Allens

Real Estate

Client Update: Brisbane floods – the silver lining for unit purchaser

26 August 2011

In brief: A recent Queensland Court of Appeal judgment is a timely reminder of some legislation's unintended consequences. Partner Tony Davies (view CV) and Lawyer Mark Steele report.

Facts

Mrs Dunworth contracted to buy a unit in a Mirvac residential apartment development at Tennyson, Brisbane. The purchase price was $2.55 million. Settlement was due on 11 May 2009; however, Mrs Dunworth brought proceedings against Mirvac claiming her contract should be declared void for misleading and deceptive conduct (connected with the height of the apartment above the existing development site and related matters). On 10 December 2010, Mrs Dunworth's claim was dismissed and an order was made for specific performance, requiring completion of the contract on 8 February 2011.

On 13 January 2011, the unit in question was damaged in the Brisbane floods and rendered unfit for occupation. Accordingly, Mrs Dunworth purported to terminate the contract on 20 February 2011 based on section 64 of the Property Law Act 1974 (Qld).1 Briefly, that section provides that in any contract for the sale of a residence, if before the date of the completion, the residence is rendered unfit for occupation, the buyer can terminate the contract. This case is the first decision on s64, so the result was anxiously awaited.

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The decision

The court agreed with Mrs Dunworth and ordered that she had validly terminated the contract. It held that the words of s64 were clear – if the residence was unfit for occupation by the date of completion (in this case set by the court), the section gave Mrs Dunworth the right of termination.

Mirvac's counsel had submitted that if the buyer could terminate under s64, the buyer was benefitting from her own wrong-doing (that is, she failed to settle on the original due date, and, as a result had the additional benefit of s64). Aside from the 'clear words' position, the court said:

  • Mrs Dunworth had still suffered the consequences of her earlier breach of contract, ie she was subject to a specific performance order. The subsequent flood damage was not her fault and the benefit she received was just a 'consequence of the operation of remedial legislation'.
  • The likelihood of a buyer deliberately delaying settlement to get the benefit of s64 was an 'extreme possibility'.

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Lessons

The particular circumstances of the case are most unusual, with a defaulting buyer obtaining the benefit of an intervening natural disaster. However, it does emphasise the importance of developers considering whether they should pursue an application for a specific performance of a contract, or terminate a contract and sue for loss or damage. In this case, if Mirvac had terminated the contract and sued for loss, it would have been entitled to forfeit the deposit and claim a loss on resale. With hindsight, that would have been a far preferable result for Mirvac.

Footnotes
  1. Dunworth v Mirvac ([2011] QCA 200).

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