Boyarsky v Taylor - [2008] NSWSC 1415

No judgment structure available for this case.

CITATION: Boyarsky v Taylor [2008] NSWSC 1415

HEARING DATE(S): 19 December 2008

JURISDICTION: Equity Division
Expedition List

JUDGMENT OF: Brereton J

EX TEMPORE JUDGMENT DATE: 22 December 2008

DECISION: Term of contract requiring payment of remainder of deposit on completion date declared void. Specific performance decreed, with liberty to apply for further direction or rescission.

CATCHWORDS: EQUITY – equitable remedies – specific performance – defences – impossibility – where purchaser does not have funds available to complete purchase – discretionary considerations – where purchaser owns other assets, including an interest in a former matrimonial home to be sold pursuant to court order and it is expected that the proceeds will be sufficient to complete contract – where purchaser is otherwise unlikely to obtain finance – hardship – whether difficulty in finding the purchase money amounts to hardship or impossibility - CONTRACTS – penalties – whether provision requiring payment of second instalment of deposit upon completion date is void as a penalty - COSTS – costs follow the event

LEGISLATION CITED: (NSW) Conveyancing Act 1919, s 52A(4)

CATEGORY: Principal judgment

CASES CITED: AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170
Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 44
Bridge v Campbell Discount Co Ltd [1962] AC 600
Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86
Dowsett v Reid (1912) 15 CLR 695
Ferguson v Wilson (1866) LR 2 Ch 77
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WASC 44
Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452
Lamare v Dixon LR 6 HL 414
Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40
Norton v Angus (1926) 38 CLR 523
O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359
Pasedina (Holdings) Pty Ltd v Khouri (1977) 1 BPR 9460
Seawell v Webster (1859) 29 LJ Ch 71
Tamplin v James 15 ChD 215
Turner v Bladin (1951) 82 CLR 463
Wedgwood v Adams (1843) 6 Beav 600
Wilson v Northampton and Banbury Junction Railway Company (1874) LR 9 ChApp 279

TEXTS CITED: E Fry, A Treatise on the Specific Performance of Contracts, 3rd ed, Stevens & Sons, London
I C F Spry, Principles of Equitable Remedies, 7th ed, Law Book Co, Sydney, 2007

PARTIES: Andrew David Boyarsky (plaintiff)
Andrew Peter Taylor (defendant)

FILE NUMBER(S): SC 5969/08

COUNSEL: Mr JWJ Stevenson SC w Mr RI Bellamy (plaintiff)
Mr JL Doyle (defendant)

SOLICITORS: Morgan Lewis Attorneys (plaintiff)
CP White & Hetherington (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Monday 22 December 2008

5969/08 Andrew David Boyarsky v Andrew Peter Taylor

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiff Andrew David Boyarsky claims specific performance of a contract dated for the sale of Lot 101 in Deposited Plan 1130091 situate at and known as 45 XXXX Road Bellevue Hill, under which Mr Boyarsky is the vendor and the defendant, Andrew Peter Taylor, is the purchaser. The only issues for determination are:

· whether specific performance should be declined as a matter of discretion, having regard to the inability of the purchaser to find the purchase money; and

2 The contract was made on 2 September 2008, following an auction that day. On the cover sheet it states the purchase price to be $3,311,000, the deposit to be $165,550 and the balance purchase price to be $3,145,450. Printed condition is in the standard form as follows (original italics):

2. Deposit and other payments before completion

depositholder

Normally

2.3 If the contract requires the purchaser to pay any of the deposit by a later time, that time is also essential.

cheque

depositholder

solicitor

depositholder

cheque

terminate

2.6 If the vendor accepts a bond or guarantee for the deposit, clauses 2.1 to 2.5 and 3 do not apply.

2.7 If the vendor accepts a bond or guarantee for part of the deposit, clauses 2.1 to 2.5 and 3 apply only to the balance.

termination

party

depositholder

party

bank

parties

3 Printed condition 9 is in the following terms (original italics):

9 Purchaser’s default

terminate

serving

termination

9.1 keep or recover the deposit (to a maximum of 10% of the price);

9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -

termination

within

9.3 sue the purchaser either -

9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination , to recover –

· the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and

9.3.2 to recover damages for breach of contract.

