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HG Alert: More PAMD Act uncertainty for sellers - 18 Sep 2009

The recent District Court case of Rice v Ray [2009] QDC 275 highlights the urgent need for reform of the provisions of the Property Agents and Motor Dealers Act 2000 (PAMD Act) regulating the giving of warning statements and directions in relation to sales contracts for residential property.

The case involved two offers made by a buyer on the same day to purchase a property located on Hedges Avenue (on the Gold Coast). The first offer was made at 11.45am on the relevant day. The offer comprised a contract signed by the buyer including the relevant PAMD Form 30c Warning Statement (Warning Statement), and provided for a purchase price of $8.5 million, with certain offsets to the purchase price relating to a ‘swap’ of properties between the buyer and the seller. Evidence before the court showed that the buyer was given a direction in the form required by the PAMD Act before the buyer signed the contract. The buyer’s offer was rejected by the seller.

A second offer was made by the buyer at 5.00pm on the same day. The same documents that the buyer had signed earlier that day were presented to the buyer by the seller’s agent. However, the original reference schedule of the contract had been replaced with a new reference schedule, showing a reduced purchase price of $7.5 million, and a new special conditions page had been inserted, which amended the amount only of the offsets to the purchase price relating to a ‘swap’ of properties between the buyer and the seller.

Both new pages were initialled by the buyer, but the other pages of the contract remained unchanged. The evidence before the court showed that the buyer did not re-sign the contract or the Warning Statement. In addition, it was clear to the court that no pre-signing direction was given to the buyer at the time the buyer initialled the amended contract. The amended offer was accepted by the seller.

A matter of days after the second offer was accepted, the buyer apparently changed her mind about the transaction and purported to withdraw her offer for the purchase of the property. She argued that she was not bound by the contract on the basis that:

  • the Warning Statement attached to the contract was of no effect on the basis that it was a Warning Statement relevant to the first (unaccepted) offer, and that there was therefore no effective Warning Statement for the contract which was the result of the second offer; and
  • no pre-signing direction was given to the buyer in relation to the second offer.

The judge agreed with the buyer’s arguments and said “In my view there were clearly two separate, albeit related, contractual situations involving the first offer, and later, the second offer. There was not the one evolving offer which morphed into the relevant contract. There were two offers and in the case of each, the seller and his agent were required to comply with their various statutory obligations.

In relation to signing the Warning Statement, the judge found that the Warning Statement that was signed by the buyer related to the first offer and not to the second offer. In relation to the pre-signing direction required under the relevant provisions of the PAMD Act, the judge found that while it was given in relation to the first offer, that direction could not be said to have relevance to the second offer.

The court concluded that the buyer was entitled to withdraw from the purchase at any time and had done so validly, and ordered the return of the $250,000 deposit to the buyer.

An appeal has recently been filed by the seller and we await the result of the appeal with interest. In the meantime, the case has raised some uncertainty about those situations in which a contract is the subject of a course of negotiation between a buyer and seller, particularly where amendments are made to a contract which has been signed by a buyer.

The judge recognised that in some circumstances, there may be an evolving offer which ‘morphs’ into a contract. Many people would be familiar with circumstances in which a contract signed by a buyer is subsequently amended by a seller and returned to the buyer for acceptance. It is unclear whether this is the metamorphosis to which the judge was alluding. For the moment it would be prudent for a seller to ensure compliance with PAMD Act requirements in relation to any variation to a proposed contract, no matter how minor that variation may be.

This case and other recent cases have highlighted the difficulties faced by sellers of residential property in entering into valid and enforceable contracts for sale. It is apparent that the overly technical requirements of the existing legislation can be used as a weapon by buyers who wish to escape contracts simply as a matter of convenience, rather than on the basis of any prejudice flowing from the non-compliance.

When the issue of enforceability of contracts was recently called into question in relation to off-the-plan developments in the Bossichix case, the government acted quickly to legislate to resolve the uncertainty. It is suggested that a similar need for legislative reform exists in relation to the uncertainty regarding contract formation created under the existing PAMD Act regime.

For more information on this case or the Property Agents and Motor Dealers Act 2000, please contact HopgoodGanim’s Commercial Property team.