Reported Decision : (2003) NSW ConvR 56-044 New South Wales Supreme Court CITATION : Golding v Vella [2001] NSWSC 567 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3043/99 HEARING DATE(S) : 31/05/01, 01/06/01 JUDGMENT DATE : 9 July 2001 Mark John Golding - Plaintiff PARTIES : Frederick Anthony Vella - First Defendant Therese Marianne Vella - Second Defendant JUDGMENT OF : Barrett J COUNSEL : Mr G.P. McNally - Plaintiff Mr G.A. Seib - Defendants SOLICITORS : Matthews Dooley & Gibson - Plaintiff Williams Boxsell Georgas - Defendants CATCHWORDS : CONVEYANCING - Matters arising between contract and conveyance - Purported termination by purchasers for breach by vendor - Purported termination relied upon by vendor as wrongful repudiation - Whether vendor can reecover unpaid balance of deposit after termination - Whether purchasers entitled to relief under s.55(2A) Conveyancing Act 1919 - CONVEYANCING - Formation of contract - Real estate salesperson purports to effect exchange of contracts - No authority of purchasers to do so - Purchasers present but not participating in supposed exchange - Salesperson delivers part signed by vendor to purchasers' solicitors - When exchange effected LEGISLATION CITED : Conveyancing Act 1919 Property, Stock and Business Agents Act 1941 Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959 Clarke v Ramuz [1891] 2 QB 456 Alexus Pty Ltd v Pont Holdings Pty Ltd (2000) 10 BPR 18,371 Nelson v Bellamy [2000] NSWSC 182 Flight v Booth (1834) 1 Bing (NC) 370 Bot v Ristevski [1981] VR 120 Kirk v Ashdown [1999] 2 QdR 1 Socratous v Koo (1993) 6 BPR 13,226 Kylsilver Pty Ltd v One Australia Pty Ltd [2001] NSWSC 226 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 CASES CITED : Benyon v Wongala Holdings Pty Ltd (1999) 9 BPR 16,781 Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677 Clurstock v Timanu Pty Ltd (1988) NSW ConvR 55-419 Eccles v Bryant and Pollock [1948] 1 Ch 93 Sindel v Georgiou (1984) 154 CLR 661 Domb v Isoz [1980] 1 All ER 942 Harris v Fuseoak Pty Ltd (1995) 7 BPR 14,511 Mallett v Jones [1959] VR 122 Terry Pfeiffer Real Estate Pty Ltd v Connors [2000] NSWSC 452 "The Standard Contract for Sale of Land in New South Wales", Butt, 2nd ed, 1998 "The Law of Vendor and Purchaser", Stonham, 1964 DECISION : 1. Contract for sale of land between plaintiff as vendor and defendants as purchasers was validly terminated by the plaintiff; 2. Plaintiff repay to defendants $1,337.50, being the part of the deposit paid by the defendants; 3. Defendants pay to plaintiff damages of $8,199.40 for breach of contract. 38 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J MONDAY, 9 JULY 2001 3043/1999 - GOLDING v VELLA & ANOR JUDGMENT HIS HONOUR: Background 1 The plaintiff, being the vendor under a terminated contract for the sale of land, claims by his Amended Summons a declaration that that contract was validly terminated by notice given by him to the defendants (purchasers) on 23 June 1999. The plaintiff also claims an order that so much of the deposit payable under the contract as was not paid (that is, $52,162.50 out of a total deposit of $53,500) be paid to the plaintiff. There is also a claim for damages. The defendants say that, if grounds for forfeiture of the deposit exist, they should be granted relief under s.55(2A) of the Conveyancing Act 1919. 2 While much attention was paid in the evidence and in argument to events surrounding formation of the contract, there is no dispute that it was entered into or that it was later terminated. Nor is there any real dispute about its content. The central controversy is as to the propriety of a purported termination by the defendants and the appropriate destination of the deposit. Events relevant to contract formation may affect certain discretionary aspects of that last matter. 3 The hearing before me proceeded on the basis that the following were the issues for trial: 1. Whether the defendants validly terminated the contract and, in particular (a) whether the plaintiff was ready willing and able to complete on 18 June 1999; (b) whether the plaintiff was in breach of any essential term of the contract on 18 June 1999 which entitled the defendants to refuse to complete; and (c) whether the defendants waived compliance with the requirement to erect fencing before completion. 2. If the defendants did not validly terminate the contract, whether the plaintiff validly did so, based on the defendants' purported termination. 3. If the plaintiff validly terminated the contract, (a) whether the defendants may resist forfeiture of the deposit to the plaintiff by virtue of s.55(2A) of the Conveyancing Act; and (b) the amount of damages to which the plaintiff is entitled. Outline of facts 4 It will be necessary to go into certain issues of fact in some detail in due course. For the moment, it is sufficient to state the facts briefly. The plaintiff acquired vacant land in Hillsborough Way, Baulkham Hills and arranged for the construction of a house by New Accent Home Builders, a principal of which was Mr Rewell to whom the plaintiff also entrusted the task of selling the completed house. This was a speculative venture on the plaintiff's part. He built the house with a view to sale, not so that he might live in it. The defendants were shown the house by Ms Cox, a salesperson with Blameys Town & Country Real Estate Pty Ltd which traded as Asset Realty, Castle Hill. At that point, the house was virtually complete, although some finishing work remained to be done. In the early evening of 19 April 1999, Ms Cox orchestrated certain events involving signed parts of a contract document which caused a contract for the sale of the house by the plaintiff to the defendants to be concluded either on that evening or on the following day, 20 April 1999. The defendants soon developed cold feet and took steps to exercise the withdrawal rights made available by the "cooling off" provisions in Division 8 of Part 4 of the Conveyancing Act. There was doubt as to whether those steps were effective but, in the result, the plaintiff would concede nothing and the defendants, believing that they had no alternative, affirmed the contract and chose to proceed with the purchase, albeit without enthusiasm. 