Nassif v Caminer

[2009] NSWCA 45

Reported Decision: 74 NSWLR 276

New South Wales

Court of Appeal

CITATION:	Nassif & Ors v Caminer [2009] NSWCA 45
HEARING DATE(S):	25 February 2009
JUDGMENT DATE:	31 March 2009
JUDGMENT OF:	Basten JA at 1; Macfarlan JA at 2; Sackville AJA at 74
DECISION:	(a) Appeal allowed. (b) Cross-appeal dismissed. (c) Set aside the orders made by the primary Judge on 13 May 2008 and 15 July 2008. (d) Declare that the contract of sale dated 17 November 2006 between the Vendors (appellants) and the Purchaser (respondent) was validly terminated by the Vendors. (e) Declare that the deposit of $280,000 paid by the Purchaser to the Vendors be forfeited to the Vendors, together with any interest thereon. (f) Order that the Purchaser repay to the Vendors the sum of $280,000 with any interest earned thereon. (g) Order the Purchaser to pay to the Vendors the sum of $40,000 paid to the Purchaser pursuant to the orders made on 15 July 2008, with interest thereon. (h) The summons filed by the Purchaser in proceedings SC 2782 of 2007 ("Purchaser's Summons") be dismissed. (i) The Purchaser pay the costs of the Purchaser's Summons and of proceedings SC 2777 of 2007. (j) The Purchaser pay the Vendors' costs of the appeal. (k) Grant the Respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs of the appeal.
CATCHWORDS:	CONVEYANCING - conditions of sale - claims by purchaser - whether entitlement to claim extended to claim in respect of pre-contractual misleading and deceptive conduct - CONVEYANCING - order for return of deposit under Conveyancing Act s 55(2A) - relevance of vendors' higher resale price - whether misleading and deceptive conduct by vendors - relevance of such conduct
LEGISLATION CITED:	Conveyancing Act 1919, s 55(2A) Fair Trading Act 1987 Suitors' Fund Act 1951 Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238; (2006) 67 NSWLR 9 Byers v Dorotea Pty Ltd (1986) 69 ALR 715 Chief Ajibola Anthony Aribisala v St James' Homes (Grosvenor) Dock Ltd [2008] EWHC 456 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 Codelfa Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 Government Insurance Office of NSW v Atkinson-Leighton Joint Venture [1981] HCA 9; 146 CLR 206 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546; (1988) 79 ALR 83 Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) FCR 1 QH Tours Limited v Ship Design and Management (Aust) Pty Limited (1991) 33 FCR 227 Simring v Marinchek [1999] NSWSC 35
PARTIES:	Sarkis Nassif, Jean Nassif, Joseph Nassif and Bakhos Nassif (Appellants) David Martin Caminer (Respondent)
FILE NUMBER(S):	CA 40241/08
COUNSEL:	R G Forster SC/D L Warren (Appellants) D H Murr SC/T T Baw (Respondent)
SOLICITORS:	Advance Legal (Appellants) Osbornes Lawyers (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 2777/07; SC 2782/07
LOWER COURT JUDICIAL OFFICER:	Jagot AJ
LOWER COURT DATE OF DECISION:	13 May 2008; 15 May 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	Nassif & Ors v Caminer; Caminer v Nassif & Ors [2008] NSWSC 412

CA 40241/08
SC 2777/07
SC 2782/07

BASTEN JA
MACFARLAN JA
SACKVILLE AJA

TUESDAY 31 MARCH 2009

NASSIF & ORS v CAMINER

Judgment

1 BASTEN JA: I agree with the orders proposed by Sackville AJA for the reasons he has expressed.

2 MACFARLAN JA: This is an appeal from a decision of Jagot AJ sitting in the Equity Division. Her Honour made orders in two proceedings heard together. The appeal challenges the orders made in each proceeding.

Nature of Case and Conclusion

3 The principal issue on this appeal concerns the proper construction of clause 7 of the 2005 edition of the Standard Contract for the Sale of Land issued by the Law Society of New South Wales and the Real Estate Institute of New South Wales. This clause provided for the making of a “claim” against the vendor by the purchaser prior to settlement and for the consequences that flowed from that occurring. There is also an issue on the appeal as to whether an order for return of the deposit paid by the purchaser in this case should be made in the event that it is found that the vendors here were entitled to terminate the contract.

4 My conclusion is that the claim which the respondent purchaser made on the applicant vendors prior to settlement was not one falling within clause 7 of the Contract. The vendors were thus not required by that provision to elect between rescinding the contract and setting aside a specified amount of money in relation to the claim. The purchaser’s purported termination in reliance upon the vendors’ refusal to set aside such a sum (the vendors not having rescinded) was accordingly an anticipatory breach or repudiation which entitled the vendors to terminate.

5 The claim made by the purchaser was in respect of alleged pre-contractual misleading or deceptive conduct relating to the tenant under the lease to which the property was subject. The word “claim” in clause 7 did not on its proper construction extend to this claim because condition 49.3 of the contract precluded the purchaser from making “any claim in relation to any matter relating to the” lease.

6 Notwithstanding the vendors’ valid termination, the purchaser is entitled in the exercise of the Court’s discretion to an order under s 55(2A) Conveyancing Act 1919 for the return of his deposit because the vendors were able to resell the property promptly at a price substantially more than the price payable by the purchaser and because there was, as the purchaser contended in his claim, pre-contractual misleading or deceptive conduct by or on behalf of the vendors in relation to the lease to which the property was subject.

Factual circumstances

7 The property with which the appeal is concerned is situated at 80-84 New South Head Road, Edgecliff, Sydney and was owned at material times by the appellants. From 1 May 2005, it was leased for a period of five years, with an option for a further five years, to a company named Simply Beautiful Laser and Cosmetic Surgery Clinic Pty Ltd.

8 Prior to 17 November 2006, the appellants appointed Metro Commercial Property Group to sell the property. The property was listed for auction on 28 November 2006. The respondent was interested in purchasing the property. He gave evidence that he saw a brochure issued by the selling agents which included the following statements:

“a. “Ideal investment with future rental growth and potential for further development.”
b. “Secure lease till 2009 to well established tenant.”
c. “Gross income: $384,000 approx.”
d. “Auction Tuesday 28 November (unless sold prior).”

9 The respondent also gave evidence that he attended a meeting on 17 November 2006 with, amongst others, Mr Levy of the Metro Commercial Property Group. He said that words to the following effect were said:

Caminer: “Is the tenant a good tenant, and is there anything owing by the tenant on the property?”
Levy: “The tenant is very keen on purchasing the property and he has a first option which lapsed in March earlier this year and he is just playing silly buggers with the owner of the property. I feel this tenant is a secure tenant, he is only in arrears for the last month. Also, the provision for a 4% increase of the rent for each year is a very good leasing arrangement.”

10 Contracts for the purchase of the property by the respondent were exchanged on the same day. The contract was in the form of the 2005 edition of the Standard Contract for Sale. It included various additional conditions and it attached documents. It provided for completion on 16 March 2007 and for a purchase price of $5,600,000, with a five percent deposit ($280,000) payable on exchange.

