Brennan v O'Meara

[2009] NSWSC 1374

CITATION:	Brennan v O'Meara [2009] NSWSC 1374 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	7 & 8 December 2009
JUDGMENT DATE :	11 December 2009
JUDGMENT OF:	Davies J
DECISION:	(1) I declare that the Termination Notice dated 30 January 2009 in respect of the sale of the property situated at and known as 43 Carrs Island Road, Carrs Island being more particularly described as all that land in certificate of title folio identifiers 228/751371, 229/751371, 230/751371 and 231/751371 wherein the Plaintiff was the vendor and the Defendant was the purchaser was effective. (2) I declare that the Notice of Rescission dated 30 January 2009 issued by the Defendant to the Plaintiff in respect of the same sale of land was invalid and of no effect. (3) The cross-claim by the Defendant is dismissed. (4) The Defendant is to pay the costs of the proceedings.
CATCHWORDS:	CONVEYANCING - the contract and conditions of sale - other particular conditions - right to rescind if one party dies or becomes mentally ill - meaning of "become mentally ill" - purpose of clause - purchaser with long history of mental illness - mental illness known to purchaser but not disclosed at the date of contract - mental illness not impairing capacity - purported rescission by purchaser invalid - penalty - whether reduction in occupation fee if no default under contract was a penalty.
LEGISLATION CITED:	Guardianship Act 1987 Mental Health Act 1990 Mental Health Act 2007 Protected Estates Act 1983
CATEGORY:	Principal judgment
CASES CITED:	Karfoal Pty Ltd v Lorence [2002] NSWSC 204 ' Makita v Sprowles (2001) 52 NSWLR 705 Molton v Camroux (1848) 2 Ex 487; 18 LJ Rep (Exch) 68, (affirmed 356) O’Day v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Strode v Parker (1694) 23 ER 804
PARTIES:	Peter Brennan (Plaintiff) Matthew O’Meara (Defendant)
FILE NUMBER(S):	SC 1973/2009
COUNSEL:	J Lockhart SC (Plaintiff) In person (Defendant)
SOLICITORS:	Pollack, Greening & Hampshire

- 1 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

DAVIES J

11 DECEMBER 2009

1973/2009 BRENNAN v O’MEARA

JUDGMENT

1 On 27 November 2007 the Plaintiff Peter Brennan, as vendor, entered into a contract with the Defendant Matthew O’Meara as purchaser for the sale of a property known as 43 Carrs Island Road, Carrs Island. The contract was to be completed some 13 calendar months later with time said to be of the essence.

2 When the contract did not settle a Notice to Complete was issued on behalf of Mr Brennan requiring completion on or before 3pm on 30 January 2009.

3 On 30 January 2009 Mr O’Meara’s solicitors served a Notice of Rescission on the solicitors for Mr Brennan, the Notice stating that the purchaser rescinded the contract in accordance with cl 33(a) of the Contract for Sale. The covering letter made clear that the rescission was on the basis that Mr O’Meara was suffering from a number of mental illnesses.

4 Thereafter, Mr Brennan’s solicitors served a Notice of Termination on Mr O’Meara’s solicitors on the basis that there had been no settlement of the contract in accordance with the Notice to Complete.

The proceedings

5 In the present proceedings Mr Brennan seeks a declaration that his Termination Notice was effective and a declaration that the Notice of Rescission given by Mr O’Meara was invalid and of no effect. Mr O’Meara, in a cross-claim, has sought declarations that his Rescission Notice was effective and that the Termination Notice was invalid.

6 At the outset of the hearing Mr Brennan abandoned a claim for damages that had been sought by him in the Summons.

7 Subject to one matter raised at the conclusion of the hearing to which I shall return later, there was only one issue in the proceedings, namely the proper construction of cl 33(a) of the contract. That involved a consideration of whether Mr O’Meara had “become mentally ill” within the meaning of that clause.

8 Until the week preceding the hearing Mr O’Meara had been represented by the solicitors who had also acted for him in relation to the contract of sale. When the matter came before me for hearing Mr O’Meara had terminated the retainer of those solicitors and he informed me that he intended conducting the proceedings himself.