5 On 1 June 1999, the plaintiff's solicitors served a notice to complete requiring completion at 3 pm on 18 June 1999. The plaintiff afterwards purported to withdraw this notice but the defendants did not concede his right to do so. Although the defendants' solicitors had stated again in a letter of 31 May 1999 to the plaintiff's solicitors that the defendants did not wish to continue with the purchase, both parties proceeded towards completion on 18 June 1999. An appointment to settle at 11.30 am was made. Settlement figures were agreed. The defendants made arrangements for mortgage finance to be available at settlement. But by fax sent at 9.32 am on 18 June 1999, the defendants' solicitors notified the plaintiff's solicitors that the defendants would not complete, alleging "extensive deficiencies in the property not in accordance with the contract or representations made to our clients which induced the purchasers to sign a contract to purchase the property in the first place". The letter went on to detail the deficiencies, including failure to install PC items and to erect fences. On 21 June 1999, the defendants purported to terminate the contract on the basis that, for the reasons detailed in the letter of 18 June, the plaintiff was not ready, willing and able to complete on the appointed day and that the plaintiff was in breach of an essential term. The plaintiff says that he was ready, willing and able in that there was a specific understanding that the PC items were to be installed on the day of settlement (and arrangements to that end were in fact in hand), that there was a specific agreement that the fencing was to be delayed until a neighbour had built a retaining wall and that other alleged defects did not constitute grounds for refusing to complete. The plaintiff treated the defendants' purported termination as itself an unlawful repudiation of the contract, accepted that repudiation and purported to terminate by notice of termination given on 23 June 1999. The plaintiff's claim that the defendants wrongfully terminated 6 The contract was, as to its format and printed clauses, the 1996 edition of the standard form. Although some typewritten special conditions were added, the front sheet of the 1996 edition containing provision for definitions was used. In the space on the front sheet labelled "Inclusions" under the heading "Meaning of Term", there was reference to the various PC items in contention (cook top, range hood, oven, dishwasher and hot water system), as well as handwritten words after the word "other:", including "lapped and capped fencing". It is common ground that none of those items had been installed or constructed when the contract was entered into. 7 This makes a nonsense of the opening words of the "Inclusions" section on the front sheet of the contract: "These marked items inspected by the purchaser (some may be fixtures)." It also makes a nonsense of that part of the defined term "Property" in the "Meaning of Term" section which refers to "all fixtures and the inclusions". But it was accepted, clearly enough, that the reference in the "Inclusions" (and therefore "Property") definition to certain non-existent items "inspected by the purchaser" imported a promise on the vendor's part to ensure that those items were properly installed or constructed by completion. On that footing, it should also be accepted that there was no scope for the operation, in relation to those items, of either clause 10.2 (which precludes rescission or termination by the purchaser "only because of a defect in title to or quality of the inclusions") or special condition 32 (which, somewhat curiously, declares, "Normally, the Purchaser acknowledges that he is purchasing the Property in its present condition and state of repair", when exactly the opposite was the case). 8 It is also necessary to refer to certain other matters concerning the state of the house and its grounds upon which the defendants relied when purporting to terminate the contract. They alleged that the vendor had agreed, through Mr Rewell, to remove an island bench in the kitchen and to enlarge brick paving outside so that it extended the full length of the house. Neither of these matters became the subject of any term of the contract. There was, at most, an oral representation by the vendor through Mr Rewell or an oral agreement between the plaintiff as vendor and the defendants as purchasers. The relevant words were spoken either on the day contracts were exchanged or on the immediately preceding day. 9 In declining to complete on 18 June 1999, the defendants relied on what they contended to be the vendor's failure to honour both the contractual undertakings as to installation of PC items and fencing which arose from the additions in the "Inclusions" section on the front sheet of the contract and the oral representations or promises regarding the island bench and the brick paving, as well as certain other aspects of the building they regarded as not properly finished. Whether the defendants were justified in taking that stance depends in part on certain matters of fact to which it is necessary to turn in greater detail. 10 It is not disputed that, by the morning of 18 June 1999, the house and other improvements were complete, save for the installation of the specified PC items and the erection of the dividing fences on either side (the back boundary was already fenced), although there is some question about the completeness of the brick paving and removal of the island bench. I shall deal with the bench and the paving (as well as other supposedly unsatisfactory aspects not covered by the contract itself) in due course. 11 There is in evidence a letter of 31 May 1999 from the vendor's solicitors to the purchasers' solicitors stating that the PC items would be installed on the day fixed for completion since "if installed earlier they are at high risk of being stolen". Mr Rewell deposes, and the defendants do not deny, that he told them on 19 April 1999 that this installation would be left until the last day. 12 At about 5.00 pm on 17 June 1999, the first defendant attended the property to evaluate the progress of the outstanding works. He was accompanied by the defendants' son who drew up on notepaper of Planet Interiors Pty Ltd (with which the son was associated) a "Defects List" in relation to outstanding items and the quality of the work done. The Defects List refers to a number of minor defects in the quality of workmanship as well as the other matters that are in issue such as the fences, the paving and the island bench. 13 The next day, the appointed settlement day, in the morning not long after 9.00 o'clock, the second defendant walked around the property. She observed through the windows that the wrought iron handrail (another item mentioned in the "other:" section of "Inclusions") had been installed but the oven and cook top had not been installed. She could not see whether the dishwasher had been installed. Nor, it seems, could she see whether the island bench was still there. She also observed that the two side fences had not been erected. She noted that there were not any workmen on the property. Later in the day, at approximately 3.45 pm, the second defendant returned to the property. This time she was able to enter the house as the door was open because workmen were attending to some carpet. She noted that things had not changed since her morning inspection. Some brick paving work had been done but the paving had not been extended all the way down the left side of the house. Wood chips had been put down the remainder of the left side of the house. 