I. SUPPORT FOR THE RULE

3.1 Although the Rule has faced widespread condemnation from judges and academics, some voices have been raised in its support.¹ The arguments in favour of retention have not progressed beyond those propounded by their Lordships in Bain v Fothergill (see para 2.18). The first justification is the uncertainty of titles to land. As the result of legislative innovations outlined in Parts IV and V below, title to land in New South Wales is now far more certain than was the case two centuries ago in England when the Rule was established. Title to land is also more certain, and more easily ascertained, than title to most goods. Hence we believe that this argument no longer has any force in this State.

3.2 The second justification for the Rule is that it creates an exception for the sale of interests in land because land itself is an exceptional form of property. In some respects this argument is simply a variation on the argument that title to land is inherently uncertain, unlike title to chattels. In Bain v Fothergill their Lordships also argued that land is not a commodity bought and sold with a view to resale. That is certainly not the case today, and it was probably untrue in 1874 when the Rule was re-stated.² Nowadays speculation and investment in real property are common, and vendors must be aware of the likelihood that a purchaser intends to make a profit by a quick resale.

3.3 The third justification for the Rule is that it is long-established and has been acted upon by conveyancers. There is much to be said for certainty in the law, but stare decisis by itself cannot justify a rule which is anomalous and rarely applied. In fact, the Rule in Bain v Fothergill may be said to create uncertainty because it is so eroded by qualifications and exceptions that it is often difficult to predict whether and to what extent it applies in particular cases.

II. INCONSISTENCIES

3.4 The main argument against the Rule is that it is inconsistent with modern contractual principles. Although it is now accepted that damages for breach of contract are not affected by the motives or intentions of the defendant,³ the Rule uniquely imports a concept of fault into the law of contract. In denying a purchaser expectation loss flowing from a vendor’s breach of contract, the Rule produces a unique exception to the modern law of damages which is difficult, if not impossible, to justify. As we have shown in chapter 2, the Rule was laid down before those principles were established and has continued (with severe limitations being placed on it) despite developments in the law of contract damages.

3.5 The Rule was devised at a time when ownership of law was limited and carried with it special privileges. Because land was an unusual form of property, it was considered reasonable that contracts disposing of interests in land should not conform to ordinary contracts principles. That this position is changing is indicated by the decision of the High Court in Progressive Mailing House Pty Ltd v Tabali Pty Ltd⁴ where it was held that the ordinary principles of contract apply to leases.⁵

3.6 The Rule was not the only circumstance in which damages for loss of bargain were excluded in actions for breach of contract during the nineteenth century. In 1877 the English Court of Appeal decided that where the delivery of a cargo transported by sea was delayed, the owner of the cargo could not obtain damages for loss of profit from the carrier.⁶ The reason for this rule was similar to that advanced in Bain v Fothergill: the uncertainties of carriage by sea meant that the consignor was assumed to agree that lost profits could not be recovered under the contract. The rule in relation to carriage of goods by sea was apparently never applied, and was subsequently overruled by the House of Lords in 1969.⁷

3.7 The results of the exception made by the Rule are not merely theoretical. The main purposes of the modern law of contract are to compensate a contracting party for the consequences of breach, and to discourage the repudiation of contractual terms by placing the burden of those consequences on the shoulders of the party which caused the expectations created by the contract to be unfulfilled. The distribution of responsibilities in this way adds certainty to commercial affairs by encouraging parties to enter into only those contracts which they know they can fulfil, by allowing them to act on the faith of contracts already made, and by discouraging them from terminating contracts unilaterally. The effects of the Rule, on the other hand, are to place the burden of breach on the purchaser and to encourage the vendor not to make a full investigation of the state of his or her title before agreeing to sell it.

3.8 The effects of the Rule can be particularly harsh when chain conveyances are involved. In these cases, which are the most common form of conveyancing transaction, X sells a house (Blackacre) to Y, who partly finances the purchase by selling his or her existing property (Whiteacre) to Z. If X’s sale of Blackacre falls through as the result of a defect in title, and if X is able to rely on the Rule, Y is nevertheless liable to Z for the full measure of damages because Y’s default is not the result of a defect in his or her title. In a rising property market Y might renege on the sale to Z but is liable for the increase in the value of Whiteacre. Alternatively, Y must complete the sale and incur the cost of finding somewhere else to live as well as the costs of the abortive purchase of Blackacre which are not recoverable under the Rule. This result is so unjust as to be a powerful argument for abolition of the Rule: there is no reason why Y should bear this loss when it is caused by X contracting to give a title which could not ultimately be made out.

