Gayed v Yuan

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0145

SAM GAYED	First Applicant
NARDINE ELZAHABY	Second Applicant
v
MING YUAN	Respondent

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JUDGES:	BEACH and ORR JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	29 April 2024
DATE OF JUDGMENT:	6 May 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 85
JUDGMENT APPEALED FROM:	[2023] VCC 1992 (Judge Cosgrave)

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REAL PROPERTY – Sale of land – Application for leave to appeal – Applicant purchasers repudiated contract of sale – Respondent vendor accepted repudiation and rescinded contract – Applicants sued respondent for return of deposit – Trial judge dismissed proceeding – Whether trial judge erred in considering issues without giving parties notice – Whether trial judge erred in determining that applicants’ breach of contract caused loss to respondent – Whether trial judge erred in concluding that vendor not required to give contractual notice of default to applicants – Whether applicants denied procedural fairness – Whether conduct of trial judge amounted to bias – Whether trial judge erred in determining that applicants should pay indemnity costs after rejecting respondent’s Calderbank offer – Applicants’ proposed appeal not having any real prospect of success – Application for leave to appeal refused.

Property Law Act 1958, s 49(2).

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Counsel
Applicants:		In person
Respondent:		No appearance
Solicitors
Applicant:
Respondent:	Oakfair Lawyers

BEACH JA
ORR JA:

In June 2019, the applicants entered into a contract to purchase a residential property in Balwyn (‘the property’) from the respondent. The purchase price was $3,190,000. Having paid a deposit of 10 per cent of the purchase price, the applicants were unable to complete the purchase because they could not obtain the necessary finance. The respondent accepted the applicants’ repudiation of the contract and leased the property out for some time before selling it again in October 2021 for $3,500,000.
In July 2022, the applicants commenced a proceeding in the County Court against the defendant, seeking, amongst other orders, the return of the sum of $309,000, paid as part of a deposit of $319,000.
The applicants’ proceeding was tried over four days in October 2023. On 1 December 2023, pursuant to reasons delivered on 2 November 2023[1] and 1 December 2023,[2] the trial judge made orders dismissing the applicants’ claim; entering judgment for the respondent; and ordering the applicants to pay the respondent’s costs on the standard basis up to and including 6 October 2023, and thereafter on the indemnity basis.
[1]Gayed v Yuan [2023] VCC 1992 (‘Primary Reasons’).
[2]Gayed v Yuan (No 2) [2023] VCC 2216 (‘Costs Reasons’).
The applicants now apply for leave to appeal from the judge’s orders, and a stay of the order for costs. The applicants rely on four proposed grounds of appeal. The proposed grounds are prolix and somewhat tendentious. In summary, the applicants complain that:
(1)The judge erred in considering an issue of capital gains tax without giving the parties notice that the issue might form a part of his reasoning and/or without inviting the parties to make submissions on the issue (proposed ground 1).
(2)The judge erred in permitting the respondent to terminate the contract and/or forfeit the deposit without giving a notice of default as required by the terms of the contract (proposed ground 2).
(3)The judge erred in ordering indemnity costs (proposed ground 3).
(4)The judge was biased in two respects: first, in introducing arguments that the respondent had not presented; and secondly, in permitting the respondent to disregard court-imposed deadlines (proposed ground 4).
For the reasons that follow, the applicants’ applications for leave to appeal and a stay of the costs order will be refused.

