Sinclair & Sinclair v Property Mutual Ltd & Holmes
[2011] SADC 45
•7 April 2011
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SINCLAIR & SINCLAIR -V- PROPERTY MUTUAL LTD & HOLMES
[2011] SADC 45
Judgment of Her Honour Judge McIntyre
7 April 2011
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - REMOTENESS - LOSS OF PROFITS
The first defendant breached a real estate contract for sale and purchase of a residential property. The second defendant guaranteed the performance of the first defendant's obligations under the contract. The plaintiffs seek damages as provided for under the contract, in addition to other losses, including the loss of bargain.
Held: The first defendant's breach of contract has occasioned the plaintiffs a loss. The plaintiffs are entitled to damages for breach of contract and an order that the second defendant indemnify them under the terms of the guarantee.
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Wenham v Ella (1972) 127 CLR 454 at 473; Silvestri v Oxlade [2009] SADC 86; Hungerford's v Walker (1989) 171 CLR 125, considered.
SINCLAIR & SINCLAIR -V- PROPERTY MUTUAL LTD & HOLMES
[2011] SADC 45
This is an assessment of damages arising out of the breach of a contract for sale and purchase of a house property entered into by the plaintiffs and the first defendant on 1 November 2007.
Background
The plaintiffs were selling their family home at 66 – 68 Statenborough Street, Erindale in order to move to a smaller property in North Adelaide. They engaged Ms Morris of Klemich Real Estate to market the property on their behalf. The property was listed for auction on 2 November 2007. The auction did not proceed because the plaintiffs accepted an offer by the first defendant to purchase the property for the sum of $2.2 million.
The contract was signed on 1 November 2007.[1] The purchase was secured by a deposit bond in the sum of $95,000. The second defendant, the director of the first defendant, personally guaranteed the performance of the first defendant’s obligations under the contract, by way of a guarantee document signed on the same date.[2] The original settlement date of 3 March 2008 was varied by consent to 3 April 2008.[3]
[1] Exhibit P2, pp1 - 12
[2] Exhibit P2, p13
[3] Exhibit P3
The first defendant failed to effect settlement under the contract on the settlement date. The plaintiffs caused a notice to complete dated 11 April 2008 to be served upon the first defendant appointing 11.00 am on Wednesday 30 April 2008 as the time and place for settlement. The first defendant did not effect settlement on or before that completion time and accordingly, on 30 April 2008, the plaintiffs served a notice of termination of the contract upon the first defendant.
The plaintiffs retained the deposit of $95,000 due under the terms of the contract and the deposit bond. Neither the first or second defendant has made any further payment under the contract.
The plaintiffs instructed Ms Morris to recommence marketing the property in or about late April 2008. She actively marketed the property and subsequently obtained an offer from alternative purchasers which the plaintiffs accepted. The plaintiffs entered into a second contract for sale of the property with a purchase price of $1.9 million. Settlement took place under the second contract on 27 May 2008. The plaintiffs issued these proceedings seeking damages for breach of contract by the first defendant and an order that the second defendant indemnify the plaintiffs under the terms of the guarantee.
The Proceedings
Default judgment was entered against the first and second defendants by a Master of this Court on 29 March 2010 for damages to be taxed or agreed. This matter proceeded before me as an assessment of damages. The defendants did not attend the hearing. I was satisfied that they had notice of the hearing and determined to proceed in their absence.
Evidence was taken from Graham Robert Sinclair, one of the plaintiffs, and Mr Gil Piccinato a certified practising valuer. Ms Morris was to have given evidence but unfortunately had an accident the day prior to the hearing. I allowed her evidence to be given by way of an affidavit to be served upon the defendants. In addition affidavit material was received from Mr David Owen Ward, the plaintiff’s solicitor, which affidavit was also served on the defendants.
A number of documents were tendered during the course of the evidence as follows:
P1 Documents relating to purchase of North Adelaide Property.
P2 Tender Book of documents.
P3 Addendum Contract dated 2/11/2007.
General principles of assessment
The plaintiffs’ claim falls into two categories. The first is for amounts due under the contract. These are due as at the date of breach which is 3 April 2008 the date on which the first defendant failed to settle in accordance with the terms of the contract. This claim involves interpretation and application of the provisions of the contract.
The second is for damages at large arising from the breach of contract by the first defendant. Such damages are awarded on the basis that the plaintiffs are to be placed in the position they would have been in if the first defendant had fulfilled its contractual obligation to settle on the property and to pay the contract price on the agreed date of settlement.[4]
[4] Gates v City Mutual Life Assurance Society Ltd. (1986) 160 CLR 1
Generally such damages for breach of contract are assessed at the time of the breach.[5] This is not however a hard and fast rule. Determination of the proper time to assess damages is discretionary depending upon the circumstances of the particular case.[6] In this case there are a number of dates at which damages could be assessed; the date of the breach, the date on which the plaintiffs terminated the contract or the date of settlement of the second contract. It is my view that the justice of the situation requires assessment of damages at the last of these three dates as this was the date upon which the plaintiffs’ damages crystallised. Assessment of damages at an earlier date would necessarily have required speculation as to the likely damages rather than certainty as to the precise quantification of damages as is the case in this matter.
[5] Wenham v Ella (1972) 127 CLR 454 at 473
[6] Silvestri v Oxlade [2009] SADC 86
Amounts due under the contract
The contract provided that the first defendant would forfeit the deposit to the plaintiffs if the contract was terminated under the provisions of clause 7.1. The contract was terminated in accordance with those provisions and the plaintiffs have properly retained the deposit of $95,000.
