On 23 October 2017 the New South Wales Court of Appeal handed down its decision in REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd [2017] NSWCA 269. The case concerned a contract for the sale of land which the appellant argued was void for illegality.

Facts

The appellant entered into a contract to sell a lot in a subdivision at Schofields in western Sydney to the respondent. The contract stipulated the purchase price was $485,000, with a deposit of $250,000 to be paid. Two special conditions in the contract provided:

  1. that the appellant vendor had a right to rescind the contract and simultaneously enter into a new contract on identical terms; and
  2. for a price reduction of $235,000 (being the balance of the purchase price) to be made at settlement provided that the purchaser respondent met all obligations under the contract by that time.

Following disagreements between the parties, the respondent commenced proceedings for specific performance of the contract. In response, the appellant filed a defence arguing that the contract was void for illegality because the special condition allowing the vendor to rescind the contract and simultaneously enter into a new one meant the contract had been entered into “for the express purpose of avoiding stamp duty”. Following this, the respondent paid to the Office of State Revenue the full amount of stamp duty payable plus the required interest.  

Judgment at first instance

The appellant contended that the contract was unenforceable because it was “associated with or in furtherance of illegal purposes” (rather than contending that the contract breached a statutory provision, that its making was prohibited by statute or that its performance would involve any act prohibited by statute).

Darke J, the judge at first instance, rejected the appellant’s illegality defence. While his Honour accepted that the primary purpose of the contracts and deeds between the parties was to avoid any immediate liability for stamp duty, his Honour found that the respondent always intended to eventually pay the stamp duty. As such, the contract was not in the furtherance of illegal purposes.

The appellant also submitted that the respondent should be refused equitable relief based on its lack of clean hands. The Court rejected this argument. Although his Honour found there were “aspects of the conduct of [the appellant] in relation to this transaction which are less than satisfactory” including “the backdating of documents to avoid an immediate liability for stamp duty”, Darke J took into account the fact the respondent was guided by lawyers, always intended to pay the required stamp duty and did in fact pay the stamp duty. The Court ultimately found that the contract should be specifically performed.

Judgment on appeal

The appellant revised its argument on appeal to an allegation that the purpose of entry into the contract was to delay the payment of stamp duty (rather than avoid it altogether). The Court held that where a contract cannot be performed in any way other than illegally, it will be unenforceable. However, because the respondent could have chosen to pay the required stamp duty in accordance with the Duties Act 1997 (NSW), the contract was able to be performed lawfully and was therefore not unenforceable. 

Furthermore, the Court held that the relevant stamp duty and taxation legislation does not expressly provide that an agreement made for the purpose of avoiding stamp duty is unenforceable. Macfarlan JA held at [24]:

That the legislature stopped short of providing the sanction of unenforceability is a powerful indication that it did not intend that outcome to eventuate, even by implication. In my view (and that of the primary judge) a finding of unenforceability would not be congruent with the statutory scheme.

Ultimately the Court dismissed the appeal, holding that the primary judge was correct in finding that the respondent should not be denied an order for specific performance of the contract.

Editorial: Eleanor Grounds

In the media

MBA: Boost for Residential and Commercial construction in latest approvals data
Total dwelling approvals increased by 0.2 per cent, seasonally adjusted, in September 2017, adding an eighth consecutive month of positive growth in residential approvals. The data supports Master Builders Australia's expectation of a moderate easing in residential construction activity leading into 2018 and our forecast that the trough will be relatively short lived (02 November 2017).  More...

Four in ten construction invoices paid late
Four in 10 invoices throughout the building and construction sector in Australia are paid late, a new survey suggests. In its latest analysis of late payments in Australia, debt ratings agency Dun & Bradstreet said that throughout the second quarter of this year, only around 60 per cent of invoices with the building and construction sector were paid either on or before the due date (01 November 2017).  More...

1980s house upgrades to drive a decade of home renovations boom
Australia’s home renovations sector is expected to expand by almost three billion dollars over the next three years and provide significant opportunity over the next decade as homes built during the boom times of the 1980s are updated and refurbished, a leading industry group says (30 October 2017).  More...

