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REIQ Journal : June 2008
32 LEGAL ISSUES Michael Gapes, Partner, Carter Newell Lawyers ...even if the parties have agreed that the deposit may be released prior to the contract being finalised, such an agreement is illegal and contrary to the provisions of the PAMD Act. Justice Fryberg was obliged to consider whether the effect of section 385 of the PAMD Act was that Special Condition 13 was void for illegality as it provided for the payment of the deposit before the transaction settled. Justice Fryberg adopted a strict interpretation of section 385(2)(b) of the PAMD Act and concluded that the licensee is only authorised to withdraw money from its trust account when the transaction is finalised. It was further held that a transaction is finalised upon settlement of the contract for the sale of the property or upon termination of the contract. Accordingly, Justice Fryberg held that Special Condition 13 was clearly contrary to section 385 and so was illegal. In reaching that conclusion Justice Fryberg held that: “It does seem odd that a licensee/trustee should be prohibited from giving effect to the wishes of all the beneficiaries. It is difficult to reconcile this outcome with the objects set out in s 10 of PAMDA. However in my judgment the words are too clear to permit any other construction. Section 385(4) is concerned with the timing of the payment; it does not purport to authorise anything not already authorised by s 385(2)(b). Special condition 13 required Centrepoint to pay money to the sellers, something it was prohibited from doing by s 384. It was a contract to do something which that Act forbade. The consequence in the present case is that it (or at least the first part of it) is void and unenforceable…” Therefore, Special Condition 13, which required Centrepoint to pay the deposit to the seller prior to finalisation of the contract, was directly contrary to the clear provisions of sections 384 and 385 of the PAMD Act. As a consequence, the Special Condition was void and unenforceable. Breaches of sections 384 and 385 the PAMD Act have serious consequences. Agents may be fined up to $15,000 and face up to three years imprisonment for a proven breach. This case is important as it establishes that, even if the parties have agreed that the deposit may be released prior to the contract being finalised, such an agreement is illegal and contrary to the provisions of the PAMD Act. Agents should therefore ensure that they comply with the provisions of the PAMD Act and only release the deposit to the persons entitled to it once the contract has been finalised (that is, terminated or settled), notwithstanding any agreement for earlier release between the parties. REIQ Journal June 2008