New South Wales Supreme Court CITATION : Renata Marina Paola Webster -v- Hayvn Pty Limited [2007] NSWSC 958 HEARING DATE(S) : 4 April 2007 JUDGMENT DATE : 30 August 2007 JUDGMENT OF : Associate Justice McLaughlin DECISION : 1. Upon inquiry, I find that the Plaintiff is entitled to damages from the Defendant in the amount of $203,949. 2. The exhibits may be returned. CATCHWORDS : Inquiry as to damges. Sale of land. Damages to which Plaintiff is entitled. Difference between contract price and market value at date fixed for completion. Sale negotiated with underbidder. Whether that sale price reflects market value of land. Claim for interest. Until completion date interest is a component of contract price and is not a seperate head of damages. Plaintiff entitled to interest for period during which she was deprived of balance of contract price. LEGISLATION CITED : Conveyancing Act 1919 Robinson v Harman (1848) 1 Ex 850; 154 ER 363 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Engell v Fitch (1869) LR 4 QB 659 CASES CITED : Wenham v Ella (1972) 127 CLR 454 Johnson v Perez (1988) 166 CLR 351 Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 Carpenter v McGrath (1996) 40 NSWLR 39 PARTIES : Renata Marina Paola Webster (Plaintiff) Hayvn Pty Limited (Defendant) FILE NUMBER(S) : SC 5941 of 2002 COUNSEL : Mr R. Tregenza (Plaintiff) Ms J. Merkel (Defendant) SOLICITORS : Biddulph & Salenger (Plaintiff) White Barnes (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ASSOCIATE JUSTICE McLAUGHLIN Thursday, 30 August 2007 5941 of 2002 RENATA MARINA PAOLA WEBSTER –v- HAYVN PTY LIMITED JUDGMENT 1 HIS HONOUR: This matter has come before me consequent upon orders made by the Court of Appeal on 26 May 2005. 2 The proceedings relate to the sale of land situate at and known as 16 Pacific Street, Bronte, upon which stands a small block of residential flats (to which I shall refer as "the subject property"). 3 The proceedings were instituted by summon filed on 16 December 2002. Subsequently, an amended summons was filed on 25 March 2004, during the course of the hearing before Justice Palmer. By that amended summons the Plaintiff, Renata Marina Paola Webster, sought relief against Hayvn Pty Limited in respect to a contract for the sale of land made between the Plaintiff as vendor and Defendant as purchaser. 4 On 26 March 2004 Justice Palmer published his reasons for judgment and stated the orders which he proposed, and which were made on 1 April 2004. Those orders included a declaration that the Plaintiff had validly terminated the contract for sale of the subject property, and an order that the Defendant pay to the Plaintiff damages for breach of contract in a specified amount, "together with such other amount, if any, as is found by the Master, upon inquiry, to have been lost by the Plaintiff as a result of breach of the contract for sale of land…", together with an order that the Master undertake an inquiry as to such further damages, if any, in addition to the foregoing amount of $130,000. 5 From the decision of Justice Palmer the matter went on appeal to the Court of Appeal. That appeal was allowed in part. On 26 May 2005 the Court of Appeal made orders which included the following, 3. Orders 2 and 3 made by Palmer J on 3 August 2004 be set aside, and in lieu thereof order that the Defendant pay to the Plaintiff damages for breach of the contract for sale of land dated 19 September 2002, to be ascertained by the Master upon inquiry. 6 It is consequent upon the foregoing order of the Court of Appeal that the matter has come before me by way of an inquiry to ascertain the damages suffered by the Plaintiff for breach by the Defendant of the contract for sale of land dated 19 September 2002. 7 I should at the outset make two observations concerning procedural and formal aspects of this matter. The first is that the order of the Court of Appeal refers to the order made by Palmer J on "3 August 2004". The order was actually made by His Honour on 1 April 2004. It may be that it was entered only on 3 August 2004. 8 The other matter relates to the spelling of the name of the Defendant company. I have adopted the spelling shown in the appearance on behalf that company (as one would expect that the company and its solicitor would be in the best position to know the correct spelling of that entity). However, I observe that both the summons and the amended summons, as well as many of the affidavits and other documents filed in these proceedings, show the name of the Defendant as "Havyn Pty Limited". 9 There was in evidence (Exhibit 1) a joint valuation by the valuers retained by the respective parties stating that on 2 February 2003 the market price of the subject property was $3,150,000. Each party was prepared to accept that joint valuation. 