4 Printed condition 15 provides as follows (original italics):

15 Completion date

parties

party

5 Special condition 5 provided for a 14 day notice to complete. Special condition 6 provided for payment of interest in the event of the purchaser not completing on or before the contract completion date at a rate described as the default rate, which was defined as 13 per cent per annum simple interest calculated on a daily basis.

6 Special condition 12 was incorporated in the contract by a letter dated 1 September 2008 from the vendor’s solicitors to the purchaser’s solicitors, which confirmed that if Mr Taylor were the successful bidder at auction, the contract was to be amended in several respects, including:

1. The deposit is 10 percent of the price, but payable by instalments, with half the deposit payable on exchange and the balance of the deposit payable on the completion date (as defined in the contract.)

7 Special condition 16 provided that the completion date was the later of 84 days after the date of the contract, or 14 days after the vendor notified the purchaser in writing that the subdivision plan drainage easement and height restriction referred to in other special conditions had been registered. It is common ground that those plans and dealings have been registered, and in the events that ensued that the completion date was 25 November 2008.

8 The contract is not expressed to be subject to finance. Although he had made some inquiries about the availability of finance – to which I shall come – the purchaser did not have approved finance when he entered into the contract. According to his oral evidence – which there is no reason to doubt on this question – he was aware by early October 2008 that he would face difficulties in finding the purchase money to complete the contract.

9 On 29 October 2008, the vendor’s solicitors Morgan Lewis Attorneys, notified the purchaser’s solicitors C P White and Hetherington, of finalisation of the registration of the drainage easement and height restriction, and thus that the completion date was fixed under the contract at 25 November 2008.

10 On 31 October 2008, the purchaser’s solicitors wrote to the vendor’s solicitors raising several grounds to assert that the contract was void ab initio for misdescription or non compliance with (NSW) Conveyancing Act 1919, s 52A(4), and alternatively purporting to rescind on those and other grounds. The purchaser’s solicitors also wrote to the agent, claiming refund of the deposit, which the defendant’s solicitors unsurprisingly resisted. The defendant’s solicitors responded by letter of 3 November 2008, setting out reasons why the purchaser’s contentions were incorrect. In a letter of 6 November 2008, the purchaser’s solicitors maintained at least some of their contentions.

11 On 11 November 2008, the vendor’s solicitors wrote to the purchaser’s solicitors, as follows:

There is nothing in your letter that raises your client’s argument beyond what is in our view a hopeless case. Your client has spoken to ours, and stated that he simply can’t settle the contract because he can’t raise finance. In our client’s opinion, the real issue is that your client is able but unwilling to raise finance.

12 The letter requested submission of a draft transfer for execution.

13 The purchaser’s solicitors continued to press for return of the deposit. On 21 November 2008, the vendor’s solicitors wrote to the purchaser’s solicitors:

Because you have unequivocally indicated to us that Andrew Taylor will not perform the contract, we have prepared a draft statement of claim (copy enclosed), which when served will instigate proceedings for specific performance. If by 24 November 2008 you do not confirm that Andrew Taylor in fact intends to complete the contract on 25 November 2008, we are instructed to commence proceedings for specific performance.

14 On 24 November 2008, the vendor’s solicitors provided directions for payment of cheques on settlement. Subsequent communications of that and the following day, which requested advice as to whether the purchaser proposed to attend on settlement appointed for 25 November, were unanswered.

15 On 2 December 2008, the vendor filed the statement of claim in these proceedings and obtained leave to have a notice of motion for expedition made returnable on 5 December before the Expedition Judge. When the matter came before the Expedition Judge on 5 December, there was no indication on the part of the purchaser that the grounds which had been raised in the correspondence were not pressed, nor that other grounds were relied on. The Expedition Judge fixed the matter for hearing on 19 December, but directed service of a draft defence in the meantime.

16 By the time the matter returned before the Expedition Judge on 12 December, the only matters in issue were those to which I have referred – namely, inability to complete such as to amount to impossibility or hardship, and the characterisation of the second instalment of the deposit as a penalty and the other matters of defence were abandoned.

