June St Clare Buchanan v Catherine Elizabeth Dunstan [2007] NSWSC 248 (19 March 2007)

Last Updated: 26 March 2007

NEW SOUTH WALES SUPREME COURT

CITATION: June St Clare Buchanan v Catherine Elizabeth Dunstan [2007] NSWSC 248


JURISDICTION: Equity Division

FILE NUMBER(S): 5391/05

HEARING DATE{S): 15 & 16 March 2007

JUDGMENT DATE: 19 March 2007
EX TEMPORE DATE: 19 March 2007

PARTIES:
June St Clare Buchanan
v
Catherine Elizabeth Dunstan

JUDGMENT OF: White J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable



COUNSEL:
Plaintiff: J Hyde
Defendant: P King

SOLICITORS:
Plaintiff: Wright Stell Lawyers
Defendant: Segal & Associates


CATCHWORDS:
CONVEYANCING – Contract for sale – Purchaser failed to complete – Property resold – Deficiency in sale price – Deposit forfeited – Whether deposit to be credited against reasonable expenses of resale and purchaser’s default – Held that in a claim for liquidated damages under cl. 9.3.1 of 2000 edition of New South Wales Standard Contract for the Sale of Land the forfeited deposit is only to be set off against deficiency on resale and not against reasonable expenses of resale and purchaser’s default.PROCEDURE – Pleadings – Application for leave to amend pleadings to seek relief against forfeiture – Evidence of prejudice to vendor if leave granted – leave refused.

LEGISLATION CITED:
Property, Stock and Business Agents Act 2002 (NSW)
Conveyancing Act 1919 (NSW)
Civil Procedure Act 2005 (NSW)

CASES CITED:
Tiplady v Gold Coast Carlton Pty Ltd [1984] FCA 280; (1984) 8 FCR 438
Jampco Pty Ltd v Cameron (No. 2) (1985) 3 NSWLR 391
Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; (2003) 58 NSWLR 288
Hansmar Investments Pty Limited v Perpetual Trustee Company Limited [2007] NSWSC 103
Peter Butt, The Standard Contract for Sale of Land in New South Wales, 2 ed, 1998, LBC Information Services
Carpenter v McGrath (1996) 40 NSWLR 39
Cratchley v Bloom (1984) 3 BPR 9432; (1984) NSW ConvR 555-203
Ockenden v Henly (1858) EB & L 485; [1858] EngR 757; 120 ER 590
Consolidated Credit Network Pty Limited v Illawarra Retirement Trust Limited (No. 2) [2005] NSWSC 1007
Eighth SRJ Pty Limited v Merity (1997) 7 BPR 15,189
Clarke v Dilberovic (1982) NSW ConvR 55-083
Poort v Development Underwriting (Vic) Pty Limited (No. 2) (1996) VR 779
Bernard v Weingarth (1997) 8 BPR 15,651 Lucantonio v Ciofuli [2003] NSWSC 1058; (2003) 11 BPR 21,181
Mulkearns & Anor v Chandos Developments Pty Limited (No.4) (2005) 12 BPR 22,993

DECISION:
Direct counsel to bring in short minutes of order in accordance with the reasons.


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


WHITE J

Monday, 19 March 2007


5391/05 June St Clare Buchanan v Catherine Elizabeth Dunstan

JUDGMENT

1 HIS HONOUR: This is a vendor and purchaser suit. On 13 August 2005, the plaintiff was the successful bidder at an auction for the sale of a property at unit 2/767-771 Old South Head Road, Vaucluse. On that day, she entered into a contract to purchase the property from the defendant for $320,000. A ten per cent deposit was paid.

2 On 30 August 2005, the solicitors for the purchaser alleged that at the auction, the auctioneer exercised more than one vendor's bid. On 16 September 2005, the purchaser purportedly rescinded the contract and demanded the return of the deposit.

3 The vendor did not accept the validity of the purported rescission. She did not terminate the contract on the ground that the purchaser had repudiated it. Instead, she sought completion of the contract on 26 September 2005, being the date which the contract stipulated for as the date for completion. The purchaser failed to complete on that day. The vendor then served a notice to complete making time for completion essential. The purchaser did not complete. On 21 October 2005, the vendor terminated the contract.

4 On 18 November 2005, the vendor contracted to resell the property for $301,000. That contract was completed on 22 December 2005.

5 The following issues arise.

(a) First, did the auctioneer make two bids or only one bid on behalf of the vendor?

(b) Secondly, if the auctioneer made two bids, is the contract for sale void or voidable by the purchaser where the second bid, if made, was made openly to the purchaser's knowledge?

(c) Thirdly, if the auctioneer did not make two bids, so that the contract was terminated by the vendor, what is the measure of the vendor's claim for damages under clause 9.3.1 of the 2000 edition of the Standard Contract for Sale of Land published by the Law Society of New South Wales and the Real Estate Institute of New South Wales? In particular, is the vendor required to credit against costs and expenses claimable under the second limb of clause 9.3.1, the deposit the vendor is entitled to forfeit?

6 It is common ground that if the auctioneer did not make two bids, the vendor was entitled to terminate the contract following the purchaser's failure to complete after service of the notice to complete.

The Auction

7 The purchaser did not bid herself at the auction. The bidding was done for her by a Mr John Lyons. She, not he, was registered as a bidder. However, no issue arises about that (Property, Stock and Business Agents Act 2002 (NSW), s 67(3)). Mr Lyons was experienced in dealings in property, and in auctions.

8 The vendor placed the property for sale through Smart Properties Pty Limited, trading as Century 21 Property Group, Double Bay. The auctioneer was a Mr Rodney Smart of Smart Properties Pty Limited. The purchaser and Mr Lyons had inspected the property prior to auction. A person initially identified by the purchaser and by Mr Lyons as "Tracy" from Century 21, Double Bay, showed them over the property. This person was present at the auction. During the course of the hearing she was identified as a Ms Stacey McCahon.

