Kordatos v Batounas

The High Court of Australia considered an appeal from the Supreme Court of New South Wales in *Kordatos v Batounas*. The dispute concerned the interpretation of a clause within a contract for the sale of a business, specifically whether the vendor, Mr Batounas, was entitled to retain a deposit paid by the purchaser, Mr Kordatos, upon the purchaser's purported repudiation of the contract.

The central legal issue before the High Court was whether the clause in question, which stipulated that the deposit was to be forfeited if the purchaser failed to complete the purchase, operated as a penalty clause, and therefore was unenforceable, or if it represented a genuine pre-estimate of damages. The court had to determine the proper characterisation of the deposit in the context of the contract and the law of penalties.

The High Court, by majority, held that the deposit was not a penalty. Their Honours reasoned that a deposit on a sale of property is not, in itself, a penalty. It is a sum paid by the purchaser to the vendor as a guarantee of performance. The court applied the principle that a deposit will only be considered a penalty if it is extravagant and unconscionable in amount, having no relation to the damages that might be suffered by the vendor. In this instance, the deposit was found to be a reasonable and customary amount, and therefore enforceable as a forfeiture upon the purchaser's breach.

The appeal was dismissed.