17 In oral evidence, Mr Taylor said that he wants to complete the contract if only he can find the purchase money to do so. In addition to the balance purchase money of $3,145,450, Mr Taylor will also have to find stamp duty amounting to $172,264, so as to require a total of $3,317,714 to complete. His significant assets compromise $2,600 standing to his credit in a bank account, an interest in a discretionary family trust which was valued for the purpose of family law proceedings between him and his former wife at $100,000, half of his share in a boat valued for the same purpose at $150,000, and a 50 per cent interest in a company – Taylor Nicholas Pty Ltd, which apparently carries on a real estate business – valued at $531,000 for the same purposes. His interest in the boat is subject to a loan of $140,000. In addition, and most relevantly, he has an interest with his former wife in their former matrimonial home at Mosman. On 26 May 2008, Le Poer Trench J of the Family Court of Australia by consent made orders pursuant to (CTH) Family Law Act 1975, s 79 adjusting the settlement of interests of Mr Taylor and his former wife in their property inter alia as follows:

Property Settlement

Family Law Rules 2004

1. The husband and the wife shall forthwith do all acts and things and sign all documents as necessary to sell the Mosman property for the best price reasonably obtainable in the following manner:

1.1 list the Mosman property for sale by public auction or such other method of sale as agreed by the parties (“the auction”) and in the absence of contrary agreement in writing with Robert Simeon at Richardson & Wrench, Mosman or such other agent as the parties may agree to appoint (“the agent”);

1.2 the reserve price for the purpose of the first auction shall be $7,100,000 or such other price as may be mutually agreed upon by the parties in writing;

1.3 the parties shall each co-operate in every way with the agent including (without limiting the generality of the foregoing):

1.3.1 making the keys available to the agent;

1.3.2 allowing inspection of the Mosman property at all reasonable times requested by the agent;

1.3.3 not doing or saying anything to hinder or present a sale being effected;

1.3.4 ensuring the Mosman property including the grounds are in a neat and clean condition at the time of inspection by the agent and prospective purchasers; and

1.3.5 signing all documents requested by the agent in relation to the listing for sale of the Mosman property except a contract or agreement for sale which has not been authorised by the solicitors;

1.4 in the event the bidding at any auction other than the first auction does not reach the reserve price the parties or such of them as attends the auction may negotiate with the highest bidders or any other interested person and effect a sale of the Mosman property at a price which is not more than 1% below the reserve price, or at such other price as the parties agree upon in writing;

1.5 if the Mosman property remains unsold, the wife shall do all acts and things and sign all documents necessary to immediately relist the Mosman property for sale by public auction or such other method of sale as agreed by the parties at 3 monthly intervals or such other time period as agreed by the parties and the provisions of paragraphs 1.2 to 1.4, 1.6 and 1.7 of this Order shall apply successively until the Mosman property has been sold so at each successive auction the reserve price shall be 2% less than the reserve price at the immediately preceding auction unless otherwise agreed by the parties in writing;

1.6 the wife shall execute a contract for sale in the form prepared by the solicitor having the conduct of the sale at the sale price;

1.7 the husband shall not attend at or enter the Mosman property without the prior written consent of the wife which shall not be unreasonably withheld;

1.8 the husband and wife shall have joint control of the sale of the Mosman property and shall instruct CP White & Hetherington to have the conduct of the sale of the Mosman property.

2. On settlement of the sale of the Mosman property, the proceeds of sale be paid in the following manner and priority:

2.1 all costs and expenses of sale including legal costs and disbursements, agent’s commission and auction expenses (including repayment of any such expenses as have been paid by either or both the parties);

2.2 the amount required to discharge the Mosman mortgage;

2.3 the amounts required to pay all municipal and water rates outstanding with respect of the Mosman property;

2.4 the balance the remaining shall be divided between the husband and the wife such that:

the husband receives 40% of the net sale proceeds provided that the husband shall pay at settlement to the wife from his share the sum of $333,720 and further provided that the husband shall pay from his share all moneys to discharge the liability obtained by him pursuant to paragraph 17 of this Order;

2.4.2 the wife receives 60% of the net sale proceeds and the wife shall immediately upon receipt pay to the husband from her share of the net sale proceeds 60% of the interest paid by the husband in respect of the first overdraft facility established by the wife over the Mosman property.

