Module 3: Title defects, Illegality of Structures, Errors and Misdescriptions

Question 3

Do you think it is appropriate to advise your clients to obtain a survey in every purchase of land? On what grounds would you decide that it was not necessary to obtain a survey?

Problem Question 4

If the parties had entered into a contract of sale using ECOS 2019, what alternatives or remedies would be available to the purchaser if it discovered, after a contract had been formed that:

(a) the property (vacant land), although described as having an area of 650 square metres was in fact, only 630 square metres in area.

(b) in a contract which described the property as house and studio, half of the studio stood on the land which was the subject matter of the sale and the other half stood on neighbouring property;

(c) the zoning in the planning certificate stated that the land was zoned "General Residential" when it was actually "Primary Production".

Reference Material

Conveyancing Law and Practice Volume 2

13 Title Defects

13Title Defects

[13.10]NATURE OF TITLE DEFECTS

[13.10]The effect of a defect in a vendor's title

[13.20]The principle in Flight v Booth

[13.30]The application of Flight v Booth

[13.50]The doctrine of merger of the contract in the transfer or conveyance

[13.60]EXAMPLES OF TITLE DEFECTS

[13.70]Incorrect description of title

[13.80]Undisclosed drains or sewers

[13.90]Undisclosed easements

[13.100]Undisclosed restrictive covenants

[13.110]Encroachments by improvements over neighbouring land

[13.120]Undisclosed leases or options in leases

[13.130]SURVEY OF THE LAND

[13.130]Need for survey

[13.140]Svanosio v McNamara

[13.150]Prescribed term relating to encroachments

[13.160]Surveys and the 2005 standard form contract

Extract from Diane Skapinker and Patricia Lane, Sale of Land in New South Wales: Commentary and Materials(5th ed, Lawbook Co., 2010), Chapter 5.

NATURE OF TITLE DEFECTS

The effect of a defect in a vendor's title

[13.10]

This Chapter considers some of the remedies available to a purchaser who ascertains before completion that a vendor's title is subject to an undisclosed defect. The purchaser's right to claim compensation for the undisclosed defect in title is discussed in Chapter 15 .

There is a common law presumption that the subject matter of a contract for the sale of land is the unencumbered fee simple in the land discussed at [8.130].

At common law even a slight discrepancy between the property agreed to be sold and that which a vendor could convey on completion was sufficient to enable a purchaser to terminate the contract. However, as was pointed out by Menzies J in Travinto Nominees Pty Ltd v Vlattas(1973) 129 CLR 1 at 28, extracted at [15.80], the position under the common law was alleviated by the equity courts. Where a purchaser terminated the contract for a non-material discrepancy, courts of equity would order specific performance of the contract, at the suit of the vendor, subject to the payment of compensation by the vendor for the deficiency. Over time, vendors developed the practice of

inserting in land contracts clauses providing that purchasers were not to be entitled to terminate for errors or misdescriptions of the property, but instead were obliged to complete the contract with compensation. Despite the existence of such "error or misdescription" clauses, courts of equity would not enforce a contract, even with compensation, where the error or misdescription was so material or substantial that, in effect, the purchaser would be acquiring something different from that contracted for. The test for determining the materiality of an error or misdescription was laid down in Flight v Booth(1834) 1 Bing NC 370; 131 ER 1160. Although that test developed in relation to errors and misdescription clauses (discussed in Chapter 15), an analogous test has been applied in determining a purchaser's remedies in relation to undisclosed defects in a vendor's title.

Today, it would seem a purchaser is entitled to terminate a contract on the basis of an undisclosed defect in a vendor's title in the following circumstances only:

where the contract makes the vendor's obligation to deliver an unencumbered title an essential term of the contract

Such a term would make the existence of any undisclosed defect, however insignificant, which prevents delivery of an unencumbered title, an essential breach of contract, entitling the purchaser to terminate the contract.

Under cl16.3 of the 2005 standard form contract a vendor "normally" is required,by completion, to "cause the legal title to the property (being an estate in fee simple) to pass to the purchaser free of any mortgage or other interest, subject to any necessary registration". Similar clauses in earlier editions of the standard form contract have not been construed as essential terms. It follows that cl 16.3 is unlikely to be construed as an essential term which entitles a purchaser to terminate the contract for any defect in the vendor's title regardless of the materiality of the title defect.

where the defect in the vendor's title is material or substantial according to the principle derived from Flight v Booth, discussed in [13.20].

The principle in Flight v Booth

[13.20]

The principle derived from Flight v Booth(1834) 1 Bing NC 370; 131 ER 1160 at 377 (Bing NC), 1162-

1163 (ER) was stated by Tindal CJ, in relation to a clause restricting a purchaser to compensation for errors or misdescriptions, as follows:

... where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject-matter of the contract that it may reasonably be supposed, that, but for such misdescription, the purchaser might never have entered into the contract at all, in such case the contract is voided altogether, and the purchaser is not bound to resort to the clause of compensation. Under such a state of facts, the purchaser may be considered as not having purchased the thing which was really the subject of sale.

This principle applies to contracts for the sale of land a wider principle, which was explained in

Fuller's Theatres Ltd v Musgrove(1923) 31 CLR 524 at 537-538, by Isaacs and Rich JJ:

In Lion White Lead Ltd v Rogers(1918) 25 CLR 533, at p 550 we stated the rule of law that "where the thing tendered as the consideration differs essentially from the thing contracted for, there is a failure of consideration, and the bargain is at an end"...The rule means that, apart from express stipulation to the contrary, one party to a contract is not entitled to force upon the other party something which, by reason of a departure from the terms of the contract, is so materially altered in character as to be in substance a different thing from that contracted for. The rule is general ...