9 Because the matter concerned a mental illness that Mr O’Meara claimed to have I was initially concerned to see that Mr O’Meara had the capacity to conduct the proceedings and understand the issues that were involved. An examination of the medical reports to be relied on by Mr O’Meara satisfied me that he did have that capacity. Those reports demonstrated that he suffered from an Anxiety Disorder and Obsessional personality traits but was otherwise capable of managing his affairs. I shall return to the detail of the medical evidence in due course.

The Contract and the Notice of Rescission

10 The Contract of Sale was in the standard 2005 edition but contained additional conditions including cl 33 which relevantly provided:

“Without in any way limiting, negating or restricting any rights or remedies which would have been available to either party at law or in equity had this clause not been included herein, should either party, (and if more than one person comprises that first party then any one of them) prior to completion:

(a) die or become mentally ill then either party may rescind this Contract by notice in writing to the other party’s Solicitor and thereupon this Contract shall be at an end and the provisions of Clause 19 shall apply, or
(b) be declared or enter into any scheme or make any assignment for the benefit of creditors …, then the first party shall be in default under this Contract.” (emphasis added)

11 The arrangement between the parties was that during the 13 month period for settlement, Mr O’Meara could occupy the land under the arrangements set out in cl 47 of the Contract. It will be necessary to set out the provisions of this clause in due course but it is sufficient to note at the present time that O’Meara went into occupation and paid, pursuant to that clause, what was described as an occupation fee of $13,000 plus GST per quarter in advance. It seems that those quarterly fees were paid during the deferred settlement period until, it would seem, the end of December 2008.

12 During the course of 2008 Mr O’Meara experienced 2 problems. The first was that he was having increasing difficulty with the owners of some neighbouring land, David and Raymond Rooke. Secondly, finance approval that he had obtained from Richmond Mortgage Fund in March 2007 fell through as a result of the global financial crisis. The result of that was that Mr O’Meara was forced into the position of selling or attempting to sell 8 other properties that he owned in the Grafton region to meet his financial requirements to settle the contract with Mr Brennan. Because of a combination of financial problems and the personal problems he was having with the Rookes, he even listed the property at 43 Carrs Island Road for sale, presumably to on-sell it after settlement.

13 In early December 2008, Mr Brennan became aware of the financial difficulties that Mr O’Meara was in. That led to him making an offer to the agent on the sale, Mr Matthew Dougherty to delay settlement for a further 12 month period on terms. Mr Dougherty responded on Mr O’Meara’s behalf putting a counter-proposal on the basis of Mr O’Meara’s inability either to settle or to continue paying the weekly occupation fee at the rate stipulated in the contract.

14 Mr Brennan replied with a further proposal which, he said, if not accepted before Monday, 12 January 2009 would result in the issue of a Notice to Complete the contract as originally agreed between the parties. That letter was given to Mr O’Meara by Mr Dougherty and Mr O’Meara said he would sort the matter out.

15 Mr Brennan’s proposal was not accepted by 12 January and the Notice to Complete was issued.

16 As mentioned earlier, the Notice of Rescission was provided under cover of a letter from Mr O’Meara’s then solicitors to Mr Brennan’s solicitors. The letter relevantly said this:

“Due to, inter alia, the difficulties caused by the adjoining landowner, our client is currently suffering from a number of mental illnesses including but not limited to:
(a) anxiety;
(b) panic attacks;
(c) possibly depression;

(d) possibly bi-polar disorder.”
Mr O’Meara’s reluctance to disclose his illnesses even to his solicitor prior to this point in time arose from the acute embarrassment on his part.

As a consequence of these illnesses, Mr O’Meara no longer sees any alternative but to take the action outlined hereunder.

He has attempted to be conciliatory by asking only for return to him of $26,000 of the $87,000 as paid to the Vendor.

Unfortunately, the Vendor did not see fit to accept this offer which was outlined in our letter of 23 January 2009.

As a consequence pursuant to clause 33(a) of the Contract for Sale dated 27 November 2007 (the Contract) Mr O’Meara hereby rescinds the Contract and Clause 19 now applies. The deposit paid and any other money paid by the Purchaser under this Contract must be refunded.

There will be an allowance by the Purchaser to the Vendor for a reasonable adjustment given that our client has been in possession. The Purchaser considers $500 per week reasonable.

…”

17 Mr O’Meara gave evidence in his principal affidavit of problems he was having with the Rookes. He claimed that they were harassing him and gave a number of examples of their harassment including this:

“(d) On another occasion, David and Ray said to my face, ‘we are going to run you off the island or drive you to hang yourself’.”