18 It will be observed that the reserve price specified in those orders for the Mosman property was $7.1 million "or such other price as may be mutually agreed upon by the parties in writing", and that ultimately Mr Taylor is to receive 40 per cent of the net sale proceeds (after costs of sale, discharge of a mortgage which affects the Mosman property and adjustment of rates and outgoings). The evidence does not appear to disclose the amount of the Mosman mortgage. There is some evidence that in recent discussions with the agent with whom the Mosman property is listed, Mr Taylor has been told that it is not expected to achieve $7.1 million, but may sell for something in excess of $6 million.

19 Mr Taylor says that when he entered into the subject contract on 2 September 2008, he was confident that the Mosman property would sell fairly quickly pursuant to the orders of the Family Court, and he intended to use his share of the proceeds of its sale, together with a mortgage loan from the Commonwealth Bank, to finance his purchase of the Bellevue Hill property. He had some preliminary discussions with the Commonwealth Bank, who had been his financiers for 15 years or so, and was advised that with the sale of the Mosman property they would have no problem in lending up to $3.5 million. Earlier, he had obtained an indicative offer of finance from BankWest for up to $2 million on 30 July 2008, and from ING of $1.5 million on 25 August 2008; but it was from the Commonwealth Bank that he anticipated obtaining his finance.

20 On 25 August 2008 – before contract – the Commonwealth Bank had advised Mr Taylor that they could only help:

If we can do any of the following:

1. Control over existing property that is selling for approximately $7.1 million.

2. Security over another property (if one is available).

21 The reference to "existing property" was to the Mosman property. The communication went on to say that the bank had "explored every possible angle" but could not otherwise assist Mr Taylor in accordance with their guidelines for lending.

22 On 11 September 2008 – after contract – the Commonwealth Bank issued a loan offer to Mr Taylor for a Commonwealth Bank Complete Home Loan, for a sum of just under $3.6 million. However, it was conditional upon provision of security not only over the subject property but also by a mortgage of a property in Hurstville then owned by the parents of Mr Taylor’s business partner Nick Spasevski, together with a guarantee by Nick Spasevski and another and corporations in which they were both interested.

23 The Hurstville property in question was, as I have said, owned by Mr Nick Spasevski’s parents, or one of them. Mr Taylor says that he never indicated to the Bank that such security might be available, and there is no reason to disbelieve his evidence in that respect. He says that shortly after receiving that offer he spoke to the bank officer in question, asserting that the security required was excessive and that he could not ask the Spasevskis to give such a mortgage, but the bank insisted that without additional security, it would not lend the amount required by him unless and until the Mosman property was sold.

24 Mr Taylor has pointed out that, leaving aside his reticence to ask his business partner’s parents to provide their home as security for a loan for his personal purposes, Mrs Spasevski senior died a few days ago.

25 Mr Taylor says that he has made extensive enquiries with relatives, business associates and friends about borrowing the balance of funds required to complete the purchase, but has been unable to find sufficient moneys for that purpose. He says that he is aware that the interest rate under the contract is 13 per cent and well above market, and that that itself provides a strong incentive for him to complete. He says that he calls the estate agent in Mosman who has carriage of the sale of the Mosman property as often as reasonable, and in his oral evidence added that there was presently an interested potential purchaser with an inspection due but no contract, at least at this stage.

26 It must, I think, be taken as established that, notwithstanding the general rule that specific performance is granted only where damages at law are an inadequate remedy, a vendor under a contract for sale of land is entitled to specific performance, even if the only outstanding obligation of the purchaser is to pay the purchase money [Turner v Bladin (1951) 82 CLR 463, 473]. However, specific performance remains a discretionary remedy. Lord Selborne LC said in Wilson v Northampton and Banbury Junction Railway Company (1874) LR 9 ChApp 279, 285, in a passage cited with approval by Knox CJ in Norton v Angus (1926) 38 CLR 523, 529, that in a case in which specific performance is otherwise available the court should give damages in lieu of specific performance if it cannot satisfactorily do justice by means of a decree of specific performance and the best justice of which the case is capable will be done by giving damages. But as Isaacs J pointed out in the same case (at 533):

Specific performance is, no doubt, like all equitable remedies, a matter of discretion. But, as Lord Eldon said in White v Damon (1802) 7 Ves 30 at 35 ‘that is not an arbitrary, capricious, discretion. It must be regulated upon grounds that will make it judicial.’

...

