Palasty v Parlby

[2007] NSWCA 345

Reported Decision: (2008) NSW Conv R 56-205(2008) ANZ Conv R 8-10

New South Wales

Court of Appeal

CITATION:	PALASTY v PARLBY [2007] NSWCA 345
HEARING DATE(S):	12 June 2007
JUDGMENT DATE:	6 December 2007
JUDGMENT OF:	Mason P at 1; Tobias JA at 64; Handley AJA at 65
DECISION:	Appeal dismissed with costs
CATCHWORDS:	DAMAGES – Measure and remoteness of damages in actions for breach of contract – remoteness – liabilities incurred – vendor and purchaser – completion of sale under first contract relied upon by plaintiff to enter into a second contract for purchase of another property – first contract breached by defendant – plaintiff unable to complete second contract – losses resulting from breach of second contract - DAMAGES – Measure and remoteness of damages in actions for breach of contract – remoteness – other cases – interest damages – where timely receipt of monies needed and known to both parties – where return of property under first contract at date of termination does not compensate adequately for losses stemming from the breach - In March 2000 the appellant (the purchaser) contracted to purchase from the respondent (the vendor) a home at Hunters Hill. The price was $3,150,000 and a deposit of $315,000 was paid on exchange. In April 2000, in reliance upon the purchaser completing the contract, the vendor entered into a contract to purchase a home in Killara. The vendor paid the customary ten per cent deposit on that contract. - In May 2000, after the nominated completion date for the Hunters Hill contract had passed and after the issuing of notice to complete, the vendor terminated the contract and the purchaser’s deposit was forfeited. As a result of the termination, the vendor was also unable to complete the purchase at Killara and suffered the forfeiture of the deposit he had paid on that contract.
LEGISLATION CITED:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
CASES CITED:	Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 Delbridge v Low [1990] 2 Qd R 317 Gould v Vaggelas (1985) 157 CLR 215 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 Hexiva Pty Ltd v Lederer (No 2) [2007] NSWSC 49 Heydon v NRMA Ltd (No 2) (2001) 53 NSWLR 600 Holland v Hardy (1882) 3 LR(NSW) 450 Hungerfords v Walker (1989) 171 CLR 125 Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377 (HL) Jampco Pty Ltd v Cameron (No 2) (1986) NSW Conv R 55-275 Koufos v C Czarnikow Ltd [1969] 1 AC 350 Leggott v Metropolitan Railway Co (1870) LR 5 Ch App 716 Leighton Contractors Pty Ltd v Queensland Insurance Co Ltd (4 October 1978, unreported) London Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429 Robinson v Harman (1848) 1 Ex 850 at 855, 154 ER 363 Royal Bristol Permanent Building Society v Bomarsh (1887) 35 Ch D 390 Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, [2007] 3 WLR 354 Senavale Pty Ltd v Nolan (2000) NSW Con R 55-948, [2000] NSWSC 619 Wenham v Ella (1972) 127 CLR 454
PARTIES:	Judith Katerine PALASTY George Lassam PARLBY
FILE NUMBER(S):	CA 40403/2006
COUNSEL:	A Radojev (Appellant) J Horowitz (Respondent)
SOLICITORS:	R E Barros & Co, Cherrybrook (Appellant) Horowitz & Bilinsky, Sydney (Respondent)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 3623/04
LOWER COURT JUDICIAL OFFICER:	Curtis DCJ
LOWER COURT DATE OF DECISION:	7 June 2006

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40403/2006

MASON P
TOBIAS JA
HANDLEY AJA

Thursday 6 December 2007

Judith Katerine PALASTY v George Lassam PARLBY

In March 2000 the appellant (the purchaser) contracted to purchase from the respondent (the vendor) a home at Hunters Hill. The price was $3,150,000 and a deposit of $315,000 was paid on exchange. In April 2000, in reliance upon the purchaser completing the contract, the vendor entered into a contract to purchase a home in Killara. The vendor paid the customary ten per cent deposit on that contract.

In May 2000, after the nominated completion date for the Hunters Hill contract had passed and after the issuing of notice to complete, the vendor terminated the contract and the purchaser’s deposit was forfeited. As a result of the termination, the vendor was also unable to complete the purchase at Killara and suffered the forfeiture of the deposit he had paid on that contract.

