When Conveyances Go Wrong
Tony Cahill
Legal Author and Commentator
TABLE OF CONTENTS
About the author ..................................................................................... iii
1
Introduction ......................................................................................................... 1
2
Issues regarding formation of the contract .......................................................... 1
3
Remedies for breach of contract – eleven general
principles ........................................................................................................................... 4
4
Some applications of the principles .................................................................... 7
4.1
The standard contract for sale and breaches of contract........... 7
4.2
Additional provisions and the obligation to complete ............. 8
4.3
The recipient’s position when confronted with a notice to
complete ............................................................................................... 9
5
Cases on notices to complete and notices to perform ....................................... 11
6
Relief against forfeiture and section 55(2A)
Conveyancing Act 1919 ................................................................................................... 22
7
Caveating in disputed conveyancing transactions ............................................. 39
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ABOUT THE AUTHOR
Tony Cahill started practice in 1981. After 13 years with a medium-sized
city law firm, he commenced practice on his own account at Chatswood
until June 2002. Tony is currently undertaking a ‘sabbatical’ from private
practice to concentrate on projects in continuing professional education.
Tony is a member of the Law Society’s Property Law and Office of State
Revenue Liaison Committees, and has served on the Costs Working Party.
He has been a member of the Re-Draft Committees for the 2000 and 2004
editions of the Contract for the Sale of Business, and the Contract for the
Sale of Land since the 1992 edition.
He was the co-author, with Paul Gibney and Russell Cocks, of the first
NSW edition of 1001 Conveyancing Answers. In 2006 Tony became a coauthor of Conveyancing Service NSW published by LexisNexis
Butterworths.
Tony is a part-time lecturer at the Sydney and Northern Sydney Institutes
of TAFE in various law subjects.
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1
Introduction
The aim of this paper is to consider some of the issues arising out of
vendor-purchaser disputes, resulting from a failure to complete the contract
in accordance with its terms. The session will look at the issue primarily
from the perspective of a purchaser in breach. There are a number of
reasons for this. In general:

Purchasers will typically have more (and more complex) matters
to attend to in the period leading up to settlement – not least being
the massaging of an incoming mortgagee – and therefore, will be
in breach more frequently than a vendor.

The consequences for breach by a purchaser are typically more
dramatic than the consequences of vendor breach.

A vendor is more likely to “complain” about (for which read: take
action relating to) a breach by the purchaser, than a purchaser take
action in relation to a vendor breach.
2
Issues regarding formation of the contract
A party seeking to enforce contractual rights must have an agreement
capable of being legally enforced. This apparently trite statement of
principle continues to be highlighted in cases dealing with vendorpurchaser disputes.
The usual (some might say “notorious”) practice in New South Wales,
where parties intend to enter into an agreement to sell and purchase land, is
for two copies of the contract to be prepared which are in identical form
(Allen v Carbone (1975) 132 CLR 528 at 533), with one copy is signed by
the vendor and the other copy by the purchaser. The parts are subsequently
exchanged, so that the vendor will hold the copy of the contract bearing the
purchaser’s signature and the purchaser will hold the copy bearing the
vendor’s signature. A commonly quoted analysis of the significance of
exchange is contained in the judgment of Lord Greene MR in Eccles v
Bryant [1948] Ch 93 at 99:
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... there is a well-known common and customary method of dealing,
namely by exchange, and anyone who contemplates that method cannot
contemplate the coming into existence of a binding contract before that
exchange takes place.
It was argued that exchange is a mere matter of machinery, having in
itself no particular importance or significance. So far as significance is
concerned, it appeared to me that not only is it not right to say of
exchange that it has no significance, but it is the crucial and vital fact
which brings the contract into existence. As for importance, it is of the
greatest importance, and that is why in past ages this procedure came to
be adopted by everybody as the proper procedure. In dealing with
contracts for the sale of land, it is of the greatest importance to the
vendor that he should have a document signed by the purchaser and to
the purchaser that he should have a document signed by the vendor.
That statement has been approved by the High Court in Brien v Dwyer
(1978) 141 CLR 378 at 391; 22 ALR 485 at 495; 53 ALJR 123.
When parties propose to enter into a contract for the sale of land by the
customary procedure of exchange there is a strong (though not irrebuttable)
presumption that the parties do not contemplate the coming into existence
of a binding contract before exchange takes place (GR Securities Pty Ltd v
Baulkham Hills Private Hospital Pty Ltd (1986) 4 BPR 9315).
The essential characteristic of exchange of contracts is that each party will
have a document signed by the other party in their possession and control
(or the possession and control of their representative such as their legal
adviser). One rationale is that it is important that a party to a contract
knows what the party’s obligations are.
While it is clearly desirable that the counterparts of the contract be
identical, this is not an essential requirement, and a valid contract may be
made by exchange of copies which are not identical: Sindel v Georgiou
(1984) 154 CLR 661; (1984) 58 ALJR 515. In Sindel the property was
passed in at auction, and negotiations in the auctioneer’s office led to a
consensus between the parties. The counterpart signed by the purchaser had
details of the purchaser’s name, the price and the deposit inserted, but for
some reason those details were not included in the counterpart signed by
the vendor. The High Court found the exchange of contracts had been
effective on the following basis (at [14] to [15]):
14.
An unqualified acceptance of the proposition that delivery of two
parts in identical terms is crucial to an effective exchange would
exclude the parties’ intention as the governing or, even as a
relevant, factor. The question whether the delivery of parts in
identical terms is essential must ultimately depend on the parties’
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intention. The answer to this question determines the manner in
which the contract becomes binding. And as Lord Greene M.R.
emphasised in Eccles v. Bryant (at p 99), the manner in which the
contract is to be created so as to become binding is to be gathered
from their intention, express or implied. In ascertaining their
intention, we must take account of those factors which favour an
insistence on documents in such a form as will evidence with
certainty a contract and the terms of that contract, factors
expressed and underlined by Lord Greene M.R. in Eccles v.
Bryant (at p 99) and by Lord Denning M.R. in Harrison v. Battye
(p.60). We must also take account of the real intention of the
parties, giving due weight to their objective - the making of a
binding contract by means of the exchange of parts. And if the
parties, through negotiations between their solicitors, have agreed
on the terms of their bargain and settle on an exchange of parts in
order to seal that bargain, it would usually accord with their
intention to treat the exchange as creating a binding contract,
notwithstanding the lack of correspondence in the parts, so long
as that lack of correspondence is capable of being remedied by
rectification. It will be otherwise when it appears that the parties
intend to be bound only by an exchange of parts in identical
terms or when the prior negotiations do not completely settle the
terms of the bargain and the parties look to the parts as
exchanged to fix these terms.
15.
This approach places less emphasis on the advantage of bringing
into existence a document which establishes with certainty the
terms of the contract and more emphasis on the intention of the
parties in creating a contract by the ceremony of exchange, the
terms of the bargain having already been determined. In such a
case the importance of exchange lies not so much in the
circumstance that it fixes the terms of the contract as in its
function in fixing the existence of a binding contract, thereby
terminating the period in which each party is free to withdraw
from the negotiations. This concept of exchange enables the
courts to do greater justice between the parties by precluding one
party from acting on the footing that there is no binding contract
when, as a result of an undetected error one part of the contract
does not correspond with the other. On this view of exchange the
availability of rectification is not a problem.
The principle expressed above has its practical limits. In Longpocket
Investments Pty Ltd v Hoadley (1985) NSW ConvR ¶55-244, there was a
significant difference in the “subject to finance” clause in the respective
counterparts. The purchaser’s solicitor sought the change, and the
amendment was agreed to by the vendor’s solicitor after the vendor had
signed the contract. The amendment was made on the counterpart signed
by the purchaser, but not on the other copy. The Court of Appeal held that
since the amendment was agreed to without the knowledge or authority of
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the vendor, it could not be said that the parties had agreed on the terms of
the bargain.
A more extreme example occurred in Parkin v Pagliuca [2008] NSWSC
168. In that case the counterpart signed by the purchaser contained two
section 149 certificates, but the copy signed by the vendors contained only
one (the transaction was a sale off the plan of a lot in a consolidated site).
More critically, the counterpart signed by the vendors contained printed
pages 3 to 11 of the 2000 edition of the contract; those pages were not
included in the copy signed by the purchaser. Bryson AJ held that no
contract had been formed, or alternatively that if a contract had been
formed the purchaser was entitled to rescind any such contract due to the
absence of the statutory cooling off notice. The vendors and the purchaser
successfully cross-claimed against the solicitor who had been acting for
both parties at the time of the attempted formation of the contract. The
measure of the purchaser’s damages was, effectively, her costs of the
proceedings (which were awarded against the solicitor on an indemnity
basis); the damages sustained by the vendor were quantified in Parkin v
Pagliuca [2008] NSWSC 827.
3
Remedies for breach of contract – eleven general
principles
Property practitioners frequently have cause to focus on those things which
make real estate transactions “different” from typical contracts. In some
respects this is not a bad thing – if selling or purchasing a house were
essentially the same as selling a newspaper or a ham and tomato sandwich
many real estate vendors and purchasers would feel extremely disinclined
to engage a property professional (solicitor or estate agent) to assist them.
For instance:

We are acutely aware of the need to have a note or memorandum
of the agreement sufficient to comply with the current statutory
equivalent of the Statute of Frauds. [Most types of contract can
be, and frequently are, verbal].

A large part of the “paperwork” associated with real estate sales
and purchases involves complying with, and testing, statutory
disclosure and warranty. [For most species of contracts, an
obligation of disclosure is extremely limited or non-existent, and
relevant statutory warranties are, more often than not, capable of
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being counted on the fingers of one hand – for example, the
implied terms under the Sale of Goods Act 1923).

We emphasise the importance of exchange of contracts as the
usual method of formation of real estate contracts. [Contracts in
general are most frequently formed by the less complicated “offer
and acceptance” model].
Despite the importance of these matters, it is worth recalling that vendorpurchaser transactions are a species of contracts, and many of the issues
which arise in those transactions are resolved, not by reference to some
“real-estate-centric” rule, but rather by use of general contractual
principles.
Focusing, in particular, on contractual disputes and remedies, it is worth
revisiting these statements of principle:
(A)
The usual remedy for breach of contract is the common law
remedy of damages.
(B)
Damages in contract law are compensatory rather than punitive in
nature – the aim of damages in contract law is to put the innocent
party in the position they would have been in if the contract had
been performed (to the extent that money can do that).
(C)
Damages in contract law will, subject to some narrow exceptions,
not be available for emotional trauma, disappointment and
distress, but only for pecuniary losses.
(D)
Not every pecuniary loss will be recoverable. A plaintiff can
recover damages of a type that would “usually” flow from a
breach of that type. A plaintiff can also recover damages of a type
that are “unusual” but were anticipated by the parties at the time
the contract was formed. By contrast, damages that are both
“unusual” and “unanticipated” are too remote to be recovered
(Hadley v Baxendale (1854) 156 ER 145; Victoria Laundry
(Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528).
(E)
Parties can include a term in their contract agreeing on the amount
of damages that will flow from breach (an “agreed damages” or
“liquidated damages” clause). If that clause is a genuine preestimate of the loss that will flow from breach, that clause will be
enforceable. If, by contrast, the quantification of loss is not a
genuine pre-estimate, but has the purpose or effect of “forcing” a
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party to complete (an “in terrorem” clause), that clause will be
unenforceable as a penalty (Dunlop Pneumatic Tyre Co Ltd v New
Garage and Motor Co Ltd [1915] AC 79).
(F)
A plaintiff must take all reasonable steps to mitigate their loss.
(G)
In addition to the remedy of damages, a plaintiff may seek relief in
equity. The most usual equitable remedy sought for breach of
contract is specific performance (sometimes it may be more
appropriate to seek an injunction restraining a breach of contract).
(H)
The common law remedy is available as of right. The equitable
remedies are discretionary. Factors that go to judicial discretion
include laches; clean hands; and, most significantly, the issue of
whether damages would or would not provide an adequate remedy
to the plaintiff. Where the subject matter of the contract is unique,
it is likely that damages will not be an adequate remedy.
(I)
Depending on the seriousness of the breach, the innocent party
may have the right to rescind or terminate the contract. The usual
test of whether the right to terminate exists is whether the
contractual term is categorised as a condition (right to terminate
exists), a warranty (damages only), or an innominate or
intermediate term (whether the breach acts as a condition or a
warranty depends on how seriously the innocent party is affected
by the breach).
(J)
A party who purports to terminate for breach and is found not to
have the right to terminate will be regarded as having repudiated
the contract. The “non-terminating” party can choose to accept the
repudiation and claim damages, or to reject the repudiation and
seek to enforce the contract. Unreasonable delay, without more,
will generally not be sufficient to constitute repudiation (Neeta
(Epping) Pty Ltd v Phillips (1974) 131 CLR 286; Laurinda Pty
Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR
623).
(K)
These general principles need to be considered in the light of
statutory modifications to the law of contract – for example,
Trade Practices Act 1974, Contracts Review Act 1980, Fair
Trading Act 1987.
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4
Some applications of the principles
4.1
The standard contract for sale and breaches of contract
There are numerous provisions in the standard contract for sale of land
which are capable of being (and are, from time to time, in fact) breached.
Some include:

Payment of the deposit on time (particularly in an era of
increasing use of “staggered” deposits – the 0.25% then 9.75%
approach).

