Rana v Dalla Costa
[2014] NSWSC 1113
•27 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: Rana v Dalla Costa [2014] NSWSC 1113 Hearing dates: 23/04/ 2014 Decision date: 27 August 2014 Jurisdiction: Common Law Before: Harrison AsJ Decision: The Court orders that:
(1) The appeal is dismissed.
(2) The decision of his Honour Magistrate Cheetham dated 14 October 2013 is affirmed.
(3) The amended summons filed 4 November 2013 is dismissed.
(4) Costs are reserved.
Catchwords: APPEAL FROM LOCAL COURT - real property - contract for sale of land - split deposit payable by instalments - whether second payment is a penalty - damages - rent earned from the property by the purchaser prior to completion Legislation Cited: Local Court Act 2007 (NSW), ss 29, 29A, 30, 39, 41 Cases Cited: Ashdown v Kirk [1997] 2 Qd R 12
Boyarsky v Taylor [2008] NSWSC 1415
Financings Ltd v Baldock [1963] 2 Q.B. 104 (CA)
Galafassi v Kelly [2014] NSWCA 190
Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd [2009] NSWSC 674
Ianello v Sharpe [2007] NSWCA 61
Keneric Tractor Sales Ltd. v Langille [1987] 2 S.C.R 440; (1987) 43 D.L.R. (4th) 171
Luu v Sovereign Developments Pty Limited [2006] NSWCA 40
Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656
Romanos v Pentgold Investments Pty Ltd [2003] HCA 58
Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620
Swain v Waverley Municipal Council [2005] HCA 4; (2005) 220 CLR 517
Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117Texts Cited: John Randall, "Express Termination Clauses in Contracts" (2014) 73(1) Cambridge Law Journal 113 Category: Principal judgment Parties: Rizwan Rana (Plaintiff)
Elizabeth Dalla Costa (First Defendant)Representation: Counsel:
C H Cassimatis (Plaintiff)
A D Justice (First Defendant)
Solicitors:
Hunter Family Law Centre (Plaintiff)
Chris Ryan Legal (First Defendant)
File Number(s): 2013/333665 Publication restriction: Nil Decision under appeal
- Date of Decision:
- 2013-10-14 00:00:00
- Before:
- Cheetham LCM
- File Number(s):
- 2012/308427
Judgment
HER HONOUR: By summons filed 4 November 2013, the plaintiff appeals from the decision of Magistrate Cheetham dated 14 October 2013 and seeks orders that the appeal be allowed and the judgment in the Court below be set aside.
The plaintiff is Rizwan Rana. The first defendant is Elizabeth Dalla Costa. The second defendant is Salah Bousaleh. The third defendant is Gail Christine Bousaleh. Ms Dalla Costa was the vendor of a property in Hamilton and entered into a contract for sale with Mr Rana and Mr Bousaleh. In the Local Court and in this Court neither Mr Salah Bousaleh nor Mrs Gail Bousaleh played any active role in the proceedings. Neither of them appeared at the hearings in either the Local Court or this Court.
Mrs Bousaleh, who is married to Mr Bousaleh was not a party to the contract for sale of land. As Ms Dalla Costa was the plaintiff in the Local Court and is one of the defendants in this Court and, likewise, Mr Rana was a defendant in the Local Court and the plaintiff in this Court, for convenience I shall refer to the parties by name.
On 14 October 2013, Magistrate Cheetham entered a verdict in favour of Ms Dalla Costa comprising of (a) unpaid part of the deposit of $25,000; (b) costs of $5,963.71; and (c) damages for parting with possession or subletting $8,250. The award of costs in sub paragraph (b) do not form part of this appeal. This appeal involves the sum of $33,250.
Background facts
These factual matters are not in dispute.
On 19 April 2011, Ms Dalla Costa as vendor, exchanged contracts with Mr Bousaleh and Mr Rana, as purchasers, for the sale of a property located in Hamilton ("the contract"). Mr Bousaleh and Mr Rana were expressed to both be purchasers in the contract. The sale price was $1,250,000. The deposit was for the sum of $50,000. Half of the deposit was paid on exchange, with the other half to be paid on 28 June 2011, 70 days after exchange. The sale was to be completed on 15 November 2011.
In May 2011, Mr Bousaleh was given keys to the property pursuant to special condition B13. That clause entitled the purchaser to access to the upstairs flat prior to completion.
The other half of the deposit was not paid on 28 June 2011. Ms Dalla Costa made demands for payment on 25 July 2011, 19 August 2011 and 8 September 2011, all to no effect.
In October 2011, Mr Bousaleh had discussions with Ms Dalla Costa's agent about entering into a new contract for sale.
On 1 November 2011, Ms Dalla Costa's agent attempted to bank a cheque from Mr and Mrs Bousaleh in payment of the remainder of the deposit. On 7 November 2011, the cheque was dishonoured.
On 7 November 2011, Ms Dalla Costa's son and the agent inspected the property. They observed that tenants occupied the property. One tenant told them that she and another four people were lessees and each were paying rent to Ryan Bousaleh of $150 per week. This included services such as electricity and water. Ryan Bousaleh is the son of Mr Bousaleh.
On 9 November 2011, Ms Dalla Costa terminated the contract.
On 27 July 2012, Ms Dalla Costa entered into a contract for sale with another purchaser. The purchase price was $1,230,000 and this contract was completed.
The Appeal
Section 39 of the Local Court Act2007 (NSW) provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law. This appeal involves the interpretation of provisions of a contract for the sale of land. They are questions of law.
Section 41 of the Local Court Act provides that this Court may determine an appeal by either (a) varying the terms of the judgment or order, or (b) setting aside the judgment or order, or (c) setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) dismissing the appeal. The parties agree that as the appeal involved the interpretation of contractual provisions, I should determine the appeal either by (a) dismissing the appeal or (b) by varying the terms of the judgment.
In Swain v Waverley Municipal Council [2005] HCA 4; (2005) 220 CLR 517, Gleeson CJ at [2] reiterated that in the common law system of civil justice, the trial process determines the issues between the parties. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal.