10 At the auction on 19 September 2002 Mr. Peter Meyerratken was the successful bidder for the purchase of the subject property. He thereupon entered into a standard contract for the sale of land for the price of $3,130,000, and paid a deposit of $313,000 to the Plaintiff. Subsequently, the identity of the purchaser was by agreement changed to the present Defendant. The underbidder at the auction (Mr and Mrs Anderson) made a final bid of $3,125,000. 11 The Defendant having failed to complete, the Plaintiff terminated the contract and forfeited the deposit. Subsequently, the Plaintiff by negotiation entered into a contract with the underbidder on 13 February 2003 for sale at a price of $3,000,000, conditionally upon the Plaintiff being able to complete. That contract was ultimately completed, after the withdrawal by the Defendant of the caveat which on 2 December 2002 it had lodged against the title to the subject property. 12 The judgment of the Court of Appeal confirmed the judgment of Justice Palmer that the foregoing deposit be repaid to the Defendant, pursuant to section 55 (2A) of the Conveyancing Act 1919. The Court of Appeal also confirmed the order of Justice Palmer that the Plaintiff, in any event, pay the costs of the inquiry as to damages. 13 The damages claimed by the Plaintiff are particularised in Schedule 1 to the affidavit of the Plaintiff sworn 6 October 2005, as follows Item 1 Difference in purchase price between the contract and the second contract $130,000 Item 2 Interest from 31 October 2002 to 18 November 2002 18 days at $771 a day $13,878 Item 3 Interest from date of due completion 19 November 2002 until date of termination 4 December 2002 16 days at $1,552 a day $24,832. Item 4 Interest for the period 5 December 2002 to 3 April 2003 At 10 percent $91,749 Total Items 1-4 $260,459 Less Item 5 Rental for period 21 October 2002 to 3 April 2003 $17,800 Total Claimed $242, 659 14 The Plaintiff brings the present claim for damages under the general law, as provided by clause 9.3.2 of the contract between the parties. That clause provides, relevantly, 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. After the termination the vendor can - … 9.3 sue the purchaser either - … 9.3.2 to recover damages for breach of contract. 15 Accordingly, it is not necessary to consider clause 9.3.1 (which makes provision for the circumstance where the vendor has resold the property under a contract made within 12 months after the termination, and is entitled to recover the deficiency on resale and the reasonable costs and expenses arising out of the purchaser's non-compliance with the contract or with the notice and of the resale). 16 The Plaintiff's claim for interest was stated to be grounded upon clause 36 of the contract (which makes specific provision for the payment by the purchaser to the vendor of interest on the purchase price at the rate of 10 per centum per annum calculated on a daily basis "for the period commencing on and including the date of completion…and continuing up to and including the date of completion"). 17 The Defendant did not dispute the calculations of interest claimed by the Plaintiff. 18 I have had the benefit of receiving a written outline of submissions and a chronology from Counsel for the respective parties. Those documents will be retained in the Court file. 19 The first area of dispute between the parties related to the fact that the damages claimed by the Plaintiff were grounded upon the sale by the Plaintiff to the underbidder at the auction for an amount of $130,000 less than the price for which the Defendant had contracted to purchase the property. Accordingly, the Plaintiff claims the difference between the contract price and the price which the Plaintiff ultimately received. The Defendant, however, points to the fact that the sale to the underbidder was privately negotiated. The property was not put back on the market to be sold by, for example, public auction. 20 The law in this area is set forth in the decision of the Court of Appeal of New South Wales in Carpenter v McGrath (1996) 40 NSWLR 39, where all the relevant authorities are conveniently collected in the judgment of Sheller JA at 58f. 21 The general rule at Common Law is that where a party sustains a loss by reason of a breach of contract, the party is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 per Parke B (cited with approval by Gibbs J (as he then was) in Wenham v Ella (1972) 127 CLR 454 at 471); Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 80, 98, 116, 134, 148, 161. (It will be appreciated, however, that that general principle is limited by the rule in Hadley v Baxendale (1854) 9 Ex 341 at 354; 156 ER 145 at 151.) 