Submission of a transfer within the time specified in the contract.

Sending of a section 109 certificate in strata matters.

Delivery of vacant possession.

The purchaser being a foreign investor caught by clause 22 of the
contract.
And most importantly:

Failure to complete within the time specified in the contract.
Practitioners could no doubt add to this list.
Most of those provisions are best categorised as warranties rather than
conditions – although note that clause 22 is an essential provision, and the
provision about payment of deposit is also essential, with the rider that the
right to terminate is lost once the deposit is paid properly.
Notably, the time for completion is, by virtue of clause 15, a “fixed but
inessential” time.
This last point has occasionally led to a comment by those who should
know better that “the contract says six weeks, but you really have eight
weeks”. The logic being that because the time nominated for completion is
not of the essence, there will be a period of time after the expiry of the due
date (usually a minimum of fourteen days) before anything “nasty”
happens. If “nasty” is defined as the termination of the contract, and (where
the purchaser is in breach) loss of the deposit, and exposure to a claim for
unliquidated damages or for expenses on re-sale, that is arguably correct. If
“nasty” is defined as ANY unpleasant or financial consequences, that is, on
general contractual principles, not correct – see principles D and I above.
Contracts for the sale of land are not somehow exempt from the principle
that breach of a non-essential term grounds a claim for damages – for High
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Court authority see Legione v Hateley (1983) 57 ALJR 292; Louinder v
Leis (1982) 56 ALJR 433.
4.2
Additional provisions and the obligation to complete
Absent an additional provision in the contract, a breach by one party of the
obligation to complete by the completion date will give rise to an
entitlement to unliquidated damages, and may entitle the innocent party to
issue a notice to complete (if that party is otherwise entitled to do so),
requiring the party to complete within a specified time (which must be
reasonable in the circumstances existing at the time of issue of the notice)
from service of the notice. It has been said that a notice to complete makes
the time for performance of the obligation to complete “essential” where
previously it had been “inessential”. Another way of looking at the
consequences is to provide evidence that a party who has failed to comply
with the terms of such a notice has repudiated their obligations under the
contract.
Many practitioners (particularly those acting for vendors) regard the terms
of the standard contract as providing insufficient protection or clarity. In
particular, the prospect of suing for unliquidated damages is unattractive.
The calculation and specifying of a “reasonable” time for compliance with
a notice to complete is uncertain. Hence the use of arguably the most
commonly encountered additional provisions – one specifying that a stated
number of days (14 seems popular) will be reasonable and sufficient time
for compliance with a notice to complete, and another quantifying the
damage suffered if completion does not occur by the due date (the latter
clause frequently, and rather unfortunately, described as a “penalty
interest” clause).
Given the popularity of these clauses, why are they not incorporated into
the standard contract?

Courts have consistently stated that where the contract states a
time for completion, the reasonableness of the time allowed is to
be assessed not at the date of the contract, but at the date of
service of the notice – see, for instance, Michael Realty Pty Ltd v
Carr [1977] 1 NSWLR 553; Georgiou v Sindel (1982) NSW
ConvR 55-074; Zaccardi v Caunt [2008] NSWCA 202. Any
attempt in the printed form of contract to state a single reasonable
time appropriate to all transactions in which the contract will be
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used would be unlikely to be successful, and at worst, may be
positively misleading.

The frequently encountered “special conditions” about liquidated
damages almost invariably deal only with the consequences of
delay by the purchaser, and say nothing about what should happen
if the vendor is guilty of the relevant delay. To some extent it is
understandable that a clause inserted by a vendor’s practitioner
will focus on the situation where the vendor suffers detriment. It is
also fair to say that it is frequently far easier to quantify a vendor’s
loss on delay (by reference to the cost of continuing to service an
existing mortgagee, or the lost opportunity to invest funds), than
to assess the purchaser’s loss if the vendor delays (indeed, it
would be common for a purchaser to be financially better off by
reason of a vendor delay in settlement). The drafters of the
standard contract have not been able to devise a clause in the
printed form which provides an appropriate balance between the
interest of vendor and purchaser, and in particular, sets out an
appropriate remedy for a purchaser confronted with a delaying
vendor. (Any suggestions in that regard are encouraged!).
4.3
The recipient’s position when confronted with a notice to
complete
Cases about the validity of, and responses to, notices to complete continue
to dot the litigation landscape.
First, some general pointers which may provide an aide memoire to issuers
and recipients alike:

Clause 15 of the standard contract does not attempt to codify the
law of notices to complete. The general law, largely developed
through the courts of equity, is incorporated into the contractual
provision.

A notice to complete is a species of the wider class: a notice to
perform (or, as it has been described by Young CJ in Equity, as a
quasi-notice to complete). The notice to complete should only be
used where the issuing party is seeking the other party perform
their contractual obligation to complete. If a party is seeking to
ensure that the other party performs any other contractual
obligation, the appropriate machinery is via a notice to perform.
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The distinction can be significant because a series of cases have
held that issue of a notice to complete may be read as a waiver of
what would otherwise be rights of the issuing party (see Falconer
v Wilson [1973] 2 NSWLR 131).

A notice to complete is a two-edged sword. The issuer should be
certain that they will be ready to complete in accordance with the
terms of the notice, otherwise the other party may (with a sigh of
relief, perhaps) rely on the issuer’s notice to terminate the contract
(Castle Constructions Pty Limited v Fekala Pty Limited [2002]
NSWSC 76).

Where a date for completion is stipulated in the contract, and one
party fails to complete without the consent of the other party,
the notice to complete can be issued as soon as the stipulated date
has passed (Louinder v Leis (1982) 56 ALJR 433). On the other
hand, if the originally stipulated date has passed by mutual
agreement, a notice cannot be issued unless there has been a new
date fixed for completion first, and that date passes. Furthermore,
the party fixing the new date must allow a reasonable time for the
other party to get ready to complete – that “reasonable” time will
probably be at least five working days (Strickland v Grieve (1996)
NSW ConvR 55-762; Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd
(1996) 7 BPR 14,959).

The issuer must, at the time of giving the notice, be free of any
relevant default. Ideally, there should be no default at all by the
issuer at the time the notice is issued. If the default is such that it
is not causing the other party’s failure to complete, it will be
sufficient that the default is cured by the time appointed for
completion under the notice (McNally v Waitzer [1981] 1 NSWLR
294 – payment of a land tax liability).

The issuer must be ready, willing and able to proceed to
completion (as distinct from complete).

The notice must allow a time for compliance that is reasonable at
the time the notice is given. Additional clauses in contracts
“deeming” a specified number of days to be reasonable will not be
conclusive (although they may be helpful) – not least because the
relevant time to assess the notice is when it is issued, not when the
contract is formed. There is High Court authority that “strong
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circumstances” would need to exist to justify a notice giving less
than 14 days to comply (Sindel v Georgiou cited earlier).

Time is calculated not from the date of issue of the notice, but
from the date it is served within the meaning of the contract
(Zaccardi v Caunt [2008] NSWCA 202).

The notice must state with reasonable explicitness:

what is required to be done (that is, to complete), and
also

what will happen on non-compliance.

The onus of proving the validity of a notice to complete lies with
the party purporting to terminate for non-compliance with the
notice (Lavery v Nelson (1984) NSW ConvR 55-169).

