District Court New South Wales Medium Neutral Citation: Liew & Anor v Barthelmess & Ors [2024] NSWDC 344 Hearing dates: 6-7 August 2024 Date of orders: 13 August 2024 Decision date: 13 August 2024 Jurisdiction: Civil Before: Abadee DCJ Decision: See paragraph [185] Catchwords: LAND LAW – sale of a residential building in Darling Point for $14.8 million – building divided into 3 lots – discrete contracts referable to each individual lot – contracts expressed to be interdependent in operation and which were materially similar in terms – amendments to the special conditions of the contract referable to payment of deposit in three instalments – certain monies paid by purchasers for deposit – vendors terminate all three contracts for purchasers' asserted failure to pay last instalment – vendors assert entitlement to retain monies paid by purchasers under first and second instalments – purchasers sue in action in restitution to recover monies paid – whether breach by purchasers of essential term entitling vendors to terminate CONTRACTS – dispute about the proper construction of the provision for payment of deposit – construction of terms – recourse to surrounding circumstances – whether contracts validly terminated by vendors – whether provision for payment of deposit unenforceable for constituting a penalty ESTOPPEL – estoppel by convention – whether purchasers attempting to resile from representation concerning provision for payment of deposit Legislation Cited: Civil Procedure Act 2005 (NSW), s 100 Conveyancing Act 1919 (NSW), s 55(2A) Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: Cole & Anor v Raykir Holdings Pty Ltd (2019) 19 BPR 39,659; [2019] NSWSC 1017 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Howe v Smith (1884) 27 Ch D 89 Iannello & Anor v Sharpe (2007) 69 NSWLR 452 Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 98,203; [2006] NSWCA 40 Moratic Pty Ltd v Gordon (2007) NSW ConvR 56-172; [2007] NSWSC 5 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Newey v Westpac Banking Corporation [2014] NSWCA 319 Oliveri Legal Pty Ltd t/as Oliveri Lawyers v Cassegrain Tea Tree Oil Pty Ltd [2024] NSWCA 74 Price v Spoor (2021) 270 CLR 450 QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) [2017] NSWSC 866 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 Victoria v Tatts Group Ltd (2016) 328 ALR 564 Workpac Pty Ltd (ACN 111 076 012) v Rossato (2020) 378 ALR 585 Texts Cited: J W Carter, Carter's Breach of Contract (Thomson Reuters, 2nd ed, 2018) Category: Principal judgment Parties: Ms Liz Yuman Liew (First Plaintiff/First Cross-Defendant) Ms Lihua Wu (Second Plaintiff/Second Cross-Defendant) Mr Jonathan Joshua Barthelmess (First Defendant/First Cross-Claimant) Ms Laurette Ruth Macsween (Second Defendant/Second Cross-Claimant) Ms Prudence Gai Macsween (Third Defendant/Third Cross-Claimant) Representation: Counsel: First Plaintiff/Cross-Defendant (self-represented for the First and Second Plaintiffs) Ms A. Elizabeth (Defendants/Cross-Claimants) Solicitors: MJF Law (Defendants/Cross-Claimants) File Number(s): 2023/00107792 Publication restriction: Nil REASONS FOR JUDGMENT Introduction 1. This case concerns an attempt by purchasers of a strata scheme building at 3 Yarranabbe Road, Darling Point ('the Property') under contracts for sale to recover monies they paid after the contracts for sale were terminated. The building (pithily described by Counsel for the vendors as an 'Art deco apartment building') comprised 3 distinct lots owned by slightly different parties, corresponding to 3 different levels, which helps explains the slightly convoluted, albeit necessary, entry into the three separate contracts. The (aggregated) sale price for the building, as a whole, was $14.8 million. On the vendors' case, the total deposit that the purchasers were obliged to pay was 5% of $14.8 million, being $740,000. In the circumstances that occurred, the purchasers paid $400,000 into the vendors' real estate agent's trust account. On the vendors' case, that left outstanding payment of $340,000. It is not disputed that the contracts were all entered into on the same date, 18 November 2021. It is also not disputed that the contracts were all terminated on the same date in March 2022; although the parties disagree as to the precise date and how that particular result came about. 2. The real contest between the parties in this proceeding is whether the $400,000 that the purchasers paid to the vendors (by their real estate agent) should be repaid to them by the vendors (by an action in restitution) and, if not, whether the vendors are entitled to receive by judgment an additional sum of $340,000 to discharge the purchasers' debt (with interest) for the unpaid portion of the deposit. 3. Unless it is necessary to do so, I will refer to the plaintiffs as the 'purchasers' and the defendants as the 'vendors', following the practice commonly adopted by the parties. 4. The contracts, the sales price and the identity of the parties to the contracts (and in this proceeding) are as follows: Number contract Property & Folio identifier Sales price Vendors Purchasers (aggregate $14.8m) Lot 1 Liz Yuman Liew (first plaintiff / first cross-defendant) 1 (1/SP2913) $3 million Jonathan Barthelmess (first defendant / first cross-claimant) & Lihua Wu (second plaintiff / second cross-defendant) Lot 2 Laurette MacSween (second defendant / second cross-claimant) 2 (2/SP2913) $4,933,333.33 & Lihua Wu Prudence MacSween (third defendant / third cross-claimant) 3 Lot 3 $6,866,666.66 Jonathan Barthelmess Liz Yuman Liew (3/SP2913) 1. The purchasers contend, but the vendors dispute, that the respective contracts required payment of deposits in accordance with what was written on the cover page of each of the (standard forms of) three contracts. Those amounts were as follows: First Contract: $150,000.00 Second Contract: $246,666.67 Third Contract: $343,333.34 1. It is notable that on the cover page of each contract, read alongside clause 2.2 of the standard terms, there is also a common date for payment of each of these deposits; being the date of exchange: 18 November 2021. 2. The vendors contend that although these amounts were expressly identified on the covering page of each individual contract (in its standard version), the purchasers' obligation to pay those particular amounts was displaced, it not, subordinated to their obligation to pay the deposit in accordance with an 'amending' clause, special condition 48, applicable to each individual contract. They say that clause 48.1, in particular, plainly indicated that the deposit was to be paid by instalments; on different dates (albeit that the first instalment was payable on the date of exchange) and in different amounts to what appeared on the cover page for the three individual contracts. 3. On 18 November 2021 and 23 December 2021, respectively, the purchasers paid two amounts of $200,000 into the vendors' agent's trust account for what they contend (and the vendors dispute) were deposits relating to the contracts for sale. The vendors admit the receipt of these monies in their agent's trust account. 4. The settlement date for the contracts was 20 May 2022. But on 16 March 2022, by written notice, the vendors terminated these contracts. The validity of this act of termination is contested by the purchasers. They say that the notice was invalid but they also say that, by a notice dated 25 March 2022, they communicated their election to accept the vendors' repudiation, thereby bringing the contracts to an end. 5. By this proceeding, commenced on 3 April 2023, the purchasers sue for the recovery of $400,000 (plus interest) representing what they say are the instalment deposits payable in the first and second contracts. In their statement of claim, they base their claim in an action in restitution. Although they do not deny the potential availability of such action in legal principle, the vendors resist that claim on the facts. The purchasers also raise (in the alternative) an issue about whether the provision for payment of the deposit in clause 48 is avoided as a penalty. 6. By their Defence, the vendors claim that, by the terms of the contracts, the monies they received from the purchasers were theirs to keep after the contracts were terminated as they validly were. They say that in the circumstances, the obligations on the purchasers to pay the deposits for the contracts were subject to clause 48 and 'contingencies' and contend that the purchasers were unconscionably attempting to resile from the application of those terms. In particular, they say that they have not received what they contend were three agreed discrete instalments for the deposit. It was these omissions which culminated in their decision to terminate the contracts. 7. Originally, by their cross-claim, the vendors pleaded that (in mitigation), between 13 May 2022 and 30 June 2022, they attempted to 're-market' the properties for sale under contracts for put and call options, but their attempts to re-sell were unavailing. At the date of their cross-claim (8 September 2023), they incurred costs of $23,628.35, with more costs expected. Originally, the vendors claimed not only the release of the $400,000 to them and an entitlement to receive what they characterise as the 'Third Instalment', being the sum of $340,000. They also claimed, in the alternative, an order for damages for a sum representing the difference between the current value of the properties and the contract price or damages equal to the costs of re-selling the Property. However, their position later changed. Identifying the real dispute 1. At the hearing, (which was preceded by two unsuccessful applications to vacate brought within a week of the commencement of the hearing) the first plaintiff, Ms Liew presented the case for the purchasers. The Court was informed on the opening day of the hearing that the second plaintiff, Mrs Wu, her mother, was overseas. (The circumstances by which her mother came to be overseas coinciding with a hearing of a proceeding she had commenced – with Ms Liew – were not satisfactorily explained). 2. No statement of issues was filed by either party; but Counsel for the vendors supplied the Court with a detailed set of written submissions (MFI 1). 3. In accordance with convention, I gave both parties the opportunity to make opening addresses. Ms Elizabeth, Counsel for the vendors, went first and Ms Liew followed. 