Chatham v Coral Park Pre-Training & Breaking Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST

S CI 2018 02141

LUCREZIA CHATHAM	First Plaintiff
CRESTEVIA LODGE PTY LTD (ACN 621 239 254)	Second Plaintiff
v
CORAL PARK PRE-TRAINING & BREAKING PTY LTD (ACN 118 904 742)	Defendant

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JUDGE:	Daly AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	18, 19, 20 and 25 February 2020
DATE OF JUDGMENT:	9 December 2020
CASE MAY BE CITED AS:	Chatham v Coral Park Pre-Training & Breaking Pty Ltd
MEDIUM NEUTRAL CITATION:	[2020] VSC 814

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CONTRACTS – Dispute regarding construction of contract of sale – Whether purchasers entitled to vacant possession – Whether special condition embodied the common intention of the parties – Whether special condition is void for uncertainty – Special condition may be severed – Brew v Whitlock (No 2) [1967] VR 802 referred to – Whether purchasers entitled to rescind – Whether purchasers were ready, willing and able to perform their obligations under the contract – Finding that purchasers not ready willing and able to perform.

CONSUMER LAW – Misleading and deceptive conduct – Whether vendor’s representation liable to lead purchasers into error – Whether representation induced purchasers to enter contract of sale – Whether purchasers suffered loss by reason of vendor resiling from representation – Finding that vendor’s misleading and deceptive conduct not the operative cause of purchasers’ loss.

PROPERTY LAW – Sale of Land Act 1962 (Vic) ss 32, 32C and 32K(1), (2) and (4) – Whether section 32 statement contained false information or failed to provide required information – Whether vendor required to disclose the details of a lease in section 32 statement – Krawkowski v Eurolynx Properties Ltd (1992) ATPR 41-168; Vouzas v Bleake House Pty Ltd [2013] VSC 534 referred to – Whether purchasers entitled to rescind contract of sale – Fifty-Eighth Highwire Pty Ltd v Cohen [1996] 2 VR 64 referred to – Whether vendor acted honestly and reasonably – Whether purchasers in substantially as good a position as if disclosure obligations had been complied with – Finding that purchasers entitled to rescind – Property Law Act 1958 (Vic) s 49(2) – Whether purchasers entitled to return of deposit – Simcevski v Dixon (No 2) [2017] 53 VR 357 referred to – Finding that purchasers entitled to return of deposit.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr AMJ Meagher	Hope & Co Lawyers
For the Defendant	Mr DV Aghion	KPA Lawyers

HER HONOUR:

Introduction and background

This proceeding concerns the fallout from a failed land sale transaction in 2017. Denistoun Park (‘property’) is a racehorse breeding and training facility on seven acres on the Mornington Peninsula, about halfway between Mount Martha and Balnarring. The unique nature of the property is illustrated by the observations of a valuer made in October 2017, as follows:

The property comprises a 28.68 hectare allotment which has been extensively developed and highly improved as an equine training and pre‑training facility. Significant infrastructure is understood to have been constructed post 2002. The property is located within an established rural and high quality lifestyle precinct at Tuerong on the Mornington Peninsula.
The region incorporates a variety of land uses, including grazing, wineries and equine activities. The subject property has been highly developed to suit the very specific and particular needs of a very limited purchaser profile which in this case constitutes horse racing stables and trainers. The property is somewhat unique due to the level and nature of development.
There is generally a broad market position and acceptance for properties developed with equine related improvements within this general vicinity, however there are few comparable type properties with similar horse training facilities. The catchment of potential purchasers with the financial capacity to support the investment is likely to be restricted.

The first plaintiff, Miss Lucrezia Chatham, is an animal nutritionist. In 2017, she and her then partner, Mr Steve Cunningham, a racehorse trainer (together, ‘purchasers’) were looking for a property on the Mornington Peninsula from which to operate their businesses in tandem. At the time, Mr Cunningham trained approximately 55 to 60 racehorses and was (and still is) based in Wangaratta. Miss Chatham and Mr Cunningham are both directors and shareholders of the second plaintiff, Crestevia Lodge Pty Ltd (‘Crestevia’), the entity nominated by the purchasers to purchase the property.

The defendant, Coral Park Pre‑Training & Breaking Pty Ltd (‘vendor’) is the registered proprietor of the property. The vendor is controlled by Mr Jason Warren, a horse trainer, whose business, Jason Warren Racing Stables (‘JWRS’), also operates from the property.

In March 2017, the purchasers learned that the property was on the market. Following inspections of the property and discussions with Ms Vicky Sayers, a real estate agent employed by the Flinders office of RT Edgar Pty Ltd (‘RT Edgar’), the purchasers decided that the property would meet their needs, and on 31 May 2017 made an offer to purchase the property for $4.1 million, with a ten per cent deposit. Negotiations between the purchasers and the vendor reached the stage that the vendor’s solicitor provided a draft contract of sale to the purchasers, but at the last minute, the vendor accepted another offer.

The purchasers’ disappointment did not last long, however, as the other sale fell through, and negotiations between the purchasers and the vendor continued through another real estate agent, Colliers.[1] On 6 June 2017, the purchasers made an offer to purchase the property for $4.5 million. Once again, however, the sale did not proceed, as the vendor accepted another offer, which also fell through.
[1]During the course of the parties’ negotiations, there appears to have been a dispute between RT Edgar, Colliers, and the vendor concerning which agency had the authority to sell the property after Ms Lisa Fraser-Smith, who also dealt with the purchasers on behalf of the vendor, left RT Edgar to work at Colliers. Nothing turns on this dispute for the purposes of the present proceeding.

Negotiations commenced again in mid‑August 2017, this time once again through Ms Sayers of RT Edgar. By this time, the purchasers were represented by a solicitor, Ms Louise Luke of By the Bay Legal & Conveyancing (‘BTB’), and the vendor was represented by a new firm of solicitors, Robert Beckwith Solicitors (‘RBS’).

In the week prior to Miss Chatham signing the contract of sale on Saturday, 19 August 2017, the focus of the negotiations between the parties was the price to be paid for the property, with the parties ultimately agreeing upon a price of $5.05 million, with a deposit of five per cent of the purchase price being payable upon the execution of the contract of sale, and the balance of the purchase price payable within sixty days. Further, the parties were concerned to ensure that the property be purchased as a ‘going concern’, so that GST would not be payable on the purchase price. To that end, the purchasers understood that Mr Trevor Andrews and Ms Amy McDonald (‘licensees’), who occupied parts of the property with their horses, would continue to occupy some stables and accommodation after settlement. The question of whether the ongoing occupancy of the property was limited to the licensees, or also included JWRS, which occupied the bulk of the stables on the property, is a key issue in dispute between the parties.

On the afternoon before the parties reached agreement on the price to be paid for the property, being 17 August 2017, RBS sent a draft contract of sale to the purchasers by email. The draft contract of sale had parts of its text obscured by a large ‘DRAFT’ watermark. Miss Chatham gave evidence that she only viewed the draft contract of sale on her smartphone, as she had no power at home to operate her computer. She forwarded a copy to her solicitor, Ms Luke of BTB, asking her to advise upon the draft contract of sale, but unbeknown to Miss Chatham at the time, Ms Luke was away from her office. In any event, she received no advice on the terms of the draft contract of sale prior to signing the contract of sale on behalf of the purchasers, and handing over a bank cheque for $252,500.00 to Ms Katie Taplin of RT Edgar on the morning of Saturday 19 August 2017 at her parents’ home in Mount Martha. The funds for the deposit were sourced from Miss Chatham’s father, Mr Ron Chatham. She did not receive any legal advice prior to attending the offices of the vendor’s solicitors to re‑sign the contract of sale on 21 August 2017 at the request of the vendor’s solicitors, as the reference to ‘Crestevia’ as the proposed purchaser in the contract of sale inaccurately described the proposed purchaser. The vendor signed the contract of sale on 23 August 2017.

The settlement date prescribed by the contract of sale was 19 October 2017. However, as it turned out, the purchasers were overly optimistic regarding their ability to raise finance to complete the purchase of the property, in part at least because of delays in obtaining a bank valuation for the property. The vendor agreed to refrain from issuing a rescission notice until 30 November 2017, in exchange for the purchasers’ agreement to pay a further deposit of $252,500.00, and to release the deposit to the vendor pursuant to s 27 of the Sale of Land Act 1962 (Vic) (‘Sale of Land Act’). The additional deposit, which was funded by another investor, was paid on 19 October 2017.

However, the purchasers were still having difficulties raising finance, and the vendor issued a rescission notice on 30 November 2017. The purchasers obtained an offer from NWC Finance Letter of Offer Pty Ltd (‘NWC’) to provide bridging finance on 21 November 2017, which involved the payment of interest at an onerous rate, and the payment of substantial establishment and ‘administration’ fees once the offer was accepted. The issue of whether the amount of funding available to the purchasers was sufficient to enable the purchasers to complete the purchase of the property is also a key issue in dispute between the parties.

Settlement was tentatively scheduled for 14 December 2017. Two days prior to the anticipated settlement date, on 12 December 2017, Miss Chatham, along with Mr Ron Chatham, and her brother, Mr Bryce Chatham, conducted an inspection of the property. Ms Taplin of RT Edgar was also in attendance. The property was fully occupied by JWRS’s horses, staff and equipment, and there were no signs of any preparations having been made by JWRS to vacate the property. During the course of the inspection, Ms Taplin made enquiries of JWRS’s manager, who confirmed that JWRS did not plan to leave the property for at least another fortnight.

Miss Chatham immediately contacted Ms Luke of BTB, who wrote to RBS seeking confirmation of the cheque payment information for settlement, and confirmation that JWRS would vacate the property prior to settlement. RBS replied almost immediately, stating that the contract of sale expressly provided that the property was subject to a monthly tenancy in favour of JWRS. BTB replied contending that it was clearly in the contemplation of the parties that the purchasers would be provided with vacant possession of the property at settlement, and offered to postpone the settlement date in order to provide JWRS with sufficient time to vacate the property.

On 13 December 2017, there was a further exchange of correspondence between the solicitors for the parties in an attempt to resolve the impasse. However, the vendor refused to extend the period of time for settlement to a date when JWRS could feasibly vacate the property, and the purchasers refused to settle without vacant possession of the property being provided upon settlement.

On 13 December 2017, the purchasers purported to terminate the contract of sale on the basis that the section 32 statement[2] accompanying the contract of sale was deficient, in that neither the section 32 statement or the contract of sale specified the terms of the lease to JWRS. In response, the vendor’s solicitor denied that the section 32 statement was defective, and said that, given that the fourteen day period for remedying the default specified by the rescission notice served on 30 November 2017 would expire on 14 December 2017, the contract of sale would be at an end in the event the purchasers failed to complete the purchase of the property, and the deposit monies already paid (totalling $505,000.00) would be forfeited to the vendor. Subsequent negotiations between the parties later in December and during the early months of 2018 failed to resolve the dispute.
[2]Containing the information required by Part II, Division 2 of the Sale of Land Act.