11 Clauses 6, 7 and 8 of the standard form were in the following terms:

“6 Error or misdescription
6.1 The purchaser can (but only before completion) claim compensation for an error or misdescription in this contract (as to the property , the title or anything else and whether substantial or not).
6.2 This clause applies even if the purchaser did not take notice of or rely on anything in this contract containing or giving rise to the error or misdescription.
6.3 However, this clause does not apply to the extent the purchaser knows the true position.
7 Claims by purchaser
The purchaser can make a claim (including a claim under clause 6) before completion only by serving it with a statement of the amount claimed, and if the purchaser makes one or more claims before completion -
7.1 the vendor can rescind if in the case of claims that are not claims for delay -
7.1.1 the total amount claimed exceeds 5% of the price;
7.1.2 the vendor serves notice of intention to rescind ; and
7.1.3 the purchaser does not serve notice waiving the claims within 14 days after that service ; and
7.2 if the vendor does not rescind , the parties must complete and if this contract is completed -
7.2.1 the lesser of the total amount claimed and 10% of the price must be paid out of the price to and held by the deposit holder until the claims are finalised or lapse;
7.2.2 the amount held is to be invested in accordance with clause 2.9;
7.2.3 the claims must be finalised by an arbitrator appointed by the parties or, if an appointment is not made within 1 month of completion, by an arbitrator appointed by the President of the Law Society at the request of a party (in the latter case the parties are bound by the terms of the Conveyancing Arbitration rules approved by the Law Society as at the date of the appointment);
7.2.4 the purchaser is not entitled, in respect of the claims, to more than the total amount claimed and the costs of the purchaser;
7.2.5 net interest on the amount held must be paid to the parties in the same proportion as the amount held;
and
7.2.6 if the parties do not appoint an arbitrator and neither party requests the President to appoint an arbitrator within 3 months after completion, the claims lapse.”
8 Vendor’s right to rescind
The vendor can rescind if -
8.1 The vendor is, on reasonable grounds, unable or unwilling to comply with a requisition ;
8.2 the vendor serves a notice of intention to rescind that specifies the requisition and those grounds; and
8.3 the purchaser does not serve a notice waiving the requisition within 14 days after that service .”

12 Included amongst the additional conditions was the following:

49. LEASE
Sale subject to Lease
49.1 The Property is sold and the purchaser takes title subject to the Lease affecting the Property.
Lease terms
49.2 The purchaser acknowledges that it has undertaken extensive due diligence of the Lease and represents and warrants that it has satisfied itself in all aspects and made its own investigations and enquiries as to all matters relating to the terms, nature, status and enforceability of the Lease.
Acceptance of Lease
49.3 The purchaser is not entitled to rescind, terminate or delay completion of this Contract, nor to object, requisition or make any claim in relation to any matter relating to the Lease including:
(a) by reason of any term of the Lease; or
(b) in relation to the use of the premises the subject of the Lease;
(c) in relation to any outstanding breach of the Lease, the Retail Leases Act 1994, the Conveyancing Act 1919 or the Real Property Act 1900;
(d) on the grounds that any term of the Lease is or may be unenforceable or open to termination or being avoided;
No Warranty
49.4 The vendor does not warrant or represent:
(a) that the Lessee will not be in breach under the Lease, as at completion;
(b) that the Lease is legally binding;
(c) the ability of the Lessee to comply with its obligations under the Lease;
(d) that the Lease complies with all relevant legislation including the Retail Leases Act 1994, the Conveyancing Act 1919 and the Real Property Act 1900.
49.5 The purchaser is not entitled to rescind, terminate or delay completion of this Contract, nor object, requisition or make any claim because of any matter referred to in clause 49.4 occurring on or before completion.”

13 Also forming part of the contract was a letter dated 17 November 2006 from the respondent’s financial adviser to the solicitor for the appellants. The letter included the following:

“5. Condition 49.4 is of some concern, is the vendor prepared to warrant that
a. The lease is subsisting;
b. The lessee is not in breach of the lease;
c. There is no litigation in relation to the lease;
d. To the best of the vendors’ knowledge the lease is enforceable; and
e. There are no other agreements that are not disclosed in the lease which vary or alter the terms of the lease?”

14 The response to this letter, also dated 17 November 2006 and included in the contract, was in the following terms:

“5. a. Yes
b. Yes, only in rental arrears
c. Yes
d. Yes
e. Yes”

15 Administrators were appointed to the tenant on 8 March 2007. They informed the purchaser on 13 March 2007 that the tenant had ceased trading.

16 As a result of the submission of a draft settlement statement by the solicitors for the appellants, the respondent’s solicitors became aware soon thereafter that there were rental arrears of $253,850. As the vendors were entitled to rent paid or payable until settlement, this was not a debt to which the purchaser was entitled. Its non-payment was accordingly not as such of concern to the purchaser. Awareness of the arrears and of the appointment of administrators however led to the purchaser’s solicitors sending a letter dated 16 March 2007 in the following terms:

“1. The property was marketed and sold as a “high income investment” with a “secure Lease until 2009 with option for a further 5 years to a well established tenant”.
2. There were warranties in the Contract that the Lease was subsisting, that the lessee was in breach of the Lease “only in rental arrears” but did not disclose the extent of such arrears.
Our view is that the vendor’s disclosure was insufficient in the circumstances and is tantamount to a misrepresentation as to the true extent of the tenant’s breach.
3. We are advised that the Lessee Simply Beautiful Laser and Cosmetic Surgery Clinic Pty Limited was placed into liquidation on Thursday 8 March 2007. However, we did not learn of this until yesterday afternoon the day before the matter was scheduled to complete.
4. Whatever other rights the Purchaser may have for the Vendor to insist that the matter settle on or by Monday 19 March 2007 and to apply penalty interest is unreasonable and we will obtain instructions from our client to resist the claim.
5. The Vendor must allow a reasonable period of time to the Purchaser to deal with the matter and to consider his position.
6. The Purchaser has arranged to meet with the receiver this afternoon in order to discuss the matter and that meeting occurs without prejudice to the rights of the Purchaser under the Contract which are reserved.”

17 The vendors’ response was to send to the purchaser’s solicitors a notice dated 19 March 2007 requiring completion on 3 April 2007, with time to be of the essence.

18 Further correspondence ensued. This resulted in agreement on an extension of time for completion to 5pm on 5 April 2007.

19 On 4 April 2007, the purchaser’s solicitors sent what Jagot AJ at first instance found to be a claim under clause 7 of the contract. It was in the following terms:

“We refer to the proposed settlement of this matter on 5 April 2007.
We are instructed on behalf of the purchaser to make a claim pursuant to clause 7 of the Contract dated 17 November 2006.
The claim concerns:
1. The fact that the tenant, Simply Beautiful Cosmetic Surgery & Laser Clinic Pty Limited was placed in liquidation on or about 8 March 2007; and
2. That on or about 15 March 2007 the liquidator disclaimed the lease;
3. That as a result of the disclaimer of the lease there has been a substantial diminution in the value of the property;
4. That Metro Commercial Property Group Pty Limited (A.C.N. 074 696 727), Alan Levy, and the vendors under the Contract engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, in respect of the tenant of the property and the tenant’s financial affairs; and
5. That as a result of the conduct referred to in paragraph 4 the purchaser has suffered damage.
The amount claimed is $840,000.”