The principle derived from Flight v Booth, accordingly, is relevant not only in limiting the application of the error or misdescription clause (cl 6 of the 2005 standard form contract), but also in determining whether a purchaser may terminate a contract where a vendor has failed to disclose accurately her or his title. The application of this principle with reference to errors or misdescriptions of the physical property is examined in Chapter 15.

As Young J noted in Adolfson v Jengedor Pty Ltd(1996) NSW ConvR 55-775 at 55,943, extracted at

[16.240]:

When considering whether there is a defect in title one must direct one's mind to what it was that the purchaser was led to expect then ask "Whether the purchaser was obtaining essentially what it bargained for or whether it was obtaining something so materially altered in character as to be in substance a different thing from that contracted for". Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd[1978] Qd R 279 at 283.

This passage seems to subsume two distinct questions into a single test. It is suggested that it is more logical to first determine whether a defect in the vendor's title can be established and only then consider what remedies, if any, are available to the purchaser in respect of that defect.

The application of Flight v Booth

[13.30]

The method of applying Flight v Booth(1834) 1 Bing NC 370; 131 ER 1160 was considered in the following terms by Eve J in Lee v Rayson[1917] 1 Ch 613 at 619:

I take that to mean that what the Court has to do in such a case as I have here to deal with is to decide whether the purchaser is getting substantially that which he bargained for, or whether the vendor is seeking to put him off with something which he never bargained for, and in arriving at a conclusion on this question the Court is bound to consider every incident by which the property offered to be assured can be differentiated from that contracted for. If the sum of these incidents really alters the subject- matter, then the purchaser can repudiate the contract; if, on the other hand, the subject-matter remains unaffected, or so little affected as to be substantially that which was agreed to be sold, then the purchaser must be held to his contract.

In Fuller's Theatres Ltd v Musgrove(1923) 31 CLR 524 at 538 Isaacs and Rich JJ referred to Eve J's approach as "an accurate, and indeed, the only practical method of testing the matter".

In applying Flight v Booth, the difference in value between the land agreed to be sold and that which the vendor is able to convey is not the only factor to be taken into account, nor is it necessarily the major factor. Indeed, Sugerman J, in the following passage in Hamilton v Munro(1951) 51 SR (NSW) 250 at 253-254, was of the view that both subjective and objective matters must be considered:

... The test here is not subjective, in the sense that it merely involves an inquiry into the mind of the purchaser as to immediate use of the property, but objective, that is whether, considering the whole effect of those restrictions on use, a possibility that thepurchaser might not have purchased is a reasonable supposition from the nature and extent of the difference between what was contracted to be sold and what can be conveyed ... The materiality or importance of the restrictions, insofar as those matters must be considered, depends on the impact of the restriction upon the continued ability to use the land freely over the period of ownership ... In relation to all such restrictions, the question whether what is tendered to a purchaser in purported performance of a contract of sale differs materially from what was promiseddoes not depend simply upon the immediate desires, or intentions, uncommunicated and dehors the contract, of the purchaser. Primarily what must be considered are the terms, express or implied, of the contract, and how far what is tendered compares with the contract description (to be gathered from those terms) of what is promised.

In Zabeel Pty Ltd v Tinsonaz Pty Ltd(1992) NSW ConvR 55-651 the New South Wales Court of Appeal (Mahoney JA with whom Priestley and Handley JJA agreed), in construing the error or misdescription clause in the 1988 standard form contract, regarded as vital the subjective importance of an undisclosed title defect to the purchaser involved in the case.

The doctrine of merger of the contract in the transfer or conveyance

[13.50]

The doctrine of merger in relation to contracts for the sale of land makes it imperative for a purchaser to ensure before completionof the sale that there are no defects in the vendor's title. Under the doctrine, the rights of the parties under the contract merge in, or are extinguished by, the transfer or conveyance which vests title in the purchaser, except in certain exceptional circumstances ( Knight Sugar Co Ltd v The Alberta Ry & Irrigation Co[1938] 1 All ER 266; Svanosio vMcNamara(1956) 96 CLR 186, extracted at [13.140]).

This doctrine applies to Torrens title land as well as to old system title land (Pallos v Munro(1970)

92 WN (NSW) 797, extracted at [14.190] (Skapinker)).

The doctrine of merger does not apply in the following circumstances:

(a) where either party has been fraudulently induced to enter a contract for the sale of land, that party is entitled to rescind the contract or claim damages, even after completion (Anderson vDaniels(1983) NSW ConvR 55-144, extracted at [11.110]);

(b) where there is total failure of the consideration for the sale, the purchaser is entitled to a claim for recovery of any money paid under the contract, even after completion; or

(c) where an intention is expressed or implied in the contract that a particular obligation will continue to bind the parties, even after completion (Pallos v Munro(1970) 92 WN (NSW) 797). In Pacson Pty Ltd v San Marco in Lamis Co-operative Social Club Ltd[1991] 2 VR 227 the Appeal Division of the Supreme Court of Victoria held that a purchaser's obligation to pay the full purchase price does not merge on completion.

Clause 20.8 of the 2005 standard form contract expressly provides that "Rights under clauses 11 [compliance with notices and orders), 13 [GST], 14 [financial adjustments], and 17 [possession] continue after completion, whether or not other rights continue".

EXAMPLES OF TITLE DEFECTS

[13.60]

This chapter identifies and considers the effect of some title defects. The illegal erection and use of structures, which, in certain circumstances, might constitute a title defect, is considered in Chapter 14.

