Australian Eastern Development Corporation Pty Ltd v. Envy Construction Group Pty Ltd & Ors [2013] VCC 327 (26 March 2013)

Last Updated: 8 April 2013

IN THE COUNTY COURT OF VICTORIA

Revised (Not) Restricted

AT MELBOURNE
COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-12-05126

AUSTRALIAN EASTERN DEVELOPMENT CORPORATION PTY LTD	Plaintiff
v.
ENVY CONSTRUCTION GROUP PTY LTD & ORS	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	26 March 2013
DATE OF JUDGMENT:	26 March 2013 (revised 27 March 2013)
CASE MAY BE CITED AS:	Australian Eastern Development Corporation Pty Ltd v. Envy Construction Group Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2013] VCC 327

REASONS FOR JUDGMENT

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Catchwords: Damages – Sale of land – Default by purchaser in settling contracts of sale – Contracts rescinded and properties resold – Assessment of damages following default judgments.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr K. Naish	HDME Lawyers
For the Defendants	No appearance

HIS HONOUR:

1. On 28 February 2013, I ordered that there be judgment for the plaintiff against the first, second and sixth defendants for damages to be assessed. Today I have assessed those damages. I have relied upon the two affidavits of Michael Pound sworn 7 and 21 March 2013.
2. For the purpose of assessing damages, I have assumed the truth of the allegations contained in the Amended Statement of Claim. The first defendant was the purchaser pursuant to two separate contracts of sale relating to lots in a development at 285 Diamond Creek Road, Diamond Creek. The first contract of sale dated 31 October 2010 related to lots 1 to 7. Five lots settled but there was default in relation to the settlement of the remaining two allotments. The second contract of sale dated 9 February 2011 related to lot S2.
3. The second defendant is sued as a guarantor of the obligations of the first defendant as purchaser in respect of each contract of sale. The sixth defendant is sued as the purchaser nominated by the first defendant as the purchaser under the second contract of sale.
4. As a result of the defaults in the settlement of the two contracts, the contracts were rescinded and the allotments resold. In respect of the allotments covered by the first contract of sale, the two allotments in respect of which there had been a default were sold for $200,000 each, rather than the original contract price with the first defendant, of $250,000 each. The net loss in this respect was $100,000.
5. The allotment covered by the second contract of sale has only recently been sold (although the contract has not yet settled). This fact is deposed to in the second affidavit of Michael Pound, sworn 21 March 2013. If the property had not been sold, the plaintiff would have relied upon a current valuation of the property at $760,000 as the appropriate basis to assess damages. The property was in fact sold for $830,000. As a consequence, I permitted the plaintiff to rely upon Mr Pound’s second affidavit, although it had only recently been sworn and served. The original sale price of the allotment was $1,200,000 of which a deposit of $120,000 had been received from the original purchaser.
6. The first and second defendants are liable in respect of the losses resulting from the resale of land covered by both contracts of sale. The sixth defendant is liable for the losses from the resale of the allotment covered by the second contract of sale.
7. The calculation of the losses in respect of the first contract of sale involves the following elements:
   1. $100,000 representing the difference between the original purchase price of the two allotments of $500,000 and the amount of $400,000 realised on the resale;
   2. the application of a proportion of the deposit of $100,000 originally paid in respect of the purchase of seven allotments. The appropriate proportion in respect of two allotments is $28,571.42;
   100. the proportion of the total agent’s commission of $38,500 applicable to the original sale is $11,000;
   4. the Council rates and land tax, being the relevant holding costs in respect of the land as related to the two allotments, total $6,434.80;
   5. the proportion of the total legal costs of $5,434.98 applicable to the two allotments was $1,552.85.
8. The relevant calculation is as follows:

$100,000.00 Less $28,571.42 Subtotal $71,428.58 Plus $11,000.00 Plus $6,434.86 Plus $1,552.85 Total $90.418.29

