whether or not to utilise the Madrid System.

You should also be aware that countries have either a ‘first to use’ system or a ‘first to file’ system.  In first to file countries, it is vital you protect your brand through trade mark protection if you wish to operate your business in that country.  In Australia, we have a ‘first to use’ system which means if someone else registers your unregistered trade mark, you can make an application for being the predecessor in title.  It is vital that you seek legal advice in this regard to ensure you can monitor applications and meet the timeline requirements for providing opposition to the registration of a trade mark.

Applying for a Trade Mark

The process of registering a trade mark generally takes at least six months. Once you have completed your initial application, a registrar will examine it to see whether your proposed trade mark complies with the Trade Mark Act 1995, Trade Mark Regulation 1995 and any other relevant legislation.

If your application receives an adverse examination, you will be given an opportunity to be heard and to have the matter reassessed.

If your application is accepted, it will be advertised in the Official Journal of Trade Marks. Anyone else who thinks that your trade mark ought not to have been accepted, or who claims that your trade mark is too similar to theirs, will generally have two months to submit an application to oppose the registration of your trade mark. The dispute will be heard by a registrar who will decide whether or not to register your trade mark.

For more information regarding trade marks, please contact our Commercial Team or call us on 1300 862 529 to book an appointment with one of our specialist Commercial Lawyers today.

This article was written by Martin Churchill & Tim Whincop.

This article sets out a strategy to increase your charitable giving (whether by a tithe or donation).  By donating out of a Discretionary Trust instead of donating your personal capacity to a Tax Concessional Charity you may be able to provide donations that are effectively tax-exempt. Even if the recipient is not a Deductible Gift Recipient, giving via a Discretionary trust achieves effectively the same outcome through a mechanism that allows you to give out of your income before it is taxed.

This is an easy and legal mechanism to significantly increase your charitable giving that every trustee of a discretionary trust should be aware of.

What is a Discretionary Trust?

A discretionary trust is an arrangement by which a trustee (individual or company) agrees to hold property (“trust property”) “on trust” for a number of potential beneficiaries (usually family members). This arrangement is often informally referred to as a family trust.[1] The property held by the trust could be a business or investment (e.g. shares or real estate).

When a discretionary trust holds property, the usual intention is that income will be derived from the trust property. Under the Trust Deed terms, the trustee has discretion as to who among the trust beneficiaries will receive trust income.

If all income is distributed prior to the end of the financial year the income is taxed in the hands of the beneficiary, at the tax rate applicable to that beneficiary. The trustee is just acting as a steward of the trust property for the beneficiaries. It makes sense therefore that tax be paid by the beneficiaries who end up with the income.

Tax exempt beneficiaries

If income is taxed in the hands of the beneficiary, and the beneficiary is tax exempt however,, then no income tax is paid on that income. The beneficiary does not need to be able to receive tax deductible donations (i.e. Deductible Gift Recipient). As long as the beneficiary is income tax exempt (for instance a ‘tax concessional charity’), then no tax is paid on the income distributed to it.

Therefore, to the extent that the trust gives to a tax-exempt entity (e.g. the family’s church) the gift is in pre-tax dollars.

Examples

Let’s say a person decides to give $1,000.00 to their church.

If they give this amount out of income that they personally derive, they would have first paid tax on the income and therefore, would have to earn approximately $1500.00 to give $1000.00. However, if the gift was given by a discretionary trust, the trust could simply give the $1500.00 before it is taxed in the hands of the person who would have otherwise received it. The gift to the charity has increased by 50%.

Example:

Allan and Tracey are married, both employed (both on a top marginal tax rate of 30%) and are considering investing. Allan and Tracey give regularly to their local church, and are part of a support team for friends of theirs doing mission work.

Instead of investing in their own names, Allan and Tracey could establish a Discretionary Trust to acquire the shares, “The A & T Family Trust.” The A & T Family Trust earns $10,000.00 after expenses in its first year.

Allan and Tracey usually give:

• $100 / week to their local church
• $40 / week to their friends in mission

Total = $7280 / year.

To give that $7,280.00, Allan and Tracey would have had to have earned $10,400.00, paying $3,120 in tax before they give.

Now, instead of giving personally, they can give through The A & T Family Trust and can increase their giving by asking themselves, “what would I have to have earned before tax to give this amount after tax?” and give that larger pre-tax amount through the Trust, with the same result, in terms of what their family is left with at year end.

Conservatively, with some allowance for costs of having a tax return prepared and lodged for the trust, Allan and Tracey could increase their giving, by giving through the A & T Family Trust as follows:

• $130 / week to their local church
• $52 / week to their friends in mission

Total = $9464 / year.

That’s an extra $2,184.00 in giving in the first year alone.

How much can a person increase their giving by?

Below provides the working for how a person can be left in the same position as they had been giving in post-tax dollars while also increasing their giving if utilising a discretionary trust:

Adding Tax Exempt Beneficiaries To Existing Discretionary Trusts

Most discretionary trust deeds include a mechanism to add beneficiaries. If your proposed charity is not listed in the existing beneficiaries, then you may need to add them as a beneficiary.

Often, this can be as simple as a resolution of the trustee. Sometimes the express consent of the Principal / Appointor is required. If your trust does not permit your proposed charity to be a beneficiary and you are considering adding a beneficiary, then you should seek legal advice.

(Care also must be taken that a beneficiary is not added as default beneficiary. This may have adverse “duty” (stamp duty) and taxation consequences. A default beneficiary is a beneficiary who is entitled to income or capital of the trust in default of the trustee exercising its discretion to distribute the income or capital. In most family discretionary trusts this is the husband and wife.)

It is important to note that adding a beneficiary does not create an entitlement by that beneficiary to the trust assets. A trustee does not have to give to all beneficiaries. The trustee has the discretion to give or not give and about how much to give.

Costs of establishment and maintenance of a Discretionary Trust

Establishing a trust is comparatively inexpensive compared with the net benefits usually derived. But all Trust Deeds are not the same. It is more expensive to amend the Deed later than get it right from the outset. Therefore, a cheap Trust Deed may not end up being cheap.

