Ari v Decevic
[2013] NSWSC 1967
•24 December 2013
Supreme Court
New South Wales
Medium Neutral Citation: Ari v Decevic [2013] NSWSC 1967 Hearing dates: 18, 19, 20 February 2013 Decision date: 24 December 2013 Jurisdiction: Common Law Before: Slattery J Decision: Plaintiff successful against the defendant in recovering value of deposit. Judgment for the cross defendant bank against the cross claimant. Directions made for argument as to costs.
Catchwords: CONTRACTS - contract for the sale of land - deposit provided by a bank deposit bond - completion date subsequently extended to accommodate a lease to a third party - validity of the deposit bond not extended - defendant not ready to complete at the completion date because of lack of financing - plaintiff terminated the contract, sold the property to a third party at a profit and sued the defendant for the deposit - whether the termination was invalid because the property was not vacant at the extended completion date and at the time of the notice to complete - whether the plaintiff's breach was waived by the defendant - whether the Court should exercise its discretion under Conveyancing Act 1919, s 55(2A) and not order the payment of the deposit.
CONTRACTS - the defendant cross-claimed against the bank for the loss caused by its refusal to finance the purchase of the property - the bank unconditionally approved the loan, issued a deposit bond and sent a written offer of finance to the defendant and her husband - the offer required for the loan to be drawn within 3 months - defendant did not return the signed offer to the bank until after the deadline expired - the defendants subsequent loan application was not approved because of judgment debts discovered on the updated credit check of the defendant's husband - whether a partly written and partly oral loan agreement was entered into between the bank and the defendant and her husband - whether the bank was entitled to refuse to provide finance because of the result of the credit check.Legislation Cited: Conveyancing Act 1919 s 55(2A) (NSW)
Conveyancing (Amendment) Act (1930) (NSW)
Law of Property Act, 1925 (UK)
Uniform Consumer Credit CodeCases Cited: Carrapetta v Rado [2012] NSWCA 202
Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959
Dillon v Bepuri Pty Ltd (1989) NSW ConvR 55-436
Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182
HG and R Securities Pty Ltd v Sayer [2009] NSWSC 427
Lucantonio v Ciofuli (2003) 11 BPR 21,181
Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920
McNally v Waitzer [1981] 1 NSWLR 294
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Schindler v Pigault (1975) 30 P& Cr 328
Socratous v Koo (1993) NSW ConvR 55-685
Strickland v Grieve (1995) 7 BPR 14,376
Wilde v Anstee (1999) 48 NSWLR 387Texts Cited: Lindgren, Time in the Performance of Contracts (2nd ed), Butterworths 1982 Category: Principal judgment Parties: Plaintiff- Leon Ari
Defendant- Tania Decevic
Cross Claimant- Tania Decevic
Cross Defendant- Westpac Banking CorporationRepresentation: Counsel:
Plaintiff- P. O'Loughlin
Defendant- P. Bolster
Cross Defendant- J. White; L.E. Edwards
Solicitors:
Plaintiff- Michael John Sommerville, Redmond Hale Simpson
Defendant/Cross-Claimant- Mark Marando, Marando Solicitors
Cross-Defendant- Justin Bates, Gadens Lawyers
File Number(s): 2010/333236 Publication restriction: No
Judgment
On 22 October 2009 Mr Leon Ari, as vendor, entered into a contract with Mrs Tania Decevic, as purchaser, for the sale of a residential property in Kogarah Bay ("the property") for consideration of $725,000 ("the contract"). Mrs Decevic and her husband, who is not a party to these proceedings, organised with St George Bank, now Westpac Banking Corporation ("the bank"), to fund the purchase. The contract required Mrs Decevic to pay a deposit of 10 per cent of the purchase price, or $72,500. Mrs Decevic arranged and provided a deposit bond, which was issued by the bank for this $72,500, upon exchange of the counterparts of the contract.
The contract provided for completion to occur on 22 April 2010, 182 days after the exchange of contracts. This date was later extended, by mutual agreement, to 31 May 2010. But the bank did not extend the deposit bond which expired on 28 April 2010. On 31 May 2010 Mr Ari says he was ready to complete the contract, and that Mrs Decevic was not. On 9 June 2010 Mr Ari served Mrs Decevic with a notice to complete the sale on 25 June 2010 but Mrs Decevic failed to complete that day. So on 30 June 2010 Mr Ari sent her written notice terminating the contract.
The bank had refused to provide Mrs Decevic with the funding to complete on 31 May. She asked Mr Ari, to delay completion to 30 June, so that she could raise funds, partly by attempting to sell her and her husband's existing residence. But despite her offer Mr Ari proceeded to terminate the contract on 30 June. Mr Ari then commenced these proceedings for the recovery of the deposit, and shortly after sold the property to a third party for $775,000. As between Mr Ari as plaintiff and Mrs Decevic as defendant the issues in the proceedings are: (1) whether Mr Ari has validly terminated the contract; and (2) if so, whether Mr Ari is entitled to recover the deposit of $72,500 from Mrs Decevic.
But events taking place at the same time between Mrs Deceivc and the bank resulted in Mrs Decevic cross-claiming against the bank. Shortly before the contract was signed the bank approved the Decevics' loan application to it. Shortly after the contract, was signed and exchanged on 22 October 2009, but before the statutory cooling off period expired, the bank issued the deposit bond. But it did not issue a written loan offer to the Decevics until a month later in November 2009. The bank's November 2009 loan offer included a standard term that the loan had to be drawn down within three months, that is before 20 February 2010.
But the Decevics did not draw down the loan before 20 February 2010. Instead, in May 2010 the bank decided to consider a second loan application from them. The bank rejected the Decevic's second loan application and said that the first loan application had expired because it had not been drawn down within time. The bank continued to refuse to fund the purchase price, leading to Mrs Decevic's incapacity to complete. On the cross-claim the Decevics contend, and the bank disputes, that the bank was and is bound to provide the Decevics with finance in conformity with their first loan application. These are the issues for trial.
Each of the parties was represented by counsel and solicitors. Mr P. O'Loughlin of counsel appeared for the plaintiff, Mr Ari. And Mr P. Bolster of counsel appeared for the defendant, Mrs Decevic. And Mr J. White of counsel appeared for the bank.
The History of these Proceedings
Mr Ari commenced these proceedings by Statement of Claim on 8 October 2010, seeking relief requiring Mrs Decevic to pay him the deposit together with interest calculated from 30 June 2010. Initially the proceedings were commenced in the District Court of New South Wales and were later transferred to this Court. On 23 November 2010 Mrs Decevic filed her Defence contesting payment of the deposit.
