McLennan & Bisko v Dannaoui

[2024] VCC 1786

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

GENERAL LIST

Case No. CI-23-03587

Nicole Louise McLennan and Fiona Robyn Bisko (in their capacity as executors of the estate of Deirdre Earle Lazarus, deceased)	Plaintiffs
v
Joya Antonios Dannaoui	Defendant

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JUDGE:	HIS HONOUR JUDGE WISE
WHERE HELD:	Melbourne
DATE OF HEARING:	30 October 2024
DATE OF JUDGMENT:	13 November 2024
CASE MAY BE CITED AS:	McLennan & Bisko v Dannaoui
MEDIUM NEUTRAL CITATION:	[2024] VCC 1786

REASONS FOR JUDGMENT
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Subject:CONTRACTS - DAMAGES

Catchwords:              Breach of contract – standard form contracts – general and special conditions – liability of a defaulting purchaser to pay interest to the vendor during period of default - meaning of the phrase “payable at settlement” – forfeiture of deposit - unenforceable penalty – entitlement to interest on sale proceeds which could have been invested

Legislation Cited:      

Cases Cited:Bill v Clarke [2015] VCC 1721; Galafassi v Kelly (2014) 87 NSWLR 39; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Ironbridge Holdings Pty Ltd  v O’Grady [2020] VSC 344; Carpenter v McGrath (1996) 40 NSWLR 39; Tymstock Pty Ltd v Patrick [2019] VCC 1092; Song v Brady Lonsdale Pty Ltd [2023] VCC 239; Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd [2011] VSC 661; Gippsreal Ltd v Melbourne Linh Son Buddhist Society Inc [2017] VSCA 161; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; Hungerfords v Walker (1989) 171 CLR 125.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Luke Virgona	Sackville Wilks Lawyers
For the Defendant	Nick Jones	Darrer Muir Fleiter Lawyers

Table of Contents

Introduction1

Agreed issues and answers3

Issue 1: Are the vendors entitled to interest in the sum of $384,125.48 pursuant to general condition 33 of the contract (GC33) which accrued between 7 November 2022 to 23 March 2023?3

Issue 2: Are the vendors entitled to retain the second tranche of deposit in the amount of $430,000?  Or to put it differently, is the contractual stipulation that the vendors are entitled to retain that sum void and unenforceable as unreasonable? 3

Issue 3: Is the vendor entitled to interest on the sale proceeds that  could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract at 5% for 25 days? 4

The trial4

The contract5

Resolution of the issues for determination7

Issue 1: Are the vendors entitled to interest in the sum of $384,125.48 pursuant to general condition 33 of the contract (GC33) which accrued between 7 November 2022 to 23 March 2023?7

The text of GC339

Contextual matters that reinforce the construction11

What is the commercial purpose of GC33 and which construction gives effect to it?13

Cases relied on by the purchaser14

Issue 2: Are the vendors entitled to retain the second tranche of deposit in the amount of $430,000?  Or to put it differently, is the contractual stipulation that the vendors are entitled to retain that sum void and unenforceable as unreasonable? 18

Issue 3: Is the vendor entitled to interest on the sale proceeds that  could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract at 5% for 25 days?23

Conclusion23

HIS HONOUR:

Introduction

1The plaintiffs[1] (vendors) sold their mother’s property in Armadale to the defendant (purchaser) by a contract of sale dated 7 November 2021.  The purchase price was $8,600,000.  The contract called for the payment of a deposit of 15% of the price ($1,290,000) in 2 tranches.  The first tranche of 10% ($860,000) upon signing the contract.  The second tranche of 5% ($430,000) on 4 April 2022.  Both tranches of the deposit were paid.  The contract provided for an unusually long settlement period for a residential property of 12 months.  Settlement was due on 7 November 2022 (settlement date).

[1] They did so pursuant to a power of attorney.  Their mother has since died and they were both appointed executors of her estate.  The plaintiffs were substituted as plaintiffs and the court heading was amended by Order dated 24 October 2024.

2As settlement date approached the purchaser found herself unable to settle. She told the vendors that she still wished to purchase the property but sought to extend the settlement date.  Between 7 November 2022 and 9 March 2023, the parties negotiated an extended settlement date but never reached agreement. 

3The vendors served a notice of default and rescission on 9 March 2023 (rescission notice).  It required the purchaser to remedy the default in payment of the settlement sum and pay interest and reasonable legal costs within 14 days, failing which the contract would be rescinded.

4The defaults were not remedied and the contract was rescinded on 23 March 2024.