14 Mr Rewell gave evidence of steps taken on the morning of 18 June 1999 to obtain and install the PC items. He said that when he received word on that morning that settlement would not occur (this no doubt being after receipt by the plaintiff's solicitors of the defendants' solicitors' fax of 9.32 am), the PC items had already been collected from the supplier and were on a truck on the way to the property where a plumber and an electrician were waiting to install them. The obtaining of the PC items and the attendance of the tradesmen had been arranged by Mr Rewell. In addition, Mr Rewell said that he had been involved in the construction of about sixty houses and that, because of the theft risk, it was common practice for PC items to be installed only on the day of occupation or settlement. He said that the installation process usually takes less than one hour. 15 It is common ground that the side fences had not been erected on 18 June 1999, but otherwise there is some conflict of evidence about the fencing. While it is agreed that the vendor was required by the contract to erect "lapped and capped fencing" on the two side boundaries, the vendor contends that the purchasers had agreed that this need not be done before completion. In particular, the plaintiff points to the affidavit evidence of Mr Rewell that he said to one or other of the defendants on 19 June 1999: "The fences are part of my contract with the owner but it doesn't make sense to put them in until the neighbour has carried out the retaining work." Mr Rewell's evidence was that he received a reply to the effect that "that makes sense". (The fact that the plaintiff, in cross-examination, said he did not recollect his agreement with Mr Rewell as being to this effect is beside the point, given that Mr Rewell had been held out by the plaintiff as someone who could deal with the sale and associated matters.) 16 The first defendant's account of this matter in cross-examination was as follows: "Q. Do you recall Mr Rewell saying to you, 'The fences are part of my contract with the owner but it doesn't make any sense to put them in until the neighbour has carried out the retaining work'? A. Not completely right. Only one side. Not the other side. He didn't mention anything about the other side. The retaining wall had to go on the one side. Q. You said 'that makes sense' or words to that effect, didn't you? A. Yes, the one side. Q. You see, the reason you said it makes sense is because you knew it would be futile to put the fence up if in fact the neighbour was going to construct a retaining wall, didn't you? A. Only by his words. I am not a builder, so I don't know. I don't build fences. Q. You accepted that, didn't you? A. By what he said, yes. Q. You then accepted that in fact he would not put the fence up until the neighbour had constructed the retaining wall? A. On the one side but, yes. Q. You see, I also suggest to you that Mr Rewell said to you, in that conversation, that it would be better to do all the fencing at the same time, that is, both sides, so that the one contractor can be used. Do you remember him saying that? A. I don't recall him saying that, no. Q. Do you agree that that was a sensible proposition? A. No, I don't think so, no. Q. You say you don't recall him saying that. Do you agree that he may have said it and you just can't remember that that was so? A. Yes, I suppose. I don't remember him saying it." 17 Mr Rewell's cross-examination included the following: "Q. So is it correct to say the discussions you recollect with Mr and Mrs Vella about the retaining walls related to the right-hand retaining wall? A. I definitely spoke to them about the right-hand retaining wall, definitely. Q. And that this was the neighbour's responsibility? A. Correct. Q. And you said that it wouldn't make sense, your evidence is that you said it wouldn't make sense to put the fence up until the neighbour had put in the retaining wall? A. That's correct. Q. I suggest to you that related only to the right-hand side fence? A. That's correct. Q. There was nothing to stop you putting a left-hand side fence in and you didn't refer to the left-hand side fence? A. No, we did refer to the left-hand side fence. If we had to send the contractors back, we may as well send them back to do the both the fences at the same time and we all agreed that was a fair and reasonable thing to do. Without a right boundary fence there was no point in having the left one either. Q. Pausing there, there was nothing to stop you putting in the left-hand side fence? A. No, there was nothing stopping me, no. Q. You say that for practical reasons it would have been better to delay the right-hand side fence, correct? A. Correct, yes. Q. What I am putting to you is that you had no discussion at all about delaying the construction of the left-hand side fence? A. Yes, we did. Q. And I'm suggesting to you that Mr Vella said to you - to be fair, I will be precise about it - Mr Vella said to you that he didn't want the fences not erected, didn't he? A. No. Q. And he said that to you and you understood that he wanted the fences erected? A. No. Q. And that he was not prepared to wait some indefinite period of time for a neighbour to put a retaining wall in, before either boundary fence was erected? A. No, I would have told Mr Vella definitely that I could put them up, but there would be no point if the neighbour didn't put his retaining wall up, he could ring me at any time and I would put them up without it. Q. That wouldn't affect the erection of the left-hand side fence, would it? A. No, no." 18 The second defendant says that she was not party to any conversation with Mr Rewell about the fencing. 19 I am satisfied that Mr Rewell made it clear to the first defendant that the fences could be erected at any time but that commonsense reasons made it desirable for both to be erected at the same time and for this to await the completion of the neighbour's retaining work. I am also satisfied that the first defendant (who, as a motor mechanic, may be taken to have some appreciation of such practicalities) saw the sense in what Mr Rewell said and, in the atmosphere prevailing on 19 June 1999 immediately after the signing of the contract, was content to indicate to Mr Rewell that all the fencing work might be deferred. 20 In the light of the evidence concerning the PC items, I must conclude that the plaintiff had not failed to comply with the contractual requirement as to their installation and, as foreshadowed to the defendants by Mr Rewell on 18 April 1999 and in the plaintiff's solicitors' letter of 31 May 1999, was in fact attending to that installation in preparation for completion when notification of the defendants' intention not to complete was received by the plaintiff's solicitors. It is pertinent to note here that when a notice to complete makes time of the essence, there is no default unless the whole of the appointed day passes without performance and that this is so even if the notice nominates a time for completion: see, for example, Castle Hill Tyres Pty Ltd v Luxspice Pty Ltd (1996) 7 BPR 14,959. As to the fencing, I am satisfied that the first defendant, for himself and the second defendant, acquiesced in the proposal of Mr Rewell on behalf of the plaintiff that all fencing be deferred. There can be no suggestion that the plaintiff attempted to disown the promise to erect the fences. It was just that, for valid practical reasons, the plaintiff proposed a delay and the first defendant, no doubt seeing the good sense in such an approach, agreed, thereby dispensing with the original timing element of the promise but not, of course, with the substance of that promise. 