In the context of using a discretionary trust to maximise giving, prior to purchasing a trust the following should be considered:

• Whether there are provisions which assist giving to tax exempt entities.
• What asset protection mechanisms are built into the Deed?

The costs of ongoing maintenance and reporting should also be considered. This is something your regular accountant may be able to advise on.

Cautions

• All income held by a trust must be distributed to the trust beneficiaries prior to 30 June each financial year otherwise it is taxed at penal rates.
• A discretionary trust cannot be used to divert income, which is personal exertion income or income essentially and ultimately for an individual’s benefit. For example, a person cannot give money to their local church that is ultimately to be used to pay for an overseas trip for that person. This is not really a gift, but a diversion of income, that is ultimately for the person’s benefit.
• Broadly speaking, payments or transfers constitute a ‘gift’ where they are made without legal obligation, by way of benefaction and without any advantage of a material character being received in return.

For more information regarding Increasing Giving via Discretionary Trusts

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Commercial Lawyers today.

[1] Although discretionary trusts are often informally referred to as being ‘family trusts’ (largely because families utilise them), the term ‘family trust’ has a technical meaning per Schedule 2F, subdivision 272D of the Income Tax Assessment Act 1936 (Cth). A ‘family trust’ in this technical sense is discretionary trust in respect of which a family trust election (FTE) has been made and certain relevant tests have been passed in respect of the identity of the beneficiaries and control of the trust. These ‘family trusts’ are able to access certain taxation concessions and have different rules regarding distribution requirements compared to ordinary discretionary trusts.

Earlier this month, amendments to Federal legislation significantly expanded the protections of parties against unfair contract terms in commercial contracts. Put briefly, these amendments:

• introduced substantial financial penalties for persons or corporations who propose, rely upon, or seek to apply ‘unfair’ contract terms;
• enlarged the veil of protection to parties not previously protected under the previous unfair contract provisions;
• expanded the Court’s powers to deal with unfair contractual terms; and
• clarified the considerations to which the Court must have regard in considering whether a term is unfair.

Anyone who enters into contracts for goods or services, whether as the supplier or the purchaser, should be aware of these updated provisions.

What are Unfair Contract Terms?

An unfair contract term (“UCT”) is a term that:

• would cause significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (whether financial or otherwise) to a party if it were to be relied upon.

The Court assesses whether a term in a contract is “unfair” by considering a range of factors, such as the nature of the contract as a whole, the “transparency” of the term, and the relative bargaining power of the parties (along with other mandatory and non-mandatory considerations).

To Whom do the New UCT Provisions Apply?

The UCT provisions are designed to protect parties to standard form “consumer contracts” and standard form “small business contracts”. These kinds of contracts entered into on or after 9 November 2023 (i.e. new contracts and contract renewals), and specific terms of existing contracts of this nature amended on or after this date, are subject to the new regime.

However, the UCT provisions will not apply to the following:

• Terms specifically required/permitted by law to be included in contracts;
• Terms setting out the upfront price payable under the contract;
• Terms defining the main subject matter of the contract; or
• Various types of excluded arrangements (corporate constitutions, managed investment schemes and other excluded arrangements).

For school-based institutions in particular, school enrolment contracts have been held to be “standard form” contracts. Therefore, schools should pay particular attention to the UCT reforms.

What do the new UCT Provisions do?

1. New financial penalties

The new UCT provisions take a giant stride in escalating the protections granted to parties with respect to standard form “consumer contracts” and standard form “small business contracts”, making it illegal for a party to such a contract to:

• propose an unfair term into a contract which they have made; or
• apply or rely on, or purport to apply or rely on, an unfair term of a contract.

A party who engages in either of the above courses of conduct may be liable for a maximum penalty of:

• Where the contravening party is an individual – up to $2.5 million;
• Where the contravening party is a corporation – the greater of:
  • $50 million;
  • Where the value of the benefit to the contravening party arising from the conduct is ascertainable – 3 times the value of the benefit obtained; and
  • Where the value of the benefit is unascertainable – 30% of the corporation’s adjusted turnover during the breach turnover period.

It should be noted that the above penalties are the maximum penalties per breach. This means that if a contract contains multiple UCTs, proposing or relying upon each one would be considered separate contraventions of the law.

2. Expanded catchments of the Australian Consumer Law and ASIC Act

The amendments also significantly expand the number of businesses protected under UCT provisions. This is because of the redefined meaning of “small business contract” within the ACL and ASIC Act. Accordingly, many businesses not previously able to rely on the UCT provisions may now fall under their protective veil.

Under the new definition, a contract is considered a “small business contract” where that contract:

• is a contract for a supply of goods or services, or a sale or grant of an interest in land (for ACL contracts); and
• at least one party to the contract:

1. 1. makes the contract in the course of carrying on a business and at a time when that party employs fewer than 100 persons; and/or
   2. the party’s turnover for the last income year ending at or before the time when the contract is made is less than $10 million.

• Where the contract is one to which the ASIC Act applies, the upfront price payable does not exceed $5 million (there is also now no equivalent upfront price threshold required by the ACL).

The catchments of these pieces of legislation are also extended by reference to changes to the Court’s mandatory considerations in determining whether a contract is (or is not) “standard form”. Accordingly, a contract can now still be classified as a “standard form contract” if:

• a party had an opportunity to negotiate changes, to the contract’s terms, that are minor or insubstantial in effect;
• a party had an opportunity to select a term from a range of options determined by the other party; and/or
• there was an opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

Courts, in making such a determination, will also consider whether one of the parties has prepared and made other contracts in the same or substantially similar terms, and how many times they have done so.

3. Expansion of Court Powers

In addition to their current powers, the Courts will also have the ability to order a wider variety of relief mechanisms upon a term being declared to be unfair. Such relief might include:

• Voiding, varying or refusing to enforce the whole or part of the contract, or of a collateral arrangement relating to the contract, that contains the unfair term;
• Requiring the contravening party to make whole or partial redress of the loss suffered by the other party which was caused by the unfair term;
• Making orders to prevent/reduce loss or damage likely to arise to a person from the unfair term.