The reasons for the impasse were understandable on both sides of the transaction. Moving racehorse training operations is an expensive and logistically challenging exercise, particularly given that Mr Cunningham was planning to relocate his horses and staff some 300 kilometres in the middle of the racing season, and the purchasers were concerned that if JWRS refused to leave the property reasonably promptly, they would not be able to generate sufficient income to meet the onerous demands of their financiers. On the other side of the transaction, the vendor must have been concerned about whether the sale would proceed, given that settlement had been postponed twice owing to the difficulties the purchasers had raising finance to complete the purchase of the property, and after sales to at least two other purchasers earlier in 2017 had fallen through. No doubt Mr Warren did not want to go to the trouble and expense of moving the operations of JWRS elsewhere, only to have the sale of the property fall through yet again. The question in the proceeding is where the responsibility for the failed transaction should lie: should the purchasers permanently forfeit the deposit, or should the vendor be forced to disgorge the deposit?[3]
[3]While the vendor asserts that it was entitled to rescind the contract of sale and retain the deposit, the vendor has not made a claim for any losses occasioned by the termination of the contract of sale.

The allegations in the proceeding and the defences relied upon by the vendor are discussed in more detail in the following section of these reasons. A more detailed chronology of relevant events, as derived from the contemporaneous documents and the evidence of the witnesses, follows on after that However, the issues in the proceeding can be summarised as follows:

(1) What was the proper construction of Special Condition 22 of the contract of sale? In particular, should Special Condition 22 be construed as providing that the purchasers, at settlement, would take the title of the property subject to leases in favour of the licensees alone, or also subject to a month to month tenancy with JWRS?

(2) If the contract of sale, properly construed, required the purchasers to take the property subject to a lease to JWRS, have the purchasers established that it was the common intention of the parties that the vendor would provide vacant possession of the property at settlement, such that the purchasers would be entitled to the remedy of rectification?

(3) If either or both of the questions above are resolved in favour of the purchasers, was the purchasers’ loss caused by the refusal of the vendor to provide vacant possession on the proposed date of settlement, or their inability to raise sufficient funds to complete the purchase of the property?

The above issues arise out of what might be described as the purchasers’ contractual claims. The purchasers also claim relief for misleading and deceptive conduct under the Australian Consumer Law (‘ACL’), which requires the resolution of the following issues:

(1) Did the vendor, through its agent, falsely represent to the purchasers that upon settlement of the purchase of the property, the vendor would provide vacant possession of the property?

(2) If yes to (1), did the purchasers rely upon any misrepresentation in entering into the contract of sale and paying the deposit?

(3) If yes to (1) and (2), was the cause of the purchasers’ loss, being the forfeiture of the deposit, the misleading and deceptive conduct of the vendor, or was their loss caused by their own inability to complete the purchase of the property owing to a lack of funding?

Further, the same facts give rise to the following issues:

(1) Did the failure of the vendors to provide full particulars of the lease of the property to JWRS give the purchasers the right to rescind the contract of sale? Resolution of this issue requires consideration of two questions: first, did s 32 of the Sale of Land Act require the vendor to provide particulars of the terms of the lease to the purchasers prior to their entry into the contract of sale, and second, if adequate particulars had not been provided, whether the vendor ought to be excused by reason of s 32K(4) of the Sale of Land Act?

(2) If yes to (1), was it necessary, in order to recover their deposit, for the purchasers to establish that they were ready, willing and able to complete their obligations under the contract of sale?

(3) Alternatively, regardless of the answers to (1) and (2), should an order be made under s 49(2) of the Property Law Act 1958 (Vic) (‘Property Law Act’) for the return of the deposit to the purchasers?

The resolution of the above issues requires analysis of the authorities concerning the proper construction of ss 32, 32C and 32K of the Sale of Land Act, and s 49(2) of the Property Law Act. In the case of the latter provision, which confers upon the Court a discretion to order that a deposit which would otherwise be forfeited to the vendor be returned to the purchaser, it is necessary to consider the authorities concerning the principles governing the exercise of that discretion.

The evidence adduced at trial was relevant to the purchasers’ contractual claims, the question of whether the vendor is liable to the purchasers for misleading and deceptive conduct, and the purchasers’ ability to rely upon s 32K of the Sale of Land Act and/or s 49 of the Property Law Act, although questions of causation loom larger in the purchasers’ contractual claims and their misleading and deceptive conduct claim. However, the relief claimed is identical: the purchasers seek the return of the deposit of $505,000.00, plus interest and costs.

In my view, in summary, the purchasers were entitled to rescind the contract of sale pursuant to s32K(2) of the Sale of Land Act. Alternatively, this would be an appropriate occasion for the Court to make an order pursuant to s49(2) of the Property Law Act. My reasons follow.

The pleadings

This proceeding was issued on 6 June 2018. In their statement of claim (as amended on 1 October 2019 and again on 24 February 2020) the purchasers alleged, in summary, as follows:

(a) during the course of the negotiations, the vendor was represented by Ms Fraser‑Smith from February to March 2017 (when she was with RT Edgar), and June to August 2017 (when she was with Colliers), and by Ms Sayers of RT Edgar from March to June 2017, and in August 2017;

(b) Miss Chatham first contacted Ms Sayers to discuss the possibility of purchasing the property in March 2017, telling Ms Sayers that she wanted to purchase the property so that her business partner, Mr Cunningham, could relocate his horse training business from Wangaratta, and Crestevia would manage the rehabilitation needs of Mr Cunningham’s horses. As such, the purchasers required vacant possession of the property at settlement;

(c) Ms Sayers represented and warranted in March 2017, and again on 16 and 18 August 2017, that upon settlement the licensees would remain on the property, and the vendor would provide immediate vacant possession;

(d) on 19 August 2017, Ms Katie Taplin of RT Edgar represented to Miss Chatham that the vendor would provide vacant possession at settlement;

(e) Ms Sayers and Ms Taplin, as agents of the vendor, knew or ought to have known that the purchasers would rely upon the representations and warranties, and would be induced by them to enter into an agreement to purchase the property;

(f) in reliance upon the representations and warranties, Miss Chatham signed the contract of sale on 19 August 2017, and an amended version of the contract of sale on 21 August 2017;

(g) the representations and warranties referred to above were incorporated into the terms of the contract of sale, and/or were a collateral agreement;

(h) special condition 22 of the contract of sale provided that upon settlement the purchasers were entitled to vacant possession, subject to the licensees’ occupation of the property, and the property was not purchased subject to any lease to JWRS;

(i) alternatively, if upon the true construction of special condition 22 of the contract of sale, the purchasers were not entitled to vacant possession of the property, then special condition 22 did not embody the true agreement between the parties, and ought to be rectified;

(j) in breach of s 32(2) of the Sale of Land Act, the section 32 statement contained false information, or failed to supply all of the information required by that provision, in that it did not fully disclose the encumbrances over the property;

(k) between the delivery of the rescission notice on 30 November 2017 and the expiry of the rescission notice on 14 December 2017, the purchasers obtained finance and sought to settle the purchase of the property;

(l) on 12 December 2017, following an inspection of the property, the purchasers sought confirmation that JWRS would no longer be on the property at settlement;

(m) also on 12 December 2017, the purchasers sought the withdrawal of the rescission notice and the postponement of the settlement date until vacant possession could be provided;

(n) on the same day, the vendor asserted that the contract of sale stated that the property was subject to a monthly tenancy in favour of JWRS, and the vendor was not required to give vacant possession of the property at settlement, and refused to withdraw the rescission notice;

(o) by refusing to provide vacant possession of the property and/or withdraw the rescission notice, the vendor evinced an intention not to be bound by the contract of sale and repudiated the contract of sale, with such repudiation having been accepted by the purchasers on or about 13 December 2017;

(p) alternatively, by reason of the vendor’s breach of section 32 of the Sale of Land Act, the purchasers were entitled to rescind the contract of sale, and to demand the return of the deposits paid to the vendors;

(q) by reason of the representations and warranties made on behalf of the vendor, the purchasers are entitled to the return of the deposit pursuant to s 49(2) of the Property Law Act, or alternatively, damages pursuant to s 236 of the Australian Consumer Law; and

(r) the purchasers were, at all material times, ready, willing and able to complete the purchase of the property.

At trial, the purchasers no longer pressed their initial claim for specific performance of the contract of sale, and confined their claim to damages. On 8 October 2019, the purchasers filed further and better particulars of loss and damage, which was said to include two deposits of $252,500.00 and various sundry expenses. However, no evidence was adduced at trial in support of the sundry expenses claimed in the particulars of loss and damage. At trial, the purchasers sought only the return of the deposit.

In its further amended defence filed on 25 February 2020, the vendor stated as follows:

(a) at all relevant times the property was occupied as follows:

(i) JWRS as to the whole of the property under a month to month tenancy;

(ii) Ms McDonald on a month to month sub-tenancy from JWRS of part of the property consisting of a dwelling and eight stables; and

(iii) Mr Andrews on a month to month sub-tenancy from JWRS of part of the property consisting of sixteen stables, an office and additional stables on an ‘as required basis’;

(b) the vendor’s instructions to Ms Sayer were that JWRS would remain on the property on a month to month basis, as it would take time for JWRS to vacate the property and relocate its operations;

(c) if Ms Sayers made the representations and warranties alleged in the amended statement of claim, Ms Sayers acted outside the scope of her agency as an employee of RT Edgar;

(d) the contract of sale contained an express term that the contract of sale is the sole repository of the agreement between the parties;

(e) the contract of sale contained an express acknowledgement on the part of the purchasers that the property is currently tenanted on a month to month basis by JWRS, along with the licensees;

(f) the collateral agreement alleged by the purchasers (referred to at paragraph 22(g) above), insofar as it purports to include the alleged oral representations and warranties, was not in writing as required by s 53(1)(a) of the Property Law Act and s 126 of the Instruments Act 1958 (Vic), and is therefore unenforceable;

(g) the true agreement between the parties was set out in the contract of sale, and thus the purchasers are not entitled to rectification of Special Condition 22 of the contract of sale;

(h) the vendor provided details of the encumbrances upon the property in the section 32 statement and the contract of sale delivered with the section 32 statement;

(i) the vendor admitted that BTB had requested settlement arrangements be put in place for 14 December 2017. However, the vendor stated as follows:

a.The Plaintiffs at no time provided the Defendant with evidence that the Plaintiffs were in a position to complete settlement on 14 December 2017;
b.The Plaintiffs at no time provided the Defendant with evidence that the Plaintiffs had obtained alternative finance that would have meant that the Plaintiffs could have completed settlement on 14 December 2017;
c.On 6 December 2017 by email from By the Bay Legal & Conveyancing to Roberts Beckwith Partners the Plaintiffs requested an extension of the rescission date by requesting a further indulgence of time;
d.On 6 December by email from Roberts Beckwith Partners to By the Bay Legal & Conveyancing the Defendant refused to grant any indulgence of time and advised that the timeframe set out in the rescission notice stood.