3.9 A further problem arises when the ability of courts to award damages in equity is considered. Under the successor legislation to Lord Cairns’ Act, where the Supreme Court has power to order specific performance of a contract it may award damages in addition to or in substitution for the order.⁸ The Court will not make such an order where it would be futile, as when the vendor has no title at all, and of course cannot award damages in equity where it has no power to order specific performance. But as the Court has wide powers to award damages in equity so as to do complete justice particularly when common law damages would be an inadequate remedy,⁹ it is conceivable that this power could be used to circumvent the Rule. The point has not been specifically decided, but it is a further indication of the anomalies raised by the Rule.¹⁰

III. MODERN CONVEYANCING PRACTICE

3.10 Several changes in conveyancing practice have diminished the operation of the Rule. These relate to the knowledge which the vendor normally has of the state of his or her title before contract and the rights which the vendor has under the contract. In the eighteenth and nineteenth centuries, when the Rule was devised, it was normal practice for titles to be investigated only after a contract for sale was concluded. As title to interests in land was complex and uncertain, vendors frequently found that they did not possess the title which they had contracted to sell. These circumstances gave rise both to the Rule and to the inclusion of terms in the contract which allowed the parties to settle any differences over the state of the title or the condition of the property. However, it is now common and prudent practice for a solicitor acting for a vendor to undertake investigations of the vendor’s title prior to contract in order to minimise possible liability for professional negligence. Also, under recent amendments to the Conveyancing Act 1919, several matters which might result in title defects must now be disclosed by the vendor prior to contract; if the vendor breaches the disclosure and warranty requirements, the purchaser may rescind the contract at any time before completion.¹¹ Thus many problems relating to the state of the title, which might formerly have caused the vendor to invoke the Rule, are now discovered before a contract for sale is entered into. This change in conveyancing practice has reduced considerably the circumstances in which a vendor is placed in such a position as to rely on the Rule. Although the Rule applies when, at the time of the contract, the vendor was aware of the defect in title and did not reasonably believe that there was some means of having it removed,¹² it is unlikely that a vendor would enter into a contract in such circumstances. Apart from the uncertainty of successfully relying on the Rule by evading its qualifications, a vendor who enters into a contract of sale knowing of a defect in the title but without disclosing it to the purchaser may be liable in the tort of deceit if, prior to the contract, the vendor had represented to the purchaser by words or conduct that the title was not defective.¹³ Even if the vendor entered into the contract in mere bad faith, without believing that a good title could be made prior to completion, the purchaser might be able to recover damages in tort for either fraudulent or perhaps negligent misrepresentation.¹⁴

3.11 Because of the inherent uncertainty of titles, historically several terms were included in contracts of sale which gave the purchaser the opportunity to issue objections or requisitions in relation to the title or other matters. These terms allowed the vendor to satisfy objections within a reasonable period and, if necessary, to adjust the purchase price by way of compensation or to rescind the contract. Such terms have been incorporated as conditions in the standard contract for sale of land. The most important of these for present purposes is condition 8 of the standard contract (1988 edition) which provides that if the purchaser either makes a claim for compensation exceeding five percent of the contract price, or issues any objection or requisition (including those as to title),¹⁵ and the vendor is unable or unwilling to comply with the claim for compensation or comply with or remove the objection or requisition, the vendor is entitled to rescind the contract. This condition applies whether or not the vendor attempts to satisfy the claim, objection or requisition; however, the vendor must give the purchaser the opportunity to waive the claim, objection or requisition within 14 days of the vendor giving written notice of his or her intention to rescind the contract. If the contract is rescinded in this fashion, condition 19 of the standard contract provides that the purchaser is entitled to have the deposit and any other money paid under the contract refunded but (apart from some limited exceptions) cannot recover damages, costs or expenses (including interest).

3.12 Condition 8 is subject to restrictions in interpretation which limit the vendor’s power to rescind. Thus the vendor cannot use it simply to repent a bad bargain: the reason for exercising the power to rescind must be related to the purpose for which the clause was devised, namely unexpected circumstances arising from the inherent complexity of title to land. Secondly, the vendor must exercise the power in good faith for the proper purpose for which it was intended. Thirdly, the vendor’s rescission must be reasonable in all the circumstances: the vendor must not have entered into the transaction recklessly without a reasonable expectation of being able to convey the title which was the subject of the contract, and will not be permitted to rescind where it would be arbitrary or capricious to do so.¹⁶ If the subject of the objection or requisition constitutes a mere “passing cloud” which may be rectified by the vendor without onerous steps, the power to rescind may not be invoked.¹⁷