In cases where the term has been declared as being “unfair”, the relevant regulator (the Australian Competition and Consumer Commission (under the ACL) or the Australian Securities and Investments Commission (under the ASIC Act)) can make an application for the Court to make orders against the contravening party, such as:

• the making of orders/injunctions preventing a party from using a term with the same or substantially similar effect in future contracts that are protected under the unfair terms regime;
• the making of orders/injunctions requiring the contravening party to wholly or partially redress, prevent, or reduce loss or damage actually or likely to be caused to a party by the inclusion of a similar term in any existing contract covered by the unfair terms regime.

(Injunctions/redress would apply only to contracts that are standard form contracts protected by the UCT provisions.)

Notably, the expansion of powers means that Courts can call into question any contracts in which the contravening party may have used the unfair term being challenged or a similar term, regardless of whether that particular contract was actually brought before the Court. The orders made which resulted from the regulator’s application will bind anyone affected by the order – despite that person not being a party to the particular proceedings during which the order was made.

Why are the changes to the UCT Regime important to me?

The new penalties and increased applicability of the Unfair Contract Term regime highlights the importance of ensuring that the terms of any standard form contracts used by an organisation or individual remain fair and compliant with the law. Complacency in failing to regularly review and update standard form contracts to ensure compliance may expose a party to significant legal risk.

The amendments may of particular importance to schools using enrolment contracts – especially as they may relate to forfeiture of fees where proper notice of intention to withdraw has not been provided or to wide-reaching anti-disparagement clauses (such as restricting parents from creating social media pages about a school).

If you operate using standard form contracts and suspect that some of your contracts’ terms may be potentially “unfair”, we highly recommend you seek specialised legal advice. The friendly team at Corney & Lind Lawyers can work with you to review your contracts and help ensure they remain legally compliant. Contact our friendly team today on (07) 3252 0011 or send your enquiry to enquiry@corneyandlind.com.au – we are always happy to assist.

This article was written by Eustacia Yates and Jackson Litzow

Commercialising intellectual property – Assignment and Licensing options for copyright

Are your literary or musical works getting republished or reproduced? Do you need to commercialise your intellectual property? How can you keep your original works safe?

Licensing and Commercialising your Copyright

Choosing the right method of intellectual property commercialisation can often be tricky to navigate, and will wholly depend on a copyright owner’s preference about control and continual ownership.

Under section 196(1) of the Copyright Act 1968 (Cth), copyright is personal property, and under this section can either be assigned or licensed to another person to use in a specific way.

These are the two primary ways copyright can be exploited for financial gain.

Copyright Assignments

Copyright assignments relinquish ownership of the copyright to the other person (the ‘assignee’), often in exchange for a sum of money.

Assignments may not be forever. Instead, they might only be partial (where copyright is assigned only for a limited time, on specific terms).

How do I assign my Copyright?

There are certain formalities that you must comply with should you wish to assign copyright. Under the Act[1] the assignment of copyright (whether full or partial) will not be valid unless the assignment is contained in writing. The Act also provides that the assignment can be limited to a specific region in Australia or for a specific time period.

It is also essential that if you intend to make a partial assignment, the assignment is expressed without unlimited terms or absolutely.

If this happens there will be right to have the copyright reverted to you.[2] If the partial assignment is expressed in unlimited and absolute terms, however, whether or not you intended for the copyright to revert to you after a particular period of time may not matter, and there may be no right of reversion.

In these circumstances it is important to engage a lawyer familiar with drafting.

Copyright Licensing

Copyright licensing is only temporary, and differs from assignments in that copyright owners are allowed some form of control over the intellectual property rights throughout the duration of the license. Licensing does not transfer copyright ownership to the other person (the ‘licensee’), rather it provides the licensee permission to use your intellectual property in a way outlined in its copyright rights.

In this circumstance, you can still sue a third party for copyright infringement as you are still its owner under the Copyright Act.

Normally, permission to use the copyright owner’s work is acquired in exchange for royalties or a lump sum payment. However, the license may exist as a bare license, authorisation or permission where no consideration (money) is exchanged.

Generally, as a copyright owner, you may choose to grant either an exclusive or non-exclusive license.

Exclusive Licenses

An “exclusive licence” is an agreement whereby a copyright owner entitles a licensee to use the owner’s copyright to the exclusion of all others (including the copyright owner him or herself).

Under an exclusive licence agreement, the right of exploitation may be limited to particular timeframes, geographical locations and may only be used for specific purposes. Ownership ultimately remains with the original owner.

Under the Copyright Act 1968 (Cth), licensees under exclusive licence agreements have greater rights than licensees under a non-exclusive licence Agreement. This includes the opportunity to sue a third party for copyright infringement (along with the owner who also retains this right against a third party). In Australia, a licensee of an exclusive license can also sue a copyright owner for copyright infringement should the copyright owner breach the terms of the exclusive licence.

Exclusive licencing arrangements are more suitable for licensees who wish to pay for exclusive exploitation of the copyright of the owner, and do not wish to share it with others.

Non-Exclusive Licenses

Under a “non-exclusive licence” a copyright owner does not have to limit the use of the copyright to one person. That is, under this type of arrangement, the copyright owner can extend the licence to multiple parties at one time. This can be a more effective method of commercialisation of a copyright owner’s intellectual property.

Non-exclusive licence arrangements are more appropriate for copyright owners who wish to retain control over the commercialization of their products and copyright. In this arrangement, distinguishable from the exclusive licence, the copyright owner can continue to use his or her copyright concurrently to use by the licensee.

How do I licence my copyright out to others?

Under section 10 of the Copyright Act, to be valid an exclusive licence must be reduced to writing. Other types of licences should also be reduced to writing in the form of a licensing agreement. Generally, the terms of a licence will be set out in a formal Copyright Licence Agreement.