Incorrect description of title

[13.70]

Title may be defective in several ways (for example, when a vendor lacks title to part of the land or cannot convey title free from encumbrances that were not disclosed in the contract or were not disclosed correctly).

To describe title to the subject matter of the sale, a vendor is required to indicate correctly: (i) the nature of the title;

(ii) the nature of the estate or interest held by the vendor; and

(iii) any encumbrances affecting the title.

The front page (page 1) of the 2005 standard form contract makes provision for the insertion of the address, plan details and title reference of the land the subject matter of the contract.

This approach differs from previous standard form contracts which included provision for further details of the title to be inserted, such as whether the title to the land was Torrens title land (and if so, whether it was a qualified and/or limited title or strata or community title) or held under the old system.

The apparent rationale behind the drafting of the 2005 standard form contract is that the plan details and title references of the land on the front page and the title searches of the land that vendors are statutorily obliged to attach to the contract (see discussion in [4.150] (Skapinker)) provide sufficient detail about the title to the land.

However, where the title to the land is old system title land or Torrens qualified and/or limited title, the description of the land on the front page of the contract should reflect this to avoid any doubt about the nature of the subject matter of the sale. If that is done, cl 10.3 of the 2005 standard form contract will prevent the purchaser from making a claim, requisition, question or objection or rescind or terminate or require the vendor to change the nature of the title disclosed (for example, by removing a caution evidencing qualified title or lodging a plan of survey as regards limited title).

The danger of incorrectly describing the nature of the title to the land is illustrated by Fischer vBennett(1911) 11 SR (NSW) 399. In that case, old system title land was described erroneously in the contract as Torrens title land. It was held that the purchaser was entitled to require the vendor to make and conclude a primary application to bring the land under the Torrens system before completion of the sale.

The 2005 standard form contract is drafted on the basis that the subject matter of the sale is the whole of the vendor's interest in a Torrens title freehold estate (see for example, cl 16.3 which requires the vendor to pass legal title to an estate in fee simple).

When the sale involves an interest which is less than the fee simple or less than the whole of the vendor's interest in the land, care should be taken to describe the nature of the estate correctly (for example, as a life estate or as a leasehold estate (Re Russ and Brown's Contract[1934] Ch 34)) or the part of the vendor's title that is being sold (for example, a half interest in the land).

Under the 2005 standard form contract a purchaser acquires the land subject to:

a condition, exception, reservation or restriction in a Crown Grant (cl 10.1.6);

the existence of any authority or licence to explore or prospect for gas, minerals or petroleum (cl 10.1.7) (see discussion of Bordav Burgess [2003] NSWSC 1171 about the effect of the equivalent subclause in the 2000 standard form contract in [13.120]);

any easement or restriction on use the substance of either of which is disclosed in the contract or any non-compliance with the easement or restriction on use (cl 10.1.8); and

anything the substance of which is disclosed in the contract (except a caveat, charge, mortgage or writ) (cl 10.1.9).

The nature of relief for erroneous title description issimilar to erroneous description of encumbrances described above.

Undisclosed drains or sewers

[13.80]

A failure by a vendor to disclose sewerage, drainage or water pipes on the land which a statutory or supply authority is entitled to install, retain and access under an easement or statutory power may constitute a latent defect in a vendor's title (see discussion in [11.50]of Adolfson v JengedorPty Ltd(1996) NSW ConvR 55-775, extracted at [16.240]). For example, an undisclosed right of a local council to enter the land to construct, maintain, inspect and repair a water channel entitled

the purchasers in Re Ridgeway and Smith's Contract [1930] VLR 111 to terminate the contract on the basis that the vendor's contractual obligation to convey a "clean" title was an essential term of the contract (see discussion in [5.40] (Skapinker)).

In other cases, courts have had to decide whether or not the existence of an undisclosed sewer or drain is sufficiently substantial so as to alter the character of what the purchaser intended to acquire. In Re Brewer andHankin's Contract (1899)80 LT 127 and Re Belcham and Gawley's Contract[1930] 1 Ch 56, a defect in the vendor's title, arising out of the existence of an undisclosed pipe, was held not to be sufficiently substantial as to entitle the purchaser to terminate the contract. On the other hand, in Re Trustees of St Mary's Hospital and Fogarty's Contract(1914) 20

ALR 518 a statutory authority had installed a 4 inch reticulation pipe carrying drainage and sewerage to the public sewer 7 feet below the surface of the land. Although the statutory authority had not acquired freehold title or an easement over the land in which the pipe was situated, it had statutory rights over a 10 foot strip of land containing the pipes. Hodges J held in that case that the purchaser could not be compelled to accept the title as the sewer pipe went right across the land and had the effect of dividing the single piece of land into two blocks.

Similarly, in Torr v Harpur(1940) 40 SR (NSW) 585, a large storm water drain ran underneath a substantial part of the foundations of the pair of semi-cottages included in the sale. In holding that the storm water drain was a latent defect in title which constituted a material misdescription of the subject matter of the contract, entitling the purchaser to rescind the contract William J said (at

591-593):

If the underground drain is situated under a part of the ground where its presence would not be a serious disadvantage, then its existence does not prevent the purchaser obtaining substantially what he contracted for ... If, in the present case, the drain had not been built under some part of the land adapted for building purposes, I do not think the plaintiff would have been entitled to succeed. The strength of his case arises out of the fact that the drain is situated beneath part of the foundations of the cottages ... Expert advice has been called on behalf of both parties as to whether, having regard to the presence of the drain, the foundations of the cottages are sufficient. Mr Robertson, an architect with 25 years of experience in various branches of architecture in Sydney including domestic architecture, is definitely of the opinion that the walls will crack ... if the structure cracks, his evidence is uncontradicted that the only thing to do would be to underpin the walls and this would be a very expensive job. The evidence establishes that the presence of the drain would be an extremely grave defect if the purchaser desired to resell or to mortgage the property. In effect they say that, speaking generally, a prospective purchaser or mortgagee, when he discovered the drain would not proceed any further.