4. Through the course of her opening written submissions (MFI 1), supplemented orally in her opening address, Counsel for the vendors referred to the agreement between the parties being one for the deposits on each of three interdependent contracts (5% in each case) being payable by way of three instalments. She argued that having regard to a purchase price of $14.8 million overall, 5% of that sum represented $740,000. It was agreed that $740,000 would be paid by three instalments rather than what was stipulated on the cover pages of the three interdependent contracts. 5. Counsel for the vendors argued that the 'First' and 'Second Instalments' on the deposit, representing 5% of the aggregate purchase price for the Property ($740,000) were paid, but not the 'Third'. The vendors, she contended, consented to an extension to pay the 'Third Instalment', but indicated that time remained of the essence. The purchasers did not comply with the extended date for payment of the Third Instalment (15 March 2022) and rather, explained that they were overseas and, further, requested the vendors consent to payment of the instalment on settlement (following a previous expression of their view that the amount of the Third Instalment was such as to amount to a penalty and so was not payable). The vendors then terminated for breach of the obligation to pay the deposit; in which the obligation was an essential one. The vendors say that they terminated the interdependent contracts and sought the release of the sum of $400,000 paid by the purchasers into their agent's trust account, but the purchasers refused. The vendors retained the monies and the purchasers brought the suit. 6. By their cross-claim (as it was amended on 8 September 2023), the vendors sought declaratory relief regarding their entitlement to retain the $400,000 and brought a claim in debt for payment of the sum due for the Third Instalment; along with interest. However, the vendors subsequently re-sold the Property (for $14.1 million). They originally sought to recoup their loss of $700,000 (the difference between $14.8 million under their contracts with the purchasers and the resale price), before interest and costs. This was the vendors' pleaded claims, which I record in a formal sense since, as will later be explained, the vendors' position on the relief they sought altered at the hearing. 7. Counsel for the vendors anticipated that the purchasers' case was that the quantum of the deposits for each contract was represented by the amounts specified on the cover page of each contract (see paragraph [5], above). Counsel anticipated that the purchasers' case that it was apparent that by the aggregate payment of $400,000, the purchasers had paid (and indeed marginally exceeded) the First and Second Instalments for the overall deposit (of $740,000). The vendors also apprehended that the purchasers' case was that if there was any breach of contract at all, it only concerned the failure to pay the deposit in respect to the contract for lot 3. In this way, the purchasers would be effectively submitting that their obligations to pay the deposit were divisible, that is to say, specifically referable to three individual contracts; and not to be treated as indivisible or to use the parties' language, 'interdependent'. Otherwise, the purchasers contend, there was no point to the specific delineation of separate and different amounts for the deposits for the three contracts. At its highest, the vendors understood the purchasers to contend, the vendors were only entitled to terminate the contract for lot 3. By purporting to terminate all three 'interdependent' contracts, the vendors repudiated all three contracts. The purchasers then accepted the vendors' repudiation of all three contracts and they elected to accept the repudiations of contracts; thereby bringing them to an end. 8. In her opening, Ms Liew did not disagree with Counsel's articulation of the way the vendors interpreted or anticipated the purchasers' case to be. 9. In the vendors' Counsel's closing oral submissions, she indicated that the vendors' case on damages was abandoned. Counsel clarified that the vendors only sought, in effect, orders that: (a) would effectively ratify their continued entitlement to the $400,000 paid by the purchasers and (b) seek an additional monetary judgment for their debt claim of $340,000 (plus interest). 10. As to who should pay that judgment, Counsel submitted that both purchasers be jointly and severally liable for that judgment sum (and interest). If there was any basis for differentiation in the judgments paid by the purchasers, it should occur in a proceeding for contribution (with no cross-claim for indemnity or contribution being brought by the purchasers in this proceeding). Counsel acknowledged however, that her clients would not be entitled to double compensation; in the sense of any entitlement to receive more from one or other of the individual purchasers than the amount of $340,000 (plus interest) in total. 11. This last submission was not addressed by Ms Liew. 12. That is one of the issues that I must consider. 13. The issues, as I see them, are: 1. Whether the vendors validly terminated the three contracts. Subsumed within that general issue are more specific issues: 1. the question of the proper construction of clause 48 of the contracts; and 2. an argument raised by the vendors that an estoppel lies to prevent the purchasers arguing that the clause is invalid or unenforceable 1. Whether clause 48 is wholly or partly unenforceable for being a penalty; and 2. If the vendors succeed, who is liable to pay the monetary order in the vendors' favour. Factual background 1. There was little dispute about the facts. Many admissions were made on the pleadings. Generally, there was no cross-examination of any of the deponents who gave evidence for the parties: the exception was Ms Prudence Macsween, the third defendant (and third cross-claimant), who had prepared two affidavits on behalf of the vendors. Ms Liew cross-examined Ms Macsween; much of which was apparently directed to asking Ms Macsween whether she adhered to what she had deposed to in her affidavit evidence (which in all respects the latter did). 2. The vendors' legal representatives prepared a chronology (MFI 3) which distilled the factual background that the vendors relied upon. No such chronology was prepared by or on behalf of the purchasers (as required by the Court's practice). At any rate, Ms Liew did not take issue with the correctness of the vendors' chronology which had been served on her before the hearing commenced. 3. In early 2021, Ms Wu deposed to asking her daughter, Ms Liew, to look for a principal place of residence as she wanted to sell her property at 28/2-12 Eastbourne Road, Darling Point; and transferred to her daughter a sum of money ($186,600) to assist with the payment of any deposit. 4. In August 2021, the Property was advertised for sale by the vendors' agent, Raine and Horne (Elizabeth Bay) as being 'in one line' (Exhibit 5). 5. In November 2021, Ms Liew deposed to becoming aware of properties at 3 Yarranabbe Road, Darling Point being on the market, and she informed her mother of that. 6. In her second affidavit (served on the first day of the hearing – the vendors raising no objection to its admissibility on the basis of lateness), Ms Liew deposed to inspecting the Property (with her business partner, Mr Qin) in the company of the vendors' real estate agent, Jane Schumann of Raine & Horne (Elizabeth Bay), on 2 November 2021. Ms Liew indicated that she was led by the agent to believe that the Property was passed in at an auction, with a vendor bid of $15 million, the vendors were "desperate" to sell and that the individual lots the Property could each be separately sold. 7. Ms Jane Schumann affirmed an affidavit (6 August 2024, filed after business hours) in response. She confirmed participating an inspection of the Property with Ms Liew; although it was on 3 July 2021. She acknowledged the limitations in recalling exactly what was said but deposed to a "very clear memory" that the vendors' instructions were the Property was only offered for sale, as a single offering, 'in one line'. Ms Schumann referred to a schedule in the agency agreement (an unsigned version of which appeared in Exhibit 3; CB 501) which she deposed to as reflecting her instructions. Ms Schumann denied representing that the vendors were "desperate", or anything like that; explaining that this would, in effect, nullify her aim of obtaining the highest price. 8. Ms Schumann also denied representing that the Property could be sold, in effect, in separate lots. This was the antithesis of her consistent instructions that the Property could only be bought "in one line". She could not recall her expressing her intention or wish to purchase the lots separately. After reviewing and referring to certain emails in Ms Macsween's exhibit (Exhibit 3), Ms Schumann noted that there was no document indicating Ms Liew's request that the lots be purchased individually or that the deposit was payable in respect to individual lots. She also deposed to recalling Ms Liew requesting that the purchase price for the Property be apportioned between the three lots for the purpose of assisting her bank to value the Property in order to obtain finance. 9. In the course of final submissions for the vendors, Ms Liew applied to re-open the purchasers' case to enable her to read a further affidavit (which she had affirmed on 7 August 2024) in reply to Ms Schumann's affidavit however I declined that application (for short reasons apparent in the transcript). 10. This dispute about what was said is not, in my opinion, necessary to resolve on the critical constructional choice but, if pressed, I would prefer Ms Schumann's version. First, Ms Liew's evidence was raised belatedly about an event now approaching 4 years ago. Secondly, Ms Schumann (who, unlike Ms Liew, realistically acknowledged limits on human memory) gave an account that was intrinsically plausible and logical. 11. Ms Wu deposed (paragraph 6) to deciding to purchase "one of" the three properties; with one of the lots being used as an investment property for her daughter. 12. On or about 9 November 2021, the purchasers commenced to negotiate with the vendors, through their respective lawyers for the sale of units 1, 2 and 3 at the address 3 Yarranabbe Road, Darling Point. The vendors originally indicated that they required an aggregate purchase price of $15 million for the Property. They provided three separate, but interconnected contracts ('the interdependent contracts') for sale for the Property. 