Tymstock Pty Ltd v Patrick
[2019] VCC 1092
•24 July 2019
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-18-01438
| Tymstock Pty Ltd (ACN 006 420 033) | Plaintiff |
| v | |
| John Emerson Patrick | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 - 30 May 2019 | |
DATE OF JUDGMENT: | 24 July 2019 | |
CASE MAY BE CITED AS: | Tymstock Pty Ltd v Patrick | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1092 | |
REASONS FOR JUDGMENT
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Subject: REAL PROPERTY – CONTRACTS
Catchwords: Sale of commercial property – s32 statement failing to disclose public acquisition overlay affecting a lot in the same subdivision – meaning of “affecting the land –”whether vendor acted unreasonably – proper construction of the default and interest provision of the contract of sale – whether a rescission notice can also serve as a demand for interest – meaning of “period of default” – validity of rescission notice – calculation of interest payable – whether interest payable on unpaid balance of purchase price when property not transferred
Legislation Cited: Sale of Land Act 1962 (Vic), ss32C(d), 32D(a), 32K(2), 32K(4)
Cases Cited:Danjeet Nominees Pty Ltd v Ellul (1995) V ConvR ¶54-521; [1996] ANZ ConvR 230; Downing v Lau [2018] VCC 33; Zografakis v McCarthy [2007] NSWSC 144; Portbury Developments Co Pty Ltd v Mackali [2011] VSC 69; Pettiona v Whitbourne [2013] VSC 205; U108 Pty Ltd v Sing Fan & Ors [2010] VSC 12; Bill v Clarke [2015] VCC 1721; Carpenter v McGrath (1996) 40 NSWLR 39; McDonald v Dennys Lascelles Limited (1933) 48 CLR 457
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr C Parkinson | Marque Lawyers |
| For the defendant | Mr C Northrop | Goldsmiths Lawyers |
HIS HONOUR:
Summary and outcome
1 The plaintiff (“Tymstock”) is a property trading company that has sold five or six properties over the last 15 or so years. Keran Wicks is the sole director of Tymstock and the only witness to give evidence at the trial. On 17 August 2018, Tymstock entered into a contract (“contract of sale”) to sell a commercial property at Unit 1, 440 Dynon Road, West Melbourne (the “property”) to the defendant (“Mr Patrick”). The sale fell through. Tymstock sues the defendant Mr Patrick to recover its losses on the re-sale of the property, offset by the deposit of $70,000. Mr Patrick counterclaims for the recovery of the deposit, alleging that he validly rescinded the contract for the failure by Tymstock to disclose in the vendor’s statement pursuant to s32 of the Sale of Land Act 1962 (Vic) (“SLA”) dated 1 August 2017 (“s32 statement”) the existence of a public acquisition overlay (“PAO”) affecting the property.
2 In my judgment, there was no failure by Tymstock to supply information in the s32 statement within the meaning of s32K(2) of the SLA, by reason that the property was affected by the PAO. Further, Tymstock has satisfied me that by operation of s32(4) of the SLA, Mr Patrick was not entitled to rescind the contract of sale. Thus, on either or both of these two bases, Mr Patrick’s purported rescission of the contract of sale was not effective. That contract was instead rescinded by Tymstock effective on and from 6 February 2018, by its notice of rescission served on 24 January 2018. Finally, I am satisfied that Tymstock is entitled to all of the sums it claims by way of damages and interest, which at the time of trial totalled a little over $150,000. I will ask counsel to re-calculate those sums as at the date of judgment and will order accordingly. I will also order that Mr Patrick pay Tymstock’s costs of and incidental to the proceeding (including reserved costs) on the standard basis in default of agreement, unless the parties bring to my attention any matters that may support a different order on costs.
Background
The subdivision
3 The property is a three level combined office and warehouse building facing Dynon Road. It is part of a six lot subdivision in PS434884L (“subdivision”). Each of the lot holders in the subdivision is also a unitholder in an owner’s corporation in respect of the subdivision. The configuration of the overall subdivision is important. I have included below a plan of the subdivision, taken from a Planning Property Report dated 16 September 2016 tendered during the trial, to assist in describing that configuration. This particular image is one that also shows the PAO at issue in the proceeding.
4 Unit 1 is lot 1 of the subdivision, and comprises the combined office and warehouse building on the west boundary, and single car parking space in the south-west corner of the subdivision, each encapsulated by the dotted lines in the plan above. Units 2 to 6 (moving west to east on the plan) are similarly sized office and warehouse buildings, each with a single car parking space adjacent to Dynon Road. Each of the buildings overlook Dynon Road to the south, but have solid concrete adjoining walls. The evidence was that the rear (north) wall of at least Unit 1 is also solid concrete. The apron area to the front (south) of the six buildings comprises the car parking spaces as shown, and a driveway. The driveway is common property.
5 According to the plan of subdivision, each of lots 1 to 5 comprises only the area bounded by the four walls of each building, plus the single car parking space. However, lot 6 is much larger. It comprises:
· the area bounded by the four walls of its building (noting that the rear wall of the lot 6 building is omitted from the above plan, but is positioned on the same line as the rear wall of the five matching buildings);
· the single car parking space; and
· the large area to the rear of all six buildings, running northwards to the southern bank of the Maribyrnong River.
6 This area behind the buildings and forming part of lot 6, appears to the naked eye to be similar in size to the area taken up by all six of the buildings on the subdivision. The satellite image in evidence reveals this to be an open paved parking area, used both by cars and what appear to be concrete trucks. It seems to be accessed from Dynon Road by a driveway on the neighbouring property (414 Dynon Road), running down the east side of the lot 6 building. Consistently with the difference in the size of lot 6 compared to the other lots, the Owners Corporation Search Report for the property shows that each of lots 1 to 5 is allocated 100 units of entitlement and liability, and lot 6 is allocated 120 units of entitlement and liability (giving a total of 620 units).
7 The north boundary of the lot 6 truck parking area borders a strip of municipal reserve and the Maribyrnong River. The municipal reserve is shown in the above plan by the two straight parallel lines running roughly northwest to southeast on the north boundary of lot 6. The first of these two straight lines marks that boundary. The one directly above that is the north boundary of the municipal reserve strip and the curved line above that is the riverbank. The uneven line crossing the north boundary of lot 6 and then intersecting with the north-east corner of lot 6, is the line marking the southern boundary of the PAO. As can be seen, this intrudes only slightly into the car parking area of lot 6. Most of the PAO (to the extent that it is contiguous with lot 6) is to the north of the lot 6 car parking area and covers the municipal reserve and the riverbank.
The sale of the property
8 Tymstock had purchased the property in October 2016, less than 12 months before the sale to Mr Patrick. At this time, the directors of Tymstock were Ms Wicks and her husband. Ms Wicks’ husband was a principal with the law firm Lawcorp Lawyers, which did all Tymstock’s legal work up to and including the time of Tymstock’s purchase of the property. Ms Wicks’ husband died on 20 February 2017. Her evidence was that, before his death, Ms Wicks left it to her husband to undertake the detailed review of the documents relating to Tymstock’s property transactions. She said that she may have glanced at contracts for the sale of Tymstock’s properties, but relied on her husband to check that things were appropriate.
9 Ms Wicks engaged Moreland Conveyancing to act for Tymstock on the sale of the property in around July 2017. She did not feel the need to engage Lawcorp Lawyers, because she thought it was a fairly simple transaction that could be handled by a conveyancer. She did not want to incur the additional costs associated with engaging a law firm. Moreland Conveyancing prepared the s32 statement and contract of sale. Mr Patrick signed the contract of sale on 15 August 2017 and paid a deposit of $70,000. Ms Wicks signed on behalf of Tymstock on 17 August 2017. Settlement was scheduled for 16 October 2017. The relevant terms of the contract of sale are set out below.
10 In relation to the s32 statement, Ms Wicks gave evidence that she satisfied herself about the completeness of the s32 statement by providing Moreland Conveyancing with Tymstock’s purchase contract from the previous year and by going through the list that Moreland Conveyancing provided of the information and documents they required. She said that if she understood that the PAO on lot 6 was required to be disclosed in the s32 statement she would have asked Moreland Conveyancing to include it, but that she relied on their expertise and experience. I accept this evidence.
11 The section headed “Planning Scheme” in the s32 statement states: “Attached is a certificate with the required specified information”. The attached certificate is titled “Planning Certificate”, bears a certificate number and date (27 July 2017) and is issued by SAI Global Property Division Pty Ltd. Among other things, the certificate identifies the property and zoning (Commercial 2 Zone) and then lists 11 types of potential overlays, including a “Public Acquisition Overlay”. These are all certified as “Not Applicable”, except for “Other Overlays” which identifies an inundation overlay (presumably relating to the proximity of the Maribyrnong River). The notes at the foot of page 1 state: “The information source for each entry on this certificate has been checked and if shown as Not Applicable does not apply to the subject property”. Thus the certificate states in effect that a PAO did “not apply” to the property.
12 In around early October 2017, Ms Wicks was contacted by Moreland Conveyancing and told that Mr Patrick had asked for an extension to the sale contract for about six weeks to late November. Ms Wicks instructed Moreland Conveyancing that the extension was okay with her, as long as the penalties were paid and the extension did not result in Tymstock incurring any additional costs. Counsel for Mr Patrick objected on the basis of hearsay to Ms Wicks giving evidence about what she was told by Moreland Conveyancing about whether Mr Patrick accepted those conditions. In light of Mr Patrick’s counsel’s indication during opening that Mr Patrick would not be giving evidence at trial, I upheld the objection. However, it was common ground that Tymstock agreed to extend the settlement date to 20 November 2017. At some stage before late November, both Mr Patrick and the financial institution he had approached to lend him money lodged caveats over the property.