A new buyer was found for the Hunters Hill property in December 2000 and resale was completed in March 2001. The price at resale was $90,000 less than the previously contracted price.

The vendor recovered damages for breach of contract at first instance.

On appeal the purchaser argued that there was no evidence of the value of the Hunters Hill property at May 2000. The purchaser also argued that the vendor’s losses from the Killara property were too remote because they were not within the contemplation of both parties at the time the contract was made. In respect of interest damages, the purchaser argued that they should have been calculated on the net proceeds of sale, not including any moneys owing under mortgages existing at the time of the contract.

HELD:

(Per Mason P, Tobias JA and Handley AJA agreeing)

Market value of Hunter’s Hill property

(1) In valuing the property at the time of the breach there was no error in the amount obtained by the contract for the resale entered into in December 2000. There was no evidence of a demonstrable change in the market between May and December 2000. (at [11])

Jampco Pty Ltd v Cameron(No 2) (1986) NSW Conv R 55-275; Holland v Hardy (1882) 3 LR(NSW) 450; Delbridge v Low [1990] 2 Qd R 317; Castle Constructions Pty Ltd v Fekala Ltd (2006) 65 NSWLR 648; referred to.

The vendor’s loss of deposit from the Killara property

(2) At the time of contracting the purchaser knew that the vendor might enter into his own contract to purchase a new home in reliance on the purchaser’s commitment to perform the Hunters Hill contract. The purchaser’s inability to complete that contract meant that the vendor was forced to break the Killara contract. The losses were not too remote. (at [27]-[28])

Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145; Koufos v C Czarnikow Ltd [1969] 1 AC 350; applied. Castle Constructions Pty Ltd v Fekala Ltd (2006) 65 NSWLR 648; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310; referred to.

Interest damages

(3) Interest damages (not to be confused with statutory interest) are recoverable if the evidence demonstrates that the principles in Hadley v Baxendale apply in the particular case. (at [33])

Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145; Hungerfords v Walker (1989) 171 CLR 125; Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, [2007] 3 WLR 354; referred to.

(4) At the time of contracting it was known to both parties that the vendor required the timely receipt of the monies. The return of the property at the date of termination did not fully address the losses stemming from a contract for sale, the purpose of which was to convert that property into money by the contracted completion date. (at [53])

(5) The primary judge was correct in awarding interest damages for the delayed receipt of the balance of the purchase money between the date of termination and the date when the relevant loss came to an end with the completion of the resale contract. (at [54])

Jampco Pty Ltd v Cameron(No 2) (1986) NSW Conv R 55-275; discussed and distinguished.

(6) A fair assessment of interest damages also has to pay regard to any offsetting benefits acquired by the vendor upon termination. The forfeited deposit was correctly brought to account and the primary judge did not err in ignoring the benefit of the vendor’s continued occupation at Hunters Hill after termination. (at [56]-[57], [61])

Jampco Pty Ltd v Cameron (No 2) (1986) NSW Conv R 55-275; referred to.

Appeal dismissed with costs.

CA 40403/2006

MASON P
TOBIAS JA
HANDLEY AJA

Thursday 6 December 2007

Judith Katerine PALASTY v George Lassam PARLBY

JUDGMENT

1 MASON P: On 10 March 2000 the appellant (the purchaser) contracted to purchase from the respondent (the vendor) a home at 2A Fern Road, Hunters Hill. The price was $3.15 million and a deposit of $315,000 was paid on exchange. The 1996 edition of the standard Contract for Sale of Land was used, with presently immaterial special conditions.

2 Clause 15 stated that the parties must complete by the nominated completion date [5 May 2000] and, if they did not, a party could serve a notice to complete if otherwise entitled to do so. The vendor issued a notice to complete consequent upon the purchaser’s default and subsequently terminated the contract on 23 May 2000. The deposit was forfeited to the vendor.

3 The Hunters Hill property was promptly put back on the market. A new buyer was found by 8 December and contracts were exchanged with him on 27 December 2000. That sale was completed on 20 March 2001.

4 The price on resale was $3,060,000, ie $90,000 less than the price under the parties’ contract. The vendor’s loss would have been more than offset by the forfeited deposit of $315,000 were it not for additional special damages. His right to those further damages was litigated in the District Court in the proceedings under appeal.