Five year national productivity review released
The report, Shifting the Dial: 5 year productivity review, proposes reforms to improve the functioning of cities, such as better transport infrastructure and improved access to housing which would also improve labour mobility within cities. The review states that despite changes over the last five years, there have been continuing instances of poor, very costly, decisions, including the  current WestConnex (Sydney) and West Gate Tunnel (Melbourne) projects (27 October 2017).  More...

Sydney’s developers and builders on notice to get their site right
Almost two thirds of Sydney local government areas will be targeted in the next ‘Get the Site Right’ erosion and sediment control campaign, which began on 1 November (26 October 2017).  More...

$113m funding boost for infrastructure to fast track housing supply
A boost of $113 million funding boost to accelerate the delivery of vital infrastructure to support new homes in NSW was announced today by Minister for Planning and Housing Anthony Roberts (24 October 2017).  More...

Grattan Institute: If we want cheaper housing we have to build more of it: submission to the NSW housing supply inquiry
NSW housing has become increasingly expensive, especially in Sydney.  In this submission, Grattan CEO John Daley, Fellow Brendan Coates and Associate Trent Wiltshire argue that the first step to making NSW housing more affordable is to face up to the size of the problem (26 October 2017).  More...

Published

Australian Bureau of Statistics
02/11/2017: Building Approvals, Australia, Sep 2017 (cat no. 8731.0)

ACI Construction Briefs
23 October 2017: ACI Construction Brief: Another Energy Policy

Our Greater Sydney 2056: draft Greater Sydney region plan
Greater Sydney Commission: 20 October 2017
This draft plan is built on a vision where the people of Greater Sydney live within thirty minutes of their jobs, education and health facilities, services and great places.  More...

Practice and courts

Registration is now open for the 2018 NCC Information Seminars
In February and March 2018, a representative from the ABCB will be coming to a capital city near you. Don't miss out on your opportunity to hear about the following BCA initiatives: NCC 2016 Volume One amendment addressing fire safety; NCC 2019 public comment draft; The improved CodeMark scheme; and The practical development and assessment of Performance Solutions (23 October 2017).  More...

NSW BPB: ‘Get the Site Right’ campaign this month to reduce building site erosion
‘Get the Site Right’ is an ongoing compliance campaign targeting erosion and sediment control on building sites (02 November 2017).  More...

NSW BPB: Read our September/October 2017 e-news
A regular digest of work by the Board, legislative updates, events, training and consultation opportunities (25 October 2017).  More...

NSW BPB: Strata building bond scheme now commences 1 January 2018
The new strata building bond and inspection scheme will now commence on 1 January 2018.  More...

Cases

Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil [2017] NSWCATAP 209
APPEAL - unenforceable residential building contract - s7 Home Building Act 1985 (NSW) - breach of contract - quantification of quantum meruit claim by builder - damages awarded less amount owed to builder - New evidence.

REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd [2017] NSWCA 269
CONTRACTS – illegality – contracts contrary to public policy – whether contract was one to commit an unlawful act, namely to delay the payment of stamp duty – consideration of the circumstances in which a court may enforce a contract even if its formation or performance is associated with illegal purposes – Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 – Nelson v Nelson (1995) 184 CLR 538.  EQUITY – equitable remedies – specific performance – whether respondent should be denied an order for specific performance of a contract for sale on the ground of illegality of the contract.  EQUITY – defences – unclean hands – whether conduct disentitling respondent to relief – Dewhirst v Edwards [1983] 1 NSWLR 34 – respondent’s supposed impropriety was incidental or collateral to the contract – respondent’s impugned conduct had ceased – primary judge was correct in rejecting the defence.  

Jankovic v Chandershekar [2017] NSWCATAP 193
APPEAL – Costs – Adjournment of hearing – Order for costs thrown away – Whether leave to appeal.


Contacts:

Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Cameron Sheather, Partner - Planning, Property & Environment 
T: +61 2 8083 0461 
E: cameron.sheather@holdingredlich.com

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