13 It appears that, in the meantime, Mr Patrick had arranged for a planning property search report for the property to be obtained from the Department of Environment, Land, Water and Planning (“DELWP”). This is the document dated 15 September 2017 that includes the image of the plan extracted above. I was informed by counsel for Tymstock (without objection) that this document came from Mr Patrick’s discovery. Counsel submitted that this demonstrated that Mr Patrick was aware of the PAO affecting lot 6 from about that date. In the absence of any evidence from Mr Patrick to the contrary, I so infer. Given the extension agreed by the parties the following month, Tymstock submitted (and I agree) that the circumstance of the PAO evidently did not affect Mr Patrick’s willingness and desire to settle on the property, if he was so able.
14 But it seems that he was not. By an email dated 31 October 2017, Mr Patrick’s solicitors, Goldsmiths Lawyers, wrote to Moreland Conveyancing requesting a further extension, as follows:
“I refer to the above matter currently due to settle on 20 November 2017.
Our client is having difficulties with arranging finance for the purchase, because the major shareholder of the purchaser company, Douglas Patrick, is incapacitate with dementia. The banks are unwilling to allow loan documents to be executed under power of attorney.
Our client does however, have funds coming from the sale of another property due to settle next year.
We therefore have instructions to make the following proposal for your client’s consideration:
1. The Price to be increased by $50,000 to $1,450,000;
2.The additional $50,000 will be paid immediately as a further deposit;
3. The settlement date be amended to 27 July 2018.
Would you please seek instructions from your client, in the expectation they may be able to accommodate our client’s request.”
15 Notably, there is no reference in the email to any concerns about the PAO which, as I have found, had come to Mr Patrick’s attention about six weeks earlier.
Default and re-sale
16 No extension to the settlement was agreed and by a document titled “Rescission Notice” and dated 11 December 2017 (“first rescission notice”), Moreland Conveyancing on behalf of Tymstock purported to give notice of default, allowing Mr Patrick 14 days from the date of the notice to remedy the default and pay legal costs and interest. Relevantly, the first rescission notice:
· in item 6 identified the “Due Date” under the contract of sale as 16 October 2017;
· in item 7 recited the “Particulars of Default” as “Failure to pay the residue of $1,330,000.00 on the 16 October, 2017 2018 (sic)”;
· specified in items 8 and 9 respectively the interest rate as 15% and legal costs of $880.00; and
· gave notice that Tymstock intended to exercise its rights “unless the default is remedied and the proper legal costs specified in Item 9 and interest due under the contract at the rate specified in Item 8 are all paid within 14 days”.
17 By a letter dated 22 December 2017, Goldsmiths Lawyers for Mr Patrick asserted that the notice was “riddled with errors such that it is, in our view invalid” and that any purported cancellation of the contract of sale by Tymstock based on the flawed notice would be invalid and expose Tymstock to a claim in damages. The letter then lists a total of 15 alleged defects in the notice ranging from the failure to include Tymstock’s ACN and identify its trustee capacity, to matters such as “Item 9 of the notice claims legal costs, but you are not lawyers” and “the notice uses the terms Contract and Contract of Sale neither of which is defined in the notice”.
18 More substantively, the letter states that the due date is incorrectly shown as 16 October 2017 when the due date was extended by agreement, and the same date referred to in item 7 (particulars of default) was “not only wrong, but it is also meaningless” (apparently referring to the reference to “2017 2018”). The letter then states:
“Notwithstanding the above, our client hereby rescinds the contract under s.32K of the Sale of Land Act 1962, on the basis of the vendor’s failure to supply all information as required in the section 32 statement: the particulars of which are:
1.Failure to disclose that part of the land contained within the relevant plan of subdivision PS434884L is affected by a public acquisition overlay;
2.Failure to disclose that the subject property is within, or is affected by, one or more areas of cultural heritage sensitivity as described in the Aboriginal Heritage Regulations 2007”
19 The latter of these two particulars was not advanced by Mr Patrick in his original defence and counterclaim, but was later added as a second ground of breach, by an amendment to the defence and counterclaim dated 20 November 2018. However, Mr Patrick abandoned that ground at trial, relying only on the alleged failure to disclose the PAO affecting lot 6.
20 Sometime early in 2018, Tymstock retained solicitors Hughes Legal to act for it in relation to the contract of sale, and on 23 January 2018 Hughes Legal issued a second 14 day notice titled “Notice of Default & Rescission” (“second rescission notice”). This second rescission notice specified a “Due Date” of 20 November 2017 and recited the “Particulars of default” as “The Purchaser’s failure to pay the balance of the purchase price in the sum of $1,330,000 plus GST of $140,000 on the revised settlement date of 20 November 2017”. The claims for interest and legal costs were in essentially the same terms as the first rescission notice.
21 Tymstock put the property back on the market shortly after the notice period under the second rescission notice had expired on 6 February 2018. The vendor’s statement under s32 of the SLA for the re-sale (“re-sale s32 statement”) included a DELWP Planning Property Report in the same form as that obtained by Mr Patrick dated 16 September 2017, including the reference to the PAO as shown in the plan extracted from that report above. Mr Patrick relied on this inclusion in support of his argument discussed below that Tymstock acted unreasonably in failing to include a document referencing the PAO in the s32 statement provided to him.
22 The property was re-sold by a contract dated 9 February 2018 to Huo King Lau for a sale price of $1,380,000; $20,000 less than the sale price under the contract of sale. The sale was due to settle on 8 March 2018. As that date approached, Tymstock sought the removal of Mr Patrick’s caveat over the property (the caveat lodged by his proposed lender had been removed in December 2017). Mr Patrick initially refused to remove the caveat unless the $70,000 deposit was refunded to him in full. To ensure the settlement on re-sale could proceed on the due date, Ms Wicks suggested the deposit be paid into her solicitors’ trust account pending the resolution of the dispute between the parties. This was ultimately agreed by Mr Patrick and the deposit sum has been in the Hughes Legal trust account (not earning interest for either party) since then. The settlement went ahead on 8 March 2018 and this proceeding was commenced by Writ filed 6 April 2018.
Issues in the proceeding
23 The parties agreed that there were four issues for determination in the proceeding, as follows:
· Was there a failure to supply information in the s32 statement within the meaning of s32K(2) of the SLA by reason that the property was affected by a PAO, contrary to s32C(d)(iv) of the SLA?
· Has the vendor satisfied the court that the purchaser cannot rescind the contract of sale, pursuant to s32K(4) of the SLA?
· If the purchaser validly rescinded the contract of sale, what loss and/or damage has he suffered?
· If the purchaser did not validly rescind the sale of land contract, by reason of the vendor’s rescission for non-completion, what loss and/or damage can it recover?
Was there a failure to supply information?
24 Section 32C(d) of the SLA provides that:
“A section 32 statement must contain the following matters in relation to the use of the land—
...
(d)in the case of land to which a planning scheme applies a statement specifying—
(i) the name of the planning scheme;
(ii) the name of the responsible authority;
(iii) the zoning of the land;
(iv) the name of any planning overlay affecting the land.”
25 Mr Patrick submits that there is no requirement in sub-paragraph (d)(iv) that the planning overlay directly affect the land in question. He argues that this stands in contrast to s32D(a), which requires disclosure of details of notices “directly and currently affecting the land”. Mr Patrick then sets out the following passage from the decision of Beach J in Danjeet Nominees Pty Ltd v Ellul[1] (“Danjeet”):
“When one is talking about affecting land one is simply talking about producing an effect or change upon the land. If an approved proposal requires someone to do a physical act on the land or to the land, as in the present case, then one is affecting the land. A proposal could affect land even though it did not require a physical act to be carried out on the land or to the land. If a proposal had the effect of closing a roadway giving access to an area of land, that would be a proposal affecting the land. If a proposal had the effect of rezoning land from rural to urban, that would be a proposal affecting the land.”
[1](1995) V ConvR ¶54-521 at 66,154; [1996] ANZ ConvR 230 at 231
26 Tymstock submits in response that the proper meaning of the word “affecting” in s32C(d)(iv) of the SLA is stated by Beach J in Danjeet in the paragraph immediately following the paragraph cited by Mr Patrick, as follows:
“To be affected by a proposal the land in question must be directly affected by it, not merely incidentally affected by it. A proposal approving the construction of a shopping centre, school or sporting complex 200 metres from the land would not be a proposal affecting the land within the meaning of the subsec (sic) even though such a proposal may have the effect of either increasing or decreasing the value of the land.”
27 In relation to Mr Patrick’s submission that the proper construction of “affecting the land” in s32C(d)(iv) of the SLA is assisted by being contrasted with the expression “directly and currently affecting the land” in s32D(a), Tymstock argues that submission should be rejected, for two reasons. First, Tymstock notes that Beach J’s decision in Danjeet concerned the predecessor to s32D(a), being s32(2)(e) of the SLA, and that the reason for the addition of the words “directly and currently” in what is now s32D(a), was explained in the Explanatory Memorandum to the Sale of Land Amendment Bill 2014. This provided (emphasis added) that:
“This new paragraph substantially re-enacts an existing obligation under section 32, with amendments to limit a vendor's obligation to the disclosure of documents that directly and currently affect the land. Under new section 32D(a) vendors are not obliged to disclose the existence of historical documents where those documents do not have a continuing application to the land.”
28 Tymstock argues that the effect of the new s32D(a) was thus to narrow Beach J’s construction of the word “affecting” as it appeared in that section, and that there was no legislative intent to alter the judicially determined meaning of that word in relation to any other provision of s32 of the SLA.
29 Second, Tymstock submits that it does not follow as a matter of logic, or grammatical comparison, that the word “affecting” changes its meaning to “indirectly affecting”, because the word “affecting” in another clause is qualified by the words “directly and currently”. It argues that, to the contrary, here the addition of the words “directly and currently” were intended to further limit the accepted meaning of “affecting”.
30 I agree with these submissions, for the reasons stated. In my view, “affecting the land” as used in s32C(d)(iv) is to be construed consistently with the decision of Beach J in Danjeet, unqualified by any later amendment to s32D(a) of the SLA. More particularly, as a matter of statutory construction, there is no reason to treat the amendment of s32D(a) as necessitating a more expansive reading of s32C(d)(iv). I also agree with Tymstock that applying Beach J’s reasoning “necessitates a qualitative assessment of the impact of the circumstance said to be affecting the land”. Thus a potential effect alone is not enough. There must be an assessment of the likelihood of that potential being realised.