Then Mrs Decevic cross-claimed against the bank seeking: (1) a declaration that she and her husband had contracted with the bank for it to fund the purchase of the property; (2) a declaration that the bank has breached that contract; and (3) relief by way of indemnity or damages for that breach.
In its Defence to the Cross Claim the bank contends that it has no obligation to provide finance for the purchase of the property because: (1) no agreement to provide funds for the purchase of the property was made between the Decevics and the bank; and (2) even if such a funding agreement were made, its terms were such that the bank ultimately had no obligation to provide any funding. The bank says even if there were a funding agreement the Decevics did not bring themselves within the express terms of any such agreement, because they did not draw down the loan within the prescribed period of 3 months. The Defence to Cross-Claim also alleges that the Decevics were in default in qualifying for loan funds under any such agreement because of certain judgment debts entered against Mr Decevic in October 2009 and in 2010. The bank contends as a result that it was excused from the obligation to advance funds to Mrs Decevic.
These reasons first consider Mr Ari's claim for recovery of the deposit and the Mrs Decevic's Cross Claim.
Claim for Recovery of the Deposit
Mr Ari seeks to recover the amount of the deposit from Mrs Decevic. If he validly terminated the contract then, subject to the Court's discretion conferred by Conveyancing Act 1919 s 55(2A), he has a right under the contract to recovery of the deposit.
The principal disputed issues on Mr Ari's claim for return of the deposit are the following. First, Mr Ari alleges that the contract was terminated on 30 June 2010. Mrs Decevic disagrees that a valid termination then took place. If the contract was not validly terminated, the deposit is not recoverable. But if Mrs Decevic is wrong, and a valid termination occurred, she alleges that the Court should nevertheless exercise its discretion under Conveyancing Act 1919, s 55(2A) and not order the payment of the deposit to the vendor. Mr Ari contests this and says there is no occasion to exercise the Court's s 55(2A) discretion.
The Parties' Advisors
During negotiation of the contract and leading to termination the parties were each assisted by professional advisors. Mr Jeffrey O'Brien of Redmond Hale Simpson, solicitors acted for Mr Ari. Mr Mark Marando of Marando Solicitors acted for Mrs Decevic. Both Mr O'Brien and Mr Marando gave evidence in the proceedings. Mr Ari had employed, Century 21 Bayview as an estate agent to sell the property. Ms Seval Oksuz from Century 21 also managed the tenanting of the property from the time that the contract was signed in October 2009. Ms Oksuz also gave evidence.
Ms Oksuz kept an "Action and Conversation Diary" in which she recorded her communications with various parties in relation to the property. This diary was a thorough and consistently kept business record, which I accept sets out an accurate account of the conversations and events described within it, in which Ms Oksuz participated.
Contract Variation - 22 October 2009 to 21 November 2009
The contract signed on 22 October 2009 foreshadowed completion 182 days (approximately six months) later, on 22 April 2010. But the next month, November 2009, the vendor and purchaser decided to vary this date. On 2 November Mr Marando faxed Redmond Hale Simpson a copy of the deposit bond, by then issued by the bank, and the requisitions on title. On 12 November Mr O'Brien faxed Mr Marando a request by the vendor for a variation to the contract. Because of the delayed settlement already written into the contract, Mr Ari was considering renting out the property in the intervening period. He wanted to lease the property for 6 months from 26 November. Such a lease would expire on 26 May 2010, about a month after the contract settlement date of 22 April 2010. So Mr Ari, through his solicitor Mr O'Brien sought Mrs Decevic's consent: either to delay the settlement to 31 May 2010 (just after the expiry of the proposed lease); or, to settle in April, as planned, but subject to an existing tenancy.
On 13 November 2009 Mr Marando confirmed back in writing to Mr O'Brien that Mrs Decevic had agreed to change the contract settlement date to 31 May 2010. The parties do not dispute that this change was agreed. But Mrs Decevic alleges that her cooperation at the time of this request is relevant to the Court's exercise of its Conveyancing Act s 55(2A) discretion.
Once the contract was varied by agreement, on 21 November 2009 Ms Oksuz, on behalf of Mr Ari, entered into a 26 week lease of the property from 26 November 2009 to 27 May 2010 at a rent of $550 per week. These tenants actually stayed in the property until 13 June 2010. Mrs Decevic claims that Mr Ari's notice to complete and his subsequent termination of the contract are invalid, because of the tenants' occupation of the property between 31 May and 13 June 2010.
Mrs Decevic says that because the tenants did not leave the property until 13 June 2010, Mr Ari was not able to give vacant possession as the contract required. But that aspect of her claim will fail if, as Mr Ari alleges, Mrs Decevic agreed during the parties' communications in May 2010 that the tenants could remain in the property until after settlement
Contract to Settlement - 21 November 2009 to 31 May 2010
Between December 2009 and April 2010 the parties barely communicated about this purchase. In late April correspondence resumed. Mr O'Brien began preparing for the settlement. On 29 April he contacted the solicitor of Eclipse Prudent Mortgage Corporation ("Eclipse"), the existing mortgagee of the property, to organise a discharge of its mortgage at the settlement scheduled for 31 May. On 18 May Eclipse confirmed that it would prepare for a discharge of its mortgage on 31 May. On 25 May Eclipse provided Mr O'Brien with details of the documents required to effect the discharge at settlement.
Ms Oksuz also started to prepare for the settlement. The contract required Mr Ari to provide vacant possession at settlement. The executed lease was due to expire on 27 May 2010. But the lease required Mr Ari to give 14 days notice of termination before the expiry date, otherwise it would become a continuing tenancy agreement and a 60 day notice would become necessary to have the tenants vacate. Ms Oksuz needed to know if the notice had to be given. To have vacant possession by 31 May Mr Ari had to give notice to the tenants by no later than 17 May.
The entry in Ms Oksuz's diary for 19 April states that on that day she first tried to contact Mr Marando to ascertain if Mrs Decevic would be prepared to settle subject to the tenancy, or if she would prefer the tenants to vacate before settlement, in which case it would be necessary to serve a termination notice on the tenants. The subsequent entries in Ms Oksuz's diary in late April and early May 2010, which I accept as accurate, state that in that period Ms Oksuz attempted several times without success to contact Mr Marando about whether the tenants would be permitted to stay on expiry of the lease. But he was unavailable each of those occasions and did not return her calls.