The recipient of the notice should firstly consider its validity, and
promptly raise any doubts about validity with the issuer. Where
the recipient may be unable to comply with the notice, they should
also consider whether they are able to make a proposal to the
issuer to mitigate any losses the issuer is suffering from (for
example, interest foregone on the balance of the price if issued by
the vendor, or accommodation costs if issued by the purchaser).
Such a proposal may not only lessen the likelihood of the issuer
proceeding to the next drastic step, but might also be relevant to
the exercise of any judicial discretion – for example, a purchaser
seeking relief against forfeiture of their interest under the contract,
or statutory relief such as an order for the refund of deposit under
section 55(2A) Conveyancing Act 1919.
5
Cases on notices to complete and notices to perform
In Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] 10 BPR 18,371; [2001]
ANZ ConvR 159; [2001] NSW ConvR 55-964; [2000] NSWSC 1171;
[2001] ACL Rep (Issue 1) 355 NSW 7, the issue was compliance with a
special condition 45, together with handwritten amendments somewhat
inelegantly added (and apparently without the knowledge of the chief
executive of one of the parties). To borrow the terminology of Young J (as
then he was), the clauses are set out “warts and all” below:
45.
The vendor warrants that it will obtain approval from the
Waterways Authority to install and construct a second jetty to the
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foreshore of the common property and will cause the owner’s
corporation to grant and mark exclusively the use of the second
jetty to the purchaser and that the by-law required to pass the
exclusive use to the purchaser will be secured prior to completion
on this contract in favour of the purchaser by procuring an
irrevocable power of attorney from the owners of Lot 1 & 2 in the
strata plan.
Such by law passed in the same manner and agreed for the benefit
of the proprietor of Lot 1 in the Strata Plan in accordances with
annexure A of this contract.
(The handwritten document):
Special condition No 45
The vendor & purchaser agreed that in the event of the vendor
obtain approval of the water way authority for the installation &
construction of a second jetty that the vendor will cause the
owners corp the pass a by law convert exclusive use of the 2nd
jetty to the purchaser & subject to such approval the purchaser
should then pay vendor 1,250 an additional $50,0000 - above that
contract price.
The vendor and successor agreed that the exclusive use of the
second jetty shall will be carried out in the same manner as the
exclusive use by-law which the vendor as contractor &
undertaken to give the purchaser lot (1) the sp. in accordance
with annexure (A) of this contract.
Neither the strata by-law nor the approval from Waterways was
forthcoming.
The vendor issued three consecutive notices to complete, and eventually
purported to terminate, pursuant to the third notice. The purchaser denied
the validity of each of the notices on the basis that the vendor was not at
any time ready to complete because of non-compliance with the “jetty and
by-laws” provisions.
The vendor then sought declarations that the contract had been validly
terminated, and mesne profits.
The purchaser lodged a cross-claim originally seeking rectification of the
contract to effect a reduction in the price if the jetty could not be obtained.
Relatively late in the litigation, the relief sought in the cross-claim was
changed to specific performance.
His Honour first considered the characterisation of clause 45 (as amended
by the handwritten clause) [at 15 to 19]:
15.
“Warranty” is a word with a breadth of meaning. In Finnegan v
Allen [1943] KB 425, 430 Lord Greene MR said:
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‘Warranty’ is one of the most ill-used expressions in the
legal dictionary, but in its essence it is contractual in
nature ...
16.
The ordinary meaning of “warranty” is “promise” and one should
not confuse this ordinary meaning with the subsidiary meaning of
a term of a contract which is not as fundamental as a condition. In
Oscar Chess Ltd v Williams [1957] 1 WLR 370, 374 Denning LJ
said:
I use the word ‘warranty’ in its ordinary English meaning
to denote a binding promise. Everyone knows what a man
means when he says ‘I guarantee it’ or ‘I warrant it’ or ‘I
give you my word on it’. He means that he binds himself
to it. That is the meaning it has borne in English law for
300 years ... During the last 50 years, however, some
lawyers have come to use the word ‘warranty’ in another
sense. They use it to denote a subsidiary term in a contract
as distinct from a vital term which they call a ‘condition’.
In so doing they depart from the ordinary meaning, not
only of the word ‘warranty’ but also of the word
‘condition’.
17.
Accordingly I do not favour Mr Cashion SC’s contention that in
special condition 45 the word “warrants” leads to the view that
the vendor’s obligation does not go to the heart of the contract,
but is a subsidiary term of the contract. In my view it has its
ordinary meaning which is “promise”. However, ordinarily a
promise given by warranty is of an existing fact, such as that
beans are of best quality or that a ship is seaworthy. Here, the
promise is that the vendor will obtain an approval. Ultimately all
this means is probably that it would be more difficult to establish
a breach. The jetty was included as part of the property sold, the
vendor has promised to see that it is properly and lawfully
constructed and, were it not for the handwritten insert, in my
view if the vendor could not fulfil that promise it might not be in
a position where it could it was ready, willing and able to
complete the contract so as to be able to give a notice to
complete.
18.
The next question then is does the insertion of the handwritten
document alter the position? The intent of the insertion is that if
the vendor fulfils its promise the purchaser is to pay a further
$50,000 (although the insertion contains an additional zero, the
intention is fairly clear). Does the insertion mean that the parties
have agreed that if the warranty is not fulfilled the only
consequence will be that the vendor does not obtain the
additional $50,000?
19.
The use of the past tense in the insertion and the heading on the
insertion being “Special Condition No 45” show that the parties
intended that the handwriting was not an additional condition but
was explanatory of what they had already agreed in the words of
special condition 45. It does not seem to me that it was intended
to abrogate anything that the purchaser was to obtain under
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special condition 45. In my view it is insufficient to transmute the
vendor’s obligations in such a way that it can demand
completion, merely forfeiting the $50,000 bonus. This is
reinforced by the fact that the jetty is included in the contract.
His Honour went on to consider a lengthy line of cases as to the ability of a
party to give a Notice to Complete where that party is not ready, willing
and able to complete [paragraphs 20 to 28]. His Honour held the final
purported Notice was invalid, and so the vendor’s claim had to fail.
The case of Park v Brothers [2001] NSWSC 88; [2001] ACL Rep (Issue 5)
355 NSW 21; (2001) NSW ConvR 55-973 concerned a contract to
purchase a farming property at Hay for a price of $3,350,000. The
purchaser was obliged, under the contract, to make a payment of $150,000
in relation to water rights. The purchaser had occupied the property and
undertaken farming before contracts were exchanged – special conditions
in the contract reflected this arrangement. That payment had to be made on
or before 7 October 2000; the due date for completion was 7 December
2000. (The chronology in the judgment is a little confusing – the date of
the contract is expressed to be 25 January 2001, but the due date for certain
contractual obligations are dates in 2000). Payment of the water levy was
not made by 7 October. On 23 November the vendor’s solicitors wrote to
the purchaser’s solicitors refusing a requested variation of the contract and
reminding them of the due completion date. The matter was not ready to
settle on 7 December. On 12 December the vendor issued a Notice of
Rescission for breach of the term regarding payment of the water levy.
His Honour Mr Justice Young held that the contract was still on foot.
The key issue in the decision was whether the time stated in the “water
payments” special condition was essential or not. His Honour found that it
was not (at paragraphs 34 to 38):
34
Section 13 of the Conveyancing Act 1919 provides that a time
condition must now be construed in equity the same way as it was
before 1919. This means that the onus is on the person alleging
that time is essential to show that this is so; see eg Tilley v
Thomas (1867) LR 3 Ch App 61, 67.
35
There are some indications that the parties intended time to be
essential, the most obvious being the provision that the vendor
could issue a notice of rescission. However, the great bulk of the
indications are the other way. First, there is the provision in
standard condition 21.6. Then there is the fact that the payment of
$150,000 was a very small matter, comparatively speaking, in a
contract of over $3 million. Thirdly, there was a provision for
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interest for a default in special condition 9. Fourthly, the parties
obviously intended that the purchasers should go into immediate
occupation and sow crops. A provision for automatic termination
at the will of the vendor, for the non-payment of about 4% of the
total purchase price, is hardly likely to be in their contemplation.
36.
Thus in my view, on its proper construction, time was not of the
essence in special condition 22.4.
37.
It was open, of course, for the vendor to give a quasi notice to
complete making time of the essence before doing this particular
act. The vendor did not do that. Mr Rogers says that requiring a
notice to complete in these circumstances would defeat the whole
purpose of special condition 22.4. With respect, I cannot see how
this is so.
38.
That seems to me to be the end of the case because if the vendor
was not entitled to rescind on 12 December 2000, then the
contract is still on foot. The purchasers want it specifically
performed and it is just a matter of standing the matter over to
deal with any other problems and then making the appropriate
order for specific performance.
His Honour then went on to consider the meaning of the word “rescission”.
Both Counsel submitted the word in the special condition was to be given
the same meaning in printed condition 19. His Honour was not entirely
convinced that the submissions were correct (see the discussion at
paragraphs 41 to 54 of the judgement). Furthermore, a conversation
between the parties in mid-October, and the letter from the vendor’s
solicitors on 23 November, constituted a waiver by the vendor.
An appeal to the Court of Appeal by the vendor as to quantum was
successful in reducing liability to about one-third of the original award –
Brothers v Park and Anor [2004] NSWCA 241. The issue of quantum was
further ventilated in the High Court, resulting in the restoration of the
original orders at first instance – Park v Brothers [2005] HCA 73.
In Nelson v Bellamy [2000] NSWSC 182 (3/3/2000, per Simos J), the
plaintiff claimed that by contract for sale of land dated 19 September 1996,
she agreed to sell and the defendant agreed to purchase a property at
Wamberal for a price of $285,000. There was a 10% deposit, and
completion was conditional upon registration of a plan of subdivision that
was, in effect, a dual occupancy subdivision. The plan was registered, the
defendant notified and the due date for completion passed. A Notice to
Complete was issued on behalf of the vendor, with a nominated date of 19
February 1997. Completion did not occur in accordance with the Notice.
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The plaintiff further claimed that on 20 February 1997 the purchaser
repudiated the contract by purporting to terminate it. The plaintiff accepted
this purported repudiation, and filed proceedings seeking damages.
The purchaser’s defence alleged a failure to provide vacant possession as
contemplated by clause 17.1 of the contract (presumably the 1996 edition).
The purchaser also mounted a cross-claim, alleging breaches of the Fair
Trading Act 1987 by the vendor. The alleged breaches are set out in the
judgement [at paragraph 6]:
(a)
that the second dwelling in the course of construction on the land
had been sold to a purchaser ‘off the plan’ for about $335,000.00
and that the difference in price arose because the second dwelling
included a swimming pool;
(b)
that construction of the dwelling, the subject of the contract, on
the land would be completed by about December 1996 and that
the second dwelling would be completed by about January 1997,
by which time the driveway to the land would be commenced and
completed by about March 1997;
(c)
that the cross-defendant would supply and install wrought iron
gates on the land, as depicted in a plan produced to the crossclaimant by the cross-defendant, such gates to incorporate a sail
pattern to match the canopy at the front of the house and to have
the words ‘Villa Tuscany’ incorporated into the metal work of the
gates and that such gates would be delivered and installed by the
end of September 1996;
(d)
that an iron gate would be installed by the cross-defendant in a
gap in the brick boundary wall to the land and that such gate
would match the gates referred to in paragraph 4(c) and that such
gate would be delivered and installed by the end of September
1996;
(e)
that door handles for the internal doors and window latches for
the windows had already been purchased by the cross-defendant
and would be left in the house;
(f)
that a range hood would be supplied and installed by the crossdefendant in the kitchen of the dwelling and that it would be large
and of solid stainless steel construction, that it would be delivered
to the site within one week following the cross-claimant’s
inspection of the property and installed above the gas hotplate in
the kitchen and that a cupboard in Lupus Blue’ would be installed
to the side of the range hood.
As to the issue of vacant possession, the offending “rubbish and materials”
particularised by the defendant was:
1 large wooden pallet, 3 wooden brick pallets, quantity of concrete
blocks, quantity of pine board flooring off cuts, quantity of timber off
cuts, 1 circular pole, broken concrete blocks, quantity of loose dried
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cement, quantity of other builder’s rubble and used materials and two
‘for sale’ sign boards.
On this issue, Simos J held for the vendor [at 30-31]:
30.
The parties agreed that the relevant test to be applied was that
stated in Cumberland Consolidated Holdings Limited v Ireland
(1946) KB 264 at 271, namely, that in order to constitute a breach
of a vendor’s obligation to give vacant possession material left on
the property must be “an impediment which substantially
prevents or interferes with the enjoyment of the right of
possession of a substantial part of the property.”
31.
In my opinion, the items referred to above which were present on
the property at the relevant time were not, within the meaning of
the relevant principle, “an impediment which substantially
prevents or interferes with the enjoyment of the right of
possession of a substantial part of the property.”
It appears that the total cost of removing the offending items would have
been of the order of $600.
The contract also provided that the vendor would undertake certain works
at or prior to completion. Special conditions 23 and 26 (reproduced at
paragraph 70 of the judgement) provided:
23.
Prior to completion the vendor is to install in a proper and
workmanlike manner and supply the following which are to be
included in the purchase price:
(a)
Supply and installation of one cream aluminium window to
the pantry room 600 x 1000.
(b)
Supply and installation of one stainless steel Extractor fan
above gas hotplate with blue kitchen cupboard to match
existing kitchen in Lupus Blue.
(c)
Supply and installation of kitchen cupboards to under
ISLAND BENCH, to match existing kitchen as follows:
(i)
under sink cupboards with doors;
(ii)
open corner supports for garbage bin;
(iii) open shelf for microwave;
(iv)
26.
partion shelf for dishwasher side, dishwasher not
supplied.
(d)
Supply and install kikuyu turf to area on patio of
approximately 4 metres x 3 metres.
(a)
Prior to completion the vendor agrees to do the following
works in a proper and workmanlike manner, complete the
top capping to top of courtyard walls, increase the height
of the common courtyard wall by 40cm or two blocks,
subject to council approval, which will be applied for by
the vendor as soon as possible after the date of this
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contract, will install washout blocks in the east and south
walls with finishing and pointing to suit (not rendered),
will removal masking paper around windows in bedroom 2
and will install a window in the pantry, will complete
internal painting to internal walls around doors and
windows, will detail silicone around basin in bathroom,
will complete painting around vanity basin in bathroom,
will affix handles to dressing table in bedroom 1 and will
apply finish to timber cupboards in bedroom 1, to fill the
gap between roof and wall on northern wall in main
bedroom above robe to prevent egress of water and
animals and complete painting of gap between the
brickwork and tiles in the north wall of bedroom 1.
His Honour characterised these provisions as warranties rather than
conditions or innominate terms, based on the well-established principles in
cases such as Tramways Advertising Pty. Limited v Luna Park (NSW) Ltd.
(1938) 38 SR(NSW) 632; DTR Nominees Pty. Limited v Mona Homes Pty.
Limited (1978) 138 CLR 423 and Hongkong Fir Shipping Co. Limited v
Kaasaki Kisen Kiasha Limited (1962) 2 QB 26. It follows that, to the
extent any of these obligations was not performed (and there were detailed
findings that some, but not all, of the matters were not performed by the
vendor), they did not justify the purported termination by the purchaser.
It follows that the vendor validly terminated the contract. His Honour then
considered the authorities [paragraphs 142 to 145], and the competing
merits [paragraphs 146 to 152], relating to a refund of the deposit to the
