Ashdown & Anor v Kirk

[1997] QSC 53

IN THE SUPREME COURT

OF QUEENSLAND

No. 407 of 1995
Brisbane

Before Justice Byrne

[Ashdown & Anor v. Kirk & Anor]

BETWEEN:

RONALD CLIVE ASHDOWN AND HELEN IVY ASHDOWN

Plaintiffs
AND:

JUDE CHRISTOPHER KIRK AND DEBORAH ANN KIRK

Defendants

CATCHWORDS:     Vendor and purchaser - precontractual representations - interpretation of REIQ contract - whether approximately 10% deposit payable by instalments is a penalty.

Counsel:Mr J.R. Webb for the plaintiffs

Mr J.D. Batch SC for the defendants

Solicitors   MacGillivrays for the plaintiffs
  Mr A.P. Abaza for the defendants

Hearing Dates:  16, 17, 20-22 January and 3 April 1997

REASONS FOR JUDGMENT - BYRNE J.

Judgment delivered :    3 April 1997

By contract dated 5 September 1994 the plaintiffs agreed to sell, and the defendants agreed to buy, a house property at Hendra for a price of $2,600,000.  The contract stipulated for a $250,000 deposit.  By typed special condition 3, the "split deposit" was "to be paid" by two instalments:  $50,000 within 180 days, and $200,000 within 360 days, "from the signing of the contract". Time was of the essence: see standard condition 26.  The balance of the purchase price was to be paid two years from the date of the contract. In the meantime, the defendants were to be let into possession.
           The defendants occupied the house within hours of execution of the contract.  They remained in possession on 5 March 1995 which, as is common ground, was 180 days after the signing of the contract. The $50,000 instalment was not paid.  By letter dated 6 March 1995 from the plaintiffs' solicitors, the defendants[1] were advised that the contract "is now at an end and that you will be vacating the property within 21 days".
 Breach
           By cl.13.1(b)(ii) of the standard conditions, if the defendants failed to comply with any term of the contract, the plaintiffs became entitled to "terminate" it. Clause 13.3 of the standard conditions provides:

[1]It is not suggested that it matters that Mrs Kirk was not an addressee.

"If the Vendor terminates the contract pursuant to ... sub-clause 13.1 ...the Vendor may elect to ... sue the Purchaser for breach and ... may recover from the Purchaser as a liquidated debt the deposit or any part of it which has not been paid by the Purchaser."