Mr Rana claimed that the Magistrate erred in relation to four key issues. They are that the Magistrate erred in finding that firstly, the rights created by clauses 9.1, 9.2 and 9.3 of the contract between Mr Rana, Ms Dalla Costa and Mr Bousaleh are separate and independent; secondly, Mr Bousaleh breached the contract by subletting the land or giving possession of the land to Ryan Bousaleh "or anyone else"; thirdly that Ms Dalla Costa was entitled to an award from Mr Rana for rent paid to Ryan Bousaleh who allegedly occupied the land from a date after exchange; and finally, that Mr Rana is liable to pay Ms Dalla Costa the sum of $25,000. I shall deal with Grounds 1 and 4 together followed by Grounds 2 and 3 which will also be dealt with together.
The pleading framework in the Local Court
The Magistrate recorded at [19] that Ms Dalla Costa claimed damages for breach of contract. The heads of damage claimed against Rizwan Rana, the second defendant in the Local Court proceedings, were firstly, the unpaid part deposit of $25,000; secondly, the legal costs of the first contract; thirdly, the loss on resale of $20,000; and fourthly, rent received by Ryan Bousaleh. Mr Rana's defence, described as inadequate, was that Ms Dalla Costa's claims "were not admitted."
Grounds 1 and 4 - Interpretation of clause 9 of the contract and whether the second instalment was a deposit or penalty
On exchange of contracts, the purchasers paid the sum of $25,000. The other half, the sum of $25,000, was stipulated to be paid 70 days after exchange. That should have occurred on 28 June 2011, but did not. Ms Dalla Costa claimed the payment of the sum of $25,000 alleging breach of contract. Mr Rana submitted that the Magistrate erred in awarding the sum of $25,000 to Ms Dalla Costa, because the second instalment of $25,000 is a penalty.
The property was sold at a value of $20,000 less than the price stipulated in the contract for sale. The contract stated that the deposit was $50,000 and the amount to be paid on exchange was $25,000. The Magistrate held that Ms Dalla Costa may recover the unpaid amount of $25,000. The Magistrate stated at [29]:
"... In these proceedings the deposit kept or recovered (as a result of these proceedings) is $50,000. The deficiency on resale was $20,000. The deposit exceeds the deficiency and the Vendor may not recover for deficiency on re-sale."
Contractual provisions
It is convenient that I briefly refer to the relevant contractual provisions.
The vendor is Elizabeth Dalla Costa as executor of the late Remo Dalla Costa. The purchasers are Salah Bousaleh and Rizwan Rana. The contract for sale does not specify whether the purchasers were joint tenants, tenants in common in equal shares, or tenants in common in unequal shares.
On the front page of the contract the following appears:
Price
$1,250,000.00
Deposit
$50,000.00
(10% of the price, unless otherwise stated)
Balance
$1,200,000.00
Contract date 19 April 2011
Clauses 2 and 9 of the standard conditions relevantly read:
"2 Deposit and other payments before completion
2.1 The purchaser must pay the deposit to the depositholder as stakeholder.
2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.
2.3 If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential.
...
9 Purchaser's default
If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can-
9.1 keep or recover the deposit (to a maximum of 10% of the price);
9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause-
9.2.1 for 12 months after the termination; or
9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and
9.3 sue the purchaser either -
9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover -
· the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and
· the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or
9.3.2 to recover damages for breach of contract."
Special conditions B7 and B14 relevantly read:
"B7 DEPOSIT
In the event that the Purchaser pays less than 10% of the purchase price as deposit pursuant to clause 2 of this contract and if the Purchaser commits a default hereunder then the whole of the 10% deposit will become due and payable notwithstanding that this contract is not completed.
This clause will not merge on completion and the Vendor will be entitled to sue for recovery of so much of the 10% deposit that remains outstanding.
...
B14 DEPOSIT
(a) The deposit of $50,000.00 is payable as follows:
(i) An initial deposit of $25,000.00 upon exchange; and
(ii) The balance of $25,000.00 within 70 days of the date of this Contract for Sale.
(b) The Purchaser acknowledges that the initial deposit of $25,000.00 is non-refundable and is to be released to the Vendor immediately after exchange of Contracts.
..."
As to the interpretation of clause 9 and whether the second instalment constitutes a penalty, the Magistrate, in his written reasons, stated at [26] - [28]:
"[26] ... It is unnecessary to consider the separate actions of the First and Second Defendants. They are separately and together liable to perform the terms of their agreement with the Plaintiff (Printed Clause 20.4).
...
[27] Printed Condition 9 sets out the amounts a Vendor may claim. The rights created by Printed Clauses 9.1, 9.2 and 9.3 are separate and independent.
[28] Firstly, a Vendor may keep or recover a deposit.
In this Contract the deposit was expressed to be $50,000.00 and the amount paid was $25,000.00. The Plaintiff may recover the unpaid amount of $25,000.00.
Special Condition B7 provided that in the event of default the whole of the 10% deposit was due and payable. The parties contracted that the Vendor was entitled to sue for recovery of so much of the 10% deposit that remained outstanding. The plaintiff has not sued for the balance of a 10% deposit and has sued for the balance of a $50,000 deposit."
The Magistrate held that clauses 9.1, 9.2 and 9.3 are separate and independent. As previously stated, because his Honour had decided that issue, and clause 9.1 entitled the vendor to keep or recover the deposit, it was unnecessary to decide whether the second instalment was a penalty.
According to counsel for Mr Rana, the Magistrate erred in finding that clauses 9.1, 9.2 and 9.3 are independent because the moneys paid as a deposit would cover the deficiency on resale, recovery of reasonable costs or to recover damages for breach of contract. Further, so far as clause 9.3.1 is concerned, Mr Rana argued that it contemplates a circumstance where the vendor would give a credit for any of the deposit kept or recovered because this is consistent with one of the bases for which a deposit is required, namely, to cover losses flowing from the loss of the bargain.