By late April 6 months had passed since the contract had been signed. By then the tenants had indicated to Ms Oksuz that they were keen to remain in the property. Ms Oksuz's account of this period, which I accept, was that in May the tenants informed her that they had had a death in the family, were preoccupied with personal matters, and did not have time to look for a new place, and therefore wanted to stay in the property. She understood they wanted some clarity about the term of the lease. That Ms Oksuz would be making enquires of Mr Marando in these circumstances was understandable, and I find that she did.
Not having had success in getting through to Mr Marando, Ms Oksuz then tried unsuccessfully to discuss the tenancy issue directly with Mr Marando's client Mrs Decevic. On 10 May Ms Oksuz recorded in her diary that Mrs Decevic, said to her in one such communication that she was busy with family matters, and that "she [Mrs Decevic] would like me [Ms Oksuz] to speak to her husband as he is handling all matters re: the purchase". Ms Oksuz then recorded in her diary that she called Mr Decevic the same day and he told her that: "they are likely to keep the tenant's on a month to month basis" [sic]. I accept all her diary entries on this subject as an accurate record of what passed between Mr and Mrs Decevic and Ms Oksuz.
Ms Oksuz notes in her diary that she spoke to Mr Decevic twice more about this subject in May 2010. On 17 May Mr Decevic mentioned to Ms Oksuz that he had requested Mr Marando to attempt to extend the settlement to 30 June 2010 and said "the tenant can stay there [in the property] till then". And on 26 May, after Ms Oksuz had informed him about the tenants' personal circumstances, he said that "they [the Decevics] had a bit of decency and would not do that [vacate the property] to them". I accept Ms Oksuz's evidence that during this conversation Mr Decevic enquired about the rent paid by the tenants and stated again that he and his wife were "happy for them [the tenants] to stay on month to month". This particular part of her recollection was not supported with a note in her diary to that effect but I nevertheless accept that Mr Decevic said this to her.
On 11 May 2010 the Decevics instructed Mr Marando to delay the settlement from 31 May to 30 June 2010. On that day Mr Marando sent a fax to Redmond Hale Simpson which was consistent with what Ms Oksuz was to record in her diary six days later on 17 May, and indicating:
"We have today been contacted by our client who required an extension of the settlement date until 30 June 2010.
We are instructed that the Tenancy may also be extended to 30 June 2010.
We await your urgent response."
Mr Marando's 11 May letter gives no reasons for his request. Mrs Decevic suggested in oral evidence that the request for extension was made because of the slower than expected progress of the sale of the Decevic's existing residence. But in her affidavit Mrs Decevic explained that the extension was requested because in early May 2010 Mr Marando was concerned that he could not get in touch with Mr Crow, the representative of the bank with whom the Decevics had been dealing. Mrs Decevic does not suggest she was then aware of any problem with the bank being able to fund her purchase. Although her evidence is that Mr Crow contacted her in early May 2010 to inform her that the bank had declined her loan. Mrs Decevic says that Mr Crow's contact occurred after the extension request was made. But for the following reasons I do not accept her evidence as to this.
Mr Marando's affidavit evidence on why the purchaser Mrs Decevic was seeking an extension is inconsistent with the evidence of his client on the same subject. And I generally prefer Mr Marando's affidavit version, although it is not without its own problems. In his affidavit Mr Marando explained that his 11 May letter gave effect to Mrs Decevic's instructions to him that finance from the bank was not then available and that she would have to seek finance from another source. This contradicts Mrs Decevic's evidence that she did not know about any problem with the financing at the time of this 11 May letter. Mr Marando then further complicated matters when he contradicted his affidavit evidence, himself at the hearing. In oral evidence he gave the following reasons for the request which are considerably closer to Mrs Decevic's account of having problems progressing the sale of their existing residence:
"Mr and Mrs Decevic obviously have not sold their property at the time. There were some concerns about serviceability first and just either that they had their marketing campaign and they thought by the time auction goes off and - effectively the request was on basis that they could have simultaneous settlement, that their sale and purchase could go through."
Mr Marando said in this oral evidence that his understanding on 11 May was that the loan from the bank was still in place and that the extension was aimed at achieving a simultaneous sale of the Decevic's existing residence and the property, to avoid their having to take out bridging finance. And Mr Marando's recollection of his instructions at this time also incidentally captured the Decevics' intentions in relation to the tenants staying in the property. Mr Marando remarked in oral evidence about his instructions on this subject: "because there was a tenant in the property the clients asked me to see if I could stretch the date out". Mr Marando's evidence generally supports Ms Oksuz's evidence that the Decevics were content to leave the tenants in the property for a longer period.
Mr O'Brien took instructions from Mr Ari about the requested extension of the settlement date to 30 June. On 19 May Mr O'Brien informed Mr Marando by fax that his client would not agree to the requested extension. Mr Marando did not make any written reply to Mr O'Brien's 19 May fax; at least no such reply was tendered in evidence.
After the extension was requested and then refused on 19 May the Decevics knew they had to prepare for a settlement on 31 May, not on 30 June. And they seemed prepared to settle on the earlier date subject to the existing tenancy on the property. Ms Oksuz recorded, and I accept, that after 19 May she spoke to Mrs Decevic twice more, on 24 and 27 May 2010. According to her diary records, on 24 May Mrs Decevic inquired from Ms Oksuz about the amount of rent the tenants were paying and said, "if they would like to stay, she was happy for them to stay another month". I accept that this conversation took place. But the Decevics were not just motivated by commerciaI considerations. I infer Mr and Mrs Decevic were happy to have the tenants stay on also because they felt a degree of empathy for the tenants' personal situation. I accept that Mrs Decevic said to Ms Oksuz that they she and her husband "are not the type of people to push them [the tenants] out". As will be described in more detail later in these reasons, by at least 22 May Mrs Decevic knew that the finance from the bank was not forthcoming, and that she probably would not be able to settle on 31 May. This means in my view that Mrs Decevic was well aware on 24 May when she said she was happy for the tenants to stay "another month" that this would mean the tenants would be in the property after the completion date of 31 May, to which Mr Ari was adhering.
Ms Oksuz's records support the inference, which I draw, that between 24 and 27 May she repeatedly requested the Decevics to provide written confirmation that they were happy for the tenants to stay on in the property. On 27 May Ms Oksuz sent a fax to the Decevics confirming that the tenants were paying rent of $550 per week and again requesting a written confirmation that the Decevics "are happy for the tenants to resume their tenancy". No written confirmation was provided. Why no reply to Ms Oksuz's inquiries emerged from Mrs Decevic at this time is difficult to fathom: but it does not diminish Ms Oksuz's evidence from which the Court infers that the Decevics were willing to have the tenants stay on after the appointed settlement date of 31 May and said so to Ms Oksuz.