Mr Batch SC submits that the defendants were not bound to pay an instalment of the $250,000 deposit and therefore cannot have breached a term in not doing so.  Special condition 3 creates, he argues, an entitlement, rather than imposes a duty, to pay. On this approach, that term confers an option to purchase which the defendants exercise by paying the instalments.  The submission cannot be accepted. The contract, which is in the REIQ form in use at the time, is not in form an option. Nor is it one in substance.  Special condition 3 speaks of amounts "to be paid" on the nominated dates. These are words of obligation, as might have been expected in reference to moneys characterised as a "deposit".[2]
           Next it was contended for the defendants that non-payment of the instalment put an end to the contract.   True it is that special condition 3 provides that "Should the deposit not be paid in accordance with this schedule this contract shall be at an end." But the parties cannot be taken by those words to have intended that the defendants, by defaulting in paying part of the deposit, could unilaterally discharge themselves from the future performance of their obligations.[3]  
           The omission to pay the instalment due on 5 March 1995 was a failure to comply with a term of the contract.
Clause 13.3
           The plaintiffs' solicitors' letter of 6 March 1995 asserts that the contract "is now at an end".  Presumably the choice to "terminate" the contract was made pursuant to cl.13.1.[4] By an amendment to their claim, the plaintiffs also sue for damages for breach of the contract. This alternative claim[5] establishes that the plaintiffs have elected "to ... sue the purchaser for breach".[6] In these circumstances, under cl.13.3 the plaintiffs may "recover ... as a ... debt[7] the deposit or any part of it which has not been paid".
           What is that amount?  Is it the $50,000 which was due and payable when the contract was terminated?  Or is it $250,000, recoverable pursuant to cl.13.3 on the footing that the entire deposit "has not been paid"?  The $250,000 was required to be paid on the dates fixed by special condition 3, and none of it has been. Yet the expression "has not been paid" might be thought to refer to moneys which ought to have been paid before termination.  How, it might be asked, can the money have been unpaid unless it was overdue?
           In my opinion, the concluding words of cl.13.3 do not relate only to so much of the deposit as had fallen due for payment by 6 March 1995 when the contract was terminated. Rather they comprehend the whole $250,000. This view receives support from the contrast between the concluding words of cl.13.3 and the language in cl.13.2(b), which provides that "If the Vendor affirms this Contract pursuant to clause 3.2 or clause 13.1, the Vendor may ... recover ... as a liquidated debt the Deposit or any part of it which the Purchaser has failed to pay ... ".  That failure is, clearly enough, a reference to a default and, therefore, to an omission to pay moneys then due and payable.  Accordingly, the reference in the next sub-clause to a deposit "which has not been paid" suggests a change of meaning, viz that cl.13.3 was intended to comprehend not only funds a purchaser had failed to pay but also deposit moneys not then due for payment. Of course, the termination discharged the defendants from the future performance of their obligations under the contract, including their promise to pay the $200,000 instalment.[8] So if the $200,000 can be recovered by virtue of cl.13.3, when triggered, cl.13 simultaneously relieved the defendants of the burden of paying it in accordance with the timetable in special condition 3 and imposed instead a liability to pay it immediately. Yet deposits are sometimes paid by instalments,[9] and in such circumstances the assumption of an obligation to pay immediately that part of the deposit outstanding at the time of default in paying an initial instalment is not surprising.
           The plaintiffs show a prima facie entitlement to recover the unpaid $250,000 in debt pursuant to cl.13.3.  But several defences are raised.
A representation about the standard conditions?
           Among the defences is a contention that the absence of a "building approval" from the Brisbane City Council to substantial renovations carried out in the 1980s defeats the plaintiffs' claim.  To establish this defence as pleaded, the defendants must prove (i) the absence of either a relevant "approval" or else non-compliance with a condition attached to approval of the building application; and (ii) that a conversation which took place shortly before the contract was signed involved a material misstatement by a real estate agent, Mr Reid, concerning special condition 2.  That term provides that:

[2]See Freedom v. AHR Constructions Pty Ltd [1987] 1 Qd R 59, 65; Workers Trust & Merchant Bank Ltd v. Dojap Investments Ltd [1993] AC 573, 578; W.D. Duncan & S.E. Jones, Sale of Land in Queensland, 4th ed (1996), pp. 87-88; cf NLS Pty Ltd v. Hughes (1966) 120 CLR 583, 589.

[3]Suttor v. Gundowda Pty Ltd (1950) 81 CLR 418, 440-442; Havenbar Pty Ltd v. Butterfield (1974) 133 CLR 449, 455-456; Rudi's Enterprises Pty Ltd v. Jay (1987) 10 NSWLR 568, 576-578; Alghussein Establishment v. Eton College [1988] 1 WLR 587.

[4]It was not suggested that the letter is ineffective to call cl.13.3 in aid.

[5]The claim is to recover $250,000 as damages for the defendants' breach of contract in failing to pay the $50,000 instalment.  Mr Webb did not base it on a contention that non-payment of the $50,000 was a repudiatory breach which, under the general law, entitled his clients to damages for loss of bargain. Perhaps this was because there was no allegation in a pleading of such a loss, and therefore the trial did not involve any investigation of losses resulting from the termination. Rather, the case is put on a basis which depends on the acceptance of an alternative contention advanced for the defendants: viz that, if the contract automatically determined when the defendants, in breach of contract, failed to pay the $50,000, the plaintiffs have thereby been deprived of the $200,000. More than one obstacle may stand in the way of this claim. It implicitly assumes that, but for the termination which the defendants contend resulted from non-payment of the $50,000, eventually the plaintiffs would certainly have become entitled to receive the $200,000, and without any risk of their being obliged to convey title to the house. See also J.W. Carter, Breach of Contract, 2nd ed (1991), pp. 480-481, and "Deposits, Accrued Rights and Damages" (1988) 104 LQR 207. However, it suffices to dispose of this curious claim to restate my opinion that the contract did not automatically terminate when the defendants failed to pay the $50,000.

