Court decision: Sellers' implied duty to co-operate

In the recent Queensland Supreme Court decision of Brightman & Ors v Royal Pines Projects Pty Ltd [2024] QSC 149, the Supreme Court examined a seller’s implied duty to co-operate to allow the buyers the benefit of contracts of sale in relation to “off the plan” residential apartments.

Background

Twenty-three buyers in this matter entered into contracts to buy residential apartments “off the plan”. At the time they entered into the contracts, the properties had not yet been constructed and there was no opportunity for the buyers or a valuer to inspect the properties. The contracts did not provide for the contracts to be subject to finance, however, the contracts did contemplate that the buyers might need to obtain finance in order to settle the contracts.

When construction of the properties was nearly finished, the buyers requested that a valuer inspect the properties in order to obtain finance to complete the purchase of the properties. However, the developer failed to respond to the request to allow a valuer to inspect the properties and instead gave notice requiring settlement of the contracts on 16 July 2024 (15 days later).

Only after repeated requests were made for a valuer to inspect the properties and Court proceedings were commenced, the developer proposed a protocol for each buyer’s valuer to obtain access to the properties. However, the buyers maintained that the developer’s delay in allowing a valuer access to the properties lost them a week to obtain finance approval and was in breach of the developer’s implied obligation to co-operate. In those circumstances, the buyers maintained that the developer could not insist on the contracts settling on 16 July 2024.

The buyers brought an application against the developer seeking a declaration that in accordance with the developer’s implied duty to co-operate to allow the buyers the benefit of the contracts, the developer is required to permit access to the properties by a valuer in sufficient time to provide valuation advice prior to completion of the contracts. In addition, the buyers sought a declaration that because of the developer’s breach of its implied duty to co-operate, it is not required to settle the contracts on the date appointed by the developer.

The buyers also sought an injunction to prevent the developer from purporting to terminate the contracts and re-sell the apartments because of a buyer’s failure to settle the contracts on the appointed date.

Issues to be considered

The main issue for the Court to consider was whether the developer’s implied duty to co-operate required the developer to co-operate with the buyers obtaining finance, by allowing access to the properties by the buyers’ valuers, in circumstances where the contracts did not contain a “subject to finance” clause or any express provisions about the requested access.

The Court highlighted that the law of contract includes a general rule that there is “an implied obligation on each party to do all that [is] reasonably necessary to secure performance of the contract” so as to give the other party the benefit of the contract. The Court noted that the extent of a seller’s duty to co-operate depends on the circumstances of the case.

The developer denied that it breached any implied duty to co-operate and argued that its implied duty to co-operate did not extend to permitting access to the properties by a valuer appointed by the buyers in circumstances where the contracts were not subject to finance.

The Court accepted that the contracts were not made subject to finance such that the buyers could terminate the contracts if finance was not available but commented that this did not mean that finance was not necessary for the buyers to perform the contracts as they were required to obtain the necessary finance to pay the settlement amount.

The Court said that there would have been no doubt for the developer that most of the buyers (if not all) would need to obtain finance to complete their contracts when the development was finished and before the contracts were due for settlement.

Furthermore, the Court noted that the contracts contemplated that finance would be obtained from a financier and provided for the buyers having 14 days after notice of the settlement date was provided by the developer to attend to a number of things to obtain finance necessary to complete the contracts.

Decision

The Court held that the developer’s duty to co-operate to allow the buyers the benefit of the contracts required it to permit access to the properties by a valuer appointed by the buyers in sufficient time to provide valuation advice in advance of the completion of the contracts.

The Court commented that the question of what the duty entails is answered in the commercial context of a buyers’ real world need to obtain finance to settle, that a valuation for finance purposes could not be undertaken in this case until the development was complete and in a condition to permit safe access by the valuer to the properties, and that the buyers had the contractual benefit of 14 days after the notice to arrange finance in order to perform their obligations at settlement and thereby obtain the benefit of the promised title to the properties.

The Court was of the opinion that the contracts should be construed so that the buyers have the entire 14 day notice period to arrange the things required of it to finalise arrangements for finance to be available at settlement and to perform the contracts.

The Court considered that the extent of the developer’s implied duty in the circumstances required it to give notice of settlement at a time which would allow sufficient time for a request to value the properties to be answered and a valuation to be undertaken.

The Court commented that by giving the notice at a time when the properties’ construction was still being completed and the valuer would not be allowed to inspect it, renders worthless the benefit of the 14 day notice period to allow the buyers to complete finance arrangements.

The Court was critical of the developer and found that the developer’s unreasonable delay in responding to the buyers’ requests for access by valuers, and its conduct in allowing the properties to be in a state where it was unsafe or impossible for a valuer to access the properties until after 8 July 2024, deprived the buyers of the opportunity to have a valuer inspect the properties in the first week of the notice period and hindered the buyers in obtaining finance and being able to settle the contracts on 16 July 2024. The Court therefore concluded that the developer breached its implied duty in these circumstances.

The Court was also of the view that the developer cannot take advantage of its conduct in breach of its implied duty by asserting a breach or failure to perform by the buyers in not completing the contracts on 16 July 2024.

Accordingly, the Court made the following declarations and injunction:

• The developer is required, within a reasonable time after receiving the request, to permit access to the properties by a valuer appointed by the buyers so as to enable the valuer to provide advice to the buyers as to the value of the properties for the purpose of obtaining finance in advance of completion of the contracts;
• The developer is not entitled to call for completion of the contracts on 16 July 2024; and
• The developer is restrained from purporting to terminate the contracts in reliance on a failure by the buyers to settle the contracts on 16 July 2024.

The developer subsequently appealed the declarations and injunctions made by the Supreme Court. However, the Court of Appeal dismissed the developer’s appeal and awarded costs in favour of the buyers.

Conclusion

This decision demonstrates that the extent of a parties’ implied duty to co-operate to allow the parties the benefit of the contract will depend on the circumstances of each case. Agents should ensure that seller clients are aware of their implied duties to co-operate and to not impede buyers doing all things necessary to complete the contract.

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