5 The vendor sued for damages for breach of contract calculated according to general principle (Contract, cl 9.3.2). On 7 June 2006 he recovered a verdict of $201,994.16 made up as follows:

Loss on Resale $ 40,613.43
Costs of Resale $ 66,358.25
Losses on Killara Property $166,273.55
Interest $243,748.93
Total: $516,994.16
Less Deposit $315,000.00
Damages $201,994.16

6 The mathematics are not in dispute, but three broad issues are raised by the appellant.

Value of Hunters Hill property at date of breach

7 Under the head of damages generally referred to as the first limb in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145, the vendor’s loss was to be assessed by reference to the difference in value (if any) of the subject property at the date of breach, compared to the contract price that the vendor would have received on that date. The parties conducted the case on the basis that the relevant date was when the vendor terminated for breach, ie 23 May 2000.

8 Apart from lost expenses associated with the resale of the subject property, the damages for loss on resale were calculated by reference to the sale price achieved in the new contract for sale entered into on 27 December 2000.

9 Curtis DCJ found:

Mr Parlby put the property back on the market immediately after Mrs Palasty failed to complete the contract. The asking price was once again $3.15 million. The property was regularly advertised. No offers were made to purchase the house between June and November 2000. An agreement was reached on 8 December 2000 to sell the property for $3.06 million. Upon these facts I find that the market value of the property at the date of breach was $3.06 million. The difference in price is $90,000 and, after the deduction of agent’s fees and legal expenses the plaintiff’s loss is $40,613.43.

10 The purchaser submits that there was no evidence of the market value of the property as at 23 May 2000. The Sydney property market is said to have been extremely volatile in 2000 with the consequence that the price achieved in December of that year was not a true indicator of value on 23 May 2000.

11 But there was no evidence of volatility, let alone volatility that might have driven down values as the year progressed. The primary findings of fact (above) show that his Honour was alive to the time difference, yet correctly focussed on the value at date of breach. They also show why he was entitled to regard the price achieved by arms length sale in December as reflective of value in May of the same year. This was not a case where the resale took place long after the relevant date or after what Young J in Jampco Pty Ltd v Cameron(No 2) (1986) NSW Conv R ¶55-275 at p56,581 (passage not reproduced in report of case at (1985) 3 NSWLR 391) referred to as a “demonstrable change in the market”. See generally Holland v Hardy (1882) 3 LR(NSW) 450; Delbridge v Low [1990] 2 Qd R 317 at 333; Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 at 656[42]-[44].

12 Error has not been demonstrated on this matter.

Loss of deposit on Killara property

13 Judge Curtis found that, on 27 April 2000, in reliance upon the purchaser completing the contract, the vendor Mr Parlby, through his investment company Parlby Investments Pty Ltd, entered into a contract to purchase a home at Killara for $1.65m, paying a ten per cent deposit. The house at Killara was to be the new home for the Parlby family. That contract was due for completion on 22 June 2000.

14 The vendor was relying on the sale proceeds of the Hunters Hill home to complete the purchase of the new home at Killara. Instead he found himself in default under the two mortgages over Hunters Hill that he had expected to discharge upon completion of the sale to the purchaser.

15 The contract to purchase Killara was terminated on 9 August 2000 due to Mr Parlby’s inability to complete the sale, resulting in the loss of the deposit ($165,000) and some legal expenses ($1,273.55). Together, these sums represent the item “Losses on Killara Property” that forms a component of the damages award.

16 No point was taken as regards the vendor’s contractual loss being suffered “through” his investment company. I do not imply oversight on this account. Presumably the company’s loss corresponded with that of its investor, Mr Parlby (cf Gould v Vaggelas (1985) 157 CLR 215 at 253).

17 The issue litigated in the District Court and in this Court was whether the Killara losses fell within the “second limb” of the rule in Hadley v Baxendale. The purchaser argued that the losses were too remote.

18 In Hadley, Alderson B spoke (at 354; 151) of the relevant loss being “such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. As I pointed out in Castle Constructions (at 655[35]):

Alderson B’s statement is not to be read as a statute, and it is not always possible to draw a sharp line of demarcation between the two “limbs” in a particular case (see generally Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377 (HL)). Nor is it possible to construct a bright line test as to the specificity of the contracting parties’ reasonably supposed contemplation as to the probable result of breach. The degree of likelihood of the contemplated event has been discussed in several cases conveniently summarised by McHugh JA in Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 363-366.