21 I return now to the representations made on the vendor's behalf about the island bench and the brick paving. It is not disputed, as I understand it, that Mr Rewell had represented on the vendor's behalf that the bench would be removed before completion. As to the paving, however, Mr Rewell's evidence is that he agreed to extend the brick paved pathway by using the surplus paving bricks still on the site, but without any assurance that they would extend the path the full length of the house. 22 Clause 10.1.5 of the contract is as follows: "The purchaser cannot make a claim or requisition or rescind or terminate in respect of … a promise, representation or statement about this contract, the property or the title, not set out or referred to in this contract." 23 This is effectively an "entire agreement" clause as regards the vendor's commitments and there is no reason why it should not be applied at face value, at least in so far as rights and remedies under and in relation to the contract itself are concerned, including termination. While the unwritten and collateral representations about the island bench and the paving may attract some other remedy (a matter which was not argued and on which I express no view), clause 10.1.5 precludes reliance upon them as a basis for terminating the contract itself. 24 The final complaint of the defendants concerned various matters detailed in the "Defects List" prepared by their son as a representative of Planet Interiors Pty Ltd. The fact that it was their son who prepared this list and that the defendants were, at best, reluctant purchasers does tend to suggest that the list may not be as objectively reliable as a list prepared by a qualified person retained at arm's length. But even allowing for that, the items do not appear to have been of a substantial nature. Nor was there any express provision of the contract requiring the plaintiff to finish the property to a particular standard. That being so, an obligation to act reasonably will be implied, based on the vendor's position as trustee between contract and completion (cf Clarke v Ramuz [1891] 2 QB 456) but otherwise clause 10.1.5 will apply. 25 Against this background, I conclude that when, at 9.32 am on 18 June 1999, the defendants gave notice through their solicitors that they would not complete, the plaintiff was not in default under any provision of the contract warranting such a stance on the defendants' part. He was in the process of installing the PC items, having left this until the last day as notified to the defendants beforehand. The defendants, on my findings, had agreed to deferral of the fencing so as to divorce the timing aspect of that part of the plaintiff's obligations from completion. And the other matters - island bench, brick paving and "Defects List" items - did not form part of the contract (even though they may have given rise to other legal rights) and were, by the express provisions of clause 10.1.5, incapable of constituting any basis for lawful termination. 26 A convenient summary of the legal principles applicable to such a situation appears in the following extract from the judgment of Young J (as he then was) in Alexus Pty Ltd v Pont Holdings Pty Ltd (2000) 10 BPR 18,371: "[20] A party to a contract for the sale of land is only entitled to give a notice to complete if that party is ready, willing and able at the date when the notice is given to proceed to completion at the expiry of the notice: McNally v Waitzer [1981] 1 NSWLR 294; Caleo Bros Pty Ltd v Lyons Bros (Aust) Pty Ltd (1980) 1 BPR 9496, 9499. For brevity, I will use the term "readiness" to comprehend being ready, willing and able to complete. [21] What readiness means in this context is the same concept as readiness for the purpose of granting specific performance ( McNally v Waizer supra). [22] One must distinguish between essential and non-essential obligations. Lack of readiness to perform an essential obligation ordinarily leads to inability to give a notice to complete or to force specific performance. However, this is not ordinarily the case where the obligations concerned are inessential: see Measures Bros Ltd v Measures [1910] 2 Ch 248, 260-261; Dyster v Randall & Sons [1926] Ch 932 and Bahr v Nicolay (No 2) (1988) 164 CLR 604. [23] There are some provisions in a contract which merely sound in damages and even a vendor in breach may still force completion. An example is Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395, 401. In that case the sale of a commercial property was subject to leases and the leases were not as disclosed in the contract. This was a matter which merely sounded in damages and did not prevent completion. [24] On the other hand, where there is a substantial defect and the purchaser is entitled to an abatement of the purchase price it is not open to the vendor to give a notice to complete or to force specific performance without at least offering compensation: see Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 9419, 9426, a case where the vendor was in breach of its duty to take reasonable care of the property between contract and completion. Other examples are cases where the vendor has promised to build a house on the property sold and there have been grave defects in the building; see Tildesley v Clarkson (1862) 30 Beav 419; 54 ER 951 and Doyle v East [1972] 1 WLR 1080." 27 In the present case, the plaintiff, as vendor, is to be regarded as having been ready, willing and able to complete as required on 18 June 1998 and was not then in breach of any essential term (the terms as to the PC items and the fencing not being of that character in any event: see Nelson v Bellamy [2000] NSWSC 182). It was the defendants, as purchasers, who, by their solicitors' fax of 9.32 am, defaulted under the time stipulation which had by then become essential. The plaintiff was therefore justified in regarding the defendants as having wrongfully repudiated the contract and it was open to him to terminate on the basis of that repudiation as he did by the notice dated 23 June 1999. There is no room here for the operation of the principle in Flight v Booth (1834) 1 Bing (NC) 370. The plaintiff is entitled to the declaration sought in his Amended Summons. The plaintiff's claim for the balance of the deposit 28 I turn now to the plaintiff's claim for the payment of the balance of the deposit. The contract stipulation about the deposit appears on the front sheet in the "Price" section. The price is stated to be $535,000. There then appears, "Deposit $53,500 (10% of the price, unless otherwise stated)", followed by handwriting, "0.25% being initial deposit with the balance of 10% due prior to 5 pm of the fifth working day". Clause 2 of the contract contains the following provisions: "2.1 The purchaser must pay the deposit to the depositholder as stakeholder. 