20 I note in passing that the vendors contended on the appeal that the letter of 4 April 2007 should be read as referring to, and confined to the ambit of the complaints made in, the purchaser’s solicitors’ letter of 16 March 2007. I do not accept this submission. First, there is nothing in the letter of 4 April 2007 to suggest that it should be so limited and, secondly, the letter of 16 March 2007 makes it clear (see particularly [5] of the letter) that the purchaser had not at that stage had sufficient time to consider his position and decide how he should respond to the news of the tenant’s administration.

21 By letter of 4 April 2007, the vendors rejected the purchaser’s claim, saying simply that reliance would be placed “on the Contract for Sale of Land and the Notice to Complete as extended”. In further correspondence the vendors made it clear, through their solicitors, that in relation to the claim they did not intend to set aside any part of the purchase price pursuant to clause 7.2 of the Contract. The purchaser treated that refusal as a repudiation and purported to terminate the contract. In turn, the vendors treated the purchaser’s purported termination as a repudiation and themselves purported to terminate the contract.

22 On 31 May 2007, the vendors entered into a contract to resell the property for an amount of $6,200,000, that is, $600,000 in excess of the price at which the property was to be sold to the respondent. That contract was duly completed on 12 July 2007.

The judgment at first instance

23 There were two proceedings before her Honour. In the first, the vendors sought declarations that the contract between the parties had been validly terminated and that the deposit of $280,000 had been forfeited, together with any interest thereon. In the second, the purchaser sought declarations that he had validly terminated the contract on 5 April 2007 and that he was entitled to a return of the deposit of $280,000. The purchaser also sought damages.

24 As indicated above, the primary judge found that the purchaser’s solicitors’ letter of 4 April 2007 constituted a “claim” within the meaning of clause 7. She considered that it was necessary that a claim for the purposes of clause 7 be one made in good faith and on a reasonably arguable basis. Her Honour derived support for this approach from the decision of Young J (as he then was) in Simring v Marinchek [1999] NSWSC 35 at [14] - [15] where his Honour said:

“14. However, it does seem to me that the parties can't have intended that whenever the purchaser states that he or she has a claim for compensation for an error that cl 7 must automatically apply. The words must be read down to some extent and it would seem to me the very minimum that one reads them down is that there must be an arguable claim for compensation or a claim for compensation which is not so unarguably bad that it must fail. Unless there is a claim for compensation with at least a ghost of a chance of succeeding, then it could not have been the intention of the parties to subject themselves to an expensive arbitration process which may involve them in not only the hearing fees for both advocates but also the costs of the arbitration.

15. It is thus necessary to see whether the existing claim is one which could possibly succeed. This is not to evaluate it, but merely to see whether if the facts relied on by the purchaser are established, whether it would be possible for the arbitrator to find that there is compensation due.”

25 The bona fides of the claim were accepted by her Honour. As to reasonable arguability her Honour said:

“31. I accept the purchaser’s submissions that such a claim was reasonably arguable having regard to the facts recorded above and the purchaser’s (unchallenged) evidence of pre-contractual representations by the vendors’ agent about the tenant being secure, well established and only one month in arrears. As the purchaser submitted, the subsequent sale with vacant possession at a higher price does not undermine the purchaser’s claim when considered in the light of the circumstances at the time the claim was made.”

26 Her Honour then considered whether condition 49 or clause 10.1.9 excluded “the capacity to make a claim under clause 7” about the subject matter of the letter of 4 April 2007. Her Honour said:

“32. The second aspect is more difficult given cll 49 and 10.1.9 of the contract as relied on by the vendors. The difficulty arises because it cannot have been intended that cl 7 oblige a vendor to do anything under that clause in relation to a claim about some matter or thing if the contract excludes the capacity to make a claim under cl 7 about that very matter or thing. Such a claim would be in breach of the contract. In those circumstances it would not be possible to characterise the claim as one made on a reasonably arguable basis and in good faith. Accordingly, I do not accept the purchaser’s submission that even a claim made in breach of the contract is necessarily one within the scope of cl 7. But, as the purchaser said, it is not necessary to go so far. The word “claim” in cl 7 is sufficiently broad to encompass claims about the operation of the contract. The function of cl 7 as the dispute resolution provision in this contract leads to the conclusion that the parties intended that a reasonably arguable view about the operation of the contractual provisions would suffice to enliven a potential claim within the meaning of the clause. If it were otherwise the vendors could impose on the purchaser the vendors’ views (whether reasonably arguable or not) about the proper construction of the contract and thereby avoid the arbitration process provided for by the contract. Contrary to the vendors’ submissions this result does not undermine the law of contract. It gives effect to the intention of the parties as determined by the contractual provisions.”

27 Clause 10.1.9 to which her Honour referred in the passage quoted above was in the following terms:

“10.1 The purchaser cannot make a claim or requisition or rescind or terminate in respect of -
…

10.1.9 anything the [existence] of which is disclosed in this contract (except a caveat, charge, mortgage or writ)”.

The word “substance” appears in the standard form clause but the parties agreed in the present contract to substitute the word “existence”.

28 The primary judge concluded that it was reasonably arguable that the contractual provisions to which she referred did not render it a breach of contract for the purchaser to make the claim he did by his solicitors’ letter of 4 April 2007. Her reasoning was as follows:

“34. The contractual provisions excluding claims relate, first, to the terms, nature, status and enforceability of the lease (cl 49.2). This is a different matter from the security of the tenant. Secondly, cl 49.3 also relates to “any matter relating to the lease” including the nominated matters in (a) to (d). The purchaser’s description of this clause as one dealing with the leasehold estate is reasonably arguable when the clause is construed as a whole. I do not accept the vendors’ suggestion that cl 49.3 excludes any claim relating to avoidance of the lease as a whole. In any event, avoidance of the lease is not the same as the status of the tenant. Clauses 49.4 and 49.5, however, are broader in scope. Clause 49.4(c), in particular, concerns the ability of the tenant to comply with its obligations under the lease. Claims about that matter are excluded by cl 49.5. The terms of the exclusion, however, are confined to any matter referred to in cl 49.4 “occurring on or before completion”. It is reasonably arguable that these clauses operate on a lack of ability on the tenant’s part to meet its obligations after exchange and before completion (as in fact occurred here), whereas the purchaser’s claim concerned pre-contractual representations about the security of the tenant. For the same reasons cl 10.1.9 does not assist the vendors because the matters disclosed in the contract related to the lease and the arrears of rental whereas the claim related to the pre-contractual representations identified.”

29 Her Honour’s conclusion was accordingly that the purchaser had made a claim under clause 7 and that the vendors, having elected not to rescind, were bound on completion to set aside an amount equivalent to the lesser of the amount of the claim ($840,000) and ten percent of the purchase price ($560,000). Their refusal to do this constituted a repudiation by them of the contract entitling the purchaser to terminate. The purchaser’s termination was thus held to be valid and the purchaser was held entitled to the return of his deposit.

30 By orders made by consent on 15 July 2008, her Honour entered a verdict for the purchaser in respect of his claim for damages in the sum of $40,000, and dealt with costs.

The submissions on appeal

31 The contentions of the appellant vendors on appeal were to the following effect.

32 First, it was submitted that a claim based upon s 42 Fair Trading Act 1987 could not qualify as a claim under clause 7. The appellants accepted that the reference in the letter of 4 April 2007 to engaging “in conduct that was misleading or deceptive, or was likely to mislead or deceive” was indicative of the claim against the vendors, who were individuals rather than corporations, being sought to be based upon s 42 Fair Trading Act.