19 In Alexander, McHugh JA pointed out (at 364) that the High Court of Australia appears to have accepted Lord Reid’s speech in Koufos v C Czarnikow Ltd [1969] 1 AC 350 (at 388) as correctly stating the law. This entailed a paraphrase of Alderson B. The test is whether the loss claimed was “reasonably supposed to have been in the contemplation of both the parties as a not unlikely result of” breach.

20 The modern understanding of the second limb does not require the innocent party to show a contractual undertaking to provide compensation if the special loss eventuates (Castle Constructions at 655[39]).

21 There is clear evidence and/or unchallenged findings of primary fact that establish that both vendor and purchaser knew at the date of contracting in relation to Hunters Hill that:

• Hunters Hill was the vendor’s family home;

• the vendor had disclosed that he was “looking to buy another house” ;

• the vendor’s interest in Hunters Hill was subject to two registered mortgages and a caveat (Blue 33);

• the purchaser’s husband, who was assisting her throughout the transaction, appreciated that the vendor was “strapped” and “short of money” (Black 47-8, 51);

• when negotiating the terms of the contract the vendor, through his solicitor, had attempted to obtain an early release of the deposit. During the discussions between the solicitors that were reported back to the clients, the vendor reiterated his intention to enter into a purchase and his “need” for at least $150,000 of the deposit to enable him to pay the deposit on the acquisition of another property (Blue 86).

22 The trial judge found that it was quite apparent that before the exchange of contracts the purchaser’s husband knew that the vendor intended purchasing other property with the proceeds of the sale of Hunters Hill and that the husband’s knowledge was that of the purchaser since he was authorised to negotiate the terms of the contract of sale as her agent and acquired the knowledge in that context. His Honour concluded that a reasonable person armed with Mr Palasty’s knowledge of the vendor’s straitened circumstances would, had he turned his mind to it, have concluded that there was a “serious possibility” that if the purchaser defaulted then the vendor would be unable to complete his own purchase of another property and would suffer financial loss.

23 I entirely agree with these findings.

24 I reject the submission that use of polite or tentative language such as “it may well be that I need to use some of the deposit on the sale of this house as a deposit on the house that I’m purchasing” lacked sufficient clarity or specificity to satisfy Lord Reid’s test.

25 After taking legal advice, the purchaser instructed her solicitor not to agree to inserting a term authorising the early release of the deposit into the contracts being prepared for exchange. The vendor accepted this and the contracts that were exchanged contained no such special provision. The purchaser submits that this shows that there ceased to be any basis for attributing knowledge at the time of contract as to the vendor’s intention to enter into his own purchase contract in reliance upon the purchaser completing hers. It is also submitted that this undermined the finding that the purchaser knew the vendor was “strapped” at the time of exchange. The trial judge rejected these submissions and so do I.

26 The vendor may have elected to exchange without insisting on getting a contractual right to the early release of deposit or any part of it. But he continued, to the knowledge of the purchaser, to have pressing obligations under the Hunters Hill mortgages. And he continued needing to use the funds from Hunters Hill to complete his intended purchase of a substitute home. The purchaser continued to know, personally and through her husband (not to mention her solicitor), that the vendor was likely to contract to buy a substitute home for his family to move into, and to do so on the strength of his rights to enforce the contract to sell Hunters Hill. The pre-contractual posturing about the possible release of part of the deposit never involved a departure from this situation. Indeed, on the day of exchange, but prior to exchange, the solicitor for the purchaser was representing to her opposite number that the purchaser may be prepared to consider the release of the deposit as a matter of grace, after exchange, if certain events occurred. This indeed happened later (see Blue 258, 259, 95-6).

27 It was therefore very much on the cards, to the knowledge of the purchaser, that the vendor might enter into his own purchase contract on the faith of the purchaser’s commitment to perform her contract to buy Hunters Hill. The purchaser’s inability to complete the Hunters Hill contract meant that the vendor was forced to break his contract to buy Killara and suffer the losses claimed.

28 The losses relating to the Killara transaction were not too remote.

Interest

29 Judge Curtis explained the award of interest in the following terms:

9. If Mr Parlby is to be placed by money in the same situation in which he would have stood had Mrs Palasty completed the contract on 23 May 2000, he must be compensated for having been kept out of his money between that date and 16 [sic] March 2001 when the subsequent purchase was completed. The plaintiff claims interest on $2,771,600, (being the sale price of $3,150,000 less deposit, agent’s commission and legal fees), at the rates of interest set out in Schedule 5 to the Uniform Civil Procedure Rules 2005. I regard this approach as reasonable and allow the claim in the amount of $243,748.93.