9 The purchaser gave evidence that Mr Lyons started the bidding at $250,000. According to her, and to Mr Lyons, there were initially three bidders, namely, Mr Lyons, a person later identified as a Mr Steve Turner, and a middle-aged female. After bidding slowed in the high $200,000s or low $300,000s, the auctioneer, Mr Smart, announced that he was entitled to bid for the vendor and said that he was going to exercise that right and did so. According to the purchaser, another bid was made at about $305,000 or $310,000. Mr Lyons then made a bid for either $311,000 or $315,000. The purchaser said that Mr Smart then said words to the effect "Come on, John, you can do better than that." In her affidavit, the purchaser deposed that,

“27. There were then approximately four further bids made, whereupon the auctioneer said words to the effect of:

‘I am putting in a second Vendor’s bid.’

28. My recollection is that the figure for the second Vendor bid was around $315,000.00.

29. My Lyons interjected at this point by saying:

‘Hang on, I don’t believe that you are allowed to make more than one Vendor bid.’

Mr Smart responded:

‘I can exercise as many Vendor bids as I want.’

Mr Lyons then said:

‘I don’t think you are right there.’

30. The auction then re-commenced and the person now known to me as Steve Turner made a bid of $317,000.00 and then Mr Lyons made a bid of $320,000 on my behalf.

31. Upon the bid of $320,000.00 the auctioneer knocked the property down to me.”

10 This evidence was corroborated by Mr Lyons. He said:

"17. At about $290,000.00 or $300,000.00 Mr Smart made a bid on behalf of the Vendor and stated words to the effect that it was a Vendor bid.

18. I asked if the Property was on the market at this point and Mr Smart said words to the effect:

‘No. You are close, but not there yet.’

19. I made only one further bid between $300,000.00 and $320,000.00.

20. At either $310,000.00, $312,000.00 or $315,000.00 the auctioneer made a further Vendor bid. He said:

‘I am bidding on behalf of the Vendor.’

21. I interjected and said

‘Mr Smart, I don’t believe that you can have more than one Vendor bid.’

He replied:

‘I can have as many as I like.’

and then I stated:

‘I don’t believe that you are right.’

22. The auction started again and Steve Turner made a bid for $317,000.00 and I then made a further bid for $320,000.00 on Ms Buchanan’s behalf. The auctioneer then knocked the Property down to Ms Buchanan.”

11 The purchaser was cross-examined as to how the auctioneer had made the second bid. She gave the following evidence (at T16-17):

“Q. You have said in your affidavit that when Mr Smart made the alleged second vendor bid he said words 'I am putting in a second vendor's bid'. Is that what he said according to your recollection?

A. Yes, that is correct, words to that effect.

Q. And he didn't use other words, did he?

A. May I ask, such as?

Q. Well, he didn't say words to the effect 'I'm bidding on behalf of the vendor'?

A. Could you please repeat the first statement and then the second one again?

Q. Let me put it another way. Are you sure that the words 'I am putting in a second vendor's bid' were the words that were used?

A. Yes, I am.

Q. And no other words?

A. It may have not been literally those words but it was certainly words to that effect. In other words, he did state he was going to put in another second vendor bid, or a bid, you know, on behalf of the [vendor].

Q. Do you say that anybody took objection to that course?

A. Yes, I do. Mr Lyons challenged Mr Smart and said 'I don't think you are allowed to make more than one vendor bid'.

Q. And you say Mr Smart then did make a further bid, do you?

A. No, I'm saying that was Mr Lyons' response to Mr Smart's second bid.

Q. What was it that Mr Smart did that led Mr Lyons to make that remark at the auction?

A. Putting in a second vendor bid.

Q. What were the words that [were] used, that is [by] Mr Smart?

A. I'm sorry, I thought I said words to the effect 'I am putting in a second vendor bid'.

Q. Well, according to that evidence you have just given, Miss Buchanan, that second vendor bid was never made?

A. That is your assertion, sir. I totally reject what you are saying.

HIS HONOUR

Q. What else do you recall, if anything, him saying when [making or] about making a second vendor's bid?

A. I recall Mr Smart saying words to the effect 'I'm putting in another bid' because the situation was such that the bidding had slowed down, and then Mr Lyons challenged Mr Smart and said 'I don't think you're allowed to put in a second vendor's bid' and Mr Smart replied 'I can put in [as] many bids as I like' and Mr Lyons responded 'I don't think you are right there'.

KING

Q. You say that's all that happened, that was the complete conversation, is it?

A. Well, that is the crux of it, yes."

12 Mr King, of counsel, who appeared for the vendor, submitted that on the basis of this evidence even on the plaintiff's case, although the auctioneer asserted his intention of making a second bid and asserted his right to do so, he did not actually make a second bid. According to the purchaser, that was not her understanding of events. However, it must be said that she did not give precise evidence as to the words by which such a second bid was made.

13 Mr Lyons maintained that Mr Smart made a second bid, although he was not definite as to the price at which the second bid was made.

14 Mr Smart acknowledged that he made a bid on behalf of the vendor at $300,000, but denied making a second bid on behalf of the vendor. In this, he was corroborated by the underbidder, Mr Turner, by the vendor, and by the vendor's mother, Mrs Dunstan. Mr Smart produced a photocopy of a schedule of bids which he said he made during the course of the auction. It recorded:

"250,000 26
260,000 27
270,000 26
280,000 27
290,000 26
300,000
305,000 27
310,000 26
312,000 27
315,00[0] 26
317,000 27
320,000 26
SOLD 320,000 Mr Lyons"

Number 26 was the purchaser bidder’s number. Mr Turner’s bidder’s number was 27.

15 It appears from the face of the schedule that the vendor's bid at $300,000 has been squeezed onto the document, as if it were a later interlineation, although Mr Smart denied this was so.

