PNC Lifestyle Investments Pty Limited v Rew08 Projects Pty Limited

Case •

[2017] NSWSC 27

•

02 February 2017

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: PNC Lifestyle Investments Pty Limited v REW08 Projects Pty Limited [2017] NSWSC 27
Hearing dates: 5, 6 December 2016
Date of orders: 02 February 2017
Decision date: 02 February 2017
Jurisdiction:Equity
Before: Darke J
Decision:

The plaintiff is entitled to a decree of specific performance in respect of the contract for sale dated 13 June 2014.

Catchwords:

REAL PROPERTY – contracts for the sale of land – deposits – series of contracts – vendor terminates contracts on ground that purchaser failed to pay deposits – whether amount paid at time of entry into initial contract satisfied obligation to pay deposit under last contract

  CONTRACTS – illegality – whether contract associated with or in furtherance of illegal purposes – series of contracts – last contract entered into as part of transaction designed to avoid an immediate liability for stamp duty and defer payment of duty – legislative regime does not provide for contract to be unenforceable – whether Court should nonetheless hold the contract to be unenforceable
Legislation Cited: Duties Act 1997 (NSW)
Taxation Administration Act 1996 (NSW)
Cases Cited: Gnych v Polish Club Limited (2015) 255 CLR 414; [2015] HCA 23
Miro v Fu Pty Limited (2003) 11 BPR 21,231; [2003] NSWSC 1009
Wonall Pty Limited v Clarence Property Corporation Limited (2003) 58 NSWLR 23; [2003] NSWSC 497
Category:Principal judgment
Parties: PNC Lifestyle Investments Pty Limited (Plaintiff)
REW08 Projects Pty Limited (Defendant)
Representation:

Counsel:
Mr J Doyle with Ms I J King (Plaintiff)
Mr P Folino-Gallo with Mr A Djurdjevic (Defendant)

  Solicitors:
Solve Legal (Plaintiff)
Prime Lawyers (Defendant)
File Number(s): 2016/123962
Publication restriction: None

Judgment

Introduction

  1. The plaintiff, PNC Lifestyle Investments Pty Limited (“PNC”) seeks a decree of specific performance of a contract for the purchase of Lot 136 in an unregistered plan of sub-division of certain land in Schofields. The contract was entered into on about 19 June 2014, in circumstances that are more fully described below, with the defendant, REW08 Projects Pty Limited (“REW”).

  2. On 1 October 2013 REW had entered into a contract to purchase the land that was to be sub-divided. REW later acquired ownership of the land. The plan of sub-division was eventually registered on 11 March 2016 as Deposited Plan 1198880. Lot 136 in Deposited Plan 1198880 is a vacant block with an area of about 509m2.

  3. REW contends that in February 2016 it validly terminated the contract on the ground that PNC failed to pay the deposit as required by the contract. In answer to that contention, PNC asserts that certain payments it made to REW in December 2013 constitute the deposit under the contract. It further asserts, amongst other things, that REW, which made no suggestion prior to the purported termination of the contract that the deposit had not been paid, is estopped from terminating the contract.

  4. REW also contends that the contract is void or unenforceable for illegality. It alleges that the contract is one associated with or in furtherance of illegal purposes, including the avoidance of stamp duty. PNC denies that the contract is unenforceable as alleged.

Summary of dealings between the parties

  1. The dealings between PNC and REW commenced in December 2013. Mr Peter Cseh, a director of PNC, had a conversation with Mr Michael McCrudden, a director of REW, on 3 December 2013. Following that conversation, Mr McCrudden sent an email to Mr Cseh which attached “a copy of our contract for our land and an indicative lot layout”. It appears that the contract was one that had been prepared for REW by Platinum Property Law, a conveyancing firm.

  2. On 4 December 2013 Mr Cseh sent an email to Mr McCrudden asking for a meeting later that day “to discuss your proposal”. Arrangements were then made for a meeting to take place at Mr McCrudden’s office in Riverstone. Mr Cseh and Mr McCrudden have different recollections as to what was said at the meeting. It is at least clear that there was discussion about the purchase of a lot for $250,000, with such amount to be paid immediately and released to REW to provide funds for the sub-division development.

  3. The minutes of a meeting of directors of PNC (which are incorrectly dated 1 December 2013) prepared by Mr Cseh include the following:

A local developer has purchased a site (92 Hambeldon Rd Schofields) and created plans for a 35 lot sub-division. The developer (REW08 Projects Pty Limited – Director Mr Michael McCrudden) is looking for investors to assist with his capital requirements to develop the land. He seeks investment of $250,000 and in return once titles to the land are received a lot of my choice will be transferred to the company name. A draft contract of sale with the draft land sub-division plans has been received.

…

Directors searches, company searches and normal due diligence will commence, along with seeking legal advice on the contract of sale. Finance for this deal will be provided as a $250,000 facility set up as an individual account as per the company’s current loan agreement.

  1. I accept Mr Cseh’s evidence that the meeting of directors was held on about 5 December 2013, and that he prepared the minutes within two to four weeks of the meeting, based in part upon his own notes.

  2. On 6 December 2013 Ms Tonette Watson of Platinum Property Law sent a revised contract for sale directly to Mr Cseh. This apparently followed a discussion between Ms Watson and Mr Cseh. The revised contract contained an additional special condition 56. Later that morning, Mr Cseh sent an email in response to Ms Watson. Various changes to the proposed contract for sale were requested or suggested. Mr Cseh also requested that a revised contract be sent to a solicitor, Ms Sophie Darby of Sweeney Tiggemann, for her review. Mr Cseh then sent an email to Ms Darby, requesting her to review the contract for sale. He described the contract as “outside the normal” as it is “part of a development and requires early release of a substantial sized deposit”.

  3. Mr Cseh and Mr McCrudden had a further meeting on 6 December 2013. It seems that there was discussion about a loan agreement being entered into in addition to the contract for sale. Mr McCrudden handed a draft loan agreement to Mr Cseh during the course of the meeting.

  4. On 7 December 2013 Mr Cseh sent an email to Ms Darby which included the following:

Thanks for taking the time to review the contract and provide your thoughts on Friday afternoon.

…

After our conversation I rang the developer and requested a meeting with him that afternoon. After he gave me an update of where the project is at, I then discussed my concerns with respect to the lack of security over the $250,000 I am considering contributing. Initially we discussed becoming a preference share holder in his company and although he certainly is not against the idea he did think that due to the time frames involved (needs the money as soon as possible) that this option would not be able to be set up in the time frame. It also comes at a reasonably large expense in legal costs and incorporation fees with ASIC.