18 Mr O’Meara further deposed to the fact that he had been able to manage his mental illness but due to the increased difficulties he was having with David Rooke he felt out of control and his anxiety attacks increased significantly. He said the statement Mr Rooke had made to him about driving him to suicide kept coming back to him and as a consequence, instead of taking up Mr Brennan’s further offer in December 2009 to extend the contract for a further 12 months, he elected to rescind the contract.

The medical evidence

19 During the course of the hearing Mr O’Meara tendered medical reports from a general practitioner, Dr Joegelia Ho and the psychiatrist to whom he had been sent by his solicitors, Dr Christopher Danesi.

20 Dr Ho’s report said this:

“I saw Mr Meara on 30 January 2009. He reported a 15 year history of anxiety disorder. He takes valium at times to relieve his anxiety symptoms. On presentation, he tells a long story about current stressors in particular being harassed by a neighbour. This he says has been going on for 12 months.

Mr O’Meara suffers from Exacerbation of Anxiety Disorder. He has good insight, and most importantly has no thoughts of harming himself or others. He refuses counselling and long-term medications. I advised referral to a psychiatrist which he will decide at a later time. Meantime, I gave him 5mg diazepam which he will take when necessary.”

21 Three things should be noted about this report. First, Mr O’Meara first saw Dr Ho on 30 January 2009. Secondly, he reported a 15 year history of anxiety disorder. Thirdly, he said the current stressors of being harassed by his neighbour had been going on for 12 months.

22 Dr Danesi saw Mr O’Meara on 10 July 2009. He took an extensive history from him which it is not necessary to set out. It is sufficient to note that he complained of panic attacks for a period of about 13 years for which he occasionally took Valium. Mr O’Meara detailed the particular problems that he was having with his neighbours on the property and in particular the occasion where they wanted to see him dead which Dr Danesi noted was in November 2008. It was at this time that Mr O’Meara’s symptoms became much worse, Dr Danesi was told.

23 Dr Danesi had Mr O’Meara fill out what was called a Mood Disorder Questionnaire that screened for mania but Mr O’Meara denied any symptoms of such. He also scored 0 on a Beck Depressive Inventory but on a Beck Anxiety Inventory he scored 39 which is in the severe range.

24 Dr Danesi diagnosed on Axis 1 of the DSM – IV, a Panic disorder with agoraphobia and on Axis 2 Obsessional personality traits. On Axis 5 he gave him a score of Global Assessment of Functioning of 60 which is a measurement of moderate symptoms where someone suffers from occasional panic attacks or has moderate difficulty in social, occupational or school functioning.

25 In a subsequent report Dr Danesi explained that Panic disorder with agoraphobia is considered to be a mental disorder/mental illness but having Obsessional personality traits would not be considered to be a mental illness. In that 2^nd report Dr Danesi noted that Mr O’Meara had ongoing symptoms of the illness since 1997 with elements of distress and functional impairment but he had managed well and had been able to keep his symptoms hidden.

26 Dr Danesi said a person is mentally unwell when they meet criteria of illness such as in the DSM – IV.

27 The solicitors for Mr Brennan sought a report from Dr Klaas Akkerman, a psychiatrist. They sent a report of Dr Danesi to him and asked him to answer some questions based on what was contained in that report. They asked if it was possible for someone with the complaints Mr O’Meara claimed to Dr Danesi to feign his complaints and history. Dr Akkerman agreed that it was easy to do that although he had never seen anyone feign a Panic disorder in 20 years of practice as a psychiatrist.

28 In answer to some further questions Dr Akkerman expressed the opinion that the history given to Dr Danesi strongly suggested that Mr O’Meara was able to deal in a reasonably competent fashion with ordinary affairs such as planning for the future, working out how to provide for himself and his family, working out how to earn income and how to look after capital. Dr Akkerman also expressed the opinion that on the history given to Dr Danesi, Mr O’Meara was able to understand the general nature of the transaction involved in acquiring the property from Mr Brennan.

29 Subsequently, Dr Akkerman examined Mr O’Meara on 24 September 2009. He also took a detailed history. Whilst he agreed with Dr Danesi that Mr O’Meara suffered from a personality disorder he did not think at the time Dr Akkerman saw him that he had an Axis 1 disorder which included a Panic disorder.