The facts in more detail

The applicants are husband and wife. The judge described them as educated and intelligent people, the first applicant being an engineer with a Master of Business Administration, and the second applicant being a medical practitioner with a specialist qualification as a psychiatrist.[3]
[3]Primary Reasons, [124].
When they purchased their first home in Bendigo, the applicants obtained a bank loan of 90 per cent of the purchase price. When considering the purchase of the property, they spoke to several banks, one of which confirmed orally that this policy applied and that it would lend 90 per cent of the purchase price where a borrower was a health professional. As the judge put it, ‘It was on the basis of this informal advice that [the applicants] pursued the purchase of the Property’.[4]
[4]Ibid [3].
The applicants made an initial offer of $3.2 million for the property. The offer was subject to two conditions: first, the applicants’ solicitor was to review the contract and either confirm or reject it within seven days; and secondly, the contract was subject to a building inspection that was to be performed on behalf of the applicants within seven days. The applicants were told by the agent handling the sale on the respondent’s behalf, however, that the respondent would not sign a contract containing a ‘subject to finance’ condition.[5]
[5]Ibid [6].
On 21 June 2019, the first applicant paid $10,000 into the estate agent’s trust account. He did this in anticipation of the conditions of the offer being satisfied and the respondent signing the contract.[6]
[6]Ibid [7].
On 28 June 2019, the respondent signed the contract. As a result of matters raised in the building report prepared on behalf of the applicants, the respondent agreed to a reduction in the purchase price. The contract price became $3,190,000 with a deposit of $319,000 due on 1 August 2019 ($10,000 of which had already been paid).[7]
[7]Ibid [16].
There were then communications between the parties about the applicants’ inability to pay the full deposit by the time required in the contract. An extension of time was granted and, on 14 August 2019, the applicants paid the balance of the deposit of $309,000.[8]
[8]Ibid [17]–[25].
On 15 November 2019, the applicants’ solicitor sent the respondent’s solicitor a letter in which she noted that settlement was due to be effected on 6 December 2019 but advised that, due to the applicants’ bank being unable to fully fund the amount required to settle, the applicants would be approximately $160,000 ‘short’ of the balance needed to settle. After further communication between the parties, on 6 December 2019 (the morning of settlement), the applicants’ solicitor emailed the respondent’s solicitor to advise that ‘my clients … unfortunately and much to their disappointment and regret … are unable to complete settlement of this matter’, as they were ‘unable to secure sufficient finance to enable settlement to take place’.[9]
[9]Ibid [26]–[28].
On 9 December 2019, the respondent’s solicitor emailed the applicants’ solicitor, saying that the respondent accepted the applicants’ repudiation of the contract and reserved her rights under the contract. The email continued:
As such, the contract is now at an end, and all monies paid by your client is forfeited [sic] pursuant to General Condition 28.4(a). Our client will be putting the property back on the market for sale.
Take notice that as the contract is now terminated by reason of your client’s repudiation, our client may take legal action against your client on the grounds of breach of contract, for all loss, damage, interest and costs suffered by our client.[10]
[10]Ibid [29].
Following the termination of the contract, the applicants withdrew a caveat they had lodged over the property; the respondent rented out the property between February 2020 and July 2021; and the respondent sold the property to a new buyer in October 2021 for $3.5 million. While the respondent derived rental income from leasing out the property, she also continued to pay interest on the mortgage registered over the property and other expenses.[11]
[11]Ibid [30], [33].

The main issue at trial

The main issue at trial was whether the applicants were entitled to the repayment of $309,000 (or some lesser sum) which they paid as a deposit under the contract to purchase the property. The applicants claimed to be entitled to be repaid the sum of $309,000 pursuant to s 49(2) of the Property Law Act 1958 (the ‘Act’); alternatively, to be repaid that sum ‘under common law or equity’.[12] In the alternative to those claims, the applicants sought the ‘repayment of some other amount by [the respondent]’.[13]
[12]Ibid [35].
[13]Ibid.