31 What is the impact of the PAO on the property? Mr Patrick submits that the existence of the PAO in relation to one of the lots “has the potential to affect all lots”. He argues that if land subject to the PAO is acquired for public use, it will change the relative obligations of other lot owners, in particular the relative proportion of their lot liabilities. He concedes that only a small part of lot 6 is subject to the PAO, but argues that this does not alter the need for disclosure:
“If it were the entirety of a separate lot, or indeed a number of the separate lots, the consequences to the purchaser could be significant. In other words, the magnitude of the consequence does not change the statutory obligation to disclose information about a public acquisition overlay affecting other lots in the same subdivision.”
32 I reject this submission. In my view, the nature and extent of the effect is central to the application of the sub-paragraph. Applying the reasoning of Beach J in Danjeet, if the effect is no more than incidental, then the provision is not engaged. Here, it is far from clear that any effect can be said to rise even to the level of “incidental”. As Tymstock submits, the PAO “is not proximate to the property; indeed, its location is around 30 metres away from a concrete and windowless boundary wall”. I also agree with Tymstock that “the circumstance that the property is part of an owners corporation, and the [PAO] sits on another lot in that owners corporation, does not itself establish that the [PAO] has any effect on the property”.
33 In particular, in relation to the argument that compulsory acquisition of the PAO would lead to a re-allocation of the liabilities of lot owners, there is no evidence to support this proposition. I agree with Tymstock that, as the existing unit allocation between lots is not mathematically calculated on land area and the PAO appears to relate to a small and apparently unimportant slice of lot 6, there is no reason to think that any such re-allocation would even then occur. Indeed, I would go further. In my view, these factors support an inference that any such re-allocation would most likely not occur. I am therefore satisfied that Tymstock did not fail within the meaning of s32K(2) of the SLA to supply all the information required to be supplied to Mr Patrick in the s32 statement.
Can Tymstock rely on s32K(4) of the SLA?
34 Given my finding above, this issue does not arise for determination. I will nevertheless briefly state my views on the parties’ submissions. It was common ground that the onus is on Tymstock to establish the four elements of s32K(4). These were conveniently summarised by Tymstock as follows:
“[W]hether the vendor has acted honestly (a subjective enquiry of the vendor); whether the vendor has acted reasonably (an objective enquiry of the vendor); whether the vendor ought fairly to be excused (an exercise of judicial discretion); and whether the purchaser is in substantially as good a position as if all the relevant provisions were complied with. The relevant principles are addressed in Downing v Lau [2018] VCC 33.”
35 Mr Patrick does not contend that Tymstock failed to act honestly. However, he argues that it did not act reasonably and therefore ought not be excused for any contravention. He relies on the following factors:
· the s32 statement does not have attached to it a proper certificate issued by the relevant authority;
· there is no justification in the legislation for the attachment of a document issued by a commercial entity, SAI Global;
· the information concerning lot 6 would have been available to Tymstock as a member of the owners corporation;
· when the property was resold, the re-sale s32 statement included “the proper certificate”.
36 Mr Patrick submits that this last point is significant. He argues that it is difficult to see how Tymstock can contend the s32 statement supplied to Mr Patrick was acceptable in circumstances where it later provided the very information missing from the earlier statement.
37 On this element, Tymstock argues that its conduct, objectively assessed, was reasonable. It points to (among other things) Ms Wicks’ evidence (which I accept) to the effect that:
· she was not aware of the PAO at the time she signed the s32 statement;
· until his death in February 2017, she had relied on her solicitor husband to deal with the documentation in relation to Tymstock’s property transactions;
· Moreland Conveyancing came highly recommended, she supplied them with all the information they requested for the s32 statement and she relied on their expertise and experience; and
· she was satisfied that the s32 statement was accurate.
38 Tymstock also notes that had Ms Wicks independently undertaken searches to see whether the PAO needed to be disclosed, she would have found that she did not need to disclose it. Three of the four certificates in evidence for use in s32 statements do not refer to the PAO, and the fourth (from which the extract above is taken) identifies (as the extract shows) the PAO as “in the vicinity not directly affecting the land”.
39 In my view, essentially for the reasons relied on by Tymstock, Mr Patrick’s submission that Tymstock acted unreasonably should be rejected. In that regard, I adopt with respect the analysis of the relevant authorities by Her Honour Judge Marks in Downing v Lau.[2] In my view, the evidence establishes that Tymstock (through its alter-ego Ms Wicks) had no independent knowledge of any omission from the s32 statement and was entitled to rely (and did rely) on Moreland Conveyancing. Moreover, it has not been argued here that Moreland Conveyancing acted negligently in including the SAI Global certificate in the s32 statement, so the issue of whether their negligence should be visited on Tymstock does not arise.
[2][2018] VCC 33 at [81] - [94]
40 I also reject the argument that Tymstock’s unreasonableness is demonstrated by its inclusion of a certificate referring to the PAO in the re-sale s32 statement. In my view, this was not an acknowledgement that a similar certificate was required to be included in the s32 statement. Rather, it was a prudent precaution against the possibility that any future purchaser may seek to avoid any re-sale contract by relying on the same argument advanced by Mr Patrick in this proceeding.
41 Turning to the third and fourth elements, Tymstock submits that it ought fairly be excused, for the reasons identified in the first and second elements, as well as for the following reasons:
· first, by 15 September 2017, Mr Patrick knew about the PAO and yet still sought to complete by extending settlement to 20 November 2017 and seeking to extend settlement yet further to July 2018;
· second, the real reason that the defendant did not complete was the inability to obtain finance; and
· third, the effect of the PAO upon the property could on no view affect a purchaser’s willingness to complete.
42 I agree. In my view, Mr Patrick’s reliance on the PAO to excuse his failure to settle was disingenuous and opportunistic. As I have found, the evidence shows that he knew about the PAO well before his first request to extend the settlement date. He only sought to rely on both the PAO and the (later abandoned) cultural overlay, when it became clear that he could not arrange timely finance, and Tymstock would not agree to a further lengthy delay of the settlement.
43 On the fourth element, I again accept Tymstock’s submission that Mr Patrick is in substantially as good a position as if all the relevant provisions were complied with. Mr Patrick gave no evidence and did not otherwise advance the argument that, by reason of the PAO, the value of the property was not substantially the same. The evidence was that in February 2018, notwithstanding the disclosure of the PAO in the re-sale s32 statement, the property re-sold for $1,380,000. In my view, the difference of $20,000 in the re-sale price is inconsequential for the purposes of assessing the fourth element, particularly given that the purchaser on the re-sale was offering a 30 day settlement.
44 Accordingly, even if I am wrong in my construction of s32C(d)(iv) of the SLA, I am comfortably satisfied that Tymstock can rely on s32K(4) of the SLA, with the result that, in my judgment, Mr Patrick was not entitled to rescind the contract of sale.
What is Mr Patrick’s loss?
45 Given my findings above on the first and second issues, this issue does not arise for determination.
What is Tymstock’s loss?
46 This was the principal area of contention in the proceeding and essentially turns on the proper construction of the contract of sale.
Terms of the contract of sale
47 The relevant terms of the contract of sale are as follows:
“TRANSACTIONAL
16. Time
16.1 Time is of the essence of this contract16.2Time is extended until the next business day if the time for performing any action falls on a Saturday, Sunday or bank holiday.
…
17. Service
…17.2Any demand, notice, or document required to be served by or on any party may be served on the legal practitioner or conveyancer for that party. It is sufficiently served if served on the party or on the legal practitioner or conveyancer:
(a)personally; or
…
(d)by email.
25. Breach
A party who breaches this contract must pay to the other party on demand:(a)compensation for any reasonably foreseeable loss to the other party resulting from the breach; and
(b)any interest due under this contract as a result of the breach
DEFAULT
26. Interest
Interest at the rate of 2% per annum [increased to 5% by Special Condition cl10] plus the rate for the time being fixed by section 2 of the Penalty Interest Rates Act 1983 is payable on any money owing under the contract during the period of default, without affecting any other rights of the offended party.
27. Default notice
27.1A party is not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.
27.2The default notice must:
(a)specify the particulars of the default; and
(b)state that it is the offended party’s intention to exercise the rights arising from the default unless, within 14 days of the notice being given—
(i)the default is remedied; and
(ii)the reasonable costs incurred as a result of the default and any interest payable are paid.
28. Default not remedied
28.1All unpaid money under the contract becomes immediately due and payable to the vendor if the default has be made by the purchaser and is not remedied and the costs and interest are not paid.
28.2The contract immediately ends if:
(a)the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the contract will be ended in accordance with this general condition; and
(b)the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.
28.3If the contract ends by a default notice given by the purchaser:
(a)the purchaser must be repaid any money paid under the contract and be paid any interest and reasonable costs payable under the contract; and
(b)all those amounts are a charge on the land until payment; and
(c)the purchaser may also recover any loss otherwise recoverable.
28.4If the contract ends by a default notice given by the vendor:
(a)the deposit up to 10% of the price is forfeited to the vendor as the vendor's absolute property, whether the deposit has been paid or not; and
(b)the vendor is entitled to possession of the property; and
(c)in addition to any other remedy, the vendor may within one year of the contract ending either:
(i)retain the property and sue for damages for breach of contract; or
(ii)resell the property in any manner and recover any deficiency in the price on the re-sale and any resulting expenses by way of liquidated damages; and
(d)the vendor may retain any part of the price paid until the vendor's damages have been determined and may apply that money towards those damages; and
(e)any determination of the vendor's damages must take into account the amount forfeited to the vendor.
28.5The ending of the contract does not affect the rights of the offended party as a consequence of the default.”
Areas of agreement and dispute
48 There was no dispute that the following heads of damage, and amounts, are payable by Mr Patrick to Tymstock under cl28.4(c)(ii) of the contract of sale:
· loss on re-sale: $20,000;
· agent’s commission on re-sale: $41,400; and
· legal costs on re-sale: $3,109.90.