What the Decevics were saying to Ms Oksuz about the tenants seems quickly to have reached the ears of the vendor, Mr Ari. On 25 May Mr O'Brien wrote to Mr Marando in relation to the tenancy:
"We understand your clients have indicated to the Agent that they are happy for the tenants to stay on in the premises after the settlement until the end of June. Please confirm this."
But Mr O'Brien never received back from Mr Marando any written confirmation that his understanding was correct. Relationships seem rather to have soured after Mr Ari's 19 May refusal of an extension of the date of settlement. Mr O'Brien did not receive a reply.
As of 31 May 2010, the agreed date for settlement, the tenants were still in the property. The contract required Mr Ari to provide vacant possession on settlement. Mr O'Brien and Mr Ari, were trying to establish where they stood in relation to this obligation. They contacted Ms Oksuz who summarised her understanding of her communications with the Decevics in a fax on the same day as follows:
"I have spoken with the purchaser Tania Decevic as well as her husband Samir who have both verbally indicated they were fine to have the tenants stay. I requested this in writing from them but have not received anything as yet.
The tenants have given notice to vacate on 26/06/2010 however will vacate earlier should they find an alternate property sooner."
This fax, which I accept as an accurate summary of Ms Oksuz' then recent communications, confirms the accuracy of her diary entries for 24 and 27 May.
The parties disagree as to the effect of their various communications in May 2010 regarding the tenants staying in the property after 31 May 2010. The issue in dispute is whether the Decevics communicated to Ms Oksuz that they were happy for the tenants to remain in the property after the settlement. I find that they did so communicate and that they were so willing. Each of Mr Ari, Ms Oksuz, Mr and Mrs Decevic gave oral evidence in these proceedings in relation to this issue. Here is a short account of relevant parts of the evidence of these four witnesses.
Ms Oksuz had only limited independent recollection of her conversations with the Decevics. She knew what she recorded in her diary. As indicated earlier in these reasons, I accept that the Decevics made the statements recorded in her diary. Ms Oksuz understood from those statements that the Decevics were happy to keep the tenants in the property after the settlement, "on month to month basis". But they never expressly said that they were happy to keep the tenants until after the actual settlement occurred. At least from the refusal on 19 May of their 11 May request for extension of the settlement date, the Decevics expected that the settlement would occur on 31 May 2010. Ms Oksuz's evidence was that she never specifically discussed with the Decevics the fact that the settlement may be delayed. But for the reasons already given it is to be inferred that Mrs Decevic told Ms Oksuz that she would accept the tenants being there after 31 May, a settlement date to which she knew the vendor was adhering.
Neither Mr or Mrs Decevic referred in their affidavit evidence to any conversations with Ms Oksuz, or any other employee of Century 21, in relation to the tenancy. And it was apparent to the Court from their oral evidence that neither of them had a clear recollection of any such discussions. At one point in his evidence Mr Decevic denied that he had any such conversations with Ms Oksuz. But I find that they did. Mrs Decevic admitted that she could have discussed the tenancy issue with Ms Oksuz. But she could not remember any of the particular statements recorded in Ms Oksuz's diary. She could not confirm or deny that they occurred. I find that they did.
But Mrs Decevic did claim to remember that her intention and that of her husband was always to move into the property directly after the settlement. She nevertheless agreed that she would probably have been happy to let the tenants stay until she wanted to move in. She said " I am not going to kick the tenant out, the house isn't mine". She recalled that she did not want to keep them after the settlement. When asked what she would have done if the simultaneous sales of the property and their existing residence did not proceed, she indicated that she would still have moved into the property and rented out their existing residence.
Mr Decevic said that his initial plan was to sell their existing residence and to move into the property. He admitted that when he realised that the funding for the settlement would not be available on 31 May he discussed the tenancy issue with Mr Marando. He enquired about the amount of the rent the tenants were paying. Knowing about the tenants' personal circumstances, he did not request that they vacate the property, " I was not going to kick them out...".
In my view Mr and Mrs Decevic had not really reached a final view as to how they would manage the tenancy; they had to get to settlement first. Much would depend on what happened at and shortly after settlement. But what is clear is that they were quite ready to indicate to the vendor's agent that the tenants could stay after 31 May even if settlement were to occur that day. They were still hoping settlement would not occur then and would be deferred (and so the tenants might still leave before a further extended settlement date after 31 May). But they had no assurance of such a further extension. And they never qualified any of their statements to Ms Oksuz that their agreement to the tenants staying on was conditional upon settlement occurring after the tenants had vacated.
Mr Ari adds some evidence to this mix. He says that he was informed by Ms Oksuz that Mrs Decevic had indicated to her that the tenants could stay on because the Decevics had no intention of moving into the property straight after settlement. I accept his evidence that this conversation with Ms Oksuz occurred before 19 May 2010, when he refused to agree to Mrs Decevic's 11 May request to delay the settlement until 30 June 2010. He explained that this conversation with Ms Oksuz was the reason he did not take any steps to ask the tenants to leave prior to the planned completion on 31 May. This evidence was not challenged in cross-examination and I accept it. Mr Ari's account shows that he had then understood, and in my view reasonably understood, the Decevic's communications as indicating that they were prepared to settle subject to the tenancy.
But Mr Ari's motivation for not then instructing Ms Oksuz to have the tenants quit was a little more complicated. Mr Ari agreed in cross-examination that he had learned as early as 11 May that the Decevics were experiencing problems in funding the purchase. In my view Mr Ari felt he was in a comfortable position whatever happened: if the information he had received via Ms Oksuz was wrong and the Decevics were able to fund the purchase, then they seemed prepared to settle subject to the tenancy; but if the information received was right, and the Decevics were not able to settle, then Mr Ari was better off leaving the tenants there. Either way it was not in his interests then to move to disturb the tenancy.
When asked just before 31 May, Mrs Decevic deliberately did not expressly confirm that the tenants might stay in the property until after the settlement. But she had by then already indicated to Mr Ari via Ms Oksuz that she was happy for them to stay. But she was hoping settlement might still occur on 30 June and that they might be gone by then anyway. But her hopes of a further delay in settlement were not very realistic.