3.13 From this summary it is apparent that a vendor can rely on condition 8 in many, if not most, cases in which the Rule in Bain v Fothergill applies.¹⁸ If the vendor reasonably and unwittingly entered into a contact for sale which could not be completed because the title was defective, and provided that the vendor acts reasonably in attempting to remove the defect, both the Rule and the power to rescind under condition 8 may be invoked. They have, however, different effects on the amount recoverable by the purchaser. The contractual condition does not usually allow the purchaser to recover interest on the deposit or the limited expenses allowed under the Rule such as the cost of preparing the contract. A rescission by a vendor under condition 8 excludes liability for “damages, costs or expenses” other than for a breach of an express or implied condition or term of the contract, so a purchaser may not be able to recover damages permissible under the Rule once the vendor has properly exercised the right to rescind.¹⁹

3.14 Condition 7 of the standard contract provides that errors and misdescriptions, including those as to title, may be compensated by the vendor and the amount determined by arbitration. The purchaser may, however, rescind the contract if he or she would otherwise be required to take a substantially different property from the one contracted for, and cannot be forced to take the property if the compensation awarded is more than five percent of the purchase price. The inclusion of title matters in this condition is relatively recent²⁰ and the relationship of the condition to the Rule in Bain v Fothergill remains uncertain.²¹

IV. APPLICABILITY TO TORRENS SYSTEM LAND

3.15 As already stated (in para 2.13), one of the justifications for the Rule in Bain v Fothergill was the difficulty of proving title to land under English law. At the time the Rule was formulated, the sale of interests in land was generally carried out by the execution of deeds under what is now called the Old System of conveyancing. That system consisted of rules based on the practices of specialist conveyancers, accepted and modified by the Courts. In a conveyance under that system, a vendor was required to prove his or her right to the interest being conveyed by showing the purchaser an unbroken chain of instruments disposing of the property. The chain of title was to be traced back to a single document (the “good root of title”) at least 60 years old,²² which presumptively showed the title to the interest being conveyed. Any of the instruments in the chain of title could, for any number of reasons, later prove to be defective, so the whole process of conveyancing contained inherent risks that the vendor did not possess the title which he or she purported to convey.

3.16 It was principally to remedy these uncertainties that Robert Richard Torrens introduced the system of land tenure and conveyancing that bears his name.²³ The principal aim of the Torrens system has been described as being

to save persons dealing with registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author’s title, and to satisfy themselves of its validity.²⁴

The objects of certainty and accuracy are achieved by providing that once an interest is entered on the Register it is indefeasible and cannot be defeated by earlier unregistered interests. The Torrens system is one of title by registration, so that each purchaser, once registered as proprietor, holds in effect a fresh Crown grant which is immune from any defects in the vendor’s title. Subject to certain stated exceptions, such as fraud,²⁵ a vendor’s title is easily ascertained by an inspection of the interests disclosed by the Register and by routine inquiries to a limited number of statutory authorities.

3.17 It must be admitted that the Torrens system has not fulfilled the original expectations that the Register would reflect a completely accurate picture of the state of registered titles. Errors in registration are sometimes made by the Land Titles Office, while equitable interests fit uneasily within a framework of determinate registered interests. Overriding interests created by statute also reduce the Register’s accuracy, so that purchasers must make further searches.²⁶ But the Torrens system has greatly diminished the instances in which a vendor is mistaken as to the state of his or her title, and has thus reduced the scope for application of the Rule in Bain v Fothergill.

3.18 Although the rationale of the Rule was largely removed by the Torrens system, it was accepted without argument as binding authority by Australian courts in early cases involving registered as well as unregistered land.²⁷ In most of the cases in the colonial period, the Rule was not actually applied because the vendor was found to have simply failed to convey.²⁸ The willingness of Courts to find that the reason for the vendor’s failure to complete was a conveyancing obstacle rather than a defect in title meant that the Rule’s applicability to Torrens land was assumed rather than argued. West v Read²⁹ is generally regarded as deciding that the Rule applies to Torrens land in New South Wales. In that case a new trial was granted on the ground that the trial judge had wrongly decided that the purchaser could not sue on the vendor’s covenant to give a good title; Cullen CJ clearly indicated that the measure of damages recoverable by the purchaser was governed by the Rule.³⁰ The matter was fully argued and discussed in Boardman v McGrath where MacNaughton J of the Queensland Supreme Court, after repeating that the basis of the Rule was in the inherent uncertainty of title to land compared with goods, said:

For the plaintiff it was urged that this reason does not apply to transactions in land under the Real Property Acts, the effect of which is to make dealings in realty as simple as those in personalty. If the matter were res integra [not decided in law], something might be said in favour of this contention, but it is too late to raise it now. No authority in support of it can be found in the reports of the High Court or of any of the Australian State Courts, and the cases... show that the general understanding has been that the rule does apply to land under the Real Property Acts.³¹

On the facts, though, the Rule was not applied because the vendor had refused to complete the conveyance. Finally, the Rule was approved by the High Court in Noske v McGinnis,³² though again on the facts the vendor was held to be unable to rely on it both because the alleged defect was one of conveyancing not title and because the vendor had refused, rather than been unable, to complete. The Rule was also applied in cases involving leases pursuant to the Crown Lands Acts, under which tenure is less secure though title is at least ascertainable.³³

