New South Wales Supreme Court CITATION : Kestral Properties v Homes Corporation [2000] NSWSC 1129 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5258 of 1999 HEARING DATE(S) : 29 November 2000 JUDGMENT DATE : 29 November 2000 PARTIES : Kestral Properties Pty Ltd (Plaintiff) The Homes Corporation of Australia Pty Ltd JUDGMENT OF : Windeyer J at 1 COUNSEL : Mr T Hale SC (Plaintiff) Mr M Ashhurst (Defendant) SOLICITORS : The Law Firm of Solari's (Plaintiff) Church & Grace (Defendant) CATCHWORDS : CONVEYANCING - vendor and purchaser - valid termination of contract - forfeit of deposit - application for return of deposit - s55(2A) Conveyancing Act 1919 LEGISLATION CITED : Conveyancing Act 1919 s55(2A) CASES CITED : Terry v Permanent Trustee Australia Limited (1995) 6 BPR 97544 DECISION : See paragraphs 18, 19, 20 1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 29 NOVEMBER 2000 5258/99 KESTRAL PROPERTIES PTY LTD v THE HOMES CORPORATION OF AUSTRALIA PTY LTD JUDGMENT 1. HIS HONOUR: As it is late in the day and to try to avoid any unnecessary suspense, I think it probably wise to say that the vendor succeeds in this case. I will now shortly give the reasons for having come to that decision. 2. The plaintiff entered into a contract to purchase from the vendor/defendant property 4-6 Ocean Street, Wollongong, under contract for sale dated 10 September 1999. The purchase price was $1,150,000. The contract provided for a deposit of 5 per cent, namely $57,500 and, in addition, provided in special condition 15(b) that, if the deposit agreed to be paid was less than 10 per cent and the vendor became entitled to forfeit the deposit, the purchaser would, upon demand, pay to the vendor the difference between the amount which would have been 10 per cent and the amount actually paid to the intent that the full 10 per cent of the purchase price would be forfeitable by way of deposit. 3. What happened was that the contract was terminated by the vendor for failure by the plaintiff to complete it on 3 December 1999, notice of termination being given on 6 December 1999. It has already been determined as a separate preliminary issue in this matter that the contract was validly terminated so that the claim made by the purchaser under the summons filed on 29 December 1999 for an order that the plaintiff was entitled to have and in contract specifically performed failed. 4. There was thus left for decision under the summons a claim by the plaintiff purchaser that the deposit of $74,444.72 paid be returned to the plaintiff. That figure, which is in fact more than the 5 per cent which was payable, pursuant to the contract, was paid or treated as having been paid because there was another contract under which the purchaser was purchasing property from another company under the same control as the defendant company here. That other contract was completed and, because of some complications which had arisen on completion, an additional amount was paid which was treated as being taken towards the deposit on the contract in question here. 5. There is also to be determined today a claim by the defendant company as cross-claimant for payment of the balance to make the deposit up to a figure of 10 per cent of the purchase price, that amount being $40,555.28. Under the terms of the contract between the parties the vendor was entitled to forfeit the deposit upon the termination of the contract due to default by the purchaser and was entitled to have the amount of that deposit made up to the figure of 10 per cent of the purchase price. That strict contractual position is subject to the provisions of s55(2A) of the Conveyancing Act 1919. Under that provision, in any proceeding for the return of the deposit, the Court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. Such orders can be made in proceedings where a claim is made for specific performance as was made in this case and was the subject of the separate issue so that matter is properly before the Court and, in fact, is the only matter remaining for determination under the summons and cross-claim, no claim for damages being made under the cross-claim. 6. Under the provision of the contract and the events which had happened, the contract became due for completion on 25 October 1999 and was not completed on that date. Time was not essential as at that date but was made essential by notice to complete served on 26 October 1999 requiring completion on 11 November 1999. Prior to that date there was discussion about an extension of time and ultimately the contract was not completed on that date but a time was set for completion on 19 November 1999, that extension being agreed upon some terms. 7. The contract was not completed on that date: before that date negotiation had been entered into for an extension of time which was agreed and settlement was fixed to take place on 26 November 1999. There was a further agreement under which the time for completion was extended up to 3 December 1999. Completion did not take place on that date. The reason it did not take place was that the purchaser company did not have the funds, which it was in the process of arranging to borrow, available on that date. It is possible that it might have had some funds available but it had chosen to attempt to obtain finance for the whole of its project and those funds were not available at the time at which completion arose. 8. There is one other matter which I think should be explained. That is that it had been intended that the purchaser company would purchase the Ocean Street properties before it settled the purchaser from another company associated with the vendors some properties in Kembla Street, Wollongong. The settlement arranged for Ocean Street property could not take place because for some reason the National Australia Bank had obtained a valuation of the Kembla Street properties rather than a valuation of the Ocean Street property. It was therefore possible to settle the purchase of Kembla Street but it was not possible to settle the purchase of Ocean Street. I should explain that the National Australia Bank had agreed to fund the purchase price in respect of each property up to 70 per cent of the purchase price. 