The Primary Reasons

The judge commenced the Primary Reasons with a detailed description of the facts and issues between the parties.[14] The judge then turned to the question of whether the applicants were entitled to be repaid the amount of $309,000 pursuant to s 49(2) of the Act.
[14]Ibid [1]–[35].
Before conducting a detailed analysis of the authorities relating to s 49(2) of the Act, the judge noted that there is no jurisdiction under common law or equity to relieve against the forfeiture of a reasonable deposit. The judge observed that the statutory jurisdiction embodied in s 49(2) was ‘created to enable courts to grant relief in appropriate circumstances’.[15]
[15]Ibid [39].
In the course of his analysis of s 49(2) and the principles to be applied, the judge made appropriate and detailed references to authority, including Simcevski v Dixon (No 2),[16] Midill (97PL) Ltd v Park Lane Estates Ltd,[17] Havyn Pty Ltd v Webster,[18] Omar v El-Wakil,[19] Chatham v Coral Park Pre-Training & Breaking Pty Ltd,[20] Barrett v Beckwith(No 2),[21] Karfoal Pty Ltd v Lorence,[22] and Chambers v Borness.[23] The judge, while saying that each case involving s 49(2) depends on its own facts, endorsed the following observations made by Daly AsJ in Chatham:
·the order for the return of a deposit to a defaulting purchaser is the exception rather than the rule;
·it would be rare for a court to exercise its discretion in favour of a purchaser in the absence of some disentitling conduct by the vendor. This might comprise misleading or deceptive conduct, unconscionable behaviour, or possibly, an unduly harsh enforcement of the vendor’s contractual entitlements;
·where the purchaser proves misleading and deceptive conduct, a court is more inclined to order the return of the deposit if the contravening conduct induces the purchaser to enter a contract which it would not otherwise have entered;
·given the risk of the loss of deposit which each purchaser faces if they do not complete the purchase, the fact that the forfeiture of the deposit would cause hardship to a defaulting purchaser is not especially relevant. Nonetheless, the financial consequences of the failed transaction could be relevant particularly where the consequences might be considered lopsided;
·because section 49(2) gives the court a broad discretion, it is permissible to impose conditions upon the return of the deposit. This ameliorates the ‘all or nothing’ nature of the remedy under section 49(2);
·the conduct of the purchaser and the reasons for the purchaser’s default in completing a purchase are relevant to the exercise of the discretion.[24]
[16](2017) 53 VR 357; [2017] VSC 531 (‘Simcevski’).
[17][2009] 1 WLR 2460; [2008] EWCA Civ 1227.
[18][2005] NSWCA 182.
[19][2002] 2 P&CR 36; [2001] EWCA Civ 1090.
[20](2020) 66 VR 171; [2020] VSC 814 (‘Chatham’).
[21](1974) 1 BPR 9439.
[22](2002) 11 BPR 20129; [2002] NSWSC 284.
[23][2014] NSWSC 890.
[24]Primary Reasons, [59].
The judge summarised the parties’ submissions in considerable detail.[25] In the course of doing so, his Honour observed that the applicants ‘enumerated a lengthy list of factors which they said should persuade the court to exercise its discretion in their favour’.[26] The judge identified these factors under the headings the applicants had used in their closing written submissions as follows:
[25]Ibid [62]–[90].
[26]Ibid [63].
(a)Substantial versus procedural fairness.
(b)Deposit is penal in nature.
(c)Determining the penal nature of a deposit.
(d)Examining damages.
(e)Windfall.
(f)Melbourne market and likely loss.
(g)The earnest of performance test.
(h)The financial structure of the transaction.
(i)Impact of the forfeited deposit.
(j)Business specific considerations.
(k)Media articles.
(l)Contract template and subject to finance clause.
(m)Parties’ conduct.
In summary, the applicants’ contentions were that, rather than suffering a loss, the respondent enjoyed a windfall and ‘stood in a superior position’ to that in which she would have been had there been no breach of contract. The applicants contended that the respondent ‘secured a profit almost mirroring the sum forfeited’ and that, by retaining the deposit, the respondent had been unjustly enriched and overcompensated, ‘reaping undue benefits’ at the expense of the applicants. The applicants contended that the retention of the deposit was punitive.[27]
[27]The applicants’ detailed submissions to the trial judge are well summarised by his Honour at Primary Reasons, [62]–[81] and it is not necessary, for present purposes, for us to replicate that summary in these reasons.
After setting out the parties’ submissions, the judge then commenced his analysis by dealing with the issues raised by the applicants. In the course of doing so, his Honour responded to each of the matters relied upon by the applicants in support of the contention that he should exercise the discretion under s 49(2) in their favour.[28] In the course of doing so, the judge said that:
(a)the applicants’ submissions about the penal nature of the deposit were ‘largely misguided’;[29]
(b)even if the respondent received a ‘windfall benefit’ by retaining the deposit and selling the property for a higher price, that of itself was not a sufficient basis to exercise the s 49(2) discretion in favour of the applicants;[30]
(c)the deposit of 10 per cent was ‘entirely normal and uncontroversial’, being ‘consistent with customary practice in at least Victoria, New South Wales and the United Kingdom’;[31]
(d)the applicants knew and understood that their offer to purchase the property was unconditional and not subject to finance;[32]
(e)there had been an open and transparent negotiation between the parties in circumstances where the applicants were ‘very keen’ to obtain the property;[33]