Then we discussed having a loan agreement in place. He was very open to the suggestion and even provided me with a copy of a recent loan agreement he had drawn up for another (different) venture. I have scanned and attached for your reference.

Ultimately he is happy for a loan agreement to be drawn up, and even offered to sign a personal guarantee for the loan without any hesitation. This makes me more comfortable. I asked about putting a caveat on his personal home but he did say he would prefer not to do that so he can borrow against it if required.

I was thinking that we can add in the loan agreement that I hold an unregistered caveat on his property (similar to his requirement in special condition 46) which can be enacted if in default on the loan or if the company goes into liquidation.

What are your thoughts? Assuming he signs a loan agreement will this be sufficient to mitigate the risks we discussed the other day?

  1. On 10 December 2013 Ms Watson sent an amended contract for sale to Mr Cseh and Ms Darby. Mr Cseh sent an email in response later that day which included the following:

Thanks Tonette, all looks good at first glance.

Just waiting on my solicitor to give a final thumbs up and complete drafting a loan agreement that Michael has indicated that he is prepared to sign. As soon as this is done it will be forwarded to you. Once Michael has indicated he is happy with it all I will come in and exchange contracts as soon as possible.

  1. There was a great deal of activity on 12 December 2013. Mr McCrudden sent Mr Cseh details of REW’s contract to purchase the development land. Ms Darby sent an amended loan agreement to Mr Cseh, who then forwarded it to Mr McCrudden, requesting that he inform him “via reply email if you are happy with it”. Shortly thereafter, Mr McCrudden sent an email to Mr Cseh which included the following:

All good happy to sign agreement.

  1. Mr Cseh then responded by email stating that he would exchange contracts at Ms Watson’s office on the following day. In the evening, some further changes to the special conditions to the contract for sale were sent by Ms Watson to Mr Cseh, and Mr Cseh sent a draft form of caveat (to form part of the loan agreement) to Ms Watson and Mr McCrudden. In the course of some further communications concerning the transaction, Mr Cseh sent an email to Ms Watson that included the following:

As I haven’t purchased property without using an agent before, when I asked my solicitor advised me to go in tomorrow, sign my areas of the contract of sale and the loan agreement – pay my 0.25% of deposit. Then, once vendor had signed and she had received confirmation of exchange of contracts and the vendor signing the loan agreement, then next week I would pay the balance of $250,000.

  1. On 13 December 2013 contracts for sale were executed and exchanged by PNC (as Purchaser) and REW (as Vendor), and a Loan Agreement was executed by PNC (as Lender), REW (as Borrower) and Mr McCrudden (as a Guarantor of REW’s obligations).

  2. The contract for sale, which was dated 13 December 2013, concerned Lot 136 in an unregistered plan of sub-division. The price was stated to be $485,000, with a deposit of $250,000. By Special Condition 34 the deposit was required to be paid to REW “for its use”. The deposit was payable as to $625 at the time of signing the contract, and as to $249,375 prior to the expiration of the “cooling off” period. Special Condition 31.11 provided, in effect, that the deposit was to be released to REW.

  3. Special Condition 54 provided that the completion date was 14 days after the vendor notifies the purchaser’s solicitor that the plan of sub-division has been registered.

  4. Special Condition 33 provided that if the plan of sub-division was not registered within 18 months then (subject to Special Condition 48 concerning extensions) either party could rescind the contract.

  5. Special Condition 53 provided:

53.1 The purchaser acknowledges that the Vendor will allow him/her to Rescind this Contract and simultaneously enter into a new contract on identical terms with updated Plan documents quarterly until the Plan of subdivision is finalised. A fee of $150.00 is payable by the Purchaser to [sic] each rescission.

53.2 At the time the Plan of subdivision is registered the purchaser may rescind the Contract and enter into an updated land Contract on identical terms and a home building contract.

  1. Special Condition 55 provided:

55.1 A price reduction of $235,000.00 will be made at Settlement provided that the Purchaser has met all obligations under the contract.

  1. The Loan Agreement was also dated 13 December 2013. It took the form of a deed. It was recited that:

A. The Lender has agreed to make a loan to the Borrower upon and subject to the following covenants, agreements and provisions.

B. By signing this Loan Agreement, the Borrower & Lender have agreed to be bound by the following covenants, agreements and provisions.

C. By signing this Loan Agreement, the Guarantor guarantees that the Borrower will perform all covenants, agreements and provisions contained within this Loan Agreement.

  1. The Loan Agreement relevantly provided:

1.1 In this Deed, unless otherwise indicated by the context:

…

(b) Principal Sum means the sum of $250,000.00.

(c) Contract means the Contract for Sale of Land between REW08 Projects Pty Limited (ACN 166028002) (Vendor) and PNC Lifestyle Investments (Purchaser) for Part of 92 Hambeldon Road, Schofields, NSW 2762 being unregistered Plan Lot 136 which is part of Lot 46 in Deposited Plan 28833.

(d) Vendor means the Vendor in the Contract for Sale and Purchaser means the purchaser in the Contract for Sale.

…

2. On the date of this Deed, the Lender will lend to the Borrower the Principal Sum.

The Principal Sum is for the sole purpose of enabling the land referred to in the Contract for Sale to be transferred into the Borrower’s name and for the Borrower to do all things necessary to that land to enable subdivision and the sale of the subsequent Lots.

3.1 If the Plan of Subdivision referred to in the Contract for Sale is not registered (“the Registration”) by the date which is 12 months from the date of this Deed, interest at the rate of 10% per annum calculated daily, (“Interest Amount”) on the Principal Sum will begin to accrue.

3.2 Attached to this Deed is an unregistered caveat (“the Caveat”) over the property known as 32 West Parade, Riverstone, NSW 2765 (“the Property”).

3.3 The Borrower acknowledges the Lender’s right to lodge the Caveat over the Property if:

(a) Either party enacts their rights under the Contract to rescind.

(b) If after that right is enacted by either party, the Principal Sum and any Interest Amount, if accrued, has not been paid back to the Lender within 14 days of (a) occurring.

3.4 The Interest Amount will become due and payable to the Lender the earlier of 14 days after the Registration occurs or 4 weeks after Clause 3.1 takes effect. The Interest Amount will continue to accrue and be due and payable in monthly instalments to the Lender until the Registration occurs or the Vendor or Purchaser enacts their right to rescind under the Contract.