In addition clause 7.1.1 provides for default interest in the event of a breach by the purchaser and provides as follows:
7.1.1 If the Purchaser breaches this Agreement and as a result, the purchase of the Property is not completed on the Settlement Date, or the Price or any part of the Price is not paid on its due date, the Purchaser must pay Interest on the full Price (less the amount of any deposit monies paid) from the Settlement Date until either:-
7.1.1.1 the date full payment is made; or
7.1.1.2 the date of termination (whichever first occurs) at the default rate. Any payment of interest at the default rate is without prejudice to any other legal remedy the Vendor may have by reason of the Purchaser’s default.
Default rate is defined in the contract as:[7]
…..the rate of interest on the date default occurs, two percentage points above the rate charged by the Bank of South Australia Ltd. for investment loans or, if there is no such rate, then the rate of interest two percentage points above the rate of interest as charged by Adelaide Bank Ltd. for investment loans.
[7] Clause 1.6 Residential Sales Contract
Plainly the plaintiffs are entitled to default interest under the contract. The affidavit of David Owen Ward sworn on 10 March 2001 annexes a table of the relevant interest rates. The rate at the date of default, 3 April 2008, is 9.47%. Accordingly under 7.1.1.2 of the contract the interest rate to be applied is 11.47%.
The period in question is from 3 April 2008, the date settlement was to have taken place, until 30 April 2008 the date the plaintiffs terminated the contract. This is a period of 27 days. Interest is due to the plaintiffs on the sum of $2,105,000.00 (the purchase price less the deposit) at the rate of 11.47% for 27 days. I assess that as $17,860.20.
Damages at large
Additional costs
The damages claimed by the plaintiffs include additional costs incurred by them in consequence of the first defendant’s breach of contract. These are utilities, rates and taxes for the additional 56 days that the plaintiffs held the property, the costs incurred in relation to the failed contract and the costs incurred to obtain the second contract.
I accept Dr Sinclair’s evidence concerning the additional costs incurred by the plaintiffs. The tender book, exhibit P2, contained adjustment statements, invoices and bank statements in support of his evidence. Dr Sinclair’s evidence about the quantum of those amounts can be summarised as follows:
Conveyancing Fee for the failed contract $715.00
Additional 56 days Council rates $442.61
Additional 2 months Water rates $307.73
Additional 2 months Emergency Services Levy $28.01
Notice of Default $330.00
Additional Advertising Costs $2,965.00
TOTAL: $4,788.35
I accept that all of the items claimed were foreseeable consequences of the first defendant’s failure to settle and that the costs claimed are reasonable. I find that the plaintiffs are entitled to the holding costs of the property being the additional 56 days of Council rates, Water rates and Emergency Services Levy, the fees associated with conveyancing for the failed contract and with the default notice together with the additional advertising required to sell the property a total amount of $4,788.35.
Loss of use of the settlement funds
After the contract was entered into but prior to the proposed settlement on the Erindale property, the plaintiffs purchased a block of vacant land in North Adelaide upon which a town house was to be constructed.[8] This was intended to be their place of residence following the sale of their family home. The plaintiffs obtained a loan to cover the cost of the North Adelaide property and the construction of the town house.[9] Dr Sinclair’s evidence was that, had the contract been performed as it should have been, he would have immediately applied the proceeds to the North Adelaide loan account which would have completely extinguished the loan. This is ultimately what he did with the proceeds of the second contract. I accept his evidence.
[8] Exhibit P1
[9] Exhibit P2, pp61-66
In consequence of the first defendant’s failure to settle, the plaintiffs have paid significantly more interest on the North Adelaide loan. It appears from Dr Sinclair’s evidence, supported by the loan statements, that the plaintiffs incurred additional interest for the North Adelaide loan in the sum of $5,843.12 from the date of the original settlement proposed under the first contract to the date of settlement of the second contract a period of 56 days Although there is no evidence that the defendants knew of the second purchase, it would nevertheless have been within their contemplation or reasonably foreseeable that the proceeds of sale would have been applied by the plaintiffs to the purchase of another property and it is my view that the plaintiffs are entitled to recover this interest based on the principles developed in Hungerford’s v Walker.[10]
[10] (1989) 171 CLR 125
Loss of the bargain
The difference between the two contract sales is $300,000. The plaintiffs have retained the deposit of $95,000 under the terms of the contract.
I am satisfied on the basis of the affidavit of Ms Morris sworn on 9 March 2011 and the independent valuation evidence given by Mr Piccinato that the second contract price was a fair and reasonable market price and fell within the expected range of purchase price for the Erindale property.
I have also considered the issue of mitigation despite the fact that the defendants chose not to attend the hearing and thus did not dispute any of the evidence. There appears to be no basis upon which it could be said that the plaintiffs failed to mitigate their loss. They acted promptly in serving the notice of default and subsequently in terminating the contract under clause 7.1. They immediately reinstructed their real estate agent who actively marketed the property and they sold the property promptly for what I find was a fair and reasonable market figure.
Accordingly, the loss of the contract has occasioned the plaintiffs a loss of $205,000 and I therefore assess their damages as a result of the loss of the bargain in that sum.
Conclusion
In conclusion I find that the plaintiffs are entitled to damages for breach of contract assessed as follows:
Loss of Bargain: $205,000.00
Default Interest under Contract: $ 17,860.20
Lost Conveyancing Fees: $ 715.00
Additional holding costs: $ 778.35
Cost of default notice $ 330.00
Additional advertising costs: $ 2,965.00
Hungerford v Walker damages: $ 5,843.12
__________TOTAL: $233,491.67
In addition the plaintiffs are entitled to interest.
Before judgment is entered I will hear the plaintiffs further on the question of interest, costs and the form of the orders.
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