Galafassi v Kelly

[2014] NSWCA 190

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Galafassi v Kelly [2014] NSWCA 190

Hearing dates:

10 - 11 March 2014

Decision date:

13 June 2014

Before:

Bathurst CJ at [1];
Ward JA at [4];
Gleeson JA at [5]

Decision:

1.Appeal allowed in part.

2.Set aside order 1 made by the primary judge on 31 May 2013.

3.In lieu thereof, judgment for the plaintiff against the defendants in the sum of $602,500.82.

4.Liberty to apply in respect of the calculation in [203] above.

5.In default of agreement as to costs or any further orders consistent with these reasons for judgment, direct:

(a)the appellants to file and serve within 14 days their proposed short minutes of order, together with brief written submissions in support;

(b)the respondent to file and serve within a further 14 days her proposed short minutes of order, together with brief written submissions in support.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

CONTRACTS - general contractual principles - repudiation and non-performance - renunciation - where purchasers evinced an intention no longer to be bound by the contract and where purchasers declared that they were unwilling and unable to perform their contractual obligations - continuing representation of financial incapacity - whether purchasers wholly and finally disabled from performing the essential terms of the contract altogether - continuing repudiation by the purchasers - vendor entitled to terminate
CONTRACTS - general contractual principles - repudiation and non-performance - election - whether by commencing proceedings for specific performance and later filing a statement of claim the vendor elected to affirm the contract - whether vendor therefore precluded from terminating based on prior repudiation by the purchasers - vendor not precluded where after the commencement of proceedings the purchaser commits a breach of an essential term or otherwise evinces an intention to no longer be bound by the contract - purchasers’ unretracted declarations of inability and unwillingness to perform remained as a fact in the history of the matter and gave an unmistakeable colour to their continued inactivity and entitled the vendor to terminate
CONTRACTS - general contractual principles - remedies for breach - loss on resale - measure of damages - claim made under cl 9.3.1 of standard contract is one for liquidated damages - availability of special condition interest and land tax for late completion when completion does not occur - damages to be assessed based on the price of the first contract if it had been completed according to its terms - payments contingent upon completion unable to be included as part of the price of the first contract - whether land tax otherwise able to be included as a reasonable expense arising out of the purchaser’s non-compliance with the contract
CONVEYANCING - breach of contract for sale and remedies - vendor's remedies - whether notice to complete required before vendor can terminate if purchaser has indicated it is unwilling and unable to complete - notice to complete not required where the conduct of the purchaser amounts to repudiation
CONVEYANCING - breach of contract for sale and remedies - vendor's remedies - resale - duty of vendor - mitigation - extent of vendor's obligation to act reasonably so as to mitigate loss on resale - whether trial judge erred in his approach to the question of mitigation
EVIDENCE - facts excluded from proof - on grounds of public policy - settlement negotiations and offers - Evidence Act 1995 s 131 - whether communications in emails were made in connection with an attempt to negotiate the settlement of the dispute - whether communications were permissible within the exceptions in Evidence Act 1995 s131(2)(g) or 131(2)(i)

Legislation Cited:

Evidence Act 1995 (NSW) s 131
Supreme Court Act 1970 (NSW) s 68

Cases Cited:

Advanced Commercial Finance Ltd v Aarons (1996) 7 BPR 14,523
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570
Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198
Angus v Kinraid [1988] ANZ ConvR 129
Apotex Pty Ltd v Les Laboratoires Servier (No 5) [2011] FCA 1282
Atlas Financial International Ltd v Nortbale Pty Ltd [2011] NSWSC 815
Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 276; 193 FCR 479
Baxter v Obacelo Pty Ltd [2001] HCA 66; 205 CLR 635
Brown v Commissioner of Taxation (2001) 187 ALR 714
Buchanan v Dunstan [2007] NSWSC 248; 13 BPR 24, 521
Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd [2009] NSWSC 1159
Carpenter v McGrath (1996) 40 NSWLR 39
Carr v J A Berriman Pty Ltd [1953] HCA 31; 89 CLR 327
Champtaloup v Thomas [1976] 2 NSWLR 264
Ciavarella v Balmer [1983] 2 NSWLR 439
Ciavarella v Balmer [1983] HCA 26; 153 CLR 438
Coshott v Burke [2013] FCA 513
Field v Commissioner for Railways (NSW) [1957] HCA 92; 99 CLR 285
Foran v Wight [1989] HCA 51; 168 CLR 385
Georgiou v Sindel [1982] 1 NSWLR 435
Glass v Demarco [1999] FCA 482
Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1985] 1 Qd R 416
GPI Leisure Corporation Ltd (in Liq) v Yuill (1997) 42 NSWLR 225
Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; 61 ACSR 321
Hearse v Pallister [2008] NSWSC 504
Highmist Pty Ltd v Tricare Ltd [2005] QCA 357
Holland v Wiltshire [1954] HCA 42; 90 CLR 409
Hoskins v Rule [1952] NZLR 827
Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26
J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 TAS R 26
Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391
Johnson v Agnew [1980] AC 367
Johnson v Perez [1988] HCA 64; 166 CLR 351
K&K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302
Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313
Kelly v Galafassi [2013] NSWSC 680
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115
Korean Airlines Co Ltd v Australian Competition and Consumer Commission (No 3) [2008] FCA 701
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623
Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 1352
McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457
McFadden v Snow (1952) 69 WN (NSW) 8
Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553
Mulkearns v Chandos Developments Pty Ltd (No 4) [2005] NSWSC 511
Nader v Sutherland Shire Council [2008] NSWCA 265
Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444
Palasty v Parlby [2007] NSWCA 345
Payne v Rowe [2012] NSWSC 685
Pihiga Pty Ltd v Roche [2011] FCA 240; 278 ALR 209
Proctor v Chahl [2008] NSWSC 1252
Rawson v Hobbs [1961] HCA 72; 107 CLR 466
Rian Financial Services Pty Ltd v Alfred Investment Projects Pty Ltd (1988) 90 FLR 215
Rossco Developments Pty Ltd v O’Halloran (1980) 29 ACTR 1
Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288
Safehaven Investments Inc v Springbok Limited (1996) 71 P & CR 59
Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634
Seven Network Ltd v News Ltd [2006] FCA 343
Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620
Silver Fox Co Pty Ltd v Lenard’s Pty Ltd (No 3) (2004) 214 ALR 621
Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; 166 CLR 245
Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117
Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625
Tiplady v Gold Coast Carlton Pty Ltd (1984) 54 ALR 337
Tropical Traders Ltd v Goonan (1964) 111 CLR 41
United Australia Ltd v Barclays Bank Ltd [1941] AC 1
Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401
Zografakis v McCarthy [2007] NSWSC 144

Texts Cited:

H McGregor, McGregor on Damages (18th ed, 2009, Sweet & Maxwell)

J D Heydon, Cross on Evidence, (Online Australian Edition, LexisNexis) at [25, 395]

J W Carter, Carter’s Breach of Contract (2nd ed, 2011, LexisNexis Butterworths) at [10-58]

Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, Butterworths) at [20-265]

Professor Butt, The Standard Contract for Sale of Land in New South Wales, 2nd ed, [9.174 ff], [15.4A] footnote 215

Category:

Principal judgment

Parties:

David Galafassi (First appellant)
Toni Galafassi (Second appellant)
Susan Kelly (Respondent)

Representation:

Counsel:
J Stoljar SC with J C Hewitt (Appellants)
B A Coles QC with C G Carroll (Respondent)

Solicitors:
YBR Solicitor (Appellants)
Osborne Lawyers (Respondent)

File Number(s):

2013/193244

 Decision under appeal 

Court or tribunal:

Supreme Court

Citation:

Kelly v Galafassi [2013] NSWSC 680

Date of Decision:

31 May 2013

Before:

Windeyer AJ

File Number(s):

2012/21377

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellants, Mr and Mrs Galafassi, entered into a contract dated 30 September 2011 to purchase a residential property in Paddington from the respondent, Mrs Kelly. The purchase price under the contract was $6,350,000, of which the purchasers paid a 5% deposit ($317, 500). The date fixed for completion under the contract was 30 December 2011.

On the morning of 30 December 2011 the purchasers’ solicitors advised that the purchasers did not have the funds necessary to enable them to complete and that they would not be able to proceed with the purchase. The vendor responded that she did not accept the purchasers’ apparent repudiation and intended to institute proceedings for specific performance. On 4 January 2012 the purchasers’ solicitors again advised that the purchasers were not financially capable of completing the contract and that they would be unable to comply with an order for specific performance. On 20 January 2012 the vendor commenced proceedings in the Equity Division of the Supreme Court seeking orders for specific performance and, in the alternative, damages.

On 24 January 2012 Mrs Galafassi sent an email to the vendor and her husband apologising for their failure to complete. The email explained that the purchasers had been unable to sell their own home and had instead agreed to a property swap arrangement with the vendor of a different property, and in the process they had lost all their savings, meaning that they were unable to go through with the purchase. On or about 24 February 2012 Mrs Galafassi sent a further email again stating that there was no way they could comply with an order for specific performance if such an order was granted because they did not have the means to raise the funds to complete. The email suggested that the vendor should attempt to resell the property and might achieve a better result if she did so.

On 21 March 2012 the Supreme Court gave directions for the matter to continue on pleadings. In accordance with those directions the vendor filed a statement of claim on 17 April 2012 seeking an order for specific performance and, in the alternative, damages.

On 24 April 2012 the vendor served a notice of termination of the contract on the purchasers, purporting to accept their repudiation. The basis for termination identified in that notice was the content of correspondence from the purchasers of 30 December 2011 and 4 January 2012. On the same day the vendor entered into a contract for sale of the property to a Mr Ball for $5,500,000. This contract was completed on 30 May 2012.

On 6 June 2012 the vendor filed an amended statement of claim seeking damages for breach of contract including the deficiency on resale, special condition interest, and the payment of the vendor’s liability for land tax for 2012. The purchasers by their amended defence denied that they had repudiated the contract and had been unwilling and unable to perform the contract, and argued that some of the correspondence on which the vendor relied was sent “without prejudice” and was inadmissible. The purchasers contended that the vendor had elected to affirm the contract and therefore the vendor’s purported termination was wrongful and amounted to repudiation by the vendor. In the alternative the purchasers argued that the vendor had failed to mitigate her loss in exercising the power of resale. The purchasers also contended that they were not liable for special condition interest or land tax.