16 Mr Smart and Mr Turner filed affidavits which, in important respects, were identical. They said that as the bidding slowed at $290,000, Mr Smart said words to the effect:

"Ladies and gentlemen we are not there yet and I think at this level it is too low. I will submit a vendor bid of $300,000 and record that as a bid of $300,000.”

17 According to both Mr Turner and Mr Smart, Mr Lyons then called out, "How many vendor's bids are you going to have, Rod?", and Mr Smart replied with words to the effect of "Just one, John. How many would you like me to have?", and the crowd then laughed.

18 Mr Turner had earlier sworn a statutory declaration in which he said:

"The bidding started at $250,000.00 with the bidder next to me, the same man in the before-mentioned. (sic) I counter bid several times up to $280,00[0] then he (the other bidder) engaged the auctioneer again and said words to the effect ‘how many bids are you going to have?’ to which the auctioneer replied words to the effect ‘just one John, but I would encourage you to have as many as you want’ and we laughed."

19 I think that either there was some confabulation between Mr Smart and Mr Turner, or that the defendant's solicitors prepared a draft affidavit of Mr Turner based on the affidavit from Mr Smart, which Mr Turner was prepared to sign without careful consideration of what he was deposing to. For reasons below, I have reservations concerning Mr Turner's evidence.

20 However, the vendor's case did not rest only on the evidence of Mr Smart and Mr Turner. The vendor's mother, Mrs Dunstan, was present during the auction and she noted down each bid as it was repeated by the auctioneer. She did not hear the exchange about further bids which is said to have passed as banter between Mr Smart and Mr Lyons. She was definite that Mr Smart made only one bid for the vendor. She was unshaken in cross-examination.

21 The auction took place in a small courtyard outside the unit. The unit was on the ground floor. It was a small one-bedroom unit. The vendor was not in the yard where the auction took place. She was in the bedroom but was listening out of the window as the auction proceeded. She said she could hear the bidding and what passed at the auction. She also did not hear an exchange about the auctioneer making more than one bid. She heard the auctioneer make one bid on her behalf but denied that he made a second bid.

22 The purchaser was inclined to take excessive umbrage to the questions asked of her, but otherwise she was not shaken in cross-examination. As I have said, she was unable to say precisely how the alleged second bid was made.

23 However, Mr Lyons' credit was affected by an email he sent to the owner of the Century 21 franchise shortly before the hearing. He wrote:

"There is a dispute relating to the conduct of an auction wherein my girlfriend, June Buchanan, purported to purchase a property. The property auction was conducted by Rodney Smart, who was trading as Century 21 Property Group, Double Bay, but June claims that the purchase has been declared void, due to misrepresentation and the manner in which the auction was conducted. The dispute which is being heard in the Supreme Court this week on Thursday and Friday (15th and 16th March) may have the ability to bring disrepute to that franchise and generally to the reputation of ‘Century 21’.

Subsequent to the date of the auction, 13th August 2005, Rodney Prestia purchased the franchise and proceeded to re-sell the property for Century 21’s vendor, at a loss. Ms Buchanan will be challenging the manner and the way that Century 21 re-marketed the property, and has evidence of misrepresentation and some other issues relating to offences pursuant to the Property, Stock and Business Agents Act 2002. This email is not designed to be offensive nor controversial, but it may be that you, as I understand it being the master franchise holder in Australia, should have a watching brief and/or a legal representative at the proceedings, which matter is known as 5291 of 2005. I have also asked that reporters from the Sydney Morning Herald and the Wentworth Courier attend the proceedings in order that they may form their own views as to Century 21’s conduct.

Should you wish to speak to me on the matter, I am comfortable in having a without prejudice informal chat."

24 It was not true to say that the purchaser claims that the purchase has been, or should be, declared void due to misrepresentation. No such claim is pleaded as a ground for avoiding the contract. I was unimpressed by Mr Lyons' explanation for this statement, namely (at least originally) that, according to him, Mr Smart's denial of making a second bid was itself a misrepresentation on the basis of which (presumably) the contract was declared, or should be declared to be, void. Nor is there any challenge to the way in which Century 21 re-marketed the property.

25 Of most significance to the credit of both the purchaser and Mr Lyons is that on 17 August 2005, which was a Wednesday following the auction which occurred on the Saturday, Mr Lyons wrote a detailed email to Mr Smart about the property. The purchaser saw and approved a draft of this email. The email bears all the hallmarks of the purchaser having had second thoughts about the purchase. Mr Lyons queried whether the attic was within the lot purchased, or whether it was common property. He queried whether there had been previous disputes in the past about the car parking space for the lot. He queried whether there would be space for other lot owners to use a passage of common property if a car were parked in the car space. He asked whether the clothesline was in common ownership, and whether it crossed space belonging to other lot owners. He asked about the rights of lot owners to have access to the laundry. He asked whether any lot owner had the exclusive use of common property, and whether there was provision for off-street parking for residents or residents' guests.

26 All of these inquiries should have been made before the auction. The email contained no express complaint that the auctioneer had made two bids at the auction. This was notwithstanding that, according to Mr Lyons, he had sought legal advice on that matter on the Monday following the auction. There was no corroboration from the purchaser's solicitor as to what instructions were then given to the solicitor by Mr Lyons, or the purchaser, as to what had happened at the auction. There was no corroboration as to what advice was sought at this stage. The only corroboration of that evidence was that on 18 August 2005, the solicitors sent to Mr Lyons a copy of s 66 of the Property (Stock and Business) Agents Act.

27 The email of 17 August 2005 concluded with the following statement:

“Your properly written response will allow us to proceed accordingly, but we should caution you that there are some unresolved issues that are important and could go to the very heart of the validity of the sale."

