Sedrak v Starr (No 2)

[2009] NSWSC 1178

CITATION:	Sedrak v Starr (No 2) [2009] NSWSC 1178 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	28 September 2009
JUDGMENT DATE :	5 November 2009
JUDGMENT OF:	Gzell J
DECISION:	Summons to be dismissed wtih costs. Declarations, damages and costs to be awarded on cross-claim.
CATCHWORDS:	CONTRACTS - General Contractual Principles - Discharge, Breach and Defences to Actions for Breach - contract for sale of business conducted in leased premises - whether plaintiff purchaser in breach of standard term to provide landlord with information - whether plaintiff entitled to rely on special term or standard term to rescind for failure of landlords' consent - whether both provisions conditional upon plaintiff providing the landlord with required information - whether plaintiff's notice of rescission invalid - vendor defendant elects to continue contract and then issues notice of termination - whether entitled to do so - whether defendant cross-claimant entitled to damages including balance of deposit and broker's fees - whether an order should be made in favour of the plaintiff under the Conveyancing Act 1919, s 55(2A)
LEGISLATION CITED:	Conveyancing Act 1919
CATEGORY:	Principal judgment
CASES CITED:	Shimden Pty Ltd v Rona [2006] NSWCA 256; (2006) 12 BPR 23,831 Turnstila Pty Ltd v North Shore Gas Co Ltd (1981) 2 BPR 9,105 Havyn Pty Ltd v Webster [2005] NSWCA 182; (2005) 12 BPR 22,837 Nassif & ors v Caminer [2009] NSWCA 45 Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367 Jampco Pty Ltd v Cameron (No 2) (1986) NSW ConvR 55-275 Buchanan v Dunstan [2007] NSWSC 248; (2007) 13 BPR 24,521 Hearse & Anor v Pallister & Ors [2008] NSWSC 504
TEXTS CITED:	J W Carter, Elisabeth Peden and G J Tolhurst, Contract Law in Australia, 5th ed (2007) Butterworths Australia
PARTIES:	Maged Sedrak (Plaintiff/Cross-Defendant) Gavin Mark Starr (Defendant/Cross-Claimant)
FILE NUMBER(S):	SC 5407/08
COUNSEL:	F Santisi (Plaintiff/Cross-Defendant) J Gormly SC/D Shoebridge (Defendant/Cross-Claimant)
SOLICITORS:	JN Legal Solicitors & Attorneys (Plaintiff/Cross-Defendant) FCB Workplace Lawyers & Consultants (Defendant/Cross-Claimant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

THURSDAY 5 NOVEMBER 2009

5407/08 MAGED SEDRAK v GAVIN MARK STARR (NO 2)

JUDGMENT

Synopsis

1 The plaintiff, Maged Sedrak, executed a contract to purchase the pharmacy business of the defendant, Gavin Mark Starr, conducted from leased premises in Lane Cove. The contract for sale contained a special condition 12 that the sale was conditional upon the consent of the landlords. It was in the following terms:

“This Contract is subject to and conditional upon the landlord granting, consenting and executing a Mortgage of Lease and Right of Entry in the form attached to this Contract in favour of ANZ Banking Group Limited and doing all things necessary to obtain its registration ( The “Landlords Consent” ). The Purchaser warrants that he will do all things necessary to obtain the Landlords Consent, prior to the date of completion. In the event that Landlords Consent cannot be obtained on or before the date of completion of this Contract then the Purchaser may rescind this Contract (by notice in writing to the vendor or the vendor’s Solicitors) and the provisions of clause 23 shall apply.”

2 The contract for sale contained the standard provisions of the contract for the sale of business – 2004 edition of The Law Society of New South Wales and The Real Estate Institute of New South Wales.

3 The completion date specified on the first page of the contract was 8 September 2008. But time was not of the essence. Clause 19.1 of the standard provisions provided that: “The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.”