2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential. 2.3 If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential. 2.4 The purchaser can pay any of the deposit only by unconditionally giving cash or a cheque to the depositholder or to the vendor, vendor's agent or vendor's solicitor for sending to the depositholder." 29 The "depositholder" (or, as it there appears, "Deposit holder") is defined on the front sheet as "Vendor's agent" which in turn is defined as New Accent Home Builders. It is common ground, as I understand it, that $1,337.50 out of the total of $53,500 was paid on 20 April 1999 but that the balance of $52,162.50 was not paid in accordance with the contract provisions regarding the deposit. 30 The circumstance that, as both the plaintiff and the defendants acknowledge, the contract has been terminated does not mean that the former can no longer insist upon payment of the unpaid balance of the deposit. Associate Professor Butt puts the matter thus at p.451 of "The Standard Contract for Sale of Land in New South Wales", 2nd ed, 1998: "In conclusion, then, it now seems clear beyond doubt that a vendor who has terminated the contract for the purchaser's default can sue for and recover the amount of an unpaid deposit. This is so even where the amount of the vendor's actual loss is less than the amount of the deposit. The consideration for payment of the deposit is entry into the contract. In this, a deposit serves a different function than instalments of the purchase price. A vendor who terminates the contract for the purchaser's repudiation cannot claim overdue instalments of purchase money, or retain instalments of purchase money already paid, because the vendor's right to retain (or recover) the purchases money is conditional on subsequent completion of the contract by conveyance or transfer - and if the contract is not completed, the "consideration" fails totally. But the vendor's right to recover a deposit is not conditional in this sense. It is not "defeated or divested" by later discharge of the contract. There is no failure of consideration if the land is never conveyed or transferred, because the purchaser has had the benefit of the vendor's entry into the contract." 31 This reflects the clear trend of authority since the decision of Brooking J in Bot v Ristevski [1981] VR 120. Recent authoritative confirmation of a vendor's right to recover the unpaid balance of a deposit after terminating the contract is found in the decision of the Queensland Court of Appeal in Kirk v Ashdown [1999] 2 QdR 1. This result is, in any event, expressly contemplated by clause 9.1 of the contract which keeps some contractual rights and obligations alive after termination: "If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice and after the termination … keep or recover the deposit (to a maximum of 10% of the price) …." 32 Subject to the outcome in relation s.55(2A), the plaintiff is therefore entitled to payment of the balance of the deposit in the sum of $52,162.50. The defendants' claim for relief under s.55(2A) of the Conveyancing Act 33 It is necessary to turn next to the defendants' claim for relief under s.55(2A) of the Conveyancing Act which empowers the court "to order the repayment of the deposit with or without interest thereon". A preliminary question whether the section is available in relation to part of a deposit which has not been paid (and operates, in that context, to mitigate an obligation to pay) should be answered in the affirmative. The decision of McLelland CJ in Eq to that effect in Socratous v Koo (1993) 6 BPR 13,226 was recently approved and followed by Hamilton J in Kylsilver Pty Ltd v One Australia Pty Ltd [2001] NSWSC 226. The section creates a statutory jurisdiction which supplements general equitable principles of relief against forfeiture in cases where a defaulting purchaser's deposit is forfeited to the vendor. In the present case, the defendants' wrongful repudiation brought into play the part of clause 9.1 of the contract set out above. It is in relation to the forfeiture effected by that clause that the defendants seek to invoke the jurisdiction created by s.55(2A). 34 The role of the deposit in a conveyancing transaction was described as follows by Stonham at p. 338 of "The Law of Vendor and Purchaser", 1964: "A deposit, in the event of the contract being performed, is brought into account, but if the contract is rescinded by reason of non-performance by the purchaser, it is forfeited to, and remains the property of the vendor. Therefore, it is not merely a part payment, but is also an earnest to bind the bargain entered into, and creates, by the fear of its forfeiture, a motive for the purchaser to perform the rest of the contract." 35 Generally, the effectiveness of this fear of forfeiture as an instrument for securing performance will be enhanced by a sparing attitude towards relief. But circumstances warranting relief obviously may arise. They will be recognised by reference to the guiding principle in relation to s. 55(2A) enunciated by Street CJ in Eq in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268. That principle has been acted upon consistently in this Division. Its appropriateness was noted by Powell JA in Benyon v Wongala Holdings Pty Ltd (1999) 9 BPR 16,781. Street CJ in Eq referred first to the purpose of s. 55(2A): "The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. It is clear enough that at law a vendor's right to forfeit a deposit to himself in the event of a purchaser's default bears no necessary relation to the damages actually suffered by a vendor. At law a forfeited deposit could result in a vendor making a profit which in justice and equity he ought not to be permitted to enjoy at the purchaser's expense." 36 After emphasising that the section does not give the Court an overall discretionary supervision of monetary adjustments between parties to a terminated contract, Street CJ in Eq continued: "A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s.55(2A) unless it is unjust and inequitable to permit him to retain it." 37 There is a balance to be struck here. As Young J observed in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189, it is a matter of looking at all relevant factors to see whether it is fair and conscionable to give relief, and it is probably going too far to say that some special or exceptional circumstance must be found before an order can appropriately be made (cf Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677). 