Baird v Chambers

[2010] NSWSC 272

CITATION:	Jason Warren Baird v Tony Chambers [2010] NSWSC 272
HEARING DATE(S):	7 June 2010
JUDGMENT DATE :	16 June 2010
JUDGMENT OF:	Ball J
DECISION:	1. Declaration that the contract of sale of land between the plaintiffs as vendors and the first and second defendants as purchasers has been validly terminated. 2. Declaration that the deposit of $125,000 paid pursuant to that contract has been forfeited by the purchaser. 3. Order that the third defendant pay to the plaintiffs the sum of $125,000 held by the third defendant as stakeholder pursuant to the contract. 4. First and second defendants pay the plaintiffs' costs of the proceedings. 5. The cross claim be dismissed with costs.
CATCHWORDS:	CONVEYANCING - Whether deposit forfeited - Section 55(2A) Conveyancing Act
LEGISLATION CITED:	Conveyancing Act 1919 Fair Trading Act 1987
CATEGORY:	Principal judgment
CASES CITED:	Borda v Burgess [2003] NSWSC 1171 Havyn Pty Ltd v Webster [2005] NSWCA 182 Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 Nassif v Caminer (2009) 74 NSWLR 276 Nelson v Bellamy [2000] NSWSC 182 Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367
PARTIES:	Jason Warren Baird (First Plaintiff) Kim Lesley Baird (Second Plaintiff) Tony Chambers (First Defendant) Sandra Faye Chambers (Second Defendant) Rance Blamey Real Estate (Third Defendant)
FILE NUMBER(S):	SC 2010/110610
COUNSEL:	D P O'Connor (Plaintiff) Ms J K Taylor (Defendant)
SOLICITORS:	Collins & Thompson (Plaintiff) Lyons & Lyons (First & Second Defendants) Matthews Dooley & Gibson (Third Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BALL J

16 JUNE 2010

2010/110610 JASON WARREN BAIRD v TONY CHAMBERS

JUDGMENT

1 HIS HONOUR: In this matter the plaintiffs seek forfeiture of a deposit paid in respect of the sale of a residential property in Glenhaven following termination of the contract. The defendants cross claim seeking an order pursuant to s 55(2A) of the Conveyancing Act 1919 for repayment of the deposit. The defendants also cross-claimed seeking damages under s 68 of the Fair Trading Act 1987. However, that claim was abandoned at the hearing.

2 Contracts for the sale of the property were exchanged on 14 November 2009. The purchase price was $1,250,000. The defendants paid a deposit of $125,000. The contract provided that completion was to occur 120 days after the contract date.

3 Clause 34 of the contract relevantly provided:

“Both the Purchaser and the Vendor agree that the time of 14 days is considered to be reasonable and sufficient to render time being made essential.”

4 The defendants proposed to finance the purchase from the sale of their existing home at Roseville. However, the sale of that property was delayed and, as a consequence, the defendants did not complete within the 120 days – that is, by 15 March 2010.

5 The solicitors for the defendants wrote to the licensed conveyancers who were acting for the plaintiffs asking for 2 months’ extension to settlement. That extension was refused by a letter dated 1 March 2010 and, by letter dated 16 March 2010, the plaintiffs served a notice to complete requiring completion on 1 April 2010. That notice to complete was defective and it was withdrawn. A further notice to complete was served on 31 March 2010 requiring completion on 15 April 2010.

6 On 1 April 2010, the defendants exchanged contracts for the sale of their Roseville property. That contract provided that settlement was to occur on 20 April 2010 and that time was to be of the essence.

7 On 6 April 2010 the solicitors for the defendants wrote to the conveyancers for the plaintiffs alleging that the notice to complete was defective on the ground that the time for completion included the Easter public holidays. The conveyancers for the plaintiffs responded on the same day relying on clause 34 of the contract and pointing out that that clause did not refer to business days.

