Buyer’s Beware: Is the selling agent an agent for all purposes? – Tan v Russell [2016] VSC 93

Legal Issue

A recent decision in the Victorian Supreme Court examined whether the Plaintiffs, Tan and Lo, validly exercised their cooling off rights to terminate a contract for sale in circumstances where the notice was served on the vendor’s selling agent.

Practical Effect of Decision

The case illustrates the importance of knowing, prior to entering into a contract for sale:

  1. the scope of authority of the real estate agent, including whether the agent is able to accept notices under the contract; and

  2. the requirements for the service of notices to be valid,

and serves as a warning that buyers should not assume that a real estate agent or other person is an agent for the vendor for all purposes.

Facts

The specific facts of the case are that the Defendant, Russell had engaged Marshall White Real Estate to sell his property in Richmond. In 2014, Tan and Lo made an offer to buy the property. They paid a deposit and signed the contract. The offer was rejected by Russell. Russell then advised Tan and Lo that there was another interested party and proposed that a “private auction” be held for the property. On 4 April 2014, the “private auction” was held, and the Plaintiffs, Tan and Lo agreed to purchase the property for a higher price than their initial offer. The contract was amended and signed by the Defendant, Russell.

On 9 April 2014, Tan sent an email to Russell’s real estate agent, Gibbons, advising that the Plaintiffs wished to exercise their cooling off rights and withdraw from the contract for sale. That same day, a text message was sent by Tan to the agent confirming the same. Tan also phoned and left a voicemail message for the agent. Notably, under s 31(2) of the Sale of Land Act 1962 (Vic), the purchaser retained their cooling-off rights because the sale was by “private auction” and not by “publicly advertised auction”.

On 1 July 2014, Russell’s solicitors served a notice of default on Tan and Lo. This notice was not complied with by Tan and Lo and Russell therefore claimed that the contract was rescinded [Note: in NSW, we would say terminated] and Russell proceeded to sell the property to another party.

A key question the Court considered was whether the agent was considered the agent of Russell for the purposes of receiving a notice of termination [Note: in NSW, this would be a notice of rescission] arising out of the exercise of Tan and Lo’s cooling-off right to terminate. Russell contended that the agent’s role was merely “confined to a marketing and sale mandate” and that the agent did not have authority to receive a termination notice.

Court Findings

The Court agreed with Russell, that the agent did not have the authority to receive the notice of termination. It further agreed with Russell’s contention that the meaning of “vendor” in the Sale of Land Act 1962 (Vic), includes an agent of the vendor but went further to clarify that, “there is nothing in Russell’s conduct which suggests that Gibbons (the selling agent) had any authority beyond that to market and sell the Property”.

The Court also held that Tan and Lo mistakenly assumed that by communicating to Russell’s real estate agent, they had sufficiently exercised their right to terminate. In doing so, the Court took into account that neither Tan or Lo took any steps to obtain the details of the Defendant in order to properly serve the notice of termination nor any steps to investigate whether the selling agent could in fact accept the notice as a valid notice of termination.

The Court concluded that Tan and Lo did not validly terminate their contract and as a result, it was ordered that Tan and Lo pay:

  1. the residue of the deposit (being $98,000);

  2. the loss on resale of the property at $4.07 million (short of the $4.48 million which was the contract price);

  3. the costs incurred in respect of the resale of the property (including the cost of a sworn valuation) and liquidated damages; and

  4. interest and costs.

[Note: Both the Victorian Legislation and the Courts have used each of the terms “rescission” and “termination” to mean, effectively the other as they would normally be used at common law or in NSW Legislation]

For further information on anything in the above article, please contact Mike Ellis or Danny Papadimatos on (02) 9261 5900.