3.19 In New Zealand, an early decision of the Court of Appeal held that the Rule did not apply to the sale of a government lease under a land registration system. The court did not, however, expressly overrule Flureau v Thornhill, leaving the question open as to whether the Rule applied to registered land.³⁴ Later judicial opinion was divided over the applicability of the Rule to land registered under a Torrens system,³⁵ although it was eventually regarded as settled that the Rule did apply.³⁶ It has often been recognised that “in view of the provisions of the Land Transfer Act this rule can seldom have application in New Zealand”.³⁷ In the most recent case in which the Rule was discussed, Chilwell J thought that the reasons for the Rule no longer pertained to New Zealand as:

Certainty of title under the Land Transfer Act 1952 and the precision of surveys is such that it must be a rare case indeed where some substantial defect in title is demonstrated to exist which a vendor ought not himself to have known.... In the majority of instances a sale of land is, apart from the necessity to obtain and register the memorandum of transfer, of little more difficulty than the sale of a chattel.³⁸

3.20 An early Canadian case also expressed the strong obiter opinion, for the same reasons, that the Rule was inappropriate in those provinces where a Torrens system was in operation.³⁹ Although the contrary view later held sway⁴⁰ the Rule was, in fact, rarely applied. The Supreme Court of Canada, in AVG Management Science Ltd v Barwell Developments Ltd⁴¹ has since expressed strong opinion that the Rule should no longer be followed in those provinces having a title registration system or even (as in the Maritime provinces) a deeds registration system. The Court’s remarks have since been taken as repudiating the Rule judicially.⁴²

3.21 The Commission believes that the Rule in Bain v Fothergill has no relevance to interests in land registered under the Torrens system. This is apparent from the characteristics of the Torrens system, which greatly reduces uncertainties as to titles, and from the consequent paucity of cases in which the Rule has been held to apply in relation to registered real property interests. The Rule has rarely been applied in these circumstances because the obstacle complained of has almost invariably turned out to be a problem of conveyancing rather than a defect in title.

V. UNREGISTERED INTERESTS

3.22 The proportion of land titles not registered under the Torrens system in New South Wales is small and decreasing. At present registered titles account for approximately 95% of all land parcels.⁴³ In 1988-89, there were only 4,738 conveyances under the Registration of Deeds system, under which conveyances of unregistered land are made.⁴⁴ The Land Titles Office is currently embarking on a long-term program which should eventually see all land titles being brought under the Torrens system.

3.23 Unregistered titles suffer uncertainties similar to those which prompted the development of the Rule, even in Australia where relatively short chains of transactions separate the current landholder from the original Crown grant. Given the rationale for the Rule it could be argued that it still has a part to play in relation to unregistered interests. However, the registration of deeds system, under which conveyancing instruments must be registered in the Land Titles Office in order to retain their priority over later registered instruments, greatly reduces the uncertainties of Old System conveyancing. Statutory reforms such as those achieved by the Conveyancing Act 1919, have also simplified the assignment of interests in land outside the Real Property Act. In short, the state of Old System conveyancing is now far removed from that which existed in the eighteenth century when the Rule in Bain v Fothergill was originally stated.

3.24 As the Rule applies to all interests in land, the disposition of interests which are not registrable (such as the assignment of a short-term leasehold) should also be considered. However, in the great majority of cases in which such titles cannot be shown, it is the result not of the complexities of the law but of the assignor failing to obtain the consent of a person (for example, a lessor or mortgagee) whose permission is required to order to perfect the assignment.

VI. REFORM IN OTHER JURISDICTIONS

3.25 The Rule has been examined by several law reform agencies in recent years. The view of the majority of their reports has been that the Rule ought to be abolished for interests in both registered and unregistered land. The Law Reform Commission of British Columbia (where a modified Torrens system operates extensively) issued a report in 1976 which concluded that none of the possible reasons for the Rule’s existence (its status as an implied contractual term, the notion that liability should be based on fault, and the difficulties of ascertaining title) justified its retention. In particular, the Commission argued that

the existence of the Torrens system of certification of title in this Province, with its concomitants of increased reliability of title, efficiency, and protection for individuals who rely on the system, justifies a policy decision that, as between a vendor and purchaser, it is the vendor who ought to bear the loss if the agreement fails because he cannot sell the land.⁴⁵