The primary judge:

1 found that the emails of 24 January and 24 February were admissible because they were not an attempt to negotiate a settlement and therefore did not fall within s 131(1) Evidence Act 1995 (NSW), or alternatively that the exception in s131(2)(g) applied so as to make both emails admissible;

2   found that there was a clear continuing act of repudiation by the purchasers in their communications, as they had indicated that they could not complete, had no intention of completing, and had put it beyond their power to complete;

3   held that service of a notice to complete was not a prerequisite of a right to terminate in the present case;

4   held that even if the vendor had elected to affirm the contract, the commencement of proceedings for specific performance and filing of pleadings did not preclude a subsequent claim for damages for breach of contract in circumstances where there was continuing repudiation by the purchasers;

5   found that the vendor made reasonable efforts to minimise her loss and took reasonable care in selling the property for the price which she did;

6   found that the vendor’s claim for special condition interest and payment of land tax could be recovered as part of the deficiency on resale under cl 9.3.1. Alternatively the primary judge found that land tax would be recoverable as an expense flowing from the purchasers’ default.

The purchasers appealed. The key issues on appeal were 1) whether the vendor’s termination of the contract was valid; 2) the admissibility of the emails of 24 January and 24 February; 3) whether the vendor failed to mitigate her loss on resale; and 4) whether the vendor was entitled to special condition interest and reimbursement for land tax liability.

Appeal allowed in part. The Court held, per Gleeson JA (Bathurst CJ and Ward JA agreeing) that:

1   The appellants’ challenge to the primary judge’s finding that there was a clear continuing act of repudiation was unsuccessful. The purchasers’ communications of 4 January, 24 January, and 24 February constituted clear statements of the purchasers’ inability and unwillingness to perform the contract. These were also statements of existing fact and were a continuing representation unless and until they were withdrawn or modified, which did not occur. As such the conduct of the purchasers amounted to continuing renunciation of their contractual obligations. Further, the primary judge was correct to find that there was factual inability to perform. On the purchasers’ own evidence they were “wholly and finally disabled” from completing the contract: at [59]-[70].

Considered: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115; Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401; K&K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302; Rawson v Hobbs [1961] HCA 72; 107 CLR 466; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198.

2   Although an election between inconsistent rights once made is irrevocable, a vendor who elects to sue for specific performance is not thereby precluded from later terminating and claiming damages in circumstances where the purchaser, after the institution of the proceedings, either committed a further breach of an essential term of the contract or otherwise evinced an intention to no longer be bound by the contract. The purchasers’ unretracted declarations of inability and unwillingness to perform remained as a fact in the history of the matter and gave an unmistakeable colour to their continued inactivity, such as to convey to a reasonable person in the position of the vendor renunciation of the contract as a whole as at 24 April 2012: at [71]-[91].

Considered: Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26; United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Baxter v Obacelo Pty Ltd [2001] HCA 66; 205 CLR 635; Tropical Traders Ltd v Goonan (1964) 111 CLR 41; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444; Johnson v Agnew [1980] AC 367; Safehaven Investments Inc v Springbok Limited (1996) 71 P & CR 59; Holland v Wiltshire [1954] HCA 42; 90 CLR 409; Champtaloup v Thomas [1976] 2 NSWLR 264.

3   There is no need for a notice to complete to be issued before termination where there has been repudiation by a party of its obligations under the contract, and not merely delay in performance: at [92]-[110].

Considered: Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553; Georgiou v Sindel [1982] 1 NSWLR 435; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444; Ciavarella v Balmer [1983] HCA 26; 153 CLR 438; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117; Rian Financial Services Pty Ltd v Alfred Investment Projects Pty Ltd (1988) 90 FLR 215; Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1985] 1 Qd R 416; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115; Angus v Kinraid [1988] ANZ ConvR 129; Proctor v Chahl [2008] NSWSC 1252; Carr v J A Berriman Pty Ltd [1953] HCA 31; 89 CLR 327; Highmist Pty Ltd v Tricare Ltd [2005] QCA 357.

4   The appellants’ challenges to the primary judge’s approach to the question of mitigation of loss and to his finding that there was no failure to mitigate loss on resale were unsuccessful. In the present case the purchasers claimed that the vendor was subject to a duty to exercise the power of resale in a reasonable manner, arising either as an implied term of the contract or under the so-called common law duty to mitigate loss. The vendor accepted at trial that there was a duty to mitigate. The primary judge concluded that the result in this case would be the same on either basis, and approached the matter on the basis of a common law duty. On appeal the purchasers accepted that the result would be the same on either basis. As such there was no material error in the approach taken by the primary judge. In any event the evidence did not establish that the vendor had failed to take reasonable care in selling the property for the price that she did or in making reasonable efforts to minimise her loss: at [149]-[173].

Considered: Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; 61 ACSR 321; Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd [2009] NSWSC 1159; Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313.

5   The appellants’ challenge to the primary judge’s finding that the vendor was entitled to special condition interest was successful. The vendor had elected to make a claim calculated under cl 9.3.1 for liquidated damages rather than a claim for damages under the general principles for breach of contract. The starting point in assessing the deficiency on resale is the price of the first contract if it had been completed according to its terms. In this case the payment of special condition interest was contingent upon completion. Since completion never occurred, special condition interest should not be included as part of the price under the first contract. In this respect the primary judge erred in following the reasoning in Zografakis v McCarthy at [21]: at [174]-[195], [203].

Considered: Zografakis v McCarthy [2007] NSWSC 144; Palasty v Parlby [2007] NSWCA 345; Tiplady v Gold Coast Carlton Pty Ltd (1984) 54 ALR 337; Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Johnson v Perez [1988] HCA 64; 166 CLR 351; Hoskins v Rule [1952] NZLR 827; J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 TAS R 26; Carpenter v McGrath (1996) 40 NSWLR 39; Advanced Commercial Finance Ltd v Aarons (1996) 7 BPR 14,523; Hearse v Pallister [2008] NSWSC 504; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117; Buchanan v Dunstan [2007] NSWSC 248; 13 BPR 24,521; Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; 166 CLR 245; McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457.

6   The appellants’ challenge to the primary judge’s finding that the vendor was entitled to reimbursement for land tax was unsuccessful. To the extent that the primary judge relied upon the reasoning in Zografakis v McCarthy at [21], his Honour erred. However the primary judge also correctly relied, in the alternative, upon the reasoning in Jampco Pty Ltd v Cameron (No 2) in holding that the vendor’s liability for land tax was a reasonable cost or expense “arising out of the purchaser’s non-compliance with this contract” as referred to in the second limb of cl 9.3.1, and therefore the vendor was entitled to be reimbursed for that liability: at [196]-[202].

Considered: Zografakis v McCarthy [2007] NSWSC 144; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Rossco Developments Pty Ltd v O’Halloran (1980) 29 ACTR 1.

Held, per Gleeson JA (Ward JA agreeing), that:

7 The primary judge correctly held that s131(1) of the Evidence Act was not applicable to the emails of 24 January and 24 February, as these communications were not in connection with “an attempt to negotiate a settlement” of a dispute: at [111]-[134].

Considered: Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 1352; Silver Fox Co Pty Ltd v Lenard’s Pty Ltd (No 3) (2004) 214 ALR 621; Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 276; 193 FCR 479; Field v Commissioner for Railways (NSW) [1957] HCA 92; 99 CLR 285; GPI Leisure Corporation Ltd (in Liq) v Yuill (1997) 42 NSWLR 225; Coshott v Burke [2013] FCA 513; Korean Airlines Co Ltd v Australian Competition and Consumer Commission (No 3) [2008] FCA 701; Seven Network Ltd v News Ltd [2006] FCA 343; Apotex Pty Ltd v Les Laboratoires Servier (No 5) [2011] FCA 1282.

Held, per Gleeson JA (Bathurst CJ and Ward JA agreeing):

8 The primary judge correctly held, in the alternative, that the exception in s131(2)(g) was applicable because the Court would likely be misled as to whether there was continuing repudiatory conduct by the purchasers after the institution of the proceedings if the communications were not admitted. The exception in s131(2)(i) would also have applied as the disputed communications related to the vendor’s contractual right to terminate for repudiatory conduct after the institution of proceedings: at [135]-[148].

Considered: Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 276; 193 FCR 479; Brown v Commissioner of Taxation (2001) 187 ALR 714; Mulkearns v Chandos Developments Pty Ltd (No 4) [2005] NSWSC 511; Nader v Sutherland Shire Council [2008] NSWCA 265; McFadden v Snow (1952) 69 WN (NSW) 8; Atlas Financial International Ltd v Nortbale Pty Ltd [2011] NSWSC 815; Payne v Rowe [2012] NSWSC 685; Glass v Demarco [1999] FCA 482; Pihiga Pty Ltd v Roche [2011] FCA 240; 278 ALR 209; Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625.

Judgment

1. BATHURST CJ: I agree with the orders proposed by Gleeson JA.

2. I would prefer not to express a final view on the question of whether the emails of 24 January 2012 and 24 February 2012 were communications falling within s 131(1) of the Evidence Act 1995 (NSW). For the reasons given by Gleeson JA I agree that even if the emails did fall within that provision, evidence of their contents was admissible in evidence by virtue of the provisions of s 131(2)(g) and s 131(2)(i) of that Act.

3. Subject to this matter, I agree with the reasons of Gleeson JA.

4. WARD JA: I have had the advantage of reading in draft the comprehensive judgment of Gleeson JA. I agree, for the reasons set out by his Honour, that the appeal should be dismissed. I also agree with the proposed orders.

5. GLEESON JA: This appeal concerns a dispute between a vendor and the purchasers of a residential property located in Paddington (the Property).

6. The appellants (the Purchasers) entered into a contract dated 30 September 2011 to purchase the Property from the respondent (the Vendor). The purchase price under the contract of sale (Contract) was $6,350,000, of which the Purchasers paid a 5% ($317,500) deposit.

7. The date fixed for completion under the Contract was 30 December 2011. Settlement did not take place on that date because the Purchasers advised that they did not have the funds necessary to enable them to complete. The Vendor commenced proceedings by way of summons filed in the Equity Division of the Supreme Court seeking an order for specific performance of the Contract (and, in the alternative, damages). The Court later directed that the proceedings continue on pleadings. The Vendor then filed a statement of claim asserting that she was ready and willing to perform the Contract and seeking essentially the same relief as sought in the summons.

8. Shortly after filing the statement of claim the claim for specific performance of the Contract was abandoned and the Vendor instead purported to terminate the Contract on the ground of repudiation by the Purchasers. The Vendor resold the Property for $5,500,000 and amended her claim to seek damages for the deficiency on resale ($850,000) and other losses.