purchaser under section 55(2A) of the Conveyancing Act 1919. His
Honour’s decision [paragraphs 153 to 155] was in favour of the purchaser:
153. There is no doubt in my mind that both the plaintiff and the
defendant suffered financial hardship arising from the fact that
the contract, the subject of the present proceedings, was not
completed on the date anticipated, the plaintiff much more so
because of her more vulnerable financial position at and prior to
the completion date. It cannot be suggested, however, in my
opinion, that the defendant was in any way responsible for the
plaintiff’s financial position prior to that date. In the same way, it
cannot, of course, be suggested that the plaintiff was responsible
for the defendant’s financial position prior to that date.
154. Moreover, in my opinion, it is also the case that the defendant
cannot be regarded, for present purposes, as relevantly
responsible for the plaintiff’s financial difficulties following the
non-completion of the subject contract. It might have been
otherwise if the defendant had refused to complete without any
arguable basis for so refusing and if it had been established that
her refusal to complete was coupled with an intention to cause
the plaintiff damage or injury. It is plain, however, that such was
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not the case, even though the defendant has been unsuccessful in
the final analysis in her attempt to establish her entitlement to
refuse to complete. In those circumstances, in my opinion, for
present purposes, the conscience of the defendant is relatively
unaffected notwithstanding the somewhat technical nature of
some of the arguments and alleged breaches on the part of the
plaintiff propounded on behalf of the defendant. In the same way,
however, it cannot be said, in my opinion, that the plaintiff’s
conscience was in any way affected by the financial and other
consequences for the defendant of the contract on being
completed. So in that respect, in my opinion, for present
purposes, it cannot be said that the conscience of the plaintiff was
relevantly affected by any of those matters.
155. On the other hand, in my opinion, the plaintiff did resell the
subject property at a very considerably higher price than the
contract price albeit approximately one year later. Principally, by
reason of that consideration, but also having regard to all the
relevant circumstances of the case as adverted to above, I am of
the opinion that it is just and equitable that the deposit should be
repaid to the defendant.
The “very considerably higher price” was of the order of 25% above the
original contract price.
His Honour then considered the various heads of recoverable damages
[paragraphs 156 to 188].
Finally, His Honour considered the relevance of the Fair Trading Act
1987. His Honour ultimately found that the representations alleged were
either true (and not misleading or deceptive), or on the probabilities, the
recollection of the vendor as to what was said was to be preferred to the
recollection of the purchaser. Of wider relevance is the threshold question
of whether the conduct of the vendor was “in trade or commerce”.
Reference was made to the decisions of Argy v Blunts & Lane Cove Real
Estate Pty. Limited (1990) 26 FCR 112 and O’Brien v Smolonogov (1983)
53 ALR 107, which are frequently cited as authority for the proposition
that a sale by a vendor of “non-business related” real estate will not be in
trade or commerce. Interestingly, on this point, His Honour had this to say
[at paragraph 200]:
Although the matter is not free from doubt, I am of the opinion that the
better view is that, as a question of fact, the sale of the subject property,
and the representations alleged to have been made in connection
therewith, were made in the course of trade or commerce within the
meaning of the Fair Trading Act 1987. I am of this opinion, principally,
because the sale of Villa Tuscany was not merely the sale of a private
dwelling house in which the vendor lived, but was rather the sale of a
dwelling which had been specifically built for resale at a profit, albeit
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that the profit was to be used to reduce the debts of the vendor
(plaintiff), and that the vendor (plaintiff) did live in that property for a
limited period of time, but always with the intention of living in the
other building, namely, Villa Umbria permanently, or at least
indefinitely. In my opinion, that part of the overall development of the
single site into two properties, which involved the sale of one of those
properties, namely, Villa Tuscany, at a profit, was, as a question of fact,
carried out in the course of trade or commerce according to the ordinary
meaning of those words and within the meaning of the Fair Trading Act
1987 because the transaction was of a commercial or business
character. In my opinion, whilst repetitive conduct may well be
characteristic of most trade or commerce, a single transaction of the
nature of the present transaction may for present purposes, nevertheless
be held, as a question of fact, to have occurred in the course of trade or
commerce.
The case of Australian Mortgage and Properties Pty Ltd v Baclon Pty Ltd
and ors [2001] NSWSC 774; [2001] ACL Rep (Issue 10) 355 NSW 58
occupied seven hearing days (and six appearances in the Expedition List)
before Austin J. In large part, the time occupied by this case appears to be
due to the lack of legal representation, on behalf of the plaintiff, for most of
the hearing. His Honour’s judgement contains a detailed exposition of what
His Honour referred to as “a chequered history in a procedural sense” [at
paragraphs 5 to 52], and constitutes a useful caveat for anyone who is
minded to undertake Supreme Court litigation without full legal
representation.
By contract (2000 edition plus additional typed special conditions) dated
20 September 2000, Baclon agreed to sell to Australian Mortgage for a
price of $1,395,000. Among the special conditions were what might be
called “typical” clauses regarding a 14 day notice to complete and 12%
interest on the balance of the price if late settlement occurred. The deposit
(approximately 5% of the price) was released on exchange. The
purchaser’s address was noted as being care of an accountant’s office.
One other special condition is of significance. Special condition 12 was in
the following terms:
The Purchaser acknowledges that she is aware that a Development
Application for the building of a 4 bedroom 2 storey residence has been
approved by the Council of the Municipality of Woollahra and annexed
hereto and marked with the letter ‘B’ is the Development Application
No 5/00 dated 11 July 2000. The Purchaser acknowledges and agrees
that she will accept the property subject to the aforesaid approval and
will make no requisition, objection, claim for compensation or rescind
or terminate this Agreement in respect of the said approval or any
matter contained in the said annexure.
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His Honour noted that a section 66W certificate had been provided,
although the form of certificate showed no indication that the purchaser
was a company, and to whom on behalf of the company any explanation
may have been provided [at 62].
The transaction also involved a deed of licence, also dated 20 September
2000. The terms are extracted at paragraphs 64 to 75 of the judgement. The
property was to be occupied at no fee if completion of the purchase
contract took place by 1 November 2000; thereafter an occupation fee of
$200 per day was to apply.
The first correspondence of significance occurred about four weeks after
exchange, being a letter in which the vendor’s solicitors noted that
requisitions had been waived and calling for a transfer and adjustments.
Some time between that letter and 1 November, it appears an issue was
raised by Mrs Howard, an undischarged bankrupt and the mother of a
director of the purchaser company, about sighting the original of an earlier
Development Application. Subsequently it was suggested on behalf of the
purchaser that the failure to comply with this request meant the vendor was
not ready, willing and able to issue a notice to complete. His Honour
rejected this contention [at 83-86].
The vendor’s solicitors issued a Notice to Complete on 9 November 2000
and a second Notice to Complete on 6 December 2000. His Honour held
that each notice was validly issued [paragraphs 89 to 109]. The
significance of the second Notice may in part be explained by
correspondence between the solicitors then acting for the purchaser and the
vendor’s solicitor confirming that a document furnished by the vendor’s
solicitors “satisfied the outstanding requisition” [at paragraph 97].
Late on 22 December 2000, the vendor’s solicitors prepared
correspondence terminating both the contract for sale and the licence
agreement. The contract-related letter was posted on 22 December 2000;
the licence-related letter on 26 December 2000. It was a busy period – in
fact the office of the vendor’s solicitor had intended to close for the
Christmas break at noon that day.
On 13 February 2001, the vendor purported to re-enter and take possession
of part of the premises. His Honour found in favour of the vendor in
relation to the re-entry.
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On 14 February 2001 the then solicitors for the purchaser made a proposal
(rather sketchy in detail) to re-activate the matter and effect settlement.
On 15 February 2001 the purchaser sought various orders in the nature of
declaratory relief. The vendor cross-claimed seeking declarations as to the
validly of its actions, and certain related orders. This action triggered
various cross-claims by Mrs Howard against various parties, including her
two children who were the directors of the purchaser.
His Honour found in favour of the vendor on all points (including a claim
for the balance of the 10% deposit recoverable by special condition in the
event of default).
As to the claims by Mrs Howard, all these failed. As to some of the claims,
His Honour considered she did not have standing to seek the relief, and
that section 36C of the Conveyancing Act 1919 did not assist her
[paragraphs 146 to 148]. A lack of evidence of readiness, willingness and
ability to complete the purchase contract was also fatal [at paragraph 150].
In addition to highlighting the risks of vendor-purchaser litigation without
proper legal representation, and an analysis of the nature of requisitions,
the case also flags the risks of permitting a purchaser to occupy under
licence if the purchase does not proceed to completion.
6
Relief against forfeiture and section 55(2A)
Conveyancing Act 1919
Section 55(2A) Conveyancing Act provides:
(2A) In every case where the court refuses to grant specific
performance of a contract, or in any proceeding for the return of a
deposit, the court may, if it thinks fit, order the repayment of any
deposit with or without interest thereon.
This statutory provision is distinct from the long-standing jurisdiction of
Equity to relieve against forfeiture of a party’s interest under a contract.
The case of Kestral Properties Pty Ltd v Homes Corporation of Australia
Pty Ltd [2000] NSWSC 1129; [2001] ACL Rep (Issue 1) 355 NSW 3
(29/11/00, Windeyer J) involved a rather unexceptional transaction. The
plaintiff entered into a contract to purchase from the vendor/defendant
property at Wollongong, under contract for sale dated 10 September 1999.
The purchase price was $1,150,000. The contract provided for a deposit of
5 per cent (namely, $57,500) and, in addition, provided in special condition
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15(b) that if the deposit agreed to be paid was less than 10 per cent, and the
vendor became entitled to forfeit the deposit, the purchaser would, upon
demand, pay to the vendor the difference between the amount that would
have been 10 per cent and the amount actually paid, with the intent that the
full 10 per cent of the purchase price would be forfeitable by way of
deposit. The contract was terminated by the vendor for failure by the
plaintiff to complete it on 3 December 1999, notice of termination being
given on 6 December 1999. It had already been determined, as a separate
preliminary issue, that the contract was validly terminated. The issue
before His Honour related to a claim by the plaintiff purchaser that the
deposit be returned to the plaintiff.
His Honour found for the vendor. The key comments of His Honour are at
paragraphs 13 to 16 of the judgement:
13.
What has to be decided in a case such as this is whether or not it
would be unjust and inequitable to allow the vendor to retain the
deposit to which it is entitled under the terms of its contract. This
is a matter entirely within the discretion of the Court but it must
be found that, within those terms, that the vendors should not
retain the benefit of the contract and should therefore not be
entitled to forfeit the deposit.
14.
There is no purpose in going through decided cases all of which
depend entirely upon their own facts because it is an entirely
discretionary matter. Nevertheless it is correct to say to that, in
my view, all the principles are addressed in the decision of
Justice Santow in Terry v Permanent Trustee Australia Limited
(1995) 6 BPR 97544. One of the matters which is generally taken
into account in considering these questions, apart from the
question as to whether there is any sharp conduct or unfair taking
of advantage by the vendor, is whether or not there is some
evidence of a windfall which is available to the vendor as a result
of the termination of the contract and therefore the ability to resell or perhaps develop. In this case there is no such evidence.
15.
I accept that in the case where a contract is terminated and the
property is sold almost immediately afterwards for an increased
purchase price of perhaps 20 or 30 per cent then this is such an
advantage to the vendor that it would be unjust to allow him or
her to forfeit the deposit or retain the deposit and take the benefit
of the windfall as well. There is no such evidence in this case.
There is no evidence of unfair practice in my view.
16.
The defendant vendor is entitled to enforce the contract and
therefore to forfeit the deposit in accordance with the contract. It
follows from that that the balance of the summons should be
dismissed and that the cross-claimant should have the order
which is sought under the cross claim.
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Another case in which the purchaser succeeded in an application under
section 55(2A) is Kylsilver Pty Ltd v One Australia Pty Ltd (SC) [2001]
NSWSC 226; (2001) 10 BPR 18,543; [2001] ANZ ConvR 362; (2001)
NSW ConvR 55-971 [2001] ACL Rep (Issue 6) 355 NSW 27.
The proceedings arose out of six separate contracts for sale of vacant
suburban residential allotments. They were sold by the plaintiff to the first
defendant, by separate contracts of sale exchanged on 23 February 1998.
The plaintiff was a land developer and subdivider. The first defendant
conducted a business of organising first home buyers (generally what the
judgement described as “deposit challenged” purchasers) into homes by
purchasing and reselling land to them and assisting them to organise
finance and the services of a builder. The second defendant was the
controller and a director of the purchaser; the third defendant, the spouse of
the second defendant, was also a director.
The contracts contained the following relevant special conditions:
16.
In the event that the deposit paid by the Purchaser upon the
exchange of this Contract is an amount which is less than ten
percent (10%) of the purchase price, the Purchaser shall pay such
further sum increasing the deposit to the amount which is ten
percent (10%) of the purchase price upon completion or
termination of this Contract. If this Contract is terminated, and
the Purchaser fails to pay such further sum to the Vendor, the
Vendor shall be entitled to recover it from the Purchaser as
liquidated damages, in addition to any other moneys due and
payable to the Vendor pursuant to any other provisions of this
Contract.
17.
Provided that the Purchser [sic] complies with all terms and
conditions of this contract, the Vendor shall allow a rebate of the
purchase price at settlement of Ten Thousand Dollars
($10,000.00).
18.
Completion of this matter will take place on but not before 3rd
July, 1998 or within three (3) calendar months of written
notification by the Vendor’s Solicitors to the purchaser’s
solicitors of registration of the plan of subdivision, whichever is
the later.
Each of the Glenwood contracts also contained a provision (clause 10) for
the payment of 18 per cent interest if the contract was not completed on
time and (clause 11) for the giving of a 14-day notice to complete if the
contract was not completed by the completion date.
Settlement did not occur within the time limited in the contracts. Notices to
complete were issued by the vendor. There was an appointment made for
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settlement, but settlement did not occur apparently because of a dispute as
to the applicability of the rebates. The vendor served notices of
termination, and the purchaser treated those notices as a repudiation. The
plaintiff subsequently resold the lots at a windfall profit of about $157,000.
The vendor sued the purchaser in the District Court for the shortfalls in the
deposit. The proceedings were removed to the Supreme Court. In the
Supreme Court the purchaser filed a cross-claim seeking relief on five
bases:
1.
That the first defendant was induced to enter into the contracts by
a misrepresentation to the effect that the rebate of $10,000 would
be allowed on completion, whether or not there was compliance
with the term of the contracts as to the date of completion.
2.
Rectification to coincide with a pre-existing oral contract
containing a term to the effect that the rebate of $10,000 would be
allowed on completion, whether or not there was compliance with
the term of the contracts as to the date of completion.
3.
Conventional estoppel arising from the fact that the parties to the
contracts proceeded on a common assumption that the rebate
would be allowed on completion, whenever completion took
place.
4.
Estoppel because the first defendant proceeded under an
assumption that the rebate would be allowed on completion,
whenever completion took place, which assumption arose from or
was induced by the conduct of the plaintiff.
5.
Section 55(2A) of the Conveyancing Act 1919.
His Honour found in favour of the purchaser on the section 55(2A) claim.
The main points to note:

His Honour followed the decision of McLelland CJ in Eq in
Socratous v Koo (1993) NSW ConvR 55-685, to the effect that
relief could be granted under the section as to the whole of the
deposit even though the full 10% had not been paid [paragraph
13].

The Court followed the frequently quoted formulation of principle
as expressed by Street CJ in Eq (as he then was), in Lucas & Tait
(Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR
268 at 272 - 273:
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It is one thing to recognise that there is a wide discretion
conferred upon the court under this section; it is another
thing to determine the guidelines for the exercise of that
discretion. The section was designed to provide relief to a
purchaser against an unjust and inequitable consequence
of forfeiture of a deposit. It is clear enough that at law a
vendor’s right to forfeit a deposit to himself in the event of
a purchaser’s default bears no necessary relation to the
damages actually suffered by a vendor. At law a forfeited
deposit could result in a vendor making a profit which in
justice and equity he ought not to be permitted to enjoy at
the purchaser’s expense.
In a complementary sense, an order for the return of the
deposit does not necessarily affect the vendor’s right to sue
a defaulting purchaser at law and recover against him such
damages as the vendor can prove. The jurisdiction under
s55(2A) does not give to a court an overall discretionary
supervision of monetary adjustments between parties to a
contract under which a deposit was paid but which has
been terminated. A vendor who forfeits a deposit in strict
enforcement of his legal rights is not to be deprived of it
under s55(2A) unless it is unjust and inequitable to permit
him to retain it. If the court would not, in its discretion,
specifically enforce the contract against the purchaser,
then it may follow that it would be unjust and inequitable
to allow the vendor to retain the deposit. In appropriate
cases he should be left to prove the damages payable to
him by the defaulting purchaser in accordance with the
established rules governing the measure of damages, rather
than simply pocketing the deposit, which might in some
cases exceed the damages which would properly be
recoverable by him at law. Equity has always looked with
disfavour upon penalties or stipulations which result in a
party to a contract making a profit at the expense of a
defaulting party. It is clear that where the court in its
discretion refuses specific performance, whether or not it
also orders repayment of the deposit under s55(2A), it will
still remain open to the vendor to sue the defaulting
purchaser and recover against him whatever damages may
be due to the vendor at law in the event of the contract
having gone off through the purchaser’s breach. The
ordinary principles of contract law and of damages stand
untouched by this section except in so far as it operates to
qualify the ordinary right of a vendor to forfeit and retain a
deposit.
Just as the judges whose words I have quoted declined to
put a limiting gloss upon the scope of the section, I decline
to state my view upon where the boundaries of the
discretion are to be drawn. Specific instances of its
application are to be found in the cases. They all, however,
come under the general category of circumstances in
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which the court held it to be just and equitable to deny to
the vendor the enjoyment of a forfeited deposit.
Attempted classifications within this general category will
tend only to obscure rather than to elucidate the approach
to the exercise of this statutory discretion.

