Chambers v Borness

[2014] NSWSC 890

Supreme Court

New South Wales

Medium Neutral Citation:	Chambers v Borness [2014] NSWSC 890
Hearing dates:	30 June & 1 July 2014
Decision date:	01 July 2014
Jurisdiction:	Equity Division
Before:	Pembroke J
Decision:	See paragraphs [17] & [18]
Catchwords:	REAL PROPERTY - Section 55 of Conveyancing Act - recovery of deposit - principles applicable SET OFF - set off between judgments - judgment for balance - principles applicable
Legislation Cited:	Civil Procedure Act, 2005 (NSW) Conveyancing Act, 1919 (NSW)
Cases Cited:	Barescape Pty Ltd v Bacchus Holdings Pty Ltd [2012] NSWSC 1275 Hasanovic v Bolisten (1982) NSW Conv Rep 55-078 Havyn Pty Limited v Webster [2005] NSWCA 182 Lucas and Tait (Investments) Pty Limited v Victoria Securities Ltd (1973) 2 NSWLR 268
Category:	Principal judgment
Parties:	Joanne Chambers - plaintiff Stephen Frederick Borness - defendant
Representation:	Counsel: G Foster - for the plaintiff S Reuben - for the defendant Solicitors: Sterling Legal - for the plaintiff Pitcher Walton - for the defendant
File Number(s):	2013/367068

Judgment - EX TEMPORE

1. This is a claim commenced by the plaintiff seeking, among other things, an order that the 15 per cent deposit of $445,650, paid pursuant to a contract for sale of land between the plaintiff as purchaser and the defendant as vendor, be repaid to the plaintiff with interest, pursuant to Section 55(2A) of the Conveyancing Act1919 (NSW). The entitlement to interest is a discretionary statutory entitlement given by subsection (2A). The relevant facts are as follows.

The Facts

1. The contract for sale of land was entered into on 10 August 2012. The purchase price was $2,971,000. Special Condition 11 authorised the deposit to be released to the vendor upon exchange of contracts. A completion date 12 months after the date of contract was specified. Completion was therefore required on 10 August 2013. Clause 15 permitted either party to serve a notice to complete if completion had not occurred by the completion date. Special Condition 7.2 provided that if the purchaser failed to complete the contract on or before the completion date, otherwise than through the vendor's default, then the purchaser shall pay at completion, in addition to the balance of the purchase price adjustments and any other money payable under the contract, interest on the balance of the purchase price, calculated at the rate of 12 per cent per annum with effect from the completion date specified in the contract. However, for the reasons that I will explain, this clause has no direct application on the facts of this case.

1. The contract has been validly terminated by the vendor. Special Condition 7.2 is predicated on a completion by the purchaser but at a later date than the completion date specified in the contract. No such completion has occurred or will now occur.

1. Clause 18.2.2, together with Special Condition 1(m), provided:

The purchaser must not before completion make any change or structural alteration or addition to the property, other than as provided in Special Condition 17, or as otherwise agreed in writing by the vendor.

1. Special Condition 17 provided that four weeks following exchange of contracts the purchaser was authorised to take possession of the property and undertake certain specified works that were specified in the Special Condition. Significantly, Special Condition 17 concluded with the following paragraph:

The parties further agree that if the contract is not completed for any reason, other than the default of the vendor, then the purchaser shall not call upon the vendor to contribute for the cost of any work undertaken and the purchaser further covenants with the vendor that the warranty is indemnified in favour of the vendor or any complaint will not merge on completion.

1. Included in the contract, and collateral to it, was a licence agreement which set out the terms of the contractual licence given to the purchaser to occupy the property until the specified date, being 12 months after the date of contract. The licence agreement provided for the purchaser to pay a licence fee of $4,166.66 per month in advance. The vendor had sought a licence fee of $100,000 per annum but agreed to accept a fee of $50,000 per annum, which equated to $4,166.66 per month. The licence agreement also required the purchaser to pay all rates, taxes, levies and other outgoings payable in respect of the property. The licence commenced four weeks after the date of contract. Special Condition 12 stated that the contract (including the licence agreement) embodied an entire agreement and that all other conditions, warranties, promises and obligations were excluded.

Recovery of Deposit

1. On 16 August 2013 the vendor issued a notice to complete requiring completion of the contract for sale of land on or before 3 September 2013 and making time of the essence. There was a series of agreements extending the time for completion. Ultimately, on 4 November 2013 the vendor served a notice of termination of the contract and a notice terminating the defendant's licence to occupy the land.