28 The purchaser and Mr Lyons said this was a reference to the fact of the auctioneer having made two bids on behalf of the vendor. However, if they were then sure that that was what had happened, I can see no reason for Mr Lyons not then asserting that that was the fact, even if he reserved the purchaser's position until he received a satisfactory response to the matters raised in the email.

29 Mr Turner appeared at first to be the only witness called as to the events at the auction who did not have a personal relationship with either of the parties, or who was not the agent for the vendor. However, it emerged in cross-examination that he was the stepfather of Stacey McCahon. It was put to him and to Mr Smart in cross-examination that he was a dummy bidder at the auction. They denied that this was so, and there is no evidence to support the allegation. Of course, if that were the position, it would make it less likely - not more likely - that the auctioneer would announce the making of a second vendor bid.

30 Whilst Mr Turner corroborated Mr Smart, I have reservations as to his evidence. I have already mentioned the duplication of important parts of his and Mr Smart's affidavits. On 22 September 2005, Mr Turner was telephoned by an employee of the purchaser's solicitors, a Mr James Dimos, and asked about his recollection of the auction. He refused to attend a conference, saying that his wife was ill in hospital or had just come out of a major operation. However, on the next day he gave a statutory declaration to the vendor's solicitors. In oral evidence, he explained his unwillingness to assist the purchaser's solicitor as being due to his having been asked whether there were two bids for the vendor at the auction. However, I am satisfied that Mr Dimos did not ask him that question. Mr Dimos did not know that that was the issue in the proceedings.

31 I was also not impressed by Mr Turner's explanation for the change as to his recollection, as initially recorded in his statutory declaration, of the exchange between Mr Smart and Mr Lyons about the making of more than one bid.

32 Mr Smart was unshaken in cross-examination. However, there is a legitimate basis for concern that the original schedule of bids was not produced. His various explanations for the original being missing were unconvincing. That having been said, it is pure speculation to think that any forensic advantage could be obtained from an examination of the original document which is not apparent from the photocopy.

33 Mr Hyde, of counsel, who appeared for the purchaser, submitted that a Jones v Dunkel inference should be drawn against the vendor because Stacey McCahon was not called (Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298). He submitted that such an inference should also be drawn because Mr Rodney Prestia was not called by the vendor. Mr Prestia purchased the Century 21, Double Bay, franchise from Mr Smart. He acted for the vendor on the resale of the property. There was evidence that he was in attendance at the auction.

34 Ms McCahon resides in Victoria and is eight months pregnant. That is a sufficient explanation for her not being called to give evidence on subpoena. There is no evidence as to whether she was willing to swear an affidavit in 2005 or 2006. The evidence elicited in cross-examination of Mr Lyons of what she told Mr Lyons about her recollection at the auction does not suggest that the reason no affidavit was obtained from her was because it would have been damaging to the vendor's case, or to the auctioneer's case.

35 It would have been open to either party to have called Mr Prestia. In any event, the principle in Jones v Dunkel does not require an adverse inference to be drawn against a party merely because not all of multiple witnesses to an event are called. I do not consider that a Jones v Dunkel inference should be drawn against either party arising from the fact that neither Ms McCahon nor Mr Prestia gave evidence.

36 For the reasons I have indicated, I have reservations as to the reliability of the evidence of all of the purchaser, Mr Lyons, Mr Turner and Mr Smart. The vendor herself was somewhat remote from the venue of the auction. Understandably, she is aggrieved that the sale fell through in circumstances where she was without fault. The extent to which her grievance may have affected her recollection of events is difficult to say. However, hers was not the only other evidence. Her mother, Mrs Dunstan, was present. Mrs Dunstan took notes of each bid although she did not keep the notes. As I have said, she heard the auctioneer recording each bid as it was made. Making all allowance for the fact that she is the vendor's mother and might be expected to be partial towards her, I was nonetheless favourably impressed by her evidence. I consider her to have been both truthful and reliable. The fact that she did not hear the asserted exchange about the auctioneer making more than one bid does not detract from the assurance of her testimony that he in fact only made one bid.

37 It is clear from Mr Smart's affidavit, and from other evidence as to his telling the vendor prior to the auction that he could make one bid for her, that he was aware that he was only entitled to make one bid for the vendor. It would be a serious finding against an auctioneer if he made more than one such bid, having regard to s 66(2)(b) of the Property, Stock and Business Agents Act.

38 Having regard to all of the above matters, but particularly the evidence of Mrs Dunstan, I am not satisfied that Mr Smart did make more than one bid for the vendor.

39 It follows that the second issue I identified earlier does not arise. It is also unnecessary to consider whether the vendor should be given leave to amend particulars of a defence of waiver. It also follows that the vendor validly terminated the contract and is entitled to keep the deposit and interest earned on it. The remaining question is whether she is entitled to damages in addition to her retention of the deposit.

Vendor’s Claim for Liquidated Damages

40 Clause 9 of the conditions of contract provides as follows:

"9. Purchaser’s default
If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can -
9.1 keep or recover the deposit (to a maximum of 10% of the price);
9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -
9.2.1 for 12 months after the termination; or
9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and
9.3 sue the purchaser either -
9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover-
· the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and
· the reasonable costs and expenses arising out of the purchaser’s non-compliance with this contract or the notice and of resale and any attempted resale; or
9.3.2 to recover damages for breach of contract.”

41 Unlike previous versions of this clause in the standard contract, clause 9.3.1 does not expressly provide that moneys payable under it are payable as liquidated damages. However, that is its effect (Tiplady v Gold Coast Carlton Pty Ltd [1984] FCA 280; (1984) 8 FCR 438; Jampco Pty Ltd v Cameron (No. 2) (1985) 3 NSWLR 391; Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; (2003) 58 NSWLR 288 at [27]; Hansmar Investments Pty Limited v Perpetual Trustee Company Limited [2007] NSWSC 103 at [37]- [40]).