3.5 If the Vendor or Purchaser under the Contract enacts their right to rescind, the Borrower will pay to the Lender the Principal Sum within 14 days and any Interest Amounts owing.

3.6 Interest payable under Clause 3 is a genuine pre-estimate of the Lender’s loss as a result of the Borrower’s failure to complete certain obligations contained within the Contract for Sale.

  1. PNC paid (by cheque) the sum of $625 to REW at the time the contracts for sale were exchanged.

  2. Mr Cseh sent an email during the afternoon of 13 December 2013 to Ms Darby. The email was copied to Mr McCrudden and Ms Watson. The email was in the following terms:

Just a quick email to let you know we exchanged contracts today at lunchtime and paid the 0.25% of $625 via personal cheque. The vendors solicitor said they would express post the contract, the loan agreement and caveat to your Dural address. All the documents had been signed by the vendor.

Once you receive the documents, request you review them to make sure they are all in order. Then please let me know so we can pay the balance of the $250,000 deposit next week.

  1. Later on 13 December 2013 Mr Peter Watson (of Platinum Property Law) sent an email in response to Mr Cseh which included the following:

The “Cooling Off” period expires at 5.00pm on Friday, 20 December, 2013 and the balance of the Deposit should be paid to the Vendor by then.

  1. On 18 December 2013 PNC paid (by cheque) the further sum of $249,375 to REW. I accept that Mr Cseh handed the cheque personally to Mr McCrudden at his office on that day.

  2. On 6 March 2014 Mr Watson sent a facsimile to Ms Darby which included the following:

I refer to the abovementioned matter and confirm that Contracts were Exchanged on 13 December, 2013.

In accordance with Special Condition 53 I note that your Client has a right to rescind the Contract and enter into a new Contract each Quarter on payment of a fee of $150.00.

It would be appreciated if you could advise if your Client wishes to exercise this right and if so provide me with an executed:

(a) Deed of Rescission; and

(b) Executed Contract in identical terms to the current Contract.

  1. On 22 April 2014 Mr Cseh sent an email to Mr McCrudden in which he requested a meeting in Mr McCrudden’s office. The email also included the following:

Also, I am just wondering about the requirement to rescind and renew the contract of sale to delay paying stamp duty?

  1. There was no response to the email. Mr Cseh sent a follow-up email on 11 May 2014. Mr McCrudden responded to this email on the following day. His response included the following:

I spoke to Tonette she will be happy to rescind & renew new contract.

Just give me a call when it suits for catch up.

  1. Arrangements were then made for a meeting to take place later on 12 May 2014.

  2. On 20 May 2014 Mr Cseh sent an email to Ms Watson in the following terms:

I was speaking with Michael McCrudden the other day and we discussed rescinding and resigning the contract of sale as per the conditions of contract of sale.

Is this still required to delay the payment of stamp duty?

What steps do I need to undertake to make this occur?

  1. Later on 20 May 2014 Ms Watson sent an email in response which included the following:

In NSW Stamp Duty is required to be paid within 3 months of Contracts being Exchanged and we note that 3 months has already gone by. Special Condition 53 of the Contract allows you to simultaneously Rescind the current Contract and enter into a new Contract.

To protect you we suggest a simple Deed of Rescission and we will provide a new Front Page for both Directors to sign on behalf of the Company.

When you return the Deed of Rescission and signed Front Page we will get the Vendor to sign the Deed and the Contract and re-Exchange.

It is suggested that you check this with your solicitor.

Could you also ask your Solicitor to authorise us to communicate with you direct as under the Rules we are only allowed to liaise with your Solicitor?

  1. Mr Cseh then sent an email in response which included the following:

I will ask Sophie to authorise direct communication. Where do I get the deed of Rescission from – Your office or do I have to get Sophie to do that?

Can we back date the documents so it falls within 3 months?

I was away in the USA on a trial for two months and only just got back.

  1. Ms Watson responded to Mr Cseh in the following terms:

In view of the fact that there was a verbal agreement to Rescind the Contract and that this right is included in the Contract For Sale the Deed of Rescission can be prepared so that it formalises the verbal Rescission that took place 3 months from the date of Exchange.

As the stamp duty obligation falls on you it is suggested that you discuss this with your Solicitor though.

  1. On 2 June 2014 Ms Darby (who had been provided with the emails relating to the stamp duty issue) sent an email to Ms Watson in the following terms:

I refer to the above matter and in accordance with Special Condition Clause 53 of the Contract for Sale, request you prepare a Deed of Rescission, dated 3 months after the initial contracts were exchanged and new front page of contract.

I confirm that once the new front page of contract and deed of rescission is returned to you, the vendor will then sign the deed and front page and the new contracts will be exchanged.

  1. On 10 June 2014, after Ms Watson had indicated that she would not prepare the Deed of Rescission, Ms Darby sent a draft Deed of Rescission to Ms Watson for execution by REW.

  2. On 14 June 2014 Ms Watson sent an email to Ms Darby in which she noted that she had made a few minor amendments to the deed, and suggested that three deeds be executed – one each for March, June and September 2014, with the September 2014 deed to be held in escrow until 13 September 2014. Ms Watson attached new pages, and requested that PNC be asked to sign three copies of “the execution page”. Ms Watson stated that she looked forward to receiving documents executed by PNC.

  1. It appears that some further amendments to the drafts were made on about 16 June 2014. By 19 June 2014 Ms Watson had received from Ms Darby certain “original documents” as executed by PNC. The evidence is not clear as to what documents were actually received.

  2. It does appear, however, that on about 19 June 2014 REW executed two Deeds of Mutual Rescission of Contract which were dated 13 March 2014 and 13 June 2014, and two further contracts for sale of Lot 136 in the unregistered plan of sub-division, which were dated 13 March 2014 and 13 June 2014. Such deeds and contracts (or copies thereof), apparently executed by REW, were adduced in evidence. Presumably, those documents were sent by Ms Watson to Ms Darby by way of exchange. An email sent by Ms Watson to Ms Darby on 19 June 2014 indicates that it was Ms Watson’s intention to hold documents signed by PNC and for Ms Darby to hold documents signed by REW.

  3. There is no evidence that a Deed of Mutual Rescission of Contract in respect of the 13 June 2014 contract was ever executed by REW, and no evidence that REW executed any new contract for sale following the 13 June 2014 contract.

