BROWN v CRAIG (Civil Dispute)

[2021] ACAT 27

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

BROWN v CRAIG (Civil Dispute) [2021] ACAT 27

XD 951/2020

Catchwords:               CIVIL DISPUTE – wedding cancellation due to COVID 19 – claim for refund of ‘non-refundable’ deposit paid to florist – frustration of contracts – penalty clause in contracts – unfair contracts

Cases cited:AMEV-UDC Finance Ltd v Austin [1986] HCA 63

Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30
Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3
Le v Nguyen [2017] ACAT 55
Re Continental C & G Rubber Co Pty Ltd (1919) 27 CLR 194
Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71 Thompson v Anderson [2016] SADC 107

Tribunal:  Senior Member A Anforth

Date of Orders:  9 April 2021

Date of Reasons for Decision:         9 April 2021

AUSTRALIAN CAPITAL TERRITORY          )

CIVIL & ADMINISTRATIVE TRIBUNAL     )          XD 951/2020

BETWEEN:

KYLIE BROWN

Applicant

AND:

DANYELLE CRAIG

Respondent

TRIBUNAL:     Senior Member A Anforth

DATE:9 April 2021

ORDER

The Tribunal orders that:

1.The application is dismissed.

………………………………..

Senior Member A Anforth

REASONS FOR DECISION

1.On 4 September 2020 the applicant lodged an application with the tribunal. The applicant claimed the sum of $3,147.03 composed of a principal sum of $2,999.70, tribunal lodgement fee of $77 and interest of $70.33.

2.The respondent conducted a wedding styling business known as ‘Pia+Jade Event and Interior Styling’. In May 2019 the applicant contracted with the respondent to provide wedding styling services at their wedding to be held on 28 March 2020 at Pialligo Estate in Canberra for a total sum of $14,998.50.

3.The quote issued by the respondent on 27 May 2019 contained a “20% non-refundable deposit” clause, which amounted to $2,999.70. The applicant paid this deposit. The clause read:

…A 20% non-refundable deposit is required to secure a booking with Pia+Jade. Upon payment of the deposit the client is deemed to have accepted the terms and conditions…

At the discretion of Pia+Jade the deposit may be transferred to another event within 6 months of the original function date.

4.The quote was later amended to include a further cost of $1,287.00 for invitations, which the applicant paid on 5 December 2019. This left a balance of $12,112.65 which the applicant paid on 17 March 2020.

5.There ensued various dealings between the parties relating to design work and ordering perishables.

6.On 22 March 2020 the ACT government imposed restrictions on weddings to a limit of five persons. The applicant cancelled the planned wedding for 28 March 2020. The wedding was rescheduled for 6 February 2021.

7.On 24 March 2020 the applicant sought a refund of the money paid to the respondent. The respondent eventually refunded $11,407.65 and retained the balance of the $16,339.35 paid, being $4,991.70.

8.The respondent maintained that she had incurred itemised out of pocket costs of $1,992.00 which the applicant agreed to the respondent retaining.

9.This left a balance of $2,999.70 that the applicant pressed for refund. The respondent denied the claim on the basis that this sum constituted the agreed 20% non-refundable deposit.

10.In her claim lodged with the tribunal, the applicant contended that the non-refundable deposit was an “unfair contract term” that the Tribunal should declare it as such and, in the alternative, the contract between the parties was terminated by frustration such that the respondent was only entitled to recover actual costs on a quantum meruit basis.

11.On 28 October 2020 the respondent filed a response in the tribunal disputing the claim and attached a string of email correspondence between the parties. The respondent relied on the 20% non-refund clause.

12.On 2 December 2020 the applicant filed a statement of her evidence with attachments A-K. The statement repeated the history set out above and asserted her right to a refund based on a press release from the Australian Competition and Consumer Commission which apparently urged refunds in the case of weddings cancelled due to COVID 19 restrictions.

13.On 24 December 2020 the respondent filed her statement of evidence with annexures A-M which again traversed the above history.

14.On 22 January 2021 the matter was listed for conciliation and did not settle. Due to the small sum in dispute it was referred for immediate hearing. Both parties appeared by phone. Both parties outlined their arguments.

15.The applicant did not challenge the actual expenses of the respondent. Her case was limited to the non-refundable deposit. Her principal argument was the unfair contract term and the frustration argument was only put in the alternative.

16.The respondent said that she told the applicant she would transfer the deposit to the new proposed wedding date in February 2021. There was initial agreement to this but then the applicant declined the offer on the basis that the relationship with the proposed groom had broken down and she wanted the refund. The applicant did eventually marry the same groom in October 2020 but in a downsized event with another wedding florist.