5The property was then resold to a third party on 3 April 2023 for $7,500,000, a shortfall on the original contract price of $1,100,000.

6None of the matters I have just set out are in dispute.  The purchaser accepts that that notice of rescission was effective to terminate the contract and that the resale of the property was carried out appropriately. They also accept that the price achieved was reasonable.

7What is in dispute between the parties is the amount that is recoverable by the vendors against the purchaser as a result of these events.

8The vendors claim loss and damage as follows:

Description	Amount
1.	Loss sustained because of the lower selling price for the second sale ($8.6m - $7.5m)	$1,100,000
2.	Interest calculated at the rate prescribed pursuant to the contract for the period from 7 November 2022 to the date of rescission of the contract (being 22 March 2023) (137 days at 14% on $7.31m)	$384,125.48
3.	Interest calculated at the rate that the sale proceeds from the sale could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract (17/4/2023) ($7.31m at 5% for 25 days)	$25,034.25
4.	Agent's commission and selling expenses for the second sale	$56,250.00
5.	Legal fees inclusive of GST.	$16,500
6.	Less Deposit Received	($1,290,000)
Total		$291,909.73

9The purchaser accepts Items 1, 4 and 5 of the Table above.

10The purchaser disputes the following elements of the claimed damage:

(a)   Item 2, the vendors’ entitlement to contractual interest in the sum of $384,125.48;

(b)   Item 3, further interest following rescission in the sum of $25,034.25.

11In respect of Item 6, the purchaser denies that the second tranche of deposit in the sum of $430,000 is forfeited to the vendors under the contract.  She says that the clause operates as an unenforceable penalty in respect of the second tranche.  She therefore claims that she is entitled to the return of, or more properly a credit for, that sum.

12The purchaser has counterclaimed for the return of the credit balance of any sum found in her favour if she succeeds in her defences after offsets against amounts found owing to the vendors.

Agreed issues and answers

13The parties filed a statement of agreed issues.  By the conclusion of the hearing those issues had reduced to the following.[2]  My conclusion in respect of each issue is also set out below.  Full reasons for reaching those conclusions are set out in the balance of these reasons.

[2] I have slightly modified the wording to accommodate for the manner in which submissions were made at trial.

Issue 1

Are the vendors entitled to interest in the sum of $384,125.48 pursuant to general condition 33 of the contract (GC33) which accrued between 7 November 2022 to 23 March 2023?

Answer:   Yes. 

GC33 creates an independent obligation upon the purchaser to pay interest at the agreed rate during the period that she was in default of her obligation to complete settlement and until the contract terminated by way of rescission. That obligation is not conditional on a settlement actually occurring.

Issue 2

Are the vendors entitled to retain the second tranche of deposit in the amount of $430,000?  Or to put it differently, is the contractual stipulation that the vendors are entitled to retain that sum void and unenforceable as unreasonable?

Answer: The contractual stipulation of the forfeiture of the second tranche of deposit is not unreasonable and is thus enforceable.  The vendors are entitled to retain that tranche in the sum of $430,000.

Issue 3

Is the vendor entitled to interest on the sale proceeds that  could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract at 5% for 25 days?

Answer: No.  No evidence was led to allow the Court to make a such finding.

The trial

14The parties were in agreement as to all of the factual matters that underlay this dispute.  The relevant background has been set out above and needs no greater elaboration.  They were agreed that the issues for determination could be decided wholly as a matter of construction of the sale contract to which I will shortly turn. 

15The parties each filed a written submissions and then addressed the court in oral argument.  The matters at issue were refined and narrowed in the course of oral argument.

The Contract

16The contract is a standard Law Institute of Victoria contract of sale of land in common use in this State containing a copyright endorsement “Copyright August 2019”.

17It contained particulars of sale setting out the parties, the identity of the land sold, the price, the amount and time for payment of the first and second tranches of deposit, and the settlement date.

18It then contained several pages of Special Conditions, two of which are relevant in that they modify the General Conditions.  Those special conditions read as follows:

“2.5General condition 33 is amended by deleting the reference to “2%” and inserting “4%.”

2.6General condition 35.4 is amended by deleting the reference to “10%” and inserting “15%.”

19There was then a guarantee and indemnity (which was unused in this case).

20There followed 12 pages of General Conditions.  Set out below are those General Conditions (as modified by SC2.5 and SC2.6) relevant to this dispute:

Transactional

…

32. BREACH

A party who breaches this contract must pay to the other party on demand:

(a)compensation for any reasonably foreseeable loss to the other party resulting from the breach; and

(b)any interest due under this contract as a result of the breach.