  4. The Deed of Mutual Rescission of Contract dated 13 March 2014 between REW as Vendor and PNC as Purchaser recited that:

A. On 13 December 2013 contracts for sale of land (“Contract”) were exchanged for the land known as Part of 92 Hambeldon Road, Schofields, being Lot 136 in an unregistered plan for subdivision of Lot 46 in Deposited Plan 28833.

B. The parties have agreed to the mutual rescission of the Contract on the following terms and conditions.

  1. The deed relevantly provides:

2. The parties hereby agree that the Contract shall be rescinded and be void ab initio and without legal effect as at 13 March 2014.

3. In accordance with Special Condition Clause 53.1 of the Contract, it is agreed that upon the rescission of the Contract, the parties will simultaneously enter into a new Contract for Sale on identical terms as the Contract with updated plan documents.

4. Any monies paid by the purchasers to the vendors in respect of the property shall be retained by the vendors in full and be used as the deposit for the new Contract for Sale.

5. The parties hereby release and forever discharge each other from all claims, actions, suits, demands, and rights, past, present and future, contained within the Contract.

6. The Loan Agreement dated 13 December 2013 signed by PNC Lifestyle Investments Pty Limited trading as PNC Lifestyle Investments, REW08 Projects Pty Limited and Michael John McCrudden remains in force and is to be attached to the new Contract for Sale entered into by the parties.

  1. Curiously, the contract for sale dated 13 March 2014 originally provided for a price of only $365,000 rather than $485,000. The reason for that apparent error was not explained. Otherwise, the terms of the contract seem to accord with those contained in the 13 December 2013 contract.

  2. The Deed of Mutual Rescission of Contract dated 13 June 2014 is in the same terms of the deed of 13 March 2014. It is thus erroneous in that it refers to the 13 December 2013 contract (not the 13 March 2014 contract) and provides for it to be rescinded as at 13 March 2014, instead of providing for the 13 March 2014 contract to be rescinded as at 13 June 2014. Neither party suggested that anything turned on these apparent errors. In any case, the communications between the parties leading up to the execution of the documents in June 2014 make it plain that a series of rescissions, followed by entry into new contracts, was intended. I note also that PNC paid two fees of $150 in respect of the rescissions, as contemplated by Special Condition 53 of the contracts for sale dated 13 December 2013 and 13 March 2014. If it were necessary, I would be prepared to order rectification of the 13 June 2014 deed so that its terms correctly recorded the common intention that the 13 March 2014 contract be rescinded as at 13 June 2014.

  3. On 18 July 2014 Mr McCrudden sent an email to Mr Cseh in which he stated that development approval was due to be given by the end of the month. Mr McCrudden also said he would like to start the process of home design. I interpolate here that Special Condition 53.2 of the contracts for sale gave PNC the right, at the time of registration of the plan of sub-division, to rescind and enter into an “updated” contract on identical terms and “a home building contract”. REW is related to Reward Homes Pty Limited, which conducts a home building business.

  4. Development approval was not given until 16 September 2014. In the meantime, on 4 September 2014 Mr Cseh (and his wife Carmen) met with Mr McCrudden to discuss design concepts. Reward Homes Pty Limited sent some concept plans to Mr Cseh on 10 September 2014.

  5. On 17 December 2014 Ms Darby sent a new Deed of Mutual Rescission of Contract (dated 13 December 2014) to Ms Watson, requesting that it be executed by REW. On 23 December 2014 Ms Darby sent a follow-up email. Ms Watson replied, stating that she would arrange execution as soon as possible. However, this deed was never entered into.

  6. On 6 January 2015 PNC sent a letter to REW which included the following:

I refer to Loan Agreement dated 13 December, 2013 between REW08 Projects Pty Limited, PNC Lifestyle Investments Pty Limited and yourself as guarantor.

I draw your attention to Clause 3.1 of the Loan Agreement.

...

As of 13 December, 2014, no Plan of Subdivision has been registered. Accordingly, please note we will shortly email through separately our tax invoice for interest payable. In accordance with Clause 3.4 of the Loan Agreement, this tax invoice is due and payable 4 weeks after 13 December 14 and further tax invoices will be issued to you monthly until registration occurs.

  1. An invoice in the sum of $2,123.19 (for interest for the period 14 December 2014 to 13 January 2015) was then sent to REW. Invoices were issued monthly thereafter.

  2. For a time the invoices were not paid. On 5 March 2015 Mr Cseh sent an email to Mr McCrudden querying why no payments were being made. Mr McCrudden responded, saying that he would be happy to go through “the progress and invoices” when Mr Cseh returned from Germany. A meeting was arranged for 11 March 2015.

  3. Again, Mr Cseh and Mr McCrudden have differing recollections of what was said. However, it is common ground that Mr McCrudden expressed some dissatisfaction about the notion of paying interest. After the meeting, Mr McCrudden sent an email to Mr Cseh in the following terms:

It was good to catch up & clear up some issues.

Re your land @ the above project, I can presell your block for $540,000 as discussed today terminating existing contract so no fees, stamp duty are payable.

Agreement will be made between us that payment will be paid to you on settlement on land sale, with any interest paid by me from your existing loan (which is now due) will be deducted from the final payment.

If you could let me know your decision asap as I have a buyer for this property.

  1. Mr Cseh responded later on 11 March 2015 in an email which included the following:

Yep, was great to catch up and talk through the issues. I do appreciate your understanding and patience with respect to my position and the loan contract we have in place with the subsequent payments due by you.

I have a little due diligence to do before making a final decision.

…

I will get back to you asap (definitely before end of week) with my proposed course of action.

  1. It is apparent that Mr Cseh was concerned at that time that REW might soon be in a position to rescind the contract for sale pursuant to Special Condition 33. In an email sent to Ms Darby on 12 March 2015 Mr Cseh stated:

Clause 33 in the contract states that if title registration has not occurred 18 months after date of contracts then either party can rescind without right or claim to loss or damages.

As I mentioned yesterday the developer had a different mindset wrt the loan agreement and was not expecting to have to pay me interest unless the contracts were rescinded. He could in fact enact this clause and return my $250,000 (with the interest payments) and I do not have a leg to stand on. I do not know if his cash flow would allow this or not.

The developer and I met yesterday and discussed some options for the future. He is an amicable man who is quite ethical and does not want to burn the relationship as he wants to move forward investing together in the future, but I am concerned about his ability to rescind the contract.