13. The purchasers offered to pay $14.8 million as the purchase price for the Property, subject to agreement on particular terms. 14. They also sought removal of the standard clause 48 from the interdependent contracts requiring a 10% deposit (which would have been $1.48 million) and substituting a $400,000 deposit. However, the vendors declined this proposal by the purchasers. 15. There were thereafter further negotiations, comprising additional clauses to the contract and further amendments up to the date of the contract, including on the subject matter of the deposit. 16. A material piece of evidence concerning the negotiations was given by one of the purchasers, Ms Liew; even though this part of the evidence was purely internal. She deposed (paragraph 15 of her first affidavit) that on 15 November 2021, she instructed her solicitor to: "… make further request to pay the deposit in relation to the 3 properties: a. The first $200,000 to be paid at exchange in paying off the deposit of Lot 1; b. The second $200,000 to be paid after valuation in paying the deposit of Lot 2; c. The remaining $340,000 to be paid within 12 weeks after the date of contract in paying off the deposit of Lot 3." 1. It is notable that ultimately, the special condition 48 (following the amendment clauses) resembled this proposal but featured an important difference: the payment of these instalments was not tied to any particular lot. 2. Ms Liew deposed to the content of some of those negotiations in the first of her two affidavits (15 December 2023; the second affidavit being 6 August 2024). She deposed (paragraph 13) to a conversation on 12 November 2021 with the vendors' agent in which she suggested staggered dates for payment of deposits, in different amounts, for the different lots and the agent agreeing to obtain the vendors' instructions. She deposed to the agent verbally agreeing with her proposal; whilst indicating that the purchasers' solicitor should make a formal request for the vendors' solicitor. She deposed (paragraphs 15-34) at considerable length to multiple draft contracts. Upon the objection of the vendors' Counsel, I rejected the tender of those draft contracts. 3. On 17 November 2021, it appears that the purchasers acquired a land value search from the NSW Valuer General. The valuation had been made on 18 September 2020. This was annexed to Ms Liew's second affidavit. That search indicated, amongst other things, that the strata scheme land value was $3.31 million and the strata unit land value (which was based on unit entitlement) was $1,103,333. Basic arithmetic indicates that the unit land value for each lot was valued at 33.33% of the strata scheme land value. The valuer, Ms Adamson, picked up that each of the three lots had one unit entitlement each. [1] 4. On 17 November 2021 (at 10:02pm) the purchasers' solicitors, Juris Cor Legal ('JCL'), sent an email to AB Law, the vendors' solicitors, (Exhibit B; CB 416) (preceding entry into the contract) by which the purchasers' solicitors requested that the "deposit under three contracts" be 5% of the price; requesting the deletion of clause 48.1 (which I infer is a reference to that clause as it appears in the 'Additional clauses') and the addition of clause 48.2 and (in what appears to be the provenance of what ultimately became amended special condition 48.1): "Clause 48.2 should be added as below: The vendor and purchaser agrees that the deposit is 5% of the price and is payable in instalments as follows: a. $200,000 on exchange; b. $200,000 on satisfaction of the Finance Condition pursuant to Clause 48.3; and c. $340,000 within 12 weeks after the date of the Contract." 1. On 18 November 2021, there were a flurry of email exchanges between the lawyers. A sample of this correspondence (which was directed to the subject matter of what became clause 48) included: 1. At 6:25pm, JCL sent an email to AB Law (Exhibit A, CB 227), which stated: "Delete special condition 48.1 and replace as follows: The vendor and the purchaser mutually agree that only 5% deposit of the purchase price is payable under this Contract. Since there are two interdependent Contracts for the sale of the property with this Contract (All three contracts for sale of land are for property folio identifier 1/SP913, 2/SP2913 and 3/SP2913, together referred to as "Three Contracts"), the vendor and the purchaser agree that the deposit for all Three Contracts is payable in instalments as follows: a. $200,000 on exchange; b. $200,000 on satisfaction of the Finance Condition pursuant to Clause 48.3; c. $340,000 within 12 weeks after the date of the Contract To avoid doubt and notwithstanding anywhere else in any of other interdependent contract and this Contract, the total deposits payable under Three Contracts is 740,000." 1. At 6:45pm, AB Law sent an email to JCL (Exhibit A, CB 226), which stated: "Whilst our proposed special condition has the same effect, we are of the view it is cleaner and therefore propose the following: The vendor and the purchaser agrees that the Deposit payable under the Contract for the Sale of land dated 18 November 2021 for the sale of 1, 2 and 3/3 Yarranabbe Road, Darling Point bearing folio identifier 1/SP913, 2/SP2913 and 3/SP2913 (Interdependent Contracts) is 5%. The deposit is payable in instalments as follows: a. $200,000 on exchange; b. $200,000 on satisfaction of the Finance Condition pursuant to Clause 48.3; c. $340,000 within 12 weeks after the date of the Contract; and d. $740,000 on Completion…" 1. At 7:03pm, JCL sent an email to AB Law (Exhibit A, CB 224-225), which relevantly stated: "We would like to confirm the following: The vendor and the purchaser agrees that the Deposit payable under the Contract for the Sale of land dated 18 November 2021 for the sale of 1, 2 and 3/3 Yarranabbe Road, Darling Point bearing folio identifier 1/SP913, 2/SP2913 and 3/SP2913 (Interdependent Contracts) is 5%. The deposit is payable in instalments as follows: a. $200,000 on exchange; b. $200,000 on satisfaction of the Finance Condition pursuant to Clause 48.3; and c. $340,000 within 12 weeks after the date of the Contract; To avoid doubt and notwithstanding anywhere else in any of the other interdependent contract and this Contract, the total deposits payable by the purchaser under the Three Contracts is 740,000 We request the vendor signing the same copy of the contract as our client signs. Therefore, would you mind quickly amend three contracts?" 1. On 18 November 2021, the three interdependent contracts were exchanged, unconditionally and were signed by the vendors and purchasers. 2. The parties agree that on this date, the interdependent contracts became binding; although the purchasers say the First Instalment was liable to be refunded in circumstances where a special condition 48.3 (relating to finance, which I will address below) in each contract was not satisfied. They also say that the Second Instalment was also payable upon satisfaction of special condition 48.3. The 'interdependent contracts' 1. The final versions of the contracts were annexed to the affidavit of the vendors' current solicitor, Mr Mark Fester, of MJF Law, dated 5 August 2024. 2. The contracts took the form of the 2019 Law Society/Real Estate Institute standard form supplemented by Additional Clauses and Amendments to the contract and the 'Special Conditions' (a term which was synonymous with the Additional Clauses). 3. With the exception of the cover page to each contract, the content of the contracts for each respective lot was identical. 4. The exception referred to in the last paragraph concerned details of the price, deposit and balance of the respective lots, which appeared on the cover pages for the three contracts. I will reproduce that information contained in the cover pages for the three respective contracts in tabular form: Contract 'Price' 'Deposit' 'Balance' Lot 1 $3,000,000 $150,000 $2,850,000 Lot 2 $4,933,333.33 $246,666.67 $4,686,666.66 Lot 3 $6,866,666.66 $343,333.34 $6,523,333.32 1. I will refer below to the provisions of the contract selecting the provisions to the contract for Lot 1 (Annexure A to Mr Fester's affidavit of 5 August 2024) as a representative example of the provisions in the contracts for lots 2 and 3. Standard terms 1. Clause 2 generally dealt with the payment of the deposit. Sub-clause 2.1 indicated the purchaser's obligation to pay the deposit to the deposit holder (an expression which included the vendors' agent). Sub-clause 2.2 indicated that normally, the purchaser must pay the deposit on the making of the contract (ie 18 November 2021) and that time was essential. Sub-clause 2.3 indicated that if the contract required the purchaser to pay any of the deposit by a later time, that time was also essential. The word 'deposit' was not defined. 2. Clause 9 was titled 'Purchaser's Default'. In the chapeau, it was indicated that if the purchaser did not comply with the contract in an essential respect, the vendor could terminate by serving a notice. The clause provided that, after termination, the vendor could (materially) keep or recover the deposit (sub-clause 9.1). 3. Clause 19 provided for what would occur to a party given the right to rescind after a party exercised that right. 'Additional clauses' 1. The heading expressly described the Additional Clauses as "forming part of this contract…" 2. Sub-clause 33.3 provided that to the extent that there was any inconsistency between these additional clauses and the printed clauses (in the standard version), the additional clauses prevailed to the extent of the inconsistency. 3. Further, by way of interpretation, the definitions of words or expressions that appeared in clause 1 of the standard (printed) form version were to apply to the words and expressions where they appeared in the Additional clauses, unless the context indicated otherwise (clause 33.2) 4. Clause 44 provided for the release of the deposit. By its terms, the purchaser released to the vendor the deposit on and from the contract date. The deposit became the property of the vendor on the contract date. 5. Clause 48 also made provision about the Deposit. As will shortly be explained, this provision, as it appeared under the hearing 'Additional clauses' was deleted, and new provisions were substituted in amendments. 