(f)the applicants were not misled or deceived about the contract, and were not induced to enter into it by false representations, duress or other conduct which could be described as unconscionable;[34] and
(g)an order for the return of a deposit to a defaulting purchaser is the exception and not the rule.[35]
[28]Primary Reasons, [92]–[136].
[29]Ibid [111].
[30]Ibid [114].
[31]Ibid [118].
[32]Ibid [123]–[127].
[33]Ibid [128].
[34]Ibid [130].
[35]Ibid [132].
Having addressed the specific matters raised by the applicants, the judge said that there were a number of other observations he wished to make.[36] His Honour then proceeded to make those observations (the ‘additional observations’),[37] before concluding as follows:
[36]Ibid [137].
[37]Ibid [138]–[169].
For the reasons set out above and where:
·the deposit was a reasonable amount and represented a mutually fair and proportionate security for due performance of the contract by the purchasers
·the deposit was paid in the context of the sale of land
·the plaintiffs signed an unconditional contract understanding the risk to which they were subject
·the vendor did not, directly or indirectly, conduct herself in a manner which could be described as misleading, deceptive or unconscionable; nor did she materially contribute to the plaintiffs’ inability to obtain finance
·there was no windfall in the vendor’s favour and, even if there were, that factor alone is not usually enough to justify an order in the plaintiffs’ favour
·the return of the deposit to the purchaser in this scenario pursuant to section 49(2) of the PLA is the exception not the rule
the circumstances are not sufficiently special or exceptional to warrant the court making an order under section 49(2) of the PLA.[38]
[38]Ibid [170].
In the course of making the additional observations, the judge repeated the fact that relevant authorities in this area are ‘clear that the mere fact of a vendor receiving a windfall payment is generally not a sufficient basis of itself to justify a return of a deposit to a defaulting purchaser’.[39] After noting that there had been no impropriety on the part of the respondent, the judge then said that he was not satisfied that the respondent was better off following the applicants’ breach of contract.[40] On the issue of whether or not the respondent was better off financially, the judge said:
[39]Ibid [143].
[40]Ibid [144], [146].
Yuan [the respondent] suffered some financial loss because in the financial years ending 30 June 2020–2022, the income from leasing out the Property was less than the expenses incurred. While the second sale of the Property generated a price $310,000 higher than the price which the plaintiffs paid, it was also a causative factor in Yuan incurring a substantial capital gains tax (‘CGT’) liability. Accordingly, overall Yuan lost money due to the failure of the contract repudiated by the plaintiffs. This was in addition to the inconvenience and stress of having to deal from afar with the problem of the unsold property.
One area of some controversy was the CGT liability which Yuan incurred when she sold the Property in 2021. Generally speaking, where a property is bought for one price and later sold at a higher price, the owner will be subject to CGT unless an exemption applies.
A person’s main residence is usually exempt from CGT if the owner meets the following conditions: the owner is an Australian resident and the dwelling has been home to the owner, any partner and dependants for the whole time the person owned it; and the dwelling has not been used to produce income — it was not rented out or used as business premises. There are a couple of other conditions which do not apply in this case.
A person who satisfies the eligibility conditions pays no tax on a capital gain when a CGT event occurs.
Had the plaintiffs [the applicants] completed the contract in December 2019, CGT would not have been an issue because Yuan was an Australian resident at the time of contracting and the Property was her main residence. However, after July 2019, Yuan was no longer an Australian resident and by October 2021, she lived overseas so the Property was not her main residence. She incurred a liability of $369,325.35 on the successful later sale of the Property.
The plaintiffs contended that Yuan became subject to the CGT because she leased the Property out after the sale to the plaintiffs collapsed. While it is correct to say that the house was rented out between February 2020 and July 2021, I consider that, by February 2020, Yuan had already lost the ability to claim the exemption. She was no longer an Australian resident after July 2019 and the Property was not her main residence because she lived overseas.
Yuan gave evidence about having to make a substantial payment of tax. Her tax return supported her oral evidence. There is no doubt that she was obliged to pay, and did pay, the CGT on the sale of the Property.
Yuan’s counsel advised the court that:
(a)Yuan made no claim in the proceeding seeking indemnity from the plaintiffs in relation to the CGT payment; and
(b)Yuan did not seek to set-off the amount of the CGT liability against the deposit monies paid by the plaintiffs.
The reasons for Yuan’s position in this regard were not made clear.
Although the issue of set-off does not strictly arise here and the defendant’s set-off claim is limited to the pleaded categories pleaded in the defence, the payment of CGT is relevant to the broader consideration of the discretion. But for the plaintiffs’ repudiation of the contract, the sale of the Property would have been completed in December 2019 and Yuan would not have been liable for such a tax — the tax payment which Yuan made was larger than the plaintiffs’ deposit.[41]
These paragraphs of the Primary Reasons, which we will refer to as ‘the CGT paragraphs’, are the subject of proposed ground 1, about which we will say more below.
[41]Ibid [147]–[155].