Undisclosed easements

[13.90]

As with other forms of title defects, the remedy of a purchaser for an undisclosed easement will depend upon the materiality of the easement. For example, in King v Patrick's Day (Minhamite) PtyLtd[1971] VR 777 where a vendor failed to disclose that part of the land was subject to a drainage easement it was held that the vendor could not terminate the contract because the defect in title was not of such a material or substantial nature as to entitle the purchaser to be relieved from performance of the contract.

A similar approach was adopted in Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd[1979] Qd R 103. In that case, a vendor failed to disclose that, on subdivision, the council would require a drainage easement over one of the lots having an area of 125m2 out of a total area of 5 acres. In finding that the non-disclosure didnot entitle the purchaser to terminate, Kelly J posed the question whether the purchaser was obtaining essentially what it had bargained for or whether it was obtaining something so materially altered in character as to be in substance a different thing from that contracted for. On appeal the Full Court agreed with Kelly J that the purchaser was not entitled to terminate because (i) the requirement to convey "free from encumbrances" was not an essential term of the contract and (ii) the misdescription did not come within the principle in

Flight v Booth(1834) 1 Bing NC 370; 131 ER 1160.

Undisclosed restrictive covenants

[13.100]

In Re Courcier and Harold's Contract [1923] 1 Ch 565 a restraint on trade was misdescribed as precluding the use of the land for "public workshop" instead of a restriction on the land being used as a "public institution or charity nor for holding public meetings nor for public worship". Sargent J held that the discrepancy was trifling and, at the most, may have entitled the purchaser to claim compensation, but not to terminate the contract. A similar result was reached in Bennett vStuart(1927) 27 SR (NSW) 317 where the covenant disclosed in the contract differed from the actual covenant, but was held to be no more onerous.

However, in Hamilton v Munro(1951) 51 SR (NSW) 250 the purchaser was held to be entitled to terminate the contract because of the failure to disclose the following restrictive covenant on the sale of a brick veneer cottage:

(a) that no building should be erected within 20 feet of Pacific Highway; (b) that only one house should be erected upon the land; (c) that any house erected on the land should be constructed in a proper and workmanlike manner at a cost of not less than 650; (d) that no building erected upon the land should be used as a public house, hotel, or place for the sale of wine or beer or for any noxious or offensive trade or for any purpose which should be a damage, nuisance or annoyance to the owners or occupiers of adjoining property or the neighbourhood; (e) that no hoarding should be erected on the land; and (f ) that no stables should be erected on the land nor should it be used as a horse yard.

Sugerman J made the following important observations in determining the purchaser's remedies in respect of the undisclosed restrictive covenant (at 252-253):

Even if it is correct to make the assumption that the plaintiff 's immediate intention when the contract was made was to purchase and use the property for residential purposes only, it is wrong to direct attention to this alone and to disregard other possibilities. One such possibility is that the plaintiffs might thereafter desire to make some different use of the property, either exclusively of, or concurrently with, the use permitted by the covenants. Another is that, should the plaintiffs come to sell the land, they might desire that potential purchasers be not restricted to a limited class but include those persons who might wish to make some other or further use of the property ... The effect of the covenants here is to impose limitations not merely trivial and inconsiderable but substantial and important. Even taking into consideration such uses only as are feasible without the erection of any other or further building upon the land and without alteration of the general character of the neighbourhood, they restrict materially the owner's capability to use the property ...

Encroachments by improvements over neighbouring land

[13.110]

If an improvement is part of the subject matter of the sale, an encroachment by that improvement over adjoining land, even by eaves and gutters, may constitute a defect in a vendor's title, as a vendor is unable to pass to a purchaser the land upon which the encroachment is built or overhangs (Enwright v M'Caw[1875] 1 VLR 196).

An encroachment might be cured by an order under the Encroachment of Buildings Act 1922 or by a vendor's obtaining an order requiring the subdivision of the adjoining land and the transfer by the adjoining owner of part of that land of or a grant by the adjoining owner of an easement over the adjoining land to allow the encroachment to remain. However, an order underthe Encroachment of Buildings Act 1922 may not be made when it is relatively inexpensive for the encroaching party to remove the encroachment ( Haddans Pty Ltd v Nesbitt[1962] QWN 44), that Act generally applying to more serious and unintentional encroachments (s 3(3), Encroachment of Buildings Act 1922). In Boed Pty Ltd v Seymour(1989) 15 NSWLR 715 at 719 Bryson J held that an encroachment, built with the consent of a predecessor of the adjacent owner, is nevertheless an "encroachment" under the Act and that:

the circumstance that at some earlier time either the adjacent owner or a predecessor in title to the adjacent owner made some arrangement or gave some consent to the existence of the building in the place which it occupies does not make it any the less true that the building, if it passes beyond the boundary line, is an encroachment.

In Amatek Ltd v Googoorewan Pty Ltd (1993) 176 CLR 471 the High Court held that the Encroachment of Buildings Act 1922 does not confer jurisdiction in relation to buildings erected whollyon adjoining land and that an "encroachment" must extend beyond the boundary of the subject land.