17.The applicant had prepared detailed written submissions on the law which she proposed to read. The respondent had not had access to these submissions. The Tribunal decided it was fairer to both parties if the applicant filed and served the written submissions and the respondent had a further two weeks to respond in writing, after which the Tribunal would give a decision in writing.

18.On 1 February 2021 the applicant filed her submissions. In relation to the unfair contract term, the applicant relied principally upon the decisions of Thompson and Thompson v Anderson [2016] SADC 107 (Thompson) and Le v Nguyen [2017] ACAT 55 to the effect that the non-refundable deposit clause was in the nature of a ‘penalty’ clause and therefore void at law.

19.In relation to the contractual frustration argument, the applicant relied upon Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3 to the effect that the contract was terminated by frustration due to unforeseen circumstances and the total restitution then applied i.e. the respondent was not entitled to retain any part of the money paid.

20.The respondent filed her submissions. In relation to the unfair contract argument the respondent submitted that her terms were clear and the applicant was quite capable of understanding them. She denied that the 20% retention was in the nature of a penalty and noted that the court in Thompson commented that a 20% retention was appropriate.

21.In relation to the frustration argument, the respondent submitted that she was ready, willing and able to perform her part of the contract on 28 March 2020 and the decision to cancel the wedding was solely that of the applicant. The respondent was also willing to provide the same services on a later date, but the applicant did not take up this offer. These circumstances did not amount to frustration at law.

Findings of fact

22.The contract was formed. It was clear and unambiguous. The applicant is an intelligent and educated person who understood the terms of the contract including the non-refundable deposit clause.

23.The wedding would have gone ahead as planned but for COVID-19. But the COVID restrictions did not preclude the wedding it just limited the numbers of guests to five. The Tribunal understands that this was not what the couple wanted and understands why they would have chosen to cancel the planned wedding. Ultimately, this was a choice by the applicant, but it was open to the applicant to go ahead with the wedding on the planned date.

24.The applicant rescheduled the wedding for February 2021. The respondent was prepared to transfer the deposit to a wedding on that date. However, the circumstances of the applicant changed following the cancellation of the wedding and for reasons not known (nor relevant) to the Tribunal, the relationship between the applicant and her proposed groom broke down. At this point the applicant did not propose to have any wedding at all. She then pressed the respondent for a full refund of the money paid. This caused a break down in the relationship between the applicant and the respondent.

25.The applicant then resurrected the relationship with the proposed groom and they in fact married in October 2020. The applicant did not engage the respondent to provide for this wedding because of the tension between them. The applicant used a different florist. Again, this was the applicant’s choice and not a necessity.

The relevant law

Frustration of the contract

26.These circumstances do not amount to a frustration of the contract at law. Frustration requires:

(a)that it is impossible or futile to require performance, which it was not in the present case;

(b)the frustrating event not be anticipated in the contract. The present contract did anticipate that the planned wedding may be delayed and provided for the transfer of the deposit to another date;

(c)the frustrating event not be induced by one of the parties. In this case it was the applicant who cancelled the original wedding and then declined to use the respondent’s service in the later wedding in October 2020.

27.If, counter factually, the contract between the present parties was frustrated, the law provides that the losses remain where they have fallen, and any monies paid in advance prior to the frustrating event are not recoverable unless there has been a total failure of consideration.[1] There not a total failure of consideration in this case.

The contractual penalty issue

[1] Re Continental C & G Rubber Co Pty Ltd (1919) 27 CLR 194, 201

28.In Thompson the respondent paid a deposit of $1,000 of a total contract amount of $3,800. The respondent cancelled the booking 10 days later without cause and for this reason were in breach of contract. The applicant refused to refund the $1,000. McIntrye J in the South Australian District Court order a refund of the deposit in excess of 20% of the deposit i.e. that the applicant refund $800 of the $1,000 deposit paid. In a succinct judgment her Honour wrote:

21.      In any contract a deposit constitutes an earnest to bind the bargain, and acts as a guarantee of due performance of the contract (NLS Pty Ltd v Hughes [1966] HCA 63; Howe v Smith (1884) 27 Ch D 89). Generally, in the absence of an express contractual stipulation to the contrary, the recipient of the deposit is entitled to retain it where the payer defaults in the due performance of the contract (Howe v Smith (1884) 27 Ch D 89, 91, 93, 95 (Cotton LJ) 104-105 (Fry LJ); Commissioner of Taxation v Reliance Carpet Co. Pty Ltd. [2008] HCA 22). However, there is authority for the proposition that restitution may be awarded if the recipient of the deposit has acted unconscionably in purporting to forfeit what is in effect a penalty (Stockloser v Johnson [1954] 1 QB 476).

