What is the effect of a nominee clause?

What is the effect of a purchaser of land nominating a nominee under a nomination clause contained in the contract: what rights and obligations does the nominee have?

The answer is none: the nominee has no contractual rights and no obligations. In 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd [2009] VSC 133 the vendor misrepresented the lettable area of the property. The purchaser nominated the plaintiff as purchaser. The director of the purchaser was also the director of the nominee. It was alleged that the nominee purchaser relied on the representations. The nominee clause provided as follows:

“If the contract says that the property is sold to a named purchaser ‘and/or nominee’ (or similar words) the named purchaser may, at least 14 days before settlement date, nominate a substitute or additional purchaser, but the named purchaser remains personally liable for the due performance of all the purchaser’s obligations under this contract.”

The contract authorised a substitute or additional purchaser. The nominee purchaser brought an action for damages based on a breach of s 52 of the Trade Practices Act, s 9 of the Fair Trading Act and for negligent misstatement. Judd J held that that the nomination did not have the effect of a novation and the plaintiff did not become a party to the contract of sale. His Honour also found that by the time the plaintiff paid the purchase price and took the conveyance it was aware of the true lettable area of the property. Thus, the cause of the plaintiff’s loss was either an informed choice to pay a price for the property and take the conveyance or, if the payment was involuntary, it was because the plaintiff was caused by its directors, in full knowledge of the true facts to make the payment in which case but for the nomination it would not have suffered any loss. The loss was caused by the nomination – not the representations. Judd J dismissed the proceeding.