During the course of the additional observations, the judge also said:
I note too that, because the plaintiffs [the applicants] did not complete the contract, Yuan [the respondent] did not receive in December 2019 the sum of $2.871 million she expected to receive. She was deprived of the use of this money and could not deploy it to pay down the mortgage, invest it elsewhere or otherwise use it as she saw fit. Yuan’s counsel made no reference to this matter but the topic has arisen in other litigation about section 49(2) of the PLA or an equivalent provision.[42]
This paragraph of the Primary Reasons, which we will refer to as ‘the loss of use of money paragraph’, is one about which the applicants make complaint under proposed ground 4 and one to which we will also say more about below.
[42]Ibid [141] (citations omitted).

Proposed ground 1: the CGT paragraphs

Applicants’ submissions

While proposed ground 1 is formulated as a complaint that the judge erred in considering the issue of capital gains tax (‘CGT’) without giving the parties notice that the issue might form part of his reasoning and/or without inviting the parties to make submissions on the issue, in their written case, the applicants go on to contend that the judge made ‘errors of facts’ when he concluded that the respondent incurred a substantial CGT liability, as well as ‘errors of law’.
As to the issue of procedural fairness, the applicants complained that the respondent did not include CGT in her pleading as part of her claimed losses or as a basis for defence, and that they were prevented from cross-examining the respondent about the issue of CGT, as well as being prevented from addressing the Court on the issue.
Notwithstanding the absence of any suggestion of any specific error of fact or error of law in proposed ground 1 as set out in the application for leave to appeal, the applicants submitted that the judge made both errors of fact and errors of law as follows:
(1)As to errors of fact, the applicants submitted that the judge erred at Primary Reasons [147] in concluding that ‘overall [the respondent] lost money due to the failure of the contract repudiated by [the applicants]’. The applicants submitted that the evidence showed that the respondent retained $319,000 and achieved an additional profit of $310,000 from re-selling the property, while only claiming an offset of $98,458.80. The applicants submitted that, even accounting for a CGT liability of $369,325 incurred from the ultimate sale of the property, the evidence showed an overall profit rather than a loss.
(2)As to errors of law, referring to a number of documents published by the Australian Taxation Office, the applicants submitted that any CGT liability was, contrary to the judge’s findings, caused by the respondent’s decision to rent out the property, and not by the fact that the respondent went overseas after settlement failed. The applicants also submitted that the judge erred in considering losses said to have been suffered by the respondent three years after the contract was terminated; whereas the contract ‘explicitly limited the consideration of losses to one year post-termination’.