Termination - June and July 2010
The parties did not settle on 31 May. Mr Ari wanted to clarify his position as at that date. On the same day he asked Ms Oksuz to explain to him what the Decevics had told her in relation to the tenancy. After receiving her 31 May letter, cited above, he immediately handwrote a letter to the tenants accepting the notice they had by then given that they proposed to vacate the property on 26 June 2010. He offered them a rent-free week as an incentive, if they agreed to move out earlier, by 13 June 2010. The tenants accepted this offer on 7 June in a written notification addressed to Ms Oksuz. On 9 June Ms Oksuz informed Mr Ari that the tenants would be vacating by 13 June. And they did.
On 9 June 2010, once he had a confirmation that the tenants would be moving out Mr Ari, through his solicitor, served a notice to complete on Mrs Decevic. The notice stated that Mrs Decevic was in default because she did not complete the contract on 31 May. It required settlement by 25 June. A separate letter requesting Mrs Decevic to provide Mr Ari with a signed Transfer for the settlement was sent that day.
Mrs Decevic did not accept that Mr Ari was entitled to serve this notice to complete. In his letter of 11 June, her solicitor, Mr Marando rejected the validity of the notice on the same basis for which she argued in these proceedings: that the property was to be sold with vacant possession and the tenants had not yet vacated. He asked the vendor to advise "when the tenant has vacated the property in order that settlement arrangements may be made". Mr Marando also denied that Mrs Decevic agreed "for the tenants to remain in the property after the settlement". This letter included a typographical error, later clarified in Mr Marando's unchallenged evidence, which error I do not need to discuss further.
The Decevics dealings with the bank, described in detail later in these reasons, makes clear that they knew by late May 2010 that their loan application had been declined and they needed to organise alternative financing to be able to complete. But this was not expressly mentioned in their solicitors' correspondence in relation to the completion. Mr Marando was cross-examined about conversations he had with Mr O'Brien in relation to the Decevics' financial difficulties in settling. He said that there were such conversations "in the spirit of negotiating and explanation", and that any solicitors' discussions were exhausted in late June because it was by then clear that Mr O'Brien had instructions from Mr Ari not to extend the settlement period. Mr Marando thought that file notes confirming his recollection of such conversations might be in his files. But no file notes confirming that such conversations occurred found their way into evidence. I accept that some conversations between the solicitors took place in the May-June period. But Mr Marando's evidence does not indicate he told Mr O'Brien very much at all about the Decevics' dealings with the bank, their efforts to organise alternative finance and the timing of any such finance. Mr O'Brien was not asked about his knowledge or the extent of his conversations with Mr Marando. Not unwisely Mr Marando was fairly circumspect in my view in what he said to Mr O'Brien. Mr O'Brien said, and I accept, that the first time Mr Marando raised with him a possibility of the Decevics proceeding to settlement was on 14 July, after Mr Ari's termination notice and after the Decevics had sold their existing residence.
Mr Ari prepared to settle on 25 June. He contacted Eclipse to organise the discharge of mortgage, and signed the Transfer. Mr O'Brien sent details of the settlement venue and the required settlement calculations to Mr Marando. There was no written reply from Mr Marando until 25 June, the day of the settlement appointed in the notice to complete. On that day Mr Marando sent a fax restating his client's position that the notice to complete was defective and premature because "it was served prior to the tenant vacating the property". But Mr Marando also enclosed a Transfer signed by Mrs Decevic and he informed Mr O'Brien that Mrs Decevic would be in a position to settle on 12 July 2010 because of a "simultaneous sale". Mr O'Brien's reply rejected Mr Marando's argument in relation to the validity of the notice and reserved Mr Ari's rights if the settlement did not occur at 3pm that day. Mr O'Brien did not refer to the settlement appointed on 12 July that Mr Marando had proposed on 12 July.
On 30 June 2010 Mr O'Brien sent Mr Marando a fax attaching a notice of termination of the contract. That notice relied on Mrs Decevic's failure to comply with Mr Ari's 9 June notice to complete as a reason for termination.
The Validity of Mr Ari's Termination
Mr Ari contends that the contract was terminated on 30 June 2010. Mrs Decevic contests this contention.
Parties' Submission on Validity of the Termination
Mrs Decevic denies Mr Ari's termination was effective. She submits that Mr Ari was not entitled to give a notice to complete because he was in breach of the contract both on 31 May 2010, the agreed settlement date, and on 9 June 2010, the day he issued the notice to complete. The contract required Mr Ari to give vacant possession of the property on completion. But as the tenants were still in the property on both 31 May and 9 June (and at all material time in between), Mrs Decevic submits, Mr Ari was in breach of his obligations under the contract on these dates. She submits that he was not ready willing and able to settle and was not in a position to issue a notice to complete. So, she contends that Mr Ari's purported termination of the contract was itself a repudiation of his obligations. And she alleges that repudiation now disentitles him from recovering the deposit.
Mr Ari submits that he validly terminated the contract on 30 June 2010. He argues that although the tenants were in the property on 31 May that was not a breach of the contract because through his agent, Ms Oksuz, Mr Ari understood from Mr and Mrs Decevic were happy for the tenants to stay "month to month". And Ms Oksuz confirmed her understanding of what the Decevics told her in her fax to Mr O'Brien on 31 May.
The parties accepted the applicable legal principle that a vendor in default is not entitled to issue a notice to complete. The Court of Appeal recently restated this principle in Carrapetta v Rado [2012] NSWCA 202 ("Rado") at [27] where their Honours said:
"[27] Case law thus makes it plain that the party seeking to make time of the essence must be an "innocent" party who is not "in default" or "in breach" and is "ready, willing and able" to proceed to completion in accordance with the contract. The underlying concept is that a party who gives a notice to complete and thereby calls on the other party to adhere to the contract must be in a state of both present and prospective adherence to the contract. When it is the vendor who serves the notice, he or she must be seen to be willing and able to perform, on the day the notice fixes for completion, the obligations that the vendor is required to perform on completion - predominantly, in a "cash on completion" case such as the present, the obligation of delivering a clear title in return for the money that the contract requires the purchaser to pay in cash on completion - and to have adopted up to the time of service of the notice a stance consistent with that future performance. If the vendor is in breach of contract when the notice is given, he or she is not in such a state of willingness and ability. Likewise, if the vendor has taken and made known an uncompromising stance that he or she will not deliver title on completion except in return for payment of a sum greater than that required by the contract, that vendor will be "in default" (or "in breach") and not be "innocent" or relevantly "ready, willing and able" because the unequivocal stance inconsistent with the contract bespeaks lack of adherence in the nature of anticipatory breach."