9. After the contract was terminated the solicitor for the purchaser maintained that there was no right to terminate and wrote stating that the purchaser had funds which would enable it to settle, on two days' notice or 48 hours' notice. The defendant company maintained that the contract was at an end and that was found to be a fact in February this year by the decision of Mr Acting Justice Davies. Mr Nicholls, who controls the vendor company, said that when he sold the property with the development consent attached he made a decision that this was the appropriate course for him to take; in other words that it was better for him to sell than to develop. He said that after the termination he came to a contrary decision and decided it was in his interests to develop the property or complete the development rather than to sell it either to the original purchaser or perhaps to somebody else. He said that he had come to the view that he was not able to rely on the vendor company completing within the 48 hours that it said it could, and that therefore he should push forward with the development as fast as he could because the coming into operation of the GST tax was imminent and it was important to get as much building work as possible done before 30 June 2000. 10. There is some evidence that the vendor has sold three of the nine units to be constructed on the Ocean Street property under conditional contracts. There is no evidence of the price at which they have been sold. There is some evidence of what Mr Nicholls estimated might be the selling price for all the units but there is no evidence as to what costs will ultimately be involved in obtaining those purchase prices if they are obtained. In other words, there is no evidence to show that the defendant will be better off as a result of his conducting the development than he would have been had he proceeded with a sale to the vendor company at the original figure assuming of course that the purchaser company would have been able to complete a contract on those terms. 11. I do not think that it could be said that the vendor company was involved in any sharp or untoward conduct in his termination of the contract. That termination has been found to be good. Any subsequent sale to the plaintiff would strictly have involved entering into a new contract. 12. The purchaser company had been given a number of extensions and had been unable to complete within those times albeit that on one of those occasions this inability may have arisen through a mistake in the operations of the National Australia Bank rather than through any fault at all of Mr Maples of the purchaser company. I say that may have occurred through fault of the bank but there is no actual evidence that it is. 13. What has to be decided in a case such as this is whether or not it would be unjust and inequitable to allow the vendor to retain the deposit to which it is entitled under the terms of its contract. This is a matter entirely within the discretion of the Court but it must be found that, within those terms, that the vendors should not retain the benefit of the contract and should therefore not be entitled to forfeit the deposit. 14. There is no purpose in going through decided cases all of which depend entirely upon their own facts because it is an entirely discretionary matter. Nevertheless it is correct to say to that, in my view, all the principles are addressed in the decision of Justice Santow in Terry v Permanent Trustee Australia Limited (1995) 6 BPR 97544. One of the matters which is generally taken into account in considering these questions, apart from the question as to whether there is any sharp conduct or unfair taking of advantage by the vendor, is whether or not there is some evidence of a windfall which is available to the vendor as a result of the termination of the contract and therefore the ability to re-sell or perhaps develop. In this case there is no such evidence. 15. I accept that in the case where a contract is terminated and the property is sold almost immediately afterwards for an increased purchase price of perhaps 20 or 30 per cent then this is such an advantage to the vendor that it would be unjust to allow him or her to forfeit the deposit or retain the deposit and take the benefit of the windfall as well. There is no such evidence in this case. There is no evidence of unfair practice in my view. 16. The defendant vendor is entitled to enforce the contract and therefore to forfeit the deposit in accordance with the contract. It follows from that that the balance of the summons should be dismissed and that the cross-claimant should have the order which is sought under the cross claim. 17. As I understand the figures have been agreed and I would propose to make the order for the balance of $40,555.28. ASHHURST: I seek an order for interest from 6 December 1999 at full rates. HIS HONOUR: Does anyone want to say anything about interest? ASHHURST: Apart from what I said, no, your Honour. HIS HONOUR: Mr Hale. HALE: No. That's obviously on the unpaid portion only. There is nothing I can say. HIS HONOUR: Only on this figure, on the 40 thousand. I think in the circumstances it has to follow. Has anyone worked out the amount? ASHHURST: No, unfortunately. We can undertake to do that but we haven't done it. HALE: It must be on the date of demand. ASHHURST: It's on the date the moneys fell due. HIS HONOUR: I think it would be 6 December. ASHHURST: That's right. HALE: It says on demand. We are probably only talking about days. HIS HONOUR: What says demand? HALE: Clause 15B is payable on demand so I suspect when I go back and look at the document I will find the demand was made soon after the day of termination if not on the very day. HIS HONOUR: It might have been made when the cross-claim was filed. ASHHURST: It's 14 December, document 66 in Ex 4. HALE: That was the document I was looking for. HIS HONOUR: I won't work it out. 18. The orders on the summons I propose to make will be as follows: Balance of summons dismissed with costs. Plaintiff to pay defendant's costs of the summons on the cross-claim. Once the parties have agreed on the amount of interest I propose to give judgment for the cross-claimant for a figure which will be $40,555.28 plus interest in accordance with Court rates from 14 December 1999. ASHHURST: Perhaps my instructing solicitors could have something drafted up. HIS HONOUR: Send them up and I will make them. Exhibits can be returned. ASHHURST: On the basis of an offer made, I seek costs. HALE: I have no objection to your Honour receiving that. HIS HONOUR: I don't propose to do it. 19. An offer of compromise has been made. A letter which is a Calderbank type letter was put into evidence. That was made on 31 October after the matter was put into the short matters list and could have been called on at any time on three days' notice after that. 20. Having regard to the time at which this was made, indemnity costs should not be granted EXHIBIT #5 LETTER HANDED UP BY MR ASHHURST. Last Modified: 12/07/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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