…

  1. In any event, Mr Cseh was evidently keen to pursue the possibility of a “profit sharing agreement” with REW involving Lot 136 (sometimes erroneously referred to as Lot 126 in the correspondence). Mr Cseh gave instructions to Ms Darby to prepare a draft agreement.

  2. It seems that such an agreement was further discussed by Mr Cseh and Mr McCrudden. On 25 March 2015 Mr Cseh sent an email to Mr McCrudden in which he indicated that a “new agreement” would be ready by the end of the week. The email also included an enquiry as to the making of the interest payments. Mr McCrudden responded later on 25 March 2015, stating that he was “just waiting cleared funds”.

  3. A payment of interest was made on about 7 April 2015, and further payments were subsequently made on a more or less regular basis. REW claims to have paid a total of $35,546.31 in interest to PNC.

  4. On 2 April 2015 Mr Cseh sent a draft Profit Share Agreement to Mr McCrudden. Mr McCrudden appears not to have advanced the matter with any enthusiasm. A reminder email sent by Mr Cseh on 18 May 2015 was not answered. Ultimately, PNC sent a letter to REW on 19 August 2015 in which it was stated that the Profit Sharing Agreement was “now removed from further negotiation”. The letter also contained a complaint that the rescissions and new contracts provided for in Special Condition 53 of the contracts had not been “enacted” since September 2014 despite the making of requests by Ms Darby. It seems that Mr Cseh was under the impression (possibly due to having signed three sets of documents in June 2014) that the existing contract was one made on 13 September 2014 rather than one made on 13 June 2014. The letter also contained a request that REW advise when the final sub-division is submitted to the Council, and when the linen plans are submitted to the Land Titles Office.

  5. On 25 August 2015 Ms Darby sent an email to Ms Watson in which she stated that PNC required a deed of rescission, and a new front page of contract, signed by REW. Ms Watson responded, stating that she would seek instructions. On 21 October 2015 Ms Darby sent an updated Deed of Mutual Rescission of Contract, and an updated front page of contract, to Ms Watson for REW to execute. Ms Darby indicated that PNC intended to pay stamp duty on the updated contract for sale.

  6. On 27 October 2015 Mr Cseh delivered an executed deed and front page of contract to Ms Watson’s office. Ms Watson sent an email to Mr Cseh stating that she would arrange signature, but it seems that the documents were never executed by REW.

  7. On 9 November 2015 Mr Cseh sent an email to Mr McCrudden in which he stated that he intended to put his block on the market in the very near future. Mr McCrudden responded on the same day, stating only that he would like to discuss “an option for you to consider”. A further email sent by Mr McCrudden indicates that the option he alluded to would involve the building of a duplex on Lot 136 and a sharing of profits following a sale. On 17 November 2015 Mr Cseh sent an email stating that he did not wish to proceed with such a joint venture.

  8. On 25 November 2015 Mr Cseh sent an email to Mr McCrudden in which he requested that he be provided with an updated copy of the sub-division plan, and complained that two months of interest was now in arrears.

  9. On 10 December 2015 Mr Cseh sent another email to Mr McCrudden making a “last request” for provision of the updated sub-division plan (as envisaged by Special Condition 38 of the contract), and stating that a lack of response would leave no option other than the commencement of legal action to enforce the contract.

  10. Mr McCrudden sent the final approved sub-division plan to Mr Cseh on 14 December 2015. On the same day, Mr Cseh responded, stating that in accordance with Special Condition 38 he (PNC) elected to proceed with Lot 136 rather than select one of the alternative lots.

  11. On 19 February 2016 Prime Lawyers, who were now acting for REW, sent a letter of termination to PNC’s solicitors (Sweeney Tiggemann) stating that the contract for sale dated 13 December 2013 had been terminated. The letter included the following:

Your client has failed to pay any of the deposit on the Contract. Your client has therefore breached an essential term of the Contract.

Both as your client has not complied with the Contract in an essential respect and pursuant to clause 2.5 of the Contract our client hereby terminates the Contract.

  1. Later on 19 February 2016 Mr Watson of Platinum Property Law sent an email to Ms Darby which attached “copies of the two Deeds of Rescission and the last Contract dated 13 June 2014”. (Curiously, the attached front page of the contract bearing the date of 13 June 2014 provided for a price of only $365,000, rather than $485,000. Mr Watson explained in an email sent on 20 February 2016 that he had sent a version which was not the “exchanged version” which had the correct price of $485,000). The email continued:

We note, however, that we are advised that our client did not receive a deposit in relation to the original Contract with the result being that there was no Contract to Rescind and no deposit to transfer at the time of each rescission.

  1. On 22 February 2016 Prime Lawyers sent two further letters of termination to Ms Darby’s new firm, Solve Legal. The first letter concerned the contract for sale dated 13 March 2014; the second letter concerned the contract for sale dated 13 June 2014. That letter included the following:

Your client has failed to pay any of the deposit on the Contract. Your client has therefore breached an essential term of the Contract.

Both as your client has not complied with the Contract in an essential respect and pursuant to clause 2.5 of the Contract our client hereby terminates the Contract.

  1. As noted earlier, the plan of sub-division was registered on 11 March 2016 as Deposited Plan 1198880. REW is thus in a position where it can convey to PNC the property the subject of the contract for sale, being Lot 136 in Deposited Plan 1198880.

  2. On 21 August 2016 Solve Legal submitted to the Office of State Revenue the three contracts for sale (dated 13 December 2013, 13 March 2014 and 13 June 2014), the two Deeds of Mutual Rescission of Contract (dated 13 March 2014 and 13 June 2014), a transfer in respect of Lot 136 in Deposited Plan 1198880, and a bank cheque for $21,289.05 (being the amount of duty on the 13 December 2013 contract plus interest). An assessment of duty was requested. The covering letter referred in particular to Special Condition 53 of the contracts.

  3. On 31 August 2016 the Office of State Revenue assessed the 13 December 2013 contract for duty of $17,315 (based on a price of $485,000). No duty was assessed as payable upon either of the contracts of 13 March 2014 and 13 June 2014. The transfer was assessed for nominal duty of $10. The assessed duties have been paid.

Determination

  1. PNC seeks to enforce the contract for sale dated 13 June 2014. The first issue to determine is whether REW validly terminated the contract on the ground that PNC failed to pay the deposit of $250,000 as required by the contract.