Mr Patrick does not dispute that Tymstock is also entitled to be compensated for re-sale marketing costs, but he argues that Tymstock has failed to prove the quantum of that loss. The amount of the re-sale marketing costs claimed by Tymstock is $3,600.
49 Mr Patrick also disputes Tymstock’s entitlement to:
· interest on the above sums;
· council rates and land tax and interest on these sums;
· interest on the unpaid portion of the purchase price during the period in which that sum was payable but not paid; and
· interest on the deposit of $70,000.
Unpacking the terms of the contract of sale
50 The overall structure of the contract of sale is clear and, in my view, assists in the construction of its provisions. I note that it does not include among its boilerplate provisions (or otherwise) a term to the effect that headings are for convenience only and do not affect interpretation of the contract of sale. The first thing to observe is that cl25 sits in the more general “Transaction” section of the contract, and not as part of the “Default” section. In my view, this is because it imposes an obligation to pay damages and “any interest due under this contract” for any breach including (but not only) a breach amounting to a default of the kind referred to in the “Default” section.
51 On a plain reading of cl25, the making of a demand crystallises the obligation to pay damages or interest; it does not create the liability. In the case of interest, the liability arises because the interest is “due under this contract”—that is, it becomes due by operation of another provision of the contract of sale. Thus, if interest becomes due under a provision of the contract of sale, the obligation to pay that interest will crystallise on the making of a demand as required by cl25. As discussed further below, in my view the notice of default is an appropriate form of demand.[3]
[3]Portbury Developments Co Pty Ltd v Mackali [2011] VSC 69 at [27]
52 The “Default” section commences with cl26 by imposing what is, in my view, an independent obligation to pay interest of the kind envisaged by cl25. It is self-contained and could hardly be in clearer terms, as follows (emphasis added): “Interest at the rate of [5]% per annum plus the rate for the time being fixed by section 2 of the Penalty Interest Rates Act 1983 is payable on any money owing under the contract during the period of default, without affecting any other rights of the offended party”. Thus it:
· creates an immediate and unqualified entitlement—is payable. Contrary to oral submissions by counsel for Mr Patrick, it does more than just set an applicable rate which it would do if, for example, it had instead used the expression “is calculated” in lieu of “is payable”;
· identifies the subject matter in the widest possible terms—any money owing. In my view, the term “owing” is here used in the sense of “owed or due”;[4]
[4]See, for example, Macquarie Dictionary, 3rd Ed, 1997 The Macquarie Library Pty Ltd
· identifies the time frame—during the period of default. “Period of default” is not a defined term. But because the expression appears in the “Default” section of the contract, it is tolerably clear that it begins when a “default” is initiated in the manner prescribed by the contract. The point at which that period ends is less clear, and I discuss this further below; and
· makes clear that the right to interest does not affect any other rights of the party not in default.
53 Moving to cl27, this creates the machinery for initiating a default. It provides (by cl27.1 – emphasis added) that a party is “not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice”. I note in passing that cl27.1 repeats the expression “money owing” used in cl26. Clause 27.2 prescribes what a default notice must include. It must “specify the particulars of the default” and state the offended party’s intention to exercise “the rights arising from the default”, unless within 14 days the default is remedied and reasonable costs and “any interest payable” are paid.
54 The consequences of default are dealt with in cl28. Under the heading “Default not remedied”, it begins by providing in cl28.1 that “all unpaid money” under the contract becomes immediately payable to the vendor if the purchaser fails to remedy a default. In my view, “unpaid money” is to be given its plain meaning, namely, money owing that has not yet been paid. Thus cl28.1 opens the way to a claim by the vendor for specific performance of the contract; that is, a claim for payment of the unpaid balance of the purchase price in return for a conveyance of the property. However, under cl28.2, that option will be foreclosed and the contract will immediately end if:
· the default notice given by the vendor “also states” that, unless the default is remedied and costs and interest are paid, the contract will be ended; and
· the default is not remedied and costs and interest are not paid by the end of the period of the default notice.
55 The consequences of the contract ending by a default notice served by the vendor are then spelt out in cl28.4, set out in full above. Importantly for the issues in this proceeding, cl28.4(c) provides that “in addition to any other remedy”, the vendor may within one year of the contract ending choose one of two options, namely:
· retain the property and sue for damages for breach of contract; or
· resell the property and “recover any deficiency in the price on the re-sale and any resulting expenses by way of liquidated damages”.
56 Finally and also importantly, cl28.5 is a further saving provision, supplementing the phrase “in addition to any other remedy” that introduces cl28.4(c). It provides that the ending of the contract “does not affect the rights of the offended party as a consequence of the default”.
Does the contract of sale limit Tymstock’s remedies?
57 Mr Patrick submits that cl28.4(c) “creates two distinct options” and the vendor cannot do both. To that point, the submission is uncontroversial. Clearly the vendor must elect either to retain the property or to resell. However, Mr Patrick submits in substance that the election is also between either suing for damages for breach of contract or recovering the deficiency in the price and any resulting expenses by way of liquidated damages. Thus, he submits, if the vendor elects to take liquidated damages, “it can only recover items agreed to form part of the liquidated damages”. The vendor “cannot recover general damages on top of the liquidated damages”. While this submission has some superficial appeal, in my view, it overlooks the potential effect of the introductory words to cl28.4(c), “in addition to any other remedy”. I discuss this further below.
58 Mr Patrick supports his submission by reference to the decision of Hamilton J in Zografakis v McCarthy [2007] NSWSC 144 (“Zografakis”). As Mr Patrick notes, this case concerned the NSW standard contract for the sale of land, that included a clause 9.3.1 which (he submits) “was similar to” cl28.4(c) of the contract of sale. He added that like cl28.4(c), clause 9.3.1 “presented two alternative options to a vendor: one to recover any deficiency on re-sale and the other to recover damages. Unlike 28.4(c), the former alternative was not described as ‘liquidated damages’ and the items recoverable were wider”. Mr Patrick then sets out a passage from the judgment of Hamilton J, which includes the following:
“In a clause such as cl9.3, the election, if it occurs, is between the totality of the common law rights on the one hand and on the other hand the totality of the special collection of alternative rights stipulated by the contract: one does not look at a particular right within each bundle to see if it is inconsistent with a particular right stipulated in the other bundle.”[5]
[5]Zografakis at [17]
59 Mr Patrick also notes that:
· one of the items of damages addressed by Hamilton J was interest payable under a special condition which added interest to the price payable at completion, and was therefore recoverable not as interest but as part of the deficiency on re-sale;
· the contract in this case does not have a corresponding clause and “nor does general condition 28.4(c)(ii) allow the recovery of interest as liquidated damages”;
· in Zografakis there was also a claim for interest on various sums sought by the plaintiff as damages, but interest was allowed not because of the terms of the contract but under statute (at [29]);
· Hamilton J held that the plaintiff had made an election and was entitled to recover only those amounts that fell within cl9.3.1. He said:[6]
[6]Zografakis at [34]
“Here, however, the question of election pursuant to the principles stated in [15]-[17] above arises. In this case,…the plaintiffs made their claim by reference to the loss occasioned to the plaintiffs on the re-sale of the property. They have thereafter continued to conduct the proceedings on the basis of a claim formulated in that way. They have made no submission for the recovery of common law damages calculated by reference to the difference between contract price and market value…In those circumstances, under the principles discussed above, they must be taken as having elected to pursue their body of rights under cl9.3.1 and are not entitled to make any claim by reference to the body of rights provided for by cl 9.3.2.”
· Tymstock does not seek to recover damages under common law principles. It elected instead to rely on the clause allowing liquidated damages.
60 In oral submissions in reply, counsel for Tymstock drew attention to the particular provisions Hamilton J was examining in Zografakis, to the extent that they are set out in the judgment.[7] Clause 9.3 of the NSW standard contract of sale, like the Victorian version, plainly gives a vendor a choice between two options. The first is various specific items referred to in cl9.3.1 that can be claimed if the vendor resells the property within 12 months after the termination. As Mr Patrick noted in written submissions, these go somewhat further than the re-sale option in the Victorian standard contract. The second is “to recover damages for breach of contract” (cl9.3.2), which (as Hamilton J discusses) is generally assessed as the difference between the contract price and market value. To that extent, there are clear parallels between the Victorian and NSW provisions.
[7]Zografakis at [3]
61 However, there is an important difference. As far as these are revealed in Hamilton J’s reasons, the provisions under the NSW contract of sale each appear to be an exhaustive statement of what is recoverable by a vendor on termination, once one of the two paths is taken. Thus Hamilton J is clearly correct to observe that a party is making an election between “the totality of rights” under one or the other provision. But the NSW provision is not prefaced by the phrase “in addition to any other remedy”. In my view, this addition in the Victorian provision clearly limits the application of cases examining the NSW equivalent provision and opens the way to identifying remedies in addition to those found in cl28.4(c)
62 Counsel for Mr Patrick argued in oral submissions that the addition of this phrase to the Victorian provision “has no bearing on the outcome because, in this case, no other remedy is being pursued”. I disagree. Tymstock is pursuing interest payable under cl26. I would add that, in my view, the reference to liquidated damages in cl28.4(c)(ii) merely confirms that any amount claimed by a vendor under that provision is a sum certain, recoverable as liquidated damages and without the need for an assessment. It does not operate to limit a vendor’s claims to sums manifesting as liquidated damages under that clause, if other remedies (including interest and remedies sounding in common law damages) are enlivened under other provisions of the contract.
63 For the reasons discussed above, I am satisfied that cl26 of the contract of sale gives rise to an independent obligation to pay interest on any money owing during the period of default. Before discussing each of the items Tymstock claims as “money owing”, it is necessary to consider in more detail whether a demand was made under cl25, how cl28.1 works and what is meant by the “period of default” as used in cl26.
Did Tymstock make a demand for interest?