33 Secondly, it was submitted that the letter of 4 April 2007 did not give sufficient details of what the purchaser contended in order to qualify the letter of 4 April 2007 as a “claim” for the purposes of clause 7.

34 Thirdly, it was submitted that various special conditions of the contract precluded the purchaser from making the claim he purported to make. Primary reliance was placed in this respect on condition 49.3 which is quoted in [12] above.

35 Fourthly, it was contended that the purchaser’s “claim” was precluded because the risk of loss caused by the tenant vacating possession passed to the purchaser upon the making of the contract for sale. This assumed that the purchaser’s claim was based upon an event, namely the disclaimer of the lease by the tenant, occurring in the period between exchange and completion. Paragraph 5 of the letter of 4 April 2007 ([19] above) however made it clear that the gravamen of the purchaser’s complaint was not this but the conduct of the vendors and their agents which was, by inference, pre-contractual. When this was pointed out on appeal, it was accepted by the vendors’ counsel that this submission “did not have much force”. I agree and accordingly do not again refer to it.

36 In addition to joining issue on these points, the purchaser respondent contended that the exclusionary provisions of the contract could not be relied upon by the vendors in answer to a claim under the Fair Trading Act. He relied upon Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546; (1988) 79 ALR 83; Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367; and Byers v Dorotea Pty Ltd (1986) 69 ALR 715.

37 The purchaser also contended that in the event that the court allowed the appeal, the vendors should not be permitted to retain the deposit paid but should be ordered to repay it to the purchaser. Reliance was placed upon s 55(2A) Conveyancing Act 1919 which is in the following terms:

“(2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. ”

38 The primary judge did not express a view as to how she would have exercised the discretion conferred by this section in the event that she was in error in finding that it was the purchaser rather than the vendors who validly terminated.

Was the letter of 4 April 2007 a claim under clause 7?

39 It is convenient to deal under this heading with both the first and third arguments of the appellant vendors because consideration of the meaning of the word “claim” in clause 7 must involve regard being had to the contract as a whole. If it is found that provisions other than clause 7 preclude the purchaser from making certain “claims”, it follows in my view that the claims which clause 7 contemplates the purchaser may make prior to completion must exclude those claims. I would prefer to express the relevance of the special conditions relied upon by the vendors in this way rather than by focussing, as the primary judge did in [32] of her judgment, on whether the making of a claim would “be in breach of the contract”. Whilst a claim made inconsistently with one of those conditions might aptly be described as having been made in breach of contract, the issue to be resolved is as to the ambit of the expression “claim” in clause 7 taking into account all of the contractual provisions.

40 As pointed out by the primary judge, the ordinary meaning of the word “claim” is wide. By stating at its outset that a “claim” includes a claim under clause 6, clause 7 makes it plain that “claims” under it are not to be limited to claims for compensation under clause 6 in respect of an error or misdescription in the contract. Likewise, in excluding the vendors’ right of rescission in respect of claims that are “claims for delay”, clause 7.1 indicates that a “claim” for the purposes of the opening words of clause 7 includes a “claim for delay”. Such a claim would almost certainly be a claim for damages.

41 Against these indications of a broad meaning of “claim”, I cannot see any indications in clauses 6, 7 or 8 that a narrow meaning is to be attributed to the word. The only textual indication relied upon by the vendors was the reference to the “the Conveyancing Arbitration Rules” in clause 7.2.3. It was said that the title of these rules suggested a narrow meaning of “claim” was to be adopted, in particular, one which excluded claims based upon s 52 Trade Practices Act 1974 (Cth) or s 42 Fair Trading Act. I do not agree with this submission.

42 First, there is no reason why arbitrators may not be empowered by parties to resolve claims based upon such provisions (see Hi-Fert Pty Ltd vKiukiang Maritime Carriers Inc (No 5) (1998) FCR 1; QH Tours Limited v Ship Design and Management (Aust) Pty Limited (1991) 33 FCR 227). Although the legislation does not confer power upon arbitrators to make orders under it, parties may, expressly or impliedly, empower arbitrators to exercise powers analogous to those which would be able to be exercised by the relevant court (see also, as to the power of arbitrators to award interest in circumstances analogous to those in which a Court would award interest: Codelfa Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 and Government Insurance Office of NSW v Atkinson-Leighton Joint Venture [1981] HCA 9; 146 CLR 206). Secondly, I do not consider that the word “Conveyancing” contained in the title of the Conveyancing Arbitration Rules suggests that a claim based on pre-contractual misleading and deceptive conduct is necessarily outside the concept of a “claim” for the purposes of clause 7. The fact that the content of the Conveyancing Arbitration Rules was not put before the court added to the vendors’ difficulties in ascribing importance to the reference to them in clause 7.

43 In light of these matters, I do not agree with the vendors’ submission that a “claim” within clause 7 has to be one “arising out of the contract”. Whilst it seems to me that there must be some logical connection with the contract, there is no basis for excluding from the ambit of “claims” ones based on pre-contractual misleading or deceptive conduct relating to the property or to a proposed contract for the sale of it. The vendors gave as examples of claims that would fall outside the concept, unrelated claims based on defamation, personal injury or property damage. I agree that such claims would not be embraced by the term but that does not mean that it should be construed in the narrow way contended for by the vendors. It would not in my view be necessary for the claim to be such as constituted an equitable set-off but the fact that a claim of the type under consideration would give rise to such a set off supports the conclusion that it is a “claim” within the meaning of clause 7 (see Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238; (2006) 67 NSWLR 9).

44 It is next necessary to consider whether the additional conditions relied upon by the vendors constitute a basis for construing the word “claim” in clause 7 more narrowly than otherwise would be the case. Condition 49.3 was the provision most strongly relied upon. This is set out in [12] above.

45 In my view, the words at the commencement of condition 49.3 disentitling the purchaser from making “any claim in relation to any matter relating to the Lease” have the effect contended for by the appellant vendors. The words “in relation to” are very broad. Commonsense strongly suggests that a claim based upon pre-contractual misleading or deceptive representations as to the nature or characteristics of the lease or of the tenant, or of the conduct of the tenant in connection with the lease, was a claim “in relation to … [a] matter relating to the lease”. I do not think that a reasonable bystander would have any hesitation in saying that it was.

46 I do not consider that the subparagraphs of condition 49.3 are a basis for limiting the generality of what precedes them. They do not purport to be an exhaustive description of what constitutes a claim “in relation to any matter relating to the Lease” and in any event do not exhibit any common feature which would form the basis of an argument that the preceding general words were restricted to claims having that feature.

47 In [34] of the her judgment (see [28] above), the primary judge concluded that the purchaser’s contention that condition 49 was “one dealing with the leasehold estate” (and not therefore one that precluded the claim of 4 April 2007) was reasonably arguable when the clause was construed as a whole. In my view however reasonable arguability is not the test to be applied on this point. Certainly it is unnecessary to determine whether the claim would, or would be likely to, succeed. It is sufficient if the claim is a reasonably arguable one. However there is an anterior question of whether what has been put forward is a “claim” within clause 7. This is in my view to be determined as a matter of construction of the contract in the usual fashion upon the balance of probabilities. Thus, it must be decided whether the letter of 4 April 2007 constituted a “claim” or not. Clause 7 was only triggered if it did. It was not triggered if what was submitted was a document which was only reasonably arguably a “claim”.