9. The Purchasers disputed the Vendor’s claim for damages on two main bases. The first related to whether it was necessary for there to be further repudiatory conduct by the Purchasers after the Vendor had made a claim for specific performance in order to bring about a right to terminate the Contract for repudiation. The second related to whether the Vendor had failed to mitigate her losses on resale of the Property.

10. The primary judge (Windeyer AJ) concluded that there was a clear continuing act of repudiation by the Purchasers. Accordingly the Vendor was entitled to terminate the Contract, and validly did so, and was entitled to seek damages for breach. Next his Honour found that the Vendor had made reasonable efforts to minimise her loss and took reasonable care in selling the Property for the price which she did. His Honour held that the Vendor’s entitlement to liquidated damages for breach of the Contract included interest for late payment (up to the date of termination of the Contract) and the amount of land tax which should have been paid by the Purchasers where completion occurred after 30 December 2011. His Honour gave judgment for the Vendor against the Purchasers in the sum of $814,907; ordered the Purchasers to pay the Vendor’s costs; and ordered the Purchasers to authorise the agents to account to the Vendor for the deposit: Kelly v Galafassi [2013] NSWSC 680.

11. The Purchasers have appealed to this Court. They contend that they were not in breach of an essential term of the Contract, because a notice to complete had never been served by the Vendor, and also that the primary judge should not have held that they had repudiated the Contract. They submit that the Vendor elected to affirm the Contract by instituting proceedings for specific performance, and again by filing a statement of claim seeking such relief, and that there was no repudiatory conduct after this further affirmation.

12. In the alternative, the Purchasers contend that the Vendor’s claim for damages should be reduced because: (a) the Vendor failed to mitigate her loss in not acting reasonably in reselling the Property without a new marketing campaign and a public auction, and because the sale was at an undervalue (it being contended that the market value of the Property at the time of resale was $6,250,000); and (b) the calculation of the deficiency arising on resale should not have included interest on the purchase price or land tax otherwise payable “on completion” because “completion” under the Contract never occurred.

13. The Vendor seeks to uphold the primary judge’s decision. By a notice of contention the Vendor also seeks to uphold the primary judge’s evidentiary ruling (to admit into evidence certain email communications from the Purchasers) on an alternative basis to that relied upon by his Honour. The significance of these communications is that they were relied upon by the primary judge as part of the continuing repudiatory conduct of the Purchasers. The Purchasers contend that these emails are “without prejudice” communications and hence not admissible.

The terms of the Contract

14. The coversheet of the Contract provided for the sale of the Property at a price of $6,350,000 with a deposit to be paid of $317,500 and for a “completion date” of 30 December 2012 for the purposes of cl 15 of the Contract.

15. Clause 15 of the Contract dealt with “completion” and provided as follows:

“15 Completion date

The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.”

16. Clause 9.3 of the Contract provided as follows:

“9.   Purchaser’s default

If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can -

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

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

9.2.1   for 12 months after the termination; or

9.2.2   if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and

9.3   sue the purchaser either -

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

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

•   the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or

9.3.2   to recover damages for breach of contract.”

17. The expression “terminate” was defined in cl 1 of the Contract to mean “terminate this contract for breach”.

18. Clause 14.4 of the Contract provided as follows:

“14.4   The parties must adjust land tax for the year current at the adjustment date -

14.4.1   only if land tax has been paid or is payable for the year (whether by the vendor or by a predecessor in title) and this contract says that land tax is adjustable;

14.4.2   by adjusting the amount that would have been payable if at the start of the year -

•   the person who owned the land owned no other land;

•   the land was not subject to a special trust or owned by a non-concessional company; and

•   If the land (or part of it) had no separate taxable value, by calculating its separate taxable value on a proportional area basis.”

19. The expression “adjustment date” was defined in cl 1 of the Contract to mean “the earlier of the giving of possession to the purchaser or completion”.

20. Clause 21 of the Contract addressed time limits and provided relevantly as follows:

“21.1 If the time for something to be done or to happen is not stated in these provisions, it is a reasonable time. …

21.6 Normally, the time by which something must be done is fixed but not essential.”

21. The expression “normally” was defined in cl 1 of the Contract to mean “subject to any other provision of this contract”.

22. The “Special Conditions” to the Contract included the following:

“34   COMPLETION, LIQUIDATED DAMAGES AND NOTICE TO COMPLETE

34.1   Completion must occur on or before 3.30 p.m. on the completion date.

34.2   If completion does not take place on or before the completion date for any reason not solely attributable to the vendor the purchaser must pay to the vendor interest at a rate of 10% per annum calculated on a daily basis on the price (less half the deposit actually paid) for the period from but excluding the completion date to and including the actual date of completion. It is an essential provision of this contract that any interest be paid on completion. The purchaser agrees any interest payable pursuant to this additional condition represents a genuine pre-estimate of the liquidated damages likely to be suffered by the vendor as a result of completion not taking place on or before the completion date. The vendor's right to the payment of interest is in addition to and does not restrict any other rights of the vendor under this contract.

34.3   A party entitled to serve a notice to complete may serve a notice requiring completion of this contract on a day being not earlier than 14 days after the date of service of the notice. The parties agree the period of 14 days after the date of service of the notice is sufficient to make time the essence of this contract.”

“38   LAND TAX

38.1   If completion does not take place on or before 30 December, 2011 (and in this respect time is of the essence) for any reason not solely attributable to the vendor, then the purchaser must on completion by unendorsed bank cheque, pay the vendor's liability for land tax for the 2012 year, calculated as if the land was subject to a special trust.

38.2   The obligation to pay land tax in accordance with this additional condition is an essential term of this contract.”

The course of events

23. On 24 May 2011 the Vendor appointed McGrath Residential (McGrath) as her agent to submit the Property for sale by auction. The Vendor agreed to a marketing campaign as recommended by Mr Ben Collier of McGrath in an amount of $23,804. The agent’s recommended method of sale was by auction and the estimated selling price was $6,500,000.

24. After entering into the Contract with the Vendor on 30 September 2011, the Purchasers listed their Bronte Road property for auction. This property was passed in at an auction held on 26 November 2011, and it seems it may have been passed in again at a second auction on 10 December 2011. However, shortly before Christmas 2011 the Purchasers agreed to an arrangement with the owners of a property in Yanko Avenue which involved a property exchange plus a cash component (payable by the Purchasers).

25. On 30 December 2011, the date scheduled for completion, the Purchasers’ solicitors sent an email to the Vendor’s solicitors advising that the Purchasers would not be able to proceed with the purchase and that their decision was made “out of necessity” (Blue 28). The Vendor’s solicitors responded on the same day that their client was ready, willing and able to complete the Contract and sought confirmation:

“That your clients have decided not to perform their obligations under the contract in any circumstances, and intend by your email to repudiate those obligations.” (Blue 30)

26. The Purchasers did not immediately respond.

27. On 3 January 2012 the Vendor’s solicitors wrote to the Purchasers’ solicitors stating that the Vendor did not accept the Purchasers’ apparent repudiation of the Contract and that the Vendor intended to institute proceedings for specific performance (Blue 32-33).

28. On 4 January 2012 the Purchasers’ solicitors wrote to the Vendor’s solicitors advising that the Purchasers were not financially capable of acquiring the Property and that an order for specific performance was not possible (Blue 34-35). The Purchasers’ solicitors explained that the Purchasers had not been able to dispose of their own property at Bronte and their bank was not willing to advance them the funds to acquire the Property unless the Purchasers’ property at Bronte was sold. It was acknowledged that the Contract was not contingent on the sale of the Purchasers’ property at Bronte nor on the Purchasers obtaining finance to acquire the Property. It was stated that the Purchasers would rely upon their financial incapacity in defence of the claim for specific performance.

29. On 20 January 2012 the Vendor commenced proceedings in the Supreme Court against the Purchasers seeking orders for specific performance of the Contract and, in the alternative, damages.

30. On 24 January 2012 the Purchasers stated in an email to the Vendor and her husband that:

“David and I feel absolutely sick about not being able to go through with the purchase of your house. We had every intention of doing so and it has broken our hearts. We can’t apologise enough and totally empathise with your position. We are mortified. If we had the money we would happily be living in it by now.” (Blue 188) [Emphasis added.]

31. The Purchasers’ email explained that they did not have the money to complete because their Bronte Road property had been sold for less than expected, that there was only one purchaser who would not exchange until she sold her own home in Yanko Avenue, and that they had ultimately agreed to swap houses. The email stated that the Purchasers had lost all their savings in the process.

32. The Purchasers’ email concluded with the following plea:

“Please reconsider taking us to court. It just makes a very sad situation much worse. We can no longer buy your beautiful house. Again, we apologise profusely. We don’t have the finances to go through with the purchase. For the sake of both our families, I implore that you find a way to settle this less publicly.

Understandably, all of this is not your concern. You thought you had sold the house and the sale has fallen through. We sincerely hope that you can understand our position and find it in your hearts to deal with this in another way.” (Blue 188) [Emphasis added.]

and contained the following postscript:

“ps…our lawyer was not entirely comfortable with us writing this letter and does not want it used against us. His advice is to state that this “appeal” is without prejudice and should not be used in a legal case against us, or in the press, and is very much confidential.”

33. On or about 24 February 2012, Mrs Galafassi sent a further email to the Vendor’s husband referring to recent publicity in the press and stating:

“… I wanted to write to you in the hope that we can try and sort something out before good press becomes bad press.

We are truly sorry for the position that we put you in last year, we can’t stress that enough, but there has to be a way that this matter can be resolved. If we can’t settle it commercially, quickly, rather than legally, slowly, the value of Paddington may well be jeopardised once our legal teams get in to the Court room and the media have a field day.

I am being perfectly honest when I say that there is no way that we could comply with an order to complete the purchase of Paddington if your order was granted. We don’t have the means to raise the funds to settle on Paddington. When Bronte Road didn’t sell at auction last November, we were very worried. I fully appreciate that I am not in a good position but, without admitting that I am liable for anything, I understand that if you were to sell Paddington now, it is likely I would have to find the difference to satisfy a claim of damages if the price came in under the contract price that we signed. So you would be in the same position as you would have been had you sold to us at the end of last year.

Whether that happens or not, that all makes sense to me but what doesn’t make sense is that the longer this matter is dragged out through legal processes (at least another month), the more damage it will do when the property is finally listed. It would become like a forced sale and the media coverage would not force the price up! At the moment you have $315,000 and you still have the house, so in essence you are in a better position than you were at the end of last year. In my humble view I wouldn’t put that position at risk.” (Blue 189) [Emphasis added.]