22.      Whether a deposit can be characterised as a penalty has been the subject of conflicting decisions in Australia (Smyth v Jessep [1956] VLR 230; Re Hoobin Deceased; Perpetual Executors and Trustees Association of Australia Ltd v Hoobin [1957] VR 341; Coates v Sarich [1964] WAR 2; Deputy Commissioner of Taxation v Advanced Communications Technologies (Aust) Pty Ltd [2003] VSC 487; Fiorelli Properties Pty Ltd. v Professional Fencemakers Pty Ltd. [2011] VSC 661). The question is far from settled. The deposit in this matter was nearly one-third of the total contract price and, in my view is substantially disproportionate to the likely expense, time and loss sustained by the Thompsons. Accordingly, it ought properly to be characterised as a penalty (Ringrow Pty Ltd v B.P. Australia [2005] HCA 71).

23.     Having determined that the deposit is a penalty I now consider whether it is unconscionable for the Thompsons to retain the whole of the deposit. It is difficult to quantify the loss sustained by the Thompsons by reason of the cancellation of a booking in general terms and in this case specifically. It is likely that they have suffered a loss in terms of their wasted time dealing with this booking; showing the premises, reading and responding to emails, telephone calls and receipting their payment. This process would need to be repeated in order to relet the venue. As against this, the booking lasted only 10 days. Further, at the time of withdrawal in December 2015 there was in excess of 12 months to the date of the actual booking in February 2017. Whilst it is not unreasonable for there to be an element of profit to the Thompsons given that this was a commercial transaction, the profit should not be in all the circumstances excessive.

24.     Doing the best I can with the limited information available I consider that an appropriate allowance would be for the Thompsons to retain 20% of the deposit in the sum of $200 and for the balance to be returned to Mr Anderson and Ms Payne.

25.     In those circumstances I set aside the judgment of the learned Magistrate dated 10 June 2016 and I substitute in its place judgment for the respondents in the sum of $800 plus a filing fee of $138, leading to a total judgment sum of $938.

29.The Tribunal was referred to the decision of Le v Nguyen [2017] ACAT 55. It involves very different facts and a 50% non-refundable deposit that was held to be a penalty.

30.The leading cases on the issue of ‘penalties’ in contract appear to be the High Court decisions in AMEV-UDC Finance Ltd v Austin [1986] HCA 63; Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 and Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71 (Ringrow). In short, a ‘penalty’ is provision that imposes a duty to pay a sum of money that is not reflective of any true loss sustained by the innocent party to a contract and whose purpose was to secure performance of the contract. A penalty clause is unenforceable at law.

31.Where the true losses of the innocent party are assessable then that is the measure of the damages payable and any additional sum is in the nature of a penalty. However, sometimes it is not possible to accurately anticipate the potential losses that may flow from a future breach of contract and so pre-estimates in the form of liquidated damages are permissible. But, if the pre-estimate is of such an amount as be an unconscionable burden on the party in breach of the contract, then the pre-estimate is not a genuine liquidated damages clause.

32.In Ringrow it was said that a penalty does not arise only because of disproportionality between a genuine estimate of the likely damages and the agreed ‘penalty’ sum or because the ‘penalty’ sum is greater than the actual losses of the innocent party. There must be an element of unconscionability involved in the bluntness and the excessive amount of the penalty.

33.There are merits on both sides of the argument in the present case. In favour of the respondent, the 20% non-refundable estimate does not appear to be an excessive pre-estimate given the perishable and non-reusable nature of the products and the work involved. The contract price was relatively small and percentages of a small amount are even smaller. If the contract price was a million dollars then a non-refundable 20% may take on a different complexion.

34.In favour of the applicant, it is possible to determine the amount of loss sustained by the respondent, at least in relation to wasted out of pocket costs. The applicant has agreed to these. But the thing that has not been taken into account by the applicant is any allowance for the respondent’s loss of profit, which is a compensable loss of the respondent.

35.The respondent stood ready, willing and able to provide the service at the later October 2020 wedding, which would have allowed the respondent to recoup her profit component. The applicant chose not to allow this.

36.On balance, the Tribunal is not persuaded that the 20% non-refundable clause was a penalty or an unfair contractual term, and the respondent is entitled to retain the non-refundable deposit.

Decision

37.The applicant’s claim is dismissed.

………………………………..

Senior Member A Anforth

Date(s) of hearing	22 January 2021
Applicant:	In person
Respondent:	In person