Have questions about copyright assignment or licence?

We’ve put together more information about the types of copyright licences in our resource centre. For more information on how to commercialise your intellectual property, please contact our Intellectual Property team on (07) 3252 0011.

Additionally, if you are an employee and are unsure of whether you own the work you have created during the course of your working relationship with your employer, contact a member of our Intellectual Property team on the number above. Or, to read about whether you own your copyright as an employee, click here.

Written by Lawyer edited by Jackson Litzow (student placement).

Footnotes

[1] Copyright Act 1968 (Cth) s 196(3).

[2] Sumner v Beyond Properties (2003) 59 IPR 268.

Do I have to mitigate loss if my lessee defaults and breaches? Case Study:  Kiddle v Yajm [2022] QDC 82

This case study highlights the onus of landlords to mitigate loss and the courts. If a lessee acts improperly and breaches the lease, it is still the responsibility of the lessor to mitigate loss.

The case of KIDDLE INVESTMENTS PTY LTD V YAJM VEGAN PANTRY PTY LTD & ORS [2022] QDC 82 considered the actions of a landlord, following a lease dispute.

The court examined whether the lessor was obligated to mitigate loss prior to termination and the available damages. In this case, the court held that the landlord had appropriately mitigated their loss and awarded damages accordingly.

Facts

The lessee had entered a five (5) year lease with the lessor on 16 December 2016. As early as 16 May 2017, the lessor received the first of four (4) notices to remedy breach. Up until 1 December 2017, the lessor indicated an intention to fit out the premises, sublet the premises and settle the areas. The lessee had the keys to the premises and had left furniture, rubbish and damage to the premises upon vacating it. However, the lessee never traded on the premises or fitted out the premises.

No rent or outgoings were paid from 1 December 2017 up until the Lessor terminated the lease on 2 April 2018. Prior to 1 December 2017, the Lessee had made various part-payments pursuant to a payment plan, often drawing upon a bank guarantee. It was unclear which payments were made by the lessor or the bank guarantee. At all times, the Lessee was in breach of two essential terms of the lease; the requirement to pay rent and outgoings, and the requirement to trade during core hours.

The two issues in dispute concerned whether the lessor was under an obligation to mitigate their losses prior to the termination of the lease and what costs the lessor could claim under the lease.

Mitigating the Lessor’s Loss

Issue & Arguments

The question of concern was whether a reasonable person in the position of the lessor could have been aware the lessee was unable to perform its obligations under the lease, and thus obliged to mitigate their losses. It was agreed the lessor had complied with their obligation to mitigate their loss onwards from 3 April 2018. However, the lessee argued the lessor could not claim any loss of bargain damages on account of their failure to mitigate their loss prior to the termination of the lease, pursuant to observations in Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90, 100.

Decision

Generally, where a claim is for damages, a plaintiff has to mitigate those losses. However, this obligation typically arises upon termination or repudiation of the lease or contract. DCJ Byrne argued that if the lessor is aware the lessee is unable to perform its responsibilities under the lease, the obligation to mitigate loss prior to termination is more likely to arise. However, since the Courts do not readily find that conduct amounts to repudiation, courts should not readily find the lessor aware the lessee is unable to perform its obligations. Further, his honour accepted that the duty in Vickers to mitigate the accrual of losses prior to the termination of the lease only applies where the lease has been abandoned in fact.

His honour held that the conduct of the Lessee was so ambiguous as to exclude a finding that a reasonable person in the lessor’s position was aware the lessee was unable to continue the lease. Relevantly, the lessee never accepted the option to terminate the lease upon receipt of any of the notices to remedy breach, instead, the lessee continued to convey an intention to keep the lease on foot. This conduct did not amount to abandonment or repudiation of the lease. Therefore, in conjunction with clause 9.3(2) of the lease which imposed a contractual obligation to mitigate loss following termination of the lease, the duty to mitigate arose only on and from the date of termination.

Costs Under the Lease

Issue & Arguments

There were two clauses under the lease that the lessor could rely upon when claiming legal costs. Clause 2.1(f) provided that the lessor could recover reasonable costs and expenses incurred in relation to proceedings brought to enforce the lessee’s obligations under the lease. Whereas clause 8.3 was an indemnity clause covering loss following the lessee’s default. The issue in dispute was whether the lessor could rely upon clause 8.3, permitting recovery of indemnity costs.

The lessor argued that the discretion to award costs will usually be exercised consistent with contractual agreements, thereby authorising a claim for costs as part of the judgement debt. The lessee argued that clause 8.3 could not be relied upon as it is a general indemnity clause which does not extend to legal costs. They further argued that though clause 2.1(f) would be preferrable, it also could not be relied upon. Although as it concerned the recovery of reasonable costs and expenses, it is up to the discretion of the Court how to award costs, particularly where the contractual provision is not plain and ambiguous.

Decision

DCJ Byrne held that the lessor was entitled to claim monies owing under the lease to and including 2 April 2018, pursuant to clause 8.3 of the lease, in addition to the loss of bargain damages thereafter. It is not relevant that there was another, less onerous provision that could have been relied upon to recover costs. His honour noted that a plain and unambiguous contractual provision for payment of costs on an indemnity basis is relevant but not binding on the court. Clause 8.3 was not intended to oust the jurisdiction of the Court and was voluntarily entered into by the parties to provide an indemnity for losses and costs arising from a breach of the lease.  However, since clause 8.3 is sought to be applied as part of the judgment amount and not as a separate costs order, the principle does not apply. The claim need not be deferred to a costs order.

Key Take-Aways

The duty to mitigate loss arises upon termination, repudiation or abandonment of the lease. The duty to mitigate may only arise prior to termination if the lessee conveys a clear intention not to continue with the lease, however, this conduct would likely be construed as repudiation or abandonment of the lease anyway.