[6]which may have been arguable when the proceedings were exclusively for debt.

[7]The clause speaks of a "liquidated debt", which is odd, as all debts are liquidated. Perhaps "liquidated demand" was intended: cf Coast Securities No 9 Pty Ltd v. Alabac Pty Ltd [1984] 2 Qd R 25, 27.

[8]cf Westralian Farmers Ltd v. Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361, 379-380.

[9]Duncan & Jones at 89; P.J. Butt, The Standard Contract for Sale of Land in New South Wales, (1985), p. 493.

"Clause 21.1(b) of the standard conditions of sale does not apply to this contract of sale."

Clause 21.1(b) of the standard conditions permits a purchaser, "by notice in writing to the Vendor given on or before the date for completion", to "terminate the contract" if "all permissions consents and approvals required from the relevant local authority ... have not been obtained or having been obtained, have not been complied with in all respects". The absence of "approval" only matters if, notwithstanding special condition 2, cl. 21.1(b) of the standard conditions entitled the defendants to rescind. If clause 2 of the special conditions precludes the operation of cl.21.1, on this issue, it is immaterial that there may not have been a relevant "approval" or that a condition of it might not have been satisfied. 
           Mr Reid is alleged to have misdescribed in a fundamental way the effect of special condition 2.  The misstatement is relied on to establish a "mutual mistake of fact" as to the scope of special condition 2 and, alternatively, a mistake by the defendants "of which the plaintiffs were aware".  The consequential claim is for rectification of special condition 2.  The condition, as it is sought to be rectified, is the foundation of a claim to have rescinded the contract by a notice purportedly given in reliance on cl. 21.1(b) on 24 March 1995. 
           Before the contract was signed, there were discussions concerning it between Mr Kirk and Mr Ashdown.  Both men have experience of business, and Mr Kirk is no stranger to transactions relating to real estate.  Prior to the negotiations which led to the contract, Mr Kirk had availed himself of a provision like cl. 21.1(b) to avoid completion of an agreement to buy a house at Raby Bay which the defendants had occupied pending completion. Moreover, about a week before 5 September 1994 Mr Kirk signed a copy of what, with presently immaterial alterations, was eventually executed as the contract.
           The contract was signed at a house at Gregory Terrace occupied by the defendants. Present were the plaintiffs, the defendants, Mr Reid, and Mr Reid's employed salesman, Mr Elson.  According to Mr Kirk, Mr Reid presented the contracts for him to look at, which he did.  He testified that, as he read through the special conditions, he noticed "that one of the standard conditions had been deleted", and inquired of Mr Reid concerning that.  Mr Reid,[10]  Mr Kirk testified, said "that it only pertained to the heritage listing clause, the fact that the house was heritage listed and to nothing else".   Mr Kirk elaborated on this description of events and the significance that the claimed words had for him during cross‑examination. He testified that he had understood Mr Reid to be saying, in effect, that clause 21.1(b) was deleted because it had no possible operation for the reason that the house was heritage listed. Mr Kirk claims not to have appreciated that clause 21.1(b) related to approvals and consents from local authorities.  He also testified that he did not look at the standard conditions to check the accuracy of the representation he attributes to Mr Reid.
           Other testimony is inconsistent with Mr Kirk's recollection.  Before mentioning it, I should advert to testimony of Mrs Kirk. She was asked whether she recalled any conversation concerning particular items of the contract.  She said that Mr Reid said that it was just the regular REIQ contract, with "some clauses added to do with the heritage listing of the house".  In cross-examination, she said that her husband had pointed to something on the contract, saying "What's this", to which Mr Reid replied "that has to do with heritage listing of the property".  She cannot recall any mention of Council consents or approvals.  Mrs Kirk's recollection that some mention was made of heritage listing by Mr Reid shortly before the contract was signed is not inconsistent with the testimony of other witnesses - Mr Elson, Mr Ashdown, Mrs Ashdown and Mr Reid himself - who have testified that Mr Reid read out the special conditions before the contract was signed.  Special condition 7 states that "the purchaser hereby acknowledges and accepts that the property is listed under the State Heritage Register"; and special condition 5 refers to the purchasers' obtaining any "heritage approvals" to any improvements which they might make during their occupation. However, I do not accept that Mrs Kirk's recollection is accurate.
           Mr Reid recalled including special condition 2 at the insistence of the plaintiffs that the contract be "tight".  By the time the draft was prepared, cl. 21.1(b) had been a source of considerable difficulty.  Reluctant buyers had frequently relied on it to avoid completion of their purchases, just as Mr Kirk had done in respect of a house at Raby Bay.  As a result, it was common to exclude cl. 21.1(b) by a special condition.  Mr Reid did not compose the special condition.  He got the words from a software package. Special condition 2 was included in at least one draft sent to the defendants before 5 September 1994.