34. Mrs Galafassi’s email continued:

“I am due to settle on the sale of our Bronte Road house in the next few days. As the article in the media said we have ‘swapped’ our house for one not too far away, and at the moment the story that we wanted to stay close to the ocean with our young family, is not too far from the truth. My view is that if that story was maintained in the press, rather than coverage of all the details of a litigious battle, you will get a far better result than if you pursue me in the Courts.

If you listed Paddington for sale now, who knows, you may get more than the price we agreed to pay. You just don’t know. But if you don’t get a higher price, well, then Dave and I may have to suffer the consequences of a damages claim. Either way, you really are not going to be any commercially worse off, but we all will have avoided some of the stress, anxiety, time and effort that inevitably go hand in hand with litigation.

I am not trying to avoid the consequences of our action but trying to consider more commercial and realistic options with more satisfactory outcomes for everyone, rather than paying lawyers to follow procedures and argue legal points on our behalves.” (Blue 189-190)

35. At trial the Purchasers contended, unsuccessfully, that these two emails were “without prejudice” and should not have been admitted into evidence.

36. During March 2012 Mr Collier, the Vendor’s agent, continued to show potential purchasers through the Property. However the Vendor rejected Mr Collier’s recommendations for a new marketing campaign (at a cost of approximately $20,000) and to submit the Property for sale at auction on 19 May 2012.

37. In an email to the Vendor, dated 7 March 2012 (Blue 236-237), Mr Collier noted that since 1 July 2011 there had been two sales in Paddington for in excess of $3,000,000 (one of which was the Vendor’s property) and eight such sales in Woollahra. He also noted that there were currently four top-end properties being advertised in Paddington, and two in Woollahra, which were comparable to the Vendor’s property. He stated that whilst there did not appear to be a lot of competing properties on the market the more significant issue was the market’s ability to absorb this volume of stock. He noted that the properties listed for sale were finding it challenging to find a buyer in “today’s market”. He expressed the opinion that based on current market conditions the Vendor’s property would most likely be looking at a sale of around $5,000,000 (Blue 237).

38. On 19 March 2012 Mr Collier sent an email to the Vendor attaching a new Auction Agency Agreement and marketing campaign to commence after Easter. The estimated selling price was $6,500,000. Mr Collier gave evidence at the trial that this figure did not reflect his estimate of the likely selling price at auction (Black 49W-X). He explained that he used this figure because he wanted to highlight that he was not trying to adjust the agent’s fee from that in the earlier agreement in 2011 (Black 52B-R).

39. On 21 March 2012 the Court gave directions that the matter continue on pleadings and for the filing and service of a statement of claim by the Vendor and a defence by the Purchasers.

40. On 17 April 2012 the Vendor filed her statement of claim seeking an order for specific performance and, in the alternative, damages under s 68 of the Supreme Court Act 1970 (NSW), or damages under the general law. The allegations of fact in the statement of claim, which were verified by the Vendor to be true, included the following:

“[6] On and since 30 December 2011 the defendants have informed the [Vendor] of their intention not to proceed to completion of the [Contract]. …

[7] The [Vendor] is and was at all material times ready and willing to perform the terms of the [Contract] insofar as they remain to be performed, and to do all matters and things on her part to be done.” (Red 8-9)

41. The particulars of the allegation in [6] of the statement of claim included the Purchasers’ solicitor’s letter of 4 January 2012, Mrs Galafassi’s email of 24 February 2012, and “other correspondence”. It was common ground at trial that the only document relied upon in respect of this last particular was the Purchasers’ email of 24 January 2012 (Black 98T-U).

42. On 24 April 2012 the Vendor’s solicitors served a notice of termination of the Contract. The basis for termination identified in that notice was the content of correspondence from the Purchasers’ solicitors of 30 December 2011 and 4 January 2012 (see at [25] and [29] above).

43. On the same day the Vendor entered into a contract for sale of the Property to a Mr Ball for $5,500,000. This contract was completed on 30 May 2012.

44. On 6 June 2012 the Vendor filed an amended statement of claim seeking damages against the Purchasers for breach of the Contract including the deficiency on resale in accordance with cl 9.3.1 of the Contract, interest on the purchase price calculated from 31 December 2011 to 24 April 2012 pursuant to Special Condition 34.2, and payment of the Vendor’s liabilities for land tax for the 2012 year calculated pursuant to Special Condition 38.1. The claim for specific performance was abandoned.

45. The amended statement of claim repeated the allegation in [6] of the previous pleading and included new allegations in [6A] and [7A] in the following terms:

“[6A] Further the [Purchasers] have by their conduct disabled themselves from their performance of the agreement with the [Vendor] by entering into an agreement for purchase of a residential property with another vendor.”

“[7A] In the premises the [Purchasers] have by their conduct and in the circumstances pleaded in paragraphs 1, 2, 4A, 5, 6 and 6A of this Amended Statement of Claim, failed to comply with the agreement in an essential respect and repudiated the agreement and their obligations thereunder.”

46. The particulars given for the allegation in [6A] was the email from Mrs Galafassi to the Vendor’s husband of 24 February 2012. The Purchasers by their amended defence asserted in response to the allegation in [6] that some of the correspondence on which the Vendor relied was sent “without prejudice” and was inadmissible, and otherwise denied that they had informed the Vendor of their intention not to proceed to completion. The Purchasers did not admit the allegation of factual inability to perform in [6A] of the amended statement of claim and also denied the allegation in [7A] that they had repudiated the Contract.

The primary judgment

47. The primary judge first addressed the question of whether the commencement of proceedings for specific performance is an election which precludes a subsequent claim for damages for breach. His Honour considered that it did not: at [12]. His Honour noted the Purchasers’ argument that while an election to commence proceedings for specific performance does not prevent a subsequent claim for damages for breach of Contract, that election does amount to a waiver of rights existing up to that time to terminate for repudiation, so that it is necessary for there to be further repudiatory conduct to bring about a right to terminate: at [13]. His Honour doubted that this was a correct statement of principle but went on to find:

“[13] … But in any event in this case the defendants made it quite clear, in correspondence after service of the summons claiming specific performance, that they could not, and therefore would not, complete. The fact the matter subsequently proceeded to pleadings is not I think some new act so as to preclude reliance on past repudiatory conduct, and Ogle v Comboyuro Investments Pty Ltd does not suggest that a continuing refusal to complete is not a continuing repudiation, particularly as in this case the purchasers after the summons was issued made it clear they could not complete and would give the letter advising of this in evidence if the claim were continued. I would have thought that the earlier statement of inability to complete, the stated continuation of this even after the specific performance proceedings were commenced, and the presumption of a continuing position that they remained unable to complete was a continuing repudiation which the vendor could accept and move to terminate. There is no evidence at all from the purchasers to counter this.” [Emphasis added.]

48. His Honour rejected the Purchasers’ argument that service of a notice to complete was a prerequisite of a right to terminate in the present case, reasoning that:

“[15] … Special Condition 34.3 sets out one means of bringing a contract to an end if termination follows non-compliance with the notice, but that does not mean that if there has been a clear repudiation by a party that cannot be accepted and relied on as a fundamental breach. The law does not require something to be done which is purposeless. For instance, it does not require the vendor to attend an appointment for settlement when the purchaser has indicated that he or she will not be attending and is unable to settle.”

Repudiation

49. At [17] his Honour noted that after the filing of the summons for specific performance (on 20 January 2012) the Purchasers had sent an email to the Vendor on 24 January 2012 apologising and making it clear that they did not have the money to complete, and explaining why that was so. His Honour expressed the question for determination in the following terms:

“[20] The question then is whether there has been a repudiation that continued up to termination and whether it is necessary for valid termination that some fresh act of repudiation has occurred after the commencement of the proceedings for specific performance.”

50. After referring to various authorities dealing with the legal significance of instituting proceedings for specific performance on a subsequent claim for damages, his Honour said:

“[23] Ogle v Comboyuro Investments Pty Ltd makes it clear that a claim for specific performance is not an election against a right to sue for damages; that although the commencement of an action for specific performance and relying on breach of an essential term of a contract may prevent the subsequent termination (in the case called rescission) in reliance on such breach (at 457-458); if the failure to settle at all amounted to a repudiation of the contract, as distinct from breach of an essential term, then such continued long failure can amount to a refusal to be bound (at 458).”

51. At [25], his Honour expressed his conclusion as follows:

“I have come to the conclusion that there was a clear continuing act of repudiation by the purchasers who had indicated they could not complete, that they had no intention of completing, and they had in fact sold their property at Bronte and bought another property which, on the basis of their evidence, put it beyond their powers to complete. In those circumstances, I find that the purchasers repudiated the contract, that the vendor was entitled to terminate and did so, and thereupon is entitled to seek damages for breach.”

Failure to mitigate

52. His Honour then turned to the issue of whether the Vendor had failed to mitigate her loss on resale of the Property. At [27] his Honour described the Vendor’s claim for the deficiency arising on resale as:

“… a claim in common law for damages arising through breach of contract pursuant to a particular condition of the contract. The common law duty of mitigation of loss applies”.

53. His Honour accepted that valuation evidence could be taken into account in determining whether the Vendor acted reasonably, but considered that it was not determinative: at [31]. His Honour accepted evidence of Mr Donovan, a valuer, and Mr Collier, the Vendor’s agent, about a decline in values of similar properties between March 2011 and mid 2012: at [43]. His Honour did not accept the valuation evidence of Mr Wotton that the Property was valued at $6,250,000 as at April 2012 because his report did not take into account the decline in market prices: at [40] and [44]. His Honour reviewed the expert evidence on sale procedures and comparable sales and preferred the evidence of Mr Collier to that of Mr Wotton. His Honour found that the Vendor made reasonable efforts to minimise her loss and took reasonable care in selling the Property for the price which she did: at [44].

Interest and land tax

54. As to the Vendor’s claims for special condition interest on the purchase price and payment of land tax as part of the deficiency on resale under cl 9.3.1, his Honour followed the approach of Hamilton J in Zografakis v McCarthy [2007] NSWSC 144 in relation to a special condition in very similar terms to Special Condition 34.2. His Honour found that these amounts could be recovered as part of deficiency on resale under cl 9.3.1 because, had the Contract been completed on the day of termination, the Vendor would have received special condition interest on the purchase price up to that date and also payment of the Vendor’s land tax liability for the 2011 year: at [46] and [48]. Alternatively, in relation to land tax, his Honour found that land tax would be recoverable as an expense arising out of the Purchasers’ breach, based on the reasoning of Young J in Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391 at 394G.