  2. It is clear that the only money ever paid by PNC to REW consists of the two payments totalling $250,000 made in December 2013 following its entry into the Loan Agreement and the contract for sale, each dated 13 December 2013. The question therefore arises as to whether the payment of that money satisfies PNC’s obligations in respect of the deposit under the 13 June 2014 contract.

  3. The email communications on 13 December 2013 suggest that, at least at that time, the parties were proceeding on the basis that the $625 paid on that day was the 0.25% of the $250,000 deposit required by Special Condition 34 to be paid at the time of signing the contract for sale, and that the balance of the $250,000 deposit would be paid in the following week, prior to the expiration of the “cooling off” period, as further required by Special Condition 34.

  4. The $249,375 payment made on 18 December 2013 met that requirement. Mr McCrudden accepted in cross-examination that he understood at the time that the $250,000 was paid as the deposit under the 13 December 2013 contract for sale. Prior to 19 February 2016 it was not suggested that PNC was in default of its obligations under the 13 December 2013 contract for sale.

  5. Two Deeds of Mutual Rescission of Contract, and two further contracts for sale were entered into on about 19 June 2014, as described earlier in these reasons. The first deed (dated 13 March 2014) operated to rescind the 13 December 2013 contract for sale. It further provided (in clause 3) for the parties to simultaneously enter into a new contract for sale on identical terms (with updated plan documents). Clause 4 provided that any monies paid by the purchaser to the vendor “in respect of the property” shall be retained by the vendor in full and be used as the deposit for the new contract for sale.

  6. In my opinion, the monies paid by PNC to REW in December 2013 are monies paid by the purchaser to the vendor “in respect of the property” within the meaning of clause 4. The “property” may be taken to be a reference to the land described in recital A to the deed, which is the land the subject of the 13 December 2013 contract for sale. The money was apparently paid on the basis that it was to be the deposit under that contract for sale of the property. Moreover, given that the expression “in respect of” has traditionally been construed as having a broad meaning (see, for example, Wonall Pty Limited v Clarence Property Corporation Limited (2003) 58 NSWLR 23; [2003] NSWSC 497 at [41]-[42] and the cases there cited), I would reach the same conclusion even if the money had been treated as payment of the Principal Sum under the Loan Agreement. The terms of the Loan Agreement indicate the existence of a relationship or association between the Principal Sum and the sale of the property. Clause 2 of the Loan Agreement states that enabling the sale of lots in the proposed sub-division is one of the purposes of the Principal Sum. Other provisions, such as clauses 3.3 and 3.5, which refer to the contract for sale of the property, further suggest the existence of a relationship or association between the Principal Sum and the property.

  7. Accordingly, clause 4 of the first deed operated so that the $250,000 was to be retained by REW and used as the deposit for the new contract for sale, being the 13 March 2014 contract.

  8. Notwithstanding the errors apparent within it (as referred to earlier), the second deed (dated 13 June 2014) similarly provided for the parties to simultaneously enter into a new contract for sale on identical terms (with updated plan documents), and that any monies paid by the purchaser to the vendor “in respect of the property” shall be retained by the vendor in full and be used as the deposit for the new contract for sale.

  9. Again, it is my view, for the reasons set out above, that the monies paid by PNC to REW in December 2013 are monies paid by the purchaser to the vendor “in respect of the property” within the meaning of clause 4 of the second deed. Accordingly, that money was to be retained by REW and used as the deposit for the new contract for sale, being the 13 June 2014 contract. I note that Special Condition 31.11 of the contract provides that the deposit is to be released to REW; and Special Condition 34 provides that the deposit is to be paid to REW “for its use”. There is thus no inconsistency between REW “retaining” the monies and the monies being “used” as the deposit.

  1. I accept that clause 4 could have more clearly expressed the notion that the $250,000 paid in December 2013 was to be treated as payment of the deposit under the new contract for sale. Nevertheless, I consider that the ordinary meaning of the language employed in the clause is to that effect. It is clearly provided that any monies that fall within the clause are to be used as the deposit for the new contract for sale. That is, the parties agreed that such monies would serve the purpose of, or be treated as, the deposit under the new contract for sale.

  2. I do not think that the circumstances in which the deeds were entered into, or the commercial purposes to be secured by them, lead to any different conclusion. The parties to the deeds were aware that the only monies PNC had paid to REW consisted of the amount of $250,000 paid in December 2013. The parties were further aware that the new contracts for sale to be entered into following rescission of the earlier contracts for sale would provide for a deposit in the same amount. The monies paid in December 2013 could thus be seen as able to be retained by REW and be used as the deposit for each new contract for sale.

  3. Mention should also be made of clause 6 of the Deeds of Mutual Rescission of Contract. Clause 6 provides that the Loan Agreement is to remain in force and is to be attached to the new contract for sale. The clause suggests that in June 2014 the parties were proceeding on the basis that the Principal Sum had been lent in accordance with the Loan Agreement. Given that the only money paid by PNC to REW was the $250,000 paid in December 2013, that implies that such amount was paid as the Principal Sum.

  4. It does not follow, however, that the parties could not also agree that such amount be treated as the deposit under a contract for sale. It is not necessary that there be an actual payment of a separate amount of $250,000 as the deposit. Even if PNC is ultimately not obliged to pay any further amounts under the contract for sale, the exchange of promises between the parties to the contract for sale, which promises include obligations upon PNC, means that PNC has provided consideration. I do not accept REW’s submission that consideration is lacking. Further, contrary to the submission made by REW, the sum of $250,000 paid by PNC can serve as both the Principal Sum under the Loan Agreement and the deposit under a contract for sale. Under the terms of the Loan Agreement, the Principal Sum is only repayable in the event that one of the parties exercises a right of rescission under the contract for sale (see clauses 3.3 and 3.5). In that event there is no longer any need for the deposit, which is required to be refunded pursuant to clause 19.2 of the contract for sale. (I note also that interest ceases to accrue if one of the parties exercises a right of rescission under the contract for sale.) I did not understand PNC to contend that it would be entitled to repayment of the Principal Sum if the contract for sale proceeded to completion.

  5. For the above reasons, I have concluded that the payment of $250,000 by PNC to REW in December 2013 satisfies PNC’s obligations in respect of the deposit under the 13 June 2014 contract. The parties agreed, by clause 4 of the Deed of Mutual Rescission of Contract dated 13 June 2014, that such monies were to serve the purpose of, or be treated as, the deposit under that new contract. It follows that it was not open to REW to terminate the 13 June 2014 contract on the ground that PNC failed to pay the deposit as required by the contract. No other ground was advanced by REW as a justification of its termination of the contract. The termination of the 13 June 2014 contract was thus invalid.