64 Mr Patrick argues that neither the first nor the second rescission notice (together, “rescission notices”) amount to a demand for interest. He submits that:
“Instead, the notice fulfils the requirements of general condition 27.2 by stating what needs to be done by the defaulting party, ie to pay the balance, interest and costs within 14 days, failing which the contract ends. The comment made by Kaye J in Portbury Developments Co Pty Ltd v Mackali [2011] VSC 69 at [27] about the notice in that case being an “appropriate” demand were made in a case where the defendant was self-represented and does not establish a considered general rule. In Pettiona v Whitbourne [2013] VSC 205 the defendant did not dispute the entitlement to interest, so that decision likewise establishes no general rule.”
65 Mr Patrick’s counsel developed this argument during oral submissions. He submitted that:
· the right to make a demand under cl25 ceases once the contract ends under cl28.2, and is replaced by a right either to sue for damages under cl28.4(c)(i) or sue for liquidated damages under cl28.4(c)(ii) as an alternative to damages at general law—a demand for interest can only be made while the contract of sale is still on foot;
· clause 28.5 does not operate to permit the service of a demand for interest after the contract of sale ends; it merely preserves any rights that have accrued before that time;
· clause 27.1 makes provision for a default notice, which is different from the demand contemplated by cl25;
· in particular, the reference to the interest rate in rescission notices is not a demand for interest, because there was no amount then owing by way of interest;
· all the rescission notices are saying is that we require you to pay the balance of the purchase price together with interest and costs, and if you do that, then the property will be transferred;
· put another way, the vendor is under no obligation to transfer the property unless the interest is paid, so the interest is not payable as a debt, it is simply a statement that if you want to take the transfer “you need to give me the balance, plus the interest, plus the costs”; and
· the default notice is not intended to create the obligation to pay interest, because cl27.1 tells us that a party can sue to recover interest without having served a default notice.
66 In my view, these arguments are both misconceived and artificial. As I have already found, cl26 creates an independent obligation to pay interest on any money owing under the contract of sale during the period of default. A demand under cl25 will crystallise the liability to pay, but is not the source of the obligation. What cl27.1 does is confirm that a party (that is, vendor or purchaser) can claim interest and sue for money owing, without first serving the default notice provided for by that clause. They can claim the interest by making a demand under cl25. But they cannot exercise other rights until the default notice has been served and the default notice period has expired. Those other rights would include, most notably, the right to sue for specific performance and the right to rescind the contract.
67 There is nothing in the default scheme described above that prevents a default notice served under cl27 also operating as a demand for interest and other money owing (including costs) for the purposes of cl25. Indeed, in my view, that is typically what a default notice under cl27 would do. It initiates the entitlement to exercise the broader suite of rights arising upon default and, in the meantime, requires the payment of the interest accrued to that point and reasonable costs. The entitlement to interest and costs is independent of the other rights and can be sued for (see cl27.1) regardless of any other steps the offended party may choose to take in reliance on the default notice. The effect of the argument advanced on behalf of Mr Patrick, is that the obligation to pay interest and costs demanded by the notice of default evaporates if the purchaser fails to remedy the default particularised in the notice. As discussed further below, this defies both a plain reading of the provisions and common sense.
68 That is not to say that an offended party (whether vendor or purchaser) cannot also serve a demand under cl25 for compensation and interest independently of the default regime provided for in cls26 to 28. The form of a demand under cl25 is not prescribed by the contract of sale – it is not even clear that it needs to be in writing (although prudence would suggest that it should be, and that it should be served as provided for in cl17). Further, as noted above, cl27.1 provides that a party can sue for compensation and interest without initiating a default. But, in most cases, it will be convenient for an offended party to crystallise the full suite of claims available at the one time and with a single notice.
69 My findings above are consistent with those of Kaye J in Portbury Developments Co Pty Ltd v Mackali[8] (“Portbury”) at [19], [20] and [27]. I reject Mr Patrick’s suggestion to the effect that His Honour’s findings should be given less weight because the defendant in Portbury was self-represented. His Honour’s focus was on the question of the validity of the notice of default, so I accept that his observations were incidental to his principal findings. But they reinforce my view that a plain and common sense reading of the provisions, leads to the conclusion that cl26 gives rise to an obligation to pay interest on money owing, and that a rescission notice can constitute an appropriate demand for the payment of that interest.
[8][2011] VSC 69
70 I note in passing that counsel for Mr Patrick also argued that Tymstock has not expressly pleaded a claim for interest based on cl25 and thus is precluded from advancing that claim. I also reject that argument. As I observed in the course of the hearing, the statement of claim does not specify any particular clause of the contract of sale as the source for its claim for loss and damage. It pleads only a failure by Mr Patrick to remedy the breach and the consequent rescission of the contract of sale. It then includes various claims for interest in its particulars of loss and damage. In my view, these claims are sufficiently broad to encompass the full suite of rights available on default under the contract of sale discussed in these reasons. Further, Mr Patrick has not asserted that he was taken by surprise or suffered other prejudice by Tymstock’s failure to descend to more detail in its statement of claim about the particular clauses of the contract of sale it relied on to support its particulars of loss and damage.
Can interest be claimed regardless of a demand?
71 Turning next to cl28.1, counsel for Tymstock submitted that cl28.1 operates so that there is no need for a demand. Counsel for Mr Patrick argued that unless a demand for compensation or interest had been made, there was no “unpaid money”, and nothing for cl28.1 to make “immediately payable”. Again, at least in the case of interest, this latter argument assumes that cl26 does not give rise to an independent liability to pay interest and merely sets the rate. I have already rejected this construction. In my view, cl28.1 gives rise to a general crystallising event operating across all extant liabilities under the contract of sale at the time of that event and arising thereafter, and those extant liabilities include liability for interest payable under cl26.
72 More particularly, in my view, the scheme of the provisions is that:
· where a breach occurs by either party, whether or not that breach amounts to a default subject to the procedure in cls26 to 28, a party can pursue a claim for compensation and interest by making a demand at any time under cl25;
· if the offended party chooses to initiate the default procedure under cl27, the default notice will ordinarily also operate as a demand under cl25 and crystallise an obligation to pay reasonable costs and interest specified in the default notice as part of curing the default; and
· if the default particularised in the default notice is not remedied and any costs and interest claimed in the notice are not paid, all money (including any interest accrued under cl26 but unpaid) is immediately payable to the vendor.
73 It follows that the question of whether a demand under cl25 can be made after the contract ends does not arise for determination. Clause 28.1 supersedes the need for a demand once the period of the default notice ends. In most (but not all) cases, this will coincide with the point at which the contract ends under cl28.2. Either way, the crystallising event under cl28.1 will occur at the time of, or before, the contract ends. If it were necessary to decide, I am inclined to agree with Tymstock that cl28.5 preserves a party’s entitlement to demand pursuant to cl25 payment of interest accrued, including by making that demand by way of a statement of claim in a proceeding (subject to applicable limitation periods).
What was the period of default?
74 The next question concerns what is meant by the expression “period of default” as used in cl26. In my view, there is no reason to read the expression as meaning anything other than the period during which the relevant default continues un-remedied. In the case of interest accruing under cl26, that is until the money owing under the contract of sale is paid or otherwise ceases to be owing. This was the view taken by Marks J in Downing v Lau,[9] where Her Honour stated in relation to cl26 that it “sets out the parties’ agreement to interest running at a particular rate on money due under the contract until the default in payment is rectified”.
[9][2018] VCC 33 at [198]
75 I raised with Tymstock’s counsel in the course of submissions whether it might be argued that “period of default” in cl26 ends when the period of the default notice ends. Counsel resisted this suggestion and, on reflection, I am satisfied that he was right to do so. The first thing to note is that the expression “period of default” in cl26 is to be contrasted with the expression “period of the default notice” (emphasis added) in clause 28.2(b). Further, the effect of the default notice on various rights and remedies are clearly spelt out in cl28. If the default notice is served by the vendor and includes the statement referred to in cl28.2 about the contract ending, then the contract ends at the end of the period of the default notice. In that event, cl28.4(b) operates to relieve the vendor of any obligation to transfer the property and, accordingly (as discussed further below), also relieves the purchaser of the obligation to pay the balance of the purchase price.
76 Thus, the only default by a purchaser that “ends” at the end of the period of the default notice, is the default in failing to pay the balance of the purchase price. Put another way, the purchase price ceases to be money owing under the contract of sale when the contract ends. The vendor’s remedies for that default are in substance replaced by those set out in cl28.4(a) and (c). But by operation of the saving provisions in the opening words of cl28.4(c) (“in addition to any other remedy”) and in cl28.5, the other rights and remedies of the offended party arising as a consequence of the default are preserved and are ongoing. In my view, that includes the ongoing right to be paid interest on any money still owing or becoming owing under the contract, until that money is paid.
77 In this case, there is also an argument about when the period of the default notice began and ended, which turns on whether the first rescission notice was effective to end the contract of sale. Despite the letter from his solicitors dated 22 December 2017 asserting that the first rescission notice was “riddled with errors such that it is, in our view invalid”, Mr Patrick argued at trial that the first rescission notice was effective to terminate the contract of sale. In particular, Mr Patrick’s counsel submitted that Tymstock’s statement of claim relied upon the first rescission notice and Tymstock should not be heard now to say otherwise. He maintained this submission, notwithstanding that Tymstock’s statement of claim in fact relies on both rescission notices in the alternative, and Tymstock had made a clear election during the trial to rely on the second rescission notice.
78 Tymstock is entitled to maintain a claim for inconsistent remedies (in this case, remedies based on two alternative rescission notices), until the point is reached that the remedies are pursued to judgment.[10] Its election at trial to rely on the second rescission notice means that it is not bound to accept the validity of the first rescission notice. In any event, in my view, the election was properly made because the first rescission notice was not valid. As Kaye J in Portbury[11] held:
“The principles, relevant to the construction of notices of rescission, are now well established. A notice under condition 5 is not valid unless it is, in relation to its essential features, clear and unambiguous, so that a reasonable reader, in the position of the purchaser, having given the notice fair and proper consideration, would be left in no doubt as to its meaning.”