4 So far as is material, cl 29 of the standard provisions was in the following terms:

“29.1 This clause applies only if -
29.1.1 the premises are subject to a lease; and
29.1.2 this contract does not say the sale is subject to the grant of a new lease.
29.2 The parties intend that the landlord is to consent to a transfer of the lease from the vendor to the purchaser.
29.3 …
29.4 If the landlord does not consent to the transfer of the lease -
29.4.1 by the completion date, the purchaser can rescind; or
….”

5 Mr Sedrak maintained that the landlords’ consent was not forthcoming and, on 9 September 2008, he gave a notice of rescission in reliance upon special condition 12 and, in the alternative, upon cl 29.4.

6 The purchase price was $4,025,000. The contract called for a 10% deposit of $402,500 but that was reduced under special condition 11 to $201,250 paid by bank guarantee with the balance payable on the earlier of the completion date; termination by Mr Starr for Mr Sedrak’s default in complying with an essential condition; and actual completion.

7 A notice of termination of the contract was given on Mr Starr’s behalf on 11 September 2008 and on 12 September 2008 the bank guarantee was called upon.

8 By his third amended summons, Mr Sedrak seeks declaratory relief in support of his notice of rescission and in support of his claim that Mr Starr was not entitled to forfeit the deposit and was not entitled to serve a notice of termination of contract. Mr Sedrak seeks an order that Mr Starr pay him $201,250 and raises an alternative argument that he rescinded the contract by reason of its repudiation by Mr Starr in terminating the contract after having rejected the notice of rescission and requiring completion of the contract.

9 By his amended first cross-claim Mr Starr seeks declaratory relief in support of his notice of termination and orders that Mr Sedrak pay the balance of deposit of $201,250 and his costs and disbursements.

The landlords’ requirements

10 Mr Sedrak was obliged to provide the landlords with information reasonably required by them. So far as is material cl 27 of the standard provisions was in the following terms:

“27.1 This clause applies only if the premises are, or are on completion to be, subject to a lease.
27.2 The purchaser must -
27.2.1 supply references and other information reasonably required by the landlord to allow the landlord to consider the application;
27.2.2 …”

11 On 14 August 2008, the solicitors for the landlords wrote to Mr Starr’s solicitors seeking the following information to consider the suitability of Mr Sedrak as proposed assignee:

“1 A statement of the assets and liabilities of the proposed assignee verified by an accountant.
2. A detailed statement of the business and commercial experience of the proposed assignee.
3. Three trade references from suppliers of goods or services to the proposed assignee.
4. Copies of bank statements and valuations to corroborate the statement of assets and liabilities.”

12 Mr Starr’s solicitors sent the letter to Mr Sedrak’s solicitors on the same day with a request that they respond directly to the solicitors for the landlords.

13 On 26 August 2008, the solicitors for the landlords informed Mr Starr’s solicitors that they had not heard from Mr Sedrak. On the same day Mr Starr’s solicitors forwarded the letter to Mr Sedrak’s solicitors stating that they expected the information to be provided to the solicitors for the landlords by the end of the week.

14 On 28 August 2008, Mr Sedrak’s solicitors sent to the solicitors for the landlords a statement of assets and liabilities in these terms:

“Assets:
Belgrave Pharmacy fittings	$750,000.00
Residential property	$2,500,000.00
Furniture	$100,000.00
Jewelry [sic]	$50,000.00
Superannuation	$40,000.00
Life insurance	$2,000,000.00
Total Assets:	$5,440,000.00
Liabilities:
Loan ANZ	$300,000.00
Credit Card balance	$1,500.00
Total Liabilities	$301,500.00
Net Assets:	$5,138,500.00”

15 The document was accompanied by a letter from an accountant stating that from information provided by Mr Sedrak they had prepared the assets and liabilities statement.

16 Also enclosed was a statement by Mr Sedrak in the following terms:

“I owned my first pharmacy in Melbourne, Victoria in 1984 till 1994.

I managed and run [sic] the business very successfully until I decided to have a long overseas holiday in Europe and the US, and have time to extend my education and experience in the art of Pharmaceutical compounding.

