1.1 The subject of this Report is a common law rule which, in particular circumstances, limits the amount of damages which a purchaser may recover for the vendor’s breach of a contract for the sale of an interest in land. Named after the case which authoritatively re-stated it in the nineteenth century, the Rule in Bain v Fothergill1 is a unique exception to the general law governing the assessment of damages for breach of contract. For example, in the case of a contract for the sale of goods, if the seller fails to deliver the goods which he or she has contracted to sell, the purchaser is entitled to be compensated by an amount that would put the purchaser in the same position as if the contract had been performed by delivery of the goods. If the price of the goods increased between the date of the contract and the date on which the seller breached the contract, the purchaser is entitled to receive the amount of the increase. The difference in prices in this case is awarded by the court as damages for the purchaser’s loss of the bargain of the contract. The same rules apply generally to contracts for the sale of land. However, under the Rule in Bain v Fothergill,
the purchaser’s right to damages for breach of the contract is governed by the special rule that, where the breach of the contract is occasioned by the vendor’s inability, without his own fault, to show a good title, he shall be entitled to recover, as damages, his deposit, if any, with interest, and his expenses incurred in connection with the agreement, but not more than nominal damages for loss of his bargain.2
1.2 As interpreted by the Courts over the years, the Rule (as we shall call it) has become quite limited in its application. The Rule applies only where the vendor is not at fault for his or her inability to perform the contract, and only where the obstacle preventing the sale is a defect in title.3 Also, an important exception states that in order to rely on the Rule the vendor must have used his or her “best endeavours” to remove the defect in the title. Since, under modern conveyancing conditions, a defect of title which cannot be removed is normally the fault of the vendor, there are very few cases in which the Rule is applied, particularly if the land is under the Torrens system of registered title. As Priestley JA said in the most recent Australian case in which the Rule has been argued,
The circumstances in which the rule in Bain v Fothergill has any chance of being followed under modern conveyancing conditions of Torrens Title land in Australia seem to be nearing vanishing point.4
Nevertheless, since the Rule may substantially reduce the vendor’s liability, it is sometimes claimed to apply as a defence against a purchaser seeking damages after a conveyance has fallen through.
1.3 Ever since its formulation, the Rule has been subjected to criticism, both judicial and academic, on the grounds that it unjustifiably deprives a purchaser of compensation which is fairly awarded for breaches of other types of contract. It has also been argued that the Rule is inappropriate for Torrens title land. But because the Rule only applies in very unusual circumstances, and was developed by courts of high authority, it has never been abrogated judicially in Australia or in England. Instead, the courts have preferred to limit it by distinguishing the facts of cases before them from those in which the Rule applies.
1.4 Because of the technical nature of the reference, the Commission decided to engage in limited consultation only. In September 1989 copies of a draft version of the Report were circulated to several specialists in conveyancing as well as interested organisations. Replies were received from Associate Professor Peter Butt,5 Mr Andrew Lang,6 the Conveyancing Practice and Conveyancing Review Committees of the Law Society of New South Wales, and the Land Titles Office. The Commission wishes to thank them for their useful comments and advice.
1.5 The Commission has concluded that the Rule should not apply to future conveyances of interests in land in New South Wales. A draft bill, prepared by the Office of Parliamentary Counsel, to amend the Conveyancing Act 1919 to this effect is contained in the Appendix.
1.6 The following chapters of this Report examine the origins and rationale for the Rule, its applicability to modern conveyances of old system and Torrens title land, and the arguments for and against its abolition.
FOOTNOTES
1. (1874) LR 7 HL 158.
2. T Cyprian Williams A Treatise on the Law of Vendor and Purchaser Vol 2, 3rd ed, Sweet & Maxwell, London, 1923, at 1027.
3. Day v Singleton [1899] 2 Ch 320.
4. Holmark Construction Co Pty Ltd v Tsoukaris (Unreported) No 363/86, 6 May 1988, New South Wales Court of Appeal, transcript at 3.
5. Of the Faculty of Law at the University of Sydney, and author of The Standard Contract for Sale of Land in New South Wales, Law Book Co, Sydney, 1985 and supplements.
6. Formerly Associate Professor in the School of Law at Macquarie University, and editor of New South Wales Conveyancing Law and Practice, CCH, Sydney, loose-leaf service.