But Mr Ari submits that Rado and the principle can be distinguished, a different default was alleged in that case, which was in any event not made out on the facts. But in my view the principle clearly applies here. In the alternative, Mr Ari submits that if he was in default under the contract Mrs Decevic waived that default because she was content for the tenants to remain in the property.
Mr Ari further submits that although the tenants were in the property on 9 June, the day when the notice to complete was issued, that does not invalidate that notice. He contends that he was required to provide vacant possession not on the date of the notice, 9 June 2010, but on the completion date appointed in that notice, 25 June. When issuing the notice to complete Mr O'Brien knew that the tenants had already agreed to vacate the property by 13 June; this having been arranged by Mr Ari. Mr Ari submits that because the appointed time for completion was not until 25 June, the agreement he had made with the tenants made him confident that he would be ready to complete by then giving vacant possession.
The Termination Provisions in the Contract
The contract was in the form of the Law Society of New South Wales and Real Estate Institute of New South Wales 2005 edition of contract for the sale of land, together with special conditions.
The front page of the contract specified the amount of the deposit, $72,500. Clause 9 provided:
"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)"
Clause 38 of the contract provided:
"Payment of Deposit
Despite any other provision of this contract the deposit payable pursuant to this agreement is $ being ten per cent of the purchase price, payable as to $ on the date of the contract and the balance of $ payable on completion or on default by the purchaser of the purchaser's obligation under this contract, and nothing shall relieve the purchaser of the obligation to pay the full ten per cent deposit to the vendor."(sic)
Although the blanks in clause 38 were not filled in, the deposit was shown as $72,500 on the front page of the contract, and that was the amount of the deposit bond Mrs Decevic actually provided on exchange of contracts.
And as earlier indicated in these reasons, the contract had originally specified 22 April 2010 as the "completion date". This was later changed by agreement to 31 May 2010. Standard condition 15 provided as to failure to complete on the agreed date for completion:
"The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so."
Standard condition 15 was supplemented by special condition 32, which made agreed provision for the reasonableness of a 14 day notice to complete:
"Notice to complete
Despite any rule of law or equity to the contrary, the vendor and the purchaser agree that any notice to complete under this contract will be reasonable as to time if a period of 14 days from the date of service of the notice is allowed for completion. ..."
Mr Ari's notice of termination relied on Mrs Decevic's non-compliance with his notice to complete. The validity of the termination in turn depends on the validity of that latter notice.
Requirements for a valid notice to complete
The legal requirements for a valid notice to complete are clear. They were summarised in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 ("Neeta") at 299:
"In relation to such a notice [notice to complete] given by a vendor to a purchaser the following questions must be answered: (i) Was the purchaser in breach of any term of the contract or guilty of unreasonable delay? (ii) Was the vendor himself in default by breach of any term of the contract or guilty of any antecedent relevant delay?(iii) Was the time fixed a reasonable time in all the circumstances?"
The parties are not in contest that the third requirement described by the High Court in Neeta was satisfied here. It is not discussed further in these reasons. The parties contested whether the other two requirements were satisfied here.
Was Mrs Decevic breach of any term of the contract? The law in relation to this requirement can be shortly stated. A mere failure to comply with a non-essential stipulation as to the time of completion of a contract is a relevant breach and justifies giving a notice to complete: Wilde v Anstee (1999) 48 NSWLR 387 at 396; [1999] NSWSC 612. Mrs Decevic did not complete the contract on 31 May 2010, the completion date prescribed in the contract. She was in breach of the contract and therefore, Mr Ari was entitled to issue a notice to complete on the basis of such breach on and from 1 June 2010.
Was Mr Ari himself in default by breach of any term of the contract or guilty of any antecedent relevant delay? Mrs Decevic submits that Mr Ari was himself in breach of the contract and not ready, willing and able to proceed with completion, because the tenants did not leave the property until after Mr Ari's 9 June notice to complete was issued. The contract provided that vacant possession would be provided on completion. The property was in continuous possession of the tenants until 13 June 2010. It was in their possession on the agreed completion day, 31 May 2010 and on the date of the notice to complete, 9 June 2010. It is convenient to analyse the situation on each of those dates separately, starting with the latter.
Breach of Contract on 9 June 2010? Did the fact that the tenants had not moved out before the notice to complete was issued on 9 June 2010 invalidate that notice? In my view it did not. Mr Ari was not in breach on 9 June 2010. And the fact that the tenants did not vacate the property before that date does not invalidate the notice to complete.
Established authority makes this result clear. In McNally v Waitzer [1981] 1 NSWLR 294 at 296 the Court summarised the vendor's obligation before issuing a notice to complete as follows:
"The vendor, or indeed the purchaser, is to be judged to be presently able to fulfil his contractual obligations if he can do so at the due time. It could hardly be asserted that a purchaser giving a notice to complete would have to show that on the date he gave it he had immediately available funds to complete any more than it could be asserted that a vendor who had contracted to sell an unencumbered freehold could not give a notice to complete unless he first discharged the mortgage."
And at 304 the Court further said:
"The correct rule, in my opinion, is simply that a vendor who is in default in respect of things which up until then should have been done cannot give a notice to complete, but he can give notice to complete prior to performing all those other things which he has to perform in order to complete the contract."
If vacant possession is to be provided on completion the vendor must be able to provide such possession on completion, but not before: Dillon v Bepuri Pty Ltd (1989) NSW ConvR 55-436. The tenants vacated before 25 June 2010, the time for completion prescribed by the notice to complete arrived. And at the time that he issued the 9 June notice to complete Mr Ari could have well expected on 9 June 2010 that they would vacate by 25 June. It is clear in my view Mr Ari only decided to issue his 9 June notice to complete when he was sure through his solicitor that the tenants were ready to vacate.
Breach of Contract on 31 May 2010? Was the notice to complete invalid because the tenants were in the property on 31 May 2010, the agreed contract date for settlement? Under the contract Mr Ari was required to provide vacant possession on the day of the agreed settlement. He contends that in her communications with Ms Oksuz that Mrs Decevic agreed to let the tenants stay in the property after the settlement. In my view Mrs Decevic clearly waived her right to insist on vacant possession at settlement on 31 May. Although she had refused to provide confirmation in writing of her position, she had nevertheless made clear to Ms Oksuz that she would not insist on vacant possession on 31 May. Mrs Decevic could no longer allege that Mr Ari was in breach of the contract by not being ready to give vacant possession of the property on 31 May.