           According to Mr Reid, at the meeting at which the contract was signed, in accordance with his general practice, he read out each of the special conditions.  His practice in relation to special condition 2 was to explain, after reading it out, that the clause meant that the "property is accepted as is, where is."  Such an explanation of that condition was, he said, invariably given by him.  Mr Reid denied that Mr Kirk made any inquiry concerning the special condition or about his explanation of its effect, and he denied having said that the clause related to heritage listing or to a "heritage listing clause" in the standard conditions.
           Mrs Ashdown, though she was present when the contract was signed, seems not to have paid much attention to the material events.  She was engaged in conversation with Mrs Kirk and was content to leave decisions concerning the contract to her husband.  She has, however, testified to recalling Mr Reid's speaking while he held the contract, apparently reading from it.  She also has an impression that Mr Kirk had a copy of that document at the time.  Her evidence affords a little corroboration of Mr Reid's testimony that he read out the special conditions at the meeting - a matter which assumes some importance because of Mr Kirk's denial that such an event occurred.
           Mr Elson thinks that he discussed the exclusion of cl. 21.1(b) with Mr Kirk before the meeting at which the contract was signed, although his testimony concerning the occasion was vague. As to the 5 September meeting, Mr Elson remembers that Mr Reid read out the special conditions, and that Mr Kirk then had a copy of the contract. Mr Elson does not recall any question to Mr Reid about the special conditions.  He is sure that Mr Reid did not speak of "heritage listing" on reading out special condition 2.  He asserts that if Mr Reid had made such a misstatement of its effect as Mr Kirk attributed to him, he would have spoken up to correct him.
           Mr Ashdown remembers hearing Mr Reid read out the special conditions. He also said that Mr Kirk had a copy of the document during the reading. He does not recall that Mr Kirk asked any questions or that Mr Reid explained any special condition.
           There are reasons to be cautious about reliance on all the witnesses who have spoken of this meeting. Mr Reid's testimony often emerged confusingly.  Moreover, since about May 1985, he and his family have occupied the house, paying, as Mr Reid aptly put it, a "token" rental of $175 per week. Mr Reid has derived other financial advantages from his association with Mr Ashdown, who is one of Mr Reid's important clients.  Mrs Ashdown, like Mrs Kirk, had only indefinite impressions of the events she described: glimpses of a discussion which had no importance for her. Mr Elson's reliability is called into question by a statutory declaration he signed in March 1996 which is inconsistent with his evidence of another conversation with Mr Kirk concerning Council approval; and, although he appeared to be doing his best to recall things, his memory was often patchy or indistinct.
           Mr Ashdown did not acquit himself well in the witness box.  He seemed especially discomforted in discussing matters pertaining to his receipt from Mr Kirk of $106,100 - a sum clandestinely used by Mr Kirk to acquire an interest in a ship lying at Brisbane.  Mr Ashdown now regards the dealings as of doubtful propriety, if not illegal. He is embarrassed by his leading role in them.  The details are obscure. It seems that Mr Ashdown assisted Mr Kirk to disguise from the "Australian authorities", as Mr Ashdown put it, the expenditure by Mr Kirk of the $106,000 to buy the interest in the vessel.  The vendor, Mr Lin, was overseas and thought by Mr Ashdown to be content to apply the money towards the purchase of a horse from him.  Mr Ashdown credited the money received from Mr Kirk to Mr Lin's account with his horse stud business.  The sum also accounts for an increase in the sale price from the asking price of $2,500,000 to $2,600,000 and the creation, contemporaneously with the execution of the contract, of a document signed by the defendants authorising Mr Ashdown to retain $105,100 "until the interested parties can agree on a suitable disbursement" if the house purchase were not completed.  Whatever the real transactions concerning the ship and a horse may be, Mr Ashdown acknowledged that his participation in them reflects no credit upon him.  The reliability of his testimony is also called into question by misstatements in an affidavit he swore in support of an application for summary judgment. In cross‑examination, he appeared to accept that it was misleading in one respect; re-examination saw somewhat of a recantation.  Certainly he agreed that the affidavit inaccurately described Mr Lin as an accountant resident in Singapore.  In short, Mr Ashdown's testimony deserves careful scrutiny.
           Mr Kirk's evidence must also be approached with care. Two reasons for scepticism may as well be summarised now. First, there are the factors shortly to be mentioned in my evaluation of his evidence concerning the alleged consensual termination.  Secondly, the defendants signed a document dated 31 August 1994 which, falsely to their knowledge, asserts that the $106,000 related to the purchase by them of a stallion.  The purpose of the document is not clear, but it is likely that it was brought into existence to deceive third parties, if need be.