(j) it was not a condition of the sale of the property that the vendor provide vacant possession to the purchasers at settlement, and the vendor was not obliged to withdraw the rescission notice;

(k) by BTB Legal’s letter of 13 December 2017, the purchasers evinced an intention to no longer be bound by the contract of sale. The purchasers were not ready, willing and able to settle the purchase of the property because they had not yet obtained finance to complete the purchase, and as such were prevented from rescinding the contract of sale;

(l) the vendor did not supply false information to the purchasers, and/or did not fail to supply all information required to be supplied under s 32(2) of the Sale of Land Act;

(m) alternatively, the vendor ought fairly be excused for any contravention of s 32 of the Sale of Land Act pursuant section 32K(4) of the Sale of Land Act, as it had acted honestly and reasonably, and the purchasers are in substantially as good a position as if all of the relevant provisions of section 32 of the Sale of Land Act had been complied with;

(n) as the purchasers had not remedied the default specified in the rescission notice, the contract of sale came to an end, and pursuant to General Condition 28.4 of the contract of sale, the amount of the deposit up to ten per cent of the sale price was forfeited to the vendor; and

(o) the purchaser’s claim was an apportionable claim against Ms Sayers, Ms Taplin, and RT Edgar (‘real estate agents’) under s 87CB of the Competition and Consumer Act 2010 (Cth).

As noted above, the vendor in its defence pleaded that the purchasers’ claim against it was an apportionable claim, such that any award of damages in favour of the purchasers should be reduced to reflect claims they may have against the real estate agents. On 29 March 2019, the vendor filed a third party notice against the real estate agents, claiming that if the real estate agents had represented or warranted to the purchasers that the property would be provided with vacant possession at settlement, the agents had breached the terms of their retainer, were negligent, and/or had misrepresented the true position to the vendor. In their defence to the third party notice filed on 13 May 2019, Ms Sayers and Ms Taplin;

(a) denied representing to the purchasers in March 2017 that JWRS would provide immediate vacant possession of the property upon settlement;

(b) admitted that on 16 August 2017, Ms Sayers told Miss Chatham that JWRS would vacate the property at settlement, saying further that on 16 August 2017, Mr Warren told her that JWRS would vacate the property at settlement;

(c) denied that Ms Taplin made any representation or gave any warranty to Miss Chatham on the day that she signed the contract of sale;

(d) said that on 19 August 2017, prior to Miss Chatham signing the contract of sale, Ms Taplin referred Miss Chatham (and her father and brother) to Special Condition 22 of the contract of sale; and

(e) denied that any conduct on their part which was likely to mislead or deceive.

The third party proceeding was resolved at or shortly after a judicial mediation held on 22 October 2019, on terms which required Ms Sayers and Ms Taplin to give evidence at trial on behalf of the vendor, and for the vendor to make a substantial contribution to the legal costs incurred by the real estate agents in the proceeding. While the vendor’s defence to the effect that the purchasers’ claim was an apportionable claim remained as part of the vendor’s pleaded case, this submission was not actively pressed at trial. Given the evidence ultimately adduced at trial, this was a claim which could not have been responsibly pressed.

The Contract of Sale

The contract of sale was prepared by RBS, and was forwarded by RBS to Miss Chatham in draft form on 17 August 2017, agreement on price not being reached until 18 August 2017. After agreement upon the price of the property was reached, Ms Sayers sent Ms Taplin an email with a ‘clean’ copy of the contract of sale. There was one minor change to the draft contract of sale in the final version of the contract of sale: the reference to the rental being paid by one of the licensees, Mr Andrews, in Special Condition 22.2(d) was changed from $1,650.00 per month to $650.00 per month. It was never suggested that this change was material.

Special Condition 22 is, for present purposes, the critical clause in the contract of sale. Special Condition 22 provides as follows:

22. Tenancies
22.1The purchaser acknowledges and accepts that the property is currently tenanted on a “month to month” basis by Jason Warren Racing Stables Pty Ltd. No written tenancy agreement or lease is available.
22.2The purchaser acknowledges and accepts that parts of the property are sub-let by Jason Warren Racing Stables Pty Ltd on month to month tenancies (“the subtenancies”), the details of which are:
22.2(a)A dwelling to Amy McDonald (also known as Amy Homer) at a current rental of $400.00 per week;
22.2(b)8 Stables to Amy McDonald (also known as Amy Homer) at current rental of $10.00 per day per stable
22.2(c)16 stables of Trevor Andrews at a current rental of $9.00 per day per stable;
22.2(d)Office to Trevor Andrews at a current rental of $650.00 per month; and
22.2(e)Additional stables on an “required basis” to Trevor Andrews at a rental of $9.00 per day per stable.

22.3If any of the current sub-tenants vacate the property prior to or at settlement, the Purchaser will accept the property with vacant possession of those sub-tenancies and not subject to lease. The Purchasers will make no claim against the Vendor, nor take any action or make any demands for or require compensation in the event that any or all of the sub-tenants vacate the property prior to or at settlement.
22.4The Purchaser acknowledges that no written agreement or Lease is available with respect to any of the sub-tenancies.
22.5The Purchaser must provide any or all (as the case may be) of the sub-tenants with at least sixty days’ notice, in writing, of its requirement for determination of the sub-tenancies and vacant possession to be provided of any parts of the property which are sub-let.

Special Condition 22 is also referred to in the section of the contract of sale headed “Particulars of Sale”. Under the heading “Lease” (general condition 1.1), the following appears:

At settlement the purchaser is certified to vacant possession of the property under the words “subject to lease” appear in this box in which case refer to general condition 1.1

Adjacent to this paragraph is a text box including the following words in bold type:

Subject to lease – refer to Special Condition 22.

The paragraph under the heading ‘Lease’ also includes the following:

‘If “subject to lease” then particulars of the lease are:
Refer to Special Condition 22’

As can be seen from the above, Special Condition 22.1 refers to a monthly tenancy of the property in favour of JWRS. However, Special Condition 22.1 does not refer to the rental payable by JWRS. This is in contrast with the particulars provided with respect to the sub‑tenancies of the licensees in Special Condition 22.2. The terms of Special Condition 22.3 can be understood in the context of the purchasers’ desire to acquire the property as a going concern: while the purchasers were bound to accept the property subject to the sub‑tenancies of the licensees, the purchasers also accepted the risk of the licensees vacating the property before settlement, thus potentially exposing them to the liability to pay GST on the purchase price.

General Condition 1.1 of the contract of sale provides as follows:

1. ENCUMBRANCES
1.1 The purchaser buys the property subject to:
(a)any encumbrance shown in the section 32 statement other than mortgages or caveats; and

(b) any reservations in the crown grant; and
(c) any lease referred to in the particulars of sale.

General Condition 13.5 of the contract of sale provides as follows:

If the particulars of sale specify that the supply made under this contract is a ‘going concern’:
…
(c)the vendor warrants that the vendor will carry on the going concern until the date of the supply.

General Condition 16.1 of the contract of sale provides that:

Time is of the essence of this contract.

General Condition 21 of the contract of sale provides as follows:

21. Due Diligence
The purchaser acknowledges that no warranties or representations have been made by the vendor to the purchaser as to the following issues and that it has had the opportunity to undertake a full due diligence investigation in relation to the property and land including, but not limited to each and any one or more of the following:
a. the title to the land including all encumbrances;
b.the accuracy of the extent and identity of the land, its boundaries, extensions and encroachments;
c.that the land includes improvements, chattels, fixtures or fittings on the land;
d.ownership of any improvements, chattels, fixtures or fittings on the land;
e.the occupation of any part of the land by any person including leases, licences and other rights of occupancy including periodic site occupancies in relation to the land or any part;
f. the value, condition and/or state of repair of the land;
g.the present and future economic feasibility, viability and economic return from the land;
h.the suitability of the land for any particular use or purpose;
i.the zoning of the land;
j.the availability of any utilities of the land;
k.compliance with any environmental laws;
l.the existence of any claim under any or all Acts and Regulations (whether Commonwealth or State) with respect to the land;
m.any other matter relating to the land a prudent purchaser would investigate prior to committing to purchase of the land;
n.this contract is the sole repository of the agreement between the parties;
o.there are no terms, conditions, representations or warranties relating to the sale of the land and property including any information or materials provided to the purchaser by the vendor which have been relied upon by the purchaser in entering into this Contract except those included in this Contract;
p.it shall not be entitled to make any claim against the vendor in respect of any alleged shortfall in income, deficiency in documentation or any other claim which may be made either by the purchaser after the day of sale against the vendor in relation to any occupation of the land arising whether or not disclosed by the vendor to the purchaser;
q.it enters into this contract in reliance solely on its own opinion, estimation, examination, inspection, inquiry, valuation and perusal and not on any materials given or made available to it or statement, warranty, condition or representation whatsoever made or alleged to be made to the purchaser or any person acting on the purchaser’s behalf by the vendor or any person acting on the vendor’s behalf and consequently is not entitled to make any requisition or claim any compensation in respect of the issues identified in this Special Condition;
r.it accepts the land and property in its present condition and state of repair and otherwise on an “as is where is” basis;
s.it cannot terminate this Contract, delay settlement, deduct or retain any amount from the price or delay the payment of the price or make any objection or claim any compensation by reason of any matter referred to in this Special Condition.

Special Condition 3 of the contract of sale provides as follows:

3. Whole Agreement
(a)the Purchaser acknowledges that the Vendor’s Agent (if any) has acted only as the Agent of the Vendor and no information representation or warranty of the Vendor or its Agent was made with the intention or knowledge that it would be relied upon and that no such information representation or warranty has in fact been relied upon and it is further agreed that this Contract of Sale and the original Vendor’s Statement (a copy of which is included in this Contract of Sale) are the sole and full repository of the agreement between the Vendor, its Agent, and the Purchaser;
(b)it is hereby agreed between the parties hereto that there are no conditions, warranties or other terms affecting the sale other than those embodied herein and the Purchaser shall not be entitled to rely on any representations made by the Vendor or its agents except such as are made concerning this Contract.

Special Condition 4 of the contract of sale provides as follows:

4. Severability
In the event of any part of this Contract being or becoming void or unenforceable or being illegal then that part shall be severed from this Contract to the extent that all other parts shall not be or become void or unenforceable or illegal but shall remain in full force and effect and shall be unaffected by such severance.

Chronology of events
The witnesses

The purchasers called for four witnesses: Miss Chatham, Mr Cunningham, Miss Chatham’s brother, Mr Bryce Chatham, and her father, Mr Ronald (Ron) Chatham. The vendor called Ms Vicki Sayers and Ms Katie Taplin of RT Edgar. The principal of both the vendor and JWRS, Mr Jason Warren, did not give evidence, despite being present in Court throughout the course of the trial. The parties relied upon a number of documents in an agreed court book, which was augmented during the course of the trial. There was only one significant document where there was a dispute as to its authenticity: an email said to have been sent from Miss Chatham to Ms Sayers on 28 March 2017, which was relied upon by the purchasers to support their allegation that as early as March 2017 the vendor represented to the purchasers that it would provide vacant possession of the property at settlement. Ms Sayers disputes receiving this email.

Prior to turning to the detailed chronology of events, the following section provides a ‘thumbnail sketch’ of the witnesses and their roles in the transaction.

As noted above, Miss Chatham is a director of Crestevia, and signed the contract of sale on 19 August 2017. At the relevant time, she also owned a residential property in Leggatt Crescent, Mt Martha (‘Leggatt Crescent property’). She is an animal nutritionist by profession. She was closely involved in the negotiations between the purchasers and the vendors prior to the execution of the contract of sale. While she made the Leggatt Crescent property available as security for the purposes of obtaining finance to complete the purchase of the property, she seems to have less involvement in the process of obtaining finance than Mr Cunningham.