22 If the vendor sues for damages to compensate for the loss of the bargain, the purchase price is taken into account in determining whether the vendor has suffered loss, and, if so, the extent of it. Since damages in contract are usually assessed at the date of breach (Johnson v Perez (1988) 166 CLR 351 at 355), the normal measure is the contract price less the market price at the contractual time fixed for completion. 23 It was submitted on behalf of the Plaintiff that in December 2002 the property could not be sold on the open market, because of the existence of the caveat lodged by the Defendant on 2 December 2002. 24 The Defendant, however, points to the absence of any valuation as at 2 December 2002 (that being the date when the Defendant should have completed the contract), and submits that the joint valuation of $3,150,000 as at 2 February 2003 should apply to that date also. The Defendant also relies upon evidence disclosed in the two respective valuations provided on behalf of the parties that between December 2002 and February 2003 there was a rising property market in the relevant area. That is, it was the Defendant's submission that the market value at 2 December 2002 was higher than the price at which the property was sold to the underbidder, and, indeed, was higher than the price which the Defendant had contracted to pay ($1,130,000), with the consequence, so the Defendant submitted, that the Plaintiff had suffered no loss. 25 It was also submitted on behalf of the Defendant that there was no satisfactory evidence that the existence of the caveat constituted a block or impediment to the obtaining of a sale to some purchaser other than the underbidder. It was submitted on behalf of the Defendant that this matter of the effect of the caveat should have been the subject of expert evidence, but that there was no such evidence. 26 I am in agreement, however, with the submission on behalf of the Plaintiff that common sense and experience clearly indicate that where, as here, there was a caveat lodged against the title to the subject land, the likelihood of the Plaintiff being able to sell that land on the open market, by way of auction or private treaty, was remote in the extreme. Indeed, the Plaintiff was very fortunate in being able, as a result of negotiation, to sell the land to the underbidder – albeit at a reduced price – whilst the caveat still remained against the title to the property, and subject to certain conditions relating to the ability of the Plaintiff to complete. It should not be overlooked that ultimately completion took place on 4 April 2003, within three weeks after the removal of the caveat, on 14 March 2003. 27 It will be appreciated that the price for which the property was ultimately sold to the underbidder is not of itself determinative of the quantum of damages to which the Plaintiff is entitled. However, there is authority that the price at which the Plaintiff contracts to resell the property is prima facie evidence of the market value of the property at the contractual time for completion. (See Engell v Fitch (1869) LR 4 QB 659 at 665 per Kelly CB (with whom five other judges sitting in the Court of Exchequer Chamber concurred).) The fact that the market generally may have been rising between December 2002 and February 2003 does not take into account that the market value of this specific piece of land was qualified by the existence of the caveat. 28 In the circumstances of this case it would have been quite unreasonable to have expected the Plaintiff to have offered the land for sale on the open market, by way of auction or private treaty, whilst the caveat remained in place. To have done so would have been an exercise in futility, and would merely have increased the damages which the Defendant is liable to pay (by extending the period during which the Plaintiff was deprived of the balance of the purchase price which the Defendant had contracted to pay). 29 I am satisfied that the sale to the underbidder at $3,000,000 was the best price which the Plaintiff could at that time have obtained. It will be appreciated that the Plaintiff was under an obligation to mitigate her damages, and that it was necessary for her to make every effort to effect a sale once the contract with the Defendant had been terminated. If she had waited until the caveat had been removed before attempting to sell the property on the open market, she might well find herself now responding to a submission that she had not mitigated her damages, concerning, for example, any attempt to produce income from the property during the period (which may have been protracted) after the removal of the caveat until the completion of a sale on the open market. 