48 As a result, I differ from the primary judge’s view on the approach to be taken on this point. Her Honour did not decide whether condition 49.3 should be understood in the limited way she suggested but only that it was reasonably arguable that it should. For the reasons I have given above, I do not consider that it should be understood as so limited. In particular, I do not regard it as limited to claims “dealing with the leasehold estate”. Apart from any other reason, condition 49.3(c) indicates that the condition as a whole is not so limited because that subparagraph is concerned with the conduct of the lessee and not in a narrow sense with the “leasehold estate”.

49 This conclusion is sufficient to resolve the primary issue on the appeal in favour of the appellant vendors, leaving only the purchaser’s claim for an order for return of his deposit to be determined.

50 I should however briefly express views upon other matters that were argued in relation to what constituted a “claim” within clause 7.

51 First, the purchaser contended that regard could not be had to the contractual exclusions such as condition 49.3 because such exclusions would be ineffective responses to Fair Trading Act proceedings commenced in court by the purchaser (see [36] above). I do not agree. It may be accepted that the conditions would be ineffective in that circumstance but their relevance to the resolution of the present dispute is of a different kind. They are relevant to the task of construction which must be undertaken as to the meaning of “claim” in clause 7. The authorities relied upon by the purchaser do not prevent parties agreeing upon what is and is not to be dealt with by a special contractual regime established for the resolution of claims. If the parties decide to make such contractual regime applicable only to certain types of claims (and not to claims in respect of misleading or deceptive conduct), they are perfectly entitled to do so.

52 Secondly, various other conditions of the contract were relied upon by the vendors as achieving the result that I have concluded is achieved by condition 49.3.

53 Conditions 49.4 and 49.5 (quoted in [12] above) were relied upon in this respect. Her Honour took the view that it was reasonably arguable that the exclusion of claims in 49.5, insofar as it operated in relation to 49.4(c), operated “on lack of ability on the tenant’s part to meet its obligations after exchange and before completion (as in fact occurred here), whereas the purchaser’s claim concerned pre-contractual representations about the security of the tenant” (judgment [34]). My view is that this is the correct view of the clause (and not simply arguably the correct view). It does not therefore assist the vendors. 49.4 appears to me to be speaking at the date of the contract with 49.5 directed to supplementing the protection for the vendor by precluding claims relating to any of the matters referred to in 49.4 occurring thereafter and on or before completion.

54 Clause 10.1.9, quoted in [27] above, was also relied upon by the vendors but in my view does not assist them. The pre-contractual misleading or deceptive conduct was unsurprisingly not disclosed in the contract.

55 Other provisions relied upon by the vendors were as follows:

“34. VENDOR DISCLOSURE

…

34.3 The purchaser warrants that it is relying entirely on its own enquiries in relation to the documents attached to this contract.
34.4 The purchaser cannot make any claim or requisition, rescind or terminate, or delay completion because:
(a) of any matter disclosed or described in this contract; or
(b) any document attached to this contract is incomplete or inaccurate.
…

40. ENTIRE AGREEMENT
This contract is the entire agreement of the parties on the subject matter. The only enforceable obligations and liabilities of the parties in relation to the subject matter are those that arise out of the provisions contained in this contract. All representations communications and prior agreements in relation to the subject matter are merged in and suspended by this contract.”

56 Conditions 34.3 and 34.4 were concerned with matters disclosed or described in the contract. The pre-contractual representations were not of this character. Condition 40 might have arisen for consideration in an arbitration under clause 7, if one had occurred, although the authorities referred to at [36] above would suggest that reliance upon it would not have been successful.

The form of the Notice of Claim

57 As the vendors are in my view entitled to succeed upon their contention that the claim made was not of a type covered by clause 7, their further contention that the claim which was made was not in a form which complied with clause 7 does not arise for determination. Nevertheless, I express my views on the argument as follows:

58 The vendors made submissions in the following terms:

“51. At the very least, claims, and especially claims which arise otherwise than out of the contract, and which go beyond an adjustment of the purchase price, should be required to state with precision and particularity the facts said to give rise to the claim, so as to enable the vendor to assess, on the basis of the allegations therein contained, whether the claim had merit, and whether the vendor should accept the claim and keep aside part of the purchase price pending determination of the matter, or whether he should rescind, whether he should do neither and insist on performance, thereby exposing himself to a claim for damages.
52. If the claim does not give such particulars, the vendor is not in a position to form any view as to the strength of otherwise of the claim. Yet the decision he has to make, very often as a matter of extreme urgency, would very likely have serious repercussions for him.”

59 Whilst much could be said in favour of a claim containing the information referred to by the vendors, the contract between the parties did not require it. Clause 7 does not specify any particular form for a claim nor, save for the requirement that it contain a statement of the amount claimed, does it specify any matter required to be included in the claim. The fact that the clause does specify one matter to be included points against an implication that other matters are required to be included. Also against it is the explicitness of clause 8 (see [11] above) which deals with the vendor’s right to rescind if the vendor is unable or unwilling to comply with a requisition. The vendor’s notice to rescind is expressly required to identify the requisition in question and the grounds (which have to be reasonable grounds) upon which the vendor says he or she is unable or unwilling to comply. The purchaser is then given an opportunity to waive the requisition. Plainly, the intent of the clause is to require sufficient information to be given to the purchaser to enable the purchaser to make an informed decision as to whether to waive the requisition. This structure stands in marked contrast to that of clause 7 which does not require the bases of the claim to be particularised. Whether it would be sufficient under clause 7 for the purchaser to say only that he or she had a claim in a certain amount need not be considered in this case. Here the claim did identify its general nature and amount. This was sufficient.

Return of deposit

60 It follows from my view that the purchaser’s letter of 4 April 2007 did not constitute a “claim” within clause 7, and from the agreement of the parties as to the consequences that would flow from such a conclusion, that the vendors were entitled to treat the purchaser’s purported termination as an anticipatory breach or repudiation and to themselves terminate the contract and forfeit the deposit paid by the purchaser.

61 There remains the question of whether an order should be made under s 55(2A) Conveyancing Act 1919 that the deposit be repaid to the purchaser. In fact, as a result of the orders at first instance, the deposit appears to have been repaid already to the purchaser. Resolution of the present issue will determine whether the purchaser is entitled to retain the deposit or must return it to the vendors.

62 The terms of s 55(2A) Conveyancing Act 1919 are set out in [37] above.

63 The primary judge did not need to decide whether an order should be made under s 55(2A) as she found that the purchaser had validly terminated the contract and was for that reason entitled to return of his deposit. Her Honour did not indicate whether she would have made an order under s 55(2A) if the purchaser had not validly terminated. As there is no issue of credit relevant to the determination of the issue, this Court is in a position to make a decision as to whether an order should be made under s 55(2A) and in my view should do so.

64 The proper approach to the making of orders under s 55(2A) was considered at length by Santow JA (with whom Tobias JA and Brownie AJA agreed) in Havyn Pty Ltd v Webster [2005] NSWCA 182; (2005) 12 BPR 22,837. His Honour’s conclusions at [173] included the following propositions:

“(a) Section 55(2A) confers upon the Court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture.