30 His Honour thereby implicitly adopted the reasoning and calculations presented by the vendor’s counsel at trial in final submissions (see Black 77-8). Unfortunately, as the Judge himself acknowledged when granting a stay of execution:

However, in relation to the claim for interest, my reasons, comprised in para 9 of my judgment, egregiously omitted to canvass the arguments submitted by the defendant as to why an order should not be made. It is the duty of a judge to give reasons. It is quite patent that this I failed to do. The effect of that failure is that the appeal in my opinion must certainly succeed.

31 On appeal, the parties sensibly agreed that this Court could and should determine the matter of interest on the evidence at first instance.

32 After judgment was reserved the Court invited and received further submissions relevant to the award of interest.

33 It was clarified that this component of the award had been claimed as damages in the nature of interest (“interest damages”). This was the way that the claim was framed by way of Particulars in the Further Amended Statement of Claim. Such damages are recoverable in accordance with the principles in Hadley v Baxendale if the evidence demonstrates that those principles apply in the particular case (Hungerfords v Walker (1989) 171 CLR 125; Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, [2007] 3 WLR 354).

34 Interest damages are not to be confused with an award of statutory interest under s100(1) of the Civil Procedure Act 2005 on the whole or any part of a sum of money recoverable as debt or damages. Interest on the balance of purchase money under the contract during the period of delay cannot be awarded under this section because the Court cannot give judgment in debt or damages for the principal.

35 It is, however, commonplace for the Court to calculate an interest damages award by reference to the rates of interest set out in Schedule 5 to the Uniform Civil Procedure Rules 2005 (see Hexiva Pty Ltd v Lederer (No 2) [2007] NSWSC 49 at [16]). This was the approach adopted by Young J in Jampco at pp56,585-6 where there was an absence of evidence showing that a higher or lower rate of interest was appropriate. The purchaser had not challenged the use of Schedule 5 interest rates.

36 The award in the District Court had proceeded on the following basis (adopting the submissions and calculations of the vendor: see Black 77-82). Interest was calculated according to Supreme Court rates for the period from 23 May 2000 (when the contract was terminated for breach) to 20 March 2001 (when the resale contract was completed) on the sum of $2,771,600. That sum was derived as follows:

Sale price $3,150,000
Less deposit $ 315,000
Less agent’s fee $ 63,000
Less extra legal fees $ 400
$2,771,600

37 This approach to interest damages did not involve calculations based upon actual losses incurred by the vendor in consequence of his inability to discharge the mortgages he had placed over Hunters Hill, either at the time of contracting or by way of refinancing when the purchaser defaulted. Calculations based on such outlays had been provided, and they had been the basis of the interest damages claim as pleaded (see Red 5-6). But in final submissions at trial, the vendor referred to the mortgage outlays only to demonstrate the justice of awarding interest damages at Supreme Court rates according to the reasoning in Jampco (see Black 78). The vendor adhered to this approach when defending the award in this Court.

38 It will be seen that after allowing for the forfeited deposit and the additional costs of resale, the trial judge awarded interest on the unpaid balance of the purchase moneys spanning the period from 23 May 2000 to 20 March 2001. This tracked the approach adopted by Young J in Jampco (see at p56,581). In Senavale Pty Ltd v Nolan (2000) NSW Con R 55-948, [2000] NSWSC 619, Macready M had approached interest on common law damages in a similar fashion, holding that he considered himself bound to do so in light of Jampco (see Senavale at [46]-[48]).