Default

33. INTEREST

Interest at the rate of 2% per annum [increased to 4% by Special Condition cl 2.5] plus the rate for the time being fixed by section 2 of the Penalty Interest Rates Act 1983 is payable at settlement on any money owing under the contract during the period of default, without affecting any other rights of the offended party.

34. DEFAULT NOTICE

34.1A party is not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.

34.2The default notice must:

(a)specify the particulars of the default; and

(b)state that it is the offended party’s intention to exercise the rights arising from the default unless, within 14 days of the notice being given—

(i)the default is remedied; and

(ii)the reasonable costs incurred as a result of the default and any interest payable are paid.

35. DEFAULT NOT REMEDIED

35.1All unpaid money under the contract becomes immediately payable to the vendor if the default has been made by the purchaser and is not remedied and the costs and interest are not paid.

35.2The contract immediately ends if:

(a)the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the contract will be ended in accordance with this general condition; and

(b)the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.

35.3If the contract ends by a default notice given by the purchaser:

(a)the purchaser must be repaid any money paid under the contract and be paid any interest and reasonable costs payable under the contract; and

(b)all those amounts are a charge on the land until payment; and

(c)the purchaser may also recover any loss otherwise recoverable.

35.4If the contract ends by a default notice given by the vendor:

(a)the deposit up to 10% [increased to 15% by Special Condition cl 2.6] 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[3]; and

[3] Special Condition 11.3 set out a number of matters agreed to form foreseeable loss and damage that the vendor may suffer upon the purchaser’s breach.  These are not directly relevant to the dispute.

(d)the vendor may retain any part of the price paid until the vendor's damages have been determined and may apply that money towards those damages; and

(e)any determination of the vendor's damages must take into account the amount forfeited to the vendor.

35.5The ending of the contract does not affect the rights of the offended party as a consequence of the default.”

Resolution of the issues for determination

Issue 1:Are the vendors entitled to interest in the sum of $384,125.48 pursuant to general condition 33 of the contract (GC33) which accrued between 7 November 2022 to 23 March 2023?

21The purchaser’s case on this issue was simple.  Mr Jones, Counsel for the purchaser, submitted that the clear words of the text of GC33 meant that the liability of a defaulting purchaser to pay interest to the vendor during the period of the default was conditional upon a settlement of the sale actually occurring.  He submitted that if, at the end of a period in which the purchaser was in default but the contract was not yet terminated, the purchaser decided not to complete the contract and the contract was terminated by the vendor, as no settlement had taken place, there was no liability upon the purchaser to pay interest.

22He submitted that so much was clear from the use of the words “payable at settlement” in GC33.

23In support of his argument Mr Jones principally relied on a decision of Judge Macnamara of this Court in Bill v Clarke [2015] VCC 1721 as well as Galafassi v Kelly (2014) 87 NSWLR 39.

24I reject Mr Jones’s construction of GC33.  I also find that neither Bill v Clarke nor Galafassi is of any real assistance in determining this question.

25For the following reasons I would construe GC33 as imposing on a defaulting purchaser an independent obligation to pay interest to the vendor during the  period commencing on the default – in this case the missed contractual settlement date – and ending on the termination of the contract 14 days after service of the notice of rescission.

26The principles relevant to the task of construction of commercial contracts was set out in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[4] as follows:

[4] (2015) 256 CLR 104 per French CJ, Nettle and Gordon JJ.

46.The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

47.In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

48.Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

…

51.Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

(footnotes omitted)

27Bearing those principles in mind, it is necessary to construe GC33 objectively in the context of the other clauses of the contract that give colour and meaning to that clause.  It is also necessary to discover the commercial purpose of GC33 as revealed in its words and in the context of the balance of the contract. It is necessary to give the clause the meaning that ordinary business people would give to them.  It is also necessary to give them a meaning the furthers a commercial purpose and avoids a meaning that would produce a commercial nonsense.

The text of GC33

28I commence by noting that GC33 is only operative when a party is in default of the contract.  So much is clear from the words “during the period of default” and the words “the offended party”.  The clause presupposes that one of the parties has breached, or is in default of, its contractual obligations and thus produces an “offending party” and an “offended party”.

29The clause is predicated on there being a “period of default”.   There must be a starting time for the default and the default must continue until it is either remedied or the contractual obligation to perform comes to an end, most likely by termination.