I moved to Sydney in 1995 as it has a warmer weather which suited our family better.
1995 I purchased Styles pharmacy in St Marys, NSW.
1996 I purchased Engadine Day and Night Pharmacy, two years later I purchased the freehold of the pharmacy which is a two storey building at the heat [sic] of the Engadine shopping centre.
I purchased that freehold for 1.25M [owned by my service company]

Currently I am practicing [sic] my profession at my compounding only pharmacy, Belgrave Compounding pharmacy, located at shop 30/26 Belgrave Street, Kogarah NSW 2217

I purchased the freehold of this pharmacy at jan 2007 for 1M through my service company, the business is running very successfully since I established it June 2007.

I’ve seen a good business opportunity when Mr Gavin Starr offered his pharmacy at lane Cove for sale which will allow me to extend my experience to another nicer side of Sydney.
If you have any questions, please don’t hesitate to call me at any time, on ….”

There followed telephone and mobile numbers and an email address.

17 Also provided were the names, addresses, phone numbers and facsimile numbers for three trading references.

18 On 29 August 2008 the solicitors for the landlords informed Mr Starr’s solicitors that, subject to further instructions, the landlords would not have their right to deal with their property fettered and, accordingly, a clause of the mortgage of lease and right of entry must be deleted. The solicitors submitted that cl 5.1 of the lease was adequate in providing for a lessee to obtain the lessors’ consent to a mortgage of the lease.

19 Also on 29 August 2008, the solicitors for the landlords told Mr Starr’s solicitors that the material provided on Mr Sedrak’s behalf was inadequate. Mr Starr’s solicitors asked the solicitors for the landlords to specify the inadequacies and on the same day the landlords’ solicitors said the statement of assets and liabilities was not certified; the statement of business experience referred to enterprises that were not reflected in the statement of assets and liabilities; no trade references had been supplied; and Mr Sedrak had declined to provide anything to substantiate his financial standing.

20 The solicitors pointed out that there was no security deposit under the lease with the consequence that the landlords needed to consider carefully the financial standing and capability of Mr Sedrak and to consider what guarantee for the performance of his obligations was appropriate. On the same day Mr Starr’s solicitors forwarded the observations of the solicitors for the landlords to Mr Sedrak’s solicitors.

21 On 1 September 2008, the solicitors for the landlords wrote to Mr Sedrak’s solicitors setting out the shortcomings in the material provided as they saw it and seeking further information. The statement of assets and liabilities had not been certified; a title reference for the residential property was sought; details of the ownership of the businesses at Belgrave Compounding Pharmacy and Engadine Day and Night Pharmacy were sought; details of the service company referred to in the statement of business experience was sought and Mr Sedrak was asked on what basis life insurance was treated as a current asset.

22 With respect to the statement of business experience the solicitors said that the enterprises were not reflected in the statement of assets and liabilities and title references for the freehold properties at Engadine and Belgrave Street, Kogarah were sought.

23 The letter stated that Mr Sedrak had failed to provide trade suppliers’ references and said that the request for substantiation of the statement of assets and liabilities was reasonable and normal practice in leasing transactions.

24 On 2 September 2008, the solicitors for Mr Sedrak responded to the solicitors for the landlords providing further information. Title details of the residential property at Cronulla were given; the solicitors were told that Mr Sedrak was the sole director and shareholder of Saint Mina Pty Ltd which owned the premises and the business operated at Belgrave Street, Kogarah. The letter suggested that the insurance policy should be disregarded. The solicitors were informed that the Engadine property was owned by Saint Mina. So far as the statement of business experience was concerned, the solicitors were told that some of the properties were no longer owned. The names of individuals who might be contacted at each of the three trade references were given. A letter from the accountants was enclosed which stated: “we certify that we have prepared the attached assets & liabilities account as at 30^th June, 2008.”

25 On 4 September 2008, Mr Starr’s solicitors notified the solicitors for the landlords that a booking was held for settlement on 8 September, subject to their urgent advice as to the approval of Mr Sedrak as the new tenant.