1. At the hearing the plaintiff conceded the validity of the termination of both the contract and the license. The only issues for determination are the right of the purchaser to recover the deposit and the defendant's cross-claim. The right to recover the deposit is embodied in Section 55(2A) of the Conveyancing Act. It provides that the Court may 'if it thinks fit' order the repayment of any deposit with or without interest. This is not simply a broad discretion. Nor is it an equitable discretion. It is a statutory discretion, the limits of which are well settled. In Lucas and Tait (Investments) Pty Limited v Victoria Securities Ltd (1973) 2 NSWLR 268 at 272, the Court emphasised that the section does not permit an overall discretionary supervision of monetary adjustments. It emphasised that:

A vendor who forfeits a deposit in strict enforcement of his legal right is not to be deprived of it under section 55(2A) unless it is unjust and inequitable to permit him to retain it.

1. In Havyn Pty Limited v Webster [2005] NSWCA 182 the Court emphasised that the purchaser must do more than merely show that the deposit has been forfeited and that it will result in a windfall to the vendor. This would usually be the case in any event. It added that the proper function of a deposit in providing a sanction, so that purchasers treat the making and completion of contracts with due seriousness, should be respected. In this case, I have no doubt that the plaintiff treated the making and completion of the contract with due seriousness and that if she had been able to do so, she would certainly have completed the contract. Her evidence revealed a series of trials and tribulations which engender sympathy in a general sense, but which do not specifically assist me in determining whether the discretion under Section 55(2A) should be exercised.

1. The proper approach of the Court in a case such as this is, in the first instance, to weigh in the balance the monetary outcomes to the parties. Those monetary outcomes should be considered in the context of the terms of the contract and the overall circumstances of the case. That approach was exemplified by the analysis of Needham J in Hasanovic v Bolisten (1982) NSW Conv Rep 55-078. His Honour said at 564:

Further, the plaintiff expended a considerable amount of money and labour on improving the property. There is no evidence of the amount by which that expenditure and labour might have increased the value of the property but it is clear that some of the work was valuable to the defendant; for example, the repair of fences and the installation of water pipes and electricity. It would, I think, be unjust in these circumstances to allow the defendant not only to retain the benefits of the plaintiff's expenditure and labour and to obtain damages in the form of an occupation fee and payment of rates, but also to retain the deposit. In the circumstances I think I should exercise my discretion to order the return of the deposit.

(emphasis added)

1. In this case there are a number of factors which must be weighed in the balance. First, the plaintiff has paid licence fees totalling $70,332. Second, she has expended according to her estimation $105,000 in carrying out supposed improvements to the kitchen, the study/office, the laundry, painting, master bedroom and wardrobe, lounge/TV room, garage and doors. I will come back to these matters. Third, pursuant to the licence agreement, she has paid certain rates, taxes and outgoings on the property. Fourth, she says that the value of the property is now $300,000 greater than it was at the date of contract. Fifth, it is acknowledged that the vendor has a valid claim for mesne profits and damages totalling $95,230.69. Sixth, the vendor is entitled to further damages, representing agreed interest, on the balance of the purchase price, totalling $71,401.68. Seventh, the plaintiff contends that the vendor has had the benefit of the deposit since the date of contract and that a reasonable estimation of the amount of interest which could be expected to have accrued to him on that sum is approximately $60,000. If one takes into account all of those factors and accepts those figures at face value, the vendor has received, or is entitled to receive, payments and benefits having a value in excess of $700,000. Subject to Section 55(2A), he now seeks, in accordance with the contract for sale, to retain the deposit of $445,000 on top of those amounts and benefits.

1. Not all of the amounts and benefits propounded by the plaintiff should be taken into account. Having regard to the analysis adopted by Needham J in Hasanovic it is, I think, reasonable to take into account the benefit to the vendor from the payment by the plaintiff of the sum of $70,332 for the licence/occupation fees; the payment by the plaintiff of an unquantified amount for rates, taxes and outgoings; the vendor's entitlement to recover mesne profits and damages from the plaintiff totalling $95,230.69; and the vendor's entitlement to damages represented by agreed interest in the sum of $71,401.68. I regard the agreement embodied in the letter dated 3 September 2013 from Pitcher Walton Lawyers to Gilles Delaney Lawyers as clearly justifying the vendor's entitlement to that sum.

