Clause and Effects – Costly Court Case, Commission Lost and a Solicitor Sued

[Author – Tim ODwyer]

Two years ago this month Don and Elsie Luxton, an elderly couple, successfully escaped an apparently binding contract for the sale of a vacant acreage block.  They had earlier agreed to sell the property to Shaun and Sheree Johnson, a young couple, who planned to convert it into a mountain-bike park.Contract Clauses Made Simple

Luxtons’ agent prepared the contract dated 28th November 2005, with settlement in 60 days, subject to this two-part special condition:

(a)        This contract is conditional upon the buyers entering into a binding contract on terms satisfactory to them for the sale of their existing property within 30 days from the date hereof, failing which this contract will be at an end …

            (b)        In the event that subparagraph (a) is satisfied, this contract is subject to settlement of the sale of the buyers property by the settlement date hereof.

Luxtons decided afterwards that they had sold too cheaply, and would cancel if Johnsons could not secure their prior sale in time.

Meanwhile, with that 28th December deadline approaching and no buyers in sight for their property, Johnsons applied to their bank for bridging finance.  The bank gave its approval late in the afternoon of Friday 23rd December, the last business day before Christmas.  Johnsons immediately tried to contact their conveyancing solicitor, but he had closed his office at midday.  They tried again unsuccessfully on Wednesday 28th December , the first business day after the Christmas and Boxing Day public holidays.  This solicitor not only neglected to tell Johnsons his office would close over the Christmas New Year period, but also failed to make any arrangements regarding their special condition which fell due inbetween.   Of course when the contract was signed neither Johnsons, Luxtons nor the agent considered the impact of the holiday season on the due date.  Nor did either party bother consulting a solicitor for advice at that time.

Johnsons were anxiously waiting outside their solicitor’s office when he returned to work on Tuesday 3rd January 2006, the first business day after the New Year’s holiday.  You are out of time, he said, but we’ll just waive the special condition.  And he promptly faxed Luxtons’ solicitors notice of this waiver intending to now make the contract unconditional.  Two days later those solicitors faxed back that the contract “came to an end” on 29th December – by virtue of the special condition.    Johnsons promptly changed solicitors.  A robust exchange of lawyers’ letters followed, but Luxtons stood firm.  The deal was off.

Johnsons then sued Luxtons to enforce the contract.  Both parties, through their solicitors, applied for Summary Judgment in the Supreme Court but the Judge declined to answer the critical legal questions involved and dismissed both applications.

Johnsons remained keen to get the land.  Relying on solid legal advice, they lodged an appeal.  After hearing both sides’ arguments and considering an array of conflicting precedents, the  Appeal Court ruled – with one judge dissenting – that Johnsons might have been able to waive the benefit of the special condition before it expired and make the contract unconditional.  But not after.  Despite what was agreed in the condition (which the agent copied from a book of clauses obtained from the Real Estate Institute) the contract did not automatically terminate.  The Court held that, in a situation such as this, sellers have an interest in being able to free themselves from a contract “after the expiration of a period of uncertainty of which the purchasers have taken advantage.”  Luxtons had effectively and validly terminated the contract.

Johnsons thought the law was an ass, paid Luxtons’ appeal costs, took more high-powered advice and sought leave to appeal again – to the High Court.   Their lawyers’ view was that the Appeal Court got it wrong.

With the stakes (and risks) rising, Luxtons’ soon proposed a settlement.  Johnsons should drop the High Court appeal, both parties bear their own costs and Luxtons would sell to Johnsons under a fresh contract – but for a higher price.  Johnsons readily agreed, having recently secured a good-priced contract for the sale of their home.  Both sales completed within weeks with no agents involved.

Johnsons are now planning their mountain-bike park while suing their original solicitor for negligence.  Luxtons’ agent is chasing his unpaid commission.

(Real names are not used in this article which appears in this month’s Australian Property Investor magazine.)

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