8 On 7 April 2010 the solicitors for the defendants sent settlement figures to the defendants’ conveyancers on the basis of a settlement on 20 April 2010. They proposed that settlement occur at Esperon’s office on that day. The letter also enclosed a copy of the front page of the contract of sale of the Roseville property.

9 The solicitor for the defendants was on holidays from 12 to 16 April. On 16 April 2010, the plaintiffs served a notice terminating the contract.

10 It appears from correspondence between the parties that the sale of the Roseville property did not complete on 20 April; and it is unclear from the evidence whether completion ever occurred. By an email dated 28 April, the defendants proposed that they be given a further 3 months to settle the purchase of the Glenhaven property. They offered to pay $40,000 when they moved into that property “to cover the interest to date caused by our delays” and to pay rental for the property for the next 3 months. That offer was rejected by an email dated 1 May from the plaintiffs’ agent. The agent said that the plaintiffs’ main concern was whether the defendants could raise finance to settle in 3 months. The agent suggested that the defendants pay $600,000 on occupation by them of the Glenhaven property and the balance on settlement. The defendants replied on 4 May that they would be in a position to pay $350,000 when they settled on the sale of the Roseville property with the balance to be paid on settlement. It is not clear from the evidence why the defendants were not in a position to pay the full amount following completion of the sale of the Roseville property.

11 On 12 May 2010 the plaintiffs entered into a new contract for sale of the Glenhaven property. The purchase price under that contract was $1,275,000 – that is, $25,000 more than the sale price to the defendants. That contract provides for completion to occur 15 weeks after the contract date.

12 It is not in dispute that the deposit should be forfeited to the plaintiffs unless I make an order under s 55(2A) of the Conveyancing Act 1919. That section provides:

”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.”

13 The discretion conferred by s 55(2A) is a broad one. It is not to be confined by analogy with the jurisdictions in common law and equity to relieve against penalties and forfeiture. Nor should a gloss be put on the section to require the person seeking an order to show “special circumstances” or something similar. Nonetheless, the discretion should not be exercised lightly. In exercising the discretion, it is important to bear in mind that a deposit is paid as an earnest of performance; and it is payable in accordance with an express term of a contract when performance does not occur: Havyn Pty Ltd v Webster [2005] NSWCA 182 at [173] per Santow JA with whom Tobias JA and Brownie AJA agreed. The evidence must establish that it would be unjust or unequitable to allow the vendors to retain the deposit: Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367 at [27].

14 One factor which is relevant to the exercise of the court’s discretion is whether the vendor made a “profit” on the resale of the property – that is, whether the vendor was able to resell the property for more than the original sale price. For example, in Nelson v Bellamy [2000] NSWSC 182 the original sale price of the property was $285,000. It was resold a year later for $349,750. The principal reason Simos J gave in that case for ordering a refund of the deposit under s 55(2A) was that the property was resold “at a very considerably higher price than the contract price albeit approximately one year later”: at [155].

15 It is important, however, to bear in mind that the mere fact that the vendor has received a higher price on resale does not establish that he or she has made a profit. As Young CJ in Eq pointed out in Borda v Burgess [2003] NSWSC 1171 at [82]:

“I should add that the mere fact that the property was sold for it would appear $23,000 more than the contract price dose not, to my mind, demonstrate a windfall because one does not know what expenses the vendor incurred in the aborted first sale, or whether there was a rising market, whether the vendor’s use of the land was frozen whilst the first contract was on foot, and other factors. I would not consider that a resale at an excess of $23,000 of itself demonstrated a windfall.”

Where, however, the resale occurs shortly after the original sale, it can more readily be inferred that the sale was at a profit in the absence of contrary evidence from the vendor.

16 The fact that the property was resold for an increased price is not normally itself sufficient to warrant an order under s 55(2A): Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 at [135] per Barrett J; Nassif v Caminer (2009) 74 NSWLR 276. On the other hand, the fact that the property is resold at a loss will, in my opinion, normally provide a strong reason for refusing to make an order under s 55(2A).