30 The other area of dispute between the parties related to the various amounts of interest claimed by the Plaintiff. I have already recorded that the Defendant does not challenge the Plaintiff's calculations of interest. However, the Defendant does dispute the entitlement of the Plaintiff to a component of interest in the damages to which the Plaintiff is entitled. 31 It was submitted on behalf of the Defendant that interest is a component in the purchase price, since that purchase price is the total amount which must be paid to the vendor on settlement. It is from this figure that the market value must be deducted, in order to calculate the damages to which the Plaintiff is entitled. The Defendant submits that since the Plaintiff at the time of breach (that is, the date fixed for completion, 2 December 2002) retained the subject property, she was not entitled to interest on the unpaid value of the purchase price. In this regard the Defendant relied upon the following passage from the judgment of Sheller JA in Carpenter v McGrath, at 59 – 60, If on proper analysis, as the author of McGregor on Damages suggests in paragraph 940, the amount of damages the vendor is entitled to recover for the loss of the bargain is the full contract price less the net market value of the property left on the vendor's hands, that is to say the amount at which a re-sale has been or could be made deducting therefrom the costs of re-sale, any interest payable by the purchaser on the purchase price during the period up to that time becomes, for the purpose of the calculation, part of the full contract price at the date of breach when completion should have occurred. From the amount so calculated must be deducted the net market value at that date of the property which remains in the vendor's hands. Pursuant to clause 24(b) interest was payable "on prior demand by the vendor or on completion … on the balance of purchase moneys payable". Interest was a component of the purchase price payable on completion and as such to be taken into account in assessing the damages to be awarded for the loss of the bargain. In consequence it was no more appropriate for the respondents to recover separately for interest on the balance of the purchase price up to the date fixed for completion than it was for the respondents to recover or retain the whole or any part of the purchase price. In my opinion, the amount of interest calculated under clause 24(b) cannot be isolated and awarded as a head of damage. 32 Consonant with the foregoing decision of the Court of Appeal in Carpenter v McGrath, it is quite apparent that the claim of the Plaintiff for interest as particularised in Item 2 (interest from 31 October 2002 to 18 November 2002) and Item 3 (interest from 19 November 2002 until date of termination, 4 December 2002) must be rejected. The interest claimed up to the date of completion is a component in the purchase price, and the Plaintiff is not entitled to separate damages grounded upon such a claim for interest. In this regard I would also observe that the express provision of clause 36 of the contract appears to contemplate the situation where the contract is ultimately completed by the Defendant, and not the situation where, as here, the contract is terminated and the Plaintiff sells to another purchaser. 33 However, the interest claimed for the period from termination to 3 April 2003 (when the subject property was ultimately sold) falls into an entirely different category. Fulfilment by the Defendant of its bargain with the Plaintiff would have resulted in the Plaintiff receiving the full purchase price on 2 December 2002. The Plaintiff was, in the event, deprived of the outstanding balance of the purchase price until 3 April 2003. In consequence, the Plaintiff is entitled to interest to compensate her for such deprivation, such interest being of the nature claimed in Item 4. 34 It follows, therefore, that to the amount of $130,000 (being the difference between the contract price and the market value of the subject property) there must be added an amount of $91,749, representing interest to which the Plaintiff is entitled for the period 5 December 2002 to 3 April 2003 (during which period she was deprived of the balance of the purchase price). From that total of $221,749 must then be deducted the amount of $17,800, representing rental for the period 21 October 2002 to 3 April 2003. Accordingly, the Plaintiff has established an entitlement to damages in a total amount of $203, 949. 35 Accordingly, subject to the correction of any arithmetical errors, I make the following orders, 1. Upon inquiry, I find that the Plaintiff is entitled to damages from the Defendant in the amount of $203,949. 2. The exhibits may be returned. ********** 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.