Nomination & ACL

Is the Australian Consumer Law (ACL) relevant to the contractual right to nominate?

This column has considered the purchaser’s right to nominate an additional or substitute transferee on a number of occasions in the past and has also considered the impact of the ACL on residential conveyancing, which is essentially a consumer transaction.  This month’s column specifically considers the application of the ACL to the purchaser’s right to nominate.

Nomination

Conventionally, contracts for the sale of land in Victoria include a condition giving the purchaser the right to nominate.  General Condition 18 of the Law Institute contract expresses that right in very general terms, without limitation in relation to the form of nomination or time for nomination.  Parties are free to negotiate the terms of their agreement and so the parties may, by Special Condition, ‘agree’ to a more limited right to nominate, including limitations as to the nominee, time for nomination and form of nomination.

A nomination by the purchaser creates a second contract, between the purchaser and nominee, but this is NOT a contract for the sale of land, rather it is an assignment of the purchaser’s rights under the contract of sale of land to the nominee.  Traditionally, this is a doc-lite contract in that the rights and obligations of the parties are succinctly recorded with no written agreement as to what is to happen if either party does not wish to proceed with the nomination.  It is essentially an assignment of the purchaser’s rights to the nominee, a legal relationship recognised by s.134 Property Law Act.  Consideration for this contract may be found in the release of the purchaser from obligations under the contract of sale of land and the assumption by the nominee of rights under that contract.  Importantly, the vendor is NOT a party to such a nomination or assignment and the vendor remains entitled to enforce the contract against the named purchaser.  The nomination acts as the purchaser’s authority to the vendor to transfer the property to the nominee in fulfillment of the vendor’s duties under the contract.

The contractual right to nominate is an important ‘escape hatch’ for a purchaser who finds that, due to changed circumstances, the purchaser is not able to complete the contract.  This is particularly so in an off-the-plan environment where the contract contemplates an extended contract period during which time the purchaser is exposed to changing circumstances.

Australian Consumer Law

The ACL is designed to protect consumers.  A purchaser in a residential contract of sale of land is a consumer for this purpose.

Section 20 proscribes “unconscionable conduct” which is an equitable concept developed by the Courts in cases commencing with Amadio in 1983 and which continues to develop to changing circumstances.  Conduct will be unconscionable if one party to a contract is at a “special disadvantage” and the other party “takes advantage” of that situation.  Some purchaser in residential contracts may satisfy this test but inequality of bargaining power alone may not be sufficient to establish unconscionable conduct.

Section 23 proscribes “unfair contract terms” in standard form consumer contracts.  Factors to be considered in determining whether terms are unfair are:

  • inequality of bargaining power;
  • whether the contract is prepared in anticipation of the transaction, rather than in response to the transaction; and
  • whether the other party had a real ability to negotiate the terms.

Contracts for the sale of land are created as “standard form contracts”.  Certainly, the parties are free to negotiate amendment to the terms of such contracts but, in practice, this does not happen.  The vendor or vendor’s agent presents the standard form contract to the consumer and it is signed, without negotiation.  Various factors: such as trust, lack of knowledge and unequal bargaining power contribute to this outcome but the result is a standard form contract in the vast majority of cases.  The removal of the right to nominate, or the imposition of onerous conditions in relation to nomination, are likely to be unfair terms in these circumstances and liable to be unenforceable against the purchaser.