6. Clause 51 provided for interdependency of the 3 contracts. The importance of this clause merits it being set out in full (reiterating that I am using the contract for lot 1 as representative of the other contracts): "51.1 This contract is interdependent with the contract for sale of 2 and 3/3 Yarranabbe Road, Darling Point NSW bearing folio identifier 2/SP2913 and 3/SP2913 respectively dated 17 November 2021 (Other Contract). A party can only require this contract to be settled if settlement is effected simultaneously with the settlement of the Other Contract. 51.2 If any contract for the sale of the Other Property is rescinded or terminated, the vendor may rescind this contract by giving written notice to the purchaser and clause 19 shall apply." 1. As will later be explained, clause 51.2 was later amended. Amendments to Contract 1. These were stated to amend 'The Contract' and 'Special Conditions'. It was uncontroversial that the expression 'Special Conditions' was synonymous to what was described as 'Additional Clauses' to the contract. The material amendments were as follows. 2. 'Special condition (clause) 48.1' (in the Additional Clauses) was deleted entirely and a new special condition 48.1 was substituted. This was as follows: "The Vendor and the Purchaser agrees that the Deposit payable under the Contract for Sale of land dated 18 November 2021 for the sale of 1,2 and 3/3 Yarranabbe Road, Darling Point bearing folio identifier 1/SP2913, 2/SP2913 and 3/SP2913 (Interdependent Contracts) is 5%. The deposit is payable in instalments follows: a. $200,000 on exchange; b. $200,000 on satisfaction of the Finance Condition pursuant to Clause 48.3; and c. $340,000 within 12 weeks after the date of the Contract". 1. A new 'special condition 48.3' was inserted. As indicated above, it was described (in special condition 1) as the 'Finance Condition' and provided: "Notwithstanding any other clause in the Contract, the Vendors acknowledge and agree that this Contract is subject to the purchaser receiving a joint valuation result in relation to the Land being folio identifier 1/SP2913, folio identifier 2/SP2913 and folio identifier 3/SP2913 (3 Land) from the bank no less than the Contract Price, being $14,800,000, within 20 business days from the date of the Contract. In the event that the total value of the 3 Land valued by the bank is less than $14,800,000, the purchaser's solicitor may rescind this contract by written notice to the vendor's solicitor and thereupon this contract will be at an end and the provisions of clause 19 apply. Any money paid (including deposit) by the purchaser under clause 48.1 must be fully refunded to the purchaser." 1. A new 'special condition 48.2' was added. This was: "To avoid doubt and notwithstanding anywhere else in any of other interdependent contract and this Contract, the total deposits payable by the purchaser under Three Contracts is 740,000." 1. The clause 51.2 (an additional clause) was deleted and replaced with: "If any contract for the sale of the Other Property is rescinded or terminated, the vendor or the Purchaser may rescind this contract by giving written notice to the other party and clause 19 shall apply. The First Instalment Payment 1. On the date of exchange (18 November 2021), the purchasers paid the First Instalment to the vendors' agent's (Raine & Horne) trust account. This was 5% ($200,000) pursuant to the amended clause 48.1 due on the date of exchange. Ms Liew believed that this sum represented payment of the deposit for Lot 1. The Second Instalment Payment 1. Mrs Wu deposed that from 30 November 2021 through to 1 December 2021, she transferred to her daughter a sum of $166,000 to her daughter. She believed that this would be used for payment of the deposit for Lot 2 of the Property (with her earlier payment being used to pay the deposit for Lot 1). 2. On 15 December 2021, the vendors granted the purchasers an extension of time to pay what they characterised as the Second Instalment (and what Ms Liew characterised as the 'second deposit payment' ($200,000) under the amended sub-clause 48.1) because of a delay in procuring a valuation report from the bank. The purchasers requested that extension of time on 14 December 2021; requesting that the date for payment be extended to 20 December 2021. 3. On 20 December 2021, a valuation report was received. The vendors contended that this satisfied the 'Finance Condition' (concerning the provision of a 'joint valuation result'). 4. On 20 December 2021 JCL sent an email to AB Law (Exhibit 3; CB 542) in which the purchasers' solicitors, after noting his client's completion of the valuation process, requested the Second Instalment ($200,000) "for 3 lots together" to be paid just before midnight on 22 December 2021 because of the lack of availability of their accountant. 5. The vendors granted its acceptance of that request the same day, so that the date for repayment of the Second Instalment was to be 22 December 2021. 6. In fact, the sum of $200,000, representing the amount specified for the Second Instalment (in special condition 48.1), was paid by the purchasers into the vendor's agent's trust account on 23 December 2021. Ms Liew believed that this was the sum representing the amount of the deposit for Lot 2 to the trust account. Correspondence about payment of the 'Third Instalment' Payment 1. On the vendors' case, this left outstanding the payment of the Third Instalment. To reiterate, this was identified in special condition 48.3 as an amount of $340,000 within 12 weeks of the date of exchange. That date was 10 February 2022. 2. On 18 January 2022, on behalf of the purchasers, JCL requested an extension for the date of settlement (from 20 May 2022 to 14 June 2022). The vendors' solicitor (AB Law) declined that request. 3. By 10 February 2022, the purchasers had not paid what the vendors contended was their obligation to pay the Third Instalment in the sum of $340,000. 4. On 11 February 2022, JCL advised AB Law that the purchasers had experienced a 'technical issue' with her mobile banking and that payment would be made 'next week when her mobile banking (was) available'. 5. Three days later (14 February 2022), JCL wrote again to AB Law, indicating that the client's "technical issue could be resolved by 16 February 2022" and that "they (the purchasers) will be able to make the deposit transfer as soon as the issue is resolved". 6. On 15 February 2022, AB Law sent an email to JCL. The email indicated the vendors' position that: (a) the balance of the deposit (ie the 'Third Instalment' for the purposes of special condition 48.1) as due on 10 February 2022 (12 weeks from the date of contract); and (b) the purchasers were now in breach of an essential term of the (Interdependent) Contracts and (c) the vendors required a rectification of breach by no later than 5pm the next day, 16 February 2022. 7. On 16 February 2022, JCL emailed AB Law; through which the purchasers asked for an extension of time for 4 weeks (15 March 2022) for extension of the Third Instalment. This prompted AB Law, subsequently to ask for justification for the request. This JCL provided, also on 16 February 2022. The gist of the response was that it was a matter for 'commercial expedience' (the vendors later emphasised that no further point had been taken in correspondence about technical issues associated with delay in making payment). 8. AB Law was dissatisfied with this explanation and on 17 February 2022, again requested an explanation (with information in support) for the requested extension, by 5pm 18 February 2022. 9. This elicited a response by JCL, on 18 February 2022, confined to the assertion that clause 48.1 was unenforceable for being a 'penalty clause'. This was the first time the purchasers raised their penalty argument. 10. By an email sent to JCL on 22 February 2022, AB Law again requested reasons and supporting documents for the request for an extension. Later that day, other than reiterating its view that the amended clause 48.1 was unenforceable, in an email sent to AB Law, no other explanation was given by JCL on the purchasers' behalf. 11. On 2 March 2022, AB Law sent a letter to JCL that relevantly stated: "Despite our numerous attempts to query the reasons for your client's request, we have not been provided with any substantive material to support your client's request. We are instructed to agree to amend the Interdependent Contracts by deleting the words at Clause 48.1(c), 'within 12 weeks after the date of the Contract' and replacing it with, 'by 15 March 2021'. We confirm the due payment of the Deposit remains time of the essence.' This was the first time JCL asserted in correspondence with AB Law (post contract) that such payments, as had been made for the deposit, were tied to individual lots. 1. The vendors' Counsel later emphasised that neither in this communication or subsequently, did the vendors conceded that the Third Instalment was a penalty. 2. On 15 March 2022, AB Law emailed a letter to JCL. The gist of this was to confirm that time was of the essence for the payment of the deposit and an indication was notified that if the purchasers failed to pay by 5pm that day, the solicitors held instructions to terminate the Contracts and commence legal proceeding as well as asking for confirmation whether the purchasers intended to comply with their obligations and provide evidence of payment. 3. On 15 March 2022, JCL sent a letter to AB Law in response. This letter stated that: "Our client's position is that full deposit totalling the amount of $396,666.67 has already been paid for the properties Lot 1 and Lot 2. And an extra amount of $3333.33 was also paid, which is attributable to the deposition of Lot 3. Our clients would like to request an extension of time for the payment of the balance of the deposit for Lot 3 at the settlement as our clients are currently overseas and not in Sydney." 1. This was the first time JCL asserted in correspondence with AB Law (post-contract) that such payments, as had been made for the deposit, were tied to individual lots. The notice of termination 1. The next day, 16 March 2022, the vendors instructed AB Law to serve (by letter sent by express post and email) a notice to terminate. The material content of the notice was as follows: "The Vendors by its solicitors … gives you NOTICE that: 1. By contract for the sale of land dated 18 November 2021, Jonathan Joshua Barthelmess (Vendor) agreed to sell and Liz Yuman Liew and Lihua Wu (Purchaser) agreed to purchase the property known as 1/3 Yarranabbe Road Darling Point NSW 2027 being the whole of the land in title reference 1/SP2913 simultaneously with contract for sale of land dated 18 November 2021, between Laurette Ruth Macsween and Prudence Gai Macsween (Vendor) who agreed to sell and Lihua Wu (Purchaser) who agreed to purchase the property known as 2/3 Yarranabbe Road Darling Point NSW 2027 being the whole of the land in title reference 2/SP2913, and further simultaneously with contract for sale of land dated 18 November 2021, between Jonathan Joshua Barthelmess (Vendor) who agreed to sell and Liz Yuman Liew (Purchaser) agreed to purchase the property known as 3/3 Yarranabbe Road Darling Point NSW 2027 being the whole of the land in title reference 3/SP2913 (all three contracts referred to as the "Interdependent Contracts"). 