Mr Cunningham is a horse trainer, and at the relevant time, was Miss Chatham’s partner, and a director of Crestevia. Mr Cunningham was also involved in the negotiation of the purchase of the property, and took the lead role in obtaining finance for the settlement of the purchase.

Mr Cunningham lives and works in Wangaratta. In 2017, he wanted to shift his horse training business to the Mornington Peninsula for business and personal reasons. At the time, he had about fifty horses in training with various owners, and some brood mares. He had just purchased a stallion, and was beginning to get involved in horse breeding. He had a total of approximately seventy horses. His business also employed four full‑time staff, all of whom were prepared to relocate prior to the purchase of the property falling through.

Mr Ron Chatham is Miss Chatham’s father. He is a retired businessman, having sold his packaging and thermoforming business and factories in 2010. He is financially comfortable, having assets of a ‘few million dollars’, including cash, shares, property, and superannuation. He provided the purchasers with the funds for the first deposit of $252,500.00.

Mr Bryce Chatham is Miss Chatham’s brother. His occupation is unclear, but at the relevant time he owned a property in Kilsyth which he made available to secure finance to settle the purchase of the property. The purchasers planned to engage him as the on‑site property and maintenance manager once they moved onto the property.

Ms Vicki Sayers has been a licensed real estate agent since 2013, but had worked in real estate for many years prior to that. She was involved in negotiating the sale of the property on behalf of the vendor in March 2017 and again in August 2017. She also was involved in trying to achieve a resolution of the dispute between the vendor and the purchasers in December 2017.

Ms Taplin has worked in real estate as an office manager and as an agent’s representative. In August 2017, she was Ms Sayers’ personal assistant, helping her in ‘non‑dollar productive activities’, such as putting out advertising boards, attending photograph sessions, and taking names and telephone numbers at inspections. Ms Taplin’s role did not involve providing advice, negotiating terms, or closing deals.

Credit did not loom large in this case. There was only one matter of significance which would cause me to doubt the credibility of the purchasers: the putting into evidence of an email of doubtful provenance (see the discussion at paragraph 204 below). However, there were relatively few factual disputes between the parties, and many of the communications and negotiations between the key players in the transaction were recorded in emails and text messages. While to some extent the evidence of the purchasers was slightly coloured by what might be described as hindsight bias, they gave their evidence in a frank and fulsome manner, with any lapses in memory or confusion about dates explicable by the lapse in time between the relevant events and the time of the trial, and the fact that the negotiations and transactions took place over an extended time frame. Their evidence was generally, if not completely, consistent with the contemporaneous documents, and any doubts I have regarding the provenance of an individual document does not cause me to reject the entirety of the evidence they gave at trial.

As for the other witnesses called by the purchasers, Mr Bryce Chatham and Mr Ron Chatham, despite adopting outlines of evidence which lent support to Miss Chatham’s version of events as to what occurred at the meeting with Mr Taplin on 19 August 2017, they freely admitted at trial that they had no real recollection of what transpired in the course of that meeting. That said, I have no real cause to doubt the veracity of the limited evidence of relevance they were able to give.

Ms Sayers gave extensive evidence at trial. While she gave evidence on behalf of the vendor in accordance with an agreement with the vendor which resolved the third party proceedings, I do not consider that she was a partisan witness. She had quite a good recollection of the relevant events given the lapse of time between the negotiations in early to mid‑2017 and the trial, and freely admitted when she did not recall a date, a conversation, or an event. She was an impressive witness, and to the extent there is any conflict between her evidence and that of Miss Chatham or Mr Cunningham (and the areas of conflict are quite limited), I prefer Ms Sayer’s evidence. This is not to suggest that either of Miss Chatham or Mr Cunningham gave deliberately false evidence but again, in some respects, their evidence was coloured to some extent by ‘hindsight bias’.

Similarly, I did not consider Ms Taplin to be a partisan witness. Her recollection of her involvement in the transaction was limited, but I accept her evidence that she would not have strayed from the limits of her role and authority in her dealings with the purchasers.

The purchasers submitted that I should draw a Jones v Dunkel[4] inference from the unexplained failure of the vendor to call its principal, Mr Jason Warren, to give evidence. Matters upon which one could expect Mr Warren to give evidence include, but are not limited to, the following matters:
[4](1959) 101 CLR 298.

(a) his discussions with Ms Sayers, and possibly Mr Cunningham prior to 19 August 2017 regarding whether JWRS would depart the property prior to or at settlement;

(b) what arrangements (if any) JWRS had made to depart from the property prior to settlement, and, if he had made any such arrangements, why those arrangements did not proceed;

(c) if he had intended that JWRS would vacate the property at settlement, what caused him to change his mind; and

(d) possibly, what concessions he was prepared to make to salvage the transaction after the purchasers’ inspection of the property on 12 December 2017.

Given Mr Warren’s pivotal role in the transaction and his presence in Court throughout the trial, and given the fact that, in its defence, the vendor denied that any of the representations were made, contrary to the evidence of Ms Sayers, I am prepared to draw an inference that Mr Warren’s evidence on the above matters would not have assisted the vendor’s case. However, in doing so, I am mindful not to deploy such an inference in a manner which would fill any gaps in the evidence relevant to the issues in the proceeding.

However, I am not so minded to draw such an inference from the failure of the purchasers to call Ms Luke of BTB to give evidence. I accept the purchasers’ submissions to the effect that they were not on notice of the vendor’s contention that Ms Luke’s inclusion of a rental amount for JWRS in the draft statement of adjustments prepared on 5 December 2020 and sent to RBS on 11 December 2017 amounted to an admission on the part of the purchasers that JWRS would continue to occupy the property after settlement, such that the purchasers would have been aware of the necessity to call Ms Luke to give evidence as to why she included this information in the draft statement of adjustments. It is apparent from the documents in evidence that she did so on the basis of the information provided to her by RBS.

The following chronology of events is derived from the documents in the court book and the oral evidence of the witnesses. The (relatively few) occasions where the evidence is in dispute are noted.

March to July 2017

Miss Chatham first saw the property advertised on the realestate.com.au website while searching for a property to accommodate the purchasers’ businesses. The purchasers needed acreage, at least forty stables, sheds for Miss Chatham’s animal nutrition business, training tracks, paddocks for brood mares and foals, and a pool for rehabilitation.

On 16 and 17 March 2017, there was an email exchange between Miss Chatham and Ms Fraser‑Smith of RT Edgar regarding the features of the property, including the tenancy of Mr Andrews, and the indicative price of the property.

The purchasers first inspected the property on or about 27 March 2017. According to Miss Chatham, one of the attractions of the property was that they could move Mr Cunningham’s horses in straight away, because it would be difficult to train horses in Wangaratta more than three hours away. The property also had accommodation available for those of Mr Cunningham’s staff who would be relocating from Wangaratta. She had done some due diligence to confirm with the local council that it would be possible to reinstate veterinary certification to enable the use of the property to rehabilitate horses and dogs.

Miss Chatham said that Ms Sayers of RT Edgar and Mr Andrews were present during the purchasers’ first inspection in March 2017. Miss Chatham gave evidence that Ms Sayers asked the purchasers what they wanted to do with the property, and the purchasers told her that the horses would need to move on when the purchasers took over the property. Ms Sayers’ evidence as to the discussions she had with Miss Chatham at that time was consistent with Miss Chatham’s evidence. Miss Chatham also gave evidence that she was present at a meeting between Mr Cunningham where they discussed the possibility of JWRS leasing part or all of the property after settlement.

After the first inspection, Miss Chatham spoke with Ms Sayers, telling her that the purchasers needed to take over the property as a going concern in order to secure an exemption from paying GST on the purchase price. Her father’s accountant had advised her that there needed to be a lease of the property in place in order for the purchasers to claim a GST exemption. Ms Sayers told her that Mr Andrews was willing to stay on, and was interested in taking on some more stables. She told Ms Sayers that the purchasers would be happy for Mr Andrews to stay on, but was concerned that he was being investigated for cobalt doping.

On 27 and 28 March 2017, there was an exchange of emails between Miss Chatham and Ms Sayers regarding the property, including the following:

(a) information regarding the rent payable by Mr Andrews;

(b) Ms Sayers said that the vendor would be interested in a lease back arrangement for approximately $20,000.00 per month; and

(c) the facilities and utilities available at the property.

Miss Chatham said that she wanted to make sure the property was sold with vacant possession (save for Mr Andrews, and later, Ms Amy McDonald). Ms Sayers told her that there was someone interested in leasing the property at $20,000.00 per calendar month, but the purchasers were not interested in leasing out the property, as they needed the main stables and the machinery shed for their operations. Ms Sayers told her that she had spoken to Mr Warren and he was going to leave the property. Mr Andrews would stay, but it would be the purchasers’ responsibility to prepare a licence agreement with him.

Included in the court book was an email from Miss Chatham to Ms Sayers on 28 March 2017 at 11.06 am, which stated as follows:

Hi, Vicki,
Thank you for the confirmation regarding the $20,000 a month. Thank you for confirming via phone call today that he will be departing prior to settlement as per agreed, sounds terrific where he has a place to move to.
Obviously same with Trevor as if he is formally charged by the stewards for the Colbat [sic] testing investigation with a hearing coming up very soon, then by law he isn’t allowed on any registered racing properties til his licence is returned.
Thanks
Lucrezia
Sent from my iPhone

Curiously, the court book also included another email sent by Miss Chatham to Ms Sayers from her iPhone at 11.06 am, which stated as follows:

Hi Vicki,
With Jason wanting Vendor lease what does the $20k per month cover ie; how many stables, which accommodation, office, use of pool etc….
Is there a written lease in place with Trevor?
You had some costing options can you please send them through.
Also can you please verify the works in regards to the accommodation repairs that were mentioned and the additional things that were put in that can view certificate of qualification to do these things. Plumbing, electric etc…
Kind regards
Lucrezia
Sent from my iPhone

Ms Sayers replied as follows:

Hi Lucrezia,
The lease options that I have available were options if someone wanted to own the property, live in the main residence and maintain the property and prorate the power costs. In the event, that the current owner leased back then he would be responsible for maintenance eg. Fences etc and all power and running cots.
The $20k approx.. per month would be for the entire property. See attached options which exclude main house and middle paddocks.
As mentioned Trevor is there on a month to month basis not a lease.
It is my understanding that a certificate of compliance is only required for plumbing and electrical works on construction not maintenance.

Ms Sayers denies receiving the email reproduced at paragraph 63 above, and there is no reply to that email in the court book. Prior to the trial, the solicitors for the vendor served a Notice to Produce seeking an electronic copy of the email chain of which this email formed a part, but nothing was ever produced by the purchasers. Further, Ms Sayers denied Miss Chatham had told her in March 2017 that the purchasers would need vacant possession of the property. Rather, what was being discussed was the lease of part or all of the property back to JWRS, as the purchasers did not need all of the accommodation on the property. Various rental options were put forward by the vendor, and were open to all prospective buyers, including an option for the purchasers to take possession prior to settlement.

