White v Somerville

[2006] QDC 185

[2006] QDC 185

DISTRICT COURT
CIVIL JURISDICTION

JUDGE MCGILL SC

No 151 of 2006

ANNETTE SANDRA WHITE	Plaintiff
and
CAMERON JOHN SOMERVILLE and	First Defendants
SUSAN MARY SOMERVILLE
and
SALT COMPANY PTY LTD	Second Defendant
(ACN 010 851 322) (TRADING AS PRD NATIONWIDE NUNDAH)
BRISBANE ..DATE 06/02/2006
ORDER

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06022006 T15/RB28 M/T 2/2006 (McGill DCJ)

HIS HONOUR: This is an application which has been made in an	1
action by which the plaintiff seeks to have confirmed that a contract for the sale of land has been validly terminated and seeks to forfeit the deposit, or to obtain a declaration that the deposit has been forfeited, and to recover a further

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$10,000 as damages for breach of contract.

The first defendants are the purchasers under the contract, the second defendant the real estate agent whose involvement arises because of its capacity as a stakeholder of the

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contract. By contract dated 5 September 2005 the plaintiff
agreed to sell and the first defendants agreed to buy a house
property at Zillmere for a particular price. A deposit of
$8,000 which was a good deal less than 10 per cent of the

purchase price was by the contract payable on the 6th of

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September 2005.

The contract did not provide for payment of any other or additional deposit when the buyer signed the contract. The contract was subject to finance and also provided for an

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inspection date of seven days from the date of the contract. the terms of the contract, which appear to be the standard Fifth Edition REIQ Contract, which made the contract conditional upon the buyer obtaining building and pest reports

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on the property on terms satisfactory to the buyer. However
it also goes on to provide that if the buyer does not
terminate the contract by 5 p.m. on the inspection date it
06022006 T15/RB28 M/T 2/2006 (McGill DCJ) 2 ORDER 60

will be treated as being satisfied by the building and pest	1
reports it has obtained.
Seven days after the date of the contract the solicitors for the first defendant sent to the solicitors for the plaintiff a

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letter which enclosed a building report which had been
obtained and stated that the issues that were marked were "of
concern to our client", noted that a written report of a pest
inspector had not been obtained and sought an extension of

time for the pest report to 14 September 2005 with time to

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remain of the essence of the contract. He had also raised
some issue about the boundaries of the property.

It did not, it seems to me, expressly purport to terminate the contract in reliance on such matters in the building report as

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caused concerned. The solicitors for the plaintiff replied simply asking them to be more specific as to what the first defendants required in response to the building report, but not agreeing to any extension of time.

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The next thing that seems to have happened of any significance is that on 14 September the solicitors for the first defendants did purport to terminate the contract on the basis of unsatisfactory building and pest inspection reports.

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3 ORDER 60

06022006 T16/KZM34 M/T 2/2006 (McGill DCJ)

On the face of it, it seems to me that termination was out of	1
time. The complicating feature is that, although the matter is not referred to in the contract, ultimately a cash deposit of $8000 was not paid. That of course was, on the face of it, a breach of the contract which, I suspect, also entitled the

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plaintiff to terminate the contract. But I am told that the
first defendants offered and the plaintiff agreed to accept in
lieu of a cash deposit something which is called a "deposit
power guarantee", which is offered, apparently by a company,

Vero Insurance Limited. It in effect promises to pay an

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amount of $8000, and the idea is that it stands in the place
of a cash guarantee of $8000.

The idea of a guarantee in lieu of a cash payment is familiar in the field of building construction and in other areas where

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a bank guarantee is frequently used in lieu of a cash deposit. invariably unconditional guarantees whereby the party with the benefit of the guarantee is simply entitled to call upon the bank to make the payment, and the bank, if called upon, is

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obliged to make the payment. In any event, unless the
guarantee is in that form, it seems to me that its value as an

alternative to cash is fairly limited.

This document, however, is not by any means an unconditional

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guarantee. It provides that the guarantor will within two

clear business days of receipt from the vendor of the original guarantee and, relevantly, a copy of the notice of termination which has been served on the purchaser;

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06022006 T16/KZM34 M/T 2/2006 (McGill DCJ)

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"And which in either case would consequently
entitle the vendor to keep, recover or declare
forfeited the deposit, pay the amount demanded by

the vendor up to but not exceeding the maximum

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amount guarantee, less any payments already made by
the guarantor under this guarantee."

The guarantee also provides that it expires and the liability of the guarantor under this guarantee ceases on the earliest

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of when the contract of sale is completed, or the guarantor pays the amount required to be paid under the guarantee, or the contract of sale is terminated or rescinded and in either
case the purchaser is entitled to a refund of the deposit, or the expiry date occurs. The expiry date is the 6th of March,

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2006 so that it is now almost imminent.