The onus of proof lies on the purchaser [paragraph 14].
Having found in favour of the purchaser on this ground, His
Honour considered it unnecessary to deal with the other grounds
listed above.
His Honour did, however, make some concluding comments
which might be considered by those practitioners who enter into
contracts involving rebate arrangements [at paragraph 17]:
17.
The last argument of the plaintiff is that the discretion
ought be exercised against the first defendant on a lack of
clean hands basis: the inflation of the purchase price by
$10,000 per lot was to deceive lenders. Whatever may be
said of this conduct, which cannot be characterised as
worthy, it did no harm to the plaintiff, which willingly
participated in it for its own purposes (bearing in mind my
acceptance of Mr Sayer’s version of the conversation of
January 1998). I do not propose to refrain from exercising
my discretion in the first defendant’s favour on this
ground.
Subsequently His Honour found the personal defendants not liable
as indemnifiers: [2001] NSWSC 611.
On 7 October 2003 the High Court handed down two important decisions
on the principles governing whether relief against forfeiture should be
available where a purchaser defaulted in performing an essential obligation
under a contract.
The cases are Romanos v Pentagold Investments Pty Ltd [2003] HCA 58
and Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57.
In each case the purchaser was unsuccessful.
In each case there was a joint judgment by Gleeson CJ, McHugh J,
Gummow J, Hayne J and Heydon J. Kirby J and Callinan J delivered
separate, concurring judgments.
A consideration of progress and reasoning in the courts below is useful.
In Tanwar Enterprises Pty Ltd v Cauchi (2002) NSW Conv R ¶55-994
(NSWSC per Windeyer J); Tanwar v Cauchi (2003) NSW Conv R ¶56-048
(NSW Court of Appeal) the contract provided for a fixed but non-essential
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completion date with which the purchaser did not comply. The contract
was first terminated by the vendor for non-completion by the purchaser in
August 2000, but following negotiations the contract was reinstated. The
parties entered into a deed varying the original contract. The deed
relevantly provided:
1.
The Notice of Termination dated 20th August, 2000 is withdrawn.
2.
Completion of the sale to take place by 4.00 pm on Monday 25th
June, 2001, time of the essence.
3.
The Purchaser will pay to the Vendor on completion the moneys
as set out in the annexed settlement statement (after making
adjustments for outgoings).
...
6.
The Purchaser acknowledges that the contents of this Deed are a
final arrangement to complete the sale of the Property. If the
Purchaser does not complete the sale in accordance with the
provisions of this Deed the Purchaser will:
(a)
forfeit all moneys paid pursuant to the Contract for Sale
and acknowledges the Vendor’s rights under clause 9 of
the Contract for Sale;
(b)
withdraw any caveat against the property;
(c)
not commence any Court proceedings to dispute the
Vendor’s termination of the Contract for Sale.
The parties agreed to settle at the Office of State Revenue on the afternoon
of the last day available, Monday, 25 June 2001. Tanwar’s sources of
finance included foreign sourced funds to be provided by second
mortgagees. Mr Cormack, of Corrs Chambers Westgarth, acted for those
second mortgagees. He attended at the settlement meeting and informed
the parties that his clients were unable then to proceed. Earlier on 25 June,
Mr Cormack had become aware that the Singapore authorities were
conducting additional checks on certain international money transfers;
hence the delay. However, he told those present that the funds should be
available on the next day.
That came to pass and, on 26 June, the funds were received from Singapore
into a trust account conducted by Mr Cormack’s firm. On that morning,
Tanwar’s solicitor informed the vendors’ solicitor of this and that
settlement could proceed. However, the vendors already had given
instructions to terminate the contracts and confirmed those instructions
when informed that the second mortgagees were now in a position to
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proceed to settlement. Thereafter, on the afternoon of 26 June, notices of
termination were issued.
At first instance, and in the Court of Appeal, the purchaser failed in an
application for relief against forfeiture, and also in an application for a
refund of deposit under section 55(2A) Conveyancing Act 1919. The
purchaser appealed to the High Court.
In Pentagold Investments Pty Limited & Anor v Romanos & Anor [2001]
NSWSC 269; (2001) NSW ConvR 55-987; [2001] ACL Rep (Issue 6) 355
NSW 32 (Windeyer J, 12/4/01); [2001] NSWCA 425 (Court of Appeal,
12/12/01), Pentagold contracted to purchase three properties from
Romanos. Clause 17 (presumably a Special Condition 17) of the contracts
provided that a ten per cent deposit was to be paid to the purchaser, as to
one-tenth upon exchange of contracts and as to nine-tenths upon approval
of a Development Application for the site. Special Condition 19 provided
that the purchaser would obtain Council approval for the erection of units
on the properties. Clause 2 of the standard contract (which appears to be
the 1996 edition) provided, inter alia, that time was essential in the
payment of the deposit. The combined effect of Special Condition 9 and
Clause 9 was to ensure that, in the case of a breach of the contract by the
purchaser, the vendor was entitled to retain a ten per cent deposit.
Contracts were exchanged on 15 September 1999 and one tenth of the
deposit was paid then. The development application was approved on 24
November 2000, and the purchasers received notice of this on 1 December.
Windeyer J found that between 1 and 11 December, there were discussions
between the parties about release of part of the deposit in order to enable
the vendor to purchase another property. On 19 December 2000, without
having given any prior notice, the vendors gave notice to the purchasers
terminating the contracts. On 20 December, the purchasers paid the balance
of the deposits.
The purchasers filed summons seeking declarations for specific
performance of the contracts and relief against forfeiture. The trial judge
dismissed the summons, but, pursuant to s55(2A) of the Conveyancing Act
1919, ordered the vendors to refund to the purchasers the whole of the
deposit. During the course of hearing, the purchasers sought to have a letter
written by their solicitor admitted into evidence to demonstrate that the
failure to pay was the result of inadvertence, and to re-open their case so as
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to call the solicitor to give evidence on this point. The trial judge admitted
the letter only as proof of the fact that it was written, and refused leave to
re-open. The purchasers challenged the finding that a claim for relief
against forfeiture had not been made out, and the decision on admission of
the solicitor’s evidence. The vendors cross-appealed against the trial
judge’s decision in relation to the Conveyancing Act.
The Court of Appeal by majority (Sheller JA, Mason P agreeing; Giles JA
in dissent) upheld the appeal, and found that relief against forfeiture should
have been granted. The Court of Appeal further found that the trial judge
had correctly exercised his discretion in not allowing the purchasers to reopen the case.
The first question considered by Windeyer J was whether there was a
breach of contract. The purchasers knew of the approval at about 5 pm on
Friday 1 December 2000. His Honour considered (and this was not
challenged on appeal) that the reference to payment “upon” notification of
the approval must mean that the purchasers had to pay the balance of
deposit within a practicable time of notification – so payment during the
following business day would not have put the purchasers in breach.
(Having said that, the provision in the contract about the time for payment
of the balance of deposit may better have been expressed by nominating a
specific number of days – and a time – following the purchasers becoming
aware of the approval).
The appeal contained a detailed analysis of the nature of a deposit.
Reference is made to decisions such as Brien v Dwyer (1978) 141 CLR 378
– CA at 20-21.
The main issue of the appeal was the availability of relief against forfeiture.
The Court of Appeal analysed the principles in the High Court decisions of
Legione v Hateley (1983) 152 CLR 406 and Stern v McArthur (1988) 165
CLR 489, among other cases.
From these cases, the Court of Appeal usefully summarised the principles
to be considered in relation to applications for relief against forfeiture. I
quote from the judgement:
36.
From these citations these material statements of principle can be
derived:
(a)
on principle there is no reason why the grant of relief
against forfeiture as preliminary to an order for specific
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performance should not be made if it will not cause
injustice but will on the contrary prevent injustice;
37.
(b)
if there be fraud, mistake, accident, surprise or some other
element which would make it unconscionable or
inequitable to insist on forfeiture of the purchaser’s
interest under the contract because he has not performed in
strict accordance with its terms there is no injustice to the
innocent party in granting relief against forfeiture by
means of specific performance with or without
compensation;
(c)
fraud, mistake, accident or surprise do not exhaust the
scope of unconscionable or unconscientious behaviour;
(d)
where it is possible to state that the object of the
transaction and of the insertion of the right to forfeit is
essentially to secure the payment of money fraud, accident,
mistake or surprise are not the basis of the jurisdiction and
the circumstances which will suffice to support the grant
of relief, despite the breach of an essential term, are not
confined and it is not necessary for the party claiming
relief to show unconscionable or unconscientious
behaviour of an exceptional kind;
(e)
the entitlement to relief is not conditional upon
unconscionable conduct on the part of the person against
whom it is sought;
(f)
the general underlying notion is that a person should not be
permitted to use or insist upon his legal rights to take
advantage of another’s special vulnerability or
misadventure for the unjust enrichment of himself.
It is clear enough in the present case that cl 2, and particularly 2.3
and 2.5, of the contract were provisions designed to secure the
payment of money or, put another way, secure a stated result,
namely the payment of the deposit. The question is whether relief
against the consequent forfeiture is dictated not by questions of
unconscionability but by the function of the deposit, the fact that
no notice of intended termination was given and the fact that the
outstanding deposit was paid on the day after the vendors gave
notice terminating. The further question is whether the answer is
affected by the purchasers’ conduct. Was the deposit deliberately
withheld or was payment overlooked?
The Court found that, on the evidence before the trial judge, the last
question could not conclusively be answered.
The Court considered that the purpose of the forfeiture provision was to
secure the payment of the deposit, and so once that payment was made, the
object of the provision was achieved, and the vendor would suffer no loss
if relief against forfeiture was granted [per Sheller J, at 47].
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His Honour continued [at 49-53]:
49.
The consequence of relief against forfeiture is to allow the
purchasers their declaration for specific performance. By that the
vendors obtain what they contracted for leaving aside any
entitlement they may have for damages. The full deposit was paid
by 20 December 2000. To refuse such relief would leave the
vendors with land, which no doubt has increased in value and
which now has the benefit of the development approval, and with
the whole of the deposit. An additional reason why relief should
be granted arises out of the circumstances in which the contract
was terminated more than a fortnight after the breach by the
purchasers of the essential term requiring the deposit to be paid
on 4 December, and without any notice to the purchasers at that
late point that the vendors proposed to rely on the breach unless
the full deposit was paid within a reasonable time.
...
53.
[I]n the present case the date, 4 December, on which Windeyer J
found that the deposit should have been paid, had passed without
any immediate notice of rescission. In my opinion, the failure of
the vendors, after that date had passed, before terminating to give
notice that non-payment within a specified reasonable time of the
balance of the deposit would lead to termination is another factor
which requires that relief be granted …
The dissenting judge, Giles JA would have refused relief against forfeiture
and would have refused the order under section 55(2A).
From that decision the vendor appealed to the High Court. The appeal was
upheld.
A critical issue in Tanwar was the entry into the supplemental deeds.
In a sense, the decision in Romanos is more instructive in the light of the
differing views at various levels of the judicial hierarchy. The joint
judgment in each case makes it clear that there will only be limited
circumstances in which relief against forfeiture will be granted. In
particular, a delay in receipt of funds as happened in Tanwar will not be
sufficient grounds.
A further illustration of the relevant factors in an application for relief
against forfeiture (albeit in an urgent interlocutory matter) is the decision of
Hamilton J in Montano Property Development Pty Ltd v 2-8 Property Pty
Ltd [2002] NSWSC 435.
In this case, interlocutory relief was granted to the plaintiff / purchaser
arising out of the termination (and the immediate aftermath) of a contract
for the sale of a $3 million property at Strathfield. The deposit was
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$140,000. The notice of termination on behalf of the vendor was faxed at
about 5 pm on a Friday afternoon. The key factor in the grant of
interlocutory relief was the behaviour of the vendor and its representatives
in the period immediately following the sending of that fax. To quote from
the judgment of Hamilton J, at paragraphs [3] to [5]:
3.
The plaintiff’s solicitors did not actually see the notice of
termination until the morning of Monday, 6 May 2002. During
the weekend and on the Monday various representations were
made to the plaintiff or its solicitors to the general effect that the
sale should be treated as ongoing, although upon some
conditions. In particular, the evidence shows that on the Monday
morning it was represented to the plaintiff’s solicitors that the
sale could continue, provided it was completed on Wednesday, 8
May 2002 and provided $20,000 was paid forthwith to the
defendant. A cheque for $20,000 was delivered promptly, but it
was then announced for the first time that what was required was
a bank cheque, which should be available by noon. Bank cheques
had to be obtained from Camden and could not be obtained by
noon. It was represented that the sale could still continue,
provided that they were made available later in the day. When
they were brought from Camden in the afternoon the evidence
appears to show that the plaintiff’s representatives were kept
waiting in the defendant’s solicitor’s office, and only after some
time told that the client now for the first time said that it would
not accept the bank cheques and that the property had already
been resold at 3.30 pm to another purchaser. This account of
events in general terms is not only deposed to on behalf of the
plaintiff, but is confirmed by a note made by the defendant’s
solicitor’s conveyancing clerk, which has been put into evidence.
4.
Although the statement that contracts had been exchanged with
another purchaser at 3.30 pm on the Monday were repeated in a
letter from the defendant’s solicitor’s firm, it appeared on the
hearing before me that no new contract had in fact been
exchanged up to the time of the hearing. The evidence at the
hearing did not reveal the identity of the proposed new purchaser,
the price of any new sale, or the terms of or state of the
negotiations for that new sale.
5.
On the basis of these events Mr McAvoy, of counsel for the
plaintiff, put to me that the plaintiff had an arguable case for
relief on a number of bases. Without dealing with all of Mr
McAvoy’s contentions, or going into any of them in any detail,
the case sought to be made out was that the defendant was in
those circumstances estopped from relying upon the notice of
termination. There was claimed to be an estoppel by
representation or alternatively an estoppel by convention. I do not
accept Mr McAvoy’s submission that the entire loss of bargain
was a detriment shown to flow solely from the events of the
Monday, but nonetheless it seems to me that there is an arguable
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case in favour of both an estoppel by convention and an estoppel
by representation.
A recent instructive case on the requirement that a party issuing a Notice to
Complete be ready at the appointed time is Castle Constructions Pty
Limited v Fekala Pty Limited [2002] NSWSC 76.
The plaintiff, Castle Constructions Pty Limited, as purchaser and the
defendants as vendors, entered into a contract on 28 June 2001 for the
purchase and sale of property 7 Rowe Street, Eastwood. The (nonessential) due date for completion was 9 August 2001. The vendors were
selling as mortgagees of the property exercising their power of sale under
mortgage. Castle Constructions claims to have terminated the contract
because the vendors did not complete in accordance with the requirements
of a notice to complete served by the vendors. The plaintiff sought a
declaration as to its proper termination and an order for the return of the
deposit and damages. The defendant, by way of cross-claim, sought
specific performance of the agreement.
The plaintiff was successful (and an appeal against that decision was
dismissed by the Court of Appeal on 7 August 2002).
Unhappily, one of the 37 registered proprietors named as vendors in the
contract died some two months before the date of the contract. Probate was
granted about a week prior to exchange, and the executor was registered by
transmission in about early August 2001.
The contract had been signed on behalf of the vendors by their solicitor “as
agent for the vendors”, which in part explains why the death of a co-vendor
did not come to light earlier.
The sequence of events leading up to the completion date – nominated in a
notice to complete issued by the vendor – is critical, and is set out in
Windeyer J’s judgment (at paragraphs [6] to [13]:
6.
On 19 July 2001 Mr Carter, who was the solicitor acting for the
vendors, wrote to Mr Germanos, the solicitor for Castle
Constructions. That letter included the following:
We look forward to your requisitions on title together with
the memorandum of transfer in due course, bearing in
mind that we have to obtain the signatures of numerous
mortgagees, some of whom is (sic) interstate and some of
whom live in the country.
7.
On 7 August 2001 Mr Carter wrote again to Mr Germanos noting
that the transfer document had not been provided and then saying:
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As we mentioned in our letter of 19 July, the transfer
document will have to be executed by numerous
mortgagees and accordingly require the transfer document
as a matter of urgency.
8.
On 14 August 2001, Mr Carter served a notice to complete, fixing
3.00 pm on 29 August as the time and date for completion
making time of the essence as to both time and date.
9.
The solicitor for Castle Constructions responded to this denying
the ability to give the notice but this was not pursued other than
to make a claim for compensation from the vendor for fixtures
removed. On 27 August Mr Germanos forwarded to Mr Carter a
draft settlement statement and a form of transfer for execution.
Later that day he sent an amended transfer or more precisely
amended annexures which contained the names of the vendor
mortgagees and execution clauses for each of them. He did this
stating that he had become aware that one mortgagee holding his
interest jointly with his wife had died and notice of death
registered and that the interest of Mrs Colburt now stood in the
name of her executors. In fact the notice of death had been
registered prior to the contracts being entered into at the auction
sale, although the deceased joint holder was shown as one of the
mortgagees but not as a vendor. This was a mistake of Mr
Germanos, but the information as to the estate of Mrs Colburt
was not due to any mistake of his.
10.
Mr Carter, for the vendors acknowledged the letter by fax
transmission on 27 August and gave directions as to payment of
the balance of the settlement moneys apparently being satisfied
with the purchaser’s figures. There was some further
correspondence on 28 August about those figures and a claim for
compensation and it is apparent that Mr Germanos accepted the
claim by Mr Carter for interest.
11.
By a separate letter dated 28 August Mr Carter wrote to the
purchasers care of their solicitors referring to the notice to
complete and then saying:
We hereby advise that we waive the requirement for your
client to complete at 3.00 pm on Wednesday 29 August
2001 at the offices of Nugent Wallman & Carter, solicitors
at 388 Edgecliff Road, Woollahra.
The vendors now require you to complete the contract for
sale of land at 7 Rowe Street Eastwood NSW being Folio
Identifier 10/785746 at 3.00 pm on Wednesday 12
September 2001 at the offices of Nugent Wallman &
Carter at 388 Edgecliff Road, Woollahra.
We note that time will not cease to be of the essence.
In the event that you fail to complete at that time, the
vendors will regard themselves as entitled to terminate the
said contract for sale.
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12.
Mr Germanos attended for settlement at 11.55 am on 29 August
at the offices of the vendors’ solicitors. He had with him the
necessary cheques and he had instructions to settle. Mr Carter
said that the vendors were not ready: they had not signed the
transfer and he had extended the settlement date. Mr Germanos
said that this could not be done unilaterally and Mr Germanos
disagreed. The bank cheques were produced for inspection by Mr
Carter and after that Mr Germanos left the office. He returned
again at 2.55 pm and once again Mr Carter said that the vendor
was not able to settle and would not be able to settle that day. On
return to his office after 3.00 pm Mr Germanos sent a letter
giving notice of termination.
13.
It took Mr Carter until to 11 September to have the transfer
signed by all the necessary vendors. On that basis it seems that
the vendors would have been able to settle on 12 September 2001
if the notice purporting to extend or vary the completion date was
effective.
His Honour held:

The vendor was bound by the terms of the notice to complete
issued on the vendor’s behalf. In particular, a party issuing a
notice cannot unilaterally extend the notice.

