Is a contract for the sale of residential land a ‘consumer contract’? Is condition 24.6(d) of the 2011 Joint Form of General Conditions unfair?

In the case of OPR WA Pty Ltd v Marron¹ the Supreme Court of Western Australia:

• determined that a sale contract for the acquisition of residential land for investment purposes or any other purpose other than for domestic use, is not a ‘consumer contract’ for the purpose of the Australian Consumer Law (ACL); and
• was not satisfied that condition 24.6(d) of the 2011 Joint Form of General Conditions for the Sale of Land (General Conditions) would cause a significant imbalance in the parties’ rights and obligations arising under the contract.

The facts

OPR WA Pty Ltd (Seller) and Wayn Marron (Buyer) are parties to a contract for the sale and purchase of property in Bassendean, Western Australia, which incorporated the General Conditions (Sale Contract).

Under the Sale Contract:

• the purchase price for the property was $515,000;
• a deposit of $51,500 was payable within 7 days of the contract date; and
• the settlement date was to be 28 days after Landgate issued a duplicate certificate of title for the property.

Landgate issued the certificate of title for the property on 5 April 2016.  The settlement date was 3 May 2016. The Buyer failed to complete settlement by 3 May 2016. 

By letter dated 5 May 2016 from the Buyer to the Seller, the Buyer repudiated the Sale Contract.

On 6 May 2016 the Seller served a notice of default on the Buyer requiring the Buyer pay to the Seller the balance purchase price within 10 business days of service of the default notice.  The Buyer failed to do so by the due date or at all.

On 27 May 2016 the Seller issued a notice of termination of the Sale Contract on the Buyer, relying on the Buyer’s failure to comply with the default notice and the Buyer’s repudiation.

The issues

The Seller commenced court proceedings against the Buyer claiming damages, interests and costs.  In defence, the Buyer claimed (among other things) that:

• if the deposit were to be released to the Seller, there is a real risk that the Seller would rely on clause 24.6(d) of the General Conditions, that upon the resale of the property within 12 months, the seller would keep the entire deposit and any excess of that deposit, after taking into account the costs and expenses of resale. Thus, the Seller had the potential to receive a windfall of up to $51,500; and
• clause 24.6(d) of the General Conditions is unfair, void and should be set aside as an unfair contract in accordance with the ACL.

The decision

Consumer contract

Part 2 – 3 of the ACL is a statutory exception to the freedom of contract approach of the common law.  However, insofar as this case is concerned, it only applies to standard form ‘consumer contracts’. 

A consumer contract is a contract for a supply of goods or services or a sale or grant of interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominately for personal, domestic or household use or consumption.

The Buyer failed to file any evidence to disclose the Buyer’s purpose of acquiring the property and as a result could not prove to the Court that the acquisition of the property was wholly or predominately for personal, domestic or household use.  The Court said that it was not possible to conclude that the Sale Contract was a consumer contract ‘for personal use (and not for investment or other purposes)’.

Unfair

The Court also determined that clause 24.6(d) of the General Conditions was not ‘unfair’ under the ACL. A consumer contract is ‘unfair’ if (among other things) it would cause a significant imbalance in the parties’ eight and obligations arising under the contract.  The Court took into account the extent to which the clause 24.6(d) of the General Conditions was transparent and the Sale Contract as a whole in making its decision.

The Court said that clause 24.6(d) of the General Conditions is ‘transparent, in that is it expressed in reasonably plain language, legible, presented clearly and readily available to the party affected by it’.  In particular, the Sale Contract clearly stipulated that:

• if the Sale Contract had completed then the deposit would have been counted towards the purchase price; and
• if the Sale Contract was terminated as a result of the buyer’s default, than there is a risk of forfeiture of the deposit and in some circumstances, an ‘excess’ being kept by the seller upon resale, after taking into account the costs and expenses of the re-sale and the amount of the deposited which has been forfeited.

Lavan comment

The implications of this decision include:

• A contract for the acquisition of residential land for investment purposes is not a “consumer contract” for the purposes of the ACL.
• Contracts that are drafted using clear, simple and plain language have a much better chance of withstanding claims under the ACL.
• Since the contract in this case was entered into, the unfair contracts provisions of the ACL have been extended to small business (see our update “The new amendments to Unfair Contract Terms legislation will apply to commercial and retail leases”). However, the Court’s finding in relation to condition 24.6(d) of the General Conditions would apply in the context of transaction with a small business.

 [1] OPR WA Pty Ltd v Marron  [2016] WASC 395