Ms Dalla Costa submitted that the Magistrate was correct in finding that clauses 9.1, 9.2 and 9.3 are separate and independent rights. Counsel for Ms Dalla Costa submitted that in construing clause 9, the following are important:
"(a) clause 9 sets out the preconditions for the operation of clause 9 (it is not in dispute that those pre-conditions have been met);
(b) the precondition is the purchaser's breach of the Contract;
(c) upon the purchaser breaching an essential term and after termination 'the vendor can' exercise the rights in sub-clauses 9.1, 9.2 and 9.3;
(d) clearly this gives the vendor the additional rights under the sub-clauses and not by implication from the submissions a right to the purchaser, who has breached, to determine which sub-clause should apply or not apply;
(e) sub-clause 9.1 permits the vendor to keep or recover any unpaid deposit;
(f) sub-clause 9.2 which commences 'hold any other money paid' which can only be read as making clause 9.2 independent and additional to clause 9.1;
(g) sub-clause 9.2.2 is the last clause of sub-clause 9.2, it ends with the word 'and';
(h) the 'and' indicates that each of the sub-clauses is a separate and independent right;
(i) the wording of the first bullet point at sub-clause 9.3.1 indicates that, that sub-clause is independent from sub-clause 9.1 by giving credit for 'the deposit kept or recovered';
(j) if the three sub-clauses were not separate or independent provisions the provision of the first bullet point at 9.3.1 would not make sense - that is, if there is a loss greater than, inter alia, the deposit kept or recovered there is a mechanism for the damages calculation."
The construction of clause 9
Clause 9 sets out the remedies available to the vendor if the purchaser does not comply with the contract in an essential respect. Clause 9 states that the vendor can terminate the contract by serving a notice. Once that notice is served, clause 9 states that the contract is terminated. After the contract is terminated there are three remedies that can be enlivened under clause 9. These remedies are set out in clauses 9.1, 9.2 and 9.3.
While the Magistrate stated that these clauses are separate and independent, with respect, I do not entirely agree with his Honour's view. While it is not necessary for me to decide this issue, it is my tentative view that clause 9.1 is separate and independent, but clauses 9.2 and 9.3 are cumulative remedies. This is because the words "or" or "and" do not appear between clauses 9.1 and 9.2. The absence of a co-ordinating conjunction indicates that clause 9.1 is independent from clauses 9.2 and 9.3. However, the word "and" does appear between clauses 9.2 and 9.3.
Clause 9.3.1 applies where the vendor has resold the property within 12 months after termination. Under clause 9.3 of the contract the vendor has the option, after terminating the contract, of either suing for damages in accordance with general law principles (cl 9.3.2), or reselling the property as owner within 12 months and claiming as liquidated damages any deficiency on resale and the reasonable costs and expenses of resale and the purchasers' default (cl 9.3.1): see Galafassi v Kelly [2014] NSWCA 190 at [177].
Counsel for Mr Rana further submitted that the initial payment of $25,000, which Mr Rana had forfeited, ought be characterised as the deposit but the balance which Ms Dalla Costa claims is an accelerated amount is not referrable to the damages that flow from the breach of contract and therefore is an unenforceable penalty.
As highlighted in recent cases, the fact that a party has called a payment a deposit is not determinative of whether that payment constitutes a penalty. The penalty issue was raised before the Magistrate (at T50). Counsel for Mr Rana was requested to provide written submissions on this topic. A copy of those submissions was not before this Court. As the Magistrate referred to the issue of penalty in his judgment and it is raised on appeal, I will deal with it.
Counsel for Mr Rana referred to Ianello v Sharpe [2007] NSWCA 61 and Luu v Sovereign Developments Pty Limited [2006] NSWCA 40 as authority to support his proposition that the second sum of $25,000 was a penalty. Counsel for the defendant relied upon Ashdown v Kirk [1997] 2 Qd R 12, Romanos v Pentgold Investments Pty Ltd [2003] HCA 58, Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117 and Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd [2009] NSWSC 674 to support his proposition that this sum of $25,000 was a deposit. I shall briefly refer to these cases.
Ringrow Pty Ltd v BP Australia Pty Ltd
The starting point is Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, a case that discusses what constitutes a penalty as opposed to liquidated damages. The facts of this case do not relate to payment of any monetary penalty, but to the provisions of an option taken by the vendor of a service station for its repurchase on breach of a condition, and for the determination of the price of the repurchase so as to exclude goodwill from the price on repurchase. At [10]-[11] the High Court stated:
"[10] The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach.
[11] The starting point for the appellant was the following passage in Lord Dunedin's speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [[1915] AC 79 at 86-87]:
'2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage ...
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach ...
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach ...
(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid ...
(c) There is a presumption (but no more) that it is penalty when 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage' [Lord Elphinstone v Monkland Iron and Coal Co (1886) 11 App Cas 332 at 342 per Lord Watson]."
The following cases involve the issue of whether a deposit is actually a penalty.
Ashdown v Kirk
In Ashdown the Court of Appeal of Queensland enforced a provision in a contract for the sale of land that provided for a split deposit to be paid by two instalments. The contract provided for $50,000 to be paid 180 days from the signing of the contract and $200,000 to be paid 360 days from the signing of the contract. The purchasers failed to pay the first instalment of the split deposit and the vendors terminated the contract. Clause 13.3 stipulated that if the vendor terminated the contract " ... the vendor may recover from the Purchaser as a liquidated debt the deposit or any part of it which has not been paid by the Purchaser."
The issue before the Court was whether the whole of the unpaid deposit could be recovered. The Court held that under clause 13.3 of the contract, there was no basis for distinguishing between the sum of $50,000 already payable when the contract was determined and the sum of $200,000, which had not yet became due and payable at the time of that determination. It was also held that both sums were recoverable as liquidated damages.
In Ashdown, after referring to the principles set out in Ringrow, McPherson JA stated at p 8:
"There is therefore no conflict or inconsistency between the provisions of Standard Condition cl. 13.3 prescribing the consequences of termination of the contract, and those of Special Condition 3, providing that the contract shall be at an end and that all deposit moneys are to be 'non-refundable'. The two contractual provisions are not only consistent and capable of standing together but may fairly be considered as mutually supplementary. For all these reasons, there is no basis for supposing that Special Condition 3 was designed to be exhaustive or in some way to 'cover the field' of non-payment of the deposit moneys to the exclusion of the detailed provisions of Standard Condition 13.3. Indeed, in at least two instances (cll.2 and 8) where it was intended to displace provisions of the Standard Conditions, the Special Conditions expressly so provide.
