High Court to re-examine the law regarding the enforceability of Sale of Land Contracts not evidenced in writing, and the Doctrine of Part Performance

Published 11 Sep 2017
Dominic Maley

On 18 August 2017 a Special Leave application was heard by Nettle & Gordon JJ in the matter of Pipikos v Trayans [2017] HCATrans 164. Special Leave was granted and we now await a hearing in front of the Full Bench of the High Court.

• The law regarding the enforceability of Sale of Land Contracts not evidenced in writing, and the Doctrine of Part Performance

While contracts can ordinarily be oral, statute requires that land contracts (including dispositions in land, such as leases) be evidenced in writing in order to be enforceable.

This statute was originally implemented in England as the "Statute of Frauds". In NSW, that provision is found in Section 54A of the Conveyancing Act.

If the land contract is not evidenced in writing, it can still be enforced if it has been "partly performed".

This law is now set to be re-examined by the High Court in the case of Pipikos v Trayans. This case involves the South Australian equivalent of the Statute of Frauds and section 54A of the Conveyancing Act.

This article should be read in conjunction with our previous article from 2 November 2016.

http://www.maclarens.com.au/News-1410-When-will-a-land-contract-be-binding-without-being-evidenced-in-writing-Part-performance-2c-estoppel-2c-and-the-NSWCA-taking-a-walk-down-old-Waltons-Stores-(Interstate)-Ltd-v-Maher-lane.aspx

That article also covers the law of estoppel. Estoppel was not pleaded in Pipikos, and accordingly that doctrine will not be re-examined by the high court.

Pipikos at first instance: the District Court

Mr Leon Pipikos is the brother-in-law of Ms Velika Trayans. Ms Trayans was, at the time the relevant properties were purchased, married to Mr Pipikos' brother George.

As can be quite common, Mr Pipikos and his brother George frequently carried out transactions between each other, for "cars, money and land", without ever making or keeping any records.

Ms Trayans had a "somewhat unsophisticated understanding of financial matters" and would be "directed" by her then-husband George, and "sign papers … at his request".

- The Clark Road Property

George's then-wife, Ms Trayans, is the sole registered proprietor of a house in Clark Road, Virginia, South Australia, having bought the property in 2002. Whilst the property remained always in her name, a further loan (secured by this property) was advanced to both her and her husband which they used to assist the purchase of the "Taylors Road Property".

- The Taylors Road Property

In early 2004, George and Mr Pipikos entered into a contract to purchase a nearby property as Taylors Road for $299,500. Mr Pipikos and his wife and George borrowed $238,803. Mr Pipikos and his wife contributed half of the balance. George and Ms Trayans contributed the other half via a refinance of Ms Trayans' Clark Road property. Only Mr and Mrs Pipikos and George ended up on title to the Taylors Road property.

- The Penfield Road property

About mid-2004 the two families found a third property for sale at the nearby Penfield Road for $260,000. Mr and Mrs Pipikos and George and Ms Trayans all borrowed $197,261. The balance and associated costs of $74,883.62, however, were covered entirely by Mr and Mrs Pipikos. All four became registered proprietors.

George and Ms Trayans continued to live at Clarke Road. They handled all outgoings and mortgage repayments.

By 2009 the mortgages for Clarke Road and Penfield road were in arrears.

On 3 August 2009, the Mr Pipikos met with Ms Trayans and Ms Trayans signed a contentious document, which stated:

"I Velika Trayans of Lot 2 – 119 Clark Road Virginia SA 5120, agree that Leon Pipikos is the owner of half the land on the above stated property via an agreement between George Pipikos and Leon Pipikos of the purchase of Penfield Road Virginia property."

Her Honour Judge McIntyre would find two fatal flaws with this. First, it refers to George and Leon – not herself. Second, there is no mention of promise/consideration, nor price, making it insufficient in Her Honour's view to satisfy the Statute of Frauds writing requirement.

In November 2009 Mr Pipikos paid $5,500 towards the Penfield Road property, and the next month paid $2,500 towards the mortgage for Ms Trayans property at Clarke Road. The purpose of these payments was also in contention.

In 2012 Mr Pipikos lodged a caveat over the Clarke Road property.

Ms Trayans sought to have the caveat removed, and Mr Pipikos commenced the current proceedings.

Ms Trayans had split from George and as part of the property settlement had taken over George's interest in the three properties.

- The Alleged Contract

Mr Pipikos alleges in 2004 he has reached an agreement with Ms Trayans to buy a half share in the Clarke Road property (land only, without the house) from Mrs Trayans for $45,000, which would help Ms Trayans and her then husband purchase their interest in the Penfield Road Property. Out of the $45,000, there was $8,000 left over which Mr Pipikos paid to George in cash on Ms Trayans' behalf. Ms Trayans accepts that $37,441.81 was loaned to her to help her (and George) with the Penfield Road purchase, but knows nothing about the $8,000 cash payment to George.

Mr Pipikos maintains that the additional $2,500 he paid towards Clarke road was evidence of this agreement, but Ms Trayans countered that this payment was with respect to loaned monies.

Mr Pipikos maintains that this oral contract was partly performed, and accordingly a declaration should be made that he is a joint proprietor, or alternatively that Ms Trayans holds the half share on trust for him.

- Problems with Mr Pipikos' case (according to Her Honour)

First, the contract was not evidenced in writing.