30 Dr Akkerman was again asked, on the basis of his examination of Mr O’Meara whether he was able to deal in a reasonably competent fashion with his ordinary affairs. Dr Akkerman said that he was. He said that the personality disorder from which Mr O’Meara suffered did not and had not restricted him from doing things competently. He had always been able to do that. He could plan for the future, he could work provide for himself and his family and he could work out how to earn income and look after capital. He said that he was able to understand the general nature of the transaction involved in acquiring the property from Mr Brennan.

31 Dr Akkerman said that the condition he believed Mr O’Meara was suffering from being a personality disorder involving anxiety and Dysphoric Mood, was a longstanding condition that he suffered from in November 2007. Dr Akkerman said the personality disorder had been suffered by Mr O’Meara for the whole of his life. Whilst it gave him difficulties coping with the vicissitudes of life it was not severe enough to interfere with his ability to deal with the issues that were raised for consideration by the solicitors.

32 None of the factual material was challenged, nor were the witnesses including the expert witnesses cross-examined. It is not possible for me to come to a conclusion about whether Dr Danesi’s diagnosis or Dr Akerman’s diagnosis is correct. Both agree that Mr O’Meara suffers from a personality disorder but they differ about whether he suffers from an anxiety disorder. I do not think that the inability to resolve this difference between the experts makes any difference to the outcome in this case.

(1) Clause 33

33 A consideration of cl 33 seems to me to involve a consideration of 2 matters. First, was Mr O’Meara mentally ill within the meaning of the clause on 30 January 2009? Secondly, if he was, had he become mentally ill in that way prior to completion of the contract?

(a) Was the Plaintiff mentally ill?

34 There is no definition of what being mentally ill means in the contract. Nor is it self evident, for the purposes of the clause, that it is sufficient to have a diagnosis of a condition that may be classified as mental illness. Given the frequency with which this or a similar clause has appeared in contracts for sale of land over very many years it is perhaps surprising that there is no authority on what amounts to being mentally ill for the purposes of the clause.

35 In Karfoal Pty Ltd v Lorence [2002] NSWSC 204 Gzell J had to consider a relatively identical clause where 1 of 2 joint vendors died between the date of contract and completion. The question to be determined was whether a Notice of Rescission given by the purchaser was valid. The issue arose most particularly because 1 of 2 joint vendors died.

36 Gzell J said at [13]:

“In my view the provision cannot be enlivened on the basis of the death of one of the joint tenants of the assets the subject of sale. The provision is aimed at a death that creates an impediment to the fulfilment of contractual obligations . The defendant having succeeded to the entirety of the title in the assets the subject of the contract for sale, the death of the Deceased did not give rise to any impediment.” (emphasis added)

37 The linking in the clause (and in similar clauses) of death, mental illness, bankruptcy and liquidation provides strong support for Gzell J’s view that what the clause is directed at are events which cause an impediment to the fulfilment of contractual obligations. None of the events necessarily precludes completion of the contractual obligations but death, bankruptcy and liquidation necessarily involve considerable delays in moving the contract to completion. That supports the view that the words “mentally ill” must also entail a state of affairs that causes a delay in fulfilment of the contractual obligations.

38 That would happen if, for example, the mental illness was such that a court needed to make a declaration and order under s 13 Protected Estates Act 1983, or where the Guardianship Tribunal needed to make an order under s 25G Guardianship Act 1987 as a result of a mental condition or illness suffered by the person. In some cases the person may be mentally ill within the meaning of s 14 Mental Health Act 2007 but it would not be necessary in all cases for a person to satisfy that definition. Section 14 provides:

“(1) A person is a mentally ill person if the person is suffering from mental illness and, owing to that illness, there are reasonable grounds for believing that care, treatment or control of the person is necessary:

(a) for the person’s own protection from serious harm, or
(b) for the protection of others from serious harm.

…”

39 Section 4 of the Act defines “mental illness” as meaning:

“A condition that seriously impairs, either temporarily or permanently, the mental functioning of a person and is characterised by the presence in the person of any one or more of the following symptoms:

(a) delusions,
(b) hallucinations,
(c) serious disorder of thought form,
(d) a severe disturbance of mood,
(e) sustained or repeated irrational behaviour indicating the presence of any one or more of the symptoms referred to in paragraphs (a) –(d).”