2. Special condition 48.1(c) required the Purchaser of the Interdependent Contracts to pay the deposit in the sum of $340,000 by 15 March 2022. 3. The Purchasers of the Interdependent Contracts defaulted in the observance of an essential obligation pursuant to Clause 2.3 of the Interdependent Contracts. 4. The Vendor of the Interdependent Contracts terminates the Interdependent Contracts in accordance with Clause 9 of the Interdependent Contracts and reserves all rights contained therein and the Interdependent Contracts is entirely at an end. 5. The deposit is forfeited to the vendors of the Interdependent Contracts." 1. On 18 March 2022, on behalf of the purchasers, JCL requested confirmation of AB Law that they would not, on behalf of the vendors, seek the release of the deposit monies paid. 2. A week later (25 March 2022), JCL responded to the notice of termination. JCL asserted, on the purchasers' behalf, that the Interdependent Contracts had not been validly terminated but had, rather, been repudiated. By this letter, the purchasers (purportedly) accepted the repudiation of the contracts and requested a refund of the whole of the sum of $400,000. 3. On 8 August 2022, JCL issued a letter of demand to the vendors' then new lawyer, Eagerlaw, seeking repayment of the $400,000 from the vendors. The demand was refused. 4. The purchasers commenced this suit on 3 April 2023. Expert valuation 1. The vendors served uncontested expert opinion evidence from Nicole Adamson of the firm Edmonds Associates Valuers (Exhibit 1). Her opinion concerned the value of the Property as at the date of exchange. She did this on two alterative bases, representing the parties' different positions on whether the transaction could be properly characterised as a sale of the three units "in one line" or whether the lots were sold "as is". In the former case, she valued the Property as $14,850,000. In the latter, Lot 1 was valued at $3,250,000; Lot 2 valued at $3,400,000 and Lot 3 valued at $3,750,000. 2. This report may have been prepared to assist the vendors' earlier case on damages. But in my view, it is also relevant to the purchasers' argument regarding penalty, which I will consider later in these reasons. The proper construction of clause 48 The purchasers' submissions 1. Ms Liew was invited to make oral submissions for the purchasers (not having suppled any written submissions to the Court). 2. She indicated her reliance upon the content of the Statement of Claim and the Defence to the Amended Cross-claim. 3. At paragraph 19 of their Defence to the Amended Cross-claim, the purchasers identified the practical operation following from their posited construction of clause 48.1: "(a) the First Instalment of $200,000 was to be appropriated: (i) first, to the First Contract and applied in satisfaction of the deposit of $150,000 payable thereunder; and (ii) secondly, to the Second Contract and applied in reduction of the deposit of $246,666.67 payable thereunder, to leave a balance outstanding of $196,666.67; (b) the Second Instalment of $200,000 was to be appropriated: (i) first, to the Second Contract and applied in satisfaction of the balance of the deposit outstanding thereunder in the sum of $196,666.67; and (ii) secondly, to the Third Contract and applied in reduction of the deposit of $343,333.34 payable thereunder, to leave a balance outstanding of $340,000.01; (c) the Third Instalment of $340,000 was to be appropriated to the Third Contract and applied in satisfaction of the balance of the deposit outstanding thereunder in the sum of $340,000.01" 1. Ms Liew's oral submissions were otherwise very brief. 2. Counsel for the vendor, fairly, indicated to the Court that, aside from the purchasers' pleadings, there was within the lawyers' correspondence (Exhibit 3; CB 580) articulation of the purchasers' case by their former solicitors. This correspondence was the purchasers' letter of demand dated 25 March 2022. In that correspondence, the purchasers' solicitors made the following points: 1. The only basis for termination was clause 48.1(c) in each of the contracts and this provision was to be read with clause 2.3 in each contract; 2. Clause 2.3 only applies to the deposit referred to in each of the three contracts, respectively; 3. The deposit payable in relation to each individual contract cannot exceed the amount specified for the deposit on the covering page of each individual contract; 4. By clause 48.1(c) in each contract, the parties agreed that the deposit payable under the contract is 5%. The non-capitalised deposit in clause 48.1(c) cannot be given meaning as money payable exceeds the deposit payable under each of the contracts. 5. Therefore clause 2.3 of each individual contract is a reference to the deposit payable under each of the three contracts (as it appears on the cover page of each contract and do not refer to any 'aggregated' notion of a deposit). 6. There was no breach of an essential term (ie payment of the deposit for each contract, under clause 2.3). Therefore, the vendors' act of terminating all three individual contracts amounted to a repudiation of each of the three contracts. 7. On 25 March 2022, the purchasers elected to accept that repudiation and reserved their rights, including, but not limited to the right to sue the vendors The vendors' submissions 1. These were primarily conveyed through the written submissions of the vendors (MFI 1); but were supplemented in oral argument. 2. The vendors' central contentions were: 1. They validly terminated the Interdependent contracts with the result that the deposit monies were forfeited to them (pursuant to clause 2.3 and special condition clause 48.1). The deposit monies were the vendors' property (additional clause 44). The unpaid Third Instalment was payable as a debt after the time for payment had passed. The vendors were entitled to sue in respect to that debt as well as other damages, as permitted by clause 9.3.2 of the contracts (including costs for re-sale of the Property). 2. The purchasers were estopped from denying the validity of special condition clause 48.1. The vendors had agreed to the purchasers' request and the purchasers' representation that they were obliged to pay the Third Instalment and should not now be denied payment of that instalment on the basis that the provision to pay it was unenforceable. The vendors altered their position on the faith of the representation: they would never have entered into the contracts if they did not become entitled to a deposit of 5%. 1. As to the first of these arguments, Counsel for the vendors acknowledged that on first impressions, there was a conflict between the requirements for payment of the deposit in the standard form and in the (amended) clause 48.1, however properly (ie objectively) construed there was no real conflict. In the latter respect, what the purchasers subjectively believed was not to be reckoned with. 2. If clause 48.1 was interpreted in the context of any of the three contracts standing alone, that might suggest a deposit and total price greatly exceeding what appeared on the front cover of the contract. That would be wrong. Clause 48.1 had to be construed (amongst other things) alongside clauses 48.2 and 48.3 as well as other provisions signifying the interdependence of the three contracts. The parties should be taken to have intended by clause 48.1 that: 1. a 5% deposit was payable in respect of the contract price payable for the Property as a whole ($14.8m); 2. The deposit was payable by instalments in the amounts (and according to the timing) specified in clause 48.1(a)-(c) 1. Textual support for this interpretation is particularly derived from: 1. Clause 48.1 referring to the 'Vendor and Purchaser' – an indication that the two purchasers and three vendors were transacting about the same subject matter (ie the Property at 3 Yarranabbe Road, Darling Point). If clause 48 was tied to each individual lot, it would, in my view, have been expected that the description of Vendor and Purchaser would have been more refined, given that there were different vendors and purchasers on title for each lot; 2. Clause 48.3 signifying a (single) 'Contract Price' of $14.8m; and 3. Clause 51 of the Additional Clauses indicative of the surrounding circumstances known by the parties; namely the intention to transact in relation to all three lots of the singular building 'in one line' and not individually. 1. The vendors argued that the clause 48 could not be construed in the way that the purchasers contend, featuring 5% of the contract price for each individual lot. This was contrary to the amounts of the instalments identified in sub-clauses 48.1(a)-(c). 2. If the obligation to pay the deposit was construed only by reference to the amounts of the sale prices specified on the cover page of each of the three contracts ($3 million for Lot 1, $4,933,333 for Lot 2, $6,866,666.66 for Lot 3), the purchasers would have been in breach of those contracts for failure to pay on the date of exchange. 3. An impractical consequence of the purchasers' construction was that by reason of special condition 51.2, if the vendors were confined to terminating the contract for Lot 3 by reason of the purchasers' failure to pay the deposit affecting the contract for Lot 3, the purchasers were enabled thereby to have the contracts in respect to Lots 1 and 2 rescinded; with the consequence that the vendors would lose the benefit of $400,000. 4. The Additional Clauses (clause 33.3) indicated that where there was inconsistency between an additional clause and terms in the standard form, the former should prevail. That logically applies equally to amendments to the additional clause made to clause 40. Further, there was no particular rationale for any preference for the timing of payment for each lot to one of several vendors. If the purchasers' construction was correct, it might mean that Mr Barthelmess (as owner of Lot 3) may not receive a fair proportion of the deposit after the instalments representing Lots 1 and 2 had been paid (on the purchasers' view of the case). 