The failure of the purchaser to submit a transfer on time did not
excuse the vendor from the obligation when issuing a notice to be
able to settle at the appointed time. The failure of the vendor to
supply title particulars to allow the purchaser to prepare a transfer
was a contributing factor in this case. The issue of the notice
effectively waived the purchaser’s late compliance. A prudent
practitioner with multiple vendors should have prepared and had
executed a transfer in sufficient time.
The decision of Windeyer J was upheld on appeal: Fekala Pty Ltd v Castle
Constructions Pty Ltd [2002] NSWCA 297.
The remaining matter for resolution was an inquiry into the damages
sustained by the purchaser. In Castle Constructions Pty Limited v Fekala
Pty Limited & Ors [2004] NSWSC 672, Berecry AM assessed the damages
sustained at $3,698,000 (at [38]). However, the failure of the purchaser to
take all reasonable steps to mitigate its losses by, for instance, failing to
take up the opportunity to purchase an alternative site at Cammeray,
disentitled the purchaser to any damages (at [75] to [78]). The Acting
Master further held that the failure of the purchaser to take up the vendors’
offer to complete after the termination had occurred was not unreasonable,
given that one of the mortgagors had threatened litigation arising out of the
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aborted sale (at [61] to [62]). In an appeal from the Acting Master’s
decision (Castle Constructions Pty Ltd v Fekala Pty Ltd and Ors [2005]
NSWSC 642), Palmer J considered that the key issue was not mitigation of
damages, but causation. His Honour observed (at [48] to [52]):
48
In my opinion, Castle’s loss of the profits of the Eastwood
Property venture was not at all caused by the fact that Fekala was,
for a matter of days, unable to procure all necessary signatures on
the Memorandum of Transfer. Castle had by that time decided
that the venture was too risky; it had tried, unsuccessfully, to
persuade Fekala to release it from the contract. When the
opportunity arose for Castle to escape the contract because of
Fekala’s temporary difficulty in obtaining all of the
co-mortgagees’ signatures, Castle seized that opportunity with
alacrity and terminated the contract. Thereafter, it resisted
attempts by Fekala to procure it to continue with the acquisition.
49
In those circumstances it is clear, in my opinion, that whatever
loss of profits Castle may have suffered from not proceeding with
the Eastwood Property venture was caused, not by Fekala’s
breach of contract in failing to deliver an executed transfer on
time, but rather by Castle’s independent decision that it did not
wish to proceed with the venture at all. To use the words of
Robert Goff J in Koch, the decision of Castle not to proceed with
the contract was an independent decision, independent of the
wrongdoing but taking place in the context of a pre-existing
breach of contract by Fekala. The loss of the profits of the
venture did not, therefore, arise out of, nor was it in any real
sense caused by, Fekala’s breach of contract.
50
In my opinion, an innocent party to a contract cannot claim from
the contract-breaker damages for the loss of profits from a
transaction which the innocent party chose not to undertake for
its own business reasons and which the breach of contract gave it
an opportunity to avoid. Put another way, when Fekala breached
the contract, Castle chose not to proceed with the venture because
of all of the commercial risks involved. Now, Castle seeks by
way of damages for breach of contract the profits of that venture,
freed of all of the commercial risks. In popular parlance, that is
called trying to eat your cake and have it too. Such an endeavour
has the same result in the law as it does in real life.
51
The only damages flowing from Fekala’s breach of contract in
failing to complete on 29 August 2001 which Castle was properly
entitled to recover were, as Fekala submitted, legal and
architects’ costs and expenses thrown away by the termination of
the contract or loss of bargain damages equal to the difference
between the contract price of the Eastwood Property and its
market price as at the date of breach. However, Castle chose not
to claim these heads of damages and led no evidence as to the
market value of the Eastwood Property as at the date of breach of
the contract. The Acting Master was not able, therefore, to assess
damages under these heads.
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Orders
52
For the reasons which I have given, I respectfully differ from the
grounds upon which the Acting Master held that Castle was not
entitled to damages for loss of profits. I do not think that this is a
case in which the purchaser has failed to mitigate its damages for
loss of profit flowing from a breach of contract. Rather, I think
that it is a case in which the breach of contract did not produce
the loss of profit for which the purchaser contends.
The purchaser’s appeal was dismissed. The purchaser then unsuccessfully
appealed to the Court of Appeal; Castle Constructions Pty Limited v
Fekala Pty Limited & Ors [2006] NSWCA 133; (2006) 65 NSWLR 648.
The majority (Mason P, with whom Beazley JA agreed) agreed with the
Acting Master that the purchaser failed to mitigate, but relied not on the
failure to purchase the alternative property but rather on the failure to
complete with the vendor of the Eastwood property (at [54] to [56], [80] to
[83]). Bryson JA would have dismissed the appeal on the basis of the
finding by Palmer J that the loss of profits suffered from not proceeding
with the original contract was not caused by the breach but by the
purchaser’s independent decision that it did not wish to proceed with the
venture at all (at [98] to [99]).
For a case considering the formal requirements of a valid notice to
complete, which considered, among other cases, the Fekala litigation, see
Tuedwell Pty Ltd v J C Craig Constructions Pty Ltd [2003] NSWSC 450
(23/5/03 per Palmer J). Contracts were exchanged on 10 September 2002.
The (non-essential) date for completion was 19 November 2002. The
purchasers were not ready. A notice to complete issued on behalf of the
vendor on 20 November with the due date for completion 4 December. By
letter of 2 December the purchaser’s conveyancer denied the validity of
that purported notice because 14 days was not a reasonable time for
compliance. This contention was rejected by the vendor’s solicitor by letter
of 3 December, which went on to state:
However, in good faith and to afford your client further time to
complete but without prejudice to my client’s rights under the Notice
and otherwise for your client’s breach, my client agrees to vary the
Notice by extending the time for completion under the Notice to
provide that completion is to take place on or before 3.00 pm on
Friday 20 December 2002. Time is and remains of the essence.
By letter of 19 December the purchaser continued to deny validity of the
notice. No settlement occurred on 20 December, and on 23 December the
vendor terminated the contract.
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On the issue of the reasonableness of time for compliance, His Honour
found for the vendor (at [13] to [16]):
13
While the reasonableness of the time for completion given in a
notice to complete depends upon the particular circumstances of
the case, it is, generally speaking, accepted that fourteen days is
the norm: see, for example, Castle Hill Tyres at 14,964 per
Young J (as his Honour then was). In Sindel v Georgiou (1984)
58 ALJR 515, at 518, the High Court, while referring to a case in
which the circumstances justified a six day notice to complete,
said that strong circumstances must be shown to justify the giving
of a notice to complete which allows less than fourteen days for
completion.
14
In the present case, the First Defendant had already had seventy
days to complete the contract before the Notice to Complete was
given. Clause 15 of the contract entitled the Plaintiff to serve a
Notice to Complete once the date for completion had passed, if it
was otherwise entitled to do so. Mr Skinner has not submitted
that the Plaintiff was not lawfully entitled under the contract to
serve a Notice to Complete on 20 November. The Notice required
completion by the 85th day after exchange.
15
There was no evidence of any particular difficulty in which the
First Defendant was placed by the giving of a notice requiring
completion by 4 December. All that Mr Bahar said about the
notice, and said repeatedly, was that the time for completion
therein given was insufficient. He did not say why it was
insufficient, either in his correspondence or in evidence in this
case.
16
In those circumstances, bearing in mind that, as the High Court
has said in Sindel at 515, it is very much a matter of impression
whether the stipulated time for completion given in a notice is
reasonable in light of the facts of a particular case. I am of the
opinion that the time for completion given in this case was
reasonable and that the Notice to Complete was valid.
His Honour further held that, in the light of the Fekala case, the purported
unilateral extension by the vendor of the time for compliance with the
notice to complete was ineffective. However, the termination on 23
December was justified for failure to comply with the time and date
originally nominated in the notice.
7
Caveating in disputed conveyancing transactions
Most contracts for the sale of a lot in an unregistered plan contain a
provision forbidding the lodgment of a caveat by a purchaser. From the
vendor’s point of view, such caveats (especially if widely drawn) may
impede registration of the subdivision plan, and therefore delay settlement.
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A further problem is that there is authority for the proposition that where a
caveat is lodged over land that is subsequently subdivided, the caveat
operates over the subdivided parts – Lintel Pines Pty Ltd v Nixon [1991] 1
VR 287.
Does such a clause preclude a purchaser from lodging a caveat?
The short answer is, no.
A contractual promise not to caveat is the sort of promise which a court
would, in an appropriate case, enforce by injunction, and will be relevant in
proceedings to remove or extend a caveat (and, of course, will give rise to
an action for breach of contract). For a useful discussion of the principles
in the context of an off the plan purchase, see Australian Property &
Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 and Forder v
Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 10 BPR 18,615; (2001)
ANZ ConvR 391; (2001) NSW ConvR ¶55-966 – the latter case
confirming that the grantee of an option to purchase a lot in an unregistered
strata plan has a caveatable interest.
Whatever may be the basis of restricting caveats by purchasers prior to
registration of a plan of subdivision, it is hard to find any justification in
doing so once the plan is registered. A reasonably drafted additional
provision would, I suggest, expressly confirm this right.
A recent case considering the appropriate precautions to take in purchasing
off the plan, and the possible consequences to the lender to the developer,
is Broster v Brueckner [2003] NSWCA 281.
In July 1997, the respondent entered into contracts to purchase two home
units from The Satellite Group (Ultimo) Pty Limited (“Satellite Ultimo”).
The purchase was made “off the plan”. He paid the whole of the purchase
price to Satellite Ultimo (thereby obtaining the benefit of a much lower
price for the unit). At the time of entering those contracts, he obtained a
guarantee of performance from the directors and secretary of Satellite
Ultimo (one of whom was the appellant in the Court of Appeal).
The contract for sale was in the usual 1996 edition of the Standard Form
Contract of the Law Society and the Real Estate Institute of New South
Wales. Clause 2.8 of the contract provided:
If any of the deposit or of the balance of the price is paid before
completion to the vendor or as the vendor directs, it is a charge on the
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land in favour of the purchaser until termination by the vendor or
completion.
The contract also contained a number of special conditions including
Special Condition 5, which provided:
It is an essential condition of this contract that the Purchaser shall not
lodge any caveat over any part of the title to the land comprising the
Site which shall, or may have the effect, of preventing or delaying the
registration of the consolidated plan of subdivision, the stratum plan of
subdivision, the strata plans of subdivision, the cancellation, release or
registration of any 88B instrument or easement or any right or
restriction referred to in or contemplated by this Contract, or which
might otherwise prevent the registration of any mortgage, discharge of
mortgage, or variation of mortgage to which the vendor is a party and
which mortgage is, or was associated with, the funding of the
acquisition of the site, or the construction on the site of the Building by
or on behalf of the Vendor.
Satellite Ultimo subsequently mortgaged the land, on which it was
proposed to build the home units, to Westpac. Before Westpac took its
mortgage, it was informed that the respondent (and numerous other people)
had entered into contracts to purchase identified home units in the building.
Satellite Ultimo encountered financial problems, and a receiver was
appointed to it soon after the building was completed. Westpac has
exercised a mortgagee’s power of sale in relation to the two units which
Satellite Ultimo had contracted to sell to the respondent.
The respondent had failed to protect its security in the units by caveat. The
expert evidence on that issue was instructive (at [8]):
... it is the usual practice of ... a solicitor to cause a caveat under the
Real Property Act 1900 to be lodged to protect the purchaser’s interest
under a contract for sale when there is a delayed settlement, release of
the deposit, or a perceived unusual risk. He also says it is the usual
practice of such a solicitor to lodge a caveat where a purchaser is
acquiring a property, “off the plan”, and for such a caveat to be lodged
immediately after exchange of contracts.
The trial judge found that a prudent purchaser would have lodged a caveat
(at [9]).
Evidence was given on behalf of Westpac that “... if there had been a
caveat of any description on the property at the time of Westpac making its