30GC33 presumes that the relevant default carries with it an obligation to pay “any money owing under the contract” against which the specified interest rate can be applied.  Typically, money is owing under a contract of sale of land by the purchaser to the vendor by way of either unpaid deposit or the amount payable at settlement.

31Usually, the balance of the purchase price does not become payable until the contracted settlement date has arrived.  To the extent that GC33 addresses itself to a “default” in respect of which “money [is] owing under the contract”, one of the primary circumstances that it is addressing is where a purchaser “defaults” in presenting the balance of purchase price upon the due date for settlement.

32Upon that occurring, the plain words of GC33 impose a liability on the defaulting purchaser to pay interest to the vendor at the prescribed rate for the period that the default continues.  Each day that passes without settlement having occurred, interest accrues.

33Upon a purchaser failing to settle on the appointed day, it is not uncommon, as occurred here, for the purchaser to ask for more time to settle the purchase.  If that occurs, then the vendor has two options.  It can serve a default notice under GC34.2 thus initiating a process leading to rescission of the contract if the specified default is not remedied and interest and reasonable legal costs are not paid.  Or, it may agree to delay the settlement to a date in the future.

34It can be seen that under the latter circumstances, the contract remains on foot  however the purchaser remains in default of its original obligation to settle on the appointed day. GC33 operates to oblige the purchaser to pay interest at the delayed settlement date.  The period during which the contracts remains on foot but settlement is past its due date is aptly encapsulated by the words “during the period of default”.

35So much was accepted by Mr Jones.  However, his core submission was the language “payable at settlement” meant that the liability to pay interest was conditional upon the delayed settlement taking place.

36I consider that the words “payable at settlement” do not condition the liability to pay interest in that way.  It is my view that those words serve to identify the time at which the interest that accrues during the period of default must be paid.  It specifies that the payment of interest must be made on the delayed date for settlement and not before that date or after it. They serve to defer the obligation to pay interest which accrues “during the period of default” to the settlement date, absent some other event which might bring forward that obligation to pay.

37This construction gives effect to the plain words of the clause.  The draftsperson of the clause did not use any words indicating that the liability is conditional.  The clause does not say “Subject to settlement occurring, interest at a rate of …” Neither did it conclude with a clause to the effect “The obligation under this clause is conditional on settlement of the sale actually taking place.”

38Had the draftsperson wished to make the liability to pay interest conditional, in the way the purchaser submits, this could easily have been done. 

39GC33 does not contain any words that condition the obligation to pay interest in that way.

Contextual matters that reinforce the construction

40I mentioned above that some other event night bring forward the obligation to pay interest from the settlement as contemplated by GC33. 

41Clause GC32 provides that the party in breach must pay on demand “any interest due under this contract”. 

42Mr Jones conceded that the only obligation to pay interest under the contract is that found in GC33. 

43If the obligation in GC33 was conditional upon settlement actually occurring, there could be never be a valid demand by the vendor against a defaulting purchaser to pay “any interest due under this contract as a result of the breach.”  Clause GC32(b) would therefore have no work to do in the contract.  This is a construction that should avoided. 

44If on the other hand GC33 is not conditioned as the purchaser suggests, then a valid demand could be served by the vendor for interest due under GC33 which accrues as a result of the purchaser’s continuing breach in failing to settle.

45This is a strong contextual indication that the construction urged by the purchaser must be wrong.

46There are other similar contextual matters that lead to the same conclusion;

(a)   First, clause GC34.1 prevents an offended party from exercising certain contractual rights without first serving a notice to remedy.  The “right to receive interest” is excluded from this requirement. If, as was conceded, the only right to receive interest under the contract is GC33 and that right is conditional only, then it is curious that the contract preserves the right of the vendor to enforce payment of interest without a notice, if no such interest can be payable.  It is more likely that GC33 interest is payable upon a demand served in accordance with GC32 and the exercise of the right to serve that demand and sue to recover interest is excluded from the notice of default regime.

(b)   Secondly, clause 34.2 sets out mandatory matters to be included in a notice of default.  They include that a matter to be satisfied to remedy the default is “any interest payable [is] paid.”  If the purchaser’s construction was correct, there is only a conditional obligation to pay interest at that point in time.  It is unclear whether, on that construction, interest should or should not be included in the default notice.  If the purchaser elected to remedy the default, there will likely be a settlement.  In that event, on the purchaser’s construction, the obligation to pay GC33 interest would become unconditional.  But given that at the time the notice of default is given there is no such unconditional obligation to pay interest, the inclusion of such interest in the notice may well render it to be defective.  The purchaser’s construction thus injects ambiguity into the notice of default regime. This suggests that the purchaser’s construction is incorrect.  If, on the other hand, the effect of GC33 is that interest is payable, but deferred until the time of settlement, then the contract permits (or indeed requires) the default notice to make a demand that interest payable be paid within 14 days in order to remedy the default.  This makes sense of the requirement to include the payment of “any interest payable” in the notice of default. 