[10]Ciavarella v Balmer (1983) 153 CLR 438 at p449
[11][2011] VSC 69 at [17]
79 Those principles had been examined more fully a year earlier by Hargrave J (as he then was) in U108 Pty Ltd v Sing Fan & Ors[12] at [43], where His Honour held (citation omitted):
“The relevant legal principles to be applied in determining whether or not a rescission notice is valid are not in doubt. The relevant authorities were reviewed by Campbell J in Robinson v Becata Pty Ltd. I respectfully adopt his Honour’s analysis. In summary, a rescission notice served under general conditions 5 and 6(2) of Table A must, in relation to its essential features as required by those conditions, be clear and unambiguous. In determining whether or not a rescission notice is relevantly clear and unambiguous, the Court applies an objective approach. In Catley v Watson, Brooking J (as he then was) expressed the applicable standard of objective reasonableness in the following terms:
‘A notice is not unequivocal, in the sense in which such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice.’”
[12][2010] VSC 12 at [43]
80 Although most of the 15 errors in the first rescission notice identified in Mr Patrick’s solicitors’ letter were without substance, the error in the particulars of default fell into a different category. These particulars were expressed as: “Failure to pay the residue of $1,330,000 on the 16 October, 2017 2018”. Ignoring the typographical error in adding “2018” to the date, it is not in dispute that the parties had agreed that settlement would be extended to 20 November 2017. I accept the submission by Mr Patrick’s counsel that this agreement would generally be treated as an indulgence and does not operate as a formal amendment to the contract of sale, and thus the “Due date” as stated in the first rescission notice may be strictly correct. However, because of that indulgence, there was in fact no default until 20 November 2017.
81 Perhaps that error too might be insufficient to invalidate the notice, given that it was sent after 20 November 2017 and both parties can be taken to have known about the extension. However, to my mind the doubt as to meaning in relation to an essential matter arises in relation to the particulars of default when read together with the interest claimed in the notice. It is essential because the interest must be paid by the purchaser to avoid a default. And the doubt arises because the first rescission notice states only a rate as a percentage, and does not state the date from which that interest runs. A fair reading is that the notice is claiming interest from 16 October 2017, but there was no evidence before me that Mr Patrick had agreed to pay interest for the period of the extension to 20 November 2017. Assuming (as I must) that he had not so agreed, the first rescission notice is thus claiming almost $20,000 in interest to which Tymstock is not entitled.
82 In my view, this uncertainty and likely error in the claim for interest in the first rescission notice was sufficient to invalidate the notice based on the principles discussed above. In contrast, the second rescission notice gives the “due date” as 20 November 2017, provides particulars of default that identify the default as the failure to pay the balance of the purchase price in the sum of $1,330,000 “on the revised settlement date of 20 November 2017” and claims interest as “15%, pursuant to Special Condition 10, calculated from the due date to the date the default is remedied”.
83 Although it is not in dispute that the second rescission notice was duly served, there is some confusion in the material about whether that service was effected on 23 or 24 January 2018. Paragraph 6 of Tymstock’s statement of claim pleads that the second rescission notice was “dated” 24 January 2018 and this is effectively admitted by Mr Patrick. However, the second rescission notice in evidence in fact bears the date 23 January 2018, and there is no direct evidence as to when service was effected. In submissions, Tymstock’s counsel repeated that the second rescission notice was “dated” 24 January, and submitted that, on his calculations, the contract of sale therefore ended under cl28.2 on 6 February 2018. That is consistent with service of the second rescission notice being effected on 24 January 2018. Mr Patrick’s counsel did not take issue with these statements. I will therefore proceed on the basis that references in submissions and pleadings to the second rescission notice being “dated” 24 January 2018 should be understood as referring to the date of service. Accordingly, I accept Tymstock’s counsel’s submission that the contract of sale ended by operation of cl28.2 on 6 February 2018.
Interest on the admitted sums
84 Based on my analysis above concerning Tymstock’s entitlement to claim interest under the contract of sale, I am satisfied that Tymstock is entitled to interest under cl26 of the contract of sale on each of the loss on re-sale ($20,000), the agent’s commission on re-sale ($41,400) and the legal costs on re-sale ($3,109.90), at the rate of 15% per annum calculated on and from the date those expenses were each incurred to the date of judgment. In my view, each of these sums is “money owing” under the contract of sale during the period of default within the meaning of cl26 and Tymstock’s entitlement to these sums is “another remedy” as that term is used in cl28.4(c).
Marketing costs
85 In relation to the marketing costs of $3,600, counsel for Mr Patrick put to Ms Wicks in substance that she was unable to produce any document to show that these were not included as part of the invoice for the agent’s commission on re-sale. Ms Wicks’ evidence was that the two invoices bear different dates (the marketing costs invoice was dated 9 February 2018 and the commission invoice was dated 8 March 2018), and that she paid each invoice, but was unable overnight to respond to a call for the production of a bank statement or similar document to corroborate this evidence.
86 I nevertheless accept the evidence and find that Tymstock is entitled to the $3,600 in marketing costs plus interest on that sum at the rate of 15% per annum from the date it was incurred. I am reinforced in this view by the fact that the invoice for the sales commission does not identify marketing costs as a separate item and the amount of commission stated in the invoice is exactly 3% of the sale price. There is no evidence about the agreed rate of commission, but if the invoice for the commission included the $3,600 in marketing costs, the commission rate would have been 2.739%. It is far more likely that the agreed commission rate is a round figure such as 3% (or perhaps 2.5% or even 2.75%) than 2.739%.
Council rates and land tax
87 Tymstock claims these sums on two bases. The first is that 28.4(c)(ii) provides for “resulting expenses” in relation to the re-sale. Immediately upon Tymstock terminating the contract of sale, it put the property on the market and entered into a new contract on 9 February 2018, settling on 8 March 2018. Tymstock argues that the council rates and land tax for the holding period are resulting expenses from having to re-sell the property. For his part, Mr Patrick says these are not expenses incurred due to his default. They are expenses incurred as part of owning land in Victoria. Moreover, they are not expenses resulting from the re-sale as required by cl28.4(c)(ii).
88 Tymstock’s submission on this issue should be preferred in the circumstances of this case. As counsel for Tymstock submitted, it put the property back on the market as soon as practicable after the contract of sale ended and re-sold the property shortly thereafter. The additional rates and land tax incurred by Tymstock since 20 November 2017 would have been adjusted in favour of the purchaser on the settlement of that re-sale. In my view, they are therefore properly regarded as a “resulting expense” of the re-sale. And, again, these sums are therefore “money owing under the contract” and interest on those sums is payable in accordance with cl26 of the contract of sale from the date they were paid by Tymstock. In the circumstances, it is unnecessary for me to consider Tymstock’s second basis for claiming these sums.
Interest for non-completion
89 This has proved to be the most difficult issue in this case, and was the subject of relatively lengthy written and oral submissions by both parties. The difficulty arises because of the surprising paucity of considered discussion of the issue by any Victorian superior court and an apparent conflict between, on the one hand, what Victorian superior courts have said on the topic and, on the other, a decision of this court based on NSW superior court authority. The decision of this court is Bill v Clarke,[13] a 2015 decision of His Honour Judge Macnamara (“Bill v Clarke”). Tymstock observed that it appears neither Bill v Clarke, nor the issue it determined, has been the subject of further judicial consideration in Victoria. That observation is consistent with my own research. Further, I note that in Bill v Clarke, Macnamara J himself observed (and I agree) that:
“It is astonishing that so straightforward a dispute as the present one was able to generate so many perplexing questions of fact and law. One might have expected that this kind of proceeding would be well-trodden ground which would yield at least clear legal principles.”[14]
[13][2015] VCC 1721
[14][2015] VCC 1721 at [47]
90 Mr Patrick’s written submissions concerning Bill v Clarke were in substance as follows:
· the vendor sued for damages, including interest payable on the unpaid balance of the purchase price under cls25 and 26 during the period of the default; that is, between the date on which settlement should have taken place and the date the contract ended;
· Macnamara J carefully considered whether or not a vendor was entitled to penalty interest on the balance of the purchase price as damages in circumstances where the contract had been brought to an end due to the purchaser’s default;
· His Honour had regard to fundamental principles established by the decision of Dixon J in McDonald v Dennys Lascelles Ltd,[15] (including setting out a lengthy extract from that decision);
[15](1933) 48 CLR 457
· His Honour then discussed a decision of the NSW Court of Appeal in Carpenter v McGrath[16] (“Carpenter”) and concluded that the vendor was not entitled to the penalty interest as damages, because any obligation to pay the principal amount came to an end on the termination of the contract;
[16](1996) 40 NSWLR 39
· Macnamara J said[17]:
“To put it in a nutshell, how can interest be awarded upon an alleged principal sum that ultimately was never payable?
[Counsel for the vendor] submitted that the interest under the present contract was “payable on demand”. A demand had been made and that rendered the liability to pay the interest and accrued liability which survived the termination of the contract
The interest in Carpenter v McGrath was also payable on demand, but that consideration did not weigh with the New South Wales Court of Appeal. Ultimately, it is the liability to pay the balance of the purchase price to which the interest is appurtenant which creates the liability. It is merely perfected by the making of the demand.”
[17][2015] VCC 1721 at [77] - [79]
91 Mr Patrick’s counsel in oral submissions emphasised that Bill v Clarke is a considered decision by a member of this court that should be given due regard. The basic proposition that Macnamara J sets out in that decision is that, once the contract comes to an end, there ceases to be an obligation to pay the balance of the purchase price and there is no principal upon which interest can be calculated. He added that this proposition does not derogate from the proposition that, before termination, a vendor can convert an inchoate right to interest into a right to sue for and recover the interest, by the making of an appropriate demand. He said that Macnarama J makes clear that those existing rights continue, but no new rights can be created once the obligation to pay the balance of the purchase price ceases to exist.
92 Mr Patrick also noted that when reading Bill v Clarke, it must be borne in mind that the contractual provision in Carpenter stated that the amount of interest was added to the purchase price payable by the defaulting purchaser at completion of the contract, and is therefore recoverable by the vendor as a component of the damages on re-sale. He observed that, in this case, there is no contractual provision to the effect that interest must be added to the purchase price. However, a close reading of the decision in Carpenter shows that this is not in fact what the relevant contractual provision states. As explained below, the most that can be said is that this is one possible construction of the relevant provision.