... A deposit is considered an 'earnest' of the bargain or its performance (Brien v Dwyer (1978) 141 CLR 378 at 385) that is designed to demonstrate the sincerity of the contracting party who is to pay it. For that reason, it is ordinarily beyond the reach of equitable relief against penalties or forfeiture, at least if it is not excessive or unconscionable in amount, of which in Queensland the equivalent of 10 per cent of the purchase moneys is ordinarily considered the upper limit: Freedom v A.H.R. Constructions Pty Ltd [1987] 1 QdR 59. Since the purchase price was $2.6 million, the deposit required under the contract was in this instance less than 10 per cent of that total. The fact that it was payable post-contractually in two amounts, rather than by a single sum on signing the contract, is uncommon in practice but certainly not unknown. It has been held to have the consequence of leaving the vendor with the right to recover the unpaid balance after terminating the contract. See Bot v Tistevski [1981] VR 120; Pendergast v Chapman [1988] 2 NZLR 177, both of which were referred to with approval by this Court in Cleargate Pty Ltd v Pacific Commerce Finance Limited (App No 186 of 1993, May 10, 1994, unreported). The defendants' complaint that this involves an acceleration, without any express contractual provision in that behalf, of the date for payment of the second deposit instalment of $200,000 is not sustainable in the face of the provisions of cl. 13.3 and the decision in Cooper v Ungar (1958) 100 CLR 510. Far from suggesting that the express provisions of the contract or the Special Conditions were intended to displace this state of affairs, those provisions tend on the contrary to confirm it."
Taylor v Raglan Developments Pty Ltd
In Taylor the plaintiffs, as vendors, entered into a contract for sale of land to the defendant. The purchase price was $211,314, with a deposit of $21,131 paid on exchange of contracts. The contract did not proceed to completion and was terminated. The vendors' solicitor informed the purchasers that their deposit was forfeited and any money paid by the purchasers in excess of the deposit would be retained under clause 16 of the contract. Clause 16 of the contract provided that if the purchaser defaulted:
"the deposit paid by... [them], except so much of it as exceeds 10% of the purchase price, shall be forfeited to the Vendor who shall be entitled to terminate this agreement and thereafter either to sue the Purchaser for breach of contract or to resell the property as owner and the deficiency (if any) arising on such resale and all expenses of and incidental to such resale or attempted resale and the Purchaser's default shall be recoverable by the Vendor from the Purchaser as liquidated damages provided that proceedings for the recovery thereof be commenced within 12 months of the termination of this agreement."
Clause 16 also provided that:
"The Vendor may retain any money paid by the Purchaser on account of the purchase other than the deposit money forfeited under this clause as security for any deficiency arising on a resale or for any damages or compensation (including any allowance by way of occupation fee or for rents or profits from a Purchaser who has been in possession of the property or in receipt of the rents or profits thereof) awarded to him for the Purchaser's default provided that proceedings for the recovery of such damages or compensation be commenced within 12 months of the termination of this agreement."
In Taylor, Powell J stated at 135:
"The fact that the rights provided by cl 16 are intended to be cumulative upon, rather than in substitution for, the plaintiffs' ordinary rights at common law means, in my view, that except to the extent to which those rights are inconsistent with the rights provided by the common law, and except to the extent that there has been a completed and irrevocable exercise of one or other of those inconsistent rights, there can be no room for the operation of the doctrine of 'election' upon which so much stress has been placed, in this case, by the defendant..." (Citations omitted.)
Powell J held that that the vendors were entitled to retain the deposit of $21,131 and also entitled to recover damages for breach of contract.
Luu v Sovereign Developments Pty Ltd
In Luu, the vendor entered into a contract for sale of land for $6.6 million with Luutin Pty Ltd. Luutin failed to complete and went into liquidation. Mr Luu guaranteed Luutin's obligations. He was sued as guarantor. The contract originally stipulated a deposit of $330,000, with a balance of $6,270,000. However, these two amounts were struck out and handwritten next to them were the words deposit sum of $65,000, with a balance of $6,535,000. A notice of termination was served. Later a variation to the contract increased the price to $6,810,000. The vendor claimed $616,000 being the difference between $65,000 plus 10 per cent of $6,810,000. Special condition 5 of the contract provided:
"5. In the event that the Purchaser pays less than ten percent (10%) of the purchase price as deposit then if the Purchaser commits a default hereunder the whole of the 10% deposit shall become due and payable notwithstanding that this Contract is not completed. This clause shall not merge on completion and the Vendor shall be entitled to sue for recovery of so much of the 10% deposit that remains outstanding as a debt due by the Purchaser to the Vendor."
Clauses 2 and 9 are identical to clauses 2 and 9 in this present appeal. Clause 5 is similar to special condition B7 in this present appeal. However, words "as a debt due by the purchase to the vendor" do not appear in special condition B7.
In Luu, Bryson JA (with whom Handley and McColl JJA agreed) at [14] noted the assumption in special condition 5, that the deposit was to be 10 per cent, was inconsistent with the clear provision on the front page that the deposit was to be $65,000. His Honour held that this clear provision was not overcome by the implication in special condition 5 that the deposit was 10 per cent. Bryson JA at [24] had this to say about the relationship between deposits and penalties:
"[24] Where parties make an agreement for a sale which is to be completed at some time in the future it is unremarkable and only to be expected that the vendor will require the purchaser to pay some part of the purchase money straight away so as to show that the purchaser is in earnest in committing himself to pay the rest, on the understanding that the purchaser will not get his earnest money back if he does not complete the sale. For contracts of sale of land it has long been customary practice and established law that the purchaser pays a deposit on account of the purchase money when the contract of sale in writing is made, and cannot recover that deposit if he later fails to complete the bargain and pay the rest; whether or not the vendor's losses are actually more or less than the amount of the deposit. Notwithstanding the apparent inconsistency the invalidity of contractual penalties does not apply to contractual provisions for forfeiture of reasonable deposits in sales of land. In New South Wales it has long been usual to require a deposit of 10% of the purchase money, and this practice has not encountered challenge; on the other hand provisions relating to forfeiture of purchase moneys other than a reasonable deposit should be regarded as open to challenge. The assumption that provisions for forfeiture of deposits of reasonable amount are effective underlies statutory provisions for relief against their forfeiture; see s 55 of the Conveyancing Act 1919. The exception from the law relating to penalties relates and relates only to deposits, that is, to payments which truly have the character of earnest money paid on or in relation to entering into the Contract, and although provisions of contracts almost always establish what the deposit is, it is not open to parties to avoid the operation of penalties law by designating a payment or an obligation as a deposit if it does not otherwise have that character."