There are three potential circumstances in which a vendor's breach would not disentitle that vendor from issuing a notice to complete: (1) the breach was trivial (the de minimis rule) (McNally at 301); (2) the breach was waived by the purchaser (McNally at 301); or (3) the breach was "spent force" and ceased to be operative at the time a notice to complete was given (see HG and R Securities Pty Ltd v Sayer [2009] NSWSC 427 at [98] referring to the analysis in Lindgren, Time in the Performance of Contracts (2nd ed), Butterworths 1982).
But there was no formal agreement between Mr Ari and Mrs Decevics to the effect that the tenants could stay in the property after the agreed completion date of 31 May and Mr Ari had to be able under the contract to provide vacant possession on 31 May 2010. Accordingly on 31 May 2010 he was in breach of the contract. Unless the waiver exception applied under the second requirement in McNally, this breach would disentitle Mr Ari from issuing a valid notice to complete.
But the third exception in McNally also applies here. The idea of a breach ceasing to be operative was explored by Young J in Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959; (1996) NSW ConvR 55-771. In that case his Honour specifically considered the operation of a provision equivalent to clause 15 of this contract (Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959 at 14,961). He concluded that such a clause could only be relied on: against a party whose default led to the completion not occurring; and by a party who was "innocent of a default which brought about the no-occurrence" of the completion and not "merely because the completion date has passed". His Honour explored this issue further in Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920 ("Malouf"). There he usefully summarised the preconditions for a valid notice to compete as follows (at [36]):
"If a vendor wishes to issue a notice to complete, it will only be able to do so, (a) if it is free from any relevant breach of contract which may have provided the purchaser a good excuse not to complete by the due date; and (b) it is able to proceed to completion and deliver to the purchaser all the purchaser is entitled to under the contract no later than the expiry of the notice to complete. [emphasis added]"
Requirement (a) in Malouf calls for an investigation of whether "there had been non-completion by the due date for completion, other than caused by a breach by the vendor" (at [40]). Young J's analysis was recently approved by the Court of Appeal in Carrapetta v Rado [2012] NSWCA 202 at [25].
Was the fact that the tenants were in possession on 31 May the reason why Mrs Decevic did not complete on that day? In my view it was not. Mrs Decevic's lack of finance to complete the contract was the reason she did not complete that day. Just before 31 May she was not insisting on or calling for completion; nor was she asking for the tenants to leave the property, so she could settle. Her failure to make such calls is wholly consistent with the conclusion that it was her lack of finance that prevented her from settling on 31 May. Accordingly, quite apart from Mrs Decevic's waiver, the fact that Mr Ari was in breach on 31 May 2010 because the tenants were still in the property did not disentitle him from issuing a valid notice to complete. His breach was not the reason why Mrs Decevic did not complete on 31 May.
One can pause for a moment and see what might have happened if Mrs Decevic had objected to the tenancy on 31 May. Had the fact that the tenants were in possession on 31 May 2010 been the reason why Mrs Decevic did not complete on that day, after the agreed settlement had passed, she would have been entitled to reasonable notice that the tenants were intending to move out before Mr Ari could insist on completion. And a new date for completion would need to be agreed by the parties: Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959; (1996) NSW ConvR 55-771. Similarly if Mrs Decevic had, for example, agreed with Mr Ari before 31 May 2010 that completion would not occur on that day, and would be delayed for an unspecified period, she would also have been entitled to reasonable notice that the tenants were intending to move out before Mr Ari could insist on completion: Strickland v Grieve (1995) 7 BPR 14,376, (1996) NSW ConvR 55-762). In either of those circumstances Mr Ari would not have been able to issue a notice to complete for 31 May.
But that is not what happened. This was no impediment to Mr Ari issuing his notice to complete on 9 June by reason of the tenants remaining in the property until 13 June.
This means that subject to the operation of Conveyancing Act, s 55(2A), under contract clause 9.1 Mr Ari is entitled to recover the deposit of $72,500.
Conveyancing Act, s 55(2A) Claim
Mrs Decevic says the Court should exercise its statutory discretion so the deposit should not be paid to Mr Ari. She relies on Conveyancing Act, s 55(2A), a provision giving the Court a discretion to order the return of a deposit:-
"55. Right of purchaser to recover deposit etc
In every case where specific performance of a contract would not be enforced against the purchaser by the Court by reason of a defect in the vendor's title, but the purchaser is not entitled to rescind the contract, the purchaser shall nevertheless be entitled to recover his or her deposit and any instalments of purchase money he or she has paid, and to be relieved from all liability under the contract whether at law or in equity, unless the contract discloses such defect and contains a stipulation precluding the purchaser from objecting thereto.
If such undisclosed defect is one which is known or ought to have been known to the vendor at the date of the contract the purchaser shall in addition be entitled to recover his or her expenses of investigating the title.
(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.
On the application of the purchaser the Court may order payment under this section and declare and enforce a lien in respect thereof on the property the subject of the contract.
This section applies only to contracts made after the commencement of this Act and shall have effect notwithstanding any stipulation to the contrary.
This section applies to land under the provisions of the Real Property Act 1900."
Conveyancing Act, s 55(2A) confers on the Court a statutory jurisdiction to return forfeited deposits, a jurisdiction, which was not previously available either at common law or in equity. The provision, modelled on the Law of Property Act, 1925 (UK), was added to the Conveyancing Act in 1930 Conveyancing (Amendment) Act No. 44 of 1930. McGarry V-C sets out the history of the provision in Schindler v Pigault (1975) 30 P& Cr 328, at 336-337. Courts have often resisted attempts to confine the jurisdiction the provision confers. But they have nevertheless offered a number of cautionary observations about its exercise. The Court of Appeal summarised these observations in Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182 at [173]:
"By way of summation, I would conclude as follows:
(a) Section 55(2A) confers upon the Court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture.
(b) Notwithstanding this, it is important for a Court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur.
(c) That context is significant when considering the justice and equity of the case, and whether the Court "sees fit" to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show "special circumstances" (or satisfy any like test) before a deposit will be returned.
(d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited.
(e) In considering an application under s 55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited.
(f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former's misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge."
Bryson J also crisply summarised the effect of the provision in Lucantonio v Ciofuli (2003) 11 BPR 21,181; [2003] NSWSC 1058, at [81]:
"The purchasers claimed an order under s 55(2A) of the Conveyancing Act 1919 relieving them against forfeiture of the deposit. Applications under s 55(2A) come before the Equity Division frequently and counsel referred me to a number of decisions at first instance, not all of which need be cited in these reasons. As first enacted s 55 of the Conveyancing Act 1919 gave a purchaser an entitlement to recover his deposit and other relief where specific performance would not be enforced by reason of a defect in title which the contract did not disclose. Subsection (2A), added by amendment by Conveyancing (Amendment) Act No 44 of 1930, greatly expands the grounds on which a purchaser may recover his deposit. It is no longer necessary that there be a defect in the vendor's title, and it is not necessary that the purchaser have any legal or equitable entitlement to recover the deposit. Subsection (2A) confers on the Court, using the words "the Court may, if it thinks fit," a wide but not unlimited discretion to order repayment of a deposit. There must be some substantial ground or good reason, relevant to the parties' contractual relationship, for the Court to think fit to order repayment."