26 This drew the response from the solicitors for the landlords that the proposed assignee was unknown to their clients and had not substantiated his alleged assets and liabilities and they were not prepared to telephone around the country asking questions about Mr Sedrak’s reputation, business, or financial capacity.

27 The solicitors for Mr Starr suggested that since there were only three trade referees to call: “surely to get this matter over the line three phone calls would not be that onerous.”

28 On 5 September 2008, the landlords’ solicitors asked Mr Starr’s solicitors whether Mr Sedrak would give a guarantee sought by the landlords and give evidence substantiating the scant information provided to date. Why would he not give trade references? The solicitors added: “we invite you to take a critical look at the quality, quantity and time taken for the information to be provided thus far.”

29 On 5 September 2008, Mr Sedrak’s solicitors wrote to the solicitors for the landlords stating that Mr Sedrak had provided the material requested on 1 September 2008; they had been provided with a certified statement of assets and liabilities which had been substantiated in accordance with their requirements; that the referees did not provide written references; references need not be in written form and in these circumstances could not be. The solicitors’ refusal to “ring around” was unreasonable.

30 On 5 September 2008, Mr Starr’s solicitors suggested to Mr Sedrak’s solicitors that they provide details of the Cronulla property. In a further email of the same date they suggested that they provide a profit and loss account and a balance sheet.

31 On 5 September 2008, the solicitors for the landlords wrote to Mr Starr’s solicitors stating that all that had been certified by the accountants was that they prepared the statement. The things listed in the statement had not been substantiated by valuations and bank statements as requested. The fact that the Cronulla property was jointly owned had not been revealed. Instead, the entire interest in the property was listed as an asset of Mr Sedrak. It was said that the statement of business and the commercial experience was “sketchy” and did not give an indication as to whether or not those businesses were well run. No written references had been provided. The solicitors said that Saint Mina was subject to a fixed and floating charge; that Mr Sedrak owned a minority of the shares and since it was encumbered and the shares were not proffered as an asset, they did not consider the shares to be assets of Mr Sedrak.

32 On 8 September 2008, Mr Starr’s solicitors wrote to Mr Sedrak’s solicitors suggesting it was not unreasonable for the landlords to be provided with current financial statements for the Belgrave Compounding Pharmacy. They would have been provided to Mr Sedrak’s mortgagee as would valuations. The solicitors asked that it be confirmed if some or all of the documents would be provided to the landlords urgently.

33 Mr Sedrak’s solicitors responded that day that asserting that their client had done everything reasonably requested of him by the landlords in order to satisfy their requirements.

34 Mr Starr spoke with Mr Sedrak on 8 September offering his assistance in moving the process forward. Mr Sedrak said he had done everything that he could and he had given up. He said the landlords had insulted him. He had been a pharmacist in Australia for many years. He had owned three pharmacies and should not have to prove his worth. Mr Starr asked if Mr Sedrak could provide a profit and loss statement. Mr Sedrak said he was not giving them anything else. His accountant had provided them with everything. He said it was over.

Rescission and termination

35 The contract for sale was not completed on 8 September 2008, or at all. But attempts to complete continued after that date. For example, the solicitors for the landlords contacted Mr Sedrak’s referees.

36 Prior to issuing his notice of rescission Mr Sedrak gave no notice to complete.

37 The landlords had not said that they would not approve a mortgage of lease and right of entry before the notice of rescission was issued.

38 It was submitted on behalf of Mr Sedrak that a reference need not be in writing. Reference was made to dictionary definitions. But the word will take its meaning from the context in which it is used. When used in cl 27.2.1 and, more particularly, in the landlords’ solicitors’ letter of 14 August 2008 it means a written appraisal of Mr Sedrak and his business capacity. The landlords did not ask for the identification of three referees. They asked for references from suppliers of goods and services in a collocation otherwise referring only to written information.