There was no written record of any further communications after the exchange above until 12 May 2017, when Ms Sayers sent Mr Cunningham a text message asking him to submit an offer for her to discuss with Mr Warren. However, Mr Cunningham gave evidence that he had discussions with Ms Sayers over the course of some months, during which Ms Sayers put forward a number of scenarios for the use of the property that she believed the vendor would accept. It appears that there was a further inspection of the property by one or both of the purchasers on or about 26 May 2017, and a meeting between Mr Warren and Mr Cunningham during the course of the inspection, during which there was a discussion of a lease back option. During this period, other potential buyers also made offers to purchase the property.

On 31 May 2017, Mr Warren sent Ms Sayers a text message regarding another potential purchaser, as follows:

I’ve had a think about it I will take 4.8 with 12 months rent free or 5 with vacant possession otherwise I am happy to stay here.

Also on 31 May 2017, the purchasers made a formal offer to purchase the property for $4.1 million with a lease or licence agreement in place in favour of the vendor. This offer was subsequently revised (on 6 June 2017) to $4.5 million, with the vendor to have a confidential subsidised rental for six months after settlement. The covering letter sent by Miss Chatham, but signed off by Mr Cunningham, stated as follows:

Good afternoon Holly & Vicki,
Please find attached reviewed (sic) offer.
In regards to the lease/license agreement with Jason I would like to sit down to nut out the last small nooks & crannies with Jason and are available from 1pm this Friday onwards, all day Saturday and up till 3pm Sunday. So please let me know a time that Jason would like to meet.
I sincerely understand how hard sudden moves can be especially with young children etc. so am only to [sic] happy to discuss the ongoing with Jason his need for staying in his current accommodation.
I look forward to working with you all to finally put together this sale.
One important thing in the meantime could you email through to Lucrezia ([email protected]) a full section 32 as well as all the supporting documents for the ‘going concern’ which includes the depreciation schedule of all the equipment so that Accountant etc can review.
with regards
Steven Cunningham

However, on or about 7 June 2017 the vendor entered into an unconditional contract of sale with another purchaser for $5.0 million, which once again fell through shortly afterwards.

Miss Chatham gave evidence that she dealt with another real estate agent (Ms Fraser‑Smith of Colliers) in June and July 2017. The vendor sought an unconditional offer of $5.0 million, on the basis that JWRS would vacate the property immediately, the licensees would stay, and Mr Cunningham would move his horses onto the property and pay $20,000.00 per month until settlement. These terms were recorded in a draft contract of sale prepared by Melville Lawyers and sent to Miss Chatham on 29 June 2017. In the covering email attaching the draft contract of sale, Ms Fraser‑Smith stated as follows:

Hi Lucrezia,
Contract of sale and section 32 attached.
The special conditions need to be drafted by your solicitor and encompass the following:
The vendor will allow the purchaser to take possession of the property from the day the deposit has cleared into the bank account under a formal Licence Agreement (the cost of the licence agreement will be bourne (sic) by the purchaser). However, the stable rental from the breaker in the rear stable block will continue to be paid to the vendor up until settlement. In addition to this the purchaser must supply to the vendor a certificate for public liability insurance for a sum not less than 10m.
In return the purchaser may occupy the property free of charge for the period up until settlement.
The list of equipment will be sold separately and in addition to the purchase price.
Can you look at all of this and come back to me with your confirmation/suggestions.

Miss Chatham replied later that day, as follows:

Hi Lisa,
Straight off the bat, the contract needs to be redone because it says plus GST which is not correct.
It should be sold as a going concern.
This needs to be rectified ASAP for Louise our lawyer to get the other things done.
Thanks,
Lucrezia.

Following a further exchange of emails between Miss Chatham and Ms Fraser‑Smith regarding amendments to the contract of sale, on 10 July 2017 Miss Chatham sent Ms Fraser‑Smith an email, as follows:

Good morning Lisa.
Can you please check the special conditions wording.
Please find below wording of the special conditions:
1.        The vendor will allow the purchaser to take possession of the property with no rent charged until settlement date from the (nominate a day perhaps two days after payment of deposit) under a formal Licence Agreement. The purchaser will be liable for the vendor’s cost of preparing the licence agreement fixed at ??? (Lisa can find this out prior from vendors solicitor).
2.        The purchaser will remain liable for payment of rates as of the date of settlement, not date of possession.
3.        The purchasers acknowledge that the stable rental for $9000/mth which includes the 16 stable rear block plus the attached office and including use of facilities plus outgoings from the breaker, as well as trainer Amy who has the managers house at $1733/mth and 5 stables $2479/mth including use of facilities plus outgoings will continue to be paid to the vendor up until settlement. Then new licence agreements will be signed up with Purchaser and Licencee. (sic)
4.        Prior to taking possession under the licence agreement, the purchaser agrees to supply the vendor with a certificate for building insurance and public liability insurance for a sum not less than 10m.
6.        The vendor agrees that the caveat lodged on the property will be either withdrawn prior to settlement or a withdrawal of caveat will be provided at settlement, and until which time such withdrawal is provided, the purchaser will be at liberty not to settle with the vendor under the contract, and will not incur any penalties by reason of the vendors delay.

On 14 July 2017, both Miss Chatham and Mr Cunningham signed a copy of the contract of sale, with a price of $5.0 million, with a $10,000.00 non‑refundable deposit, the balance of the $500,000.00 deposit being payable by 25 July 2017, with the purchasers to pay $9,000.00 per month by way of rental, and subject to the ongoing tenancy of Ms McDonald. However, this offer was not accepted by the vendor.

August 2017

Miss Chatham gave evidence that further negotiations for the purchase of the property took place in August 2017, at first with Ms Fraser‑Smith and then with Ms Sayers. By this stage, there was no longer a proposal on foot for Mr Cunningham to move his horses onto the property prior to settlement.

Most of the discussions between Miss Chatham and Ms Sayers took place by text message or email, as there were some communication difficulties caused by Ms Sayers’ daughter having surgery after a skiing accident. Mr Warren came back at the last moment wanting $5.1 million. The price ultimately agreed was $5.05 million. She understood that JWRS was still going to be leaving the property at settlement, with Mr Andrews and Ms McDonald staying on the property to meet the going concern requirement. Miss Chatham gave evidence that Ms Sayers told her this on several occasions, including during the course of a telephone conversation on 18 August 2017 while she was volunteering at the local bowls club and Ms Sayers was travelling to the snowfields. A draft contract prepared by RBS was emailed to her, but she could only read it on her phone, and there was a big ‘draft’ watermark over the document. She glanced at Special Condition 22 and took note that Mr Andrews and Ms McDonald would remain, and noted how much rent they would be paying. She told Ms Sayers that she could not print out the contract of sale, and arrangements were made for Ms Taplin to deliver a hard copy to her on 19 August 2017.

The communications between Ms Sayers and Mr Cunningham on 16 and 17 August 2017, which were largely by text message, were quite fraught, with Mr Cunningham threatening to walk away from the transaction on a number of occasions.

Mr Cunningham gave evidence that he saw the contract of sale both before and after it was signed. He is sure that he would have read it had it been emailed to him. The term ‘subject to lease’ did not ring any alarm bells, because he always understood that JWRS would vacate the property by settlement, as he had been told so by Ms Sayers. Further, Mr Warren asked him whether he wanted to purchase some farm implements from him: there was no reason why he would have offered to sell equipment if JWRS was going to remain on the property. This offer was made about four to six weeks after the contract of sale was signed.

Ms Sayers gave evidence that she did not recall telling Mr Cunningham that JWRS would be vacating the property at settlement, but she does not deny it, as that was consistent with her instructions from the vendor. On 17 August 2017, prior to agreement being reached upon price, Ms Sayers sent the following email to Sandrah Scott of BTB:

Hi Sandrah
The buyer has requested the contract read, going concern, hence keeping Trevor & Amy. They sought advice that if vendor does not stay and they were told this is fine if the sub leases are transferred to the new purchasers.
Regards Vicki

Ms Sayers said that the purchasers’ advice that it would be okay if the vendor did not remain on the property after settlement (presumably for the purpose of the GST exemption) did not come from her, the purchasers had that advice from elsewhere. She asked RBS to send the section 32 statement directly to Miss Chatham.

There was also evidence of correspondence between Ms Sayers and Mr Warren during this period. On 10 August 2017, Ms Sayers sent Mr Warren a text message saying that Mr Cunningham had provided an offer the previous evening and had a bank cheque ready. However, on 15 August 2017, Mr Warren told her that he wanted all communications regarding negotiations with potential purchasers and contractual matters to go through his solicitors, RBS, which Ms Sayers found inconvenient. Ms Sayers did not receive a signed authority for RT Edgar to sell the property until 16 August 2017, and the purchasers, Mr Cunningham in particular, were getting impatient with the delay.

The sale authority signed by the vendor on 16 August 2017 provided an estimated selling price of $5.0 to $5.2 million, and stated, among other things:

The property is being sold with vacant possession subject to a tenancy as to part.

The words “as to part” were a handwritten addition to the typed sale authority.

Also on 16 August 2017, there was an exchange of text messages between Ms Sayers and Mr Warren, including the following exchange, commencing with Mr Warren:

I will take 5.1 from Steve for the sake of completion otherwise I will sit and wait. I think there is still enough interest in the property from other parties to achieve more than that.
Do you have preference for lease arrangements with Steve. Are you ok with 5% deposit & preferred settlement date? I have left voice messages for SA buyer & emailed his sister in law who looked over previous contracts.
If Steve is happy to keep Trevor on as a tenant that is good. I’m happy to leave the property with vacant possession … 5% deposit is fine on signing I can do 60 days settlement … there is no room for him to start moving anything in before settlement though …
They have agreed to a decision tomorrow. Happy with Trevor as a tenant, happy with 60 days but can do sooner if you would prefer. $5,000,000 with $250,000 on signing & understand no moving anything in before settlement. Cheers, Vicki.

On 16, 17, and 18 August 2017, Ms Sayers exchanged text messages with Miss Chatham, largely concerning the price to be paid for the property. At 1.00 pm on 16 August 2017, Ms Sayers sent the following text message to Miss Chatham:

Hi Lucrezia
Steve said he is out at $5m. Jason has said because he offered $5.2m previously[5] he doesn’t want to accept this. However Jason will sell today to you at $5.1 m 5% deposit 60 days and keeping Trevor on. He is prepared to give you first option. What are your thoughts?
Regards Vicki

[5]An exchange of text messages between Mr Warren and Ms Sayers suggests that Mr Warren believed that the purchasers were behind another offer made to him via a buyers’ agent. Little turns on that matter for the purposes of resolving the issues in this proceeding.

She also exchanged text messages with Mr Cunningham to the effect that she could not accept any offer the purchasers made until the vendor had provided them with a signed section 32 statement. The vendor was waiting upon advice from an accountant prior to finalising the section 32 statement, which was ultimately completed on the afternoon of Thursday, 17 August 2017.

On Friday, 18 August 2017, Ms Sayers received the section 32 statement signed by the vendor and the draft contract of sale from RBS, along with a letter seeking to renegotiate the commission payable to RT Edgar.[6] This was the first occasion upon which Special Condition 22 had been brought to her attention. She made arrangements for her personal assistant, Ms Taplin, to take a hard copy of the contract of sale to Miss Chatham for signing, as she would be away at the ski fields that weekend. She instructed Ms Taplin to draw Special Condition 22 to the purchasers’ attention. By that time, she had no authority to negotiate terms: they had already been agreed. All that Ms Taplin was instructed to do was to show Miss Chatham where to sign and initial the contract of sale, and to point out Special Condition 22 to Miss Chatham, as requested by BTB.
[6]This request caused some consternation on Ms Sayers’ part, but the dispute between the vendor and RT Edgar is not material to the issues in this proceeding.