His Honour in considering whether special condition 5 provided for a penalty at [34] stated:
"[34] The references in Special Condition 5 to the deposit in the context of the obligation to pay up to 10% of the purchase price on default are confusing elements which do not, in my judgment, affect the essential character of the obligation as an additional payment which the purchaser must make if the purchaser is in any way in default. Where the additional payment was not made and, as in this case, the Contract has been terminated and the vendor sues for it as a debt, its character as a penalty, quite unrelated to any damage or loss incurred by the vendor, is in my opinion quite clear. If an attempt is made to consider it as a pre-estimate of damage, it is obvious that it is a grossly excessive amount in relation to some of the defaults upon which it may become payable, such as late delivery of the draft transfer, while for others, such as delay in completion or failure to complete by an essential time, the lack of any relation between a percentage of the purchase price and a pre-estimate of damage for breach demonstrates, to my mind, the absence of any justification."
Iannello v Sharpe
In Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452, the Iannellos, as vendors, exchanged contracts for sale with Mr Sharpe as purchaser for the sale of a property for $4.5 million. Upon exchange, the sum of $225,000 was paid as a deposit. After exchange, the purchaser's contract was altered. The deposit was changed to $450,000 and "5%" was changed to "10%". The purchasers could not raise finance to complete the sale and after a notice to complete was issued, the contract was terminated. The vendors sued for the remaining $225,000 and the purchasers cross claimed for the initial payment of $225,000.
Clause 14 of the contract in Iannello provided:
"14. Reduced Deposit
Notwithstanding anything else herein contained, the Vendor shall accept, on exchange of this Agreement, payment of $225,000.00 being part of the deposit. The parties expressly agree that if the Purchaser defaults in the observance or performance of any obligation hereunder which is or has become essential the balance of the deposit, namely $225,000.00, shall become immediately due and payable and the Purchaser shall forfeit the whole of the sum of $450,000.00 pursuant to Clause 9 hereof to the Vendor."
Clauses 2 and 9 are similar to the ones in the subject appeal. Clause 14 in Iannello differs from Special Conditions B7 and B14 in the present appeal.
In Iannello, Hodgson JA (with whom Santow and Basten JJA agreed) discussed Luu. His Honour stated at [27] to [33]:
"[27] It appears from these passages that there are two possibly significant differences between that case and this one. First, Bryson JA was able to say that the front page made it clear that the deposit was $65,000.00, and that the Special Condition in that case related to something which the contract was not treating as a deposit. Second, the amount in Special Condition 5 was payable on any default, no matter how trivial, so that its character as a penalty was clear.
[28] On the first matter, in the present case the reference to deposit on the front page is expressly qualified by reference to Special Condition 14; so it is not possible to say that the front page makes it clear that the second $225,000.00 is not part of the deposit. It can also be said that this is clearer in the altered form of the contract, where the front page refers to the deposit as being $450,000.00 or 10% of the price.
[29] The second matter is not directly relevant to the question of whether the second $225,000.00 is a deposit; but rather is relevant to the question whether, accepting it is not a deposit, it is or is not a pre-estimate of damages. That is a question on which Mr Orlov did not address submissions; and in my opinion, accepting that the obligation to pay the second $225,000.00 would only arise in circumstances where the vendors have lost their bargain, nevertheless it cannot be considered a pre-estimate of damages. The first $225,000.00, which was undoubtedly a deposit, would be greatly in excess of expenses that could be lost in connection with the terminated contract; and there is no evidence to suggest that the loss of the bargain would involve other loss, for example because of some problem in effecting a re-sale for a similar price. In fact, it appears that the re-sale was for a higher price; and although this is not directly relevant, it tends to confirm that there was no reason to anticipate that a later re-sale would be for a substantially lesser price.
[30] In those circumstances, the Court should conclude that, if the second $225,000.00 is not part of a deposit, provision for its payment would be a penalty and not enforceable. On that basis, the significance of the second difference from the case of Luu disappears.
[31] Returning to the first possible point of distinction between Luu and the present case, in my opinion the statement of principle in the last sentence of par [24] of the judgment in Luu is correct; so that the name which the parties have chosen to give to a payment is not determinative of whether or not it is a deposit. It is necessary also to look at the character of the payment and/or the obligation to make it. The first point of distinction between Luu and the present case relates only to the name the parties have chosen to give to the payment; and in my opinion the nature of the obligation to make the payment is more important in determining its character than the name chosen by the parties; although I do accept that in some cases the name could be relevant, particularly where a deposit is payable by instalments.
[32] On that approach, in my opinion the obligation to make the second payment of $225,000.00 is not an obligation to pay a deposit or part of a deposit. There never would be a time when this second $225,000.00 (as such) would be paid so as to show that the purchaser is in earnest in committing himself to pay the rest. On the contrary, the only time when Special Condition 14 obliges the purchaser to pay this sum is when the purchaser has demonstrated that he is not in earnest, and indeed the termination of the contract means that he would not be able to complete the contract. The obligation to pay the second $225,000.00 is inconsistent with the characteristics of a deposit. In my opinion, this would equally be so whichever version of the front page was operative.
[33] I do not think cases concerning payment of deposits by instalments suggest to the contrary of this. In those circumstances, there will in the normal course of performance of the contract come a time when money is paid and counts as showing the purchaser is in earnest in committing itself to pay the rest. It does not tell against this analysis that the obligation to pay may be accelerated in the event of default. Nor do I think that an unconditional promise to pay an amount on default can itself count as a deposit: that is the very sort of promise that will normally amount to a promise to pay a penalty, unless the amount in question is a genuine pre-estimate of damages."
Boyarsky v Taylor
In Boyarsky v Taylor [2008] NSWSC 1415 Mr Taylor, the purchaser, claimed specific performance of a contract for the sale of a property. One of the issues was whether a provision in the contract requiring payment of a second instalment of the deposit upon the completion date was void as a penalty.
Clauses 2 and 9 of the contract are similar to clauses 2 and 9 in the present appeal.
Special condition 12 provided that "the deposit is 10 per cent of the price, but payable in instalments with half of the deposit payable on exchange and the balance of the deposit payable on the completion date". Brereton J stated:
"[48] ... In Luu ... Bryson JA... held that provisions requiring a 5 per cent deposit to be topped up to 10 per cent on default were void as a penalty. In Iannello... Hodgson JA... rejected two attempts to distinguish the relevant condition in that case from that in Iannello v Sharpe.
...