42 Accordingly, assuming that the clause is a genuine pre-estimate of loss and is not a penalty (notwithstanding that the clause also provides an alternative remedy of general damages) it is no answer to a claim under clause 9.3.1 that in a particular case, a vendor might be over-compensated. The clause, or a similar clause, providing for an election between liquidated and unliquidated damages has been included in the standard contract for sale for decades without being challenged as a penalty. No such challenge was made in this case.

43 As I have said, the vendor resold the property on 18 November 2005 for $301,000, and that contract was completed on 22 December 2005. Between 26 September 2005, when the contract with the defendant should have been completed, and 22 December 2005, the purchaser incurred additional mortgage expenses on her borrowings which were to have been discharged on the settlement of the sale. She also incurred strata levies, rates and other expenses arising from her continued ownership of the property until 22 December 2005. She had vacated the property in anticipation of settlement prior to 26 September 2005.

44 The vendor claimed that the deficiency on resale was $19,000. Against this, she credits the deposit of $32,000 and interest earned on it, reducing the deficiency on resale to zero. She claims the following sums under the second limb of clause 9.3.1:

(a) Additional mortgage fees paid [87 days] - $4,627.51;
(b) Real estate agent fees on resale - $9,122;
(c) Legal costs on resale - $842.40;
(d) Unit levies, [87 days] - $460.70;
(e) Woollahra council rates - $159.73;
(f) Sydney Water rates - $96.20;
(g) Energy Australia rates - $441.06;
(h) Interest on additional borrowings under mortgage, [Ms Dunstan senior] - $2,474.05.

Total: $18,223.65.

45 This claim itself raises the following issues. First, whether the deposit can be set off only against the deficiency on resale pursuant to the first limb of 9.3.1 and not also against the costs and expenses referred to in the second limb. Secondly, if so, whether the real estate agent’s fees and the legal costs on resale are recoverable under the second limb, and are not to be taken into account in assessing the deficiency on resale under the first limb. Thirdly, what amount is recoverable as interest on borrowings by the defendant being the last of the items claimed under clause 9.3.1. Fourthly, whether the purchaser is entitled to relief against forfeiture of so much of the deposit as can be kept by the vendor, without being credited against the vendor's claim for costs and expenses under the second limb of clause 9.3.1.

Set-Off of Forfeited Deposit Against Costs and Expenses Recoverable Under the Second Limb of Clause 9.3.1

46 In Peter Butt, The Standard Contract for Sale of Land in New South Wales, 2nd ed, (1998), Sydney, LBC Information Services, Professor Butt dealt with the equivalent clause in the 1996 edition of the contract. That clause was in materially the same terms as the present clause (see at p ciii). Professor Butt said (at [9.176]-[9.177]):

“[9.176] In determining whether there is a deficiency on resale, any deposit forfeited must be brought into account. This is made express in the first bullet point under 9.3.1. Even in the absence of express mention, the same principle would apply: ‘There can be no deficiency unless the difference between the original price and the resale price overtops the deposit.’ (Mallet v Jones [1959] VicRp 21; [1959] VR 122 at 132; applied in Loughridge v Lavery [1969] VicRp 112; [1969] VR 912 at 929. See also Ockenden v Henly (1858) EB & L 485; [1858] EngR 757; 120 ER 590; Cooper v Ungar [1958] HCA 9; (1958) 100 CLR 510 at 514; Zieme v Gregory [1963] VicRp 34; [1963] VR 214 at 219; Carpenter v McGrath (1996) 40 NSWLR 39. Compare Bullion Sales International Pty Ltd v Fitzgerald [1983] Qd R 215, where the forfeited deposit appears not to have been taken into account.)

[9.177] Must the deposit also be set off against the heads of loss specified in the second bullet point of clause 9.3.1? That is, must it be set off against ‘the reasonable costs and expenses arising out of the purchaser’s non-compliance with the contract or the notice [of termination] and of resale and any attempted resale’? In contrast to the first bullet point, the second bullet point omits any reference to giving credit for the deposit; from this it might be argued that there is no need to give credit for it against the recoverable damages. And so, for example, if there were no deficiency on resale (first bullet point), the vendor could nevertheless recover all the losses listed in the second bullet point without deduction for the deposit; likewise, if there was a deficiency on resale, but it did not exceed the amount of the deposit, the vendor could keep the whole deposit plus any damages recovered under the second bullet point. The argument might derive support from Cole JA’s judgment in Carpenter v McGrath (1996) 40 NSWLR 39 at 74-75, suggest that the deposit is to be set off against the combined amounts recoverable under the first and second bullet points; (As above at 45-46 (Clarke JA, 63 (Sheller JA); both applying Cratchley v Bloom (1984) 3 BPR 9432 (CA)), that is, the amounts recoverable under the first and second bullet points are totalled, and from that total is deducted the amount of the forfeited deposit.”

47 I will consider Carpenter v McGrath (1996) 40 NSWLR 39 later in these reasons. With the greatest respect, I do not consider that Carpenter v McGrath resolves the issue under 9.3.1 as to whether a deposit forfeited to the vendor can be credited against costs and expenses payable under the second limb of that clause.