  6. In light of that conclusion, it is not necessary to deal with various other arguments raised by PNC against the validity of the termination, including its arguments based on estoppel and waiver, and its claim for rectification.

  7. The next issue to determine is whether the 13 June 2014 contract is void or unenforceable for illegality as contended by REW. The argument is largely founded upon the inclusion of Special Conditions 53 and 55 in the contracts for sale.

  8. Special Condition 53 provides:

53.1 The purchaser acknowledges that the Vendor will allow him/her to Rescind this Contract and simultaneously enter into a new contract on identical terms with updated Plan documents quarterly until the Plan of subdivision is finalised. A fee of $150.00 is payable by the Purchaser to [sic] each rescission.

53.2 At the time the Plan of subdivision is registered the purchaser may rescind the Contract and enter into an updated land Contract on identical terms and a home building contract.

  1. Special Condition 55 provides:

55.1 A price reduction of $235,000.00 will be made at Settlement provided that the Purchaser has met all obligations under the contract.

  1. In relation to Special Condition 53, REW submitted that the 13 June 2014 contract, which formed part of a transaction involving the exercise of a right of rescission under Special Condition 53 of the 13 March 2014 contract, was entered into for the purpose of delaying the payment of stamp duty or avoiding the payment of penalties, and was further part of an artificial or contrived scheme designed to avoid stamp duty (see ss 284D and 284E of the Duties Act 1997 (NSW)).

  2. In relation to Special Condition 55, REW submitted that the purpose of the clause could only be to mislead persons such as lending authorities and purchasers of other lots in the development. Reliance was placed upon statements made by Windeyer J about a similar clause in Miro v Fu Pty Limited (2003) 11 BPR 21,231; [2003] NSWSC 1009 at [15] where his Honour said:

I have said before and say again that this type of clause is quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. In my view it is likely that solicitors who purposely prepare contracts with contradictory clauses such as this may be guilty of professional misconduct. It is more serious when the solicitor is a party to the contract as vendor. Unreal stated consideration for reduction, although that is not the case here, does not improve the position. Instructions of clients cannot excuse such conduct.

  1. It was further submitted that Special Condition 55 has the effect that the contract price is not accurately recorded on the face of the contract and accordingly it constitutes a fraud on the Chief Commissioner for Stamp Duties. However, it is difficult to see how the existence of a rebate clause such as Special Condition 55 could be so regarded. If duty is assessed on the basis of the price shown on the face of the contract more duty would be payable, not less.

  2. REW accepted that the 13 June 2014 contract did not breach any statutory provision. Accordingly, REW did not suggest that the making of the contract was prohibited by statute, or that performance of the contract would involve the doing of any act prohibited by statute. Rather, its case was that the contract should be held to be unenforceable because it is associated with or in furtherance of illegal purposes.

  3. In Gnych v Polish Club Limited (2015) 255 CLR 414; [2015] HCA 23 it was stated in the joint judgment at [35]:

In Equuscorp Pty Ltd v Haxton, French CJ, Crennan and Kiefel JJ explained that an agreement may be unenforceable for statutory illegality in three categories of case, where:

“(i) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;

(ii) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;

(iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’.

In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute ‘whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable’.” [Footnotes omitted].

  1. Gageler J, in his separate concurring judgment in Gnych v Polish Club Limited (supra) stated at [70]-[71]:

Where a statute expressly or impliedly denies legal operation to an agreement, it is the statute itself which operates to render that agreement incapable of enforcement at common law. An agreement which is not denied legal operation by statutory force may still be unenforceable at the insistence of one or both parties by operation of the common law by reference to considerations of public policy. The cases in which that might occur, however, must now be closely confined.

It is important to identify the considerations of public policy that might be in play in such cases. Although other considerations might arise in some circumstances, two overlapping considerations have generally been recognised in the decided cases to predominate. One of those considerations has long been identified in terms that a person ought not to be permitted by law to base a cause of action on an immoral or illegal act. The other, more focussed, consideration has been identified in terms that a person ought not to be assisted by law to benefit from an immoral or illegal act. That other consideration is reflected in what has been described as "the more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with the object of committing an illegal act". [Footnotes omitted].

  1. As to the first of the considerations identified, Gageler J stated at [73]:

The consideration of public policy that a person ought not to be permitted by law to found a cause of action on an immoral or illegal act is the product of an earlier age. The broader consideration of public policy is now rarely recognised by the common law to have application in relation to illegality which arises under a modern regulatory statute. That is the import of the observation by Mason J in Yango that "[t]here is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished". It is not the function of the common law to seek to improve on a regulatory scheme by supplementing the statutory sanctions for its breach. If a statute itself does not operate to deny legal operation to an agreement made in breach of one of its prohibitions, or to render that agreement unenforceable by reason of that breach, the coherence of the law is best served by a court respecting and enforcing that legislative choice. [Footnotes omitted].

  1. As to the second of the considerations identified, Gageler J stated at [74]-[75]:

But the other consideration of public policy – that a person ought not to be assisted by law to benefit from an immoral or illegal act – can have application where the first does not. That is the import of the further observation by Mason J in Yango that "there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty".

A court examining the application of that consideration of public policy to the enforcement of an agreement made in breach of a statutory prohibition will examine the intention of a person in entering into the agreement and in seeking to enforce the agreement. The court will recognise that, "whilst persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken". The court will weigh the consequences of withholding a remedy to enforce the agreement in light of the objects or policies which the statute seeks to advance and the means which the statute has adopted to achieve that end. Ordinarily, it would be open to the court to conclude that withholding a common law remedy from a person whose intention was, and remained, to flout the statute was justified by reference to the narrower consideration of public policy only if the consequence of withholding the remedy could be determined by the court to be both proportionate to the seriousness of the illegality and not incongruous with the statutory scheme. The moulding of an equitable remedy, if sought, might involve other considerations and permit of greater flexibility. [Footnotes omitted].

  1. It may be accepted that a purpose, indeed the primary purpose, of the transaction whereby the 13 June 2014 contract was entered into was to avoid any immediate liability for stamp duty on the conveyance. The transaction was effected at a time when PNC was aware that duty had become payable three months after 13 December 2013. The first Deed of Mutual Rescission of Contract, and the 13 March 2014 contract for sale, were backdated to cater for that situation.