Issues on appeal

55. The issues on appeal were as follows:

1. Whether the Vendor’s termination of the contract on 24 April 2012 was lawful: grounds 1-6.

2. The admissibility of the two emails from Mrs Galafassi to the Vendor’s husband: grounds 7-9.

3. Whether the Vendor failed to mitigate her loss on resale of the property: grounds 10-14.

4. Whether the Vendor is entitled to interest and reimbursement for land tax liability: grounds 15-18.

Issue 1: Was the Vendor’s termination of the Contract lawful?

Submissions

56. Two reasons were advanced by counsel for the Purchasers why the Vendor had no right to terminate the Contract on 24 April 2012. The first was that the Vendor never made time of the essence of the Contract by serving a notice to complete and that she was not entitled to terminate without notice on 24 April 2012. The second was that, in any event, the Vendor had elected to keep the Contract on foot on 17 April 2012 by her conduct in filing and serving the verified statement of claim which pleaded that she was ready and willing to perform the Contract. It was contended that there was no new repudiatory conduct on the part of the Purchasers between 17 April and 24 April 2012. Hence it was said that the Vendor was not entitled to terminate the Contract having further affirmed it on 17 April 2012.

57. Counsel for the Vendor submitted that service of a notice to complete was not required to establish that the Purchasers did not intend to honour their obligations under the Contract. It was submitted that the Purchasers’ express declarations of their inability and unwillingness to perform evinced their clear intention to no longer be bound by the Contract. The Purchasers’ statements that they could not complete were said to be both a prediction and also a statement of existing fact that was a continuing representation unless and until it was withdrawn or modified: K&K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302 at [135] per Handley AJA.

58. The Vendor submitted that, to the extent that the commencement of proceedings for specific performance was an election, this did not waive the Vendor’s entitlement to subsequently terminate the Contract in reliance on the Purchasers’ course of conduct which confronted the Vendor with a clear and continuing refusal to perform which amounted to a renunciation of the Contract. It was further submitted that the Vendor was bound to accept directions by the Court for the further prosecution of the claim, and compliance with those directions was merely a necessary consequence of the decision to seek the Court’s assistance to specifically perform the Contract. It was argued that the filing and service of the statement of claim was not a fresh step or further election to pursue the claim.

(a) Repudiation by the Purchasers

59. It is convenient to deal first with the question of repudiation, which was the primary focus of the Purchasers’ oral argument. However, it should be observed that there is a tension between the Purchasers’ two arguments; one based on election between inconsistent rights and the other based on the absence of a notice to complete. The tension arises because the Purchasers accept that the necessary premise of the election argument is that, as at 20 January 2012, the Vendor had a right to terminate the Contract for repudiation without the need to serve a notice to complete (AT, 11 March 2014, p 15, lines 31-50). The same situation must also apply to the Purchasers’ election argument based on the Vendor having filed and served the verified statement of claim on 17 April 2012.

60. Conversely, if there was no right to terminate the Contract at the time the Vendor instituted the proceedings on 20 January 2012 because the Vendor had not yet given a notice to complete, no question of election arose at that date and the institution of the proceedings would not amount to an affirmation of the Contract: Ciavarella v Balmer [1983] 2 NSWLR 439 at 450-451 (Glass JA) approved by the High Court in Ciavarella v Balmer [1983] HCA 26; 153 CLR 438 at 449.

61. The Vendor’s pleaded claim of repudiation relied on two grounds. First, that the Purchasers’ words and conduct evinced both an unwillingness to perform the Contract according to its terms and an inability to do so. The term “repudiation” is used in this context to describe what amounts to a renunciation: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (Koompahtoo) [2007] HCA 61; 233 CLR 115 at [44]; Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 436 (Devlin J). Secondly, that the Purchasers had also put it out of their power to actually perform because they had sold their Bronte Road property and entered into an agreement for the purchase of another residential property with a different vendor. The primary judge (at [25]) found that repudiation had been established on both bases. The Purchasers challenge these findings.

Relevant principles

62. For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634, 647-648, 658; Koompahtoo at [44]; Foran v Wight [1989] HCA 51; 168 CLR 385 at 423. Where inability to perform is declared the conduct amounts to a refusal to perform and the innocent party need not prove that the other party was actually unable to perform as a matter of fact: Universal Cargo Carriers Corporation v Citati at 437.

63. A renunciation can be made either by words or conduct, provided it is clearly made: Universal Cargo Carriers Corporation v Citati at 436. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it: Koompahtoo at [44]; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 659 (Deane and Dawson JJ) and at 647 (Brennan J).

64. So far as factual inability to perform is concerned what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether: Rawson v Hobbs [1961] HCA 72; 107 CLR 466 at 481; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 at [62] (Bathurst CJ; Giles JA and Handley AJA agreeing). It is well accepted that factual inability must be proved “in fact and not in supposition”: Universal Cargo Carriers Corporation v Citati at 50.

Renunciation

65. In my view, there cannot be any serious doubt that the Purchasers’ solicitor’s letter of 4 January 2012 and Mrs Galafassi’s two emails to the Vendor’s husband constituted clear statements of the Purchasers’ inability and unwillingness to perform the Contract. The statement by the Purchasers’ solicitor that they were not financially capable of acquiring the Property, coupled with the statements in Mrs Galafassi’s emails that the Purchasers could no longer buy the Property, that they did not have the finances to go through with the purchase, and that they could not comply with an order for specific performance if granted by the Court, clearly and unequivocally told the Vendor that the Purchasers were unable and unwilling to perform the Contract.

66. The statement of financial incapacity was also a statement of existing fact. It was a continuing representation unless and until it was withdrawn or modified: K&K Real Estate Pty Ltd v Adellos Pty Ltd at [135]. The Purchasers did nothing up to 24 April 2012 to indicate that their expressed intentions had changed.

67. The message conveyed by the unretracted declarations of the Purchasers was plain. It was confirmed by their failure to agree to the Vendor’s claim that the Contract should be performed. The Purchasers’ conduct could only be understood as having conveyed to a reasonable person in the position of the Vendor renunciation of the Contract as a whole. Subject to the election argument, which is next considered, the inescapable conclusion is that there was a continuing repudiation by the Purchasers day by day from 4 January 2012, which the Vendor was entitled to accept and terminate the Contract.

Factual inability

68. As already noted, in addition to the Purchasers’ declared inability and unwillingness to perform, the primary judge found factual inability to perform. The latter finding was made on the basis of the Purchasers’ evidence that they had put it beyond their power to complete the Contract by selling their Bronte Road property and purchasing another residential property. The Purchasers attack this finding arguing that purchasing another house is insufficient to establish repudiation based on impossibility to perform. The Purchasers contend that it is quite possible for a person to own more than one house, or for a person to sell a house they have acquired to pay for the purchase of another. At a general level so much may be accepted.

69. The difficulty however with the Purchasers’ submissions is that they are entirely speculative when considered in light of the evidence. The question is whether the Vendor proved as at 24 April 2012 that the Purchasers were “wholly and finally disabled” from completing the Contract. The following matters are relevant.

70. First, the Purchasers acknowledged in the 24 January email that they had lost all their savings in the process of selling their Bronte Road property in exchange for the Yanko Avenue property. Secondly, the Purchasers acknowledged in the 24 January email that they did not have the finances to go through with the purchase of the Vendor’s property. Thirdly, there was no evidence of any step taken by the Purchasers nor of any consideration given by them to selling the Yanko Avenue property, which they had just purchased, so as to put themselves in a position to complete the Contract. Whilst a finding of factual inability is not to be lightly made, in my view the primary judge did not err in making such a finding.

Legal significance of a claim for specific performance

71. The Purchasers seek to avoid the consequences of their repudiatory conduct by contending that the Vendor elected to affirm the Contract and thereby was precluded from terminating the Contract on 24 April 2012. The election argument has two limbs.

72. First, the Purchasers contend that by commencing proceedings for specific performance on 20 January 2012 the Vendor elected to affirm the Contract. Next the Purchasers contend that, if the statements in their two emails of 24 January and 24 February 2012 amount to a repudiation, the Vendor elected to further affirm the Contract on 17 April 2012 by filing and serving the verified statement of claim which maintained the claim for specific performance of the Contract.

Relevant principles

73. In each instance the Purchasers contend that the situation is to be characterised as posing an election between inconsistent rights where a person must choose between exercising one or the other of them. The relevant choice is said to be either: (a) to accept the Purchasers’ repudiatory breach and terminate the Contract; or (b) to choose to insist upon further performance: Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634 at 641, 645-6 (Stephen J) and 655-6 and 658 (Mason J); Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [58].

74. At the heart of election is the idea of confrontation which in turn produces the necessity of making a choice: Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26 at 42. Thus where a party, faced with the choice of terminating the contract or keeping it on foot, terminates the contract ordinarily that conduct leaves no doubt as to the choice being made. This is because the contract no longer exists. But as the High Court explained in Immer at 41, the question is not answered so readily where the situation is the converse. This is because a party may act on the basis that the contract remains on foot without necessarily being confronted with the necessity of making a choice to either terminate or affirm the contract: Immer at 42-43.

75. This is to be contrasted with a situation of inconsistent remedies to enforce a right where no question of election arises until one or other claim has been pursued until judgment: United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30; Baxter v Obacelo Pty Ltd [2001] HCA 66; 205 CLR 635 at [39]. The institution of proceedings for alternative remedies (including relief of an equitable nature) is not an election by the promisee in favour of either remedy. The very purpose of seeking alternative relief is to keep the promisee’s options open: see J W Carter, Carter’s Breach of Contract (2nd ed, 2011, LexisNexis Butterworths) at [10-58]. The distinction between alternate rights and remedies and its consequences has been described by the High Court as “fundamental”: Ciavarella v Balmer at 449.

76. Although an election between inconsistent rights once made is irrevocable: Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55, it does not follow that an innocent party who seeks (and gets) specific performance is treated as affirming the contract irrevocably so as to prevent the innocent party from later bringing the contract to an end if the repudiating party persists in its failure to perform.

77. In Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444 at 459-460 the High Court (Gibbs, Mason and Jacobs JJ) held that a vendor who is entitled to rescind a contract for sale of land by reason of the purchaser’s failure to complete on time, but who elects to sue for specific performance, is not thereby precluded from later rescinding the contract and claiming damages for the continued refusal by the purchaser to complete, if the purchaser’s conduct evinces an intention no longer to be bound by the contract. Ogle v Comboyuro Investments Pty Ltd highlights the important distinction between inconsistent rights to terminate or affirm a contract (as to which the institution of proceedings for specific performance is an election to affirm the contract) and the choice between inconsistent or alternative remedies of specific performance or damages (as to which no election arises until judgment).