Proposed ground 1: consideration

There is no substance in proposed ground 1. Specifically, there was no denial of procedural fairness in the judge considering the issue of the respondent’s liability for CGT following the sale of the property in October 2021. The judge did not stop the applicants from asking relevant questions of the respondent in cross-examination on the issue of CGT. Nor did he prevent them from making relevant submissions on the issue.
The passage in the trial transcript which the applicants rely upon in support of proposed ground 1 is of no assistance to them. What was being discussed in the passage of transcript relied upon was the first applicant’s attempt to cross-examine the respondent on the basis that the respondent was making a claim against the applicants for the amount of her CGT liability. The respondent made no such claim, and accordingly the first applicant’s questions premised on the existence of such a claim were disallowed by the judge. The issue of CGT, however, remained relevant and was the subject of closing submissions by both the applicants and the respondent. Specifically, it was the subject of the respondent’s written closing submissions[43] which were responded to (without any objection as to procedural fairness) by the first applicant in his oral closing submissions.
[43]Paragraph 66(d) of the respondent’s written closing submissions.
What we have said above is sufficient to dispose of proposed ground 1 as framed in the application for leave to appeal. That said, and for completeness, we should say that there is nothing in the applicants’ submissions that the judge erred in his consideration of the CGT issue such that the applicants’ proposed appeal might have any real prospect of success[44] — remembering that any proposed appeal is against the orders made by the trial judge, not his Honour’s reasons for those orders.[45]
[44]See s 14C of the Supreme Court Act 1986.
[45]See Lower Murray Urban and Rural Water Corporation v Di Masi (2014) 43 VR 348, 388 [108] (Warren CJ, Tate and Beach JJA); [2014] VSCA 104; Kazal v Thunder Studios Inc (California) [2023] FCAFC 174, [424] (Wheelahan J, Wigney J agreeing at [1], Abraham J agreeing at [425]).
When one considers the whole of the evidence and all of the circumstances of this case, there was never any basis upon which the applicants might have succeeded in persuading a court to order the return of any part of their deposit. There were no circumstances, let alone exceptional circumstances, of the kind that might have caused a court to grant the relief sought.[46] The judge was entirely correct in refusing the applicants the relief they sought.
[46]See Simcevski (2017) 53 VR 357, 391 [120] (Riordan J); [2017] VSC 531.
All of that said, for completeness, we will briefly address the other submissions made by the applicants under cover of proposed ground 1.
In relation to what was said by the judge in the CGT paragraphs, the first point to be made is that these paragraphs formed part of his Honour’s additional observations. They were not the basis upon which the judge found against the applicants. Even if we were to accept that the judge may have overstated the position so far as losses caused to the respondent is concerned, that would not assist the applicants in overturning the judge’s orders dismissing the proceeding and giving judgment for the respondent.
In almost every case where a deposit is forfeited following a repudiation by a purchaser which has been accepted by the vendor, there will be a payment to the vendor which can be described as a ‘windfall payment’. As the judge correctly said, however, the authorities in this area are clear and the mere fact that a vendor receives a windfall payment is generally not a sufficient basis itself to justify the return of the deposit to a defaulting purchaser.
In any event, we see no error in the judge’s conclusion that the respondent’s liability for CGT resulted from the applicants’ wrongful repudiation of the contract of sale. Whatever basis upon which the respondent became liable for CGT, she would not have incurred any liability if the applicants had completed their purchase of the property. The respondent did not seek the recovery of her CGT liability from the applicants. In the circumstances, no further causal analysis needed to be undertaken.
Finally, there is no substance in the applicants’ submission that the judge erred in considering losses suffered by the respondent three years after the contract was terminated, when the contract ‘explicitly limited the consideration of losses to one year post-termination’. The foundation for that submission was general condition 28.4 of the contract, which relevantly provided:
28.4If the Contract ends by a default notice given by the Vendor:
(a)the deposit up to 10% of the Price is forfeited to the Vendor as the Vendor’s absolute property, whether the deposit has been paid or not; and
(b)the Vendor is entitled to possession of the property; and
(c)in addition to any other remedy, the Vendor may within one year of the Contract ending either:
(i)retain the property and sue for damages for breach of contract; or
(ii)resell the property in any manner and recover any deficiency in the Price on the resale and any resulting expenses by way of liquidated damages; …
The applicants relied on the words ‘within one year’ in general condition 28.4(c) in support of their submission that the respondent could only claim losses incurred during the period of 12 months after the termination of the contract. The applicants’ submissions cannot be accepted for at least three reasons:
(1)First, the contract did not end by a default notice given by the respondent. It ended by the respondent accepting the applicants’ repudiation. No default notice was given by the respondent (a matter about which the applicants make complaint under proposed ground 2) and general condition 28.4(c) only operates if the contract has been brought to an end by the giving of a default notice by the vendor (respondent).
(2)Secondly, on its proper construction, general condition 28.4(c) does not limit a vendor to claiming losses incurred only within the 12 month period after the contract was terminated. The clause provided a time limit for taking proceedings in circumstances where the clause had operative effect.
(3)Thirdly, the respondent did not sue or purport to sue the applicants for damages for breach of contract, and there was thus no breach of any 12 month time limit contained in general condition 28.4(c) in any event.
Proposed ground 1 must be rejected.

Proposed ground 2: the notice of default issue

Applicants’ submissions

Under proposed ground 2, the applicants contended that the judge erred in finding that the contract had been terminated by the respondent in circumstances where no default notice had been served as required by general condition 27 of the contract. The applicants submitted that, before the contract could be terminated, the respondent was required to give a default notice stating, amongst other things, that it was the respondent’s intention to exercise the rights arising from the applicants’ default unless, within 14 days, the default was remedied and reasonable costs and interest were paid.
In oral argument, the applicants also sought to contest the judge’s finding that they had repudiated the contract. They sought to characterise their failure to complete at settlement as a mere default which was capable of remedy — rather than a repudiation which, upon acceptance by the respondent, brought the contract to an end. In so submitting, the applicants relied upon special condition 13.5 of the contract, which dealt with a purchaser’s liability to indemnify and reimburse a vendor if the purchaser defaulted under the contract.