(c)   Indeed the analysis in subparagraph 46(b) above gives content to the words in GC34.2  “any interest payable”.  If, as was conceded, the only liability to pay interest under the contract is found at GC33, then on the purchaser’s construction there can never be “interest payable” to be included in a notice of default at all as, ipso facto, no settlement has occurred.  This construction renders those words of the contract surplus. 

(d)   Thirdly, similarly, clauses GC35.1 and GC35.2 refer to the consequences after the effluxion of the time given to remedy in a notice of default if “interest [is] not paid”.  By parity of the reasoning in subparagraph 46(b) above, these clauses only make sense if there was indeed interest under GC33 payable notwithstanding that there had not yet been a settlement.

What is the commercial purpose of GC33 and which construction gives effect to it?

47The commercial purpose of GC33 is clear.  In circumstances such as occurred in this case the purchaser was unable to complete on the settlement date.  She was therefore in default.  Rather than suffering the vendor to rescind the contract and forfeit her deposit she sought more time to settle.  In those circumstances the parties have agreed the price to be paid by the purchaser for the vendor to keep the contract on foot. That is the interest to be paid by the defaulting purchaser for so long as the contract remained on foot.  That is for the duration of “the period of default”. 

48If the vendor does keep the contract open for a period of time rather than terminating for breach  – in this case from 7 November 2022 to 23 March 2023 or a period of 137 days – the consideration paid by the vendor under this scenario is fully executed.  They have fulfilled their side of the agreement not to terminate the contract and to delay settlement.

49Under the purchaser’s construction, the interest that would be payable by her if the contract settled on the 137^th day, somehow becomes not payable at all if she elects not to settle the contract.  In this way it can be seen that notwithstanding that the vendor has kept the contract on foot for that period, the price agreed to be paid by the purchaser for that indulgence need not be paid, at her sole election.

50This construction is intensely uncommercial.  The purchaser provided no satisfactory answer as to how this result could be regarded as commercial.

51No reasonable vendor would agree to extend the settlement date without recompense.  There is no reason why a vendor would agree for that recompense to be payable only if the defaulting purchaser elected to settle.  Indeed, one would expect the opposite to be true.  The vendors are being kept out of their ability to resell the property and do with it what they wish pending the delayed settlement date that the defaulting purchaser has sought. A commercial response would be to agree, subject to being paid for that inconvenience.[5]  This is the work done by the imposition of interest under GC33.

[5] I note that this is the effect of the findings in Ironbridge Holdings Pty Ltd  (admin apptd)(rec and mgr apptd) v O’Grady [2020] VSC 344 at [376] where Ginnane J said this:

I consider that Mrs O'Grady's claim to interest succeeds, as it was a debt independent of any obligation to convey title and was not contingent on completion of the Contract. The interest was compensation to her for Ironbridge's delay in making payments that that were due and for her and Mr O'Grady's forbearance. Those circumstances can give [rise] to an agreement for interest which is independent from any obligation to convey title. That category of agreement for interest was recognised by Cole JA in his dissenting judgment on this issue in Carpenter v McGrath and by Powell J in Taylor v Raglan Developments. I do not read the judgments of Clarke JA and Sheller JA in in Carpenter v McGrath to deny that such an agreement could be made. In my opinion, that decision does not require me to dismiss Mrs O’Grady’s claim. (footnotes omitted)

I do not accept the purchaser’s submission that Ironbridge is distinguishable from the case before me merely because, in that case, the interest payable was stated in a series of deeds separate to the contract of sale.  The effect of clause GC33 in the contract of sale before me is the same.

52In giving to the words of GC33 the meaning that reasonable business people would give them, and a meaning to further the commercial purpose of the clause, I reject the purchaser’s construction of that clause.

Cases relied on by the purchaser

53As noted above the purchaser relied on the decision of Bill v Clarke[6] in support of a submission that there can be no liability to pay interest under the equivalent of clause GC33 where  “no money is owing under the contract” “[a]s the contract was rescinded.”[7] 

[6] As well as Carpenter v McGrath (1996) 40 NSWLR 39. Except to distinguish it, I do not deal separately with Carpenter v McGrath in these reasons as it is adequately dealt in Tymstock and Ironbridge.