78. In Johnson v Agnew [1980] AC 367 the House of Lords accepted that obtaining a decree for specific performance was an affirmation of the contract yet the House declined to treat the innocent party’s decision to affirm as irrevocable so as to prevent him from bringing the contract to an end when the repudiating party persisted in his failure to perform. Lord Wilberforce explained at 398 why that was so:

“A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract - what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under control of the court which control involves the power, in certain events, to terminate it.”

79. This is not to suggest that the innocent party may in all cases change his or her mind after affirming the contract. The position is correctly stated by Mr Sumption QC, as he then was, sitting as a Deputy High Court Judge in Safehaven Investments Inc v Springbok Limited (1996) 71 P & CR 59 at 68, where he observed, in reference to the analysis in Johnson v Agnew:

“It does not follow from this analysis that the innocent party may in all cases change his mind after affirming the contract. If, for example, after he had affirmed it, the repudiating party's conduct suggested that he proposed to perform after all, then that party's previous repudiation is spent. It had no further legal significance. If, on the other hand, the repudiating party persists in his refusal to perform, the innocent party may later treat the contract as being at an end. The correct analysis in this case is not that the innocent party is terminating on account of the original repudiation and going back on his election to affirm. It is that he is treating the contract as being at an end on account of the continuing repudiation reflected in the other party's behaviour after the affirmation.” [Emphasis added.]

80. Similarly in Ogle v Comboyuro Investments Pty Ltd at 461 the High Court (Gibbs, Mason and Jacobs JJ) said:

“If a party has by his conduct shown and continues to show an intention never to complete the contract, especially when his conduct by express act or by implication is not consistent with an intention to perform the contract pursuant to any judgment for specific performance, then it must be open to a vendor to rescind even if there is current an action for specific performance. If there is a further breach of an essential term or some further conduct amounting to a repudiation while the action for specific performance is pending, the existence of the action will not then prevent the vendor electing to rescind but he will on such an election lose the right which he previously had to specific performance and will be limited to damages for the breach.” [Emphasis added.]

81. In Holland v Wiltshire [1954] HCA 42; 90 CLR 409 a vendor had not accepted a repudiation of the contract conveyed by the purchasers’ solicitor and had insisted on performance by giving the purchasers notice of 17 March to complete by 28 March. At 420-421 Kitto J noted that after this clear election the right of the vendor to end the contract because of the repudiation conveyed by the purchasers’ solicitor was plainly gone, but went on to observe:

“It is at least clear that the express refusal through the solicitor to go on with the matter, though the vendor lost by his election the right to terminate the contract by reason of it, remained as a fact in the history of the matter and gave an unmistakeable colour to the continued inactivity of the purchasers after receiving the vendor's ultimatum. The only possible inference was that the purchasers were refusing, deliberately and finally, to complete the purchase. Consequently, when 28 March had gone by, the contract unquestionably stood repudiated by the purchasers, and the vendor, if his patience should become exhausted at any time while the repudiation continued, was entitled to treat the contract as no longer binding upon him …

… But, when the plaintiffs found that the defendants were inflexible, and would not perform the contract at all, they had, in my opinion, a right to treat it as at an end and to bring an action for its breach. It would indeed be strange if the plaintiffs by trying to persuade the defendants to perform their contract were to lose their right to sue for its non-performance when their patience was exhausted.” [Emphasis added.]

82. This statement of Kitto J was approved in Ogle v Comboyuro Investments Pty Ltd at 458-459.

83. In summary, the legal significance of commencing proceedings for specific performance is as follows - a vendor who elects to sue for specific performance is not thereby precluded from later terminating the contract and claiming damages for the continued refusal by the purchaser to complete if the purchaser, after the institution of the proceedings, either committed a breach of an essential term of the contract or otherwise evinced an intention to no longer be bound by the contract: see generally Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, Butterworths) at [20-265].

84. It follows in the present case that whilst the institution of proceedings for specific performance on 20 January 2012 may be taken as an affirmation of the Contract by the Vendor, the effect of the findings of the primary judge in relation to the Purchasers’ conduct after the institution of proceedings was such that the Vendor was entitled to accept the Purchasers’ continuing repudiatory conduct and terminate the Contract as she did on 24 April 2012.

Significance of Vendor’s statement of claim

85. As already noted, the Purchasers seek to avoid this conclusion by contending that the Vendor further affirmed the Contract on 17 April 2012 by filing and serving her statement of claim which pleaded the claim for specific performance, and that there was no further repudiatory conduct by the Purchasers after 17 April and before 24 April 2012. This gives rise to two questions. The first is whether the filing and service of the statement of claim pursuant to court directions constituted a further affirmation of the Contract by the Vendor. If so, a second question arises: was there a continuing repudiation of the Contract by the Purchasers after 17 April and up until 24 April 2012?

86. On the first question the Vendor submitted compliance with court directions was merely a necessary consequence of the decision to seek the Court’s assistance to specifically perform the Contract and not a fresh step or further election to pursue the claim again. The Vendor submitted that the Purchasers’ argument that there was a further affirmation of the Contract was contrary to the ratio in Ogle v Comboyuro Investments Pty Ltd.

87. It is uncontroversial that by commencing proceedings for specific performance and for damages in the alternative, the Vendor submitted the dispute to the Court in exercise of an equitable jurisdiction. As explained in Ogle v Comboyuro Investments Pty Ltd (at 457), the commencement of an action for specific performance did not waive the breach of contract. Rather it waived reliance by the vendor on the breach of contract as the breach of a fundamental term which entitled the vendor to terminate.

88. Counsel for the Purchasers did not argue that the mere continuance by the Vendor of the action for specific performance after the Purchasers’ emails amounted to a further affirmation of the Contract by the Vendor. Why should the position be different if the Vendor files her pleaded claim in compliance with Court directions? The answer would seem to lie in the principles relevant to election between inconsistent rights. First an election to terminate must generally occur within a reasonable time of the discovery of the circumstances giving rise to the right: Champtaloup v Thomas [1976] 2 NSWLR 264 at 273. But there is no requirement that the promisee must elect immediately. The promisee may keep its options open so long as it does nothing to affirm the contract and so long as the promisor’s position is not prejudiced in consequence of the delay: Tropical Traders Ltd v Goonan at 55. Secondly if the promisee’s unequivocal conduct evinces an intention to affirm its obligation to perform, the right of termination is lost.

89. Accepting that the Purchasers’ emails evinced an intention never to complete and thus amount to a repudiation of the Contract after institution of the proceedings, the Vendor would seem to be confronted with a fresh election between inconsistent rights to either terminate or affirm the Contract. Whilst there was no requirement for the Vendor to elect immediately, she could not keep her options open once she filed her pleaded claim, because she thereby unequivocally indicated that she had not terminated the Contract. It is not to the point that the Vendor had not and was not yet required to elect between the alternative remedies of specific performance or damages. The Vendor’s argument that she was obliged to comply with court directions to file a pleaded claim is really no answer to whether she further affirmed the Contract, if faced with a fresh election. It is unnecessary however to express a concluded view on this issue.

90. Even assuming favourably to the Purchasers (that the Vendor’s conduct amounted to a further affirmation of the Contract on 17 April 2012), the Purchasers’ unretracted declarations of inability and unwillingness to perform remained as a fact in the history of the matter and gave an unmistakeable colour to the continued inactivity of the Purchasers: Holland v Wiltshire at 421 (Kitto J). Contrary to the Purchasers’ submission, the Vendor was not obliged to wait another 28 days after service of the statement of claim to see what position the Purchasers took in their defence. Nor was the Vendor obliged to wait for a “new” act of declared inability by the Purchasers. The question is whether there was further neglect or refusal evincing an intention never to complete and thus an express or implied repudiation of the whole Contract: Ogle v Comboyuro Investments Pty Ltd at 460. The Purchasers never withdrew or modified their declarations of unwillingness and inability to perform. Those declarations were confirmed after 17 April 2012 by the Purchasers failing to agree to the Vendor’s pleaded claim that the Contract should be performed. The Purchasers’ repudiation was continuing day by day after 17 April 2012 just as much as it was continuing before that date. The repudiation by the Purchasers is not the mere delay between 17 and 24 April 2012, nor for that matter the more protracted delay since the completion date under the Contract (30 December 2011). Here the unmistakable colour given to the Purchasers’ continued inactivity after 17 April 2012 in light of the preceding events was such as to convey to a reasonable person in the position of the Vendor renunciation of the Contract as a whole.

91. In my view, there was no error in his Honour’s conclusion that, in light of the Purchasers’ continuing repudiation, the Vendor was entitled to terminate the Contract, and validly did so on 24 April 2012.

(b) Notice to complete not required

Submissions

92. The Purchasers separately contended that the Vendor was not entitled to terminate the Contract on 24 April 2012 because the Vendor had never made time of the essence by serving a notice to complete. The Purchasers’ argument relied upon the following propositions: (a) that no right to terminate accrued to the Vendor under cl 9 of the Contract because the Purchasers never failed to comply with the Contract “in an essential respect”; (b) that although cl 15 of the Contract specified 30 December 2011 as the completion date, time was not of the essence in respect of that date; and (c) that the failure by the Vendor to ever nominate a time for completion which was of the essence had the result that the Vendor was not entitled to terminate the Contract based on the Purchasers’ alleged inability to perform. Counsel for the Purchasers referred to Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553 at 567E and Georgiou v Sindel [1982] 1 NSWLR 435 at 453D-454E.

93. In oral argument counsel for the Purchasers accepted that a notice to complete would not have been necessary if there had been some further act of declared inability to perform by the Purchasers after 17 April 2012, that is some further repudiatory conduct (AT 11 March 2014, 27, lines 27-45). Why the Purchasers’ conduct after 17 April 2012 - in failing to withdraw or modify their earlier declarations of inability and unwillingness to perform, and in failing to agree to the Vendor’s pleaded claim that the Contract should be performed - did not evince an intention never to complete and thus impliedly repudiated the whole Contract was not addressed in the Purchasers’ oral argument: see Ogle v Comboyuro Investments Pty Ltd at 460.

158. The evidence also established that Mr Collier, who had acted on the earlier sale to the Purchasers, had extensive experience in selling prestige properties in the Paddington and Woollahra area; that the property market in that area was in decline from September 2011 to April 2012; that Mr Collier had shown the Property to nine interested purchasers between January and April 2012; and that the offer ultimately accepted from Mr Ball on 24 April 2012 of $5,500,000 was an increase of $200,000 on his first offer (Orange 51).