           In the result, several considerations persuade me that Mr Reid's account of the meeting is to be preferred despite the considerations that bear on an assessment of his reliability mentioned earlier. First, he seemed convinced (i) of a practice of reading out special conditions before a contract was signed; (ii) of the content of his standard explanation of special condition 2; and (iii) that his practice was adopted when the contract was signed. Then there is the consideration that his testimony is, in important respects, confirmed by Mr Elson.  And despite Mr Elson's lack of experience in real estate and a status subordinate to Mr Reid, he presented as someone likely to have corrected Mr Reid had Mr Reid misstated the effect of the special condition. Thirdly, it is unlikely that Mr Reid would have risked such a misrepresentation. A mistake of the nature attributed to him could easily have been exposed.  Mr Reid knew that Mr Kirk had been in possession of a draft of the contract for some days before the meeting, and Mr Kirk could also have checked on the spot by turning to the standard conditions in the copy of the contract he then held in his hands. Finally, there is the consideration that Mr Kirk's testimony otherwise is, as I am persuaded, unreliable concerning material controversies.
           The plaintiffs have failed to establish the misrepresentation alleged to have been made by Mr Reid concerning special condition 2. The special condition therefore took effect according to its tenor and operated to exclude cl. 21.1(b) of the standard conditions.
Termination was not consensual
           The defendants contend that they were discharged from the performance of their obligation to pay the deposit by an agreement made between Mr Kirk and Mr Ashdown when they met at Mr Ashdown's stud at Mutdapilly.
           Mr Kirk testified that, "concerned about the information that he had got from the Council",[11] he arranged to meet Mr Ashdown.  When Mr Ashdown saw him, he inquired whether Mr Kirk wished to avoid the contract - "Do you want out of the house contract" were said to be the words, - to which the response was "Yes".  Mr Ashdown then said that he had others prepared to pay more for the house, indicated that he was agreeable to discharging the contract, but insisted on being paid the rent.  According to Mr Kirk, a discussion about the defendants' leaving the house ended when Mr Ashdown's said, "Well, you can stay and keep renting as long as you keep paying the rent", and that he would "call the solicitor and get him to rip up the contracts".
           Mr Ashdown acknowledges having met Mr Kirk at his property; and he accepts that they spoke about the future of the contract.  His evidence, however, is that the material portion of the conversation began with Mr Kirk's having said that he would not be able to go on with the contract because of financial difficulties.  Mr Ashdown indicated that, if the defendants paid the rent and "the deposits", they would not be held to "the balance". Mr Kirk did not agree to the proposal, and the conversation concluded when Mr Kirk's said that he could not complete the contract.
           Mr Kirk's account of this conversation is most improbable.  First, when it took place, early in March,[12] there were no other prospective purchasers, let alone people who might pay a greater price.  Secondly, Mr Ashdown was not in a conciliatory mood.  He believed that the defendants had failed to pay rent due, and he was upset that they had not insured the house: matters raised by him in a heated telephone conversation with Mrs Kirk not long before the Mutdapilly meeting and in correspondence.[13] Thirdly, things which might have been expected if Mr Kirk's account were true did not occur.  The solicitor then acting for the plaintiffs and the defendants is not shown to have been instructed by either side to act consistently with such an arrangement.  More importantly, when a new solicitor retained for the defendants wrote to the plaintiffs' new solicitors within less than 3 weeks of the meeting setting out the defendants' stance, no suggestion was made of any agreed termination.  To the contrary, the letter, which was written on 17 March 1995,[14] asserts that the defendants were trying to resell and continued:

[10]In his evidence in chief, Mr Kirk attributed the misrepresentation to Mr Elson. Nothing seems to turn on this slip.

[11]A reference to a claim of having been informed that Council had not approved the renovations.

[12]Mr Ashdown put the event in early March. At one stage, Mr Kirk indicated that the meeting occurred before he signed a document dated 22 February 1995. On another occasion, Mr Kirk said that the meeting was in late February or early March.

[13]Mr Ashdown wrote on 14 February 1995 saying that the rent appeared to be $2000 in arrears.  On 27 February he wrote again, this time listing the instalments of rent received and the periods to which they related.

[14]the day the writ was served on Mr Kirk.

"Your clients have been previously orally advised of my clients' intention to on sell the property for profit.  The instant suit is plainly contrary to the true Agreements made between the parties."

Another such letter, written on 24 March 1995, purported to terminate in reliance on cl 21.1(b). Again, no mention was made of any deal putting an end to the contract.
           Mr Kirk testified that, after the meeting at Mutdapilly, Mr Ashdown proposed that they meet again to "sort ... out" the "problem" that Mr Ashdown's books "showed ... that he owed me money" - a reference to the $106,100.  According to Mr Kirk, Mr Ashdown prepared a document for him to sign because "the sale of the house was now finalised ... and we needed to show that he no longer owed me that money.  So it was a document to send that money supposedly on my behalf to Hong Kong, or something."  The document, which is dated 22 February 1995, provides:

"I Jude Kirk formerly (sic) request that the $106,100 paid to Glengarry Stud on 5th November 1993 and never used for the intended purpose, now be transferred to "Aella Pty Ltd" (C.K. LIN) by bank draft as soon as possible."