48 If a vendor sues for unliquidated damages for breach of contract, having terminated the contract for the purchaser's default, the vendor must set off against the damages claimed the amount of the deposit which has been forfeited. In Cratchley v Bloom (1984) 3 BPR 9432; (1984) NSW ConvR 55-203, the Court of Appeal held that pursuant to clause 16 of the 1972 edition of the Law Society and Real Estate Institute’s conditions of contract, the deposit, on being forfeited, should be set off against the deficiency on resale including the expenses of resale. In that case, there was included in the expenses of resale against which the forfeited deposit was credited an expense for rates, which presumably referred to additional rates incurred by the vendor prior to resale. Clause 16 of the 1972 edition provided:

"16. If the purchaser defaults in the observance or performance of any obligation imposed on him under or by virtue of this agreement the deposit paid by him hereunder, except so much of it as exceeds 10 per cent of the purchase price, shall be forfeited to the vendor who shall be entitled to terminate this agreement and thereafter either to sue the purchaser for breach of contract or to resell the property as owner and the deficiency (if any) arising on such resale and all expenses of and incidental to such resale or attempted resale and the purchaser’s default shall be recoverable by the vendor from the purchaser as liquidated damages provided that proceedings for the recovery thereof be commenced within 12 months of the termination of this agreement. The vendor may retain any money paid by the purchaser on account of the purchase other than the deposit money forfeited under this clause as security for any deficiency arising on a resale or for any damages or compensation (including any allowance by way of occupation fee or for rents or profits from a purchaser who has been in possession of the property or in receipt of the rents or profits thereof) awarded to him for the purchaser’s default provided that proceedings for the recovery of such damages or compensation be commenced within 12 months of the termination of this agreement."

49 It may be noted that this clause did not expressly provide for the forfeited deposit to be credited against the deficiency on resale or against the expenses of resale or attempted resale.

50 The Court of Appeal applied the reasoning and the result in Ockenden v Henly (1858) EB & L 485; [1858] EngR 757; 120 ER 590 where the clause was indistinguishable from the then clause 16 of the standard contract: In Ockenden v Henly, Lord Campbell CJ said (at 492, 593):

“... But, the seller having obtained a right to the forfeited deposit and making a further demand of damages sustained on the resale, it becomes necessary to consider what was the nature of the deposit. Now it is well settled that, by our law, following the rule of the civil law, a pecuniary deposit upon a purchase is to be considered as a payment in part of the purchase money, and not as a mere pledge; Sugd V & P ch 1 sect III art 18 (13th ed). Therefore in this case, had the deposit been paid, the balance only of the purchase money would have remained payable. What then, according to the seventh condition, is the deficiency arising upon the resale which the seller is entitled to recover? We think the difference between the balance of the purchase money on the first sale and the amount of the purchase money obtained on the second sale: or, in other words, the deposit, although forfeited so far as to prevent the purchaser from ever recovering it back, as, without forfeiture, he might have done (Palmer v Temple [1839] EngR 175; (9 A & E 508)), still is to be brought by the seller into account if he seeks to recover as for a deficiency on the resale."

51 In Cratchley v Bloom, Samuels JA said (at 9436, 57,415):

“It is certainly clear that a vendor who terminates the contract for breach by the purchaser and then sues for damages may recover the difference between the contract price and the value of the property at the date of determination of the contract together with any incidental expenses flowing from the breach, but must give credit against the aggregate of these items for the amount of any deposit: see Harold Wood Brick Co Ltd v Ferris [1935] 1 KB 613 at 616 (affirmed on a different point which does not touch that in debate here – [1935] 2 KB 198); Voumard & Wikrama, The Law Relating to the Sale of Land in Victoria (3rd ed 1978) p 413; Stonham, Vendor & Purchaser pp 708-10; and McGregor on Damages (14th ed 1980) paras 746 and 747. In point of principle, I cannot see why the rule to be adopted when a vendor sells under the contractual power of sale should differ from that applied in an action for damages at common law. The effect of Ockenden, supra, and of Shuttleworth, supra, supports that view. Hence I agree with Hutley JA that the expenses of resale must also be set off against the deposit."

52 Mahoney JA, whilst agreeing in the result, said (at 9438, 57,417) that the "deficiency on resale" within the meaning of clause 16 referred only to the difference in price between the sale price on the sale and the resale, because the expenses of the sale and of resale were specifically provided for. Cratchley v Bloom established that in the absence of express provision to the contrary a forfeited deposit should be credited against a deficiency on resale even where the deficiency was claimed as liquidated damages under the contract.

53 It also established that in the absence of sufficient indication to the contrary the expenses of resale should be taken into account in calculating the deficiency. However, the condition considered in Cratchley v Bloom is in substantially different terms from the present clause.

54 Carpenter v McGrath concerned the 1986 form of contract. The primary judge in that case awarded damages against the defaulting purchaser representing loss of a deposit which the vendors had placed on a property they were to buy where they could not complete the contract because of their purchasers' default. The primary judge also awarded interest on the purchase price pursuant to an express contractual term. The primary judge also awarded costs and expenses on the sale of the property on which the purchasers had defaulted, the vendors' legal costs and expenses of their aborted purchase of the property where they could not proceed, and loss of income. The primary judge deducted the forfeited deposit from all of these heads of damage. In Carpenter v McGrath, the vendors did not resell the property. The claim was not for liquidated damages.

55 The Court of Appeal rejected the claim for loss of income. It was common ground that the vendors were also entitled to an allowance for removal expenses. The majority of the Court of Appeal, Clarke and Sheller JJA, held that the vendors were entitled to damages representing the loss of their deposit which they forfeited on their own purchase, removal expenses and the legal costs and expenses of the sales of both properties (see 40 NSWLR 39 at 46 and 63). Their honours held that the deposit should be set off against each of these heads of damage. As the forfeited deposit exceeded the allowable damages, the vendors' claim failed. Condition 9 of the 1986 edition of the contract provided:

"If the Purchaser defaults in the observance or performance of any obligation hereunder which is or the performance of which has become essential, the Vendor shall be entitled by notice in writing served on the Purchaser to forfeit the deposit paid hereunder (except so much of it as exceeds ten per centum of the price) and terminate this agreement and thereafter either:

(a) to sue the Purchaser for breach of contract; or

(b) to resell the property as owner and the deficiency (if any) arising on such resale and all expenses of and incidental to such resale or attempted resale and the Purchaser’s default shall be recoverable by the Vendor from the Purchaser as liquidated damages provided that proceedings for the recovery thereof be commenced within 12 months of the termination of this agreement.