38 There are, to my mind, two factors in the present case which may point to elements of injustice in allowing the plaintiff to retain the benefit of the deposit. The first is that the plaintiff re-sold the property for the same price. The second is that attempts by the defendants to extricate themselves from the contract under the "cooling off" provisions of the Conveyancing Act, although believed at the time to have been unsuccessful, may in reality have been effective. If that is so, the defendants were under a serious misapprehension when they later elected to affirm the contract. 39 The first of these matters, although relevant and persuasive, cannot be determinative. In some cases, the fact that the vendor has re-sold at a profit has been the main element in a decision to grant relief under s.55(2A): see, for example, Nelson v Bellamy (above). Viewed alone, however, it is generally not sufficient: Clurstock v Timanu Pty Ltd (1988) NSW ConvR 55-419. 40 This makes it necessary to examine the second matter. That, in turn, raises the question of when the contract was "made", that being, by virtue of s.66S(2), the starting point of the statutory "cooling off period". It is common ground that, if that period began on 19 April 1999, the attempted resort by the defendants to the termination rights provided by the cooling off provisions was ineffective, but if the period began on 20 April 1999 they did in reality become free of the contract. 41 The uncertainty about the time the contract was made arises from events which occurred on 19 April 1999. In the course of those events, Ms Cox of Blameys Town & Country Real Estate Pty Ltd (trading as Asset Realty, Castle Hill) came to have in her possession two parts of the contract, one signed by Mr Rewell in the place reserved for the vendor's signature and the other signed by the defendants as purchasers. It appears that Mr Rewell signed in exercise of express authority conferred on him by the plaintiff by means of a document which will be mentioned in due course. On 20 April 1999, the part signed for the plaintiff as vendor was delivered by Blameys to the solicitors named in the document as solicitors for the purchasers (i.e, the defendants). Also on 20 April 1999, those solicitors received from Blameys a letter referring to the property and beginning: "We wish to advise the proposed purchase of the abovementioned property on behalf of your clients, Frederick Anthony Vella & Therese Marianne Vella." 42 Details of the transaction followed. These are, in some respects, at odds with the content of the contract. In particular, the vendor is described in the letter as New Accent Home Builders of PO Box 6885, Baulkham Hills Business Centre. 43 The fact that there were two parts of the contract, one signed on behalf of the vendor and the other signed by the purchasers, leaves no doubt that the formation of a contract by the familiar conveyancing process of exchange of such parts was envisaged. In the normal course, that process involves the physical passing of the part signed by the vendor to a representative of the purchaser and the physical passing of the part signed by the purchaser to a representative of the vendor. This is "the crucial and vital fact which brings the contract into existence": Eccles v Bryant and Pollock [1948] 1 Ch 93. As the High Court put it in Sindel v Georgiou (1984) 154 CLR 661, "[t]he ceremony of exchange constitutes a mutual acknowledgment that the bargain has been struck". That "ceremony" may, as the High Court recognised, be performed by physical delivery, by post or constructively by telephone. In the case of constructive exchange by telephone, it is suggested by Associate Professor Butt (at p.214) that the essential element is an acknowledgment by one party to the conversation that he or she holds one part physically in his or her possession to the order of the other party to the conversation so that there is a constructive passing of possession. In a case where a party to the conversation is not the contracting principal, it is implicit in this that that party must act with the principal's authority, whether actual or otherwise. The relevance and sufficiency of constructive possession emerge clearly from the judgment of Buckley LJ in Domb v Isoz [1980] 1 All ER 942. 44 It follows that there was an exchange of contracts in the present case on 19 April 1999 if Ms Cox's possession of both signed parts can at some point be seen as having caused her to hold the part signed by the vendor to the order of the purchasers and the part signed by the purchasers to the order of the vendor. This makes it necessary to look at the evidence concerning the authority of Ms Cox and her employer, Blameys. 45 It became clear in the course of the trial that Blameys held no written appointment as selling agent from the vendor, although the plaintiff thought that commission would have been paid to Blameys had the sale been completed. Ms Cox said in evidence that she believed Mr Rewell's firm, New Accent Home Builders, to be the vendor or, perhaps, a joint vendor. Blameys held no written appointment as selling agent from that firm either. The form of contract identified New Accent Home Buildings itself as the vendor's agent. The plaintiff had faxed to his solicitor a letter dated 16 April 1999 as follows: "Matthews Dooley and Gibson ATT: Tony Margiotta PO Box 208 Baulkham Hills NSW 1756 RE: SALE OF LOT 9 HILSBOROUGH WAY, BAULKHAM HILLS Dear Tony, I, Mark Golding, hereby give authority for Sean Rewell to act on my behalf in relation to the sale of the above mentioned address. This includes all negotiations and signing of contracts. If you wish to confirm any of this information please don't hesitate to contact myself on 0412 262 388 Regards (sgd) M. Golding Mark Golding " 46 All of these elements point towards Mr Rewell possessing actual authority to act on the plaintiff's behalf in relation to a sale of the property. It seems likely that it was Mr Rewell who brought Ms Cox and Blameys into the picture. But while it might thus be possible to infer that Ms Cox participated in the events of the evening of 19 April 1999 with some form of reasonably comprehensive delegated authority of the plaintiff, it is not possible to draw any inference that she had authority from the defendants who were actually with her when relevant acts occurred. 47 In her affidavit of 24 August 1999, Ms Cox deposed to the following sequence of events on 19 April 1999: 1. She had Mr Rewell sign one part of the contract on the plaintiff's behalf in Mr Rewell's office at about 2.30 pm. 2. The defendants signed the other part of the contract in Ms Cox's presence at about 5.30 pm. She had with her at that time the part previously signed by Mr Rewell. 3. The defendants and Ms Cox were the only persons present. They checked that the two signed parts matched (in fact there were minor differences between them but nothing turns on that). 4. Ms Cox wrote the date 19 April 1999 into the space for the date on the front sheet of each part. 5. Ms Cox retained the part signed by Mr Rewell for the plaintiff and said to the defendants, "I will take this contract to your solicitor's office tomorrow morning". 