17 In this case, the sale price under the new contract is $25,000 more than the sale price under the original one. It is important to bear in mind, however, that completion of that sale has not yet occurred. There is a risk that the new purchaser will fail to complete on time or at all. Consequently, the most that can be said at the moment is that the plaintiff is likely to make a small profit on the resale of the property.

18 Another factor which in my opinion is important to the exercise of a discretion under s 55(2A) is the extent to which the defendants’ conduct fell short of the thing that the deposit was intended to secure – in this case, completion of the sale of the Glenhaven property. To take an extreme example, if the defendants had been in a position to complete the sale on the 16 April and if they had made that clear to the plaintiff before that date and the plaintiffs had nonetheless terminated the contract, those facts would point strongly in favour of the court exercising its discretion under s 55(2A). In that case, if the plaintiffs had not terminated, they would essentially have got what they had bargained for; and that is something that they would have known at the time that they terminated. In those circumstances, it seems to me that it would be unjust to permit the vendor to keep the deposit. In some cases, it may be obvious what would have happened if the vendor had not terminated. In other cases, it may be necessary for the court to engage in a hypothetical analysis. There is nothing new in the court having to engage in an analysis of that type; and in my opinion the result of that analysis will be important to the exercise of the discretion because it will provide an answer to how far short of the purchaser’s promise the purchaser’s conduct fell.

19 The plaintiffs suggested that another matter that was relevant was the fact that they had already given the defendants significant indulgences by agreeing to a settlement period of 120 days and by the service of a defective notice making time of the essence. I do not agree with this submission. The important question is how far short of what the defendants promised to do under the contract their conduct fell. The fact that the plaintiffs agreed to a long period of settlement was not an indulgence by the plaintiffs. It is what the parties had agreed to under the contract. In some circumstances, indulgences given to a purchaser after the time for settlement has passed but before a notice to complete is served may be relevant to the exercise of the discretion under s 55(2A). But, here, the contract contemplated that time would not run until a valid notice was served; and that did not happen until 31 March 2010. Indeed, the previous notice was withdrawn. To place much weight on the first notice would be to give it an effect which it did not have. Moreover, the length of time between the first notice and the second one was short. For these reasons, I do not think much weight can be placed on the fact that an earlier albeit a defective notice was given.

20 Applying these principles, I do not think that I should order that the deposit be returned in this case. As I have said, although it is likely that the plaintiff’s will make a profit on the resale, that is not certain. Moreover, the profit, if there is one, will be small. The amount of $25,000 is 2 per cent of the original purchase price. In addition, the likelihood is that the plaintiffs have incurred additional costs in relation to the sale which will reduce that profit. It is true that, absent an order under s 55(2A), they will also be entitled to keep the deposit. But as the Court of Appeal said in Havyn Pty Ltd v Webster [2005] NSWCA 182 at [173] per Santow JA (with whom Tobias JA and Brownie AJA agreed), “this principle [that is, the principle that a deposit is paid as an earnest for performance] mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited”.

21 More importantly, what the plaintiffs ultimately bargained for was a certain settlement by 15 April. If settlement had only been delayed a few days and if the plaintiffs had known that that was the position, then, for the reasons I have given, I think that that would provide a reason for exercising the discretion under s 55(2A) in the defendants’ favour. However, as things turned out, settlement would have been far from certain if the plaintiffs had not terminated the contract. The correspondence following termination appears to establish that the defendants would not have been able to settle on 20 April and, moreover, were not in a position to indicate with any certainty when they might have been able to settle. What the deposit was paid to secure and what the defendants could ultimately deliver were substantially different. The fact that the defendants still wanted to proceed with settlement does not alter that fact.

22 I make the orders sought in paragraphs 1 to 4 of the Amended Summons. The cross claim should be dismissed with costs.

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