Turner

Bladin

Goldsbrough Mort & Co Ltd v Quinn

27 In Dowsett v Reid (1912) 15 CLR 695, Griffith CJ referred with approval to dicta in Fry on Specific Performance (3rd ed) (particularly at page 194) where the author wrote:

It is a well established doctrine that the court will not enforce the specific performance of a contract the result of which would be to impose great hardship on either of the parties to it, and this although the parties seeking specific performance may be freed from the least impropriety of conduct.

28 Griffiths CJ also referred to Lamare v Dixon LR 6 HL 414, in which Lord Chelmsford said (at 423):

The exercise of the jurisdiction of equity as to enforcing the specific performance of agreements is not a matter of right in the party seeking relief, but of discretion in the court - not an arbitrary or capricious discretion, but one to be governed as far as possible by fixed rules and principles.

29 His Honour also referred to Tamplin v James 15 ChD 215, in which Lord Cotton had said:

It has been urged that if specific performance is refused, the action must simply be dismissed. But in my judgment – and I believe that Lord Justice James is of the same opinion – as both legal and equitable remedies are now given by the same court, and this is a case where, under the old practice, the appeal if dismissed would have been dismissed without prejudice to an action, we should, if we were to refuse specific performance, be bound to consider the question of damages.

30 Griffiths CJ concluded that that was still the doctrine of court and that the court was not bound to enforce a bargain which would work great hardship upon either party.

31 In this field, the question of hardship involves a balancing exercise, having regard to any competing hardship to the plaintiff; hardship will only be a reason for declining specific performance if there is, in substance a disproportionate hardship to the defendant when that balancing exercise is undertaken. This was explained by Lord Langdale in Wedgwood v Adams (1843) 6 Beav 600, 605; (1843) 49 ER 958, 960, following an observation that specific performance was ordered "unless it should be what is called highly unreasonable to do so", in the following terms:

The court, therefore, must always have regard to the circumstances of each case, and see whether it is reasonable that it should, by its extraordinary jurisdiction, interfere and order a specific performance, knowing at the time that if it abstains from so doing, a measure of damages may be found and awarded in another court. Though you cannot define what may be considered unreasonable, by way of general rule, you may very well, in a particular case, come to a balance of inconvenience, and determine the propriety of leaving the plaintiff to its legal remedy by recovery of damages.

32 The Court does not decree by way of specific performance what is legally or factually impossible for a defendant to perform [Ferguson v Wilson (1866) LR 2 Ch 77, 91]. An illustration of what would amount to such impossibility was given by Kindersley VC in Seawell v Webster (1859) 29 LJ Ch 71. Although that was a case of legal impossibility (where an order that the defendant specifically perform his promise to pull down a party wall would have required him to act contrary to an applicable statute), his Lordship gave an analogy of factual impossibility: "Put the extreme case of a vendor burning a title deed, the court could not make a decree that he should deliver it up, and be imprisoned if he does not".

33 Although without reference to authority, Dr Spry in Equitable Remedies (7th ed) suggests that there are three possible categories and approaches (at 128-129):

But this is not to say that the mere anticipation of possible difficulties leads to a refusal of relief. If, on the materials before the court, performance may or may not be able to be completed, the various probabilities will be taken into account in deciding on the order that is most just in all the circumstances, thus it may be most appropriate to order specific performance in the ordinary manner, so that if necessary the defendant may later approach the court for a modification or variation by reason of subsequent difficulties or may rely upon them in any subsequent proceedings in relation to the enforcement of the order. Again, if at the time of the original application there is shown to be a substantial risk that performance will not be possible, it may be most appropriate to make a conditional order or else to adjourn the proceedings until the position becomes more clear. Finally, if a sufficiently great likelihood is shown that performance will not be possible, and especially if no strong considerations of hardship appear on the part of the plaintiff, it may be just to grant no order for specific performance at all, whether absolutely or conditional and so to confine the plaintiff to remedies in damages.