6. Ms Cox and the defendants then joined (or were joined by) Mr Rewell. Ms Cox gave to Mr Rewell the part signed by the defendants and left the defendants talking with Mr Rewell, taking with her the part signed by him for the plaintiff. 48 There is nothing in other evidence to cast doubt on this description of events. Throughout the course of those events, Ms Cox retained the document signed by Mr Rewell on behalf of the plaintiff. She had that document when she met the defendants in the early evening. She did not give the document to them. She did not at any stage say, "I am now holding this to your order" or "This is now yours". She only said, "I will take this contract to your solicitor's office tomorrow morning", the reference to "this contract" being a reference to the part signed by the plaintiff's agent. The defendants did not ask her to take the document to their solicitor's office the following day. Nor did they quarrel with the statement she made. There is nothing at all to suggest that the part signed for the plaintiff came into the actual or constructive possession of the defendants at all on 19 April 1999. It remained throughout with the person who brought it into their presence with what was, clearly enough, the indirectly conferred authority of the plaintiff. 49 There are similarities between this factual situation and that considered by Allen J in Harris v Fuseoak Pty Ltd (1995) 7 BPR 14,511. One issue in that case was whether a binding contract was formed when an estate agent engaged in what his Honour described as a "somewhat remarkable performance" and a "somewhat bizarre adaption, if not parody, of ordinary conveyancing practice". The purchaser (plaintiff) signed a form of contract shortly after an unsuccessful auction. The vendors (the Fitzgeralds) were not present. Their selling agent, Rosenfeldt, held the original contract signed by (or for) them. With one signed part in each hand, Rosenfeldt then proceeded to cross his arms, telling the plaintiff that contracts were thereby exchanged. I shall set out at some length the observations of Allen J in relation to those events, as I consider them most pertinent to the present case: "As a result of the pantomime performed by Mr Rosenfeldt on the day of the failed auction the plaintiff did not even receive a copy of the signed contract. He did not end up on that day with a copy of the contract signed by (or for) the Fitzgeralds. Mr Rosenfeldt kept the copies. Indeed the plaintiff physically did not as much as touch a copy of the contract during the ceremony in which his act was to constitute the solemn acknowledgment by him of the contract having come into operation. What authority did Mr Rosenfeldt have to make the 'exchange' as if not only was he acting for the vendors but also, in this formal ceremony inter partes, for the plaintiff? His evidence smacked of him informing the plaintiff of what he was doing and that in consequence the plaintiff was bound, rather than of him seeking the plaintiff's authority to act on his behalf to effect an exchange. Be that as it may this parody of an exchange had no contractual effect unless the plaintiff is to be held to have authorised Mr Rosenfeldt to act in that manner and thereby bind him to the contract. It scarcely seems credible that the plaintiff would have done so when, as Mr Rosenfeldt knew, a solicitor was going to be acting for him on the purchase. … There was no admission by the plaintiff in his evidence that he intended to give Mr Rosenfeldt this unusual authority which Mr Rosenfeldt needed in order to bind the plaintiff. His evidence was quite to the contrary. It is not normal conveyancing practice for an agent to exchange contracts for the sale of land. The law indeed scrutinises such conduct with suspicion. The risk is obvious - namely that the agent will act without authority in order to give the appearance of a binding contract and hence diminish the risk that the sale will not come to contract and that he, accordingly, will lose the prospective commission. Section 84AB(4) of the Property, Stock and Business Agents Act 1941 provides: 'If a prospective party to a proposed contract for the sale of residential property for whom a real estate agent acts in relation to the exchange or making of the contract notifies the real estate agent, or it is apparent from the proposed contract, that a solicitor is or will be acting for the party, the real estate agent may only participate in the exchange or making the contract if expressly authorised to do so by the party or the solicitor.' The evidence is clear that Mr Rosenfeldt knew that Mr Aubrey Brown [a solicitor] would be acting for the plaintiff. There is nothing to suggest that he was authorised by Mr Brown to make the exchange. There was no evidence before his Worship that was 'expressly authorised to do so' by the plaintiff. It is true that if he was impliedly authorised by conduct, the absence of express authorisation would not invalidate the contract (s.84AB(6)). The provisions, however, of that section indicate the awareness of the law of the risk of an agent arrogating to himself authority which an intending purchaser does not really intend him to have." 50 As I have said, I consider those observations to be most pertinent to this case. There, as here, there was no evidence that the orchestrating real estate salesperson had any authority of the purchaser who was actually present. But here, in contradistinction to there, the evidence does not suggest that the salesperson even attempted, by words or gestures, to bring about a change in constructive possession of the signed parts. In both cases, the contract made it clear that the purchaser had a solicitor and the real estate salesperson knew this. Ms Cox actually wrote the name of the defendants' solicitors into the form of contract. 51 It is plain from the defendants' evidence that they had little, if any, idea about what "exchange" meant in the particular context. The first defendant said in cross-examination: "McNALLY: Q. I think your evidence was, after you signed on the 19th you wanted to exchange on the 19th. Do you agree with that? A. According to what Frances Cox suggested, once we signed, obviously we do exchange, I presume. Q. So you presumed, on the evening of the 19th, that once you had signed the contract and once the vendor had signed the contract, that you had entered into a contract? A. Yes, obviously. Q. And you believed that both you and the vendor were bound by that contract on the 19th after you signed? A. Yes, I guess so." 52 The cross-examination of the second defendant included the following: "Q. So, there was a stage on the evening of the 19th where you had signed the contract and Mr Rewell had signed the contract? A. Yes. Q. And at that stage you thought there was a contract in existence, didn't you? A. Well, the one that we had just signed, yes. Q. You thought the vendor was bound to sell you the property at that stage, didn't you? A. I thought that was how it