It would be immediately apparent that there are two problems with the guarantee. The first is that if it has not previously been effectively enforced it will cease to bind the

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guarantor in a month's time. The second is that whether money
is payable under the guarantee depends on whether the
plaintiff is entitled to keep, recover or declare forfeited
the deposit. That follows from the fact that liability ceases

if the first defendants are entitled to a refund of the

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deposit.

In those circumstances, it seems to me that so long as there
is an issue about whether or not the plaintiff is entitled to
06022006 T16/KZM34 M/T 2/2006 (McGill DCJ) 5 60

forfeit the deposit, then the guarantee really cannot be	1
called on. A third difficulty arises from the fact that the document provides that payment shall be made, not to the vendor but to the person nominated in the contract to hold the deposit. The idea is that payment should be made to a

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stakeholder after the contract pursuant to which the
stakeholder's authority is established has been validly
terminated. It seems to me that is consistent with the
general nature of this document. Frankly I cannot see any

vendor in his right mind accepting a document of this nature

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in lieu of cash. It seems to me because of the practical
difficulties which hedge about the enforcement of such a
document, it is not worth the paper it is printed on. That
has certainly been illustrated by the circumstances of this

case.

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The position is that the plaintiff, having commenced the action, but having really done nothing else at this stage, has made an application seeking an order that the second defendant hand over to the plaintiff the original guarantee so that the

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plaintiff may call upon it. It is prepared to accept, as
indeed it seems to be inevitable, that any money paid will be
paid to the second defendant. It seeks an order then that it
be held on trust. The difficulty with that is that there is

no particular reason to think that, in circumstances where

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there is a dispute between the parties, this guarantee company will actually pay even if procedural hurdles are jumped by the applicant. The company itself has simply said, in a rather

high handed manner; "It will consider a claim on the deposit
06022006 T16/KZM34 M/T 2/2006 (McGill DCJ) 6 60

guarantee" if the original guarantee, a copy of the notice of	1
termination and a copy of the relevant pages of the contract and so on are provided and all of that has to be received before the expiry date of the guarantee. As I say, it is difficult to see what possible commercial value this document

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might have.

Of course, if the guarantee expires it does not mean the liability of the first defendants expires with it. If the plaintiff is entitled to forfeit the guarantee the plaintiff

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is entitled to $8,000 and if she does not get her $8,000 in this form then she is entitled to recover it from the first defendants personally, but that is another matter.

The present difficulty which arises is that the first

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defendants have decided to change solicitors, or at least the
first defendants' solicitor, who was the solicitor acting in
the conveyance, has appreciated that there is a conflict of
interest and has presumably encouraged the first defendants to

change solicitors.

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The first defendants have not yet obtained a lawyer able to respond to this application and have sought an adjournment of two weeks in order to do so.

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I can see that there is a difficulty about conflict of interest though I do not think the plaintiff's position should be prejudiced as a consequence of that. However, it is 06022006 T17/NNG33 M/T 2/2006 (McGill DCJ) 7 60

difficult to see how prejudice to the plaintiff's position	1
really can be avoided.
The only way, it seems to me, to satisfy the terms of this silly guarantee would be to have a trial prior to the

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expiration date. However, because of the listing requirements
of the Court and the volume of work already set down that is
not going to be practical even if the first defendants are in
a position to get themselves organised for trial within what

would really amount to the next couple of weeks.

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I did not even ask counsel for the first defendants whether they could do that. Having made some inquiries of the listing manager, it became apparent that the case could not be heard at a time when I thought it might have been able to be heard,

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simply because of the pressure of other work.

So, for practical purposes, it seems to me unlikely that the situation can be resolved in the way which will result in the plaintiff being able to call up the guarantee before it

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expires.

However, it is possible that the situation may clarify itself. defendants might resolve their dispute with the plaintiff and

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enable the guarantee to be called up. It may be that the
situation in two weeks' time will be somewhat different from
what it is at the moment.
06022006 T17/NNG33 M/T 2/2006 (McGill DCJ) 8 ORDER 60

From what I have been told so far, it seems to me that the	1
first defendants do not have a defence to the plaintiff's action, but it also seems to me difficult to see how a determination of that matter can be achieved by the Court in time to enforce the guarantee.

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It seems to me that the plaintiff is really going to be in a practical way left with her remedy against the first defendants personally. The moral of the story, as I say, is that no one should ever accept one of these silly guarantees

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in lieu of a cash deposit.

All of that is a rather long-winded way of explaining that I think that it is appropriate to accede to the first defendants' application for an adjournment and, I will adjourn

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the application for 14 days, that is, to the 20th of February.

I think this is, really, to see whether the extra passage of
14 days has clarified the situation at all. It may well be

when the time comes that the application then will have to be

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dismissed, but that can be decided in 14 days' time, I will

reserve the costs of the adjournment.

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9 ORDER 60