[49] ... Where the right to receive such a payment arises on the happening of any number of events, some only of which are breaches of contract and some of which are not, but the event in the particular case is one which is a breach of contract, then the provision is a penalty and void [Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86; Bridge v Campbell Discount Co Ltd [1962] AC 600; O'Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 367, 390; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, 184-185, 211; Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445, [2]]. Even if, which for reasons to which I shall come I doubt, the second payment was exigible in events other than breach of contract, on the facts of this case it is exacted on breach of contract, and in those circumstances is a penalty and void.
[50] In any event, I do not see how it could become payable under the present contract in circumstances that did not involve a breach by the purchaser of the contract. ... As Hodgson JA said (at [33]), an unconditional promise to pay an amount on default cannot itself count as a deposit, because that is the very sort of promise that would normally amount to a promise to pay a penalty, unless it is a genuine pre-estimate of damages. In the light of Luu and Iannello, it could not seriously be argued, and indeed it was not, that the second instalment of five per cent could be seen as a genuine pre-estimate of damages."
Brereton J held that the provision requiring payment of the second deposit upon the completion date was void as a penalty.
Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd
Finally, in Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd [2009] NSWSC 674, Rein J held at [67] and [68]:
"[67] The vendor seeks the payment of the balance of the deposit ($174,000) not paid. The purchaser resists that payment on the basis that it is a penalty. Mr Warren referred me to Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40, [2006] NSW Conv R 56-146 and Ianello v Sharpe [2007] NSWCA 61 which support the proposition that the fact that the parties have called a payment 'a deposit' is not determinative of whether an amount is a penalty. However, as Ms Oakley pointed out, the courts have long accepted that a 10% deposit forfeited in the event of a plaintiff's failure to complete is not a penalty: see Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd (1993) AC 573, and see Manufacturers House Pty Ltd v Ashington No 147 Pty Ltd [2005] NSWSC 767 at [54] - [60] and see CCH Conveyancing Law and Practice at [7-220].
[68] In my view the fact that the vendor did not insist on the payment of all the deposit on exchange does not turn the contractual obligation to pay the amount specified as a deposit (and in total 10% of the purchase price) into a penalty."
The difficulty with Rein J's decision in Golden Oceans is that the judgment does not disclose what date the remaining $174,000 was supposed to be paid, namely, whether it was supposed to be paid on or prior to the completion date.
A deposit is considered an "earnest of the bargain for its performance that is designed to demonstrate the sincerity of the contracting party who is to pay it". The question of whether the second $25,000 is a deposit or a penalty turns on how it is characterised under the contract. As the authorities demonstrate, this characterisation is a question of construction to be decided upon by the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract, not as at the time of the breach.
In Iannello, special condition 14 provided that the first $225,000 constituted part of the deposit. It was purportedly agreed that in the event of default, the remaining $225,000 would become immediately due and payable and the purchaser would forfeit the sum of $450,000. However, what is important in these cases is the timing stipulated in the contract for when the second payment is due. In Iannello, the remaining $225,000 was due on the date of completion. This allowed Hodgson JA, with whom Santow and Basten JJA agreed, to conclude that the second payment would have maintained no good faith or earnest character, as it would never be payable before the completion date, and thus its only purpose was to penalise the purchaser for defaulting. This meant that despite special condition 14 categorising the remaining funds as deposit money, it was in reality, by virtue of the date that it was due, a penalty.
The same could be said for Boyarsky, where the second instalment of the deposit was due upon the date of completion and was thus found to be void as a penalty. This specific similarity between Boyarsky and Iannello, is what led Brereton J to find in Boyarsky that the second payment was void as a penalty.
Turning to Luu, the clause being relied upon in that case obligated the purchaser to pay up to 10 per cent of the purchase price upon defaulting. This clause was designed as a penalty clause aimed at discouraging default. It is not a deposit clause that seeks to foster the payment of further deposit money so that the purchaser can demonstrate continued earnest to fulfil the purchase contract.
Similarly, both special condition 14 in Iannello and special condition B7 in the present case are to the same effect. That effect, in substance, is that where the full deposit has not been paid, the unpaid deposit money becomes immediately due and payable. These special conditions could thus be characterised as penalty clauses. However, in this case Ms Dalla Costa relies on clause 9.1 and special condition B14 of the purchase contract, which potentially entitles them to "keep or recover the deposit (to a maximum of 10 per cent of the price)" [Emphasis added]. Ms Dalla Costa is not arguing that as a result of default on the part of the purchaser that special condition B7 requires that they be paid the remaining $25,000. Instead, Ms Dalla Costa seeks to recover the unpaid deposit money that was due and payable, and which they argue still carries the characteristics of a deposit payment.
In this appeal the second payment was due 70 days after the date of the contract, which was 140 days or just over 4 months prior to the completion date of 15 November 2011. Payment of this second sum would have enabled the purchasers to further demonstrate their earnest in complying with the contract and completing the purchase by the later date that was stipulated. In my view the second payment still contains the characteristics of a deposit payment. This factual difference of timing allows this case to be distinguished from Iannello and Boyarsky.
The Magistrate was correct in deciding that clause 9.1 entitled the vendor to keep and recover the remaining deposit moneys. This meant his Honour did not have to consider the penalty implications of special condition B7. However, if the second payment was due on the completion date, clause 9.1 would have not saved that second payment from being considered a penalty.
While it is not strictly necessary to dispose of this appeal I have added some comments regarding the tension between contractual deposits and the equitable jurisdiction for relief against penalties. Clause 9 of the standard contract of sale is used in most conveyancing contracts in New South Wales and other states in Australia. However, the contrasting decisions to which I have referred to earlier in this judgment, create uncertainty.
Purchasers who do not have the funds to pay the traditional 10 per cent upfront deposit, but who can pay the deposit by instalments may be unable to enter contracts for the purchase of land if they cannot adopt an instalment method. On the other hand, vendors who wish to induce purchasers into contracts by allowing payment of the deposit through instalments risk losing their contractual clause 9 entitlement to the full 10 per cent deposit, as a subsequent payment may be held by the Court as constituting a penalty.