Proposed ground 2: consideration

There is no substance in proposed ground 2. The applicants’ solicitor’s email of 6 December 2019 was a plain repudiation of the contract, stating in unambiguous terms that the applicants were ‘unable to complete settlement of this matter’, as they were ‘unable to secure sufficient finance to enable settlement to take place’. Moreover, at no relevant time after the respondent’s solicitor replied on 9 December 2019, stating that the respondent accepted the applicants’ repudiation, did the applicants seek to cavil with this characterisation of their conduct or to assert that they had merely committed a remediable breach of contract.
Notwithstanding the superfluous (and inapposite) reference to general condition 28.4(a) of the contract in the respondent’s solicitor’s email of 9 December 2019 accepting the applicants’ repudiation of the contract, the contract was validly brought to an end by the respondent’s acceptance of the applicants’ repudiation, and the deposit was thus forfeited to the respondent (the deposit being an earnest of performance) without any need for reliance upon clause 28.4(a).[47]
[47]See also s 26(1)(a) of the Sale of Land Act 1962.
Contrary to the applicants’ submissions, the respondent was not required to serve a default notice. The respondent was entitled to bring the contract to an end by accepting the applicants’ repudiation. No default notice was necessary because the contract was at an end once the applicants’ repudiation was accepted (as it was) by the respondent.[48] At the risk of repetition, the deposit was not forfeited pursuant to clause 28.4(a) of the contract (a clause that had no operation in this case because the respondent never gave the applicants a default notice). It was forfeited as an earnest of performance following the respondent’s acceptance of the applicants’ repudiation which resulted in the immediate termination of the contract.
[48]See Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd [2023] VSCA 30, [76]–[78] (Beach, Hargrave JJA and J Forrest AJA).
Proposed ground 2 must be rejected.

Proposed ground 3: indemnity costs

Costs Reasons

As we have already said, the judge ordered the applicants to pay the respondent’s costs of the proceeding on the standard basis up to and including 6 October 2023, and thereafter on the indemnity basis. He did so on the basis of a Calderbank offer made on 3 October 2023 (seven days before the trial commenced) in which the respondent offered to settle the proceeding on the basis that the applicants discontinued it with no order as to costs. The offer was open for acceptance for seven days. Ultimately, the applicants did not accept it, and the trial proceeded to a less favourable outcome for the applicants, being judgment for the respondent with costs.
In ordering indemnity costs from 7 October 2023, the judge said that the Calderbank offer was made at a time shortly before trial ‘when the parties should have been aware of the case each was presenting and the thrust of the case which each had to meet’.[49] The judge then concluded that the applicants acted unreasonably in rejecting the respondent’s offer,[50] saying:
[49]Costs Reasons, [12].
[50]Ibid [20].
First, the defendant made an offer at a time when the plaintiffs were aware of the evidence which they would give at trial. They knew, or should have known, that their evidence, taken at its highest, had to be strong enough to create a good prima facie case in their favour. The plaintiffs’ own evidence was not compelling.
Secondly, the plaintiffs’ default under the contract of sale was wholly self-inflicted in the sense that it was unrelated to any contributory conduct by the vendor.
Thirdly, the plaintiffs knowingly took a risk and unfortunately, the problems with obtaining finance have cost them dearly. Nonetheless, this was a possibility of which they were aware and they chose to accept that risk.
Fourthly, the plaintiffs knew or should have known from the solicitor who acted for them in the conveyancing transaction that the authorities did not overwhelmingly support a favourable outcome for them in this litigation. Indeed, the various arguments for and against the grant of relief sought by the plaintiffs were, on the case law, notably more against the plaintiffs rather than in their favour.
The result has been that the plaintiffs, perhaps believing that they had nothing to lose, thought they should exhaust all avenues in an effort to recover their deposit. As a result, the defendant vendor, who has continued to act fairly since June 2019, and who has been inconvenienced by the repudiated contract and the consequences of its failure, has become embroiled in a lengthy litigation process. This has created obvious problems for the defendant including expense, inconvenience and worry.
Overall, I consider that the plaintiffs’ conduct was unreasonable because they should have appreciated that the circumstances were such that it was unlikely they would succeed. The offer to walk away, made on the basis that the defendant should succeed, was soundly based in precedent and represented a good outcome for the plaintiffs.[51]

Applicants’ submissions

[51]Ibid [21]–[26].

Under proposed ground 3, the applicants asserted that, in ordering indemnity costs, the judge made errors of fact and law.
In relation to questions of fact, the applicants submitted that the judge erred in stating that by the time of the Calderbank offer (3 October 2023), the parties should have been aware of the case each was presenting. The applicants noted that pretrial orders made in January 2023 had required the parties to file and serve material by 3 October 2023. While the applicants complied with these orders, the respondent did not file her outline of opening submissions until 6 October 2023. Worse, on 9 October 2023, the respondent filed a bundle of 237 pages of ‘new documents that had not been previously provided to [the applicants] before that date’.
The applicants also submitted that they had not been provided a fair opportunity to consider the respondent’s Calderbank offer. They contended that an offer made seven days before trial, which was only open for seven days, was not reasonable and should not have formed the foundation for an order for indemnity costs.
Finally, the applicants contended that the Calderbank offer did not include ‘a genuine element of compromise’. The applicants characterised the Calderbank offer as ‘merely serving as a mechanism to trigger cost sanctions’.

