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  NSWCA 269. The case concerned a contract for the sale of land which the appellant argued was void for illegality.
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:
- that the appellant vendor had a right to rescind the contract and simultaneously enter into a new contract on identical terms; and
- 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 :
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
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Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil  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  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  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.
Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution)
T: +61 2 8083 0477
Cameron Sheather, Partner - Planning, Property & Environment
T: +61 2 8083 0461
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