34 There is surprisingly little authority on the question, which one would think must often have arisen, of whether difficulty in finding the purchase money will sustain a defence of hardship or impossibility. The only case which the researches of counsel or the court has been able to discover is the judgment of Holland J in this Court in Pasedina (Holdings) Pty Ltd v Khouri (1977) 1 BPR 9460. The facts are not recorded in the reported judgment. His Honour said:

The most that I would be prepared to find from the evidence placed before the court on behalf of the defendants is that for some time since the contract was made and at present they have been under finance pressures, that these would be aggravated if they were forced to complete their contract with the plaintiff and that it is not commercially convenient for them to do so; but, in my opinion, they have failed to establish a case of impossibility or the kind of hardship which would leave the court, in its discretion, to deny to a vendor an order for specific performance to which he was otherwise entitled.

Counsel for the defendant was not able to refer me to any case where difficulty on the part of the purchaser in finding a purchase money was held to amount to a defence of impossibility or hardship. I doubt whether difficulty, however great, could make a defence of impossibility.

35 His Honour then proceeded to discuss Sewell v Webster and Ferguson v Wilson. Coming to the question of hardship, his Honour said:

Fullers Theatres Ltd v Musgrave

Suttor v Gundowda

36 His Honour then discussed Dowsett v Reid and Norton v Angus, adding a reference to Suttor v Gundowda in which the Court said that it would be necessary for a defendant to prove "that a hardship amounting to an injustice would be inflicted on him by holding him to his bargain and that it would not be reasonable to do so." Finally his Honour recorded a submission that damages would be an adequate remedy:

As I said earlier, it was submitted that, as damages would be an adequate remedy for the plaintiff, the defendants should not be subjected to the risk of contempt proceedings if it turned out that they could not, in fact, raise the money to complete the contract. I do not think that the existence of that risk is enough. Committal for contempt is the remedy of last resort and, if the event supposed happened, it would be open to the court to leave the plaintiff to its right to execute against the defendants for all moneys due to the plaintiff including its right, with the leave of the Court if required, to enforce its lien over the subject land for the unpaid purchase money....

37 I must say that it seems to me that those remedies to which his Honour referred would leave the vendor in no better position than the contractual right to resell and sue for the deficiency on resale referred to in condition 9.3.1 of the contract, mentioned above.

38 His Honour’s judgment has been followed in Western Australia by Master Bredmeyer in Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WASC 44. In that case, however, it seems that the purchaser simply did not wish to have to sell some shares which it held in another company to raise the purchase price.

39 In the present case, the purchaser has established that he cannot find the purchase money, unless by one of the following means.

40 First, by giving control of the sale of the Mosman property to the bank. As under the orders of the Family Court his former wife has the greater interest in that property, and as orders of the Family Court make provision for its sale and the division of the proceeds, I do not see how legally the purchaser could give control of that sale to his bank.

41 Secondly, by accepting the loan from the Commonwealth Bank on terms which involve procuring his business partner to give a guarantee and his business partner’s father to give a mortgage over his home. I do not see how the purchaser could or should, be compelled to accept a loan on those terms.

42 Thirdly, although the evidence does not cover it in any detail, by resorting to a lender of last resort – of the type familiar in caveat litigation in this Court – who might be prepared to lend, for a short term at least, on terms requiring less security than that insisted on by the Commonwealth Bank. Nonetheless, it can be anticipated – from the Court’s knowledge of the practices of such lenders – that such a borrowing would incur an exorbitantly high interest rate, in excess of 45 per cent and quite possibly higher than 60 per cent, even in the absence of default. Indeed, the cases show that interest rates higher even than that are not unknown in that sphere of lending. In circumstances where the vendor is protected by a provision for contractual interest of 13 per cent, well above current market rate, it would be imposing undue hardship on the purchaser to proceed on the basis that the purchaser should raise funds at an exorbitant interest rate from a lender of last resort.

43 Were those the only potential sources of finance for completion, I would have refused specific performance. However, that leaves for further consideration the question of the sale of the Mosman property. On the evidence before me, it is clear that if that property is sold the purchaser will be able to complete. It is clear that there are orders of a superior court requiring its sale. The evidence also indicates that there is a potential purchaser presently interested. I am of course fully aware that the implementation of sales of matrimonial property under orders of the Family Court, particularly if the price is significantly less than the reserve set by those orders, is sometimes fraught with difficulty. But it seems inevitable that the Mosman property must be sold sooner or later, and that the purchaser will sooner or later be in a position to complete if the vendor is prepared to await that event.