The Vendor may retain any money paid by the Purchaser on account of the purchase other than the deposit money forfeited pursuant to this clause as security for any deficiency arising on a resale or for any damage or compensation (including any allowance by way of occupation fee or for rents or profits from a Purchaser who has been in possession of the property or in receipt of the rents or profits thereof) awarded to the Vendor for the Purchaser’s default provided that proceedings for the recovery of such damages or compensation be commenced within 12 months of the termination of this agreement.”

56 As in Cratchley v Bloom, that clause made no express provision for the crediting of the deposit against either a common law claim for unliquidated damages for breach of contract, or against a claim for liquidated damages, being a deficiency on resale and expenses of resale or expenses arising from the purchaser's default. After quoting from Ockenden v Henly and Cratchley v Bloom, Sheller JA concluded (at 63):

“Essential to Lord Campbell's reasoning was the proposition that, but for the provision enabling the vendor to forfeit the deposit and prevent the purchaser from ever recovering it back, any part of the purchase price paid which the vendor had retained and which the purchaser was entitled to recover, had to be brought into account against damages recoverable by the vendor from the purchaser on the termination of the contract, being damages flowing from the purchaser's breach of contract in failing to complete. It follows that if a deposit has been paid by a purchaser and forfeited under the contract, and the damages flowing from such breach total less than the deposit, the vendor may retain the deposit, but if such damages exceed the deposit, the vendor may recover from the purchaser no more than the amount of the surplus.”

57 Clarke JA was of the same view. His Honour observed (at 45) that the "rule" that if the deposit is forfeited it must be set off against any damages, applied both to a deficiency on resale of the property, and to all general damages allowed pursuant to the principles in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145). If that were not so, the vendor would be overcompensated.

58 Cole JA dissented. His Honour held (at 75) that because a deposit is part payment of the purchase price, credit must be given for a forfeited deposit against a deficiency on resale (including expenses). Otherwise, his Honour said, the forfeited deposit need not be set off against a claim for general damages.

59 The claim in Carpenter v McGrath was for general damages. It was not disputed in this case that if the vendor had elected to claim general damages pursuant to clause 9.3.2, she would have been required to give credit for the amount of the forfeited deposit. However, she claims liquidated damages pursuant to clause 9.3.1. Carpenter v McGrath was not concerned with the claim for liquidated damages under the then condition 9(b). In any event, the clause was then in materially different terms from the present, as it made no express provision as to how the forfeited deposit should be credited.

60 I was told that there was no decision on the question of whether the forfeited deposit should be credited against costs and expenses recoverable under the second limb of 9.3.1. However, in Consolidated Credit Network Pty Limited v Illawarra Retirement Trust Limited (No. 2) [2005] NSWSC 1007, Campbell J (as his Honour then was) said (at [78]):

“78 The first defendant's cross-claim seeks damages under Clause 9.3.1 of the contract. The vendor has established that it has suffered loss in consequence of the purchaser's non-compliance with the contract, in the form of paying rates on the property for longer than it would have paid them if the contract had been performed, and paying legal expenses in connection with the termination of the contract, and the entering into of the new contracts with the new purchasers of the land. It will not be known, however, whether the payment of those amounts results in the vendor sustaining a net loss in consequence of the purchaser's breach, until it is known whether the contracts entered with the new purchasers will settle in accordance with their terms. If the new contracts settle in accordance with their terms, the likelihood is that, given that the new contracts are for the same purchase price as the contract with the plaintiff, the vendor will not, taking into account the amount of the deposit bonds which it is entitled to receive in consequence of the termination being held good, and its right to recover the other 5% of the deposit as damages for the purchaser's breach, suffer any net loss. It is for that reason that I have stood the proceedings over, to a date by which it should be known whether the new contracts have settled in accordance with their terms, for the purpose of deciding whether anything further needs to be done about the quantification of the vendor's claim for damages.”


61 Whilst his Honour proceeded on the basis that a vendor claiming damages under clause 9.3.1 must show that he or she has suffered loss after taking into account the forfeited deposit, it does not appear that this issue was raised before his Honour. Hence, his Honour did not deal with the implications arising from the fact that clause 9.3.1 is a liquidated damages clause, nor with the implications arising from the fact that the clause provides for the deposit to be credited only against the deficiency on resale recoverable under the first limb.

62 In construing clause 9, it is essential to appreciate that 9.3 confers an election on the vendor who has terminated the contract either to claim unliquidated damages at common law for breach of contract, (cl 9.3.2), or liquidated damages in accordance with 9.3.1. The measure may be different (Eighth SRJ Pty Limited v Merity (1997) 7 BPR 15,189). That difference may well be substantial if the vendor is entitled to damages under the second limb of Hadley v Baxendale. However, whether the difference in calculation of damages at common law and liquidated damages under 9.3.1 is substantial or not, one cannot simply translate the principle that a forfeited deposit is set off against common law damages to clause 9.3.1. It may be that not crediting a forfeited deposit against liquidated damages under 9.3.1 gives rise to other rights (for example, relief against forfeiture), but that is not relevant to the construction of the clause.

63 Clause 9.3.1 expressly provides for the deposit to be credited only towards the deficiency on resale, and not against costs and expenses recoverable under the second limb of the clause. I do not think that if the credit for the forfeited deposit exceeds the deficiency on resale that the balance in favour of the purchaser can be carried forward in assessing the reasonable costs and expenses recoverable under the second limb. The clause could easily have provided for the forfeited deposit to be credited against both heads of recovery but did not do so.