That Commission’s recommendation that the Rule should be abolished absolutely was implemented by legislative amendment in 1978 which stated that “A court may award damages for loss of a bargain against a person who cannot perform a contract to dispose of land by reason of a defect in his title.”⁴⁶ In 1978 the Supreme Court of Canada expressed strong obiter dicta that, having regard to effective land registry systems in all provinces of Canada in the form of either a Torrens system or systems of deeds registration, the Rule should no longer apply. Larkin CJC, speaking on behalf of the court, said that

the rule in Bain v Fothergill should no longer be followed in respect of land transactions in those Provinces which have a Torrens system of title registration or a near similar system.⁴⁷

This statement has been taken by Canadian courts as abolishing the Rule, and a recent Canadian textbook has summarised the position by stating that “having regard to the number of exceptions and to the anomaly caused by the rule, it may be assumed that the rule no longer applies in Canada.”⁴⁸ It might also be noted that in the United States, where state operated land registration systems are exceptional and common law conveyancing is the normal method of land transfer, the Rule has received only qualified support and the better view is that it is indefensible.⁴⁹

3.26 The Law Commission of England and Wales has also examined the subject as a part of its review of the law relating to the transfer of land. In a working paper published in 1986 it proposed “abolishing the rule altogether and not confining the abolition to registered land.”⁵⁰ The reasons for this proposal were the increased use of land registration and the lack of justification for a special rule for land transfer contracts. The Law Commission argued:

We see no reason why, in the latter part of the twentieth-century, a vendor should have the benefit of an implied term limiting his liability to pay damages, when the justification for implying such a term, ie the high complexity of land law, is considerably less persuasive than was formerly the case. Indeed, in modern times, in the vast majority of cases where the vendor is unable to show a good title in accordance with his contractual obligations, this stems from his own carelessness rather than any difficulty in the law. It is true that cases may occur when a defect in title which the vendor had no ready means of discovering, may come to light prior to completion. Such cases are likely to be rare, and we do not feel it is justified to retain an outdated rule merely to protect a vendor in these unusual cases, at the expense of the purchaser.⁵¹

The Working Paper was cited with approval by the English Court of Appeal in Sharneyford Supplies Ltd v Edge.⁵² Although the Rule was held not to apply in that case, Balcombe LJ (after discussing the strictures on its application) said:

But even limited in this way to defects in the vendor’s title, the rule in Bain v Fothergill is today impossible to justify. Its rationale depends, as has been seen, on the difficulties of making title to land under English law. Now that registered title to land is the general rule, this rationale is no longer valid, if indeed it ever was.⁵³

Kerr and Parker LJJ, delivering separate judgments, agreed with this view and urged that the Rule be abolished immediately. They both referred to the injustice resulting where a vendor who knows or ought to know of the defective state of the title escapes ordinary damages for breach of contract.⁵⁴ Fortified by the opinions of their Lordships and overwhelming support for abolition of the Rule, the Law Commission issued a report which reiterated its earlier view.⁵⁵ Its recommendation that the Rule be abrogated for future contracts in relation to both registered and unregistered land has recently been implemented by legislation.⁵⁶

3.27 The Queensland Law Reform Commission briefly considered the Rule in its general review of conveyancing and property law in 1973. It considered that a vendor failing to transfer registered land as agreed should not escape the ordinary measure of damages for breach of a contract “which, although perhaps not occasioned by default on his part, is even less due to any fault on the part of the purchaser.”⁵⁷ The report recommended that the Rule be maintained for Old System land on the ground that the difficulties of making title to such land were “notoriously difficult”, and the legislation which implemented its recommendations excepted unregistered land.⁵⁸ However, it should be noted that those land titles in Queensland which are not held under the Torrens system are extremely limited in number and confined to only a few areas. The Law Reform Commission of Victoria has recently recommended that the Rule be abolished, apparently in relation to all interests in land.⁵⁹ Thus, in almost all jurisdictions where it has been subjected to recent scrutiny, the Rule has either been abolished entirely or recommendations to that effect have been made. The only exception is Queensland where conveyances of unregistered titles, and therefore the likelihood of the Rule being applied, are almost insignificant.

VII. INCIDENTAL MATTERS

A. Express Agreements

3.28 Since the main explanation of the Rule is that it imposes an implied condition limiting damages, it is currently possible to exclude its operation by, for example, including a liquidated damages clause in the contract. The question also arises: if the Rule is abolished by statute, should the contracting parties be able to effectively reinstate the Rule by including its terms in the contract, thus making a condition formerly implied by law an express condition agreed to by the parties? The Commission is reluctant to interfere with the freedom of contract of vendor and purchaser in this matter. Even if such a clause were to be included in the standard contract, it would be a simple matter for the parties to excise it, if both were so minded.⁶⁰