(b) Notwithstanding this, it is important for a Court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur.

(c) That context is significant when considering the justice and equity of the case, and whether the Court “sees fit” to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show “special circumstances” (or satisfy any like test) before a deposit will be returned.

(d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited.

(e) In considering an application under s 55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited.”

65 In Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367 the judgment of five members of the Court contained the following paragraph at its conclusion:

“27. The appeal to the Court of Appeal should have been dismissed. The appeal to this Court should be allowed with costs. The orders made by the Court of Appeal should be set aside. In place of those orders it should be ordered that the appeal to the Court of Appeal should be dismissed with costs and the cross appeal should be allowed with costs. Involved in allowing the cross appeal is the conclusion that Windeyer J erred in the exercise of his discretion under s 55(2A) of the Conveyancing Act in ordering the return of the deposit where evidence was insufficient to show that it would be unjust or inequitable to allow the vendors to retain the total sum of $50,000 paid as deposits under the contracts for sale. There should be a declaration that that sum of $50,000 is forfeited to the appellants”

66 In saying that the evidence was insufficient “to show that it would be unjust or inequitable” to allow the vendors in that case to retain the deposits, I do not understand their Honours to dictate any different approach to that identified by Santow JA in Havyn Pty Ltd v Webster. Both are consistent with the justice and equity of the case being considered in exercising the discretion conferred by s 55(2A).

67 The fact that a deposit is an earnest of performance and that the Court “should not take an approach to ordering the return of deposits under s 55(2A) which weakens the proper function of a deposit in providing a sanction so that purchasers treat the making and completing of contracts with due seriousness” (per Santow J in Havyn at [155]) is a factor weighing in favour of the vendors. However, two factors present here lead me to the view that the Court’s discretion should be exercised in favour of the making of an order for return of the deposit.

68 The first is that shortly after their termination of the contract for repudiation on the part of the purchaser, the vendors were able to resell the property for a substantially higher price than that which they would have received from the respondent under the contract which was terminated (see [22] above). Even allowing for the fact that there would have been expenses of resale, the excess of $600,000 was a substantial one. This is a factor which in my view is able to be weighed in the balance. A recent recognition of this is to be seen in Chief Ajibola Anthony Aribisala v St James’ Homes (Grosvenor) Dock Ltd [2008] EWHC 456. In that case Floyd J expressed the view that the resale by the vendor at a substantial profit, was a relevant factor, although on its own insufficient to warrant the making of an order for the return of the deposit which had been paid. Likewise I would see the substantial profit made on resale in the present case as insufficient on its own to warrant the making of an order. However, in conjunction with the second factor to which I will come, it does in my view require the exercise of the Court’s discretion in favour of the purchaser.

69 The second matter is the representations that were made prior to entry of the parties into the contract. These are referred to in [8] and [9] above. As her Honour said (judgment [30]), the representations were to the effect that the tenant “was secure, well-established and only one month in arrears” and the purchaser’s evidence of these representations by the vendors’ agent was unchallenged. Her Honour did not find it necessary to say more than that it was reasonably arguable that the representations constituted misleading or deceptive conduct (judgment [31]). However, the conclusion should in my view be reached that on the evidence before her Honour the representations to the effect that the tenant was secure and only one month in arrears were misleading or deceptive bearing in mind the fact that the evidence indicated that at the relevant time the tenant was considerably more than one month in arrears. The purchaser’s submission at first instance (judgment [21]) was that a “back calculation” from the arrears notified by the vendors’ solicitor of $253,850 as at 16 March 2007 indicated that the tenant had “ceased meeting its obligations in about July 2006”. This was not sought to be contradicted by the vendors before this Court, nor apparently at first instance. Whether July 2006 was the month in which the tenant ceased meeting its obligations is not of significance for present purposes because it is clear that the arrears by March 2007 indicated that the tenant must have been significantly more in arrears at November 2006 than one month’s rent.

70 It is not necessary for the purpose of the exercise of discretion under s 55(2A) to predict what would have been (or perhaps might be) the outcome of any separate proceedings brought by the purchaser claiming damages for misleading or deceptive conduct, particularly as to reliance and damages. It is sufficient for present purposes to say that the conduct which I regard as misleading or deceptive was plainly about a matter which was of considerable significance to the purchaser. That is indicated, not only by commonsense, but also by the letter written on the purchaser’s behalf prior to entry into the contract seeking a warranty as to breaches of the lease (see [13] above). The response (at [14]) referred to “rental arrears” but the purchaser had been told that they were only for the “last month” (at [9]).

71 It would not in my view be a just and equitable outcome of the dealings which occurred between the parties for the vendors to be entitled to retain the deposit which was paid by the purchaser. The act of the purchaser, which I regard as a repudiation, was founded upon conduct of the vendors about a very important matter concerning the property, being conduct which I consider the purchaser was justified in regarding as misleading or deceptive. The purchaser’s action in relying upon clause 7, although erroneous, had an arguable basis. In a circumstance where the vendors have terminated the contract by reason of that action and resold promptly for a very substantial profit, I do not think it would be fair to allow them to retain the purchaser’s deposit. I accordingly consider that an order should be made under s 55(2A).

Orders

72 As the deposit has already been repaid to the purchaser, it is not clear what orders should be made as to repayment or restitution. The parties should submit short minutes identifying the orders that should be made. The parties’ proposed orders should provide inter alia for the making of the following orders:

(a) Appeal allowed.

(b) Orders made at first instance on 13 May 2008 and 15 July 2008 set aside.

(c) Declare that the contract for sale dated 17 November 2006 between the appellants as vendors and the respondent as purchaser was validly terminated by the appellants.

(d) In proceedings SC 2777 of 2007 commenced by the vendors for a declaration that they had validly terminated the contract of sale between the parties and for other orders, order that the respondent pay the costs at first instance of the appellants.

(e) In proceedings SC 2782 of 2007 commenced by the respondent for an order for return of the deposit paid by him and for other orders, order the appellants to pay the costs at first instance of the respondent.

(f) No order as to costs of this appeal.

73 The order which should be made at this stage is that within seven days the parties file short minutes of the orders which they agree should be made to give effect to these reasons for judgment or, if no agreement can be reached, short minutes of the orders for which each respectively contend together with brief submissions identifying the reasons for their contentions.

74 SACKVILLE AJA: I agree with Macfarlan JA that the letter of 4 April 2007 written on behalf of the respondent (“Purchaser”) did not make a “claim” against the appellants (“Vendors”) within the meaning of cl 7 of the contract of 17 November 2006 (“the Contract”). It follows that the Vendors were entitled to insist on completion of the Contract and that, on the refusal by the Purchaser to complete as required by the Contract, the Vendors were entitled to forfeit the deposit (subject to the operation of s 55(2A) of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”).

75 I wish to make some brief observations on the construction of cl 7 of the Contract, in part because they have a bearing on the exercise of the Court’s discretion under s 55 (2A) of the Conveyancing Act. I shall then deal with the question of whether an order should be made in favour of the Purchaser for the return of the deposit.

Was There a Claim?