40 Although the definitions of “mental illness” and a “mentally ill person” in the Mental Health Act (and it should be noted that those definitions are identical in the 1990 Mental Health Act) provide a useful guide to the meaning of the words “mentally ill” in the clause, I do not consider the requirements of those sections have to be met for the purpose of the clause. It may be enough to show, for example, that the person suffered from a mental illness as defined in s 4 without the added requirement in s 14 of the reasonable belief concerning care, treatment or control that was necessary.

41 On the other hand, it will not be sufficient for a person who wishes to take advantage of a provision such as cl 33(a) to point to a diagnosis from a doctor or a psychiatrist that a party is suffering from a mental illness within the meaning of the categorisation of mental illness in a manual such as DSM – IV. Such a mental illness may be of a nature or magnitude that does not cause any impediment to the fulfilment of the contractual obligations brought about by the entry into the contract (cf the death of one joint vendor as in Karfoal).

42 In the present case, the highest the Mr O’Meara is able to put the position is that, although he suffered from the condition or illness diagnosed by Dr Danesi and Dr Ho for a considerable time prior to entry into the contract, things became much worse from about November 2008, and that meant he was “mentally ill” within the meaning of the clause by the time of the Notice of Rescission. Mr O’Meara identifies the impediment as being his inability to earn money because of his mental illness to enable him to meet his obligations under any loan or even to continue paying the occupation fee.

43 However, there is nothing in the doctors’ reports which suggests an inability of Mr O’Meara to function or deal with his affairs nor that he lacked any mental or emotional capacity to engage in, enter into, or complete business, commercial or legal transactions. Moreover, none of the doctors’ reports provides a basis for his assertion that he was unable to work at any particular time. In fact, Dr Danesi’s report said that he was able to function both with work and socially. Nor did Mr O’Meara’s own evidence disclose any inability to work.

44 Indeed, the only evidence of what Mr O’Meara was like on 30 January 2009 is contained in the report of Dr Ho who saw him on that day. She relevantly noted that he took Valium at times to relieve his anxiety symptoms, that he had good insight, that he refused counselling and long-term medications, and that he would decide at a later date whether he pursued the referral she advised to a psychiatrist.

45 Although Dr Ho might be regarded as having diagnosed him as having suffered from “Exacerbation of Anxiety Disorder” and Dr Danesi subsequently diagnosed him as having Panic disorder with agoraphobia, and assuming in Mr O’Meara’s favour that those diagnoses are to be preferred to that of Dr Akkerman, it does not seem to me that the mere identification of the fact that he was suffering from that disorder, even assuming it is a mental illness, means that Mr O’Meara was mentally ill for the purposes of cl 33(a).

46 There is a great deal of evidence in the contemporaneous documents suggesting that Mr O’Meara had capacity to manage his affairs in the relevant period. Some examples will suffice.

47 On 11 November 2008 there is a file note of an officer of Richmond Mortgage Fund as follows:

“Matthew O’Meara phoned after I left a number of messages requesting an update on his position. He advises as follows:
He will clear majority of current arrears this week. Unsure of amount at this stage, but will advise when to hand. He claims he is currently working on major shopping centre upgrade in Grafton for past few weeks, and has been unable to get to a bank.
Exchange of contracts for No. 6 Little Bacon St has still not occurred – purchasers are looking to take advantage of the new government subsidies for new home buyers (a major renovation apparently attracts the same level of grants as a new home) however, exchange, I am advised, will take place this week.
Matthew advised he has been speaking with his solicitors this week and advises all settlements will go off by 25/11/08 or prior to – he is aware this is the deadline date for action.
…”

48 On about 16 December 2008 Mr O’Meara wrote to Matthew Dougherty, the estate agent on the sale, in these terms:

“These are the points that I would like to put forward to Peter [Brennan].

This is the best way forward for me to ensure settlement in full maybe only 6 months away.

Firstly, 1 – I pay now – GST (overdue)

Water rates

Land rates
Address Weeds Notices (I was told by Inspector by Xmas)
2. Agree to Peter’s demands but not immediately capable of doing so (26K is ADJ not of balance 13K dep 13K in advance.
3. Pay $550 per week rent adjistment for first quarter.
4. Deposit into trust acc full proceeds of sale of Carrs Creek (200K app) immediately on settlement (may not take 12 months (2 houses to sell buy buyers).
5. Borrow 202K against Peter’s property at time of settlement (total) 400K.
6. I need a period of time (3-6 months) of good debt rating and I would be able to borrow the remainder of this year’s ADJ and deposit that Peter has required plus also arrive at balance of 200K for settlement.
7. Wondered if I settled in 6 months would Peter consider at proportionate deduction of that 26K of balance (will be guided by you)
Matt if you can put this together for me I would much appreciate it.”