advance. ... if [the respondent] had lodged a caveat, Westpac would have
required it to be removed before any money was advanced, but in
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consequence of the lodgment of a caveat Westpac would have had clear
actual notice of [the respondent’s] rights” (at [12]).
As the respondent did not lodge a caveat, the trial judge found, and this
was not challenged on the appeal, that Westpac was not bound by any
personal equity that required it to recognise the respondent’s interest in the
two units. Accordingly, Westpac held title free of the respondent’s interest.
The issue on the appeal was whether the finding of the trial judge was
correct in finding that the damages to which the respondent was entitled
was the amount of damages his Honour awarded against Satellite Ultimo
($579,000), less the contract price of the two units ($275,000), being
$304,000. The appeal was dismissed.
In the light of the issues raised by Black v Garnock, discussed above, the
issues raised by Broster v Brueckner will need careful consideration by
vendors, purchasers and financiers.
For a case considering the wrongful maintenance of a caveat in a different
context, see Marinkovic v Pat McGrath Engineering Pty Ltd [2004]
NSWSC 571 (10/6/04 per Palmer J).
The subject matter of the sale in Marinkovic was a factory. The building
itself was Council approved, but a mezzanine level constructed about two
years about completion of the building proper was not approved. Some
months after the mezzanine was built, Council wrote to the owner
demanding the work be removed within 30 days. The owner wrote to
Council stating he was unaware that approval was needed, apologising, and
indicating he had ordered a stairway to provide fire safety access as advised
by a named Council officer. Council subsequently wrote to the owner in
these terms:
Council has decided to take no further action in regard to the
unauthorised construction of the timber/metal framed storage area
within the existing warehouse, subject to satisfactory construction of
the egress stairs in accordance with the requirements of ordinance 70
and a satisfactory inspection by Council’s district building surveyor.
The inspection took place and the owner heard nothing further.
Eight years later the owner exchanged contracts. The deposit was released
to the vendor pursuant to a special condition in the contract. After
exchange the purchaser made inquiries of the Council about what consents
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existed. This led to correspondence as set out in the judgment (at [11][12]):
11
On 31 January 2001 the solicitors for the defendant wrote to the
solicitors for the plaintiff saying that the mezzanine floor level of
the property did not appear to have any record of approval at
Randwick Council for construction. The letter said that there had
been a pre-contractual representation by the plaintiff that the total
area of useable space in the property was 850 square metres, and
that the apparently unauthorised construction of the mezzanine
floor severely impacted on the character and value of the
improvements. The letter continued:
We would be pleased if you could urgently provide details
of both development approval and building approval for
construction of the mezzanine floor level, the availability
of which floor space was central to the decision of our
client to enter into the contract.
We are further instructed that in the absence of evidence of
such approvals being produced within seven days of the
date of this letter, the instructions of our client are to
rescind the contract for breach of an essential precontractual condition upon the basis of which our client
entered into the contract. Our client also reserves the right
to seek damages.
Defendant’s Enquiries Re Approval of Mezzanine Level
12
There appears to have been no response by the plaintiff's solicitor
to the letter of 31 January 2001. On 14 February 2001 the
solicitor for the defendant wrote again to the solicitor for the
plaintiff, saying:
Further to our letter of 31 January 2001, our client has
made independent inquires at Randwick Council and has
been advised that the mezzanine floor level of the above
property has been constructed without development
approval from the Council. In these circumstances, there
has not only been a breach of a pre-contractual
representation by the vendor, but there is also a breach of
the implied warranty contained in section 52A of the
Conveyancing Act and in accordance with instructions
from our client we enclose herewith notice of rescission
and we require immediate return of a cheque for $79,000
in favour of our clients in return of the deposit.
That letter enclosed a Notice of Rescission. There has been no
criticism of the legal adequacy of the wording of the Notice.
In March 2001, the purchaser lodged a caveat, claiming an interest as
purchaser under the contract.
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In August 2001, each party applied (apparently on the same day) for a
building certificate. After requesting and obtaining certification as to fire
safety, the Council issued building certificates in November 2001.
On 7 December 2001, the vendor entered into a contract to resell the
property. The vendor’s solicitors informed the purchaser under the first
contract of this development, and sought removal of the caveat. The
purchaser wrote to the vendor agreeing to remove the caveat upon payment
of the deposit by bank cheque either at or before settlement of the second
sale. The subsequent correspondence was interesting (at [26] to [31]):
26
There was no response to that letter until 18 January 2002, when
the solicitors for the plaintiff wrote to the solicitors for the
defendant, saying that the new sale of the property would settle
on 21 January 2002 at 2 pm. Again, the solicitors for the plaintiff
threatened that unless they received a Withdrawal of Caveat
proceedings would be commenced for removal of the caveat.
27
By letter of 22 January 2002, the solicitors for the plaintiff wrote
to the solicitors for the defendant again, saying that settlement
had now been fixed for that afternoon at 2 pm. They said:
We confirm we are instructed that an amount of $79,000
shall be held in trust and request that you immediately
prepare a withdrawal of caveat as it is required by this
afternoon at 2 pm.
The letter said that if the matter did not settle, they would
commence proceedings for withdrawal of the caveat.
28
Then occurred a strange piece of correspondence. On 22 January
2002, the solicitors for the defendant faxed to the solicitors for
the plaintiff a document which starts like a letter, under which
they put forward a proposal that the amount of $79,000 be
retained by the plaintiff on terms that it be held in a controlled
moneys account, and paid out only on a joint authority from the
clients, or an order of the Court determining the ownership of the
funds. The faxed letter becomes blank part-way down the page.
This happened because it was a mistake on the part of the
solicitors for the defendant to send that letter at all, and they must
have realised the mistake in the middle of transmitting the fax,
and stopped the transmission.
29
On 22 January 2002, the solicitors for the defendant wrote to the
solicitors for the plaintiff saying:
We are unable to obtain any additional instructions from
our client, which would allow us to provide a withdrawal
of caveat on the basis suggested by your firm. We note that
the deposit moneys were paid by our client and released to
your client, who has used them to his advantage. As our
client claims that it validly rescinded the contract for sale,
it maintains a claim for the return of the deposit.
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Your firm has threatened to take proceedings to seek
orders for the requirement of the removal of the caveat. On
the present evidence available, your client has no proper
grounds to obtain such orders. The true issues in this
matter can only be resolved by determining the validity or
otherwise, of the notice of rescission.
Accordingly, we must advise that our client is not prepared
to withdraw its caveat.
30
The letter foreshadowed that different instructions might be
obtained, but that was the position for the moment. Another letter
of 22 January 2002 explained that the earlier facsimile (see para
[28] above) had been sent in error, and that it had been intended
to be viewed by the defendant for the purpose of instructions.
31
On 23 January 2002 the defendant’s solicitors wrote a further
letter, saying that their client was prepared to withdraw the caveat
on the basis that the clients entered into a Deed of Release where
each party gave up any claims against the other, whereby $70,000
was to be paid to the defendant, and $9,000 paid to or kept by the
plaintiff, and that some District Court proceedings, which the
defendants were threatening, would not be brought.
The withdrawal of caveat was not forthcoming. The re-sale contract was
ultimately terminated by the purchaser. The termination was disputed,
litigated, and settled on terms favourable to the purchaser.
Campbell J held that the purchaser was entitled to rescind (at [45] to [51]).
The issue of relevance to this paper was the maintenance of the caveat, and
Campbell J held that the purchaser had wrongfully maintained its caveat (at
[56] to [62]):
56
… [T]he Court will not permit a caveat to be used as a device for
exerting commercial pressure. In such a case the caveat is
legitimately lodged in respect of a disputed claim, but forces the
registered proprietor to pay out that claim even though it is
disputed. The Court has consistently taken the attitude that where
the caveat claims an interest in land as security for the payment
of money, if the registered proprietor is prepared to put up an
alternative security which is commercially adequate, then it will
remove the caveat even though the caveat may be completely
valid: Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5
BPR 11,987 at 11,991; Gibson v Co-ordinated Building Services
Pty Ltd (1989) 4 BPR 9630; Australian Property & Management
Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 at 15,257.
57
It seems to me that similar principles ought apply to the
construction of section 74P. After all, section 74MA sets out
what is to happen if a person who wishes to have a caveat
removed is able to get to Court and have the Court decide
whether it should or should not be removed. Section 74P deals
with the situation where a person who wishes to have a caveat
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removed has requested that it be removed, but for one reason or
another has not actually gone to Court to seek enforcement of that
request. I see no reason why the test for whether or not the caveat
should be removed ought be different under section 74P to that
applied under section 74MA.
58
In the present case, the defendant, once it had rescinded the
contract, had a clear entitlement to get its deposit back. That
arose under the terms of clause 21 of the 2000 Regulation. Clause
21 of the 2000 Regulation, considered by itself, gave only a
personal right of action to recover the deposit.
59
Clause 2.8 of the Contract for Sale between the plaintiff and
defendant contained a provision that:
If any deposit ... is paid before completion to the vendor or
as the vendor directs, it is a charge on the land in favour of
the purchaser until termination by the vendor or
completion, subject to any existing right.
That clause covers the present situation, where there has been
neither termination by the vendor, nor completion, and confers an
equitable charge on the land, for the amount of the deposit. As
well, there is a general law doctrine whereby an equitable lien
exists for a purchaser’s deposit, where a contract for sale of land
goes off without any default on the part of the purchaser:
Francombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 at
57; Whitbread & Co, Limited v Watt [1902] 1 Ch 835; Combe v
Swaythling (Lord) [1947] Ch 625. A purchaser’s lien of this kind
is a caveatable interest: Ex parte Lord [1985] 2 Qd R 198.
60
Here, the interest which was claimed in the caveat was much
wider than the interest which the defendant was legitimately
entitled to, of a charge or lien to secure repayment of the deposit.
That is not something which seems to have produced any
particular consequences, however.
61
The course of negotiation between the solicitors which I have
outlined shows that the plaintiff had offered, at a comparatively
early stage, to place the deposit into a controlled money account,
to await a court determination concerning who was entitled to it.
The defendant refused to agree to those terms. Instead, the
defendant tried to strike a better bargain for itself, under which
the defendant would be able to dispense with any argument about
who was entitled to the deposit. Its proposal was that it would get
back its $79,000 in exchange for a withdrawal of the caveat (on
18 December 2001), or that it would get $70,000 back plus a
release (on 23 January 2002). Each of these bargains which the
defendant sought to obtain was more than a court would have
required if the matter had gone to Court for an order seeking
removal of the caveat. This was implicitly recognised by the
defendant on 21 February 2002, when it agreed to the caveat
being withdrawn on the basis that $79,000 be paid into a
controlled moneys account. It was the proposal which the
defendant’s solicitor made to the defendant on 22 January 2002,
in the letter part of which was mistakenly faxed to the plaintiff’s
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solicitor. In these circumstances, I am satisfied that the case has
been made out that the defendant, without reasonable cause,
refused or failed to withdraw its caveat after being requested to
do so.
62
Caveators should be aware that they are playing with fire if they
insist on maintaining a caveat when they know that the existence
of the caveat is imperilling settlement of a conveyancing
transaction, and when they have been offered adequate security
for the interest they have in the land.
The purchaser under the first contract was ordered to pay compensation
under section 74P of the Real Property Act (at [71]). The purchaser
received a refund of the deposit plus interest (at [72] to [73]). Each party
was required to pay its own costs (at [77]).
*****
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