76 Clause 7 of the Contract establishes a procedure for the resolution of claims made by the Purchaser. The procedure is as follows:

• the Purchaser makes a “claim” by serving it with a statement of the amount claimed;
• the Vendors may choose to rescind the contract if the total amount claimed exceeds 1% (substituted for 5% in the printed standard form contract) of the price and if the Purchaser does not waive the claim within 14 days;
• if the Vendors do not rescind, the parties must complete the contract and the lesser of the amount claimed or 10% of the purchase price must be paid out of the price to the deposit holder to hold “until the claims are finalised or lapse”;
• the claims must be “finalised” by an arbitrator appointed in accordance with the claim; and
• the Purchaser is not entitled, in respect of the claim, to more than the total amount claimed and costs.

77 Clause 7 of the Contract therefore provides an arbitral mechanism for resolving a claim made by the Purchaser where the sale has not been completed. While in a particular case, the mechanism might work to the advantage of the Vendors, the procedure is initiated by the Purchaser. The Vendors can bring the procedure to a halt, but only at the price of rescinding the contract. If the Vendors do not rescind, the Purchaser receives the benefit of a fund, set aside from the purchase price, against which to pursue the claim. Ordinarily, the fund will be no greater than the deposit (which is usually 10% of the price), but in this case the fund sought by the Purchaser was actually greater than the deposit (which was only 5% of the price). It is true that, as the Purchaser accepted, any claim under cl 7 of the Contract must have a reasonably arguable basis and not be made in bad faith. Nonetheless, provided that this requirement is met, the Purchaser, by invoking cl 7, has the advantage of a fund against which to pursue his claim, while the Vendors, who may have mortgages or other commitments to discharge, are denied access to an amount up to 10% of the purchase price notwithstanding that the sale has been completed.

78 The primary Judge took the view that it was enough to enliven cl 7 if the Purchaser could show that it was arguable that cl 7 was not excluded by the other terms of the Contract. As her Honour explained:

“The function of cl 7 as the dispute resolution provision in this contract leads to the conclusion that the parties intended that a reasonably arguable view about the operation of the contractual provisions would suffice to enliven a potential claim within the meaning of the clause.”

79 It was no doubt open to the drafters of cl 7 to establish an arbitral mechanism for the resolution of claims pursuant to which the question of whether the Purchaser had made a “claim” within the meaning of cl 7 would be a matter for the arbitrator to determine. But the language of the Contract is, in my view, inconsistent with that construction.

80 Clause 49.3 of the Contract, upon which the Vendors principally rely, states that a Purchaser is not entitled, among other things, to make any claim in relation to any matter relating to the Lease. This language is closely aligned to that of cl 7. The opening words of cl 7 are that the “Purchaser can make a claim”. These words mean that a Purchaser is entitled to make a claim pursuant to that provision. Clause 49.3 creates an exception to that entitlement for claims of a particular kind. The intention of the Contract is that a Purchaser whose claim is of a kind that falls within cl 49.3 is not able to invoke the arbitral mechanism for which cl 7 provides. In other words, a Purchaser who is not entitled to make a claim by reason of cl 49.3 cannot make a valid claim under cl 7. Consequently a Purchaser making such a claim cannot take advantage of the fund that otherwise must be set aside out of the purchase price until the claim is resolved. The Purchaser is left to the remedies available under the general law.

81 Did cl 49.3 disentitle the Purchaser in this case from bringing the claim purportedly made by him? The Purchaser’s claim was founded on what was said to be the Vendors’ misleading and deceptive conduct “in respect of the tenant and the tenant’s financial affairs”. The letter of 4 April 2007 did not include particulars of the claim, although when the letter is read with the letter of 16 March 2007, it is clear enough that the Purchaser’s claim was based on false representations allegedly made by the Vendors’ agent as to the capacity of the tenant to pay the rent under the Lease and the extent of rental arrears. The letter of 4 April 2007 did not specify the cause of action on which the Purchaser relied, but the reader would infer that the claim was for damages under s 68 of the Fair Trading Act 1987 (NSW) (“FT Act”) by reason of the Vendors’ contravention of s 42 of the FT Act.

82 The pertinent question is whether this claim was “in relation to any matter relating to the Lease” within the meaning of cl 49.3. For cl 49.3 to apply, the claim does not have to relate to an existing lease of the premises. In the inelegant language of cl 49.3, it is enough that it is a claim in relation to a matter relating to the lease. I see no reason to give the expansive language of cl 49.3 anything other than an interpretation that accords with its ordinary meaning.

83 As Mr Murr SC pointed out in argument, the loss or damage the Purchaser claimed to have suffered was said to be the diminution in value of the property purchased by him, rather than any loss flowing from the Purchaser’s likely inability, as owner of the property, to derive rental from the premises. Even so, the Purchaser’s claim was based on alleged pre-contractual misrepresentations by or on behalf of the Vendors as to the tenant’s capacity to pay rent and as to the extent of rental arrears under the Lease. Each of these alleged misrepresentations, in my opinion, was a “matter relating to a Lease”. The extent of the rental arrears had to be determined by reference to the terms of the lease then in force and the tenant’s obligations thereunder. The tenant’s capacity to pay the rent as it fell due under the lease was a matter relating to the lease because it concerned the likely enforceability of the most fundamental obligation of the tenant under the lease.

84 It follows that the claim purportedly made by the Purchaser fell within cl 49.3 of the Contract and the Purchaser was not entitled to make the claim under cl 7 of the Contract. The letter of 4 April 2007 did not constitute such a “claim” for the purposes of cl 7.

Repayment of Deposit

85 Section 55(2A) of the Conveyancing Act provides as follows:

“In every case where the court refuses to grant specific performance of a contract, or in any proceedings for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit with or without interest thereon”.

86 As Macfarlan JA has explained, the conclusion that the Vendors were entitled to terminate the Contract and forfeit the deposit of $280,000 (5% of the purchase price of $5,600,000) gives rise to the question of whether this Court should make an order for repayment of the deposit. As the primary Judge did not need to address this question, the Court must itself exercise the discretion conferred by s 55(2A).

87 There was no substantial dispute between the parties concerning the construction of s 55(2A). While counsel for each party referred to a number of cases, neither challenged the principles formulated by Santow JA (with whom Tobias JA and Brownie AJA agreed) in Havyn Pty Ltd v Webster [2005] NSWCA 182; 12 BPR 22,837. Santow JA’s summary of the relevant principles is reproduced in the judgment of Macfarlan JA (at [64]).

88 Nevertheless, reference should be made to the decision of the High Court in Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367. This case was decided by the High Court before Havyn, but was not cited by Santow JA in his judgment. The relevant paragraph of the joint judgment in Romanos is also set out in Macfarlan JA’s judgment (at [65]) and I do not repeat it.

89 In that paragraph, their Honours appear to accept that a purchaser must show that it is unjust or inequitable to allow the Vendors to retain the deposit before the purchaser can succeed in obtaining an order under s 55(2A) of the Conveyancing Act for return of the deposit. In Romanos itself, the purchasers had defaulted in payment of the balance of deposits due under several contracts of sale. They argued on the appeal that an order for return of the part deposits paid by them had been properly made by the trial Judge under s 55(2A). The purchasers relied particularly on the vendor having received a “windfall” by reason of an increase in the value of the land, in part attributed to the development approvals that the Purchasers had arranged prior to the contract being terminated.