1. It seems less appropriate in this accounting exercise to give to the vendor the benefit of the $105,000 which the plaintiff contends she has spent on the property. The evidence to support that figure was somewhat opaque and I do not think that it is reliable. There is also a serious issue as to whether the so-called improvements should be treated as such; these things are very often a matter of taste and it does not follow that they were improvements which the vendor would himself have been prepared to carry out. Additionally, there is no evidence that those improvements added to the value of the property. I doubt that they did in any material way at all. Finally, Special Condition 17 made clear that the bargain between the parties was that the plaintiff would take the risk of the cost of any works carried out by her. She agreed that she would 'not call upon the vendor to contribute to the cost of any work undertaken'. For those reasons, I do not think that it would be appropriate to take into account the whole of the sum of $105,000 in determining the benefit which the vendor will receive for the purpose of assessing whether the deposit should be retained or returned. I regard it as only a modest factor.

1. Nor do I think that it is appropriate to take into account any increase in value of the property between the date of contract and the date of hearing. I do not think that any such increase ought to be used in a way which penalises the vendor. Some allowance should however be made for the vendor having received the benefit of the deposit and having been able to earn interest on it.

Unjust or Inequitable

1. Taken together, it does seem to me that it would be 'unjust in the circumstances' (to use the language in Hasanovic) or 'unjust and inequitable' (to use the language in Lucas and Tait) or 'sufficient to warrant a departure from holding the purchaser to its obligations under the contract' (to use the language of Havyn Pty Limited v Webster) for the vendor, not only to retain the whole of the deposit but also to have the benefit of the various amounts to which I have referred in paragraphs [12] - [14]. The total of $70,332, $95,230.69, $71,401.68, $60,000 (being the approximate figure for interest which the defendant may be assumed to have earned on the deposit) and the unquantified amount of rates, taxes and outgoings paid by the plaintiff, is at least $300,000.

1. I accept that those sums all represent monies to which the vendor is or was contractually entitled. But the consequence of not giving relief pursuant to s 55(2A) of the Conveyancing Act would, in my view, be to bring about a result that is so economically lop-sided that the exercise of the Court's discretion is justified in the circumstances. I think the totality of the circumstances that I have outlined render it unjust or inequitable for the vendor to retain the deposit. The disparity between the respective financial outcomes for the plaintiff and the defendant is too great. The operation of the contract is such that, if given full effect, and without allowing the plaintiff to recover the deposit, the outcome for the plaintiff would, in my view, be unjust in the circumstances. The essence of the reasoning of Needham J in Hasanovic was that the benefits and claims which the vendor had received, or to which it was contractually entitled, were such that if, in addition, the deposit were retained by the vendor, the outcome to the purchaser would be unjust or unequitable. That same reasoning is, in my view, applicable to the particular facts of this case.

Set Off

1. It is quite apparent that the defendant is entitled to judgment against the plaintiff, pursuant to his cross-claim, for the sums of $95,230.69 and $71,401.68. On the other hand, the plaintiff is entitled to an order for the payment to her of $445,650. Section 90(2)(a) of the Civil Procedure Act, 2005 permits the court to give judgment for the balance only of the sums of money awarded on respective claims by a plaintiff and by a defendant on a cross-claim. The principle was explained by Black J in Barescape Pty Ltd v Bacchus Holdings Pty Ltd [2012] NSWSC 1275 at [15] as follows:

Section 90(2) of the Civil Procedure Act 2005 (NSW) provides that, if there is a claim by a Plaintiff and a Cross-claim by a Defendant, the Court may give judgment for the balance only of the sums of money awarded on the respective claims, or may give judgment in respect of each claim. At general law, the Court also has power to order that one judgment be set-off against another: Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660. The rationale of set-off is to avoid multiplicity of actions and it is available, in principle, where there are, on each side of the account, what Cockburn CJ in Stooke v Taylor (1880) 5 QBD 569 at 575 referred to as 'liquidated debts, or money demands which can be readily and without difficulty ascertained'. In my view, this is a proper case for set-off between the amount payable by Bacchus to Barescape under the Statement of Claim and the amount payable by Barescape to Bacchus under the Cross-Claim.

1. I propose that there be a set off between the judgments, so that only the balance of $279,017.63 is returned to the plaintiff. I do not consider that interest should be awarded to the plaintiff pursuant to Section 55(2A). I have done enough in the exercise of my discretion, to alleviate the contractual burden to which she would otherwise have been subject.

1. I should observe that pursuant to the contract of sale the vendor's entitlement after termination was only to retain 10% of the purchase price, namely $297,100. The balance of the deposit, being 5% of the purchase price, is $148,550. However, the plaintiff's right to this sum is qualified by Clause 9.2 of the contract for sale. It stipulates that 'other money' (in addition to the deposit) paid by the purchaser pursuant to the contract shall be held as security for any damages for breach of contract to which the vendor is entitled.

1. The parties should bring in agreed short minutes to reflect these reasons. If necessary, I will permit brief further submissions on the form of orders.

Decision last updated: 03 July 2014