64 The question then is what amount should be taken into account in assessing the deficiency on resale against which the deposit is to be credited. Consistent with the authorities I have referred to, and in ordinary parlance, the deficiency on resale would be the difference between the price of the first contract (less the vendor's cost of sale on the first contract), and the price of the second contract (less the vendor's cost of resale under the second contract). However, I think that construction of the expression "deficiency on resale" cannot be adopted having regard to the terms of the second limb of clause 9.3.1, at least so far as expenses of resale are concerned. The inclusion of reasonable costs and expenses of resale in the second limb of the clause as a recoverable head of damage precludes such costs and expenses being included in a calculation of the deficiency on resale. Such a construction is much clearer on the present contract than in Cratchley v Bloom where the Court of Appeal was divided on the question.

65 I do not consider that on a proper construction of clause 9.3.1 the forfeited deposit should be set off against costs and expenses recoverable under the second limb of the clause. The deficiency on resale was said to be $19,000, being the difference between $320,000 and $301,000. I doubt that that is so, as this ignores the expenses of sale which would have been incurred had the first sale been completed. However, it is unnecessary to decide this question as, on any view, the forfeited deposit exceeds the deficiency on resale.

66 As the vendor had vacated the property prior to the date for settlement under the first contract, each of the items under paragraphs (a)-(g) referred to previously in these reasons is recoverable as either a cost or expense arising out of the purchaser's non-compliance with the contract, or a cost or expense of resale.

67 The last item claimed whilst described as "additional borrowings under mortgage from Mrs Dunstan" was for interest on an additional loan taken by the vendor on the security of Mrs Dunstan's house for $25,000. This loan was used to purchase the property. The interest on this loan was 7.67 per cent. The interest has been claimed from 26 September 2005 to date, in an amount of $2,474.05. However, the gross deficiency on sale was $19,000. The vendor has not had to pay agent's commission on the first sale. Had that sale been completed, she would have had to pay agent's commission of $7,040. The additional funds available to reduce the loan would have been $11,960. The vendor is only entitled to interest on that sum, on the basis that she was unable to use the funds due to her from the purchaser to reduce that borrowing.

68 Interest at 7.67 per cent from 26 September 2005 to today on that sum totals $1,357.14. The vendor will be over-compensated in relation to this item as she is entitled to the interest earned on the deposit. However, that is the consequence of not crediting the forfeited deposit against items recoverable under the second limb of clause 9.3.1. Save for amending the last item to $1,357.14, the vendor is entitled to the damages claimed under clause 9.3.1. Those damages total $17,106.74. She is entitled to interest at the prescribed rates on all but the last item.

69 The question then is whether the purchaser should be entitled to relief against forfeiture of the deposit to the extent the deposit cannot be credited against the liquidated damages payable under clause 9.3.1. In Clarke v Dilberovic & Anor (1982) NSW ConvR 55-083, Rath J ordered the return of part of a deposit pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW)). Whilst s 55(2A) does not in terms authorise this result, the same outcome may be achieved by ordering the return of the whole of the deposit on terms that the purchaser undertakes to recompense the vendor for its damages and to have those set off against the deposit (Poort v Development Underwriting (Vic) Pty Limited (No. 2) (1976) VR 779; Bernard v Weingarth (1997) 8 BPR 15,651 at 15,656; Lucantonio v Ciofuli [2003] NSWSC 1058; (2003) 11 BPR 21,181 at 21,183). However, this is the exception rather than the rule, (Mulkearns & Anor v Chandos Developments Pty Limited (No.4) (2005) 12 BPR 22,993 at 23,006).

70 No claim for relief against forfeiture was made in the pleadings. After I raised the question, the purchaser sought leave to amend. That leave was opposed. The vendor gave evidence to the effect that had the sale been completed in September 2005, she would have been in a position to go into the market to buy a new property at that time. Because she received only $301,000, less the agent's commission, on the resale, and because the deposit has been tied up while these proceedings are pending, she has been unable to do so. She says that during this period the property market in the eastern suburbs has risen so that she is now substantially worse off than she would have been had the purchaser not defaulted.

71 It was submitted for the purchaser that such a claim for damages was always open to the vendor. That is true, but I do not think it meets the objection to the amendment.

72 The vendor did claim in her pleadings either liquidated damages or unliquidated damages in the alternative. Ultimately, and wisely, she elected to pursue her claim for liquidated damages. I say wisely because there was no expert evidence as to the movements in the property market, and I doubt that the vendor's evidence, standing on its own, would have justified a finding as to the extent, if any, of a claim for such damages, even assuming that such a claim could be supported under the second limb of the rule in Hadley v Baxendale. Moreover, there was no evidence as to what the vendor's financial position would have been in the last quarter of 2005 to show that she could have purchased a new property had the sale been completed. However, it is quite possible that had a claim for relief against forfeiture been pleaded at the outset, the vendor may have pursued a claim for general damages and adduced evidence to support such a claim. It is possible that such damages may have been higher than the liquidated damages to which she is entitled. Instead, the vendor’s case was prepared on the basis, which I have held to be a correct basis, that she is not obliged to credit the forfeited deposit against recoverable costs and expense under the second limb of clause 9.3.1. In the circumstances, there is sufficient evidence of prejudice to the vendor if the amendment were allowed to justify its refusal.

73 I refuse leave to the plaintiff/cross-defendant to amend the defence to cross-claim in the manner sought on the second day of the hearing.

74 I direct counsel to bring in short minutes of order in accordance with these reasons. It will be necessary for a recalculation of interest to be made pursuant to s 100 of the Civil Procedure Act 2005 (NSW). The short minutes of order should provide for the plaintiff's summons and statement of claim to be dismissed. They should include a declaration that the contract was terminated by the defendant and an order that the deposit, together with interest accrued on it, be returned to the defendant. The short minutes should provide for damages in the amount I have referred to, and incorporate pre-judgment interest. I will also order that the plaintiff pay the defendant's costs of the proceedings including the costs of the cross-claim.

[Discussion with counsel ensued.]

75 I stand the proceedings over to 9.30 on Wednesday for the purpose of bringing in short minutes.


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LAST UPDATED: 23 March 2007