90 The joint judgment observed, in the context of rejecting the purchasers’ claim to specific performance of the contracts, that the terms of the contracts had specifically provided that, in the events that occurred, the vendors were to have the benefit of the development consents: at 375[24]. Their Honours noted that:

“equity does not intervene in such a case to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favourable than the other side”.

91 As Santow JA pointed out in Havyn, the scope of s 55(2A) of the Conveyancing Act is not constrained by equitable principles. Nonetheless, the reasoning in Romanos emphasises the significance of Santow JA’s observation that:

“a court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract, when performance does not occur”.

92 In the present case, the deposit paid by the Purchaser was forfeited in consequence of his decision to invoke the procedure created by cl 7 of the Contract when, as a matter of construction of the Contract, he was not entitled to do so. The Purchaser purported to terminate the Contract, but this was correctly taken by the Vendors as an anticipatory repudiation by the Purchaser, justifying the Vendors’ own termination of the Contract.

93 The Purchaser had a choice of procedures available to him to pursue his claim of allegedly misleading or deceptive conduct against the Vendors. He could have elected to complete the Contract and then to institute proceedings under the FT Act in respect of the loss or damage he claimed to have sustained by reason of the Vendor’s misleading and deceptive conduct. Instead, he chose to invoke the arbitral mechanism provided by cl 7 of the Contract which, if validly invoked, gave him the distinct advantage of requiring the Vendors to set aside a fund of $560,000, in effect, as security for his claim. The sum of $840,000 nominated by the Purchaser in the letter of 4 April 2007 was apparently calculated by reference to a possible loss of rental over a two year period. However, the letter said that this sum represented “substantial diminution in the value of the property” attributable to the falsity of the representation made by or on behalf of the Vendors. Judging by the price at which the property was resold by the Vendors on 31 May 2007, it would seem that the inability of the tenant to pay rent and the disclaimer of the lease by the liquidator did not cause any diminution in the value of the property, much less anything approaching $560,000.

94 In the circumstances of the present case, I do not think that the representations said to have been made on behalf of the Vendors prior to the Purchaser’s entry into the Contract provide a sound basis for an order requiring the Vendors to return the deposit. The proceedings determined by the primary Judge were not intended to resolve the Purchaser’s claim that he was entitled to damages by reason of the Vendors’ contraventions of the FT Act. The initiating process consisted of summonses filed, respectively, by the Vendors and the Purchaser. There were no pleadings. As her Honour pointed out, the principal issue identified by the parties in the proceedings was whether the Purchaser was entitled to make a claim under cl 7 of the Contract, thereby invoking the arbitral mechanism set out there.

95 The Purchaser’s summons made no reference to s 55(2A) of the Conveyancing Act. Nonetheless, he contended before the primary Judge that an order under s 55(2A) should be made in his favour. On the findings made by her Honour, she did not have to address that issue. In any event, the factual question addressed by her Honour was not whether there had been misleading or deceptive conduct by or on behalf of the Vendors, but whether the Purchaser had made his claim for damages in good faith and on a reasonable and properly arguable basis. There was no occasion in the proceedings at first instance to resolve finally the allegations of misleading and deceptive conduct, much less the issues of reliance and loss or damage that would have been explored at a trial in which the Purchaser sought relief under the FT Act. This should be contrasted with the position in Havyn, where findings were made by the trial Judge relating to the Purchaser’s claim for damages under s 68 of the FT Act based on the misleading and deceptive conduct of the Vendors.

96 In my view, neither the findings made by the primary Judge nor the evidence adduced at trial can fairly be used to attribute responsibility to the Vendors for misleading and deceptive conduct that influenced the actions of the Purchaser. Her Honour was not asked to make findings to this effect. The limited nature of evidence adduced by the Vendors and their failure to challenge the Purchaser’s account in all likelihood reflected the issues that fell for determination. It may well be open to the Purchaser, even now, should he wish to pursue a course of action under the FT Act, to institute proceedings against the Vendors. I do not think that conclusions adverse to the Vendors should be drawn for the purposes of exercising the discretion conferred.

97 The authorities indicate that an increase in the value of the property after forfeiture of the deposit is a factor, but only one factor, to take into account in determining whether an order should be made for the return of a deposit: Chief Ajibola Anthony Aribisala v St James’ Holmes (Grosvenor Dock) Ltd [2008] EWHC 456 (Floyd J), at [55]-[59]. In the present case the Vendors entered into a contract to resell the property on 31 May 2007 for $6,200,000, $600,000 more than the price the Purchaser agreed to pay under the Contract. The contract for resale was completed on 12 July 2007, some three months after the Purchaser should have completed the sale under the Contract.

98 In determining the extent of any “windfall” to the Vendors, it is necessary to take into account that:

• the Vendors presumably incurred agents’ commission and other expenses on the resale (the quantum of which was apparently not the subject of evidence); and
• the Vendors were kept out of the balance of purchase price payable under the Contract for three months.
  
  So far as the second of these matters is concerned, the Contract provided for the Purchaser to pay interest at 12% per annum if completion were delayed. This suggests that the Vendors were deprived of interest of perhaps $150,000 by the delay in completing a sale of the property. In addition, as Floyd J observed in Aribisala , values increase in a rising market and a higher price achieved on a resale, of itself, does not necessarily demonstrate that it would be unjust or inequitable for a Vendors to retain a forfeited deposit.
  

99 In my view, it is neither unjust nor inequitable for the Vendors to retain the deposit paid by the Purchaser in this case. That deposit was only 5% of the purchase price, not the usual 10%. The deposit was forfeited because the Purchaser wrongly insisted on invoking the arbitral procedure laid down by cl 7 of the Contract, an insistence doubtless motivated in part by the advantage of securing a fund of $560,000 against which to pursue his claim. Given the way the proceedings were conducted before the primary Judge, the evidence does not warrant a finding that the Purchaser was induced to enter the Contract by misleading and deceptive conduct by or on behalf of the Vendors. It is true that the Vendors resold the property for $6,200,000, some $600,000 more than the price under the Contract. But any assessment of the “windfall” must take account of the costs of the resale and the loss of interest by reason of the delayed completions. The gain, whether considered alone or in combination with other circumstances, does not warrant an order under s 55(2A) of the Conveyancing Act for return of the deposit.

100 The orders I propose are:

(a) Appeal allowed.

(b) Cross-appeal dismissed.

(c) Set aside the orders made by the primary Judge on 13 May 2008 and 15 July 2008.

(d) Declare that the contract of sale dated 17 November 2006 between the Vendors (appellants) and the Purchaser (respondent) was validly terminated by the Vendors.

(e) Declare that the deposit of $280,000 paid by the Purchaser to the Vendors be forfeited to the Vendors, together with any interest thereon.

(f) Order that the Purchaser repay to the Vendors the sum of $280,000 with any interest earned thereon.

(g) Order the Purchaser to pay to the Vendors the sum of $40,000 paid to the Purchaser pursuant to the orders made on 15 July 2008, with any interest thereon.

(h) The summons filed by the Purchaser in proceedings SC 2782 of 2007 (“ Purchaser’s Summons ”) be dismissed.

(i) The Purchaser pay the costs of the Purchaser’s Summons and of proceedings SC 2777 of 2007.

(j) The Purchaser pay the Vendors’ costs of the appeal.

(k) Grant the Respondent a certificate under the Suitors’ Fund Act 1951 (NSW) in respect of the costs of the appeal.

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