Costs claimed under an indemnity clause in the lease does not seek to oust the jurisdiction of the court and will be relevant to determining costs, especially where the clause is voluntarily entered into and plain and unambiguous in its interpretation. Further, costs claimed under an indemnity clause can be considered part of the judgment amount, not deferred as an issue for a costs order.

Related Articles

https://corneyandlind.com.au/business-law/covid-19-commercial-lease-regulations-qld/

https://corneyandlind.com.au/commercial-law/exit-lease-early/

https://corneyandlind.com.au/litigation/lease-dispute-rent-qcat/

This article was written by a Corney & Lind law clerk

Trust Resettlements

A trust is a relationship whereby a person (the trustee) holds property on trust for the benefit of another person (the beneficiary). A trust deed outlines the terms of the trust including the duties of the trustee in holding the trust property. Whilst these terms are binding, some trusts include a power to amend the terms of the trust. This is known as a power of amendment. There are many reasons why a person would want to make amendments to a trust deed. For example a person may wish to add a new beneficiary, appoint a new trustee, or extend the vesting date of the trust. The difficulty arises in determining what kinds of amendments can be made to a trust deed without causing a resettlement. In other words, when will amendments to a trust deed cause a new trust to be created?

What is a trust resettlement? 

A trust resettlement occurs when a trust is varied or amended to the extent that it becomes a new trust. A trust resettlement can also occur when the trust property is transferred to a new trust.

How is a resettlement triggered? 

The law relating to what constitutes a resettlement has evolved substantially over the last few years. In 2001 following the decision in FCT v Commercial Nominees of Australia Ltd,[1] the ATO released a Statement of Principles which stipulated that a resettlement would occur when:

‘there was a ‘fundamental change’ to the trust relationship and that a change in the ‘essential nature and character’ of the trust relationship can result in the creation of a new trust.’

The Statement indicated that even some relatively minor changes might trigger a resettlement in certain circumstances. However following the 2011 decision in Commission of Taxation v Clark,[2] the ATO retracted this Statement of Principles stating that the approach was no longer sustainable. In Clark, significant changes were made to the members of the trust and the trust property yet these changes were held to have not constituted a resettlement. The ATO thus amended its report and confirmed that the decision in Clark was now the correct test. It is now accepted pursuant to Clark, that a trust will be resettled where the variation to the trust disrupts the continuity of the essential features of a trust. These being:

• • the terms of the trust deed
  • the trust property
  • the members of the trust

The ATO’s amended report Taxation Determination 2012/21 further notes that provided there has been a valid exercise of the power of amendment or prior court approval, then changes to the trust deed will not result in a resettlement unless the change:

• • terminates the existing trust; or
  • leads to a particular asset being subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.

The powers of amendment in the trust deed are very important to ascertaining what variations to the trust can be made. A trust deed cannot be amended without an express power to do so. Where a trust deed contemplates a change and the correct procedures in making the change are followed then it is unlikely that a trust will be resettled. Clark appears to confirm that there are now few amendments to a trust that will cause a resettlement.

What is the effect of resettlement? 

There are significant taxation implications which flow from a resettlement. The disposal of the trust property into a new trust triggers a number of provisions of the Income Tax Assessment Act 1997 (Cth) including a capital gains tax event which the trustee would be liable to pay. In addition, the disruption of continuity of the trust estate means that any losses or gains from the old trust cannot be transferred to the new trust.

How to avoid trust resettlements?

It is very important to obtain legal advice before amending a trust deed in any way. Even where the trust deed includes a power of amendment it is important to read the trust deed and check that the power specifically authorises the proposed amendment. Remember one cannot rely on all of the amendments listed in the different state Trusts Acts where the power of amendment in a trust deed stipulates otherwise. It is also very important that amendments made pursuant to a power are done so in accordance with any process outlined in the deed.

For more information regarding trust resettlements 

Please do not hesitate to contact our Business Development Team on (07) 3252 0011 to arrange an appointment with one of our experienced commercial lawyers.

Footnotes 

[1] [1999] FCA 1455.

[2] [2011] FCAFC 5.

Can you contract out of proportionate liability in a commercial contract?

What is proportionate liability? 

Proportionate liability is a concept that legal responsibility for loss should be allocated to the defendant according to their contribution to the loss.

When was the proportionate liability scheme introduced in Australia? 

Following the 2002 Review of the Law of Negligence, the Ipp Report suggested various negligence reforms. This report was initiated following the rising costs of liability insurance from 1999 to 2002.(1)  One of the changes saw the introduction of proportionate liability legislative schemes.

While most Australian states will allow parties to contract out of proportionate liability in commercial contracts where loss results from a ‘failure to take care’, Queensland, under section 7(3) of the Civil Liability Act 2003 (Qld), is the only state which expressly prohibits this.

What is Queensland’s legislative approach to proportionate liability? 

In Queensland, a defendant cannot escape proportionate liability for a breach of contract that results in economic loss or property damage if the defendant owed a duty to take care to the plaintiff (usually an implied term of the contract).

It is important for parties in commercial contracts to be aware that they may still be liable for a plaintiff’s loss due to a breach of contract pursuant to the proportionate liability provisions in the Civil Liability Act 2003 (Qld). This may apply even if a party can rely on an indemnity clause and an exclusion of proportionate liability has been drafted into the agreement to relinquish responsibility.

Who can be held proportionately liable?

Under section 31 of the Civil Liability Act 2003 (Qld) a defendant who is a ‘concurrent wrongdoer’ must only be held proportionately liable for a plaintiff’s loss. This means that a plaintiff cannot sue and claim 100% of the damages from one individual party when numerous parties have been responsible for ‘multiple causes’ of the loss.

How did plaintiffs bring action prior to the Civil Liability Act? 

Prior to the commencement of the Civil Liability Act, it was commonplace for plaintiffs to bring actions against one of multiple wrongdoers, usually insurance companies or the party with the ‘deepest pockets’. It was then up to the defendant to sue the other parties who contributed to the loss.