Mr Ashdown, whose evidence on the topic I prefer, has a different explanation.  He says the document was executed before the meeting at Mutdapilly, and for a different reason.  He testified to speaking with a Mr Holdway, who owned the house at Gregory Terrace which the defendants occupied when the contract was executed. The telephone conversation took place in February 1995 and before Mr Ashdown wrote to Mr Kirk on 14 February.[15]  Mr Holdway said that Mr Kirk had entered into a "vendor finance arrangement" for the Gregory Terrace house and had breached the contract.  Mr Ashdown remembers hearing Mr Holdway say that he intended to "bankrupt" Mr Kirk and was concerned that, in a bankruptcy, the $106,100 "could have been seen to be Mr Kirk's money".  He was worried about being forced to pay twice if he sent the money to Mr Lin and the trustee in bankruptcy claimed the fund.  So he had Mr Kirk acknowledge that the money belonged to Mr Lin. Mr Ashdown's account of the circumstances surrounding the document is the more plausible.
           No accord terminated the contract.
Representation about Council approval
           The defendants also rely on pre-contractual representations allegedly made by the estate agent, Mr Elson, concerning building approval.  The case is that Mr Elson represented that the renovation work was "the subject of building approval".  The representation is said to be false "in that there was no complete, unconditional or final building approval ... or any building approval was conditional and was not completed or complied with".  Particulars assert that inspections required by the Building Act 1975, and by a condition attached to approval of the building application, were not requested and did not take place.
           In the view I take, it is unnecessary to decide whether the appropriate inspections were requested or undertaken, or whether the local authority approved the works as constructed.  It is not shown that Mr Elson represented that such things had happened.
           Mr Kirk testified that the conversation took place at an inspection of the house when he asked Mr Elson whether all approvals had been granted by the Heritage Department and the Council.  Mr Elson, according to Mr Kirk, replied that the renovations had been done before heritage listing.  He then showed Mr Kirk three or four plans stamped "council", saying that the works had been approved by the Council and that Mr Ashdown had done the work to a very high standard. 
           In March 1996 Mr Elson executed a statutory declaration.  In it, he declares:

[15]The letter insisted that the $50,000 be paid on 5 March and that "any deviation ... will not be tolerated". It also complained that the rent "still appears to be $2,000 in arrears".

"During the first physical inspection of the property I pointed out the fact that the property was heritage listed and the [sic] extensive renovations to the property had been completed prior to heritage listing. Mr Kirk asked me if all approvals from the Heritage Department and building approvals from the Brisbane City Council were in place.  I told Mr Kirk that the Principle [sic] of Raine and Horne, Mr Peter Reed [sic], said that all approvals were in place.  I also showed to Mr Kirk a copy of a council plan and said that this confirms the council approval."

Two things may be noticed concerning the representation acknowledged by the declaration.  First, it concerns what Mr Reid said to Mr Elson about "approvals"; and the defendants do not allege that Mr Elson misrepresented to Mr Kirk what Mr Reid had said about that. Nor, if it matters, do the defendants plead a case that Mr Reid lacked reasonable grounds for any belief he may have expressed to Mr Elson concerning approvals.  Mr Ashdown probably had told Mr Reid that the renovation plans were approved by the Council; and that was the truth.  The Council had approved the building application, signifying as much by endorsements stamped on the plans.  Secondly, the last sentence of the declaration sets a context, tending to show that the reference to Council approval related to the building application, not to some such later event as an inspection of the works by a building inspector. The endorsements on the plans confirmed approval of the application.  A glance at them would have revealed that they could not possibly have confirmed that the works as constructed had been inspected or approved by the Council.[16]
           Mr Kirk's evidence also indicates that the alleged misrepresentation relates to approval of the building application, not to post-construction inspection or approval of the renovations. He said,[17] in substance, that Mr Elson showed him plans, stamped with Council approval confirming a representation that Council had approved the renovations. 
           It is hard to decide what Mr Elson said or implied at the inspection. The statutory declaration is inconsistent with his evidence.  He testified that it was not until after the inspection that he learned of Mr Reid's view that Council and heritage approvals had been obtained.  But Mr Elson also testified that he had discussed Council approval with Mr Kirk. He said that Mr Kirk asked him if the improvements were Council approved, and that he responded by saying they would have been, or that he assumed they would have been.  Mr  Elson seemed sure that he had not shown any Council plans to Mr Kirk until they were discovered in a kitchen cupboard shortly after execution of the contract.  He sought to explain the divergences between the declaration and his evidence by saying that Mr Kirk was responsible for the declaration, and that he had signed it at a time when he was grateful to Mr Kirk for getting him a new job.
           The statutory declaration and other considerations mentioned earlier give cause to hesitate before treating Mr Elson's testimony concerning the pre-contractual conversation as reliable in its essentials. And his evidence is that the declaration is not completely accurate which, given the circumstances in which it came to be executed, is unsurprising.  Unfortunately, so adverse is my impression of Mr Kirk's veracity that I am not inclined to treat his testimony concerning the conversation as reliable either.  So it is difficult to form a satisfactory conclusion concerning the representation.
           It seems a distinct possibility that Mr Elson indicated to Mr Kirk that the Council had approved the plans for the renovations. But I am not persuaded that Mr Elson conveyed more.  In particular, I cannot conclude on the balance of probabilities that Mr Elson, by what he said or left unsaid, represented that all conditions of approval of the application had been satisfied or that the works as constructed had been inspected or approved in accordance with Council or other lawful requirements.
Penalty issue[18]
           Finally, the purchasers contend that cl.13.3 works a penalty.  But the liability it imposes consequent upon a termination is to pay the promised deposit, which is slightly less than the usual 10% of the purchase price.[19]  That is no penalty. For nothing in the evidence, nor any more general consideration, suggests that the amount of the deposit is out of all proportion to the loss the plaintiffs stood to sustain on determining the contract.[20]
Orders
           The plaintiffs are entitled to judgment for $250,000.  I will hear submissions on interest and costs.