Ms Sayers also gave the following evidence:

(a) most of the communications between her and the purchasers were about price and the size of the deposit, but she is certain that she told them that the vendor would provide vacant possession at settlement. She was not sure whether that was in a telephone conversation or via text message, but that communication occurred prior to the provision of the section 32 statement to the purchasers on 17 August 2017;

(b) she did not discuss the contents of the section 32 statement with the purchasers. The only change in Special Condition 22 between the draft and the final versions of the contract of sale was the rental to be paid by Mr Andrews: a reduction from $1,650.00 per calendar month to $650.00 per month, which she thought should be pointed out to the purchasers;

(c) she did not recall telling Mr Cunningham that JWRS would not be on the property at settlement. She did recall having a conversation with Mr Warren as to whether he could vacate the property within sixty days, given the size of JWRS’s operation. She also recalled having a discussion with Mr Warren where he told her that he was looking at a property that he was going to buy, and

(d) most of her discussions with the purchasers on Friday, 18 August 2017 were concerned with the logistics of getting the contract of sale signed, but she knew by that time that the purchasers were planning to move onto the property after settlement, and she believed that she had informed Mr Warren of the purchasers’ intention in that regard.

Miss Chatham gave evidence that Ms Sayers told her to get the deposit ready, and she visited the bank on Friday, 18 August 2017 with her father, as the funds for the deposit were coming from a trust fund controlled by him. Also on Friday, 18 August 2017, Ms Sayers sent her an email asking her to complete the draft contract of sale with an offer of $5.05 million.

Miss Chatham gave evidence that she emailed a copy of the draft contract of sale to Ms Luke at BTB, but Ms Luke was away. She did not hear back from Ms Luke until after the contract was signed, when Ms Luke verified the particulars of title, and confirmed that the licensees would remain on the property after settlement.

As for what occurred when Miss Chatham signed the contract of sale in Ms Taplin’s presence on 19 August 2017, Miss Chatham said that her father and brother were present in the kitchen of her parents’ home in Mt Martha when she signed the contract of sale. She said Ms Taplin commented on the view from her parents’ home. Miss Chatham said she double checked with Ms Taplin about the sale proceeding as the sale of a going concern, and verified that the licensees would stay, and JWRS would leave. Ms Taplin said to her, ‘Yes, in fact he will most likely be off the property even before settlement.’ They then joked with her father about RT Edgar providing the purchasers with a case of champagne at settlement.

Ms Taplin’s evidence regarding what occurred at the meeting on 19 August 2017 is in conflict with Miss Chatham’s evidence. She gave evidence that the purpose of the meeting at Mr Ron Chatham’s house on Saturday, 19 August 2017 was to have the contract of sale signed by Miss Chatham: that was not her usual job, but Ms Sayers was away. To that end, Ms Sayers forwarded her some correspondence from RBS, but she could not recall what Ms Sayers told her to do.

Ms Taplin gave evidence that she recalled the meeting on 19 August 2017 ‘to a degree’. The meeting took place in the kitchen, which had a view, at the island bench. Miss Chatham and Mr Ron Chatham were there, while Mr Bryce Chatham came in part of the way through. She provided copies of the contract of sale to both Miss Chatham and Mr Ron Chatham, which they both flicked through. She would have pointed out Special Condition 22 to them, as that is what she later told Ms Sayers in an email she had done. She does not recall providing an explanation of Special Condition 22, because she would not have done that: that would be providing legal advice, which she is not permitted to provide.

Ms Taplin gave evidence that at the time of the meeting, she would not have known that JWRS was going to vacate the property at settlement, so she would not have said anything to that effect to Miss Chatham. She has gone back through her emails and text messages, and there is nothing to suggest that she had ‘stepped out of her lane’.

Ms Taplin did not recall Miss Chatham asking any questions about the terms of the contract of sale, or any other matter, and if any had been asked, she would have called Ms Sayers. She believed that the meeting went for about half an hour, and she felt a little challenged by Mr Ron Chatham’s dry humour. She tried to call Ms Sayers after the meeting, but when she could not reach her, she sent Ms Sayers the following email:

Yes she was really excited – her brother and dad were there (they are part of the joint venture), her Dad was cheeky and a little more challenging. I didn’t need to add anything for clause 22 – I just need to point it out to them – it states that there isn’t any written leases and that they are verbal but require 60 days notice if they wish to terminate any of them.
Her Dad’s request was that we attend their opening party later this year – but we need to provide a case of champagne as a settlement gift…… he was joking but also semi serious. Her brother needs to sell his property in Kyneton?? and wanted to know if you can recommend anyone?
I have the cheque and contract. I will be at Roberts Beckwith at 9am Monday to deliver it and then will go and do some of the drops that we had printed.
Lara is going to 218 BDR on Monday to start copy. I have put a keysafe there.

Neither of Mr Ron Chatham or Mr Bryce Chatham had any real recollection of what occurred at this meeting, despite having adopted an outline of evidence which supported Miss Chatham’s version of events.

After Miss Chatham signed the contract of sale on 19 August 2017, there was some consternation on her part by reason of the vendor’s delay in signing the contract of sale. Given the history of the dealings between the parties, the purchasers were concerned that the vendor would renege on the agreement. Their frustration was evident in the following email from Miss Chatham to Ms Sayers on Tuesday, 22 August 2017:

Hi Vicki
I again apologise with being so blunt. But I have spent last 48hrs putting non‑refundable deposits on numerous things for the move that we had to lock in during the strict time frame.
I understand the history and everyone’s emotions. But in the end it was agreed to have been done 9am Monday and yes as soon as Katie notified me I came straight down to rectify anything, not once but twice.
Thanks
Lucrezia
Sent from my iPhone

The contract of sale was signed by the vendor on the following day.

A few days after the contract of sale was signed by the vendor, on 26 August 2017, Ms Sayers sent Miss Chatham a text message as follows:

Good Morning! Congratulations! Steve sent me some dates and times to go through for Denistoun. Can you please let me know who we will be showing through and what needs to be done – do you need access to certain parts of the property. Ie – valuer, insurer, measurements etc. I am speaking with Jason today.

Miss Chatham replied as follows:

Access to track, all stables, managers house, accommodation above tie up stalls, pool area, office, sheds. Don’t need to access to Jason & Bel’s place. Bringing through Maintenance manager and security who needs to do some measurements for sheds, stables and cameras etc…, our Greensman to work out what equipment need for track, our insurer, my father who is a [sic] investor and our marketing manager.
Kate the finance valuer will be independent (sic) on a different date. Not much can do about that one I do apologise.

Miss Chatham gave evidence about her inspection of the property on or about 27 August 2017: she inspected the property with her brother, because he was going to be living and working on the property, and he was looking at doing some building and repair work. She also brought a marketing consultant to inspect the property. Prior to settlement, the purchasers also had to organise a valuation, apply for finance, and obtain approvals from the owners of the horses for the transfer of the horses trained by Mr Cunningham from Wangaratta to the property.

Mr Bryce Chatham gave evidence that when he inspected the property in August 2017, he was mostly concerned with planning things such as signage, purchasing tools and the like.

Sometime in August 2017, Ms Luke prepared a license agreement between Crestevia and Mr Andrews, which included terms which were consistent with Special Conditions 22.2 and 22.5 of the contract of sale. However, it appears that this agreement was never executed.

September to November 2017

On 8 September 2017, a manager employed by JWRS, Mr Sam Davies, wrote to Ms Sayers as follows:

Hi Vicki,
As discussed with Jason quite a while ago. There is a list of equipment for sale that is useful when running the property. Can you please let us know if your buyers are interested in all or any of the following:
Kubota L4 400 with front end loader (200)
attachments include harrow, slasher, mulcher and grader blade     $17,000
Stihl whipper snipper x 2, blowers x 2, chainsaws x 2                  $ 2,000
Ride on mower with attachments  $ 9,000
Pegasus Float 2012 (3 horse)  $12,000
2009 Home Treadmill (brand new belt)  $35,000
Hilux farm ute (registered with VicRoads  $ 5,000
Weigh Machine (horse scales)  $ 1,200
All in good working order and regularly serviced.
Available separately or a bulk price can be negotiated.

On 15 September 2017, Ms Sayers replied as follows:

Hi Sam,
Steve is interested but would like to inspect. He hasn’t been able to confirm a day he is available but thinks he should be able to organise for early next week. Are you ok if he emails you to arrange a time with you to view the equipment and then you can both negotiate between yourselves?
Regards, Vicki.

Mr Cunningham gave evidence that he received this email from Ms Sayers, but he did not pursue the matter further as he did not need the equipment, and it was not being offered cheaply.

In PC Developments Pty Ltd v Revell,[72] the New South Wales Court of Appeal ordered that a purchaser who failed to complete a purchase by reason of, among other things, a lack of funding, recover the deposit paid to the vendor on the grounds that the vendor had benefited from improvements carried out by the purchaser after the signing of the contract of sale, and had resold the land at a higher price.
[72](1991) 22 NSWLR 615.

In Kylsilver Pty Ltd v One Australia Pty Ltd,[73] where the purchasers, who were property developers on‑selling residential blocks to ‘deposit challenged’ customers, were led to believe that the vendor would provide rebates for on‑sold blocks at settlement, Hamilton J ordered the return of the deposit once the purchasers refused to settle by reason of the vendor’s refusal to commit to paying the rebates, noting that the purchasers had the funds to settle, and the vendor retained its rights to sue for damages for breach of contract.
[73][2001] NSWSC 226.

In Statewide Developments Pty Ltd v Higgins,[74] the New South Wales Court of Appeal upheld a decision to make an order for the return of a deposit where the purchaser failed to complete the purchase on the settlement date. The purchaser, who had purchased a unit in a multi-unit residential development ‘off the plan’, had been misled by the vendor’s agent to believe that the unit would have 180 degree views of Homebush Bay, when in fact those views were obstructed by a dividing wall not shown on a scale model of the development. The Court rejected the contention that the effect of the misrepresentation was negated by a clause in the contract of sale whereby the purchaser had warranted that he had not relied upon any representation of the vendor or its agents. The Court accepted that it would be unjust or inequitable for the vendor to retain the deposit in circumstances where the vendor’s own conduct had ‘undermined matters that had induced the Purchaser to enter into the Contract’, and had failed to establish it had suffered any loss by reason of the purchaser’s failure to complete the purchase.
[74][2011] NSWCA 35.

In Chambers v Borness,[75] a purchaser under a contract of sale had taken possession of a property as a licensee and undertaken certain works, but then failed to complete the purchase after numerous extensions of time. Pembroke J ordered that the deposits be returned, stating as follows:

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 lopsided 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.

[75](2014) BPR 33,345.