The Civil Liability Act, however, changed this and instead placed an onus on plaintiffs under s32 to bring an action for economic loss or property damage against all ‘concurrent wrongdoers’ in the same action.  This was to reduce litigation and to avoid multiple proceedings in respect of the same loss.

What is a concurrent wrongdoer? 

A concurrent wrongdoer is defined in s 30 of the Civil Liability Act as:

a person who is 1 of 2 or more persons whose acts or omissions caused, independently of each other, the loss or damage that is the subject of the claim.

What if a concurrent wrongdoer is insolvent? 

The Civil Liability Act also provides that it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.

Concurrent wrongdoers and proportionate liability is discussed further in the 2013 High Court of Australia case of Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10.

S 7(3) of the Civil Liability Act 2003 (Qld)

While most states allow parties to contract out of the statutory proportionate liability regime, Queensland’s Civil Liability Act prohibits parties from making “express provision for their rights, obligations and liabilities under the contract” in relation to proportionate liability.

It has been suggested that it may still be possible to exclude proportionate liability in Queensland by drafting an exclusion clause whereby the parties agree that the person being indemnified owes no duty of care to the plaintiff in an attempt to circumvent s28 and 29, Chapter 2 of the Civil Liability Act which only applies when an action is brought that is concurrent and coextensive in contract and tort (negligence).

Have a question on interpreting contracts? 

Contact our client engagement team to make an appointment with one of our commercial litigation team today. Call (07) 3252 0011.

Helpful Links 

• How online contracts may contravene the Australia Consumer Law
• SAAS Contracts – A Plain Language Explanation of what they are and what they do
• Could contract frustration save your business from coronavirus? 
• I’ve received a contract. Do I need an employment contract lawyer? 

Footnotes

[1] Tort Law Reform, Law Council of Australia

Recovering land tax under commercial leases or retail shop leases

If you are a landlord or a tenant, and currently hold a commercial lease in Queensland, you may be impacted by the recent Queensland Court of Appeal decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225 (“Vikpro”).

The current state of the law is as follows:

• • If the lease was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If the lease was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.
  • Residential Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).
  • Retail Shop Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Retail Shop Leases Act 1994 (Qld).

The crucial statutory provision in the Vikpro decision was section 44A of the Land Tax Act 1915 (Qld) (the “1915 Act”) [which has been repealed and replaced by a largely equivalent provision in s 83A of the Land Tax Act 2010 (Qld)]. It provided as follows:

 44A               Provision to pay land tax etc. unenforcable

(1)                  A provision in a lease entered into after 1 January 1992 requiring a lessee to –

                     (a) pay tax; or

                     (b) reimburse the lessor for land tax;

                     is unenforceable.

In summary, the Queensland Court of Appeal in Vikpro determined that landlords could claim land tax from their tenants before 30 June 2010 (although this has now been reversed as of 22 June 2017, when the Revenue Legislation Amendment Act 2017 came into force, inserting a new s 83A into the Land Tax Act 2010 (Qld)).

This decision was based on an extensive consideration of the 1915 Act and how the subsequent amendments to that Act should be interpreted.

Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225

Facts of the case

The appellant (Vikpro) was a tenant and the respondent (Wyuna) was a landlord. In August 2006, the tenant had entered into a sub-lease of a property for a period of 70 years. There was a clause in the lease that required the tenant to “pay all taxes and rates in respect of the demised land”.[1] However, at the point in time when the lease was entered into, section 44A of the 1915 Act did not permit the recovery of the land tax.

Section 44A of the 1915 Act was repealed in 2009 by the Revenue and Other Legislation Amendment Act 2009. The following transitional provision inserted in the 1915 Act purported to continue to maintain the effect of section 44A:

“76                Application of previous s 44A

                      ‘(1) This section applies to—

(a) a lease (the pre-existing lease) to which previous section 44A applied immediately before the commencement; and

                             (b) a lease that arises from—

(i) a renewal under an option to renew contained in the pre-existing lease; or

(ii) an assignment or transfer of the pre-existing lease.

‘(2) Previous section 44A applies to the pre-existing lease and a lease mentioned in subsection (1)(b) despite its repeal by the amending Act, section 19.”

In 2010, the 1915 Act was repealed, and the Land Tax Act 2010 (Qld) (the “2010 Act”) came into effect. The 2010 Act contained transitional provisions, including:

“88                Application of this Act

                     (1) This Act applies to—

                        (a) a post-commencement liability; and

                        (b) an act or omission done or omitted to be done for this Act on or after 30 June 2010.

                     (2) This section applies subject to section 93.”

(Section 93 stated that references to unpaid land tax in part 7 of the 2010 Act, which deals with land tax recovery, would include the relevant pre-commencement liabilities.)

“89                Continued application of repealed Act

Despite its repeal, the repealed Act continues to apply to—

(a) a pre-commencement liability; and

(b) an act or omission done or omitted to be done for the repealed Act before 30 June 2010.”

“Post-commencement liability” was defined in section 86 as “a liability for land tax arising on or after 30 June 2010”. “Pre-commencement liability” was defined in section 86 as “a liability for land tax, within the meaning of the repealed Act, arising before 30 June 2010”.

The question the courts needed to answer was whether the transitional provisions in the 2010 Act “continued to preserve the operation of section 44A”.[2]

The Courts’ Decision

In the first instance, the primary judge concluded that the transitional provision did not preserve section 44A and the tenant was thus liable to pay land tax to the landlord.