93 I should note that Macnamara J also gave due consideration to both Kaye J’s decision in Portbury, and to Pettiona v Whitbourne,[18] a more recent Trial Division decision of Davies J (“Pettiona”). In relation to the former, His Honour observed that the court awarded interest on the unpaid purchase price for the period between default and rescission, noting that such interest was payable on demand and the court’s finding that the notice of rescission was an appropriate demand. His Honour said of Pettiona that the facts were generally similar to Portbury and that the plaintiff claimed, amongst other things, “interest on the unpaid balance for the period of default”. His Honour then set out the following passage from Pettiona:
“Mr Whitbourne [the defendant] does not dispute that Ms Pettiona [the plaintiff] is entitled to interest on the balance of $5.85 million for 17 days from 4 July 2011 to 21 July 2011 at 4.5 per cent in accordance with the general condition 26 of the contract as amended…”[19]
[18][2013] VSC 205
[19][2013] VSC 205 at [28]
94 For its part, Tymstock argues that:
· Bill v Clarke can be distinguished as it relates to the circumstances of, and follows New South Wales authority about, a vendor that did not sell the property but retained it;
· alternatively, Bill v Clarke was wrongly decided, and that Portbury and Pettiona ought to have been followed;
· Macnamara J , framed the issue as “how can interest be awarded upon an alleged principal sum that ultimately was never payable?” and also states that “it is the liability to pay the balance of the purchase price to which interest is appurtenant which creates the liability”;
· instead, the proper approach to the issue is one of contractual construction and, pursuant to the contract, the purchaser is liable to pay the contract sum until such time as the contract is terminated and the vendor then has a right to possession;
· the right to interest for that period is thus not an appurtenance to the liability for the settlement sum, but an independent liability arising under the express terms of the contract of sale;
· in particular, Tymstock argues that the interest “serves to compensate the vendor while the purchaser is in default (and may not remedy), in circumstances where the vendor will have had to make arrangements to be in a position to give vacant possession, and cannot deal with the property in anticipation of the contract ending (for example, by entering into a new contract for sale)”.
95 In oral submissions, Tymstock’s counsel referred to what he described as the “critical differences” in the form of the contract under consideration in Carpenter noted above. He also developed the argument concerning the purpose served by the accrual of interest on the unpaid purchase price until the default notice period expires. That purpose, he submitted, is to compensate the vendor for being obliged to stand ready throughout the period from the original settlement date until the default notice expires, to convey the property. There is a true cost to being unable to do anything with the property during that period. Thus the payment of interest is not linked or appurtenant to the payment of the purchase price. Rather, it is a mechanism for compensating the vendor for the inconvenience caused during the period of default. Counsel for Tymstock also noted that, whatever sum is payable by way of such compensation, is not an absolute payment. The default provisions of the contract of sale are designed so that the sum payable is offset against the deposit.
96 Finally, Tymstock’s counsel submitted that Macnamara J was wrong to conclude that High Court authority required him to follow the NSW Court of Appeal in Carpenter. His Honour had referred to CAL No 14 Pty Ltd v Motor Accidents Board,[20] which held that where a considered decision of an intermediate Court of Appeal has been given on a point of the common law, other intermediate Courts of Appeal in Australia should follow that determination. The court added that there was a similar duty resting on a trial judge. Tymstock’s counsel argued that the issue under consideration here was not a point of common law, but one of construction of specific contracts with different terms. There was, he said, no authority for the proposition that a trial judge should follow the decision of an intermediate Court of Appeal of another State in relation to the construction of a specific contract with different terms.
[20](2009) 239 CLR 390, 411-13 [48]-[51]
97 I have given anxious consideration to Macnamara J’s thorough reasons in Bill v Clarke and the detailed submissions of both parties on this issue. Having done so, I have concluded that, in the circumstances of this case, I should not follow the approach taken in Bill v Clarke, essentially for the reasons submitted by Tymstock, as developed further below. In my view, interest is payable by Mr Patrick on the balance of the unpaid purchase price from the extended settlement date on 20 November 2017, until 6 February 2018 when the contract of sale ended.
98 The first thing to emphasise is that in Bill v Clarke, Macnamara J expressly qualified his finding in the following terms:
“In situations such as the present, where the vendor did not resell the property but rather retained it, the Court of Appeal of New South Wales has determined that no interest between default and termination should be awarded. Yet, acceptance of that view would be in the teeth of recent Victorian authorities to the contrary.”[21]
[21][2015] VCC 1721 at [74]
99 This qualification by His Honour appears in turn to derive from the observation by Clarke JA in Carpenter as follows:
“The loss claimed in this case would, arguably, have been claimable only if the respondents had sought to recover a deficiency on re-sale. If that had occurred the respondents may have been entitled to treat the purchase price as constituted both by the amount shown in the contract and the interest payable under cl 24(b) for the purpose of determining the efficiency on re-sale. That only means that, for the purposes of calculating the purchase price payable under the contract, it is permissible to treat the interest as part of the price payable. This is a contentious question and it is unnecessary to decide whether it is correct. In the circumstances, as there was no re-sale and as the respondents are seeking to put forward a claim which could only be justified upon the basis of the continued existence of the contract, that claim should be rejected.”[22]
[22](1996) 40 NSWLR 39 at 46, cited in Bill v Clarke at [69]
100 Based on these matters alone, the present case is clearly distinguishable from both Bill v Clarke and Carpenter. Here there was a re-sale and, indeed, a very prompt re-sale at a relatively small discount on the original sale price. But the passage above also points to another important aspect of the decision in Carpenter. It was (as Tymstock submitted) fundamentally a decision about the construction of the “standard Agreement for Sale of Land — 1986 Edition”.[23] Those provisions had features in common with the contract of sale here, but also had potentially important differences. One example of such a difference is that identified above in distinguishing the NSW decision of Zografakis, namely, that the Victorian provision (cl28.4(c)) commences “in addition to any other remedy”.
[23]See (1996) 40 NSWLR 39 at 64
101 The clause under consideration in Carpenter was set out in full in the decision of Cole JA. It was cl9, which relevantly provided as follows:[24]
[24](1996) 40 NSWLR 39 at 70-71, corrected to reflect the versions appearing in the judgments of Clarke JA at 41 and Sheller JA at 56
“Purchaser's Default
If the Purchaser defaults in the observance or performance of any obligation hereunder which is or the performance of which has become essential, the Vendor shall be entitled by notice in writing served on the Purchaser to forfeit the deposit hereunder (except so much of it as exceeds ten per centum of the price) and terminate this agreement and thereafter either:
(a) to sue the Purchaser for breach of contract; or
(b)to resell the property as owner and the deficiency (if any) arising on such re-sale and all expenses of and incidental to such re-sale or attempted re-sale and the Purchaser's default shall be recoverable by the Vendor from the Purchaser as liquidated damages provided that the proceedings for the recovery thereof be commenced within 12 months of the termination of this agreement.”
102 Cole JA had also set out the NSW provisions in relation to interest, found in cls24(a) and (b), as follows:[25]
“(b)The purchaser will either on prior demand by the vendor or on completion pay to the vendor interest on the balance of purchase moneys payable hereunder as and from the date fixed for completion at a rate calculated on daily rests and being $2 per centum per annum in excess of the rate charged from time to time by the National Australia Bank on overdraft loans of an amount equivalent to such balance of purchase money hereunder.
(c)Notwithstanding any other provisions contained herein the vendor's obligation to transfer title of the property to the purchaser will be dependent upon payment of such interest (if any).”
[25](1996) 40 NSWLR 39 at 69
103 Even on the question of how cl9 of the NSW contract should be construed, the NSW Court of Appeal in Carpenter were not of one mind. Most notably, Cole JA flatly rejected the contention preferred by Macnamara J in Bill v Clarke, that interest under cl24(b) was a contractual right dependent upon completion and, as completion did not occur, interest was not payable. His Honour reasoned:[26]
“The purpose of cl24(b) was to compensate the vendor for late completion. The contract contemplated that the giving of a notice to complete may be necessary, and the parties had agreed in cl25 that fourteen days was a proper period of notice. Non-performance of the contract occurred and a notice determining the date for completion given.”
[26](1996) 40 NSWLR 39 at 71
104 After setting out in full cl9 of the NSW contract, His Honour continued (emphasis added):[27]
“Part of the loss which the vendors suffered resulting from the purchasers not completing on 3 August 1989 was non-receipt of the moneys payable pursuant to cl24. The sum is not part of the purchase price but rather a sum contractually payable if settlement is delayed. The sum so payable is in my opinion damages suffered for breach of contract arising from the purchaser failing to complete by the fixed contractual date of 11 July, as extended by the notice to complete to 3 August 1989.”
[27](1996) 40 NSWLR 39 at 72
105 On this issue, Sheller JA fell somewhere between Cole JA and Clarke JA. His Honour held that:[28]
“If on proper analysis, as the author of McGregor on Damages suggests in par 940, the amount of damages the vendor is entitled to recover for the loss of the bargain is the full contract price less the nett market value of the property left on the vendor's hands, that is to say the amount at which a re-sale has been or could be made deducting therefrom the costs of re-sale, any interest payable by the purchaser on the purchase price during the period up to that time becomes, for the purpose of the calculation, part of the full contract price at the date of breach when completion should have occurred. From the amount so calculated must be deducted the nett market value at that date of the property which remains in the vendor's hands. Pursuant to cl24(b) interest was payable ‘on prior demand by the vendor or on completion ¼ on the balance of purchase moneys payable’. Interest was a component of the purchase price payable on completion and as such to be taken into account in assessing the damages to be awarded for the loss of the bargain. In consequence it was no more appropriate for the respondents to recover separately for interest on the balance of the purchase price up to the date fixed for completion than it was for the respondents to recover or retain the whole or any part of the purchase price. In my opinion, the amount of interest calculated under cl24(b) cannot be isolated and awarded as a head of damage. On this part of the appeal the appellants succeed.”