39 Of the statement of assets and liabilities, it was submitted on Mr Sedrak’s behalf that all that the landlords needed to do was to ask for title details of the residential property so they could conduct appropriate searches. But what was sought, and not unreasonably, was not only a statement of assets and liabilities but also copies of bank statements and valuations to corroborate the statement of assets and liabilities. Very valuable items of furniture and fittings were listed as assets with no substantiation of their value at all. It was not for the landlords to make inquiry of the title to the residential property. It was up to Mr Sedrak to provide all reasonable information including the identification of that property and his half interest in it.

40 Likewise, with respect to the statement of Mr Sedrak’s experience, it was submitted on his behalf that reading the document would have put the reader on notice that some of the pharmacies may not still have been owned by Mr Sedrak’s service company. That should have been spelled out to the landlords. They should not have been required to make further inquiry to ascertain which pharmacies were still owned by Sedrak interests.

41 It was submitted that sighting the agreement for sale would indicate to the landlords that Mr Sedrak was a person of substance as the purchase price was $4.025m. The assignor’s disclosure statement showed a turnover of $3.4m, $3.893m and $4.15m in the 2006, 2007 and 2008 years respectively.

42 It was submitted that the attitude taken by the solicitors for the landlords in their letter of 29 August 2008 in requiring the deletion of a clause of the mortgage of lease and right of entry remained the position of the landlords throughout. It was submitted that Mr Sedrak was entitled to form the view that the landlords’ consent could not be obtained before the date of completion to the mortgage of lease and right of entry with the consequence that he was entitled to rescind the contract and that he did.

43 Mr Sedrak’s view was erroneous. The landlords had not refused to consent to the mortgage of lease and right of entry when he issued the notice of rescission.

44 Mr Sedrak was in breach of cl 27.2.1 when he issued the notice of rescission. The scant material contained in the statement of assets and liabilities, the inaccuracy in including the entire interest in the residential property when it was jointly owned, the failure to provide written references and the failure to substantiate any of the values attributed to the assets discussed above constituted a failure to provide the requested information. The information that was requested was not, in my view, unreasonable. The landlord was entitled to assess the worth and ability of Mr Sedrak as the proposed lessee. Mr Sedrak was not entitled to rescind the contract for sale on general principles. It was he who was in breach.

45 With respect to Mr Sedrak’s reliance on special condition 12 to ground his right to rescind, reference was made to Shimden Pty Ltd v Rona [2006] NSWCA 256; (2006) 12 BPR 23,831. In that case a special condition provided that the vendor would provide the purchaser at completion with a registered lease and a discharge of a covenant. The condition went on to provide: “the purchaser and the vendor are entitled to rescind the contract by notice in writing if the vendor is unable to provide a registered lease and a discharge of the said covenant by completion date.” It was held that the completion date for the purpose of that condition was that specified in the contract and not the date of actual completion.

46 In the course of his judgment Bryson JA, with whom Handley and Hodgson JJA agreed, discussed that provision and its right to rescind without fault at 23,837 [32]:

“Condition 45(c) does not deal with something which the vendor was required to do, and does not deal with events which the vendor promised would happen at completion or at any time. Its literal terms and its true meaning do not oblige the vendor to do anything, either at completion or at any time; the obligation imposed on the vendor to provide documents is created elsewhere, in conditions 45(a) and (b). Condition 45(c) confers, both on the purchaser and on the vendor, an entitlement to rescind if the state of facts which it indicates objectively exists at the time referred to; the right of rescission conferred is not a remedy for any breach or failure; and this is illustrated by its being conferred on both parties.”

Reference was made to Turnstila Pty Ltd v North Shore Gas Co Ltd (1981) 2 BPR 9,105.

47 It was submitted that by like reasoning Mr Sedrak was entitled to rescind on 9 September 2008 because the consent of the landlords to the mortgage of lease and right of entry had not been obtained by the contractual completion date, 8 September 2008.