[7] Purchaser’s Written submissions – unnumbered paragraph appearing after paragraph 15.

54In Bill v Clarke Macnamara J relied on and followed Carpenter v McGrath,[8] a decision of the New South Wales Court of Appeal.

[8] (1996) 40 NSWLR 39.

55Both of those cases were given detailed consideration by Woodward J in  Tymstock Pty Ltd v Patrick[9] a case which is on all fours with this case except for one matter.  The equivalent of GC33 in the version of the contract considered in Tymstock read as follows:

Interest at the rate of 2% per annum [increased to 4% by Special Condition cl 2.5] plus the rate for the time being fixed by section 2 of the Penalty Interest Rates Act 1983 is payable at settlement on any money owing under the contract during the period of default, without affecting any other rights of the offended party.

[9] [2019] VCC 1092.

56That is, the words “at settlement” were not included in the version under consideration in Tymstock.

57I have already dealt with the meaning of those words and, having regard to that meaning, consider that difference to be immaterial. Thus I consider Tymstock to be on all fours with this case.

58In Tymstock Woodward J did not consider himself bound to follow Carpenter, founded as it was on questions of construction of a contract that differed from the standard form contract in use in Victoria.[10] 

[10] Tymstock at [109].

59His Honour also distinguished both of those cases as they dealt with very different issues than arose in his case.  In both Bill v Clarke and Carpenter the vendor of the property had not resold the property after the defaulting purchaser’s contract was terminated.  This was fundamental to the operation of the contractual clauses dealing with what was recoverable under those circumstances.  Woodward J  noted that in Tymstock there was a prompt resale and the vendor sought liquidated damages under the equivalent of clause GC35.4(C)(ii).  He also noted that the contract before him had a fundamental difference from the New South Wales contract considered in the New South Wales cases.  In the Victorian provision, GC35.4(C)(ii), the right to liquidated damages upon a resale, was prefaced by the words “in addition to any other remedy”.  The New South Wales provision did not contain such words.    

60I agree with Woodward J that those cases are distinguishable and adopt his reasoning.

61I also note that Macnamara J in a subsequent decision Song v Brady Lonsdale Pty Ltd[11] noted Woodward J’s decision in Tymstock and, without recanting his own reasoning, decided to follow Tymstock rather than his own earlier decision in Bill v Clarke.

[11] [2023] VCC 239.

62In view of these decisions I would regard Bill v Clarke as attendant with sufficient doubt as to put it aside.

63I also consider Woodward J in Tymstock to have correctly held that GC33 provides an independent entitlement to interest between the date of default and date of rescission such interest to be recoverable in addition to liquidated damages under clause GC35.4(c)(ii).  His Honour set out his reasoning in paragraphs [52] [63] [66] and [89] – [114] which I adopt, to which I only wish to add this.  The use of the words “in addition to any other remedy” in the preface to that clause makes absolutely clear that the entitlement to interest in GC33 is not extinguished or lost or merged into the liquidated damages upon the vendor exercising its rights under clause GC35.4(c)(ii).

64Also, as noted above the purchaser relied on Galafassi.  Galafassi was a New South Wales Court of Appeal decision based on a New South Wales standard form contract.  In that case the contract of sale was ultimately rescinded, the property was resold and the purchaser sued for liquidated damages pursuant to a contractual entitlement.  The issue for the Court was whether, in assessing the “deficiency on resale”, the starting point was the purchase price in the rescinded contract of sale together with contractual interest.  The Court held that in assessing the deficiency on sale, the starting point was the price to be paid had the contract been completed in accordance with its terms.[12] It held that the price does not include contractual interest payable for a delay in completion.

[12] [193] – [194].

65The Court continued “Special condition interest is not part of the purchase price on the first contract but rather a sum payable if settlement is delayed.  It is an amount contingent upon completion.” (emphasis added)

66I understood the purchaser’s submission before me to draw comfort from the finding that such interest is contingent upon completion and to argue that the same meaning ought be drawn from the words in GC33 “at settlement”.  This argument is misconceived.

67It is not surprising that the Court in Galafassi so held given that the interest clause in that case called for calculation of the relevant amount “for the period from but excluding the completion date to and including the actual date of completion.” (emphasis added)

68The end date for the calculation of interest under that clause necessarily requires that completion actually occur.  Without an “actual date of completion” no interest can be calculated and thus completion is a necessary precondition to the liability for interest arising. 