Second, Mr Pipikos had issues with his pleadings, in that it was both him and his wife, not just him, who put fother the $37,441.81, and that was to Ms Trayans and George – not just Ms Trayans.

Third, the discussions held in 2004 were with George – not Ms Trayans. [But the interesting point here is that Ms Trayans became aware of the conversations between the two brothers about Clarke Road, and found out before she signed the mortgage documents for Penfield Road.]

Fourth, a half share of Clarke Road was sought, but the 'contract' was for half of the land not the house.

- Part Performance Grounds

A number of matters are said to be part performance, and were dealt with by Her Honour:

• "The payment by the plaintiff and his wife of the deposit and the balance of the purchase price of the Penfield Road property. This could be a loan to the defendant and her husband or it could be an unequal contribution to the partnership to be accounted for in other ways.

• I am not satisfied that the asserted payment of the sum of $7,500 to $8,000 was made.

• The December 2009 payment of $2,500 towards the Clark Road mortgage. I prefer the defendant’s evidence that this was a loan subsequently repaid by her. Even if I was wrong about this, the payment was made some years after the alleged agreement and cannot be said to be unequivocally referrable to the alleged agreement.

• The subsequent attempt to document by way of a handwritten note, the lodging of a caveat and these proceedings. These are attempts to enforce an asserted agreement; they are not acts of part performance."

HELD:

1. Mr Pipikos hadn't proved the oral contract.

2. Even if there was a prima facie contract:

a. The parties were not properly identified;

b. The contract was vague; and

c. There was no sufficient memorandum of written evidence of the contract.

3. Part performance of the contract was not established.

4. The case was not one where a court of Equity should intervene and declare a trust.

Pipikos on appeal: SASCFC

An appeal to the Court of Appeal was dealt with by Kourakis CJ (Kelly & Hinton JJ agreeing).

The Court held that the trial judge had erred by not finding that Ms Trayans was a party to the agreement. First, it was improbable that Mr Pipikos would agree to proceed to pay the half balance of the Penfield Road property without taking some interest over the Clark Road property. Second, whilst Ms Trayans was not a party to the initial conversations, she was privy to the agreement her husband had made for Clark Road, and subsequently signed the mortgage documents for Penfield Road.

The admission by Ms Trayans that she knew of the deal was "fatal" to the contention she was not a party to the deal.

The Court further held that George not being on title to the Clarke Road property was of little relevance. He had a substantial equity.

As for the $8,000 payment, even if that was not proved, the failure to perform one part of the agreement does not mean that there was no agreement.

The Court did, however, agree with the views of the trial judge that there was not sufficient writing to amount to a written memorandum of the contract. The court agreed that the subsequent note made in 2009 was inadequate, insofar as it failed to mention neither the consideration nor time for transfer, inter alia.

The absence of sufficient evidence in writing, in the Court's view, was then not overcome by sufficient part performance of the contract.

In Australia, the doctrine of part performance has been narrowly applied by the Courts. "It has been held that the part performance must ‘unequivocally’ and of its ‘own nature’ be referable to the agreement".

Khoury v Khouri (2006) 66 NSWLR 241 – a case not referred to in these proceedings – reiterates how payment of purchase monies is not "part performance" of a contract, whereas taking possession, for example, is. This is notwithstanding that taking possession is not a term of the contract, while paying the purchase price actually is.

England took a more "liberal" view in the House of Lords' decision of Steadman v Steadman [1976] AC 536 where it was "held that a payment of money coupled with the sending of a transfer and the announcement to a magistrate that the parties had agreed to arrears of maintenance being remitted (save for £100) was a sufficient act of part performance of an agreement for the sale of a matrimonial home."

The court here reiterated the Australian view.

According to the court, "the purchase of the Penfield Road property, in itself, is not unequivocally referable to, and does not manifest the existence of, an agreement of any kind between the purchasers. It is certainly not unequivocally referable to, or indicative of a contract for the purchase by Leon of an interest in the Clark Road property."

Accordingly, even though the court held there was an agreement, the contract was not enforceable.

Pipikos appealed again: High Court Special Leave

Nettle & Gordon JJ heard the Special Leave application.

Their Honours noted that a more liberal application of the doctrine of part performance would be needed for Mr Pipikos to succeed. An application similar to that of the English decision of Steadman v Steadman.

Their Honours further noted that the English position in Steadman had subsequently been overridden by strong legislation.

That legislation – the Law of Property (Miscellaneous Provisions) Act 1989 – changed the English position to one more strict than even the current Australian position, and required land contracts to be in writing (not merely evidenced in writing).

The English Legislation has received subsequent criticism in England, so it remains to be seen whether the High Court will take up the English view in Steadman and ignore that it is no longer good law in England.

- Conclusion

Pipikos is a poignant reminder of how important it is to adequately document land contracts.

The repercussions for failing to be able to enforce a contract can be large. In Pipikos, a valuation report of the Clark Road property as at September 2014 was received into evidence and showed that the improved value of the Clark Road property was $500,000 and its unimproved value was $250,000. If the contract could not be enforced for the share of the land value, Mr Pipikos would only be able to seek an accounting adjustment on the Penfield property.

The current state of the law only allows for a quite narrow application of the part performance exception.

We will soon see if the application is broadened by the High Court.

For expert property law advice, please contact Maclarens Lawyers on 96823777.