In 5 Ridge Pty Limited v Tryname Pty Ltd,[76] Pembroke J ordered the return of a deposit paid by a defaulting purchaser in circumstances where the vendor had misled the purchaser on a matter which was material to the purchaser’s decision to enter the contract, being the vendor’s reassurance that the main tenant of the property was financially sound, and would exercise its option to renew a lease. Pembroke J observed that:

Misrepresentation by a vendor has often been held to be relevant to the exercise of the statutory discretion pursuant to s 55(2A).[77]

[76][2017] NSWSC 371.

[77]Ibid [46].

In Stokes v Toyne,[78] the Court was concerned with an unusual transaction, in that it was between a vendor who sought the assistance of the purchaser, a building contractor, to subdivide and develop her property. The transaction was negotiated and implemented in part over a number of years, with progress impeded by frequent changes of heart on the part of the vendor, difficulties experienced by the purchasers in obtaining finance, and inclement weather, which prevented the purchaser carrying out necessary works in a timely fashion.
[78][2019] NSWSC 274.

Rees J ordered that the deposit be returned to the purchaser, stating as follows:

Mr Stokes has sustained substantial losses as a result of his attempt to complete the contracts of sale. He has spent some $35,000 on building costs and council fees; he has spent time working on the site which he could otherwise have spent working for his company; he has spent some $100,000 on finance costs and is now committed to a home loan at a higher interest than he enjoyed before. All of these losses may be ones which a developer could be expected to bear, having gambled and lost. But in this case it seems to me that it was only when Mr Stokes appeared to have finally overcome the multitude of hurdles in his path – many of which were there at Ms Toyne’s request – that Ms Toyne exercised her right to terminate. Overall, I consider that it would be unjust in all of the circumstances for Ms Toyne to retain the benefits of the work done by Mr Stokes and also the deposit. Mr Stokes will hardly be a winner in all of this: it will simply reduce his losses.[79]

[79]Ibid [166].

Finally, the only recent Victorian example I could locate where the Court found that the circumstances were such as to warrant relief under s 49(2) of the Property Law Act is the case of Lockwood v PSP Investments Pty Ltd.[80] Judd J held that the purchaser of units in a development was entitled to four apartment units and eight car parks in a development was entitled to rescind the contracts of sale by reason of the terms of s 9AC(2) of the Sale of Land Act, because the vendor altered the plan of subdivision in such a way as to sever the entitlements of the unit owners to exclusive car parks. His Honour observed that s 49(2) enlivens the Court’s jurisdiction to grant relief to defaulting purchasers, and went on to say as follows:

If called upon to exercise the discretion under s 49(2), I would, in the circumstances of this case, order the return of the deposits paid under the apartment contracts. For the reasons given above, I am of the opinion that all eight contracts ought to be considered as a single transaction, or at least four transactions for the purchase of an apartment lot and a car park. The value of that transaction to the plaintiff was undermined by factors beyond his control. The vendor was unable to deliver the car parks. There was no suggestion that the plaintiff was not ready and willing to complete the purchase of all lots.
It was the defendant’s conduct in requesting an amendment to the Plan of Subdivision that denied to the plaintiff the benefit of four contracts for the purchase of car park lots which, in my view, formed the part of a package of rights acquired by the plaintiff in a development scheme. Those events were detrimental to the plaintiff’s interests. The defendant, in effect, disabled itself from completing those contracts. Such an analysis, based on the substantive effect of the amendment on the plaintiff’s position, is not inhibited by the defendant’s contention that when determining the material effect on a lot, for the purpose of s 9AC(2) of the Sale of Land Act, each apartment lot and contract should be considered without regard to the car park lots.

[80][2013] VSC 10.

The decision in Lockwood v PSP Investments Pty Ltd[81] is somewhat of an outlier in Victoria, where applications for the return of a deposit under s 49(2) of the Property Law Act have been largely unsuccessful. The leading ‘modern’ authority is the decision of Gillard J in Poort v Development Underwriting (Victoria) Pty Ltd[82] (‘Poort’), where his Honour held that, where the purchaser is in default and the contract of sale provides for the forfeiture of the deposit, exceptional circumstances must exist to justify the exercise of the statutory discretion, and the purchaser must show that an innocent vendor would not be injured by the exercise of its discretion. His Honour also held that, in addition to the terms of the contract of sale, the relevant considerations included the conduct of the parties, the nature and size of the property, the subsequent history of the property, and ‘…whether the amount of the deposit can be regarded as a mutually fair and proportioned security for due performance by the purchaser.’[83]
[81]Ibid.
[82][1976] VR 779, upheld without detailed consideration by the Full Court in Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1977] VR 455
[83]Ibid.

In Poort,[84] the defaulting purchaser under an instalment contract argued that the vendor had previously not complained about late payments prior to terminating the contract. However, his Honour found that the purchaser had acted in a high handed manner in its dealings with the vendor, and the vendor had suffered loss as a consequence of the purchaser’s failure to complete the purchase, such that there were no exceptional circumstances which would justify an order that the instalments paid to date be returned to the vendor.
[84]Ibid, 786.

Subsequent Victorian authorities have adopted the language of Gillard J in Poort,[85] and have dismissed applications for the return of deposits on the basis that the defaulting purchaser had not established exceptional circumstances: see Buckley v Drk,[86] Mahred Nominees Pty Ltd v Tulloch,[87] Bantink v Boss Properties Pty Ltd,[88] Maniaty v Fenedisto Pty Ltd;[89]
[85]Ibid.
[86](unreported, Supreme Court of Victoria, Teague J, 30 April 1993.)
[87](2000) V Conv R 54-321.
[88][2000] V Conv R 54-629.
[89][2004] VSC 177.

In Aussie Invest Corporation v Pulcesia,[90] Dodds‑Streeton J rejected an application for the return of a deposit in circumstances where the vendor’s solicitor failed to pass on a critical document to the purchaser’s financier, who was waiting in their office for that document before releasing funds to settle the purchase of the property. Her Honour found that:

The vendor was neither responsible for the purchaser’s breach nor otherwise guilty of unconscionable conduct.[91]

[90](2005) 13 VR 168.

[91]Ibid [324].

In Putt v Perfect Builders Pty Ltd,[92] Williams J refused an application for the return of a deposit in circumstances where the contract of sale required the purchaser to apply promptly for finance from a specified lender. The purchasers’ solicitor raised a number of issues with the contract of sale. Their application for finance, for an amount of $1,000.00 greater than the sum specified by the contract of sale, was rejected. Her Honour was not satisfied that the purchasers had provided sufficient evidence of their dealings with their financier, and had not shown that the vendor would not be adversely affected by the return of the deposit.
[92][2013] VSC 442.

In Simcevski,[93] Riordan J refused the purchaser’s application for the return of the deposit, saying as follows (citations omitted):
[93][2017] VSC 197.

In this case, I am not satisfied that exceptional circumstances exist such that I should order that the deposit be repaid for the following reasons:
(a)The deposit ‘can be regarded as a mutually fair and reasonably proportioned security for due performance by the purchaser’.
(b)The Purchaser signed a contract that was unconditional as to finance and that provided for the forfeiture of the deposit on breach.
(c)The risk of the pollution to the land was known at the time of entry into the contract, and was acknowledged by the Purchaser in a special condition of the contract.
(d)The Purchaser has failed to establish that a right to conduct the subterranean investigations was a part of the contract on its true construction.
(e)The Vendor did not breach any obligation of good faith imposed on him in refusing to permit the subterranean investigations.
(f)It was reasonable for the Vendor to assert his right to refuse the subterranean investigations in the circumstances referred to in Simcevski v Dixon [No 1]; and, in fact, the Vendor made a reasonable offer to permit the subterranean investigations on additional terms.
(g)I am not satisfied that the failure to permit the subterranean investigations substantially impaired any chance the Purchaser had to settle the purchase in any event.
(h)The Purchaser has not adequately explained:
(i)his inactivity in taking steps to obtain finance for the purchase between 21 January 2016 and 23 February 2016; or
(ii)why the Purchaser did not take steps to obtain his own valuation of the property earlier in 2016, knowing that the settlement date was approaching and that a valuation would be necessary to obtain finance.

(i)The ‘windfall’, notwithstanding its size, is not of itself a sufficient reason to exercise the discretion, particularly in this case with the extensive time delay between the settlement date under the contract currently in issue and the resale date.

In my opinion, in this case the Purchaser made unreasonable demands of the Vendor to interfere with his property rights without contractual justification and was consequently unable to settle the purchase of the property as finance had not been obtained. There are no exceptional circumstances within the meaning given to that expression by the authorities that would justify ordering repayment of the deposit.[94]

[94]Ibid [122]-[123].

Cases in New South Wales where applications by a defaulting purchaser for the return of a deposit have been unsuccessful are also numerous.

A leading authority, Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd,[95] is one of them. In that case, Street CJ in Equity adopted what he described as the ‘liberal approach’ to the statutory jurisdiction conferred upon the Court to order the return of the deposit. A purchaser sought to avoid a contract of sale on the basis that the vendor had not disclosed that the local planning authority had adopted a policy which, if applied to the subject property, would impede the purchasers’ plans for the property. However, in the circumstances of the case before his Honour, the hardship that the purchaser would suffer, if compelled to complete the contract, was not such that warranted the Court exercising its discretion in his favour, given that the information concerned was in the public domain, or could be ascertained by further enquiries.
[95][1973] 2 NSWLR 268.

Another leading authority in New South Wales was the decision of Young CJ in Equity in Mulkearns v Chandos Developments Pty Ltd (No 4).[96] His Honour observed that

… ordinarily where the vendor has not been guilty of unconscionable conduct and the purchaser is a developer or a person in commerce well aware of his obligations under a contract, the purchaser is not entitled to return of the deposit, even if the property has had a marked increase in value.[97]

[96][2005] NSWSC 511.

[97]Ibid

In his reasons, his Honour referred to his previous decision in Eighth SRJ Pty Ltd v Merity,[98] where he stated:

… the matters which seem to affect the Court when considering the exercise of the discretion included as the strongest factors: (a) has the vendor received a windfall; (b) was non‑completion a fault of the purchaser or a matter over which it had little control; (c) was the purchaser’s use of the property thwarted by some factor outside the purchaser’s control; (d) was there any misstatement in the vendor’s camp which affected the purchaser’s decision?[99]

[98](1997) 7 BPR 15,189.

[99]Ibid at 15,202.

In the case before him, his Honour considered that it was not unjust or unconscionable for the vendor to retain the deposit, in circumstances where the vendor had suffered loss by reason of the purchaser’s default.

In Nassif v Caminer,[100] a majority of the Court of Appeal refused to order the return of a deposit, on the basis that the purchaser had forfeited a deposit of five per cent, not the usual ten per cent, because the purchaser wrongly invoked an arbitral procedure under the contract of sale, and the evidence did not establish that the purchaser was induced to enter the contract by any misleading or deceptive conduct on the part of the vendor.
[100](2009) 74 NSWLR 276.

In Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2),[101] a vendor terminated a contract for failure to pay instalments of a deposit. Darke J refused to make an order for the return of the instalments already paid, on the basis that the purchaser had not shown that the vendor had made any false or misleading statements concerning the value of the property, the purchaser had the benefit of legal advice, the vendor had shown flexibility in its dealings with the purchasers, and the defaults which led to the termination of the contract were the product of its own financial position.
[101][2017] NSWSC 866.