49 These and other documents indicate that Mr O’Meara was capable of managing his affairs, planning in relation to his financial position, putting forward proposals, and negotiating on how to achieve the best outcome in relation to his properties and the contract with Mr Brennan. When viewed with the medical reports this material shows that Mr O’Meara was not mentally ill within the meaning of the clause, that is, his diagnosed condition was causing no impediment to the fulfilment of his contractual obligations.

(b) Did Mr O’Meara become mentally ill prior to completion?

50 Even if I am wrong in my first conclusion it is necessary to consider whether Mr O’Meara, prior to completion, became mentally ill. The clause does not say “die or is mentally ill”. The word “become” indicates a change of state. The wording of the clause generally points to the “becoming” as a transition that takes place between the date of contract and completion although the clause does not expressly require it after the date of contract. However, if Mr O’Meara was relying on “becoming” mentally ill prior to the date of contract, he would come up against the principle that where a party deals with a mentally ill person (where the mental illness would otherwise avoid the contract ab initio) in good faith and for valuable consideration without knowledge of the mentally ill person’s condition, the contract is good and cannot afterwards be set aside on the grounds of the mental illness: Molton v Camroux (1848) 2 Ex 487; 18 LJ Rep (Exch) 68, (affirmed 356). Mr O’Meara acknowledges that he did not disclose his mental illness to Mr Brennan or indeed anybody else at the time of entry into the contract.

51 If Mr O’Meara is otherwise entitled to say that he is mentally ill by reason of the diagnoses of Dr Ho and Dr Danesi with nothing more, it is clear from both of those doctors, from Dr Akkerman and even from Mr O’Meara’s own acknowledgment, that his diagnosed mental illness has been present since at least 1997. In those circumstances it cannot be said that he has “become mentally ill”.

52 However, Mr O’Meara submits that although he suffered from that mental illness for a lengthy period prior to the date of contract it was only when symptoms were worsened in or around November/December 2008, as a result of his altercations with Mr Rooke, that he became mentally ill. The difficulty with this submission is that it lacks any medical evidence to support the assertion. There is nothing to indicate how it was that Mr O’Meara was mentally ill in late 2008 and on 30 January 2009 simply as a result of things becoming worse for him. This again highlights, in Gzell J’s terms, what becoming mentally ill must entail for the rescission rights to become operative, that is, an impediment to fulfilment of the contractual obligations.

53 In the light of the fact that all of the doctors conclude that Mr O’Meara’s condition (however it is to be diagnosed and categorised) has been in existence for a lengthy period of time prior to entry into the contract, there is no evidence, medical or otherwise, to point to his becoming mentally ill after the date of contract and prior to completion.

(2) Penalty

54 The above conclusions are sufficient to determine the matter in favour of the Plaintiff. However, at the conclusion of the Plaintiff’s submissions in reply Mr O’Meara said that he had a 2^nd tier to his case. He claimed to be entitled to a refund of some of the monies he has paid to Mr Brennan as a result of his early occupation of the land. He claimed that he has paid pursuant to cl 47 of the contract the sum of $1000 per week plus GST for occupation and adjistment whereas a fair figure on a market basis was $500 per week. In those circumstances he claimed that the requirement to pay $1000 per week in cl 47 was a penalty. The cross-claim filed on his behalf by his solicitors made no such claim.

55 In his principal affidavit he set out all of the monies he has paid to Mr Brennan and he claimed a refund pursuant to cl 19 of the contract on the basis, it would seem, that his Notice of Rescission was valid. However, he added this:

“In calculating that amount that consists the deposit of $30,000 and a refund of one half of the amounts paid as “adjistment” pursuant to the contract. I am prepared to allow the vendor the amount of $500 per week as reasonable adjistment fees in the circumstances.”