[28](1996) 40 NSWLR 39 at 59-60
106 His Honour appears to have rejected the claim for interest not because the respondent had no entitlement to interest, but rather because the interest accrued to the date of termination was “a component of the purchase price payable on completion”. Put another way, as I read it, Sheller JA is essentially finding that a separate award for interest would amount to a double recovery. Importantly, in reaching this conclusion, Sheller JA does not appear to be drawing a distinction between entitlement to interest as part of a claim for general damages (cl9(a)) and a claim for liquidated damages on re-sale (cl9(b)).
107 Moving to Clarke JA, the passages from His Honour’s judgment extracted in Bill v Clarke, suggest that His Honour doubted that interest under cl24(b) could be treated as part of the purchase price, even on a re-sale.
108 Thus, of the three members of the court, only Clarke JA expressly doubts the entitlement of the vendor to claim interest on the purchase price once the contract had been rescinded. Sheller JA found that the interest was claimable as “part of the full contract price at the date of breach when completion should have occurred”. And Cole JA expressly rejected the argument that the claim for interest was dependent upon completion and, as completion did not occur, interest was not payable. His Honour went on to find that the purpose of cl24(b) was to compensate the vendor for late completion and that the claim for interest “is not part of the purchase price but rather a sum contractually payable if settlement is delayed”.
109 This last mentioned finding is particularly important. First, it highlights (in my judgment, correctly) that each of the members of the court in Carpenter were not determining a point of common law principle but were merely construing the terms of the NSW contract (with varying results). It follows that, with respect, I do not agree with Macnamara J that I should feel constrained to follow the decision in Carpenter. Second, it expressly posits a construction of cl24(b) of the NSW contract consistent with that advanced by Tymstock in respect of cl26; namely, that its purpose is to compensate the vendor for delayed settlement (and, I would add, the delayed opportunity to put the property back on the market). And, third, it rejects the notion that the liability for interest is appurtenant to the purchase price, preferring the approach that it is a sum contractually payable if settlement is delayed.
110 In respect of this third point, while I accept that Cole JA was in dissent on the issue of the deposit, it is not clear to me that the same can be said of His Honour’s analysis of cls9 and 24(b) of the NSW contract. On one view, the positive finding by Sheller JA that the interest was claimable as part of the contract price, is contrary to the proposition preferred by Clarke JA that interest is not claimable at all once the contract is rescinded. Further, while noting that McDonald v Dennys Lascelles Limited[29] was not referred to by the NSW Court of Appeal in Carpenter, I do not overlook the consideration by Macnamara J of the reasoning of Dixon J in that case. However, I would emphasise the passages extracted in Bill v Clarke that recognise the pre-eminence of the express terms of the contract. In particular:[30]
“Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.”
[29](1933) 48 CLR 457
[30]Bill v Clarke [2015] VCC 1721 at [62]
111 The other observation I should make concerns Mr Patrick’s counsel’s submission that Macnamara J in Bill v Clarke accepted that, before termination, a vendor can convert an inchoate right to interest into a right to sue for and recover the interest, by the making of an appropriate demand. He said that Macnamara J makes clear that those existing rights continue, but no new rights can be created once the obligation to pay the balance of the purchase price ceases to exist. I have not been able to locate the findings by Macnamara J that Mr Patrick’s counsel is referring to in advancing these submissions. Indeed, there is nothing in His Honour’s reasons to suggest that this issue was raised for his consideration.
112 In those circumstances, it is not clear to me how His Honour would have dealt with an argument about the effect of a demand for interest made while the contract was on foot. Mr Patrick does not appear to dispute (and, in my view, it is not open to doubt) that Tymstock could have made a valid and enforceable demand under cl25 for interest on the unpaid balance of the purchase price, at any time between 20 November 2017 and 6 February 2018. I have found that he did so by the second rescission notice. Further, the effect of cl27 is that Tymstock could have exercised a right to receive interest during that period, including before it served any default notice. But is the effect of the decision in Bill v Clarke that, once the contract of sale ended on 6 February 2018, Tymstock lost any pre-existing entitlement to receive interest so demanded but not yet paid?
113 On my reading of Bill v Clarke, it is difficult to avoid any other conclusion. Contrary to Mr Patrick’s counsel’s submission, this appears to me to be the inevitable consequence of His Honour’s findings, particularly those extracted above.[31] If this is what His Honour intended, with the greatest respect, I cannot agree. Regardless, I consider that the approach taken by Cole JA in Carpenter (and by Kaye J in Portbury and Davies J in Pettiona) is to be preferred. In my view, the terms of the contract of sale discussed above create a liability for interest that is independent of any obligation to pay the purchase price. And as Cole JA found, the purpose of those provisions is to compensate the vendor for a delay in settlement.
[31]Being the findings at [2015] VCC 1721 [77] - [79]
114 So when does that independent liability to pay interest arise? In my view, the provisions of the contract of sale in relation to this question are both unambiguous and accord with commercial common sense.[32] More particularly:
[32]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [51]
· on a plain reading, the contract of sale does not discriminate in relation to the liability for interest on the basis of how the delay in settlement concludes (that is, interest is payable whether the default is remedied or the contract ends);
· thus, interest will accrue under cl26 on the money owing comprising the unpaid balance of the purchase price from the original date of settlement until one of two events occurs: when the purchase price is paid in full or when the contract ends and the vendor becomes entitled to possession under cl28.4(b);
· nor, in my view, is a purchaser’s liability for interest affected by the vendor’s choice between the two options offered under cl28.4(c)—this is made clear in the case of the Victorian form of contract by the fact that the expression “in addition to any other remedy”, prefaces both options;
· the entitlement to interest does not depend on whether the demand is made before or by the default notice, or at all—I have found already that the second rescission notice was an effective demand, and that cl28.1 operates in any event to crystallise all extant liabilities (including for interest under cl26) when a valid default notice is served and the default is not remedied (including by paying any interest claimed) within the 14 days.
Is Mr Patrick liable for interest on the interest on the unpaid balance of the purchase price?
115 Tymstock claims interest under cl26 on the interest on the unpaid balance of the purchase price that I have found was payable by Mr Patrick to Tymstock when the contract of sale ended on 6 February 2018. Counsel for Mr Patrick asserted in oral submissions that: “It is, of course, the law that in general terms, interest on interest is not allowed”, later adding that “the provisions of the Supreme Court Act relating to interest make it clear that a party will not be entitled to interest on interest”. Counsel for Tymstock had earlier submitted that any submission to this effect was “not correct because the sum becomes a certain sum payable on that date, upon which interest would then flow in the normal course”.
116 In my view, the submission by counsel for Tymstock should be preferred. The provision of the Supreme Court Act 1986 (Vic) (“Supreme Court Act”) on which counsel for Mr Patrick relies is s60(2)(a), which applies to this Court by operation of s50 of the County Court Act 1958 (Vic). Section 60(2) concerns an award for interest under s60(1), which provides that “unless good cause is shown to the contrary” the court must “give damages in the nature of interest” from the commencement of the proceeding. The interest payable by Mr Patrick on the unpaid balance of the purchase price is not in the nature of interest under s60(1). It is interest on a sum certain calculated and payable under a contract. Thus it is more in the nature of interest under s58 of the Supreme Court Act. And it is well established that the prohibition in s60(2) does not apply to interest under s58.[33]
[33]Victorian Workcover Authority v Esso Australia Ltd (2001) 207 CLR 520
117 In any event, the interest on interest claimed by Tymstock, is not in the nature of compound interest as that term is generally understood (and which s60(2) of the Supreme Court Act is directed to). Here, the relevant principal liability during the period of the default notice was the sum certain represented by the unpaid balance of the purchase price. As discussed above, that principal liability ended when the contract ended on 6 February 2018, and interest thereafter ceased to accrue on that sum. But also on that date, by operation of cl28.1 of the contract of sale, a fresh liability crystallised and became payable by Mr Patrick to Tymstock, being the liability for interest that had by then accrued on the unpaid balance of the purchase price in the period for 20 November 2017 to 6 February 2018. The crystallisation of that liability coincided with the ending of the liability for the unpaid balance of the purchase price. It was also a sum certain that became money owing under the contract of sale on and from 6 February 2018 that thus (by cl26) began independently to incur interest from that date.
Is Mr Patrick liable for interest on the deposit?
118 Tymstock claims interest on the deposit sum pursuant to cl26 of the contract of sale on the basis that:
· pursuant to cl28.4(d), Tymstock is entitled to retain the deposit until its damages have been determined;
· Tymstock was required to return the deposit, and put it in a solicitor’s trust account (upon which no interest accrues), as a condition of Mr Patrick removing its caveat to enable the re-sale of the property to proceed on 8 March 2018; and
· that was contrary to cl28.4(c)(ii) (the vendor can resell the property) and cl28.4(d) (retaining the deposit), which rights continued by operation of cl28.5.
119 Mr Patrick submitted that the deposit was paid to Tymstock, which “later paid it into its solicitors trust account to be held pending the outcome of this proceeding”. He then submits that any interest awarded to Tymstock on the $70,000 “should be at the rate of the bill facility because if the amount had not been placed in trust, the money would have been applied to that account”.
120 Once again, I prefer the submission on behalf of Tymstock. The only reason Tymstock paid the deposit into its solicitors’ trust account was because it was forced to do so by Mr Patrick’s refusal to remove his caveat. That refusal in turn was based on Mr Patrick’s purported reliance on the PAO, which I have found was misconceived. In the circumstances, I am satisfied that the deposit was money owing by Mr Patrick to Tymstock on and from the date Mr Patrick’s actions effectively denied Tymstock its right to the deposit under cl28.4(d), which right continued by operation of cl28.5. In that sense, Tymstock’s entitlement to interest on the deposit under cl26 up to the date of judgment is expressly endorsed by the decision of Marks J in Downing v Lau.[34]
[34][2018] VCC 33 at [198]
- - -
Certificate
I certify that these 48 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 24 July 2019.
Dated: 24 July 2019
Simone Karmis
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