69This is fundamentally different to the liability that arises under GC33 which has as its start date the date of default and its end date the date upon which the contract terminates.

70This is sufficient to distinguish Galafassi.

71However, I also note that the question to be decided in this case is different to that decided in Galafassi.  In this case the vendors do not allege that the difference between the sale price and the price on resale is to be grossed up with interest payable under GC33 as was sought in Galafassi. So much is clear from their particulars of damage at paragraph 16 of the Statement of Claim. They seek GC33 interest as a separate head of damage to the deficiency on resale.

72The Court in Galafassi also noted that no claim for special condition interest was sought as a separate head of damage[13] as is the case before me.

[13] [192]

73Galafassi has no application to the case before me.

74For all of those reasons I find that the purchaser is liable to the vendors for interest as claimed under GC33.

Issue 2           Are the vendors entitled to retain the second tranche of deposit in the amount of $430,000?  Or is that amount an unenforceable penalty?

75The purchaser argues that clause GC35.4 operates unreasonably to the extent that it provides that upon the purchaser’s default leading to rescission, the deposit of 15% is forfeited to the vendors. She says that the forfeiture of a deposit in excess 10% is unreasonable in nature and one which equity will relieve against.

76She accepted that in contracts of this sort a deposit of 10% is customary, and she appeared to raise no issue that an amount of 10% should be forfeited.  The argument was really limited to the second tranche of 5% of the purchase price.

77In her written submissions at [46] the purchaser said:

The return of the deposit can be ordered in equity if the additional amount of the deposit [the Second tranche] is found to be a penalty.

78In oral argument Mr Jones described his argument as follows:

“Really the main point I make is the usual deposit is 10 per cent, in this case it's 15 per cent and in all the circumstances, in my submission, that is not a reasonable deposit.”

79From these passages I understood the argument to have 2 limbs.  First, that the stipulation for the forfeiture of the second tranche of the deposit was a penalty.  Secondly, that as a penalty it was not enforceable.

80The purchaser then somewhat confusingly pointed to a divergence of views in the cases as to whether there exists in equity a jurisdiction to relive against forfeiture of an amount paid by way of deposit on a contract for the sale of land. Her written submissions[14] conclude with passages of Kaye J’s decision in Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd[15] in which his Honour noted the conflict of judicial views but held that he was not required to resolve the conflict. 

[14] The issue is dealt with at [47] – [50].

[15] [2011] VSC 661 at [55] – [61].

81There were 2 reasons given by his Honour for that conclusion.  First, that the issue of equitable relief against forfeiture was not agitated in the Magistrates’ Court, from whose decision the case was on appeal and thus no error of law could be demonstrated in the lower court’s decision.[16]  Secondly, no evidence was led at trial to support such a case.  As a consequence it could not be said that the case would  not have been run differently at trial, a prerequisite to advancing a new case on appeal.[17] 

[16] [42] – [44].

[17] [48] – [52].

82Although his Honour then continued to consider the authorities on the forfeiture point, as mentioned above, he declined to decide the point.

83Under those circumstances it is unclear to me how this case is really of assistance in resolving the issues argued before me.

84Focussing then on the argument that was run before me,[18] was the stipulation for the forfeiture of the 15% deposit, in particular the second tranche, a penalty?

[18] I note that the vendors dealt with the argument on the basis that the question was whether the second tranche was or was not a penalty: written submissions [50]-[51].

85The purchaser relied on passages in Gippsreal Ltd v Melbourne Linh Son Buddhist Society Inc[19] in which the principles relating to penalties were set out.[20] Those principles are well known and are not in doubt.  At its core, to constitute a penalty the forfeiture of the second tranche of deposit, when added to the first tranche of deposit, must have been so far in excess of a genuine pre-estimate of the greatest damage that the vendors might suffer upon the breach that it is to be considered extravagant and unconscionable.

[19] [2017] VSCA 161.

[20] [164] – [167].

86The Court of Appeal in Gippsreal said:

The principles of the law of penalties are generally considered to have been authoritatively stated by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd.[21]  Lord Dunedin formulated the principles as follows:

[21] [1915] AC 79 (‘Dunlop’).

1Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say, yet the expression used is not conclusive.  The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages.  This doctrine may be said to be found passim in nearly every case.

2The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage …

3The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach …

4To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a)It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach …

(b)It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid …

(c)There is a presumption (but no more) that it is a penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’ …

On the other hand:

(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility.  On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties…[22]

(emphasis added)

[22] Dunlop [1915] AC 79, 86–8 (citations omitted).