worked, yes. Q. You wanted that to be the case, didn't you, at that stage? A. I guess so, yes. Q. Ms Cox, to your understanding, took your copy of the contract to your solicitors the next day? A. I can't be sure of that. Q. You didn't receive a copy of the contract on the evening? A. No. Q. You are aware, are you not, that Ms Cox said that she would send it to your solicitors the following day? A. She said she would send it to our solicitor, but she didn't say the following day. Q. As far as you were concerned, she was doing that for you? A. Well, I assume so, yes." 53 These statements as to what the defendants assumed or presumed or guessed or thought to be the way things worked say nothing about the conferring by them of any authority on Ms Cox. They had very little idea of the legal significance of the events of the evening of 19 April 1999. Ms Cox, I suggest, was in essentially the same position. It was very much a case of the blind leading the blind so far as the legal consequences and legal requirements were concerned. The recognition in s.84AB of the Property, Stock and Business Agents Act 1941 that there is a legitimate role for real estate agents in the exchange or making of contracts for the sale of residential property is founded on an assumption that such agents and their employees will familiarise themselves with at least the basic legal concepts. Such an assumption was not borne out in this particular case. 54 My conclusion is that a contract for sale between the plaintiff as vendor and the defendants as purchasers was not made on 19 April 1999 because the events which took place on the evening of that day under the orchestration of Ms Cox were ineffective to produce that legal result. The contract was made on the following day when Ms Cox, who I am prepared to accept was acting under delegated authority from the plaintiff, either personally or through an agent delivered the part signed for the plaintiff by Mr Rewell to the solicitors acting for the defendants. 55 This conclusion means that the steps the defendants afterwards took to withdraw under the cooling off provisions were, in reality, legally effective. And that, in turn, is a very powerful consideration when it comes to the Court's assessment of whether, in terms of the formulation of Street CJ in Eq in the Lucas & Tait case (above), it is unjust and inequitable that the vendor should have the deposit. As the foregoing analysis shows, the plaintiff's insistence on holding the defendants to the contract after they had tried to withdraw was legally unwarranted. Had the legal position been correctly assessed at that point, the defendants would not have suffered the consequence of becoming liable for the balance of the deposit and would have recovered the part they actually paid. They acted under a serious misapprehension as to their legal rights and, in that respect, their position is distinguishable from that of the purchasers in Mallett v Jones [1959] VR 122. That being so, I consider that relief under s.55(2A) of the Conveyancing Act is appropriate in relation to not only the sum of $1,337.50 paid but also the liability for the balance of $52,162.50 which I have found to exist. The plaintiff's claim for damages 56 I come finally to the issue of damages. Although he re-sold the property within twelve months, the plaintiff does not seek to rely on clause 9.3.1 of the contract which grounds a claim for deficiency on re-sale together with certain costs. He elects instead to seek damages for breach of contract as contemplated by clause 9.3.2. This is no doubt because he did not suffer any deficiency on re-sale, given that the subsequent sale was also at the price of $535,000 and there was no selling agent. 57 Having regard to the evidence and the submissions, I am of the view that the heads of damage in this case are confined to the plaintiff's expenses of the abortive sale to the defendants and his holding costs pending re-sale. It is not appropriate to include costs of re-sale, as the task of the Court is to put the plaintiff in the position he would have occupied had the breach (and therefore the loss of the original sale) not occurred. 58 It was accepted at the trial that the appropriate amount for expenses of the abortive sale is $1,300. As to holding costs, the plaintiff put in evidence a letter and statements of account from the mortgagee of the property, Broadway Credit Union Ltd, detailing interest under the mortgage for relevant periods. These sources confirm a figure of $6,899.40 as interest from the time the sale to the defendants should have been completed until completion of the re-sale. Damages of $8,199.40 should therefore be awarded. 59 It is neither necessary nor appropriate that damages be reduced by reference to some perceived profit on re-sale. The sale price on that occasion was the same as the price under the contract with the defendants, namely, $535,000. No selling agent was involved in the re-sale, with the result that the plaintiff incurred no liability for agent's commission. But it is by no means clear that he would have incurred such a liability had the sale to the defendants proceeded to completion. While Blameys played a role in introducing the defendants as buyers and the plaintiff said in evidence that he would have expected to pay commission, the reality is that there was no written agency agreement between the plaintiff and Blameys and, as the decision of Windeyer J in Terry Pfeiffer Real Estate Pty Ltd v Connors [2000] NSWSC 452 confirms, s.42AA of the Property Stock and Business Agents Act would have precluded any claim for commission. 60 At the start of the trial, the plaintiff was given leave to amend his Summons by adding a claim for interest pursuant to s.94 of the Supreme Court Act. It is appropriate that interest be awarded for the period from and including the day following completion of the re-sale (which occurred on 21 September 1999) to and including the date of judgment. As no contrary submission has been made, the rates in Schedule J to the Supreme Court Rules will apply. The sum to be paid as interest is therefore $1,527.54. Orders 61 The orders of the Court are as follows: 1. Declare that the contract for sale of land dated 19 April 1999 in respect of the property comprised in Folio Identifier 9/870539 between the plaintiff as vendor and the defendants as purchasers was validly terminated by the plaintiff by notice of termination dated 23 June 1999. 2. Order that the plaintiff repay to the defendants the sum of $1,337.50, being the part of the deposit paid by the defendants. 3. Order that the defendants pay to the plaintiff damages in the sum of $8,199.40 for breach of contract, together with interest in the sum of $1,527.54 to the date of judgment. 62 As each side has enjoyed some measure of success in these proceedings, I shall direct that the matter be listed for argument on costs. Last Modified: 07/10/2001 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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