Encroachment by structures onto the property being sold can also cause difficulties. In Mayer v

Vitale(1981) NSW ConvR 55-022 the nature of the purchaser's remedies, if any, arising out of a

30cm to 50cm encroachment of a wall of an adjoining building ontothe property being purchased over a distance of 10m was considered. Kearney J held that the nature, extent and position of the encroachment was not such as to entitle the purchaser to rely on the principle in Flight v Booth(1834) 1 Bing NC 370; 131 ER 1160 as the defect was not substantial. Furthermore, his Honour said that the encroachment was not even an insubstantial defect of title as the vendor was able to transfer title to the purchaser of the whole of the land contracted to be sold. However, in his Honour's view it was arguable that such an encroachment represented an "erroneous description" of the subject matter of the sale in that the part encroached over was not available for occupation and enjoyment to the full extent indicated by the description of the property.

Undisclosed leases or options in leases

[13.120]

A failure by a vendor to disclose in the contract the existence of a lease over the property or an option to renew a lease the subject matter of a sale may give rise to a defect in the vendor's title (Travinto Nominees Pty Ltd v Vlattas(1973) 129 CLR 1, extracted at [15.80]).

In Borda v Burgess[2003] NSWSC 1171 a purchaser purported to rescind a contract for the sale of land (in the form of the 2000 standard form contract) on the basis that the land was subject to a consolidated mining lease relating only to the mining for coal even though the contract precluded the purchaser from making a claim, requisition or objection or rescinding or terminating the contract:

by reason of the "existence of any authority or licence to explore or prospect for gas, minerals or petroleum" (cl 10.1.7); or

if it should be found that any exploration licence, mining licence or lease or authority to enter or prospect has been granted or pending in realtion to the land under the Mining Act 1992 and any other act relating to mining or exploration for minerals, petroleum or the like (special condition 39.1(c)).

The vendor denied the purchaser's right to rescind the contract on this basis and itself terminated the contract when the purchaser failed to complete the contract. The vendor commenced proceedings for a declaraion that his termination was valid and forfeiture of the deposit. The purchaser cross claimed seeking a declaration that his rescisission was valid and an order for the return of the deposit under the contract or, in the alternative, under s 55(2A), Conveyancing Act

1919 (discussed in [21.30] ).

The facts accordingly raised the issue whether the existence of the mining lease constituted a defect in the vendor's title and, even if it did not, whether an undisclosed right of way arose under s 164, Mining Act 1992 which grants a statutory right of way to the holder of an authority to mine between the land the subject of the authority and the nearest practical point of a public road.

Another possible basis for the purchaser's rescission was a breach of the vendor's statutory warranty under the Conveyancing (Sale of Land) Regulation 2000 (discussed in Chapter 12) that at the date of the contract and except as disclosed in the contract the land was not subject to "a right of way under section 164 or 211 of the Mining Act 1992".

Young CJ in Eq held that the purchaser's rescission of the contract was ineffective for a number of reasons. The first was that any coal that may have existed under the surface of the land was not part of the subject matter of the sale by virtue of s 5 of the Coal Acquisition Act 1981 which vested all coal in the Crown and the Mining Act 1992 which entitled the Minister for Mines to grant leases to explore for or mine coal. This meant that "there was no obvious defect in title if, because of a mining lease, someone else has title to the coal as the coal was divested from the registered proprietor of the land by legislation at least 20 years ago" (at [14]).

The second reason was that a mining lease is not an interest in land and accordingly does not give rise to a defect in the vendor's title but to a defect in quality (the distinction between defects in title and defects in quality is discussed in Chapter 11 ). As Young CJ in Eq stated: "as the vendor never contracted to sell the coal, and as the mining lease of itself was not an interest in land (Miller v Mininster of Mines[1963] AC 484). I do not see any defect in title and accordingly there is only a defect in quality, and that the vendor did not have to disclose" (at [34]).

Although his Honour favoured the argument made on behalf of the vendor that a right of way under s 164, Mining Act 1992 is actually not a right of way but a mere licence, he acknowledged that the distinction is irrelevant for the purpose of statutory warranty which specifically refers to the right under s 164. However, he held that the purchaser could not rely on a right of way under s 164 and the corresponding statutory warranty to rescind the contract since s 164 has no application to the land the subject of the mining lease but the land between the mining lease land and the nearest public road (at [32] and [33]).

In rejecting the purchaser's claim for the return of the deposit under s 55(2A), Conveyancing Act

1919 and applying the normal consequence of a termination, his Honour noted (at [81]) that just because the vendor had on-sold the property after the termination of the contract for $23,000 more than the contract price did not demonstrate a windfall benefit to the vendor which would make the retention of the deposit by the vendor unjust or inequitable.

SURVEY OF THE LAND

Need for survey

[13.130]

The investigation of title by a purchaser, either before, but, as a practical matter, usually after, entry into the contract, includes establishing that the land which is physically available actually coincides with the land represented as belonging to the vendor and comprised in the vendor's title, and that the structures and other improvements forming part of the subject matter of the sale are actually situated within the land covered by the vendor's title.

The courts have emphasised the need for purchasers to verify vendors' titles by examining any existing survey of the land or by having a new survey made before completion of the sale. Failure to do so may result in a purchaser receiving only part of the land and improvements contracted to be sold, without a right to claim compensation or a re-transfer after completion.

The purposes of obtaining a survey include:

(a) to ascertain the position and size of the land sold;

(b) to compare (a) with the land included in the vendor's title; and

(c) to ensure that any improvements or fences included the sale are located entirely within the

land sold and that the distance of walls, eaves and gutters of any such improvements from the title boundaries comply with the minimum distances required by the Building Code of Australia 1990.