B. Vendor’s Refusal to Complete

3.29 The ordinary measure of damages for a vendor’s refusal to complete a conveyance when able to do so, is the purchaser’s loss of bargain. While the purchaser is entitled to the difference between the market value and the purchase price of the property, the purchaser cannot also recover the conveyancing and other costs expended in reliance on the contract, since these costs would have been incurred if the contract had been completed.⁶¹ To allow compensation for both reliance and expectation loss would, contrary to the general principles of damages, put the purchaser in a better position than if the contract had been performed. In some cases however, where the purchaser has been unable to prove any loss of bargain (because the value of the property is not greater than the purchase price), the purchaser has been awarded as damages the expenses incurred in anticipation of the conveyance. The allowance of damages for reliance loss in these circumstances derives from a comparison with the result when the vendor is unable to convey and the Rule in Bain v Fothergill applies. In Wallington v Townsend⁶² Morton J thought it would be incongruent if a vendor who was unable to complete owing to a defect in title were in a worse position than one who merely refused to convey. His Lordship was concerned that such an outcome might well encourage a vendor who regretted the bargain made under the contract, to refuse to carry it out. This dictum was applied in Lloyd v Stanbury⁶³ where Brightman J further held that:

a disappointed buyer suing for damages because the vendor is not willing to implement the bargain is not limited to compensation for expenditure incurred strictly after the execution of the contract. In my judgment the damages which he is entitled to recover include expenditure incurred prior to the contract representing (1) legal costs of approving and executing the contract and (2) the costs of performing an act required to be done by the contract notwithstanding that the act is performed in anticipation of the execution of the contract. In addition the buyer is entitled on general principles to damages for any other loss which ought to be regarded as having been within the contemplation of the parties.⁶⁴

However, improvements to the property made by the purchaser between contract and conveyance were held usually to lie outside the contemplation of the parties and were therefore not recoverable.

3.30 Since it rests on a comparison with the effects of the Rule in Bain v Fothergill, it is possible that the abolition or restriction of the Rule might affect the principle established in Wallington v Townsend. However, there has developed a line of authority, in England at least, which establishes that in general a plaintiff in an action for breach of contract may elect between damages for expectation loss and reliance loss. This doctrine rests in part on the sale of land cases already cited⁶⁵ but was re-stated in Anglia Television Ltd v Reed. That case involved the repudiation of a performance contract by a film actor. As no suitable replacement for the defendant could be found, the film was aborted and the plaintiffs, being unable to establish the profits they would have made if the film had been completed, sought to recoup their wasted expenses incurred both before and after the contract was finalised. Lord Denning MR, with whom the other judges concurred, held that:

a plaintiff in such a case as this has an election: he can either claim for loss of profits; or for his wasted expenditure. But he must elect between them. He cannot claim both. If he has not suffered any loss of profits - or if he cannot prove what his profits would have been - he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach.⁶⁶

While this proposition is not universally recognised,⁶⁷ it is at least accepted that a plaintiff who is unable to prove any loss of bargain may nevertheless obtain damages for wasted expenditure.⁶⁸ However, damages for wasted expenditure will not be awarded simply because the plaintiff has made a bad bargain or if the expenditure would have been wasted whether or not the contract had been performed.⁶⁹ It would appear, then, that even apart from reliance on an analogy with cases in which the Rule in Bain v Fothergill applies, a purchaser whose vendor refuses to complete but who cannot prove any expectation loss, can in general law recover wasted expenses incurred in reliance on the contract being performed. Hence abolition of the Rule should not affect a plaintiff’s recovery in this type of situation.

VIII. CONCLUSION AND RECOMMENDATION

3.31 In view of the reasons for the existence of the Rule, and the absence of a rationale for its continuance either in theory or in practice, the Commission believes that it should be abolished. Abolition of the Rule should apply to both registered and unregistered interests in land. Any justification for the Rule which might previously have existed has been negated by the Torrens system of land titles and modern conveyancing practices which have minimised the circumstances in which the Rule can apply. The possibility that a vendor of Old System land will be able to rely on the Rule is quite remote, and is outweighed by the potential for wasteful litigation which the present state of the Rule allows, indeed encourages. In those few cases in which the Rule can be invoked successfully, the results are anomalous and unjust. We can see no reason why contracts for the disposition of interests in land should not be treated like all other contracts so far as the assessment of damages is concerned.

3.32 Accordingly, we recommend that:

The Rule in Bain v Fothergill should be abolished for all future contracts for the disposition of estates or interests in land. Parties to such contracts should, however, be able to restrict the vendor’s liability to pay damages by express agreement. The Rule should be abolished by an amendment to the Conveyancing Act 1919 in the form of the Appendix to this Report.

1. C T Emery “In Defence of the Rule in Bain v Fothergill” [1978] Conveyancer 338; SM Waddams The Law of Contracts, Canada Law Book Co, Toronto, 1977, at 444-446.