  2. Nevertheless, the transaction occurred in circumstances where stamp duty would ultimately be paid if the purchase proceeded; and if the purchase did not proceed to completion, any duty paid would generally be refundable (see s 50 of the Duties Act). I accept Mr Cseh’s evidence to the effect that he always intended to pay the required duty, and his intention was only to delay the payment of duty. He accepted that delaying the payment was of some advantage to him (or PNC).

  3. The legislative regime concerning the payment of stamp duty, the recovery of duty avoided as a result of avoidance schemes (see Chapter 11A of the Duties Act), and the recovery of interest and penalty tax in respect of tax defaults (see Part 5 of the Taxation Administration Act 1996 (NSW)) is comprehensive. The regime does not itself operate to render unenforceable an agreement made for the purpose of avoiding duty.

  4. In the present case, the existence of the three contracts for sale (including the terms of Special Condition 53) and the two Deeds of Mutual Rescission of Contract have since been disclosed to the Office of State Revenue, and duty has been assessed (and paid) on the 13 December 2013 contract on the basis of a dutiable amount of $485,000. I note, however, that the backdating of the 13 March 2014 documents does not seem to have been disclosed.

  5. The cardinal purpose of the comprehensive legislative regime to which I have referred is to ensure that the proper amount of duty is received by the State in respect of dutiable transactions. I consider that such purpose will be fulfilled without holding the 13 June 2014 contract to be unenforceable. Moreover, it is my view that holding the contract to be unenforceable would be incongruous with the legislative regime. Finally, it is my view that holding the contract to be unenforceable would be a disproportionate sanction having regard to the scale of any benefits that PNC might have expected to obtain, or in fact obtained, as a result of the transaction whereby the contract was entered into.

  6. I have already stated that Special Condition 55 ought not be viewed as a provision aimed at defrauding the Chief Commissioner for Stamp Duties. It is otherwise difficult to discern any illegal purpose advanced by the inclusion of Special Condition 55. REW did not suggest that any statute would be contravened. Its position was merely that such a provision was improper in that it could only serve the purpose of misleading persons such as lending authorities and other purchasers.

  7. Whilst I accept that the presence of such a clause in a contract for sale (particularly where the clause is not referred to on the front page of the contract) could aid unscrupulous persons in seeking to mislead others concerning the true price under the contract, I am unable to accept that such a clause can only be employed for such a purpose. There was evidence given in the present case, which I accept, that the price shown on the front page of the contract accurately reflected the value of the property to be sold, and that the rebate provided for in Special Condition 55 reflected the discount which was given to certain initial purchasers (including PNC), who were prepared to pay a large deposit which would be immediately released to REW. At least in this case, I do not think it can be said that the rebate clause was in any way improper. The inclusion of Special Condition 55 does not in my view advance REW’s argument that the 13 June 2014 contract should be held to be void or unenforceable.

  8. For the above reasons, I do not find the 13 June 2014 contract to be void or unenforceable for illegality.

  9. REW submitted, in the alternative, that the conduct of PNC in relation to stamp duty, and its agreement to include Special Condition 55, leads to the conclusion that specific performance should be declined because PNC does not come to Court with clean hands.

  10. There are aspects of the conduct of PNC in relation to this transaction which are less than satisfactory. The suggestion of, and later the participation in, the backdating of documents to avoid an immediate liability for stamp duty falls within that category. However, I take into account that Mr Cseh was, throughout that process, guided by lawyers and had no strong reason to think that what he was doing was improper. Moreover, I have accepted that Mr Cseh always intended to pay the required stamp duty, and that his intention was only to delay such payment. The stamp duty, as assessed, has now been paid. Finally, I do not think that PNC engaged in any improper conduct by entering into agreements that included Special Condition 55. In these circumstances, I do not think that a lack of clean hands defence has been made out such as would justify the withholding of a decree of specific performance.

  11. In my opinion, it is appropriate for a decree of specific performance to be made in respect of the 13 June 2014 contract. The contract remains on foot, REW’s purported termination of the contract being invalid. Aside from the contention that PNC failed to pay the deposit, it is not suggested that PNC is or has been in breach of the contract. Special Condition 55 would thus operate so that PNC obtains the benefit of the rebate, and would not be required to pay any further part of the purchase price. That being so, I accept that PNC is ready, willing and able to proceed to complete the contract.

  12. The only remaining issues are those that arise under a Cross-Claim brought by REW against PNC. In particular, REW claims that if the Court holds that the $250,000 that was paid in December 2013 constituted a deposit under the 13 December 2013 contract, then PNC has failed to advance the Principal Sum under the Loan Agreement and there has thus been a total failure of consideration for the interest payments subsequently made by REW.

  13. I have found that in December 2013 the parties were proceeding on the basis that the $250,000 paid by PNC was to be the deposit under the contract for sale. I have further found that clause 6 of the Deeds of Mutual Rescission of Contract suggests that in June 2014 the parties were proceeding on the basis that the Principal Sum had been lent in accordance with the Loan Agreement. As I have endeavoured to explain, it was open to the parties to agree that the $250,000 would serve as both the Principal Sum under the Loan Agreement and the deposit under the contract for sale. I therefore do not accept that there has been a total failure of consideration as alleged. It seems to me that, in accordance with clauses 3.1 and 3.4 of the Loan Agreement, interest on the Principal Sum began to accrue from 13 December 2014 and continued to accrue until registration of the plan of sub-division. REW is not entitled to recover the amount of its interest payments on the ground of a total failure of consideration.

  1. The other aspect of REW’s Cross-Claim is its claim for the recovery of the deposit up to 10% of the contract price (that is, $48,500). This claim rested upon the contention that REW had validly terminated the 13 June 2014 contract for sale. As I have rejected that contention, this aspect of the Cross-Claim also fails.

Conclusion

  1. A decree of specific performance should be made in respect of the contract for sale dated 13 June 2014. The balance of the Amended Statement of Claim should be dismissed, subject to the possibility that PNC may seek to claim damages at a separate hearing. The Cross-Claim should also be dismissed.

  2. I direct that, within 14 days, the parties bring in Short Minutes of Orders to give effect to these reasons. The Short Minutes should also deal with costs.

  3. If agreement is not reached as to the appropriate form of orders, or as to costs, the matter will be re-listed for further directions.

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Decision last updated: 03 February 2017

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