Application of s 55(2A) in an Action to Recover an Unpaid Deposit
The parties seemed not to notice at the time that the deposit bond the bank had provided, expired on 28 April and was not renewed. The parties were pre-occupied with other issues at the time and this event seemed to have escaped their attention. Once the deposit bond expired Mr Ari did not ask for a replacement cash deposit. So these proceedings against Mrs Decevic are in substance proceedings for the payment of the deposit.
Section 55(2A) refers specifically to "repayment of any deposit". But it can also be applied when the purchaser, in breach of his or her obligations under the contract, has not paid a deposit and the vendor brings an action for recovery: Socratous v Koo (1993) NSW ConvR 55-685 at 59-917. That is the case in these proceedings. This approach avoids unnecessary circularity of court action, which would occur if the vendor had first to recover the deposit, before the purchaser could then bring a s 55(2A) action for its repayment to the purchaser.
Discretionary Factors
Mr Ari contests the Decevics' s 55(2A) case. The Decevics say that even if Mr Ari was entitled to terminate the contract, the s 55(2A) discretion should be exercised in their favour and payment of the deposit should not be ordered.
The parties point to facts that the Court should consider when exercising its discretion. Many of these have already been summarised above, when these reasons dealt with the events leading to Mr Ari's termination of the contract. But other facts relevant to the exercise of the discretion and on which the parties rely, occurred after the termination of the contract. And it is now necessary to look at these further facts in relation to the parties conduct between July and October 2010.
Post Termination Conduct - July to October 2010
Mr Ari thought the contract had been terminated on 30 June 2010. But Mrs Decevic disputed the termination and attempted to complete the sale. After the funding from the bank fell through she and her husband explored other ways of obtaining the necessary finance. They continued their efforts in selling their existing residence and were eventually successful. They unsuccessfully applied for funding from the National Australia Bank Limited. And Mrs Decevic asked her sister for a loan.
On 29 May 2010 the Decevics had contracted to sell their existing residence for $1,200,000. This sale was eventually completed on 10 July 2010. After the repayment of the outstanding loan to the National Australia Bank Limited secured over their existing residence, the Decevics received a surplus of around $300,000. In late June 2010 Mrs Decevic had also borrowed some funds from her sister. And by mid-July Mrs Decevic was in a position to pay the balance of the consideration due under the contract for the property.
Secondly, in late November 2009 the Decevics did not behave as though they thought there was already a binding agreement in place. When they received the bank's letter of offer of 20 November had they actually believed that there was already a contract in place, they would have protested at the bank's imposition of more detailed terms upon them. Neither they, nor their solicitor did this, which is consistent with the belief that they did not have a binding agreement until they returned in a signed form the documents that came with the 20 November letter.
Thirdly, many essential terms that one would expect to find in such a credit agreement were not agreed to in the exchanges that had taken place up until the 22 October. Here are some examples of the gaps: the precisely applicable interest rate for each facility and the formula for its variation, whether interest would be payable in a variable or fixed basis, the loan fees and charges, the frequency of loan instalments, the range of possible defaults under the loan and their consequences, the term of the loan and the terms on which the two securities, the existing residence and the property would be taken. I am not prepared to infer an agreement without consensus as to these matters or at least many of them.
Fourthly, Mr Bolster pressed upon the Court the importance of the deposit bond as confirming a binding agreement between Mrs Decevic and the bank by the time of its issue. But despite his eloquent pursuit of this issue I do not think the deposit bond had that effect at all. The bank's submissions are persuasive that the deposit bond was issued on its own self contained contractual terms. The bank, to an extent, accepted a risk, as did Mrs Decevic, that a final binding loan agreement might not be made between the bank and Mrs Decevic even though the deposit bond were issued. In such circumstances the bank was protected by the terms on which the deposit bond was issued which gave the bank rights of subrogation over Mrs Decevic's interest in the property. The issue of the deposit bond does not confirm a binding loan agreement of the kind Mrs Decevic pleads.
But even if Mrs Decevic were to make out her case of a contract to provide finance, one term of that contract would be that the loan advance must be drawn down within three months. I find that is what Mr Crow said to Mr and Mrs Decevic in September. And they were reminded of that condition in the 20 November letter of offer documents. Mrs Decevic did not comply with that contract by seeking to draw down the loan within the three months. Indeed she never attempted to do so within that time.
Mr Bolster's case also ultimately and correctly accepted that reliance on a contract based on the documents that Mr and Mrs Decevic signed and returned on 9 March, was of no assistance to him. The loan had not been drawn down by 25 February. By then it was too late.
It is not necessary to consider the bank's alternative defence based on the General Terms. But in my view the General Terms were binding on Mrs Decevic, as a result of her signing the banks documents on 9 March. She was in default of them because she gave "incorrect or misleading information in connection with this loan agreement" within clause 28 of those terms. In the result Mrs Decevic fails on the cross-claim against the bank.
Conclusions and Orders
In the result, on the main claim, the Court has found that the vendor, Mr Ari, validly terminated the contract on 30 June 2010. He is entitled under clause 9.1 of the contract to recover the deposit. And he is unable to obtain such payment from the bank, as agreed under the contract, because the deposit bond has expired. The Court has declined to exercise it jurisdiction under Conveyancing Act, s 55(2A). And I will order Mrs Decevic to pay the value deposit to Mr Ari. But there may be a claim for interest to be calculated.
Mrs Decevic wholly fails on the Cross Claim. There should be judgment for the bank on the cross-claim.
Mr Ari has been successful on the principal claim and Mrs Decevic has been unsuccessful on the Cross Claim. Normally costs would follow the event, but the parties may wish to seek some other special order as to costs.
Accordingly, the Court makes the following orders:
1. I direct the parties to prepare short minutes of order to give effect to these reasons.
2. I direct the parties to file and serve any submissions on questions of costs by 5pm on Friday, 7 February 2014.
3. List the matter for costs argument at 9.30am on Wednesday, 12 February 2014.
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Decision last updated: 03 February 2014
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