44 In those circumstances, I am quite unpersuaded that completion of this contract is impossible for inability to raise the purchase moneys. I accept that it is not immediately possible, but it is likely to become possible within a reasonable time. Raising funds by that means will impose no hardship whatsoever on the purchaser.

45 For those reasons, I conclude that neither impossibility nor hardship is made out. This contract can quite possibly be completed, without hardship to the purchaser.

46 If the vendor endeavours to enforce an order for specific performance before the sale of the Mosman property is completed, then it will encounter significant difficulties in obtaining further directions or sanctions from the Court, because of impossibility or the hardship that would be occasioned in any event other than the sale of the Mosman property. Accordingly, I propose to grant a decree of specific performance but to make no further order or direction, leaving it to either party to bring the matter back before the Court, either to obtain rescission of the decree or further directions to enforce it. In adopting that course, I bear in mind that the contractual interest rate of 13 per cent continues to provide a powerful incentive for the purchaser to complete as quickly as he can.

47 On the authorities as they stand, once the decree for specific performance is made the vendor, as much as the purchaser, will be bound by that decree, and without wishing to foreclose argument to the contrary – because the matter has been of some controversy in the authorities – it would seem that, having obtained a decree for specific performance, the vendor would not be at liberty to terminate for breach including for failure to comply with the notice to complete, without the further leave of the Court.

48 I turn then to the second question, which is whether an order should be made requiring payment of the second instalment of the deposit. In Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40, Bryson JA, speaking for the Court of Appeal, held that provisions requiring a 5 per cent deposit to be topped up to 10 per cent on default were void as a penalty. In Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452, Hodgson JA, in the Court of Appeal, rejected two attempts to distinguish the relevant condition in that case from that in Iannello v Sharpe. Two reasons were advanced in the present case for distinguishing the present special condition from those in Luu and Iannello in that case. The first was that in each of those cases, the obligation to pay the second instalment of the deposit was in terms conditioned on default, and that is not so in the present case, where the provision does not refer to default but simply requires payment "upon the completion date". The second was that in this case there were circumstances in which the deposit could become payable and have effect as an earnest for performance of the purchaser’s obligations under the contract.

49 As to the first of those arguments, it is correct that in this case the provision is not conditioned on breach or default under the contract. That, however, is not an answer. Where the right to receive such a payment arises on the happening of any number of events, some only of which are breaches of contract and some of which are not, but the event in the particular case is one which is a breach of contract, then the provision is a penalty and void [Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86; Bridge v Campbell Discount Co Ltd [1962] AC 600; O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 367, 390; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, 184-185, 211; Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445, [2]]. Even if, which for reasons to which I shall come I doubt, the second payment was exigible in events other than breach of contract, on the facts of this case it is exacted on breach of contract, and in those circumstances is a penalty and void.

50 In any event, I do not see how it could become payable under the present contract in circumstances that did not involve a breach by the purchaser of the contract. It was hypothesised that it could become payable as an earnest of the purchaser’s continuing commitment to the contract where an extension was granted by the vendor of time to complete. That would itself involve either a contractual variation to the completion date or at least some allowance of an indulgence outside what was required by the contract so as to involve a departure from rather than adherence to the terms of the contract. If the contract is applied according to its terms, the only circumstance in which the second instalment would become due would be if, in breach of special condition 15, the purchaser did not complete on the completion date. Accordingly, both reasons advanced for distinguishing Iannello do not apply. As Hodgson JA said (at [33]), an unconditional promise to pay an amount on default cannot itself count as a deposit, because that is the very sort of promise that would normally amount to a promise to pay a penalty, unless it is a genuine pre-estimate of damages. In the light of Luu and Iannello, it could not seriously be argued, and indeed it was not, that the second instalment of five per cent could be seen as a genuine pre-estimate of damages.

51 Accordingly, I would hold that the obligation to pay the second instalment "upon the completion date" is void as a penalty.

52 My orders are:

1. Declare that the term of the contract comprised in the paragraph numbered 1 under the heading Terms of Sale Contract in the letter dated 1 September 2008 from Morgan Lewis Attorneys to C P White & Hetherington and referred to in special condition 12 of the contract dated 2 September 2008 between Andrew David Boyarsky as vendor and Andrew Peter Taylor as purchaser of the property at 45 XXXX Road, Bellevue Hill in the State of New South Wales, being Lot 101 in Deposited Plan 1130091, is void as a penalty.