48 Assuming in favour of Mr Sedrak that the date of completion for the purposes of special condition 12 was 8 September 2008, I am of the view that it was a different provision from that discussed in Shimden. The right to rescind, limited to the purchaser only, was contained in a provision that required the purchaser to do all things necessary to obtain the landlords’ consent. That created an obligation on the part of the purchaser that affected the right to rescind. The right to rescind was conditional upon the purchaser not being in breach of the warranty.

49 In this case Mr Sedrak was in breach of that warranty. For the reasons set out above, Mr Sedrak did not do all things necessary to obtain the landlords’ consent prior to 8 September 2008.

50 So far as Mr Sedrak’s alternative reliance upon cl 29.4.1 is concerned, the Court of Appeal recognised in Shimden that the date of completion or completion date could have different meanings in different parts of a contract for sale. In my view its meaning in cl 29.4.1 was the date of actual completion. Time was not of the essence with respect to 8 September 2008 and either party could have made it so by issuing a notice to complete. If that had happened there would have been a period beyond 8 September 2008 in which the landlords could have consented to the transfer of the lease.

51 Mr Sedrak’s reliance upon cl 29.4.1 was premature. There was no failure under that clause to ground the alternative basis for the notice of rescission.

52 Furthermore, the right to rescind under cl 29.4.1 was conditional upon the purchaser complying with the obligations under cl 27.2. If this were not so a purchaser would be entitled to stand by while a right to rescind accrued. Such an interpretation defeats the purpose of cl 27.2.

53 On 10 September 2008, the solicitors for Mr Starr wrote to the solicitors for Mr Sedrak stating that Mr Starr did not accept Mr Sedrak’s purported rescission and required Mr Sedrak to complete the contract for sale. They invited Mr Sedrak, unconditionally, to withdraw the notice of rescission by 11 September 2008.

54 On that date, Mr Sedrak having not withdrawn the notice of rescission, Mr Starr’s solicitors said the notice of rescission was a breach of an essential term of the contract for sale and Mr Starr terminated the contract.

55 This he could do under cl 22. It provided that if the purchaser did not comply with the contract in an essential respect the vendor could terminate by serving a notice.

Mr Sedrak’s claims of relief

56 Mr Sedrak was not entitled to issue the notice of rescission and is not entitled to the declarations sought in support of that notice.

57 Mr Sedrak claimed, in the alternative, a declaration that the requirement that he complete the contract for sale meant that Mr Starr could no longer terminate the contract and his purported termination was a wrongful repudiation of it.

58 I reject that submission. An election to continue a contract repudiated by breach by a purchaser does not constitute a waiver of the vendor’s rights and the vendor may sue for damages. Further, the failure to withdraw the notice of rescission meant that there was a continuing breach of contract by Mr Sedrak and Mr Starr could rely upon that continuing breach, after the election to continue the contract, to ground his right to terminate (J W Carter, Elisabeth Peden and G J Tolhurst, Contract Law in Australia, 5^th ed (2007) Butterworths Australia at [31-06]).

59 Mr Sedrak also claimed a declaration that he validly rescinded the contract by his solicitor’s letter of 25 February 2009. That relief fails for lack of any evidence to support it.

60 Mr Sedrak also claimed a declaration that the parties had mutually abrogated or abandoned the contract. I make no such declaration. There was no consensual act on either side that would justify a finding of mutual activity.

61 Mr Sedrak sought a declaration that Mr Starr was not entitled to call on the bank guarantee nor to keep, recover, or claim forfeiture of the deposit and an order that Mr Starr pay him $201,250 or repay him $201,250 under the Conveyancing Act 1919, s 55(2A).

62 I deal with these matters in the context of Mr Starr’s claims of relief.

Mr Starr’s claims of relief

63 By his amended first cross-claim Mr Starr sought declarations that Mr Sedrak was not entitled to rescind the contract for sale, that Mr Sedrak’s notice of rescission was invalid and that his notice of termination was valid. I will make those declarations.

64 Mr Starr also sought declarations that his call upon the bank guarantee was valid and that he could claim, recover and keep the deposit in the amount of $402,500.