Proposed ground 3: consideration

As has been said before,[52] this Court has repeatedly observed that appeals from orders as to costs are treated as exceptional and require this Court to exercise particular restraint. The authorities explain that the principal rationale for that caution is that the trial judge is almost always best placed to assess in whose favour and to what extent the discretion as to costs should be exercised. The test is not whether we would have exercised the discretion in the same way as the trial judge, but whether there was a ground on which the judge could reasonably have made the order in question.[53]
[52]Cargill Australia Ltd v Viterra Malt Pty Ltd [2023] VSCA 301, [63] (Sifris, Walker and Whelan JJA).
[53]Ibid.
In the present case, there is no substance in the applicants’ complaints about the costs order made by the judge.
As to the judge’s reliance upon the parties’ likely awareness of the case that was being presented,[54] the judge made clear that it was the applicants’ awareness of their own case which guided the exercise of his discretion. Specifically, the judge relied upon the fact that the applicants knew that their evidence would be that:
•they voluntarily entered the contract of sale for the Property;
•they knew that the contract was not subject to finance;
•they were obliged to pay a 10% deposit on the contract;
•the deposit monies were at risk and liable to be forfeited if they did not complete the contract in accordance with its terms;
•they agreed the vendor was under no obligation to grant them any extension or other indulgence on the contract;
•the plaintiffs’ default under the contract was unrelated to any conduct of the defendant vendor. The problem was wholly attributable to the plaintiffs and their inability to obtain finance in the requisite time; and
•the plaintiffs did not contest that they repudiated the contract and the defendant accepted that repudiation.[55]
[54]Costs Reasons, [12].
[55]Ibid [13].
In so concluding, the judge was plainly correct.
Similarly, the applicants’ complaint about the amount of time they were given to consider the Calderbank offer is without substance. We see no error in the judge’s conclusion that the respondent made the offer when the applicants ‘should not have required a great deal of time to assess its merit’.[56]
[56]Ibid.

Finally (so far as costs are concerned), we see no error in the judge’s conclusion that the Calderbank offer ‘represented a good outcome for [the applicants]’.[57] In our view, the applicants’ case at trial was a very weak one, and the willingness on the part of the respondent to forego costs represented, in the circumstances, a significant compromise. More particularly, we see no error in the judge having so concluded.
[57]Ibid [26].
Proposed ground 3 must be rejected.

Proposed ground 4: procedural bias

Applicants’ submissions

While proposed ground 4 made complaints of bias in two respects (introducing arguments that the respondent had not presented, and permitting the respondent to disregard court-imposed deadlines), in oral argument, the applicants advanced a third complaint of ‘procedural bias’: namely, preventing the first applicant from cross-examining the respondent on the CGT issue and/or leading evidence relevant to that issue.[58]
[58]There was an obvious overlap between this third complaint and the argument advanced by the applicants under proposed ground 1.
The first of the applicants’ three complaints under proposed ground 4 relates to the loss of use of money paragraph.[59] There is no substance in the complaint. The loss of use of money paragraph appears in that part of the Primary Reasons that comprise the judge’s additional observations. It is merely an observation made by the judge and does not form any material part of the reasons why the judge rejected the applicants’ case. Moreover, the making of this observation could not, on any basis, amount to any form of bias on the part of his Honour.
[59]Primary Reasons, [141]. See [24] above.
Similarly, there is nothing in the fact that the respondent failed on two occasions to comply with procedural time limits, serving documents some days after the times provided in procedural orders. Having read the trial transcript for ourselves, we can see no procedural unfairness and nothing that might amount to any form of bias in the judge permitting the respondent to rely upon documents filed a few days out of time.
Finally, there is nothing in the applicants’ contentions that they were denied the ability to cross-examine the respondent about the CGT issue and/or to make submissions about it. The judge did not permit the applicants to conduct a case (either in cross-examination or by way of submission) that was falsely premised. The judge did not, however, prevent the applicants from conducting any case they wished to make premised correctly on the pleadings, and facts and circumstances of the case.
Proposed ground 4 must be rejected.

Conclusion

For the above reasons, the applicants’ proposed appeal has no real prospect of success. Accordingly, the application for leave to appeal must be refused.[60] Leave to appeal having been refused, there is no basis upon which the judge’s costs order can or should be stayed. It follows that the application for a stay of that order must also be refused.
[60]See s 14C of the Supreme Court Act 1986.
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[2024] VSCA 85

6 May 2024