The primary judge’s decision

The primary judge considered submissions by the tenant, who claimed that, per section 89(b) of the Land Tax Act 2010, the landlord’s entry into the lease was an “act…done…for the repealed Act before 30 June 2010”, so the 1915 Act continued to apply. The tenant also argued that they could, in the alternative, rely on sections 20(2)(b) and 20(2)(c) of the Acts Interpretation Act 1954 (Qld), which state:

“(2)                The repeal or amendment of an Act does not—

…

(b) affect the previous operation of the Act or anything suffered, done or begun under the Act; or

(c) affect a right, privilege or liability acquired, accrued or incurred under the Act…”

The primary judge rejected the argument relating to section 89(b) of the 2010 Act on the following basis:

1. On the assumption that the provision was meant to read “an act done for the purposes of the repealed Act,” which Her Honour felt was “less precise than, say ‘an act done pursuant to the repealed Act’”, the landlord’s entry into the lease could not be considered an act done for the purposes of the 1915 Act.[3]
2. In the 2010 Act, the legislature had not drafted any specific provision to preserve section 44A, indicating that there was “legislative intent that section 44A had no further application”.[4] Section 4 of the Acts Interpretation Act 1954 (Qld) allows the application of the Act to be revoked if there is evidence of contrary intention appearing in an Act. Her Honour was of the view that “the repeal of the 1915 Act and the failure to re-enact a transitional provision equivalent to s 76 of the amended Act showed a clear legislative intention to end the prohibition imposed by s 44A, displacing the application of s 20(2)”.[5]

The tenant’s arguments on appeal

The tenant submitted that both of the primary judge’s conclusions were in error, and that “by virtue of s 89(b), s 76 remained in effect, in turn preserving the s 44A prohibition”. The tenant argued that the word ‘for’ should be read broadly and that in s 89(b), “for” should “be read as a compendious form of “for the purposes of”.[6]

The tenant also contended that the 2009 amendments to the 1915 Act were intended to change the law for new leases while keeping the prohibition for existing leases.

The tenant submitted that if there was a discontinuation of the prohibition on the collection of land tax from tenants who were previously protected, there would be “a change to an ‘exemption’ and a ‘significant policy change’”.[7]

The tenant also argued that the effect of sections 20(2)(b) and (c) of the Acts Interpretation Act 1954 (Qld), was to keep s 76 alive in spite of the repeal.

The tenant also submitted that “it could rely on the presumption against the alteration of rights, which had equal application to statutory rights”.[8] In particular, the tenant relied on the fact that the High Court had restated the presumption on multiple occasions, including in a passage from North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015):[9]

“…the principle of legality favours a construction, if one be available, which avoids or minimises the statute’s encroachment upon fundamental principles, rights and freedoms at common law.”[10]

In addition, the tenant relied on the rule that words used in the same matter are to be construed together. As such, the tenant argued that the 1915 Act and the 2010 Act should be regarded as one system, so they should operate in the same way including reference to land tax.[11]

Appellate court’s decision

The appellate court rejected the tenant’s submission “as to the effect of s 89(b) in continuing the operation of s 76 and hence s 44A of the 1915 Act”.[12]

Holmes CJ rejected the proposition that the word “for” in s 89(b) was as broad as the tenant argued. Per Philip McMurdo JA, “A sufficient answer to each of the appellant’s arguments is that none could result in an extension of the scope of s 44A, such that it would apply not only to land tax under the 1915 Act but also to any similar tax imposed by a later enactment”.[13]

In a 2-1 split decision (Philippides JA dissenting), the appellate court upheld the primary judge’s conclusion.

The 2017 Amendments to the Land Tax Act 2010 (Qld)

On 22 June 2017, the Revenue Legislation Amendment Act 2017 came into force. It inserted a new s 83A into the Land Tax Act 2010 (Qld):

83A               Provision to pay land tax etc. on particular leases unenforceable

(1) This section applies to the following leases—

(a) a pre-existing lease;

(b) a lease that arises from a renewal under an option to renew contained in a pre-existing lease;

(c) a lease that arises from an assignment or transfer of a pre-existing lease.

(2) A provision in the lease requiring a lessee to pay land tax, or reimburse the lessor for  land tax, is unenforceable.

(3) In this section— pre-existing lease—

(a) means a lease entered into after 1 January 1992 and before 30 June 2009; and

(b) does not include a lease that arises from—

(i) a renewal under an option to renew contained in a lease entered into on or before 1 January 1992; or

(ii) an assignment or transfer of a lease entered into on or before 1 January 1992.

It also inserted a new pt 10, div 7, providing:

 Division 7      Transitional provision for Revenue Legislation Amendment Act 2017

100                Application of s 83A

(1) Section 83A is taken to have had effect on and from 30 June 2010.

(2) However, if a lessee of a lease to which section 83A applies has paid an amount of land tax, or paid an amount to the lessor for land tax, before the commencement, the lessee is not entitled, only because of the operation of section 83A, to recover the amount.

(3) Subsection (2) does not limit the grounds on which the lessee may otherwise recover an amount from the lessor for land tax paid in relation to the lease.

(4) Also, if a court has made an order requiring a lessee of a lease to which section 83A applies to pay land tax in relation to the lease—

(a) despite subsection (1), the lessor may enforce the order; and

(b) section 83A does not affect the enforceability of the order.

(5) In this section— land tax includes land tax levied under the repealed Land Tax Act 1915.

These changes had the effect of reversing the effect of the Court of Appeal’s judgment in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225. The new provisions applied on a retrospective basis, from 30 June 2010.

The practical application of the changes means that despite what the Court of Appeal held in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, landlords cannot claim land tax from their tenants in pre-existing leases before 30 June 2010, unless they have already done so in the timeframe between the Vikpro decision and the amendments to the Land Tax Act 2010 (Qld) on 22 June 2017, or if they have obtained a court order (in that same timeframe) which compels the tenants to pay land tax.

Legislative Background

A brief overview of the legislative changes and their flow-on effects can be found below:This date includes leases arising from an option to renew, an assignment or transfer of a pre-existing lease

How does this apply to me?

• • If you have a lease that was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If you have a lease that was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.

However, land tax cannot be recovered in retail shop leases under the Retail Shop Leases Act 1994 (Qld), or in residential leases under the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).

How Corney & Lind Lawyers can help

Our team of experienced commercial lawyers here at Corney & Lind Lawyers can assist you if you have questions relating to the recovery of land tax under commercial leases. Call our Client Engagement Team on 07 3252 0011 or email us today to make an appointment.

[1] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [1].

[2] Ibid.

[3] Ibid, per Holmes CJ at [7].