A failure by a purchaser to obtain a survey may cause subsequent problems when the purchaser subsequently develops the land. For example, in Truckell v Stock[1957] 1 WLR 161 a mandatory injunction was granted for the demolition of a wall erected on footings built on neighbouring land by a landowner who erroneously believed that land was part of his own land.

The importance for a purchaser of obtaining a survey before completion was stressed by the High

Court in Svanosio v McNamara(1956) 96 CLR 186, extracted at [13.140].

More recently, Cohen J in Googoorewon Pty Ltd v Amatek Ltd(1990) NSW ConvR 55-539 at 59,003 after hearing evidence from conveyancing experts of rural land, concluded that

... a prudent solicitor would advise his client who was purchasing [rural] land that to be sure of the boundaries he should obtain a survey, even if only a boundary survey, and this is particularly the case where boundary fences do not exist. That advice would be even more necessary where it is made known to the solicitor that buildings are to be erected near to where the client believes the boundary to be. I accept that this would not always be necessary advice but would depend upon the circumstances. For example the defendant purchased its land without obtaining a survey. It was however buying an area of over 700 hectares and it was not concerned with the exact position of the boundaries; ... It might also be the case where grazing land is being purchased and there are no buildings near or to be erected near the boundaries that it would be accepted that the existing boundary fences adequately delineate the boundaries of the land being purchased. In those circumstances a high degree of accuracy is not critical so that if a fence isreasonably close to the actual boundary that is usually good enough. In circumstances however where there is no boundary fence and there is a new subdivision it would be more appropriate, if that is known, to suggest a survey to ensure that if a fence is erected it is in the right place.

This statement was not commented upon in subsequent appeals to the New South Wales Court of

Appeal ((1991) 25 NSWLR 330) and the High Court ((1993) 176 CLR 471).

The position of fences is expressly covered in the 2005 standard form contract which precludes a purchaser from objecting, or making requisitions or claims for compensation in relation to the ownership or location of any fence as defined in the Dividing Fences Act 1991 (cl 10.1.1). The effect of this preclusion is that unless any issue regarding the location of fences is ascertained before exchange the purchaser will have no remedy after exchange and will need to rely on its remedies under the Dividing Fences Act 1991.

In Hardie v Cuthbert(1988) NSW ConvR 55-398 at 57,686 Young J, in considering a situation where a dividing fence between two small adjoining parcels of land in a built-up Sydney suburb was found to be built across the boundary of one of those parcels, said:

... there is a rule of common sense that applies in day-to-day dealing with land and that is that one can safely presume that an old fence, a dilapidated fence is upon the proper boundary line and one does not have to re-survey the land whenever one is going to do some work which is near the fence, a fortioriif one's neighbour consents to the work ...

Although the decision of Young J in that case was subsequently varied by the New South Wales Court of Appeal (sub nom Cuthbert v Hardie(1989) 17 NSWLR 321), that court made no comment upon this part of the judgment.

The risk of entering into a contract without a survey was again illustrated by Healam v Hunter

(1991) NSW ConvR 55-569 and McGeever v Kritsotakis(1993) NSW ConvR 55-635.

Svanosio v McNamara

[13.140]

Svanosio v McNamara(1956) 96 CLR 186

[McNamara ("M") entered into a contract to sell to Svanosio ("S") certain land "together with the licensed premises known as the "Bull's Head Hotel" erected thereon".

After completion of the contract, S ascertained that only part of the hotel stood on the land conveyed, while the other part stood on adjoining Crown land. S unsuccessfully sought a declaration to set aside the contract and the conveyance and a repayment of the purchase price.]

Dixon CJ and Fullagar J:

In the present case there was no fraud or misrepresentation, and the position must depend on the terms, express and implied, of the contract ... [I]t is, in our opinion, clearly involved in the description of the property sold that the vendors are promising to convey the whole of the land on which the hotel is erected: cf Horning v Pink(1913) 13 SR (NSW) 529; 30 WN 144. If the appellant had discovered before conveyance that a substantial portion of the hotel stood on land to which the respondents had no title, it seems clear that he could not have been compelled to complete the contract. A suit by the respondents for specific performance must have been dismissed: equity has refused to enforce a contract against an unwilling purchaser of land in cases where the defect of title was much less substantial than it is in the present case. Further, he could have claimed damages at law in respect of the respondents' inability to make title, though his damages would have been limited in accordance with the rule laid down in Bain v Fothergill(1874) LR 7 HL 158. On the other hand, he could not himself have had a decree for specific performance requiring the respondents to obtain and convey a title to that part of the land which was outside the title they had: Perrin v Reynolds(1886) 12 VLR 440.

So far we have been dealing only with the position before the land was conveyed and the licence transferred. It was, we think, more or less assumed, both in the judgment of Martin J and in the respondents' argument before us, that the appellant could have escaped from the contract if he had discovered the true state of affairs while the contract was still executory. But in view of the argument that the contract was void, and for other reasons, it has seemed desirable to see exactly what the position was at law and in equity. In fact the true state of affairs was not discovered until after the land had been conveyed and the licence transferred. These things having been done, what remedies, if any, are open to the appellant?