2. See the remarks of Bacon VC in Edwardes v Edwardes (1877) 5 Ch D 378 at 390.

3. Butler v Fairclough (1917) 23 CLR 78 per Griffith CJ at 89.

4. (1984) 157 CLR 17.

5. (1984) 157 CLR 17 per Mason J at 29, Deane J at 53.

6. The Parana [1877] 2 PD 118.

7. Czarnikow v Koufos [1969] 1 AC 350; see Harvey McGregor McGregor on Damages 15th ed, Sweet & Maxwell, London, 1988, at 561, 691.

8. Supreme Court Act 1970 s68(b).

9. Madden v Kevereski [1983] 1 NSWLR 305; Wroth v Tyler [1974] Ch 30; ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512; cf Johnson v Agnew [1980] AC 367.

10. See R P Austin “Contract For Sale of Land: Two Recent English Cases” (1974) 48 Australian Law Journal 273 at 275; C T Emery “In Defence of the Rule in Bain v Fothergill” [1978] Conveyancer 338 at 340 n15.

11. Conveyancing Act 1919, s52A; Conveyancing (Vendor Disclosure and Warranty) Regulation 1986.

12. In Bain v Fothergill (1874) LR 7 HL 158, Lord Chelmsford said (at 207) that the Rule applied even if the vendor knew that there was no means of removing the defect. However, McGregor (Note 7 at 563-565) states that bona fides are required: there must be an honest, but not necessarily reasonable, belief that the defect will be removed. The original statement of the Rule in Flureau v Thornhill (1776) 2 W B1 1078; 96 ER 635 stated that it did not apply in cases of fraud.

13. Bain v Fothergill (1874) LR 7 HL 158 per Lord Chelmsford at 207.

14. Watts v Spence [1976] Ch 165 per Graham J at 175; Sharneyford Supplies Ltd v Edge [1987] 1 Ch 305 per Balcombe LJ at 323; McGregor, note 7 at 566-567.

15. Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575.

16. Gardiner v Orchard (1910) 10 CLR 722 per Isaacs J at 738-740; Selkirk v Romar Investments Ltd [1963] 1 WLR 1415.

17. Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529 per Stephen J at 554.

18. In Bowman v Hyland (1878) 8 Ch D 588 it was held that the contractual right to rescind cannot be exercised by a vendor who had no title at all, but that case involved the interpretation of a clause which stated that the vendor could rescind only if “unwilling” to comply. The modern standard contract, which states that the vendor may rescind if “unable or unwilling”, contemplates situations where the vendor has no title: see P J Butt The Standard Contract for Sale of Land in New South Wales, Law Book Co, Sydney, 1985, at 409-410.

19. This is subject to a possible remedy under the covenant of full power to convey implied by the Conveyancing Act 1919, s78. This covenant is not breached by a vendor who never had title: it only applies where the vendor has lost the title.

20. It was included in 1982 as the result of deficiencies shown up in Travinto Nominees Pty Ltd v Vlattas (1973) CLR 1; see Butt, Note 18 at 359.

21. C J Rossiter Vendor and Purchaser, Law Book Co, Sydney, 1985, at 210. The matter was raised but not decided in Solomon v Litchfield (1916) 16 SR (NSW) 610.

22. Now reduced to 30 years: Conveyancing Act 1919 s52(1).

23. S Robinson Transfer of Land in Victoria, Law Book Co, Sydney, 1979, at 2-4; D Whalan The Torrens System in Australia, Law Book Co, Sydney, 1982, at 14-17.

24. Gibbs v Messer [1891] AC 248 at 254.

25. Bahr v Nicolay (No 2) (1988) 62 ALJR 268; (1988) 78 ALR 1.

26. Thomas W Mapp Torren’s Elusive Title, Alberta Law Review, Edmonton, 1978, ch. 9.

27. Merry v AMP Society (No. 3) (1872) 3 QSCR 40 at 63-64; Ross v Robinson (1886) 12 VLR 764.

28. Wiper v O’Shannassy (1875) 1 VLR(L) 10 at 12; Edwards v Freeborn (1877) 11 SALR 128 at 130; Ross v Robinson (1886) 12 VLR 764 at 773; Mailer v Clayton (1899) 1 WALR 3 at 12 per Onslow CJ: “This case [Engell v Fitch] was the subject of considerable, and not altogether favourable, comment in Bain v Fothergill; but its validity as a decision binding upon this Court is unimpeachable”.

29. (1913) 13 SR (NSW) 575; 30 WN (NSW) 204.

30. (1913) 13 SR (NSW) 575 at 580; cf Solomon v Litchfield (1916) 16 SR (NSW) 610 where the Rule, though accepted, was distinguished in the case of arbitrated compensation under a standard compensation clause for misdescription of Torrens land.

31. Boardman v McGrath [1925] QWN 14 at 15.

32. (1932) 47 CLR 563, per Rich J at 584; Dixon J at 591.