In Dasreef Developments Pty Ltd v Velkovski,[102] Emmett AJA refused to order the return of a deposit forfeited as a result of the purchaser’s failure to raise finance to complete the purchase. While his Honour recognised the hardship the forfeiture of the deposit would cause the purchaser, and that the vendor suffered no loss from the repudiation of the contract of sale, the failure of the purchaser to keep the vendor informed of the efforts he was making to raise finance, or to furnish evidence of the funding options available to the purchaser, meant that it was not unjust and inequitable for the vendor to retain the deposit.
[102](2017) 96 NSWLR 318.

In Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd,[103] Darke J rejected an application for the return of a deposit, stating as follows:

Conveyancing Act, s 55(2A) provides no avenue of relief to the plaintiffs because no special or exceptional circumstances are made out to warrant the exercise of this statutory jurisdiction. It would not be unjust or inequitable for the vendor to retain the deposit. All the grounds the plaintiffs/purchasers advanced to suggest unconscionable conduct, injustice, or inequity on the part of the vendor have failed. No alleged misrepresentations about the sale are made out. The purchaser obtained legal lease, or at least the kind of lease estate for which the purchaser contracted. The vendor’s agent did not misrepresent the quality of the tenancy at the Belmont property. The vendor adequately responded to requisition 3 and was not in breach of contract such as might prevent the vendor from issuing a Notice to Complete or Notice of Termination.

[103][2018] NSWSC 528.

In Botany Bay Apartments Pty Ltd v Badalato,[104] a purchaser refused to pay the balance of the deposit payable under a contract of sale for a property ‘off the plan’, and sought the return of a deposit already paid, on the grounds that the vendor’s agent misrepresented the size of the apartment to be constructed.
[104][2019] NSWSC 296.

Davies J found that the evidence did not establish that any such misrepresentation had been made, and any misunderstanding of the purchaser concerning the size of the properties was corrected by the end of the statutory cooling off period. His Honour found that, in the absence of a misrepresentation or some other unconscionable conduct on the part of the vendor, there was no basis for the purchaser to be relieved of his obligation to pay the balance of the deposit.

In Wang v Polaris Holdings Rosebery Pty Ltd,[105] a decision delivered shortly after the trial in this proceeding, Darke J refused to order the return of a deposit paid pursuant to a contract of sale of a lot in an unregistered plan of subdivision, on the basis that any misunderstanding on the purchaser’s part as to the size of the relevant lot was not brought about by the conduct of the vendor.
[105][2020] NSWSC 213.

Finally, in Smogurzewski v AIT Investment Group Pty Ltd,[106] in a decision also delivered while judgment in this proceeding was reserved, Darke J held that a purchaser of a lot in a strata development was not entitled to rescind a contract by reason of the carpark being annexed to the unit being marked with a ‘disabled parking’ sign, or to the return of the deposit, there having been no false or misleading representations made by the vendor.
[106][2020] NSWSC 490.

From my review of the authorities, the following matters appear to be relevant to the exercise of the Court’s discretion to order the return of a deposit paid by a defaulting purchaser (in addition to the matters summarised by Riordan J in Simcevski[107]):
[107](2017) 53 VR 317.

(a) the order is the exception rather than the rule;

(b) it would be rare for the Court to be moved to exercising its discretion to order the return of a deposit in the absence of some disentitling conduct on the part of the vendor, such as misleading or deceptive conduct, unconscionable conduct, or, possibly, a peremptory or unduly harsh enforcement of the vendor’s contractual rights;

(c) in cases where misleading and deceptive conduct is alleged and proved, a court is more inclined to order a return of the deposit if that conduct induces the purchaser to enter into a contract it would not otherwise have entered, or if that conduct concealed a material defect in the bargain entered into by the purchaser;

(d) while the fact that the forfeit of the deposit would cause hardship to a defaulting purchaser is not particularly relevant to the exercise of the discretion, given the risk faced by every purchaser of land of losing their deposit if they do not complete the purchase, the financial consequences of the failed transaction are relevant, particularly where the consequences might be considered to be ‘lopsided’;

(e) given the nature of the remedy, it is permissible to impose conditions upon the return of the deposit which may ameliorate the ‘all or nothing’ nature of the remedy under s 49(2) of the Property Law Act;[108] and

(f) the conduct of the purchaser and the reason or reasons why the purchaser was unable to complete the purchase are relevant to the exercise of the discretion. However, given that the enactment of s 49(2) of the Property Law Act and its equivalents presuppose a default on the part of a purchaser (such that they have no contractual or equitable remedies available to them to recover a deposit), the inability of a purchaser to complete the contract does not preclude that purchaser from obtaining an order for the return of a deposit, if the circumstances of the case otherwise warrant such an order.

[108]See Poort [1976] VR 779, 785; Kadissir v Jankovic [1987] VR 255, 259; and Mulkearns v Chandos Developments Pty Ltd (No 4) [2005] NSWSC 511 [136]-[143].

Turning first to the application of the principles enumerated in Simcevski[109]to the current case:
[109]Ibid.

(a) there is no reason to consider a deposit of ten per cent of the purchase price should not be considered to be a mutually fair and proportionate security for performance by the purchaser, particularly given the purchaser’s requests for an extension of time;

(b) if I am wrong about the question of whether the purchasers were entitled to rescind the contract of sale by reason of s 32K of the Sale of Land Act, the operative cause of the termination was the purchasers’ inability to obtain finance; and

(c) there is no evidence of any loss on the part of the vendor (save for costs thrown away, which I can infer have been incurred), but no evidence of any windfall either.

The matters outlined above, the relative equality of bargaining power between the vendor and the purchaser, the significance of a deposit as an ‘earnest’ for performance, and my findings regarding the inability of the purchasers to complete the purchase of the property on the scheduled date for settlement tell against there being an order for the return of the deposit. However, one significant matter which shifts the pendulum the other way is the misleading and deceptive conduct of the vendor in representing to the purchasers that it would provide vacant possession at settlement, and then resiling from that representation without informing the purchasers, leaving them to discover the true position themselves only two days before the scheduled settlement date.

In my view, this would be an appropriate occasion for the exercise of the Court’s discretion to return the deposit, based upon the misleading and deceptive conduct of the vendor, which induced the purchasers to enter into the contract of sale containing the terms that it did. By representing to the purchasers that JWRS would vacate the property at settlement, and subsequently resiling from that representation, the vendor materially altered the quality of the bargain that the purchasers were induced to believe they had struck when entering into the contract of sale.

As discussed earlier in these reasons, I accept, for present purposes, the vendor’s submission that if the purchasers had been told that JWRS proposed to occupy the property after settlement, they would not necessarily have walked away from the negotiations. However, assessing the evidence of the dealings between the parties as a whole, I consider that, if the purchasers were appraised of the true position (that JWRS was not necessarily going to vacate the property after settlement, but reserved its rights to assert that it was entitled to remain on the property at settlement), the negotiations would have taken a different course. In particular, I accept, given the purchase price payable by the purchasers, the use to which the purchasers wished to put the property (that is, to occupy the property, and operate their businesses from the property), and the substantial financial commitments the purchasers envisaged entering into at the time they entered into the contract of sale, the purchasers would not have agreed to anything other than a fixed term lease for a rental at, or approximating, a market rental, and otherwise would have insisted on having vacant possession of the property at settlement.

The vendor chose not to call Mr Warren to give evidence to explain when, and the reasons why the vendor resiled from the representations made by its agent prior to the execution of the contract of sale. The vendor may have had sound reasons for doing so, such as an increasing concern on the part of the vendor regarding the purchasers’ ability to complete the purchase of the property, but the vendor has provided no assistance in that regard. Further, despite the regular communications between the solicitors for the parties in the lead up to the scheduled settlement date, nothing was said by the vendor or RBS to disabuse the purchasers from their understanding that the vendor would provide vacant possession (save for the licensees) at settlement. There is ample authority to the effect that it may be misleading or deceptive conduct not to correct a representation which was accurate when it was made, but is no longer accurate.[110]
[110]See for example Wildsmith v Dainford Ltd (1983) 51 ALR 24; Burg Design Pty Ltd v Wolki (1999) ATPR 41-689; Peterseon v Merck Sharpe & Dohme (Aust) Pty Ltd (2010) 184 FCR 1.

In such circumstances, in my view, it would not be just and equitable for the vendor to retain the deposit. There is no evidence that the vendor has suffered any loss by reason of the failure of the transaction. No claim has been made in this proceeding for damages said to have been suffered by the purchasers’ failure to complete the purchase, although it was open for the vendor to do so, even if only by way of set‑off in the event that the purchasers’ claims were successful (as they have been, at least in part). Of course, it would still be open for the vendor to make such a claim, although no doubt any such claim would be at risk of being stayed in accordance with the principles in Port of Melbourne Authority Ltd v Anshun.[111]
[111](1981) 147 CLR 589.

For completeness, should it be considered that, contrary to the views expressed in these reasons, and by Riordan J in Simcevski,[112] that there is a material difference in the approach adopted in New South Wales and Victoria, I do consider that in circumstances where a vendor has made a representation to a purchaser that it would provide vacant possession at settlement, which was a material factor in inducing the purchasers to enter into a contract at the price that they did, and then resiled from that representation without informing the purchasers, those circumstances can reasonably be considered to be special or exceptional circumstances. Further, the nature of the property and the purpose of the transaction, which was known by the vendor, is relevant to my view that there are special and exceptional circumstances. The property is a valuable and distinctive property, peculiarly suited to the business of Mr Cunningham in particular. It was not in dispute that the relocation of race horse training operations is a costly and logistically challenging operation. The issue of who would occupy part or all of the property over what time period and on what terms was clearly a critical issue in the negotiations between the parties: indeed, there were numerous options regarding that issue discussed between the parties over the course of a number of months. The failure of the vendor to inform the purchasers that it was going to rely upon what I have found to be an uncertain and severable terms of the contract of sale was, at best, unreasonable.
[112](2017) 53 VR 357.

Further, it appears to be accepted by the authorities that the ‘all or nothing’ effect of an order under s 49(2) can be ameliorated by imposing conditions on the making of the order. As I have found that the vendor breached s 32 of the Sale of Land Act, it is, strictly speaking, not necessary for me to consider whether there is an appropriate occasion for the imposition of such a condition. However, for completeness, and if I am wrong about the question of whether the purchasers were entitled to rescind the contract of sale pursuant to s 32K(2) of the Sale of Land Act, I would have made the orders for the return of the deposit under s 49(2) of the Property Law Act subject to a condition that the purchasers pay the vendor’s costs thrown away by reason of the failure of the purchasers to settle the purchase of the property on 14 December 2017, being the legal costs incurred by the vendor between the date of the execution of the contract of sale on 19 August 2017 up to and including the scheduled settlement date of 14 December 2017.

I appreciate that the exercise of the discretion in favour of the purchasers has the effect of excusing them from the consequences of having insufficient funds to complete the purchase of the property at settlement. However, the availability of such a remedy under s 49(2) of the Property Law Act, as observed in the authorities, expressly contemplates such a remedy to be available to a defaulting purchaser, if the circumstances warrant the discretion being exercised.

I request that the parties confer as to the appropriate form of orders to give effect to these reasons, and whether a further hearing is required to determine the questions of interests and costs, and inform the Court as to the results of that conferral.

[2020] VSC 814

9 December 2020