To begin with, it is clear that the conveyance was not void. It is an instrument effective at law and in equity vesting in the appellant the legal and beneficial interest in the land conveyed. It would have been so effective even if the contract had been void. It has not been suggested that the transfer of the licence, or the approval thereof by the Licensing Court, was void. It does not, however, necessarily follow, from the fact that the conveyance and the transfer of the licence are effective to do what they purport to do, that the appellant is not entitled to equitable relief. Apart from declarations that the two instruments are void, what he seeks by his statement of claim is an order setting aside the two instruments and repayment of the sum of 5,000. The conveyance, strictly speaking, cannot be set aside: it has done its work and vested the legal title in the appellant for better or worse, although there is, of course, jurisdiction in equity to order a reconveyance. What the appellant really

wants seems to be repayment of the sum of 5,000, in return for which he is ready and willing to reconvey the land to the respondents. He says nothing about a re-transfer of the licence, but it may doubtless be assumed that he is ready and willing to re-transfer the licence, if the approval of the Licensing Court can be obtained. If the appellant is entitled to relief, the proper order would seem to be that on reconveyance of the land and re-transfer of the licence the respondents repay the sum of 5,000. But the substance of the matter is that the Court is asked to undo the whole transaction ... [I]t is clearly established that equity will not come back the sale of land after conveyance unless there has been fraud or there is such a discrepancy between what has been sold and what has been conveyed that there is a total failure of consideration, or what amounts practically to a total failure of consideration ... The main purpose of the usual terms of a contract for the sale of land is to givethe purchaser an opportunity of knowing whether there are such defects in the vendor's title as will entitle him to rescind, to limit to a certain extent his right of rescission for defects of title, and to preclude him from relief if he does not exercise the opportunity given him. The truth is, of course, that the "principle" applied in the cases cited is by no means an arbitrary one: it rests on a clear and reasonable basis. Contracts for the sale of land present peculiar features of their own ... It is the purchaser's business to investigate the title thoroughly before he pays his money, and the conveyance effects a radical alteration in the position of the parties, new express or implied covenants generally taking the place of the obligations imposed by the contract...

The defect of title, of which the appellant now complains, could have been made the subject of a requisition by him. It is true that the making of a survey is the only thing which could in this case have revealed the true position, and the appellant could not have compelled the respondents to have a survey made. But he could himself, during the four months that elapsed between the making of the contract andcompletion, have ascertained the true position by having a survey made. The making of a survey is an ordinary precaution for a purchaser to take. Many purchasers, of course, decline to incur the expense involved in a survey, and in many cases it may appear unnecessary, but, generally speaking, and in the absence of misrepresentation, a purchaser may fairly be regarded as omitting the precaution at his own risk. The terms of the contract would not, as we have said, have precluded the appellant from rescinding the contract before conveyance, but, having failed to take the opportunity which those terms gave him, and having taken a conveyance, he falls within the general and reasonable rule that equity will not interfere unless there is fraud or what amounts practically to a total failure of consideration. There is no suggestion of fraud, and it cannot be said that there was a failure of consideration.

McTiernan, Williams and Webb JJ:

If the purchaser had refused to complete the contract on the ground that portion of these premises encroached on to the adjoining Crown land so that the vendors could not make title to a substantial part of the land on which the building stood, questions would have arisen under the conditions of sale and under the general law whether the purchaser was bound to complete the contract with compensation or was entitled to rescind the contract and also whether the vendor could have rescinded the contract if the purchaser had objected to the title on this ground and had refused to withdraw the objection. If these questions had arisen prior to completion and the vendor had sought to enforce the contract it is probable that the court would have refused specific performance and decided that the purchaser was entitled to rescind the contract. For ... even where there is a condition for compensation you must consider whether the purchaser has got the subject matter he contracted to buy and, if he doesn't get what he contracted to buy, he may be entitled to say that he will not have compensation at all. But this interesting question need not be pursued because the plaintiff did not object to the title, no survey was made, and completion took

place ... The peculiar nature of a contract for the sale of land, and in particular the opportunity given to the purchaser of investigating the title and his right to rescind the contract if the vendor fails to show a good title and his alternative right if he so chooses to accept such title as the vendor has, and complete the contract either with or without compensation, places a contract for the sale of land in a special category. Upon the execution of the conveyance the rights and obligations of the parties under the contract are merged in the conveyance except in so far as the contract provides expressly or impliedly that merger shall not take place - for instance where it is intended that a right to compensation given by the contract may be exercised even after completion: Knight Sugar Co Ltd v Alberta Railway

& Irrigation Co[1938] 1 All ER 266, at p 269. As a result the rights of a purchaser against the vendor, apart from those which arise under covenants for title, for quiet enjoyment etc. included in the conveyance itself or implied by statute, are very limited. It is clear that a contract for the sale of land cannot be set aside on the ground that the purchaser was induced to enter into it by an innocent material misrepresentation or on the ground that the vendor has innocently concealed some defect of title after completion has taken place. Actual fraud must be proved ... It may be possible in exceptional cases to obtain relief on the ground of common mistake after a contract for the sale of land has been completed. But the cases must be very rare. They are unlikely to go beyond cases where there has been a total failure of consideration. One case is where it is found, after completion, that the purchaser and not the vendor is the owner of the land so that the purchaser is really paying for his own property ... In the present case there was at most a partial failure of consideration. The defendants have been able to convey the whole of the land comprised in conveyance No. 176, book 221 on which a large part of the hotel is erected, to give the plaintiff vacant possession of the hotel and the licence has been transferred to him. The contract between the parties was never void. It was at most liable to be set aside in equity not on the ground of mistake but for failure by the vendors to show a good title. A vendor need not have a good title at the date of the contract, it is sufficient if he can show that he can make title at the proper time for completion. A vendor can enter into a valid contract to sell land although he has no title at all. If he can enter into such a contract when he knows that he has none, how can it be said that the contract is void if he mistakenly believes that he has a good title? The purchaser can waive, if he chooses, all objections to the title and compel the vendor to execute a conveyance of the land even if he has no title to it at all. The purchaser may think it worth his while to complete the purchase simply to obtain vacant possession of the land taking his chance of it ripening into a possessory title in the future, or he may be prepared to take the chance of the vendor acquiring a good title in the future in which case equity would compel the vendor to make good his promise to convey the land to the purchaser when he subsequently acquired it ... The present case on analysis falls completely within the principle that, after the contract has been completed by the execution of the conveyance and the payment of the purchase money, the purchaser, apart from rights arising from the deed of conveyance or subsisting under the contract which do not merge in the deed, has no remedy at law or in equity in respect of any defects either in the title to or in the quantity or quality of the estate ... The conveyance having been executed the purchaser must take all the consequences.