[16]See also the particulars relating to the misrepresentation that "Mr Elson showed to Mr Kirk plans for the works which he said had been approved by the ... Council."

[17]Transcript pp. 21, 54-55.

[18]The $50,000 instalment is not an additional sum payable for breach of special condition 3. The duty to pay it is the primary obligation: cf Legione v. Hateley (1983) 152 CLR 406, 445; Dan B. Dobbs, Law of Remedies, 2nd ed (1993), § 12.9(1) at 813. Accordingly, this defence does not meet the alternative claim (in para.10B) to recover the $50,000 instalment of deposit under the general law on the footing that the defendants were unconditionally liable to pay that debt before termination: see Bot v. Ristevski [1981] VR 120 and Prendergast v. Chapman [1988] 2 NZLR 177, 187-190, approved in Cleargate Pty Ltd v. Pacific Commerce Finance Limited, CA 186 of 1993, 10 May 1994; Brown v. Langwoods Photo Stores Ltd [1991] 1 NZLR 173, 176; cf Socratous v. Koo (1993) NSW Conv R § 55-685 at 59,917, (1993) 6 BPR § 97448 at 13,228; G.H. Treitel, The Law of Contract, 9th ed (1995), pp. 910-911.

[19]If this deposit had actually been paid, as distinct from being the subject of an executory promise, relief from its forfeiture would not have been granted: Workers Trust at 579-580; Lexane Pty Ltd v. Highfern Pty Ltd [1985] 1 Qd R 446, 453-455; Worsdale v. Polglase [1981] 1 NZLR 722, 727; Union Eagle Ltd v. Golden Achievement Ltd [1997] 2 WLR 341, 344, 346; K. Mason & J.W. Carter, Restitution Law in Australia, (1995) p. 418; R.P. Meagher, W.M.C. Gummow & J.R. Lehane, Equity Doctrines and Remedies, 3rd ed (1992), p. 452; cf Stern v. McArthur (1988) 165 CLR 489, 524.

[20]See Esanda Finance Corporation v. Plessnig (1989) 166 CLR 131, 139-140, 147, 153, 157; AMEV Finance Ltd v. Artes Studios Thoroughbreds Pty Ltd (1989) 15 NSWLR 564, 574‑575; cf Philips Hong Kong Ltd v. Attorney-General (Hong Kong) (1993) 12 Aust Constr L R 20, [1993] 1 HKLR 269.