[4] Ibid.

[5] Ibid.

[6] Ibid, per Holmes CJ at [8].

[7] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [9].

[8] Ibid, per Holmes CJ at [13].

[9] [2015] HCA 41.

[10] Ibid, at [11].

[11]Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [14].

[12] Ibid, per Holmes CJ at [19].

[13] Ibid, per Philip McMurdo JA at [41].

Other related articles

https://corneyandlind.com.au/resource-centre/is-your-commercial-lease-or-retail-shop-lease-incentive-inducement-subject-to-gst/

When Can a Buyer Terminate an Off-the-plan Contract?

When a buyer enters into an off-the-plan contract to purchase a particular lot in a community title scheme, years may pass before the development is completed, title created and able to be transferred into the buyer’s name.  During this time, market conditions may change, building schedules may be extended, or it may become apparent that the finished product will be something quite different from what a buyer had originally contracted for.  Generally it has proven very difficult for buyers who have changed their mind to get out of these contracts.

However, there are limited grounds upon which a buyer may be able to terminate an off-the-plan contract namely:

• • Misleading and deceptive conduct;
  • Failure to disclose;
  • Changes / Variations to the disclosure statements; and
  • Developers failing to complete construction before the sunset date.

When a buyer desires to terminate an off-the-plan contract, they should promptly seek legal advice as to their options.

Misleading and Deceptive Conduct

A buyer may be able to rely on the Australian Consumer Law and terminate a contract if they were induced to enter the Contract as a result of misleading or deceptive conduct on the part of the Seller. The difficulty for buyers in alleging such behaviour is that the situation can often turn into a “he said, she said” argument.

Nevertheless, it is not impossible for a buyer to be successful in terminating a contract on such grounds as seen in the case of Nifsan Developments Pty Ltd v Buskey.[1] The Buyers in this case had communicated to the developer’s agent that they were seeking to purchase a Gold Coast apartment with unrestricted views. The Buyers subsequently entered into a contract to purchase a penthouse apartment from the developer after its agent confirmed that the views from the penthouse would be uninterrupted. However, the Buyers later found out that the developer had sought approval to develop a separate building in close proximity to their apartment which would limit the Buyer’s view. Relying on s 52 and 53A of the Trade Practices Act 1974 (Cth) (since superseded by the Competition and Consumer Act 2010 (Cth)), the Buyers were successful in having the contract declared void and obtaining a refund of their deposit.

The court formed the view that the misleading representations made by the sales agent induced the Buyers to enter into a contract with they otherwise would not have entered. It is worth noting that this case seemed to turn on the issue of credibility, with the judge viewing the buyer’s recollections as “generally reliable” as opposed to those of the sales agent whose evidence was viewed as “not convincing”.

Failure to Disclose

A buyer has the right to terminate an off-the-plan contract prior to settlement (within certain prescribed time limits), if the seller has not provided the buyer with a disclosure statement in the prescribed form.

If a substantially complete disclosure statement is provided, a buyer may still be able to terminate the contract prior to Settlement if it is later revealed that the statement contains inaccuracies. In such circumstances the Body Corporate and Community Management Act 1997 (Qld) allows a buyer to terminate if they would be “materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate”. Additionally, any buyer purporting to terminate must do so in writing, within the requisite time period.

When considering whether a “material prejudice” exists, the courts will consider the buyer’s specific circumstances from an objective point of view. In Gough v South Sky Investments Pty Ltd,[2] a group of buyers had each contracted to purchase a luxury Gold Coast apartment in a ‘residential tower’ called ‘The Oracle’. The contracts were entered into in 2005-2006, after which the value of luxury apartments in the area began to decline. In 2010, SSI advised the buyers that the ‘residential tower’ in which lots had been purchased would in fact function as a hotel/resort, and would be branded as ‘Peppers Broadbeach’. As a result, some buyers claimed that they would suffer material prejudice if they were forced to complete their contracts for a myriad of reasons, including:

• • That their lots would decrease in value because of the Peppers branding and the operation of a hotel/resort by Peppers;
  • That it would be more difficult for them to rent their lots, or appoint an off-site letting agent because of the hotel/resort being operated;
  • That the operation of a hotel/resort that focused upon short-stay tenants was likely to accelerate the deterioration of common property.

Ultimately, the court found that the buyers did not provide evidence to prove that the branding of the tower as ‘Peppers Broadbeach’ had an adverse effect upon the value of their apartments.  As a result, they were unable to prove that they would be materially prejudiced if forced to complete the Contract.

Sunset Dates

The sunset date in an off-the-plan contract is a date in the future (usually between 12 and 36 months from the date of contract) within which the Developer must complete the construction of the property and have the Community Titles Scheme established (and title to the lot to be purchased created).

Section 217B of the Body Corporate and Community Management Act 1997 (Qld) also provides buyer’s with a right to terminate an off the plan contract if the Seller does not settle the contract by the statutory sunset date. When a contract does not specify a sunset date, the seller must settle the contract within 3.5 years after the day the contract was entered into by the buyer (unless otherwise agreed by the parties). Importantly, a buyer will only be able to terminate after the expiry of the sunset period if they are not in default under the Contract. This means for example, that where a vendor is ready, willing and able to provide a registrable instrument of transfer, a buyer cannot simply refuse to attend at settlement, wait for the sunset period to expire, and then terminate their contract without consequence.

Contact us

If you have any questions relating to off-the-plan contracts, contact our Client Engagement Team and they will book you an appointment with one of our property lawyers. Call us today on (07) 3252 0011.

[1] [2011] QSC 314.

[2] Gough v South Sky Investments Pty Ltd (recs and mgrs apptd) (in liq) [2011] QSC 361

Other related articles

https://corneyandlind.com.au/resource-centre/failing-to-settle-off-the-plan-contracts/

https://corneyandlind.com.au/resource-centre/buying-and-selling-units-off-the-plan/

https://corneyandlind.com.au/resource-centre/off-the-plan-contracts/