2. Declare that the said contract ought to be specifically performed and carried into execution.

3. Order that the contract be specifically performed and carried into execution.
4. Reserve liberty to both parties to apply, including for further directions to appoint a date for completion and, if appropriate, for rescission of the decree for specific performance.

53 When these proceedings were instituted, the plaintiff was plainly entitled to bring them, the defendant having refused to complete. The plaintiff failed at trial on one discrete issue which involved no evidence and very limited argument. The Court does not normally separate issues when it comes to making costs orders, although where an otherwise successful party fails on a discrete issue which has occupied a significant component of the trial, it may do so. I do not think here that the issue on which the plaintiff failed has occupied a significant part of the trial.

54 The offer made by the defendant to the plaintiff on 9 December 2008 was not more favourable to the plaintiff than the result that the plaintiff ultimately achieved. In particular, it may well be that the contract will complete before 30 June 2009, and in any event none of the various alternative offers included a decree, so that further proceedings would have been necessary were specific performance required. If the defendant wished to avoid a costs order, its course was to offer to consent to a decree for specific performance upon terms that an appointment for completion not be made without further application to the Court, and that it not be required to pay the second instalment of the deposit. There is no suggestion that any such offer was made.

55 I therefore order that the defendant pay the plaintiff’s costs of the proceedings.

56 I adjourn the proceedings to 6 February 2009 at 11 o’clock before me for mention. If there is to be any particular application made on that date, then each party may have leave to file not later than 30 January 2009 a notion of motion returnable before me on 6 February 2009. What I intend by that is that, if either party intends to make an application on 6 February, a notice of motion should be served by 30 January. If there is not going to be any specific application that day, then there is no need for a motion.

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Citations

Boyarsky v Taylor [2008] NSWSC 1415

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CITATION:	Boyarsky v Taylor [2008] NSWSC 1415
HEARING DATE(S):	19 December 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	22 December 2008
DECISION:	Term of contract requiring payment of remainder of deposit on completion date declared void. Specific performance decreed, with liberty to apply for further direction or rescission.
CATCHWORDS:	EQUITY – equitable remedies – specific performance – defences – impossibility – where purchaser does not have funds available to complete purchase – discretionary considerations – where purchaser owns other assets, including an interest in a former matrimonial home to be sold pursuant to court order and it is expected that the proceeds will be sufficient to complete contract – where purchaser is otherwise unlikely to obtain finance – hardship – whether difficulty in finding the purchase money amounts to hardship or impossibility - CONTRACTS – penalties – whether provision requiring payment of second instalment of deposit upon completion date is void as a penalty - COSTS – costs follow the event
LEGISLATION CITED:	(NSW) Conveyancing Act 1919, s 52A(4)
CATEGORY:	Principal judgment
CASES CITED:	AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 44 Bridge v Campbell Discount Co Ltd [1962] AC 600 Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86 Dowsett v Reid (1912) 15 CLR 695 Ferguson v Wilson (1866) LR 2 Ch 77 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WASC 44 Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452 Lamare v Dixon LR 6 HL 414 Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40 Norton v Angus (1926) 38 CLR 523 O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Pasedina (Holdings) Pty Ltd v Khouri (1977) 1 BPR 9460 Seawell v Webster (1859) 29 LJ Ch 71 Tamplin v James 15 ChD 215 Turner v Bladin (1951) 82 CLR 463 Wedgwood v Adams (1843) 6 Beav 600 Wilson v Northampton and Banbury Junction Railway Company (1874) LR 9 ChApp 279
TEXTS CITED:	E Fry, A Treatise on the Specific Performance of Contracts, 3rd ed, Stevens & Sons, London I C F Spry, Principles of Equitable Remedies, 7th ed, Law Book Co, Sydney, 2007
PARTIES:	Andrew David Boyarsky (plaintiff) Andrew Peter Taylor (defendant)
FILE NUMBER(S):	SC 5969/08
COUNSEL:	Mr JWJ Stevenson SC w Mr RI Bellamy (plaintiff) Mr JL Doyle (defendant)
SOLICITORS:	Morgan Lewis Attorneys (plaintiff) CP White & Hetherington (defendant)