87I note that the purchasers in this case have led no evidence at all to satisfy me that the total amount of the deposit “at the date of the contract” was “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.”

88There are many imponderables as to the movement of the market price for the property concerned over the 12 month period from the commencement of the contract. Without evidence as to this matter, it would be mere speculation for the Court to attempt to determine whether the deposit of 15% of the contract price was “extravagant and unconscionable” “at the date of the contract” and thus outside the permissible range.

89It is insufficient for the purchaser to rest her case, as she does,[23] on the fact that the usual deposit is 10% and in this case it is 15%.

[23] See paragraph 78.

90On this basis alone I am bound to find that the purchaser has failed to satisfy me that clause operates as a penalty.   

91In any event, based upon “upon the terms and inherent circumstances of [this]  particular contract” I am not satisfied that the forfeiture of the second tranche of deposit “extravagant” and “unconscionable” in the required sense.  The relevant features of this contract are these:

(a)   The actual value of the house contract concerned ($8,600,000) is quite high for a residential property.  

(b)   The usual contract for the sale of residential property calls for settlement within 30, 60 or 90 days.  In this case, the contract called for a 12 month settlement.  This means that the vendor did not receive the settlement sum for an extended period of time at which they were not free to deal with the property, and the value of the property may well rise or fall. The parties can be taken to have determined to allocate the risk associated with this by providing for the additional deposit. 

(c)   Contracts for the sale of property usually call for the payment of the full amount of the deposit upon signing of the contract.  In this case, the second tranche of deposit was not required to be paid until about 6 months into the settlement period.  This gave additional risk to the vendors and gave an additional benefit to the purchasers.

92Having regard to those features I do not consider that it was unreasonable, extravagant or unconscionable for the parties to have managed these risks by agreeing for a deposit of 15% rather than the usual 10% to be paid. 

93Under those circumstances I reject the purchaser’s contention that the forfeiture of the second tranche of deposit constitutes an unenforceable penalty.

Issue 3Is the vendor entitled to interest on the sale proceeds that  could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract at 5% for 25 days?

94This matter was only faintly pressed by the vendor’s counsel, Mr Virgona.

95I can deal with it shortly. 

96The vendors argue that such interest is provided for as reasonably foreseeable loss for breach of the contract under SC11.3.  This submission is misconceived.  The terms of SC11.3 do not refer to damage of this kind.

97A claim such is this is in substance a claim for interest under Hungerfords v Walker.[24]

[24] (1989) 171 CLR 125.

98In such cases damages are claimed for the loss of use of money that should have been paid to the plaintiff at an earlier date.  Sometimes it may be based on the fact that the plaintiff had a loan which it can demonstrate would have been paid down, thus saving it the contractual interest it had to pay.  Sometimes it is on the assumed basis that the plaintiff could have deployed the funds in such a way as to have earned some return. 

99However, in all such cases evidence must be advanced to substantiate the loss suffered in this way.

100In this case vendors advanced no such evidence and merely seek 5% on the relevant sum.

101Without evidence to substantiate how they have lost 5% on the relevant sum this claim must fail.

Conclusion

102In conclusion, for the reasons stated above:

(a)   The vendors are entitled to interest in the sum of $384,125.48 for the period from 7 November 2022 to the date of rescission of the contract (being 22 March 2023) (137 days at 14% on $7.31m).

(b)   The second tranche of deposit in the sum of $430,000 (together with the first tranche of deposit in the sum of $860,000) is forfeited to the vendors.

(c)   The vendors are not entitled to interest in the sum of $25,034.25 on the assumed basis that the sale proceeds could have been invested from the date of rescission (24/3/2023) to the date of settlement of the second contract (17/4/2023).

(d)   Upon those findings, the purchaser’s counterclaim must be dismissed.

103Subject to any matters that the parties bring to my attention on the question of costs, I propose to order that the defendant pay the plaintiffs’ costs of the proceeding (including reserved costs) on the standard basis, in default of agreement.

104The parties should submit draft orders to my chambers to reflect these reasons within 7 days of today’s date.

105Should there be any matters that require the Court’s further attention (including in respect of costs) they should correspond with my chambers within 7 days.

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Certificate

I certify that these 24 pages are a true copy of the judgment of His Honour Judge Wise delivered on 13 November 2024.

Dated: 13 November 2024

Liam Crough

Associate to His Honour Judge Wise.