5. Counsel submitted that the purchasers were trying to have their cake and eat it as well. Their position was something of a hybrid: if clause 48.1 did not apply in accordance with its terms, the purchasers would not have been able to defer the preponderant amount of the deposit in respect to the contracts for each individual lot (ie which in original form required them to pay on the date of exchange) as they did in accordance with the structured timing for payments of instalments under clause 48.1(a). The purchasers position amounted to an argument to preserve the benefit to them under that part of clause 48.1(a), whilst denying the balance of the natural operation of clause 48.(a) and instead, relying upon the amount of the deposit expressed on the cover page of each individual lot contract. 6. The vendors also submitted [2] that the purchasers' post-contractual conduct – at least in relation to payment of the First and Second Instalments without protest – was, if not strictly admissible for construction, was at least confirmatory of their interpretation and could be relied upon to that extent. 7. They further contend that there was no legal impediment to the validity of a deposit where it is expressed to be payable in instalments. Foreshadowing the argument it later made in relation to the penalty issue, they emphasised that clause 48 did not have the effect of accelerating payment of the deposit (to the contrary, it delayed and staggered payment of it) and nor was it payable only on default. Time of the essence 1. The vendors submitted that there should be no real dispute that time was of the essence for payment of the Third Instalment. The standard terms (clauses 2.2 – 2.3) made that clear. 2. The vendors' interpretation was not contested when the purchasers had been reminded of this temporal aspect of the obligation to pay the deposit; which confirmed the vendors' interpretation. 3. The vendors joined issue with the purchasers' point that clause 2.3 did not apply to the 'aggregated deposit in clause 48.1'. They say that the purchasers paid the First and Second Instalments; they never contradicted the notion that time was not of the essence (hence the requests, at multiple times, for consensual extensions of time) and they never suggested, for example, any requirement for reasonable period for notice prior to termination. ' 4. Thus, time was of the essence to pay the Third Instalment. The vendors had agreed to extend the period of payment to 15 March 2022. They reminded them on that date of the obligation to pay on that date and by reason of the purchasers' default in that regard, the purchasers were in breach of an essential term; entitling the vendors to issue the notice to terminate all three contracts. 5. That being so, the vendors were entitled to retain the partial payment of the deposit ($400,000) and claim, as a debt, the balance of the payment of the purchase price ($340,000). Consideration of constructional choice Principles for contractual construction 1. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 ('Electricity Generation'), French CJ, Hayne, Crennan and Kiefel JJ observed that: "35. [T]he objective approach [is] to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. ... [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." 1. These principles have been applied by the High Court in multiple decisions [3] . This included Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, where French CJ, Nettle and Gordon JJ observed (citations omitted): "46. The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. 47. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. 48. Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. 49. However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is 52.facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. 50. Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations. 51. Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience. 52. These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd." [4] 1. These principles are applicable to contracts for the sale of land. [5] Application 1. For reasons that follow, consistently with the above authorities, in my view it is legitimate to have recourse to surrounding circumstances that are 'external' to the contract itself as they assist in identifying purpose of the transaction. This does not however extend to evidence of a party's statements of belief or expectations. Further, during the course of the hearing, I rejected the tender of draft versions of contracts. 2. On the constructional choice, in short, I substantially agree with the vendors on the characterisation of clause 48. 3. First, there is no textual support for the purchasers' construction of that provision or the operation of the provisions as identified in paragraph 19 of the Defence to the Amended Cross-claim. Most obviously, the amounts in sub-clauses 48(1)(a), (b) and (c) are different to the amounts referred to on the cover pages of the individual contracts and secondly, there is no express reference (on the purchasers' case) in each of the instalments to the affected folio identifier in sub-clauses 48(1)(a), (b), and (c). 4. There is, on the other hand much textual support for the vendors' construction; which is reinforced with reference to the apparent purposes of the contract and the surrounding circumstances known to the parties. 5. Clause 48 was an 'additional clause' (or 'special condition') that was amended by the time that the contracts were entered on 18 November 2021. One important consequence of the provision which, as I noted, the purchasers obtained the benefit from, was that instead of the deposits being payable (in the aggregate, being $740,000) 'in one hit', so to speak, on the date of exchange of the three contracts (as contemplated by clause 2.2), the parties agreed that the deposit was payable by instalments; the last of which was payable virtually 3 months from the date of exchange (although the parties ultimately agreed that it was to be payable by 15 March 2022). To this extent, it plainly substituted the date for payment of the deposit from that which was required by clause 2.2 and referred to on the cover pages of the contracts for each individual lot. 6. But clause 48, in its amended form, did not expressly provide that the sequence for payment of the instalments had anything to do with the order in which the deposit for each of the 3 contracts would be paid or the amount payable for the deposit as indicated on the face of the cover page to each contract. There was, moreover, nothing to indicate anything that would lead a reasonable person to think that either the vendors or purchasers ascribed particular significance to the quantum of the deposit as identified on the cover page of each individual contract. 7. I reject the purchasers' case that the parties (objectively) intended that the individual lots to the Property could have been sold separately from the others; whatever the purchasers' subjective understandings or beliefs. Of course, such understanding would be contrary the language in clause 51.1 (an 'additional clause', which pertinently indicated that the completion of the sale of one lot could not proceed without settlement of the sale for the other respective lots) as well as clause 48.2, which emphasised interdependency. 8. I place weight upon clause 33 (an 'additional clause'). Clause 48 was another such 'additional clause', and that was amended. Once this particular additional clause was 'amended', there is a clear intention that it was intended to displace, or render subordinate (to the extent of there being any conflict) other provisions in the contract referring to the amount and date for payments of the deposits in the three individual contracts. In my view, that itself is fatal to the purchasers' construction of clause 48, which hinges upon the vestigial significance of the quantum of the deposits in each of the three contracts individually appearing on the front page of each individual contracts. Clause 48.1(c), read, as it must be, with clauses 48.2 and 48.3, indicates on the face of the provisions the parties' intention that there was to be but a single deposit, calculated at 5% of what the purchasers described as an 'aggregated' purchase price ($14.8m) to be paid in instalments on different dates. Whatever was indicated on the cover pages of the individual contracts was superseded by force of the operation of clause 48 (as amended). 9. On the aspect of surrounding circumstances, firstly, I accept, as the vendors acknowledge, there is ambiguity which (if it was alone necessary) would justify recourse to surrounding circumstances. They support the vendors' construction. In QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [35] the Court of Appeal observed that "the reasonable person may be taken to know of things that go beyond those that the parties thought to be important or those to which there was actual subjective advertence by the parties". [6] The parties knew that the building was sold 'in one line': that was apparent in the sales advertisement (Exhibit 5; CB 505). As Ms Macsween explained (without contradiction by the purchasers) this ad was manifestly apparent in a variety of ways to interested purchasers (affidavit of Ms Macsween dated 1 February 2024, paragraph 29). I do not accept Ms Liew's evidence that she was told, in effect, the opposite by Ms Schumann. To reiterate, Ms Liew's evidence was not only belated (it had not been referred to in her first affidavit) but was inherently implausible, for the reasons Ms Schumann gave. These surrounding circumstances were reflected in clause 51. I do not accept that there is, in the surrounding circumstances, any indication that something had gone wrong with the language of the contract, viewed as a whole. 