39 Young J explained the principles as follows in Jampco (at p56,585):

In equity, where damages or compensation was claimed, it was customary to allow interest on the purchase money from the date fixed for completion, but to allow a set-off if appropriate, for the vendor’s occupation or the benefits which it derived from remaining in possession of the property, see Leggott v Metropolitan Railway Co (1870) LR 5 Ch App 716, at p719. The set-off was not permitted where the circumstances were that the vendor was against his wishes forced to remain in possession of the property on a precarious basis, never knowing exactly when his occupation would come to an end. Interest under sec 94 of the Supreme Court Act [the predecessor to s100 of the Civil Procedure Act 2005 ] is awarded to compensate a successful plaintiff from being kept out of his moneys whilst proceedings are taken to enforce his claim. Had the defendant paid what is subsequently held to be a just debt at the appropriate time, then the plaintiff could have put out the money at interest. In the instant case, moreover, the evidence quite clearly shows that the plaintiff could have made very good use of that money, and in fact had to pay interest at penalty rates in respect of some part of the mortgages over the property, and was not able to complete the contract at Paddington.
Normally, the interest would be calculated on the balance of the net proceeds of sale up until the resale, and on the balance of the damages to which the plaintiff is entitled from the date of resale at the Court rate. However, where there is evidence before the Court that the plaintiff has had to pay out interest at a greater rate than the Court rate, then, in accordance with the Court of Appeal’s decision in Leighton Contractors Pty Ltd v Queensland Insurance Co Ltd (4 October 1978, unreported) the Court should allow that higher rate. Similarly, if the successful party is borrowing money at a lower rate, only the lower rate will be allowed.

40 The parties joined issue in this Court as to particular aspects of what I shall term the Jampco approach. In subsequent written submissions they addressed a memorandum from the Court inviting their views as to the correctness of Jampco.

41 The purchaser submitted that the date of resale should be taken as the date of contracting the resale transaction, as distinct from the completion date of that transaction. This submission should be rejected because a vendor’s loss referable to delayed receipt of the purchase price does not come to an end until receipt of the proceeds of the resale (assuming that the resale is at the same price). The remarks in Jampco (at p56,587) upon which the purchaser relies in this regard do not indicate a different result, because in that portion of his judgment Young J was dealing with the date on which interest started to run in a situation, unlike the present, where a vendor claimed liquidated damages based on an express contractual right to recover a deficiency upon a resale pursuant to a contractual right such as cl 9.3.1 of the standard Contract for the Sale of Land. Here the vendor relied upon the alternative common law right to damages for breach of contract recognised by cl 9.3.2.

42 When a vendor duly elects to terminate a contract because of breach, the purchaser is discharged from the duty to complete.

43 The general principle governing the award of damages for breach of contract is that stated by Parke B in Robinson v Harman (1848) 1 Ex 850 at 855, 154 ER 363 at 365 which was cited with approval in Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 80, 98, 117, 134, 148, 161:

… where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.

44 The normal measure in an action by the vendor of land against the purchaser is that stated by Parke B in Laird v Pim (1841) 7 M&W 474 at 478, 151 ER 852 at 854:

The normal measure of damages is the injury sustained by the claimant by reason of the defendants not having performed their contract. The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase money in consequence of the non-performance of the contract?

45 Parke B added that the vendor “cannot have the land and its value too”. In other words, the capital loss is to be calculated by awarding the difference between the contract price and the value of the land at the date of breach, after making allowance for the forfeited deposit. As indicated in the first part of these reasons, this was the approach adopted with reference to what may be termed the capital loss on the aborted sale of the Hunters Hill property.

46 In his latest written submissions the vendor argued that the evidence demonstrates that he could have made good use of the money that was effectively withheld between the date of breach and the date of recoupment upon completion of the resale contract. His unchallenged evidence was that he incurred the following expenses as a direct result of the purchaser’s failure to complete:

Nature of Expense Amount
Interest (including penalty interest)
on original First Mortgage $62,835.62
Interest (including penalty interest)
on original Second Mortgage $12,567.12
Legal expenses relating to
Third Mortgage $ 1,902.55
Interest on Third Mortgage $21,230.89
Expenses associated with refinancing
(excluding interest) $53,368.00
Interest on refinanced First Mortgage $86,794.52
Interest on refinanced Second
Mortgage $12,295.89


TOTAL: $250,994.59

47 Although these expenses exceeded the $243,748.93 claimed by the vendor as interest damages and awarded in the District Court it does not follow that they were recoverable as damages.

48 It was undoubtedly proved that the vendor was paying interest on his two outstanding mortgages for at least some of the period between termination of the subject contract and completion of the resale. In addition, the purchaser’s breach forced the vendor to incur the expense of refinancing the two mortgages which expired during that period. This refinancing resulted in the vendor incurring over $40,000 in additional fees and expenses (Black 78, 82). But the vendor did not at trial press a claim for additional interest based on his actual mortgage outlays. In the circumstances, he did not establish that those mortgage losses were recoverable under either limb of Hadley v Baxendale.

