Does the discovery of Aboriginal artefacts constitute a "defect in title" for a sale of land contract?

The NSW Supreme Court has, surprisingly, for the first time dealt with the question of whether the discovery of Aboriginal artefacts constitutes a "defect in title" for a sale of land contract in the matter of Mehmet v Carter (2017) NSW ConvR 56-385.

• Defect in Title vs Defect in Quality

The general obligation of a vendor in a sale of land contract is to transfer valid title to the property.

The law traditionally distinguishes defects in "quality" from those of "title". A defect in quality can relate to such things as an issue with zoning, or an issue with infestation or building defects.

Generally, there is no obligation on the vendor to warrant that the land is free from defects in quality*. Accordingly, a prudent purchaser should carry out all necessary due diligence, such as pest, building, contamination, and strata reports.

As His Honour Peter Young classically put it in Eighth SJR Pty Ltd v Merity (1997) NSW CLR ConvR 55-813 at 56-384:

"even if the defect in quality means that the house is positively noxious such as the situation where it was infected with small pox there will be no right to rescind though the court may decline specific performance".

• Contentious matters

Sometimes it may not be plainly clear whether the defect in question is one of title or one of quality.

Onerous zoning restrictions were once debated and settled as matters of quality [see Carpenter v McGrath (1996) 40 NSWLR 39]. Although that is now largely combatted by the statutory requirement for a an 'accurate' zoning certificate to be attached to the contract, if the zoning is changed and does not amount to an 'adverse affectation' as listed in the legislation, the buyer would be stuck with the change.

On the other hand, a private road not discoverable by reasonable searches has been deemed to be a defect in title (see Ashburner v Sewell [1981] 3 CH 405).

Of most relevance to the below is the matter of Borda v Burgess [2003] NSWSC 1171, whereby a contract for sale of land was affected by an undisclosed mining lease to the Crown for coal. The Coal was vested in the Crown by statute, and was deemed to be a defect in quality not title.

• Mehmet v Carter (2017) NSW ConvR 56-385

On 6 July 2015 the plaintiffs (Mehmet et al) entered a contract for the purchase of a property in Byron Bay from the defendants for the sum of $3million. A $300,000 deposit was paid.

By 14 July 2015 the solicitor acting for both parties became aware of the existence of an aboriginal plaque on site attesting to the nearby remains of Harry and Clara Bray: tribal elders of the Bunjalong Tribe. The solicitor withdrew from acting for the vendors and purchasers, and each appointed new solicitors.

The purchasers maintained that the Aboriginal burial site amounted to an "Aboriginal Object" for the purposes of the National Parks and Wildlife Act 1974, which vests such objects as property of the Crown and obliges that the objects not be 'harmed' (e.g. moved by a land owner).

The purchasers contended the "Aboriginal Object" amounted to a defect in title. The vendors maintained any such defect is one of quality.

Settlement was not effected on time, and a (second and final) Notice to Complete was issued by the vendors on 11 September 2015.

By 25 September 2015 the purchasers purported to terminate the contract on the basis that the vendors could not convey good title. In response, the vendors countered that the purchasers had repudiated the contract, allowing the vendors rather to terminate the contract.

• Decision

His Honour Darke J ultimately determined that the existence of the Aboriginal objects did not amount to a defect in title.

His Honour noted at [88]:

"Aboriginal objects are by their very nature most likely to be beneath the surface of the soil. Given the legislative regime, which makes it an offence to harm Aboriginal objects unless authorised by an Aboriginal heritage impact permit, it would be highly problematic, if not impossible, to determine the extent to which Aboriginal objects are present in or on any land"

Further, the Aboriginal objects are the property of the Crown, and do not form part of the contract of sale.

His Honour, in coming to his decision, placed great emphasis on the High Court's recent reaffirmation of "the well-established principles that the terms of a commercial contract are to be understood objectively, by what reasonable business persons would have understood them to mean, and that the court is entitled to approach the task of construction on the basis that the parties intended to produce a commercial result which makes commercial sense (see Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58 at [16]–[17].)

As a matter of contractual construction yielding a commercial result, His Honour "[did] not think that the contract should be construed in such a way that any Aboriginal objects not owned by the [vendors] are included as part of the subject matter of the sale."

Accordingly, the purchasers were not entitled to terminate the contract.

The purchasers fall-back position of asking the court to nevertheless refund the deposit under the discretionary provision of s 55 of the Conveyancing Act, as well as the vendors cross claim for damages exceeding the deposit amount (they on-sold the property at a $475,000 'loss'), were both questions left for a further hearing.

This case is another reminder of the risks associated with conveyancing, and the importance of carrying out all necessary due diligence.

*Endnote: Except for example:

• the implied terms imposed by the Conveyancing (Sale of Land) Regulation 2017 which give limited rights of rescission for breach of the warranties provided therein; or

• those obligations set out on developers by the Australian Consumer Law; or

• an express term for warranty of fitness.

For expert legal advice, please contact Maclarens Lawyers on 9682 3777.