Agreement for sale and purchase of land must be signed by all trustees

25 June 2020

When a trust is selling or buying property, if the agreement is to be legally binding without any argument being raised otherwise, it is important that all the trustees are named in the agreement and all the trustees sign it. Numerous cases have come before the courts where the agreement hasn’t been prepared or signed properly. A recent case is a typical example.

Kahawai Point Developments Ltd v Khan

Kahawai Point Developments Limited signed an agreement to sell its property. The purchaser was named in the agreement as the “Kowhai Trust”. There were three trustees of the Kowhai Trust. Only one of them (Mr Khan) signed the agreement.

A deposit of $38,000 was paid to Kahawai from the Kowhai Trust’s bank account. The solicitors for Kahawai and the Kowhai Trust took the usual steps to prepare for settlement. However, when settlement was due the Kowhai Trust did not settle.

Kahawai sought a summary judgment court order requiring Mr Khan to complete the agreement. A summary judgment order is granted without the plaintiff having to prove their case in a full trial. The order will only be granted if the plaintiff can satisfy the court that the defendant has no defence to the claim.

The judge who heard Kahawai’s application stated the relevant law. The Kowhai Trust itself is not a “legal person”. Where the vendor or the purchaser is a trust, all the trustees must be parties to the agreement and must sign it (unless a trustee who has not signed has delegated his or her powers in the circumstances permitted in the Trustee Act). Kahawai accepted these general principles but claimed Mr Khan was personally liable whether or not the other trustees signed the agreement.

The judge refused to grant the order sought by Kahawai. The judge said it was clearly arguable that the parties intended the property would be purchased by the trustees of the Kowhai Trust. This intention was shown by the description of the purchaser as “the Kowhai Trust” (although this description was legally incorrect), the factual matrix, including the conduct of the solicitors involved, and the payment of the deposit from the Kowhai Trust’s bank account. In addition, Mr Khan could have been signing the agreement as trustee and this was consistent with the intention of the parties that the Kowhai Trust was the purchaser. The judge also said there is arguably no binding agreement because not all of the trustees agreed to be bound by signing the agreement.

The judge refused to grant the order sought because Kahawai had not established a clear and unequivocal case of a purchase by Mr Khan personally. This does not necessarily mean Kahawai won’t be successful if the case goes to trial. Although Kahawai did not establish its case sufficiently to obtain a summary judgment order, the case may now proceed to trial where the competing claims can be tested. The judge mentioned that Mr Khan may be liable for misrepresentation and/or some other deceit-based cause of action. There may also be other claims Kahawai may make.

Barbara McDermott is part of our Private Client team at Norris Ward McKinnon.