159. In my view there was no error in his Honour’s finding that, in the circumstances of the present case, the absence of a marketing campaign and an auction in 2012 did not demonstrate that the Vendor acted unreasonably in relation to the resale of the Property.

160. There are other difficulties with the Purchasers’ complaint. First, the Purchasers did not adduce any evidence, other than from Mr Wootton which was rejected, to establish that a full marketing campaign and an auction would have obtained any different price on resale. His Honour’s finding (at [32]) rejecting Mr Wotton’s evidence concerning the proposed method of sale and marketing of the Property was not challenged on appeal. It was not established that the Vendor acted unreasonably in selling by private treaty. Nor was it established that a new marketing campaign would have solicited a higher offer than that negotiated with Mr Ball in April 2012.

161. Secondly, so far as the Purchasers complain that the Vendor declined to pursue an opportunity in March 2012 to rent the Property for $4,000 per week, the Purchasers did not adduce any evidence to establish that it was unreasonable for the Vendor not to have deferred the sale for a period of time (which was not identified) during which rent might be obtained whilst market conditions might hopefully improve.

Valuation evidence

165. The Purchasers also contend that the evidence of market movement in Mr Wotton’s report supported, at most, a modest decline in the market between September 2011 and April 2012, and that the Property was worth at least $6,250,000 at the end of April 2012 based on Mr Wotton’s report. The Purchasers point to the price achieved at the arms-length sale in September 2011 of $6,350,000 as being strong evidence of the market value a short time later in April 2012. The Purchasers also contend that the purchase price of $5,500,000 on 24 April 2012 did not provide any evidence of market value because that price was agreed without proper marketing of the Property. Finally, the Purchasers drew attention to a written estimate of value of the Property by Mr Collier at $6,500,000 in April 2011 as support for Mr Wotton’s opinion.

166. There are a number of difficulties with the Purchasers’ contentions. The first is that the Purchasers did not demonstrate that there was any error in his Honour’s general approach to the use of valuation evidence on the question of whether the Vendor had exercised the power of resale in a reasonable manner. His Honour accepted, correctly in my view, that valuation evidence was relevant but not determinative of that question: at [31]. Moreover the process of valuation is not an exact science: Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd at [66], and hence the opinion of Mr Wotton is not to be taken as evidence of the precise value of the Property at April 2012.

167. The second difficulty is that the Purchasers’ reliance on the valuation evidence of Mr Wotton ignores the primary judge’s findings. Mr Wotton gave evidence of a reasonable valuation range in April 2012, which included a price of $5,900,000 although he ultimately adopted a value of $6,250,000 for reasons which his Honour noted were unclear: at [39]. However, as the Vendor correctly submits, his Honour found that Mr Wotton failed to take into account the decline in values over the relevant period when looking at comparable sales: at [40]. This finding is not challenged.

168. His Honour noted (at [39]) the figures referred to in Mr Wotton’s report concerning the decline in the average sale prices for residential property in the $3,000,000 to $8,000,000 range in Paddington between 1 July 2011 and 30 June 2012 of 4.86%, and a similar reduction in the Woollahra area of 5.14% for the same period in respect of the same category of properties (Blue 481).

169. His Honour correctly observed that a reduction of 5% (being the mid point between 4.86% and 5.14%) to the low end of Mr Wotton’s reasonable value range, resulted in a figure of $5,600,000. His Honour also observed that the figure would be even lower if the figure for the reduction in average sale prices for the three-quarters covering the period 1 July 2011 to 31 March 2012 was used: at [40]. The Purchasers did not contest the Vendor’s submission that the resulting figure would have been $5,348,350 based on a reduction of 9.35% (being the average of 8.7% for Paddington and 10% for Woollahra) to $5,900,000.

170. The third difficulty is that the Purchasers ignore the evidence of Mr Donovan, which his Honour took into account, that the market value of the Property in April 2012 was $5,600,000 but a further discount may apply having regard to the wide publicity of the failed sale to the Purchasers. His Honour noted that Mr Donovan considered a sale at $5,500,000 “a sound transaction for the property at that date and given the particular circumstances”: at [43].

171. The fourth difficulty is that the figure of $6,500,000 stated in the draft agency agreement, which was sent by email to the Vendor on 19 March 2012, did not reflect Mr Collier’s estimate of the likely selling price at auction (Black 49W-X). Shortly prior to forwarding the draft agency agreement, Mr Collier had expressed his opinion in an email to the Vendor of 7 March 2012 that the likely sale price of the Property was around $5,000,000 (Blue 237L). His evidence concerning this estimate of $5,000,000 was not challenged. Mr Collier explained in cross-examination that he submitted an agency agreement stating an estimated selling price of $6,500,000 because he wanted to highlight that the agency agreement was exactly the same as the earlier agreement in 2011 and that he was not trying to adjust the agent’s fee (Black 52B-R).

172. The fifth difficulty is that the Purchasers’ criticism of the $5,500,000 purchase price on 24 April 2012 as not providing any evidence of market value, ignores Mr Collier’s evidence referred to at [160] above, that a full marketing campaign would not necessarily have achieved a better result for the reasons there noted. As already noted, the Purchasers did not establish that a new marketing campaign would have achieved a higher price in April 2012.

173. In my view the Purchasers have not made out any of their appeal grounds 10-14.

Issue 4: Whether the Vendor is entitled to interest and reimbursement for land tax liability?

Interest

174. The Purchasers contend that the primary judge erred in allowing interest of $196,225 calculated in accordance with Special Condition 34.2 as part of the deficiency on resale pursuant to cl 9.3.1. Clause 9.3.1 and Special Condition 34.2 are set out above at [16] and [22] respectively.

175. The Purchasers’ main argument was that special condition interest is only payable “on completion” by the Purchasers, but has no application where the Vendor elects to terminate the Contract because in those circumstances there is no “completion” under the Contract. The Purchasers also raised a pleading point that the Vendor’s pleaded claim for interest was pursuant to Special Condition 34.2 (which was contingent on completion) rather than as part of “the deficiency on resale” pursuant to cl 9.3.1.

176. The Vendor sought to uphold the primary judge’s reasoning allowing special condition interest as part of the purchase price under the Contract, following the approach of Hamilton J in Zografakis v McCarthy. It was contended that the “deficiency” in cl 9.1.3 is the difference between the Vendor’s entitlements under the Contract at the date of termination (which would include special condition interest on the purchase price) and the amount she actually received on resale. In oral argument counsel for the Vendor submitted that special condition interest could have been calculated up to the actual date of completion of the second contract because that was the time when one knew the “deficiency”, but the Vendor had limited her claim to the date of termination of the Contract (27 April 2012), which was also the date of the second contract.

Disposition

177. It was common ground that under cl 9.3 of the Contract the Vendor was given the option, after terminating the Contract, of either suing for damages in accordance with general law principles (cl 9.3.2), or reselling the Property as owner within 12 months and claiming as liquidated damages any deficiency on resale and the reasonable costs and expenses of resale and the Purchasers’ default (cl 9.3.1). The damages available under these two limbs are often similar but not always the same: see, for example, Palasty v Parlby [2007] NSWCA 345 at [41]. It is essential to maintain the distinction: Tiplady v Gold Coast Carlton Pty Ltd (1984) 54 ALR 337 at 375 (Fitzgerald J).

178. In the present case the Vendor elected to make a claim calculated under cl 9.3.1 for liquidated damages rather than a claim for damages assessed according to the ordinary principles for determining damages for breach of contract. The difference between the two was explained by Barrett J in Rothenberger Australia Pty Ltd v Poulsen at [27] as follows:

“… ‘liquidated damages’ are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, while ‘unliquidated damages’ are compensation as assessed by the court for loss occasioned by breach.”

179. There is a further important difference as to the time at which the damages are calculated. In the case of common law damages, the cause of action arises as at the date of breach and the claim is generally assessed as at that date: Jampco Pty Ltd v Cameron (No 2) at 395 (Young J), although that date may be departed from where it is necessary to properly compensate the innocent party: Johnson v Perez [1988] HCA 64; 166 CLR 351 at 355-356 (Mason CJ), 367 (Wilson, Toohey and Gaudron JJ), 380 (Deane J) and 386 (Dawson J).

180. In the case of a claim for liquidated damages under cl 9.3.1, authority suggests that the cause of action arises at the date of resale because until that event happens there has been no operative event from which the Court can compute the liquidated damages: Jampco Pty Ltd v Cameron (No 2) at 395. The Vendor accepted that the date of resale should be taken as the date of contracting the resale transaction, as distinct from completion of that transaction: Jampco Pty Ltd v Cameron (No 2) at 395.

181. The Purchasers referred to authorities concerning earlier forms of the standard contract for sale, but those cases are not relevant here. In Hoskins v Rule [1952] NZLR 827 the vendor’s claim was under a clause which provided that “any deficiency in price … and all expenses attending a resale … shall be recoverable by the vendor as liquidated damages”: at 828. It was held (at 831) by F B Adams J that interest did not form part of “any deficiency in price” because, by the express words of cl 1, “the price is ₤5,750”. This case is not authority on the meaning of “the deficiency on resale”. Nor does J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 TAS R 26 assist the Purchasers’ argument. There the vendor made no claim for interest on the purchase price under the contract up until the date it was terminated. The proposition, which was accepted by Slicer J (at [41(iv)]), that the claim for liquidated damages precluded a claim for interest pending sale, does not appear to have been the subject of argument and was obiter.

182. In Carpenter v McGrath (1996) 40 NSWLR 39 at 46, Clarke JA noted that it is arguable that the vendor may be entitled to treat the purchase price as constituted by both the amount shown in the contract and interest for late payment payable under a provision in the contract for the purposes of determining the deficiency on resale. His Honour observed that this was a contentious question and found it unnecessary to decide as the claim he was considering was one for common law damages for breach of contract.

Zografakis v McCarthy

183. Subsequently Hamilton J dealt with this question in Zografakis v McCarthy. The vendor made a claim for liquidated damages which included special condition interest as part of the purchase price, up to the date of termination of the first contract, when calculating the deficiency on resale. Zografakis v McCarthy concerned the 2000 form of contract. The relevant clause was in the same terms as cl 9.3.1 of the 2005 form of contract, being the relevant form of contract in the present case.

184. At [20] Hamilton J referred to the decision of Cohen J in Advanced Commercial Finance Ltd v Aarons (1996) 7 BPR 14,523 at 14,531 which in turn relied on the view expressed by Powell J in Taylor v Raglan Developments Pty Ltd at 136 as authority for allowing special condition interest when calculating liquidated damages.

