High Court affirms traditional test for enforcing oral contracts based on acts of part performance

The High Court has resisted an invitation to expand the grounds on which a party can enforce an oral contract for the sale of the land on the ground of part performance.

Legislation in each State and Territory requires that contracts for the sale of land meet certain formal requirements if they are to be enforceable. The legislation is the modern iteration of s 4 of the Statute of Frauds 1677. In Victoria, s 126(1) of the Instruments Act 1958 says:

“An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person or upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.

The Statute of Frauds can be avoided where the party seeking to enforce the contract has undertaken acts of part performance. Australian courts have ordered specific performance of oral contracts for the sale of land of land where there have been acts of part performance that are, in words of the Earle of Selbourne LC, “unequivocally, and in their own nature, referrable to some such agreement as that alleged”[1].

In Leon Pipikos v Trayans [2018] HCA 39, which considered the South Australian equivalent of s 126, the appellant submitted that test referred to above was unduly demanding of a party seeking specific performance of an oral contract for the sale of land and urged the adoption of a more relaxed approach. The appellant argued that a court should ask whether a contracting party has knowingly been induced or allowed by the counterparty to alter his or her position on the faith of the contract. The court unanimously rejected the appellant’s arguments.

The court held that the reference to “some such agreement” in the above quote suggested that the requirement was not concerned with the particular contract in question, but with dealings between the parties which in their nature established that the parties were in the midst of an uncompleted contract for the sale or other disposition of an interest in land. The equity to have the transaction completed arises where the acts that are proved are consistent only with partial performance of a transaction of the same nature as that which the plaintiff seeks to have completed by specific performance.

The acts of part performance should be sufficient to indicate a change in the respective positions of the parties in relation to the land that is the subject of the oral contract. The mere payment of money is unlikely to amount to part performance because such payment could also be consistent with a loan, whereas a defendant putting a plaintiff into possession of land is likely to be a sufficient act of part performance.

Acts of part performance must be acts by the party seeking to enforce the contract; it is not necessary for a plaintiff to prove detrimental reliance on its part to establish an equity to relief.

Once there are sufficient acts of part performance, regard may be had to the terms of the oral contract in order to ascertain the appropriate orders by way of specific performance.

In summary, it is necessary first to determine whether the acts performed establish the equity and then to refer to the terms of the oral agreement in order to ascertain the terms in which the equity is to be enforced.

[1]In Maddison v Alderson (1883) 8 App Cas 467 the Earle of Selbourne LC said at 479 that “the acts relied upon as part performance must be unequivocally, and in their own nature, referrable to some such agreement as that alleged”.

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https://roberthaypropertybarrister.wordpress.com/2018/11/19/high-court-affirms-traditional-test-for-enforcing-oral-contracts-based-on-acts-of-part-performance/