10. Another circumstance was the fact, reflected in clause 48.3, that the purchasers were required by their lender to have a valuation conducted. Plainly the vendors were aware of this requirement. Neither Ms Liew nor Ms Wu included within the exhibits to their respective affidavits (Exhibits A and B) a copy of that valuation, or indeed referred to it in the affidavits themselves. It would be striking if that valuation was conducted by reference to the individual lots singularly. The content of clause 48.3, with its references to "joint" valuation and "3 Land" (an abbreviation for the title details for each lot) gives rise to the powerful inference that the valuation was based on the building as a whole with the lots "in one line". In my view, the purchasers' omission to adduce the content of the bank valuation gives rise to the inference that not only that it would not assist their case but also strengthens my conviction, supported by other evidence (including, but not limited to, clause 51.1) that, in substance, what the purchasers were buying was a single Property, which happened to have 3 different title indicia. There was not, on the evidence, any indication that an individual lot could be sold without a completion of the sale of other lots. 11. That being so, there was no real significance to the amount for each deposit specified on the cover pages of each contract and therefore any reason to construe the instalments enumerated in clause 48.1 as being tied to the description of the deposits on the cover pages to those three separate contracts. 12. Further, acceptance of the purchasers' construction would lead to the absurdity or impracticability identified by the vendors with regard to clause 51.2; which is that although the vendors might terminate for breach of the obligation to pay the deposit for the Lot 3 contract, the purchaser could rescind and recover payments it made with reference to the Lot 1 and 2 contracts. 13. Finally, in my view, the parol evidence rule, which precludes reference to post-contractual conduct on construction of terms in a written contract, applies. Having read the Full Federal Court's decision in Workpac, I do not agree with the vendors that this decision permits recourse to post-contractual conduct for construction of a contract that is accepted to be wholly in writing. The observations that the vendors' Counsel referred the Court to in that decision centre upon the position whereby there was some contention about the identification of terms. However, I am reinforced in my adjudication of the characterisation of clause 48 by the circumstance that it was only after payment of the Second Instalment that the purchasers first agitated their construction in a context of many earlier demands by the vendors and earlier different justifications made on the purchasers' behalf for their inability or refusal to pay the third instalment. Indeed, it appears the construction argument was raised, for the first time, on 25 March 2022 (subsequent to the assertion of the penalty argument I consider below). Further, the purchasers' asserted construction argument was inconsistent with the position adopted in the correspondence of the purchasers' solicitors to the vendors' solicitors of 17 November 2021, referred to above. 14. In summary, the aggregated amount of the deposits derived from the three separate contracts ($740,000) was in the same amount of the total deposit referred to in clause 48.1. The change wrought by clause 48.1 (as amended) was to give the purchasers more time and the ability to pay the deposit of $740,000, by instalments not tied to any individual lot. 15. It follows from these reasons that for all but the first step in the purchasers' argument stated above (at paragraph [102]), I reject that argument. 16. The purchasers' construction of clause 48 is rejected. Time of the essence 1. Once it is found, as I have found, that the Third Instalment, properly construed, was a reference to the balance of $340,000 after payment of the First and Second Instalments, then subject to the purchasers' penalty argument, to be considered later in these reasons, there is no serious question whether time was of the essence for the payment of that instalment. I agree with the vendors that it was common practice for contracts for the sale of land for time stipulations for payments of deposits to amount to essential terms (as reflected in clause 2.2). Clause 2.3, viewed in the context of interdependent contracts, and when applied to clause 48.1 (as the parties manifestly intended by additional clause 33.2), plainly made it so. 2. Moreover, there was nothing false, misleading in the vendors stated termination notice that such obligation was breached; entitling the vendors to terminate all three Contracts. 3. Subject to the penalty argument to be considered, the termination of the contracts was valid and, by reason of clause 9.1, the vendors were prima facie entitled to keep or recover the deposit in respect to the Interdependent contracts. The vendors' estoppel argument The argument 1. My conclusion on the constructional choice strictly makes this argument unnecessary to consider but I will consider it contingently should that earlier conclusion be wrong. 2. In the cross-claim (as amended, at paragraphs 11-12), the vendors' pleaded argument essentially took the following steps: 1. On 17 November 2021, the purchasers offered to pay a deposit ($740,000) being 5% of the Contract Price, payable to the vendors in three instalments (effectively amounting to the description outlined in clause 48.1(a)-(c)); 2. The vendors relied upon the promise to pay the 'Agreed Deposit' upon the matters (also described as 'contingencies') in clause 48.1(a)-(c); 3. The vendors accepted payment of instalments in a schedule to suit the purchasers' convenience rather than their own; 4. The vendors accepted only a 5% deposit, which was less than the standard 10% deposit that they were otherwise entitled to insist upon; and 5. By reason of the purchasers' conduct, the vendors believed that the promised Agreed Deposit would be legally binding and payable under the interdependent contracts as 'earnest money' in the form proposed by the purchasers, they acted to their detriment in accepting the purchasers' proposal. The submissions 1. This argument was only lightly touched upon in the vendors' written submissions. 2. In closing oral argument, the vendors' Counsel submitted that there were multiple representations made by the purchaser. These were of a contractual nature (in written form). They included representations that (a) there was a deposit of 5% payable on a total purchase price of $14.8 million; (b) that deposit was payable by instalments in accordance with clause 48.1 and, more particularly (c) the third instalment was (ultimately, after an agreed extension) to be paid by 15 March 2022. 3. It appeared to me, also, consistently with the vendors' case, that the representations were also partly by conduct: namely, the purchasers' payment of the First and Second Instalments. 4. The vendors contend that the purchasers seek to resile from that representation, by denying any obligation to pay the Third Instalment. 5. The vendors would sustain a material detriment if the purchasers were permitted to resile from the representation that the vendors were entitled to receive the deposit if it was not paid on time: the loss of the benefit of 5% of the contract price of $740,000 upon breach (itself a diminished benefit relative to the usual percentage deposit in the standard version). Reference was made to clause 51.2. The contract would operate that (on the premise the purchasers were correct with their construction point). The purchasers' submissions 1. By their Defence to the vendors' cross-claim, the purchasers barely traversed paragraphs 11-12 of the cross-claim. 2. Ms Liew did not make any submissions on the point. Consideration of estoppel defence 1. In Moratic Pty Ltd v Gordon (2007) NSW ConvR 56-172; [2007] NSWSC 5, Brereton J summarised (at [32]) the elements of conventional estoppel as follows: "In common law conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff". 1. This formulation of the elements has repeatedly been approved by the New South Wales Court of Appeal [7] . 2. Elements (1) and (2) are clearly made out. Both are made out on the basis of the adoption, by execution of the contract, of clause 48 in its entirety. For reasons indicated earlier, there was no implication and I reject, as a matter of construction, the notion that the payments for each instalment were qualified or linked to the amounts of the deposits specified on the cover page of the three individual contracts. 3. Element (3) is also made out. The purchasers paid the First and Second Instalments, reflecting sub-clauses 48(1)(a) and (b) respective and the vendors received those instalments on the basis of clause 48. It is illogical that the instalment referred to in clause 48(1)(c) would, in contrast, be unenforceable. 4. Element (4) is established by the circumstance that clause 48 had in fact been proposed by the purchasers. 5. Finally, I agree that element (5) is established. If the purchasers' position was good, then the vendors would lose the partial receipt of the deposit paid pursuant to sub-clauses 48(1)(a) and (b) (ie $400,000) and would not be entitled to recover the Third Instalment ($340,000). 6. Recognising that there is some factual cross-over in analysis on this part of the case and the question of construction, it will be apparent that I would have accepted the vendors' argument on estoppel had I found against the vendors on the constructional choice. The penalty argument The purchasers' submissions 1. I noted the limited nature of Ms Liew's oral submissions earlier. 2. In the purchasers' former solicitors' letter of demand of 25 March 2022, it was argued that to require the purchasers to pay $740,000 as an aggregated deposit (under clause 48.1(c)) of each contract was a penalty clause as it varied the definition of the deposit in each contract. Thus, the whole of clause 48.1(c) was unenforceable. 3. In the particulars to this pleaded argument (Statement of Claim, paragraph 17), the purchasers cited the following matters: 1. Clause 48.1 provided for a deposit substantially in excess of the 5% agreed to by the parties; and 2. The amount of the deposit was not a genuine pre-estimate of the vendors' likely loss and was out of all proportion to the damage that might be suffered by them. 1. The purchasers did not plead reliance upon s 55(2A) of the Conveyancing Act 1919 (NSW). The vendors' submissions 1. The vendors noted that the purchasers' argument was raised, belatedly, after the First and Second Instalments of the deposit were paid, and the vendors were chasing up the purchasers for payment of the Third (and final) Instalment of the deposit. It appeared to be raised for the first time by the purchasers' solicitors on 18 February 2022 (Exhibit 3; CB 558). Inferentially the purchasers could not have thought that the instalment payments in sub-clauses 48.1(a) or (b) were 'penal'. If they were, the purchasers would not have paid them. 2. Counsel for the vendors, anticipated the purchasers' apparent reliance upon a decision of Darke J in Cole & Anor v Raykir Holdings Pty Ltd (2019) 19 BPR 39,659; [2019] NSWSC 1017 ('Cole'). Justice Darke referred in that decision to two earlier decisions of the New South Wales Court of Appeal: Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 98,203; [2006] NSWCA 40 ('Luu') and Iannello & Anor v Sharpe (2007) 69 NSWLR 452 ('Iannello'). 