65 Subject to the operation of s 55(2A) of the Conveyancing Act, he is entitled to that relief. Clause 22.1 of the standard provisions provided that after termination Mr Starr could keep or recover the deposit to a maximum of 10% of the price. Mr Starr was thus entitled to call upon the bank guarantee, to retain the $201,250 obtained from the bank and to recover the balance of the deposit of $201,250 from Mr Sedrak. There is no basis for an argument that the deposit was in the nature of a penalty.

66 The Conveyancing Act, s 55(2A) provides that in every case where the court refuses to grant specific performance of a contract or in any proceeding for the return of a deposit the court may if it thinks fit order the repayment of any deposit with or without interest thereon.

67 In Havyn Pty Ltd v Webster [2005] NSWCA 182; (2005) 12 BPR 22,837 at [173] Santow JA developed the following propositions with respect to orders under the Conveyancing Act, s 55(2A):

“By way of summation, I would conclude as follows:

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

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

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

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

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

(f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former’s misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge.”

68 This analysis was approved in Nassif & ors v Caminer [2009] NSWCA 45 at [66] where it was opined that the observation of the High Court in Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367 at [27] that the primary judge erred in ordering the return of the deposit where the evidence was insufficient to show that it would be unjust or inequitable to allow the vendors to retain the whole of the deposit, should not be read as dictating a different approach to that of Santow JA in Havyn.

69 It was submitted that regard should be had to the clear terms of special condition 12 and cl 27 and cl 29; the conduct of Mr Sedrak in seeking consent; the clear unreasonable approach of the landlords; the apparent secret dealings as between landlords and Mr Starr as to trying to buy consent; and the clear failure of Mr Starr in seeking to exercise any legal right in getting consent as available under lease by starting legal action or putting the landlords on notice.

70 I have found Mr Sedrak’s conduct in seeking consent was wanting. I have found that the requirements of the landlords were reasonable. There is no evidence of secret dealing and no failure on Mr Starr’s part in seeking to exercise his rights.

71 The deposit was paid as an earnest of performance. It was forfeited in accordance with the express terms of the contract when performance did not occur.

72 Considering that other matters referred to in Havyn there was nothing unreasonable in the conduct of Mr Starr in claiming forfeiture of the full deposit. There was certainly nothing unjust or inequitable in allowing Mr Starr to retain the whole of the deposit.

73 I reject the application under s 55(2A). Mr Starr is entitled to retain the $201,250 he received from the bank and to recover the balance of the deposit of $201,250 from Mr Sedrak.

74 Mr Starr also claims damages.

75 Clause 22.3.2 of the standard terms provided that after termination Mr Starr could sue Mr Sedrak to recover damages for breach of contract.

76 In addition to an entitlement to damages of $201,250 being the balance of the deposit, Mr Starr has established that he paid costs of the solicitors for the landlords of $7,606.45, his solicitor’s costs of $13,098.58 and $21,722.68 paid to his replacement solicitors. In addition to these costs, PBS Pharmacy brokers charged Mr Starr $77,000 upon the sale of the pharmacy business to Mr Sedrak.

77 In Jampco Pty Ltd v Cameron (No 2) (1986) NSW ConvR 55-275 at 56,582 - 56,583 Young J allowed an agent’s commission as part of the expenses of resale. A similar conclusion was reached by White J in Buchanan v Dunstan [2007] NSWSC 248; (2007) 13 BPR 24,521 at 24,534 [66] and by Hall J in Hearse & Anor v Pallister & Ors [2008] NSWSC 504 at [76].

78 I see no reason why a similar conclusion should be reached where there has been no resale. Mr Starr is entitled to recover the $77,000.

79 I will dismiss Mr Sedrak’s third amended summons with costs. I will make the declarations in Mr Starr’s amended first cross-claim. I will enter judgment for Mr Starr for $320,677.71 with interest. I will order Mr Sedrak to pay Mr Starr’s costs.

80 I direct the parties to bring in short minutes of order reflecting these reasons.

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06/11/2009 - Wrong figure recorded. Now corrected. - Paragraph(s) 79