Prescribed term relating to encroachments

[13.150]

A vendor is not statutorily required to attach a survey of the land to the contract (see the discussion of the Vendor's Duty of Disclosure and Inquiries in Chapters 11 and 12respectively). However, it should be noted that a vendor is required, under the Vendor Warranty legislation, to disclose in the contract the existence of any notice to, or claim on the vendor, evidenced in writing in relation to any common boundary or any boundary fence between the land and the adjoining land, any encroachments by or onto the land or any access order or application for such an order

under the Access to Neighbouring Land Act 2000 (Item 7, Pt 3, Sch 3, Conveyancing (Sale of Land) Regulation 2005).

Before the introduction of statutory vendor disclosure in 1986 (discussed in Chapter 11), it was fairly common for vendors to insert a special condition in contracts precluding purchasers from objecting to any encroachment or non-compliance with local council requirements. This meant that exchange of contracts was often delayed while purchasers obtained surveys and building certificates to ensure that there were no relevant defects in the vendor's title of this nature, for which the purchaser would have no remedy after entry into the contract.

Since 1988, in an effort to facilitate quicker exchanges of contracts without statutorily requiring vendors to obtain and attach surveys to every contract for the sale of land, an implied term in relation to encroachments is prescribed in all contracts for the sale of land. This prescribed term which is in cl 5 and cl 1, Sch 2, Conveyancing (Sale of Land) Regulation 2005) provides as follows:

Nothing in this contract or any other agreement prevents the purchaser, expressly or by implication, from making any objection, requisition or claim that the purchaser would otherwise be entitled to make in respect of:

(a) any encroachment onto any adjoining land by any building or structure on the land, other than a dividing fence as defined in the Dividing Fences Act 1991; or

(b) any encroachment onto the land by any building or structure on any adjoining land, other than a dividing fence as defined in the Dividing Fences Act 1991; or

(c) any non-compliance with the Local Government Act 1993, or any regulation under that Act, in respect of any building or structure on the land,

unless the encroachment or non-compliance is disclosed and clearly described in this contract and the contract contains an express term precluding the purchaser from making such an objection, requisition or claim.

This prescribed term allows vendors to preclude purchasers from making requisitions, objections or claims relating to encroachments only if the encroachment is specifically disclosedand clearly described in the contract. If no such disclosure is made in the contract and a survey reveals a defect in the vendor's title, the purchaser will be entitled to the same remedies in relation to that defect as in relation to any other type of title defect, notwithstanding any special condition to the contrary, including raising an objection or requisition or making a claim for compensation ( Stevenson v Dean (1991) NSW ConvR 55-567).

The implied term however does not confer any new rights upon a purchaser in respect of encroachments or buildings which do not comply with local government requirements: it merely preserves any common law or contractual rights the purchaser may have in respect of such matters. However, the existence in the contract of a clear and specific disclosure about an encroachment will alert the purchaser to the encroachment before exchange and allow the purchaser to factor the existence and potential consequences of the encroachment into the price offered by the purchaser for the land.

Surveys and the 2005 standard form contract

[13.160]

The List of documents on page 2 of the 2005 standard form contract makes provision for a survey to be attached to the contract. However, as noted in [13.150], there is no statutory obligation on a vendor to attach a survey to the contract. Further, if a survey attached to a contract does reveal any encroachments or a non-compliance with local council requirements, the mere attachment of the survey will not preclude a purchaser from raising any objection or requisition or making any claim in respect of that matter(s) without a specific disclosure and clear description of the issue in the contract and the insertion of a clause in the contract expressly precluding the purchaser fromtaking such actions (as required by cl 1, Sch 2 to the Conveyancing (Sale of Land) Regulation 2005, discussed above).

Under cl 12.1 a vendor must do everything reasonable to enable a purchaser, subject to the rights of any tenant, to have the property inspected to obtain any certificate or report reasonably required. Where no survey is attached to the contract, or the attached survey appears to be out-of- date, this clause allows the purchaser to obtain a survey after entry into the contract (provided the purchaser is prepared to take the chance that any problem revealed by the survey may be adequately dealt with after exchange). The rights of a purchaser under this inspection clause are discussed in [17.10]. Where a cooling-off period applies in relation to residential property, the purchaser may obtaina survey within the cooling-off period. (The cooling-off legislation is discussed in Chapter 1 (Skapinker).)

Clause 16.1 requires a vendor, on completion, to give to the purchaser any "document of title" for the property which relates only to the property. "Document of title" is defined in cl 1 to mean a document relevant to the title or the passing of title. This clause obliges a vendor to hand over to the purchaser the original of any survey referred to in the contract, provided, of course, that the vendor or its mortgagee is in possession of the original survey.

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