185. Hamilton J said at [21]:

“… it is to be borne in mind that what may be recovered under cl 9.3.1 is the “deficiency on resale”, not the difference between the contract price and the price on resale. What the plaintiffs would have received on completion had the contract in fact been completed on the day on which it was in fact terminated would have been the balance of the purchase price together with the Special Condition 36 interest. In my view, therefore, the Special Condition 36 interest as at the date of termination was included in what may be recovered under the rubric “deficiency on re-sale”, to employ the terminology of cl 9.3.1.”

186. A similar view was taken by Hall J in Hearse v Pallister [2008] NSWSC 504 at [64].

187. So far as Hamilton J (at [20]) relied on earlier authorities, those authorities did not justify his Honour’s conclusion at [21]. In Advanced Commercial Finance Ltd v Aarons, Cohen J allowed interest on the balance of the purchase price (up to the date of termination of the first contract) when determining what was the agreed purchase price so as to have a starting point in order to assess the deficiency on resale. However, in that case, the question proceeded by way of a concession by the purchaser (see 14,531). In addition, so far as Cohen J relied upon the view expressed by Powell J in Taylor v Raglan Developments Pty Ltd, it seems that he overlooked that Powell J was dealing with a claim for damages for breach of contract, not a claim for liquidated damages. In addition Powell J had characterised the claim for interest in the case before him as one for interest that had been paid or was payable not pursuant to the contract, but pursuant to an independent agreement whereby, in consideration of the payment or agreement to pay the interest stipulated, the vendor agreed to reinstate the contract: at 136B-C and 137A-C.

188. Authorities which recognise interest as a component of the purchase price payable on completion when assessing the damages to be awarded for loss of the bargain, do not provide the answer where the claim is for liquidated damages, such as under cl 9.3.1: Tiplady v Gold Coast Carlton Pty Ltd at 378; Carpenter v McGrath at 60B (Sheller JA), 72D (Cole JA) cf 45G (Clarke JA).

What is the starting point under cl 9.3.1?

189. As to the first limb of cl 9.3.1 it is to be observed that the expression “deficiency on resale” is not defined, although express provision is made for credit for the forfeited deposit. In Buchanan v Dunstan [2007] NSWSC 248; 13 BPR 24,521 at [64], White J observed that:

“… in ordinary parlance, the deficiency on resale would be the difference between the price of the first contract (less the vendor's cost of sale on the first contract), and the price of the second contract (less the vendor's cost of resale under the second contract). However, I think that construction of the expression "deficiency on resale" cannot be adopted having regard to the terms of the second limb of cl 9.3.1, at least so far as expenses of resale are concerned. The inclusion of reasonable costs and expenses of resale in the second limb of the clause as a recoverable head of damage precludes such costs and expenses being included in a calculation of the deficiency on resale.”

190. The question is what amount should be taken as the agreed purchase price under the Contract so as to have a starting point in order to assess the deficiency? Counsel for the Vendor correctly accepted in oral argument that when a vendor elects to terminate because of breach, the purchaser is discharged from the duty to complete: Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; 166 CLR 245 at 267 (Gaudron J); Palasty v Parlby at [42]. Likewise where completion does not occur a vendor cannot sue the purchaser for special condition interest, at least where the obligation to pay interest is contingent on the conveyance of the property; McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457 at 477-478 (Dixon J).

191. Nonetheless counsel for the Vendor argued that the expression “deficiency on resale”, properly construed, was directed to the amount payable under the first contract on the date of its termination, rather than the amount payable if the Purchasers had completed the Contract without any breach on the agreed date of 30 December 2011.

192. No argument was advanced by the Vendor that special condition interest was recoverable under the second limb of cl 9.3.1, as distinct from being taken into account in assessing the deficiency on resale under the first limb. (The position is different in relation to land tax where the Vendor’s argument is that land tax is recoverable as an expense under the second limb of cl 9.3.1, if it is not to be taken into account in assessing the deficiency on resale under the first limb.)

193. In my view the starting point in assessing the deficiency on resale is the price of the first contract if it had been completed according to its terms. In the present case this is the completion date of 30 December 2011. This amount less the Vendor’s cost of sale on the first contract (the net contract price) is to be measured against the gross price on resale under the first limb of cl 9.3.1. Special condition interest is not part of the purchase price on the first contract but rather a sum contractually payable if settlement is delayed. It is an amount contingent on completion.

194. In these circumstances it is both arbitrary and artificial to determine the price of the first contract as constituted by the amount shown in the Contract as the purchase price coupled with special condition interest when the latter amount never became payable. The Vendor’s construction of cl 9.3.1 assumes a completion date under the first contract which was never agreed by the parties. Since completion never occurred, the better view, in my opinion, is that special condition interest is not included as part of the price under the first contract. It follows, in my view, that the primary judge erred in following the reasoning in Zografakis v McCarthy at [21]. Appeal ground 15 should be upheld.

195. Appeal ground 16 concerns the pleading point. This can be dealt with briefly. In my view the Purchasers’ complaint should be rejected. It is clear from the Vendor’s claims for relief in order 3 of the amended statement of claim filed on 6 June 2012 that the Vendor was seeking liquidated damages under cl 9.3.1 for the deficiency arising on resale. The reference in the pleading to the claim for interest being “pursuant to Special Condition 34.2” was a reference to the manner of “calculation” of that claim. This did not detract from the nature of the claim for interest, being a component of the claim for liquidated damages pursuant to cl 9.3.1 of the Contract.

Land tax

196. The Purchasers also contend that the primary judge erred in allowing the claim for land tax of $43,516, calculated pursuant to Special Condition 38, as part of the deficiency on resale. Special Condition 38 is set out above at [22].

197. The Purchasers relied on the same arguments in relation to their challenge to the allowance of special condition interest. It was argued that under Special Condition 38 the Purchasers’ liability for land tax only arises “on completion”, and because “completion” had not occurred the Purchasers were not liable to pay the Vendor’s liability for land tax for the 2012 year. The Vendor also raised a similar pleading point.

198. To the extent that the primary judge included the Vendor’s liability for land tax as part of the deficiency on resale under the first limb of cl 9.3.1 relying upon the reasoning in Zografakis v McCarthy, this was an error for the reasons already given above in relation to special condition interest. However, that is not the end of the analysis. It is necessary to also consider the alternative basis for his Honour’s conclusion, relying upon the reasoning of Young J in Jampco Pty Ltd v Cameron (No 2).

199. In Jampco Pty Ltd v Cameron (No 2) Young J expressed the obiter view, that if the vendor’s claim was assessed as liquidated damages it would include council rates and water rates after breach of the first contract and up to the date of the resale contract as these expenses formed part of the loss flowing from “the purchasers’ default”, being the relevant words in cl 16 of the 1972 form of contract. Young J observed that the last three words of cl 16 greatly expanded the damages available under the contract compared to the clause dealt with by Blackburn CJ in Rossco Developments Pty Ltd v O’Halloran (1980) 29 ACTR 1 at 6, where it was held that rates, payable by the vendor after the purchaser’s breach of contract, was not an expense incidental to the resale under a liquidated damages clause.

200. In my view the reasoning in Jampco Pty Ltd v Cameron (No 2) applies equally in the present case. The wording of cl 9.3.1 of the 2005 form of contract differs from cl 16 of the 1972 form of contract considered by Young J, but the effect is the same. The Vendor’s liability for land tax answers the description of a reasonable cost or expense “arising out of the purchaser’s non-compliance with this contract” as referred to in the second limb of cl 9.3.1. As a consequence of the Purchasers’ failure to complete on 30 December 2011, the Vendor retained ownership of the Property and became liable for land tax for the relevant year by virtue of her ownership of the Property on 31 December 2011.

201. It follows, in my view, that the primary judge did not err in including the Vendor’s land tax liability in the calculation of liquidated damages. Appeal ground 17 should be rejected.

202. Appeal ground 18 relating to the pleading point should be rejected for the same reasons given above in relation to appeal ground 16.

203. I would allow the appeal to the extent of reducing the Vendor’s cl 9.3.1 entitlement from $729,173 to $532,848 and making consequential adjustments for interest under s 100 of the Civil Procedure Act 2005 (NSW) from 25 April 2012 to 31 May 2013. The Vendor did not challenge the starting date of 25 April 2012 used by his Honour for the calculation of statutory interest, or the award of statutory interest on the deposit held by the agent. The statutory interest on $532,848 plus the deposit of $317,500 is as follows:

25 April 2012 - 30 June 2012	8.25%	67 days	$12,877.53
1 July - 31 December 2012	7.5%	184 Days	$32,150.14
1 January 2013 - 31 May 2013	7.0%	151 Days	$24,625.15
Total	$69,652.82

Conclusion and orders

204. The Purchasers have failed on all grounds of appeal, except ground 15. The ground on which the Purchasers were successful did not occupy a significant part of the hearing.

205. My present view is that taking into account the extent to which the Purchasers’ limited success on the appeal translates into a reduction in the amount of the judgment in favour of the Vendor, the Purchasers should pay 65% of the Vendor’s costs in this Court. However, the parties should also be given the opportunity to make further submissions on costs, as well as in relation to any other necessary orders, such as restitution in relation to part of the judgment sum, if already paid to the Vendor.

206. The orders I propose are as follows:

1. Appeal allowed in part.

2. Set aside order 1 made by the primary judge on 31 May 2013.

3. In lieu thereof, judgment for the plaintiff against the defendants in the sum of $602,500.82.

4. Liberty to apply in respect of the calculation in [203] above.

5. In default of agreement as to costs or any further orders consistent with these reasons for judgment, direct:

1. the appellants to file and serve within 14 days their proposed short minutes of order, together with brief written submissions in support;

2. the respondent to file and serve within a further 14 days her proposed short minutes of order, together with brief written submissions in support.

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Amendments

18 March 2015 - paragraphs [76] and [96]: Citation bracket corrections. The Coversheet and Headnote also reflect these changes.

paragraph [145]: Tenstat Pty Ltd citation - "v" inserted before "Permanent". The Coversheet and Headnote also reflect this change.

paragraphs [152] and [178]: "Rothenberger Australian Pty Ltd v Lumley General Insurance [2003] NSWSC 788; 58 NSWLR 288" replaced with "Rothenberger Australian Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288". The Coversheet and Headnote also reflect this change.

Headnote paragraph cross-references amended.

paragraph [42]: Paragraph cross-reference corrected.

paragraph [63]: "Shevill at [314]" replaced with "Universal Cargo Carriers Corporation v Citati at 436".

paragraph [94]: After "Ciavarella v Balmer " added citation and amended page reference to "446"

Decision last updated: 18 March 2015