Written by James Tan & Susie Donkin
In Queensland, residential property contracts are commonly subject to conditions, such satisfactory finance from a lender to purchase the property, and being satisfied with a building and pest inspection report of a property. Ordinarily, a finance clause requires the purchaser to make reasonable efforts to obtain finance sufficient to complete the contract.
These contracts can be unconditional as to finance, meaning once the contract is signed the purchaser is no longer able to rely upon failing to obtain satisfactory finance as a means of terminating the contract.
In exceptional circumstances, a purchaser may be able to argue that the contract should be terminated because it has been frustrated, in that there has been “a change of circumstances which is so fundamental as to be regarded by the law as striking at the root of the contract as a whole, and as going beyond what was contemplated by the parties and such that, to hold the parties to the contract would be to bind them to terms which they would not have made had they contemplated that event or those circumstances, then the contract is frustrated by that event immediately…”
A recent decision in the District Court of Queensland considered whether an extreme circumstance of domestic violence could frustrate a conveyance contract, or impact upon satisfaction of a finance clause.
Facts of Mewing v Duncan  QDC 52
It is important to note that the respondent in this matter was self-represented. She found herself in the not uncommon difficult situation of not being able to see to completion the terms of the land purchase contract she had entered into.. Notably:
- The finance clause of the contract had been partially filled, but no finance date was inserted into the contract. Arguably, the contract was unconditional as to finance. The respondent sought to dispute that the real estate agent was to insert a finance date but had failed to do so and the contract was subject to finance; and
- The date of the contract was 20 November 2016and the settlement date was 10 days after the date of the contract, being 30 November 2016.
A $20,000 deposit was paid by the respondent, but when the respondent was not able to complete the contract, the respondent resisted the deposit being released to the applicants (as was provided for under a standard term of the contract where the case when a purchaser is not able to complete the purchase). The applicants then brought an application to have the deposit released and paid to the applicants.
The respondent sought to rely upon domestic violence occurring around the time she entered into the contract as a factor to be considered by the Court.
The respondent put in evidence that the contract was signed in the afternoon of the day domestic violence events had occurred and she was .residing with her children in a women’s refuge. Two days later, an application was made to the Magistrates Court of Queensland seeking for a protection order in her favour, followed by a temporary protection order made two days later and a final protection order on 14 December 2016.
The respondent argued that residing in the refuge resulted in her being unable to settle because she had been subject to extremely traumatic violence. However it was noted by the Court the question was not about the settlement but rather the payment of the deposit.
The Court turned to whether the contract can be terminated at law by frustration, thereby possibly leading to a return of the deposit. The judgment included a number of statements in consideration of this issue, including that:
- “more is required than hardship to the promisor, because of which in some circumstances a court will refuse equitable relief of specific performance… This however does not have the effect of terminating the contract at law, but merely relegating the party to legal remedies in damages.
- (quoting Morgan v Manswer  1 KB 184) “’If there is an event or change of circumstances which is so fundamental as to be regarded by the law as striking at the root of the contract as a whole, and as going beyond what was contemplated by the parties and such that, to hold the parties to the contract would be to bind them to terms which they would not have made had they contemplated that event or hose circumstances, then the contract is frustrated by that event immediately…”
- “The mere fact that in the circumstances a contract becomes less attractive to one party does not frustrate it”.
- “In the present case there is nothing to prevent the land being conveyed. I am not aware of any authority to the effect that the mere fact that the purchaser does not on the day fixed for completion in fact have available the amount necessary to settle frustrates a contract.”
Subject to finance?
Following consideration of whether the contract was frustrated by the events of domestic violence, the Court considered whether the contract was subject to finance, and if so, whether reasonable efforts had been taken by the respondent to obtain finance satisfactory to complete the contract.
Unfortunately (and it was acknowledged by the Court that this may be because the respondent was self-represented), the Court considered that there was not enough evidence before it to determine those questions.
Notwithstanding that, the Court made a number of interesting observations, such as:
- (in relation to whether the respondent had made reasonable efforts to obtain finance sufficient to enable her to complete the contract) “That would involve a consideration of just what steps she took with a view to arranging such finance after (and perhaps before) the contract was signed, and what particular impediments were placed in her way by the domestic disruption she suffered. It may well be relevant to take into account her personal situation when assessing whether she had made reasonable efforts to obtain satisfactory finance to enable her to complete, though the material in the current affidavit does not demonstrate that in her position it was reasonable for her to have taken no steps to obtain such finance, if that was the case”;
- “It may be of course that the true situation is that, because of her changed personal situation, she no longer wanted to proceed with the purchase, because she did not want to enter into the necessary personal commitments. That however would not provide her with a defence of frustration of the contract, nor would it provide circumstances which exempted her from the obligation to take reasonable steps to obtain the finance necessary to complete the contract on term satisfactory to her…”
Outcome of Judgment
Ultimately, the Court held it was not in a position to make orders, as the matter could not be fully decided at the time of the judgment. In consideration that the respondent was not legally represented the Court noted that it may be the case that she did not appreciate the significant evidentiary hurdle before her. Accordingly, the matter was adjourned to allow the respondent the opportunity to place further material before the Court.
Points to Consider
The decision should encourage persons interested in purchasing property to seriously consider the implications of contractual terms. Even an event as extreme and devastating as domestic violence it appears to be insufficient to frustrate a contract and perhaps insufficient, in absence of other evidence, to assist in arguing reasonable efforts have been taken in a contractual step.
Separate to obtaining pre-contractual or legal advice throughout a transaction, it is apparent that when litigation has commenced, parties most certainly will benefit from legal advice in preparing affidavits to place relevant evidence before the Court to the issues in dispute.
It is noted that a final decision in the Application has yet to be handed down, so the observations made by the Court in this decision are yet to be fully conclusive.
In any event, if you require any further assistance with a contractual review, compliance with contract terms, or litigating over a contract, please do not hesitate to contact our Business Development Team on 07 3252 0011.