The general position on penalties in Australia, that developed from Lord Denning's comments in Financings Ltd v Baldock [1963] 2 QB 104 (CA), is more far reaching than real property transactions. The general position is that an express termination clause, which was exercised in the present case, will potentially not entitle a party to payment of damages; as such damages will likely be considered a penalty. As Gibbs CJ held in Shevill v Builders Licensing Board [1982] HCA 47 at [8], 149 CLR 620 at 627:
"... [I]t does not follow from the fact that the contract gave the [innocent party] the right to terminate the contract that it conferred on it the further right to recover damages as compensation for the loss it will sustain as a result of the failure of the [other party's performance] for the rest of the [contractual] term."
There are several propositions seeking to explain this present state of the law. The first is a causation argument, which says that when a vendor, lessor or other provider terminates a contract as a result of the other party's breach, that person cannot recover anything greater than what is associated with the breach. This is because any later consequential loss suffered is a result of that person's termination, not the actions of the other party that committed the minor breach.
Another argument for non-entitlement to damages, which is similar to what was submitted by counsel for Mr Rana (at [33] above), was adopted by Lord Denning in Financing Ltd v Baldock at 110 and 113:
"It seems to me that when an agreement of hiring is terminated by virtue of a power contained in it...[the terminating party] can recover damages for any breach up to the date of termination but not for any breach thereafter, for the simple reason that there are no breaches thereafter...[A] repudiation being itself a breach which took place before the termination, it is within the class of breaches for which the owners can recover damages according to the principle I have already stated. But if there is no repudiation and simply, as here, a failure to pay one or two instalments (the failure not going to the root of the contract and only giving a right to terminate by virtue of an express stipulation in the contract), the owners can only recover the instalments in arrear, with interest, and nothing else: for there was no other breach in existence at the termination of the hiring."
None of these arguments are entirely satisfactory. It is not commercially sound practice that in everyday contracts, whether they be in conveyancing or otherwise, where the parties have agreed that a certain breach will entitle the innocent party to terminate and seek particular damages, that those parties are not able to be awarded those damages, for which they are duly entitled to under the common law. The relief afforded against penalties interferes with the fundamental freedom of parties to contract. Canada has adopted a different approach. In Canada it does not matter if the contract is terminated via repudiation or a termination clause. As Wilson J stated in Keneric Tractor Sales Ltd v Langille [1987] 2 SCR 440, (1987) 43 DLR. (4th) 171, at [25]:
"... damages should be assessed in the same way in both cases. Repudiation may be triggered by either the inability or the unwillingness of a party to perform his contractual obligations. The same is true of a breach of contract that gives rise to a right to terminate; it may be the result of inability or unwillingness to perform. The breach and the repudiation are merely subdivisions within a general category of conduct, i.e., conduct which gives the innocent party the right to treat the contract as terminated. Thus, there is no conceptual difference between a breach of contract that gives the innocent party the right to terminate and the repudiation of a contract so as to justify a different assessment of damages when termination flows from the former rather than the latter. General contract principles should be applied in both instances".
The different reasoning and arguments on this subject matter are outlined and explained in greater detail in John Randall's article "Express Termination Clauses in Contracts" (2014) 73(1) Cambridge Law Journal 113. The learned author says at 136-137:
"As a matter of principle, the Canadian position appears to have greater merit than the Anglo-Australian. It is undesirable and unattractive that important commercial rights be made to depend on artificial and lawyerly distinctions between the event giving rise to the right to terminate and the consequent termination itself, which will generally follow quite quickly. The Canadian rejection of this approach has the great merits of realism and clarity."
As previously stated in this appeal by applying the current law on this topic it is my view that the second $25,000 payment is recoverable by Ms Dalla Costa on the basis it should be characterised as deposit money. This ground of appeal fails.
Grounds 2 and 3 - Damages
Mr Rana submitted that the Magistrate erred in finding that Ms Dalla Costa was entitled to rents or profits from the property until completion. In oral submissions counsel for Mr Rana submitted that on the evidence before the Court, set out below, the apartment upstairs was vacant. It was submitted that nonetheless, Mr Rana was ordered to pay the rent on the basis of a breach of contract, which he submitted was incorrect as there was neither any breach nor any consequential loss. Counsel for Mr Rana submitted that there may be a claim against Ryan Bousaleh for account of profits, but under s 30(1) of the Local Court Act, the Local Court does not have the jurisdiction to make such an order. It was further submitted that there was no suggestion or evidence that it was a debt and no evidence of any relationship between Mr Rana and Ryan Bousaleh, nor that the property was previously tenanted. It is not disputed that the purchasers breached the contract and Ms Dalla Costa was entitled to recover damages, but what is in dispute is whether any loss flowed from that breach.
Counsel for Mr Rana in his written submissions claimed that there was no evidence that Mr Rana breached the contract or that Ms Dalla Costa suffered any loss by way of lost rent. Mr Rana further submitted that there was no evidence that Ryan Bousaleh was operating as an agent for him nor that he was acting under any authority to rent the first level of the property to a third party.
Mr Rana submitted that as the Magistrate made a finding that Ryan Bousaleh was in possession of the apartment, in breach of clause 18.2 of the contract for sale, it must follow that the loss suffered is the loss of rent received by Ryan Bousaleh. Mr Rana submitted that the Magistrate made an order akin to an account of profits in the situation where his Honour did not have the equitable jurisdiction to make such an order.
Ms Dalla Costa submitted that the Magistrate was correct and that the Magistrate's findings on this point are as follows:
"(a) there was license for the First and Second defendants to access the residential part of the Property;
(b) that possession was given in or about May 2011;
(c) the license did not permit the purchasers to 'rent, sublet or part with possession of the property;
(d) the purchasers gave possession to Ryan Bousaleh;
(e) the purchasers in giving possession were in breach of the Contract;
(f) clause 9.3.2 allows the vendor to recover common law damages for breaches of the contract;
(g) the appropriate measure of the damage suffered was the amount earned by Ryan Bousaleh, which was in evidence, on the basis of clause 14.1 of the Contract;
(h) the purchasers are jointly and severally liable for the breach
(i) therefore the appellant is liable for the damages for breach of the license."
There are further clauses of the contract, clauses 14, 18, 20.4 and special condition B13 of the contract that are relevant here. They read:
"14 Adjustments
14.1 Normally, the vendor is entitled to the rents and profits and will be liable for all rates, water, sewerage and drainage service and usage charges, land tax and all other periodic outgoings up to and including the adjustment date after which the purchaser will be entitled and liable.