33. Musk v Doscas (1911) 13 WALR 55; Hensley v Reschke (1914) 18 CLR 452 at 464.

34. Slack v Lockhart (1863) 1 NZ Jur App 1. Similarly in an early Fijian case the view was expressed that the certainty of titles registered under a Torrens system rendered the Rule inappropriate: Joske v Huon (1882) 1 Fiji LR 68 at 76.

35. Stewart v Taylor (1904) 24 NZLR 785; contra Fleming v Munro (1908) 27 NZLR 796; Munro v Pedersen [1921] NZLR 115.

36. Staples v Lomas [1944] NZLR 150; see G W Hinde, D W McMorland and P B A Sim Land Law, vol 2, Butterworths, Wellington, 1979, at 1086.

37. Jacobs v Bills [1967] NZLR 249 at 254; Souster v Epsom Plumbing Contractors Ltd [1974] 2 NZLR 515.

38. Waring v S J Brentnall Ltd [1975] 2 NZLR 401 at 412.

39. O’Neil v Drinkle (1908) 8 WLR 937. The judge, Lamont J, later became a member of the Supreme Court of Canada.

40. Stephens v Bannan (1913) 14 DLR 333 at 343-344; Peacock v Wilkinson (1915) 23 DLR 197.

41. (1979) 92 DLR (3d) 289, reversing (1977) 83 DLR (3d) 702, (1976) 69 DLR (3d) 741; noted in (1981) 44 Modern Law Review 571.

42. Kopec v Pyret (1987) 36 DLR (4th) 1 at 10.

43. Figures supplied by Land Titles Office. The Office estimates that there are approximately 80,000 Old System parcels out of a total of 2,750,000 land parcels in the State. Since 1980 there have been about 70,000 conversions to the Torrens system.

44. New South Wales Land Titles Office Annual Report 1989 at 48. There are no comparable figures for Torrens conveyances, since Land Titles Office figures are only collected for dealings, which include non-dispository transactions.

45. Law Reform Commission of British Columbia The Rule in Bain v Fothergill, LRC 28, 1976, at 19.

46. Conveyancing and Law of Property Act, SBC 1978, c16, s33. See now Property Law Act, RSBC 1979, c340, s33.

47. AVG Management Science Ltd v Barwell Developments Ltd (1978) 92 DLR (3d) 289 at 301-302.

48. Paul M Perell Remedies and the Sale of Land, Butterworths, Toronto, 1988, at 185.

49. Walter H E Jaeger Williston on Contracts 3rd ed, Baker Vourhis & Co, Rochester, NY, 1968, vol 11 at 524-527.

50. Law Commission of England and Wales Transfer of Land: The Rule in Bain v Fothergill, WP 98, 1986, at para 3.12.

51. Id at para 3.13.

52. [1987] Ch 305.

53. [1987] Ch 305 at 325.

54. Ibid.

55. Law Commission of England and Wales Transfer of Land: the Rule in Bain v Fothergill, Law Com 166; Cm 192, 1987.

56. Law of Property (Miscellaneous Provisions) Act 1989 (Eng) s3, which states that “the rule of law known as the rule in Bain v Fothergill is abolished in relation to contracts made after this section comes into force.” The date of abolition was, by virtue of s5, set at 27 September 1989. The Rule was last applied in Seven Seas Properties Ltd v Al-Essa [1988] 1 WLR 1272.

57. Queensland Law Reform Commission Report ... on a Bill to Consolidate, Amend, and Reform the Law Relating to Conveyancing, QLRC 16, 1973, at 53.

58. Property Law Act 1974 (Qld) s68.

59. Law Reform Commission of Victoria Sale of Land, Report No 20, 1989, at 18-19.

60. Law Commission of England and Wales, note 55 at 26-27.

61. Re Daniel, Daniel v Vassal [1917] 2 Ch 405.

62. [1939] Ch 588 at 591; [1939] 2 All ER 255 at 238-239.

63. [1971] 1 WLR 535; [1971] 2 All ER 267.

64. [1971] 1 WLR 535 at 546; [1971] 2 All ER 267 at 275.

65. Wallington v Townsend [1939] Ch 588; [1939] 2 All ER 255; Lloyd v Stanbury [1971] 1 WLR 535; [1971] 2 All ER 267. Also cited as authority for the right to elect is Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292 at 303 per Evershed MR, although the High Court has not followed this interpretation: see TC Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd (1963) 37 ALJR 289.

66. [1972] 1 QB 60 at 63-64; see also CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16.

67. See DW Greig and JLR Davis, Law of Contract, Law Book Co, Sydney, 1987, at 1356-1359.

68. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 413-415.

69. C & P Haulage v Middleton [1983] 1 WLR 1461 at 1468.