3. The vendors argued that all of these decisions were distinguishable on the facts. Consideration of the penalty argument Evaluating the authorities 1. In Luu, Bryson JA (with the agreement of Handley JA and McColl JA) made certain observations as to the relationship between deposits and penalties. His Honour observed (at [24]) there is a general assumption that provisions for forfeiture of deposits are effective underpin statutory provisions for relief against their forfeiture. An exception from the law against penalties relates to deposits that truly have the character of earnest money paid on or in relation to the entry into contract. Parties cannot evade the operation of the law of penalties by designating a payment or an obligation as a 'deposit' if it does not otherwise have that character. In that case, the Court of Appeal treated a provision which, in substance, requiring a purchaser, in respect to any default (no matter how trivial) to make an additional payment on termination, it was a penalty. 2. In this case, clause 48(1) did not require the purchasers to pay an additional amount of money on termination. 3. The vendors pointed to a passage in Iannello (at [33]), Hodgson JA (with the agreement of Santow JA and Basten JA) acknowledged that a provision or provisions whereby a deposit is paid by instalments does not deprive the provisions of being in the character of a deposit but an unconditional promise to pay an amount on the purchasers' default was treated as penal. 4. In this case, clause 48 did not oblige the purchasers to pay money on the simple basis of default. 5. In Cole, Darke J found that the vendors validly terminated a contract with the purchasers but determined, on the facts, that an Additional Condition relating to the payment of the purchase price where there was a default by the purchaser. His Honour determined that whilst a provision that accelerated the time for payment of an instalment of deposit money may not itself be 'penal', the instant clause was not of the character of a deposit: this was because part of the deposit did not need to be paid before the actual completion of the contract and was therefore not an 'earnest of performance' (at [83]). 6. I accept the vendors' submission that Cole is distinguishable. Clause 48 did not accelerate the time for payment (relative to the original time for payment, the Second and Third Instalments in sub-clauses 48(1)(b) and (c), respectively, delayed part of the time for repayment of the deposit). But the effect of clause 48 overall, unlike the additional condition in Cole, continued to require the purchasers to pay the entirety of the deposit before completion. This is significant, since as the vendors submitted, a vendor's entitlement to recover a deposit (or unpaid part of it) in debt from the purchaser crystallises after the time for payment has passed [8] . 7. In this case, the date for completion for the 3 interdependent contracts was 20 May 2022 (183 days after exchange). Payment of the Third Instalment under clause 48(1)(c) was due within 12 weeks of 18 November 2021; although in the circumstances, the vendors ultimately accepted by 15 March 2022. At any rate, clause 48 clearly provided for the deposit to be paid, by instalment, before completion. Evaluating the facts 1. I reject the submission that the Court should treat clause 48 as a penalty on the basis that it varied the definition of the deposit in each contract. That would be a triumph of form over substance. The facts are that: (a) whether one looks at the amounts individually specified on the cover pages of the three contracts, or clause 48(1), the aggregate amount of the deposit payable was the same; (b) the clause was proposed by the purchasers; and (c) the purchasers obtained a benefit of drawing out, by instalments, the period for payment of the deposit overall. 2. Nor do I accept the pleaded points raised in favour of the penalty argument. They were essentially conclusionary: the purchasers, who carried the onus of proof, did not explain how the $740,000 total for deposit did not represent a genuine pre-estimate (if the sum was treated as a liquidated damages claim). The purchasers' submission overlooks that this figure was calculated as being at 5% (not 10% as per standard practice) of the total price ($14.8 million) that plainly indicated a luxury property with harbour views. It is well established that forfeiture of a deposit of no more than 10% does not ordinarily attract jurisdiction of equity to relief against penalties and forfeitures. [9] A reticence by a Court to intervene must be still greater for a deposit of 5%. I referred earlier in these reasons that the Contract price was comparable to market value (as at exchange) where the valuation assumed (as I have found) that the purpose of the transaction was to sell the 3 lots "in one line". 3. It is hardly surprising in view of the contract price that a considerable amount of deposit would be required, fulfilling the security purpose of a deposit, as an "earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract". [10] 4. I am not persuaded that clause 48 (or sub-clause 48.1(c)) is properly characterised as a penalty. Who is liable to pay the sum? 1. Ms Liew made no submissions on this issue. 2. The vendors urged the Court (primarily) to determine that both purchasers should be jointly and severally liable to pay the vendors the debt of $340,000. Consideration 1. To reiterate, the transaction generally may be characterised, in substance, as a contract for the sale of a single building to purchasers who were part of the same family on a single date. No additional provision was made in clause 48 as to which of Ms Liew or Mrs Wu was to bear responsibility to pay the sales price and/or the 5% deposit, or in what proportions. Nor had any provision been made as to how the purchasers would finance the balance of the contract price (although it was obvious that a lender was involved). Other than a natural concern to see the sale go through, what rights or entitlements were received by the purchasers, inter se, were of no particular concern or business of the vendors. 2. Given that the three separate contracts were 'interdependent', in my view the purchasers should be treated as being jointly and severally liable for the debt relating to the Third Instalment under clause 48(1)(c). If there is a valid basis for contribution (or even indemnity) between the purchasers, that will be a matter for the purchasers to deal with, if necessary (and appropriate), in subsequent proceedings. Relief on the cross-claim 1. Multiple remedies were identified in the vendors' cross-claim. This included (prayer 4) damages or compensation; but the vendors abandoned that claim. Declaratory relief had been sought (prayer 1), but upon questioning from me as to what jurisdiction this Court had to order such relief on a proceeding of this character, Counsel for the vendors abandoned that particular claim for relief. 2. I regard it as sufficient to make the orders identified in paragraph 85 of the vendors' submissions (MFI 1). 3. One of those orders is an order for costs. It is appropriate that the purchasers pay the vendors' costs of the proceeding in accordance with the usual rule (in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW)) that costs follow the event. 4. Although in prayer 5 in the cross-claim, the vendors sought an order that costs be paid on an indemnity basis, the vendors did not, through their Counsel's written submissions, seek to be heard as to why any special order for costs should be made. It was not, and could not, be suggested that the purchasers' claim and, in particular, the constructional argument they raised was not reasonably arguable which might justify an order that costs be payable on an indemnity basis. 5. Interest was claimed (only) under the Civil Procedure Act 2005 (NSW). In my view (although neither party made any submission about it), interest should run from the date of the vendors' termination. Orders 1. For the above reasons, the Court orders: 1. The Statement of Claim is dismissed. 2. The sum of $400,000 paid by the plaintiffs into the defendants' agent's trust account is to be released to the defendants. 3. In addition to order (2), the plaintiffs are to pay the defendants the sum of $340,000. 4. The plaintiffs are to pay the defendants pre-judgment interest under s 100 of the Civil Procedure Act 2005 (NSW) from 16 March 2022. 5. The plaintiffs/cross-defendants are to pay the defendants/cross-claimants' costs of the proceedings. ********** Endnotes 1. Exhibit 1 (CB 9) 2. Citing Workpac Pty Ltd (ACN 111 076 012) v Rossato (2020) 378 ALR 585 at [81]-[82], [87]-[88], acknowledging the fact that the Full Federal Court's decision was overturned, but not on the basis of a rejection of these particular principles. 3. Electricity Generation was also applied in Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 per Gageler, Nettle and Gordon JJ at [78]; and in Price v Spoor (2021) 270 CLR 450 per Kiefel CJ and Edelman J at [27] 4. These observations were followed in Victoria v Tatts Group Ltd (2016) 328 ALR 564 at [5] 5. See eg. Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) [2017] NSWSC 866 per Darke J at [45]. 6. Approved in Newey v Westpac Banking Corporation [2014] NSWCA 319 at [110] 7. Most recently, in Oliveri Legal Pty Ltd t/as Oliveri Lawyers v Cassegrain Tea Tree Oil Pty Ltd [2024] NSWCA 74 per Mitchelmore JA (Gleeson JA and Basten AJA agreeing) at [89]. Her Honour cited other authorities from the Court of Appeal which approved Brereton J's formulation. 8. The vendors cited J W Carter, Carter's Breach of Contract (Thomson Reuters, 2nd ed, 2018) [13-43], 635 9. Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 per Gleeson CJ at [26]; Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) [2017] NSWSC 866 per Darke J at [64]. 10. Howe v Smith (1884) 27 Ch D 89 per Fry LJ at 101. Fry LJ's observations in this case were approved in Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 per Gleeson CJ at [27]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 August 2024