18 Possession before completion
18.1 This clause applies only if the vendor gives the purchaser possession of the property before completion.
18.2 The purchaser must not before completion -
18.2.1 let or part with possession of any of the property;
18.2.2 make any change or structural alteration or addition to the property; or
18.2.3 contravene any agreement between the parties or any direction, document, legislation, notice or order affecting the property.
...
20.4 If a party consists or 2 or more persons, this contract benefits and binds them separately and together."
B13 ACCESS
The Vendor will grant the Purchaser access to the upstairs flat rent free from the date of exchange on the following basis:
(i) The Purchaser provides evidence of Insurance in respect to the whole of the property, including public liability.
(ii) In the event that the Purchase terminates or rescinds this Contract for Sale, whether validly or not, the Purchaser will return the premises to the state and condition it was as at the date of this Contract at the Purchaser's own expense."
On this topic, the Magistrate stated at [31] to [34]:
"[31] The Plaintiff was entitled to any rents or profits from the property until completion. The Plaintiff gave a license to the First and Second Defendants for access to the upstairs residential part rent free shortly after the date of exchange. Possession of a key was given to the First Defendant in May 2011.
[32] The purpose of access is not clear and there is suspicion that work may have been anticipated. This suspicion arises from the evidence of the Plaintiff's agent and the obligation that in the event of termination the purchasers were to return the premises to the state and condition at the date of the contract. The license did not entitle the First and Second Defendants to rent, sublet or part with possession of the property. Printed Clause 18.2 prohibits a Purchaser from parting with possession for any purpose.
[33] Clause 9.3.2 allows a Vendor to recover damages for breach of contract. The First and Second Defendants were not given authority to sublet or part with possession to Ryan Bouselah or anyone else. In doing so they have breached the terms of the Contract. The First Defendant told the Plaintiff's agent that his son Ryan might be staying at the property a couple of nights per week during renovations. After the termination of the Contract Ryan Bouselah remained in occupation paying $577.00 per week rent. There is no evidence that the Plaintiff or her agent authorised occupation or sub-letting to any person. The First Defendant breached the Contract by parting with possession to his son who received a financial advantage.
It is unnecessary to find that Ryan Bouselah was the agent of the Defendants or that they received the money paid to him. The Defendants breached the Contract by allowing possession to Ryan Bouselah. The Plaintiff was otherwise entitled to the rents and profits of the premises.
[34] The measure of damages is the market rent of the property. There is evidence that Ryan Bouselah received a benefit of $750 per week from approximately 15 September 2011 until 5 December 2011. The Contract was terminated on 9 November 2011. Ryan Bouselah signed a new tenancy agreement from 6 December 2011. The Second Defendant submitted that there should not be award of damages and did not address the calculation. The Plaintiff's entitlement to damages does not end at termination. I propose to allow an award from 15 September 2011 to 5 December 2011 in the sum of $8,250.00
The claim for loss of ability to receive rent is reasonably part of the Plaintiff's damages arising from the termination of the Contract."
In relation to Mr Rana's submissions that there was no evidence that there had been a breach of contract regarding the rent claim made by Ms Dalla Costa, the following evidence was given in the Local Court (T33.11-48):
"Q. Mrs Dalla-Costa I want to take you back to 7 November 2011?
A. Yes
Q. Did you attend the first floor of the property being 76 to 78 Beaumont Street, Hamilton?
A. Yes.
Q. And did you attend there with your son?
A. Yes.
Q. And did you have or did you hear a conversation between your son and another party?
A. A young lady was there.
Q. And are you able to tell this Court what the young lade said to you, or said to your son while you were there?
...
Q. --with the young lady?
A. Yes when we went up to the apartment a young lady come to the door.
Q. What did she say to you, if anything about rent and payment?
A. And my son asked her what she was doing there and she say she rent the place with other four people.
Q. Did say anything about how long she'd been there?
A. About a month.
Q. And did she say how much she or anyone else was paying?
A. Yes $150 a week each person. Actually the property was mine."
Ms Dalla Costa's evidence on this issue was not challenged in cross examination. Rather, the transcript in this appeal reveals counsel for Mr Rana admitted that there was occupation evidence before the Magistrate (T28.11-15):
"True it is on the findings of the learned Magistrate and based on the evidence as it seemed to have unfolded in the Court below, there was evidence that Ryan Bousaleh occupied the premises and that amounted to a breach and that was His Honour's findings but there is a country mile between that breach and the loss. ..."
There was evidence before the Magistrate that the property had been rented out in breach of clause 18.2 of the contract. As there was a breach, Ms Dalla Costa was entitled to damages from the co-purchasers. The Magistrate ordered that the damage suffered, being the market rent of the property lost to the vendor, be rectified by enabling Ms Dalla Costa to recover common law damages through clause 9.3.2 of the contract.
Counsel for Mr Rana argued that the Magistrate erred by providing equitable relief when the jurisdiction of the Local Court is limited to various statutory enactments. Section 30(1)(a) of the Local Court Act provides:
"30 Conferral of jurisdiction
(1) Subject to this Part, the Court sitting in its General Division has jurisdiction to hear and determine:
(a) proceedings on any money claim, so long as the amount claimed, whether on a balance of account or after an admitted set-off or otherwise, does not exceed the jurisdictional limit of the Court when sitting in that Division, and..."
However, s 29A of the Local Court Act defines 'money claim' as:
"29A Money claim - meaning
In this Part, money claim means a claim for recovery of any debt, demand or damages (whether liquidated or unliquidated)."
There was a breach of contractual provisions that occasioned damage to Ms Dalla Costa by allowing the first floor of the premises to be rented out. The relief for damages are common law damages. The Local Court has jurisdiction to hear and determine any monetary claim brought before it, including claims for damages, so long as the claim does not exceed the $100,000 limit set out in s 29 of the Local Court Act. The Magistrate was entitled to make an award of damages in the sum of $8,520. This ground of appeal fails.
The result is that the appeal is dismissed. The decision of his Honour Magistrate Cheetham dated 14 October 2013 is affirmed. The summons filed 4 November 2013 is dismissed.
Costs are reserved.
The Court orders that:
(1) The appeal is dismissed.
(2) The decision of his Honour Magistrate Cheetham dated 14 October 2013 is affirmed.
(3) The amended summons filed 4 November 2013 is dismissed.
(4) Costs are reserved.
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Decision last updated: 28 August 2014
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