49 I return to examine the claim that was pressed, being one for interest damages referable to the losses suffered due to the vendor’s delay in obtaining the purchase price contracted for.

50 The nineteenth century rules for calculating damages generally ignored losses stemming from delay in receipt of contract damages. The decision in London Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429 confirmed these cases and required common law courts to refuse damages to compensate a plaintiff for losses stemming from delay in recoupment having been wrongfully kept out of money due under a contract, even where such losses were direct and foreseeable. There were many exceptions to the rule (see Heydon v NRMA Ltd (No 2) (2001) 53 NSWLR 600 at 604[15]) and the rule itself was addressed by the legislation authorising the award of statutory interest on debt or damages referred to above.

51 However, the common law’s artificial restraint has itself now been removed (see Hungerfords v Walker (1988) 171 CLR 125 at 142, 146 per Mason CJ at Wilson J and 152 per Brennan and Deane JJ; Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 at 316[73]; Sempra Metals at [16], [84], [87], [89], [93], [165], [216]). Interest damages are now recoverable in a proper case.

52 Hadley v Baxendale principles still apply with regard to this as with any other component of a contract damages award.

53 In the instant case the contract was designed, from the vendor’s point of view, to convert the property into cash needed for acquiring an alternative home. While this was known to both parties the vendor’s loss in the timely receipt of the purchase moneys really fell within the first limb of Hadley v Baxendale. It was a demonstrable loss incurred directly in consequence of the purchaser’s failure to complete on the due date. Instead of getting the entire sale value of the property by that date, the vendor, having elected to terminate, was obliged to set about reselling the property in order to get its anticipated cash value. The return of the property with whatever value it had at the date of termination did not fully address the losses stemming from a contract for sale, the purpose of which was to convert that property into money by the contracted completion date.

54 The primary judge was therefore correct in awarding interest damages for the delayed receipt of the balance of the purchase money between the date of termination and the date when the relevant loss came to an end with the completion of the resale contract. Interest damages spanning this full period depended upon the vendor showing, as he did, that he acted diligently in his efforts to resell.

55 It would be anomalous if the vendor could not recover damages in the nature of interest from the defaulting purchaser for the delayed receipt of the balance of the purchase price. It has long been established that a purchaser can recover damages for loss of the net rents and profits due to delayed performance by the vendor: Wenham v Ella (1972) 127 CLR 454; Royal Bristol Permanent Building Society v Bomarsh (1887) 35 Ch D 390.

56 A fair assessment of interest damages also has to pay regard to any offsetting benefits acquired by the vendor upon termination.

57 The forfeited deposit was correctly brought to account.

58 The judge was also required to bring into account any value to the vendor from possession of the property after the contractual completion date.

59 The vendor occupied Hunters Hill during some of the time between terminating the contract and completing the resale of Hunters Hill. Equity may require a set-off in relation to interest for the benefit that a vendor awaiting payment of the purchase money has received from possession, but only where it is fair and equitable to do so. The passage from Jampco at p56,585-6 set out above shows how similar reasoning may be applied in determining whether it is just to award full interest damages.

60 The vendor and his family moved out of Hunters Hill into rented accommodation before 5 May 2000. They placed their goods in storage, expecting to move to Killara within weeks. When the Killara purchase fell through in consequence of the termination of the Hunters Hill contract, the vendor moved back into Hunters Hill pending its resale. Some of his goods were returned home, others remained in storage.

61 These matters show why the primary judge did not err in ignoring the “benefit” of continued occupation when considering the justice of awarding interest damages.

62 The purchaser argued that interest damages should be calculated after making allowance in her favour for the fact that the Hunters Hill property was heavily mortgaged while it was in the vendor’s hands. The purchaser submitted that interest should have been calculated by reference to the net proceeds of sale ultimately recouped on resale, not including any moneys owing under mortgage. In my opinion, such an offset would be foreign to a just calculation of the vendor’s loss stemming from the purchaser’s failure to complete the contract on its due date. Absent facts bringing mortgage losses within the scope of Hadley v Baxendale, the mortgages were the vendor’s business for better or worse.

63 I propose that the appeal be dismissed with costs.

64 TOBIAS JA: I agree with Mason P.

65 HANDLEY AJA: I agree with Mason P.

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