9. In addition, the plaintiff is entitled, pursuant to special condition 22 of the contracts of sale, to its borrowing expenses. The relevant interest rates paid by the plaintiff are set out in bank statements exhibited to Mr Pound’s affidavit sworn 7 March 2013. Interest is calculated upon the amount outstanding in relation to the two allotments, of $500,000 less the proportion of deposit paid of $28,571.42 equals $471,428.58. The calculation of interest on that sum from the original date of settlement of 8 June 2012 until today, applying the appropriate rates of interest paid by the plaintiff, is set out in paragraph 15 of Mr Pound’s first affidavit and totals $26,871.97.
10. The total losses in respect of the first contract are $90,418.29 plus borrowing expenses of $26,871.97, a total of $117,290.26.
11. In respect of the second contract, the shortfall on the purchase price of $1,200,000 after payment of the deposit of $120,000, was $1,080,000. The plaintiff’s losses take account of the following matters:
    1. $250,000 being the shortfall on purchase price between the amount outstanding under the second contract of sale of $1,080,000 and the sale price upon resale of $830,000;
    2. $26,400 being the agent’s commission on the initial sale;
    100. $5,024.50 being the council rates and land tax in respect of the allotment;
    4. $660 being the cost of the valuation of the allotment prior to resale;
    5. $1,807.50 being the legal costs on the initial sale;
    6. $36,334.20 being the borrowing costs to the plaintiff calculated in paragraph 29 of Mr Pound’s first affidavit.
12. The total losses in respect of the second contract of sale are $320,226.20. The total losses in respect of both contracts of sale total $437,516.46 ($320,226.20 plus $117,290.26).
13. As a result of settlements of the proceeding reached with the third, fourth and fifth defendants, $110,000 has been received from the third defendant and $10,000 has been received from the fourth and fifth defendants. The third defendant guaranteed the obligations of the first defendant and therefore the settlement monies received from him should be allocated in respect of both contracts of sale. The fourth and fifth defendants were the purchasers nominated in respect of the first contract of sale and therefore the settlement monies received from them should only be allocated in respect of the losses relating to that contract.
14. The proportion of the settlement monies received from the third defendant in respect of the two contracts is calculated as follows: $320,226.20/$437,516.46=0.732 or 73.2%.
15. Allocating the settlement monies received from the third defendant of $110,000, applying the appropriate percentages, results in a proportionate allocation as follows:
    1. $29,480 applicable to the first contract;
    2. $80,520 applicable to the second contract.
16. Accordingly, the appropriate adjustments should be made in respect of each contract:
    1. the first contract - $117,290.26 less $39,480 (the proportion of the settlement monies received from the third defendant of $29,480 plus the $10,000 received from the fourth and fifth defendants) equals $77,810.26;
    2. the second contract - $320,226.20 less the proportion of the settlement monies from the third defendant of $80,520 equals $239,706.20;
    100. the total for both contracts is $317,516.46.
17. The orders I propose to make are as follows:
    1. The time for service of affidavit material to be relied upon by the plaintiff upon the assessment of damages, limited to the supplementary affidavit of Michael Pound sworn 21 March 2013, is extended to 27 March 2013.
    2. Judgment for the plaintiff against the first defendant and the second defendant that the first defendant and the second defendant pay the plaintiff damages assessed in the total sum of $317,516.46.
    100. Judgment for the plaintiff against the sixth defendant that the sixth defendant pay the plaintiff damages assessed in the total sum of $239,706.20.
    4. The first defendant, the second defendant and the sixth defendant must pay the plaintiff’s costs of the assessment of damages, including the hearing today, fixed in the total sum of $2,704 calculated in accordance with the schedule of costs submitted to the Court which shall remain on the Court file.
       

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Certificate
I certify that the preceding 4 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 26 March 2013 and revised 27 March 2013.
Dated: 27 March 2013
Catherine Kusiak
Associate to His Honour Judge Anderson