56 He had also made assertions elsewhere in his affidavit about what a reasonable fee for weekly adjistment would be and annexed a letter from an estate agent expressing that opinion without any evidence to support that opinion. That letter and the assertions in the affidavit were objected to and rejected by me on the basis that Mr O’Meara had no expertise on what the market for adjistment fees was and that, at least in the absence of an affidavit from the estate agent that would have enabled him to be cross-examined, his evidence was hearsay and should not be admitted. To the extent, in any event, that it purported to be expert evidence it fell a long way short of complying with the principles contained in Makita v Sprowles (2001) 52 NSWLR 705. It was a bald statement without reasons or assumptions being set out.

57 Notwithstanding there was no claim in the cross-claim for this or any other amount said to represent a penalty, bearing in mind that Mr O’Meara was unrepresented and that Mr Lockhart of Senior Counsel who appeared for Mr Brennan was not prejudiced or disadvantaged by this claim, I permitted it to be argued.

58 Clause 47.1 of the contract relevantly provides:

“Notwithstanding any other provision of this Contract, the Purchaser shall be permitted to enter into early occupation of the property one (1) calendar month after exchange of Contracts upon the following conditions:

47.1.1 The Purchaser shall pay to the Vendor direct occupation fees of $1000 (plus GST) per week quarterly in advance (i.e. $13,000 + GST) at the start of each quarter;

…

47.1.5 Provided the Purchaser is not in default of any provision of this Contract, the Vendor agrees on completion to allow the Purchaser a reduction on the purchase price equivalent to fifty per cent (50%) of the amount of the total occupation fees paid by the Purchaser. That is to say, on completion the Purchaser would be entitled to a reduction of $26,000 for the full 12 month period. If both parties agree to an earlier completion date, then the Purchaser would be entitled to a pro rata reduction equivalent to fifty per cent (50%) of the total occupation fees paid to such earlier completion date. The Purchaser acknowledges that any such reduction in purchase price shall not include the GST payable on the occupation fees, (so that credit would only be given to the occupation fees actually paid to the Vendor nett of GST).”

59 Mr O’Meara submits that the reduction in occupation fees provided for in cl 47.1.5 is a penalty for early completion. This is because the 10% deposit payable under the Contract ($43,000) is forfeited to Mr Brennan if the contract is wrongfully rescinded. Since Mr O’Meara has paid $52,000 + GST in occupation/adjistment fees Mr Brennan will be entitled to keep $43,000 + $52,000. Mr O’Meara submits he should only be entitled to keep 10% ($43,000) plus a fee that is calculated for occupancy of the land. He submits that the reduction of 50% of the occupation fee if he settles on time indicates that the arrangement for $1000 per week is a penalty and does not represent a market rate for adjistment or occupation fee.

60 There is nothing about the arrangement in cl 47 that points to a penalty. First, there is no evidence that $1000 per week plus GST was not market value for occupation fees. Secondly, in a mortgage no penalty is involved if interest is payable at one rate as stipulated but reduced for timely payment: Strode v Parker (1694) 23 ER 804; O’Day v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 366–367. Analogously, that is what is provided in the present case if Mr O’Meara does not default under the contract and completes by the due date.

61 Thirdly, the arrangement is part of a legitimate bargain between a vendor and a purchaser where the vendor permits the purchaser into early possession and where there has also been an extended settlement period provided under the contract.

62 Fourthly, no lump sum or amount for liquidated damages is payable under cl 47 in the event that completion does not occur or that a default occurs.

63 In my opinion, the provisions of cl 47 do not amount to a penalty.

Conclusion

64 Mr O’Meara does not show that he brings himself within cl 33(a) of the Contract. He did not become mentally ill prior to completion. His Notice of Rescission was invalid and evinced an intention to repudiate the Contract. Further, he failed to settle the Contract on 30 January as stipulated in a valid Notice to Complete served by the vendor.

65 In those circumstances I make the following Declarations and Orders:

1. I declare that the Termination Notice dated 30 January 2009 in respect of the sale of the property situated at and known as 43 Carrs Island Road, Carrs Island being more particularly described as all that land and certificate of title folio identifiers 228/751371, 229/751371, 230/751371 and 231/751371 wherein the Plaintiff was the vendor and the Defendant was the purchaser was effective.

2. I declare that the Notice of Rescission dated 30 January 2009 issued by the Defendant to the Plaintiff in respect of the same sale of land was invalid and of no effect.

3. The cross-claim by the Defendant is dismissed.

4. The Defendant is to pay the costs of the proceedings.

**********

11/12/2009 - Typographical error - Paragraph(s) Coversheet