New South Wales Supreme Court CITATION : Ferrazza v Pandher [2009] NSWSC 66 HEARING DATE(S) : 16/02/2009 JUDGMENT DATE : 16 February 2009 JURISDICTION : Equity JUDGMENT OF : Bryson AJ at 1 EX TEMPORE JUDGMENT DATE : 16 February 2009 Orders: DECISION : 1. Give judgment for the plaintiffs against the first and second defendants for $321,600.00. 2. Costs reserved. CATCHWORDS : VENDOR and PURCHASER – time for completion – contract for sale of real property fixed settlement date and time for notice to complete – contract also provided for purchaser to have the property inspected to obtain reports reasonably required – purchaser's mortgage broker repeatedly sought Vendors' agreement to inspection by Valuer – approaches were fobbed off as inconvenient or unsuitable and Valuer could not obtain access – found that Purchasers' inability to complete was caused by inability to obtain valuation in support of application for finance – Vendors' breach of contract prevented Purchasers from complying with time for settlement and Vendors disentitled to rely on Purchasers' failure – Notice to Complete and Notice of Termination constituted repudiation by Vendors – Purchasers recovered judgment for deposits and other moneys paid to Vendors as on total failure of consideration. CATEGORY : Principal judgment CASES CITED : Hadley v Baxendale (1854) 156 ER 145 Teresa Ferrazza (P1) PARTIES : Giovanna Ferrazza (P2) Tarlochan Singh Pandher (D1) Harpreet Kaur Pandher (D2) FILE NUMBER(S) : SC 2967 of 2001 COUNSEL : Mr J E Rowe (P) Mr Jack Singh (Sol) (D) SOLICITORS : Dib Lawyers (P) Jack Singh Solicitor & Associates (D) - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON AJ Monday 16 February 2009 2967/01 TERESA FERRAZZA & ANOR v TARLOCHAN SINGH PANDHER & 2 ORS JUDGMENT 1 HIS HONOUR: These proceedings arise out of two closely related contracts entered into by the plaintiffs as purchasers and the first and second defendants as vendors on 24 February 1995. One contract provided for the sale of the Aquarius Motel at Long Jetty for $1,250,000.00. The other contract provided for the sale of the restaurant business conducted there for $38,341.00. The provisions of each contract made settlement and the obligation to settle in each interdependent with the other. Indeed, the sales could hardly be managed in any other way, but, in any event, the contracts expressly so provided. 2 The plaintiffs paid the contract deposit of $125,000.00 at about the time of exchange, and they also paid another $125,000.00 on account of the purchase money soon afterwards. They paid a deposit of $18,000.00 in respect of the business sale contract. 3 Quite remarkably, the two contracts themselves are not in evidence, and the information I had about them is derived from admissions in the pleadings, which, unusual though the situation is, I regard as sufficient to enable me to dispose of the proceedings on a just basis. 4 The parties had earlier had another contract entered into after an auction some months earlier, and that had been the subject of notice to complete by the vendors. 5 The notice to complete and what appears to have been an anticipated failure by the purchasers to comply precipitated a round of further negotiation; the upshot of which was entering into these contracts on 24 February 1995. It should be understood that the earlier contracts were abandoned and no longer give rise to any rights. 6 The contracts of 24 February 1995 did not contain any special condition relating to raising finance. So far as the alleged and admitted terms show, the obligation of the purchasers to pay the price was unconditional. 7 The defendants' solicitor has referred to the fact that there would or should, in the ordinary course, have been a cooling-off period giving the purchasers an opportunity to escape if they are not satisfied with their finance arrangement. There is no evidence about a cooling-off period; and, in any event, had there been such a cooling-off period provided for, that would not have had a bearing on the rights of the parties, as I see them and as I am about to state. 8 The printed clause alleged in paragraph 9A of the statement of claim and admitted is as follows: It was an express term of the contract that the first and second defendants authorised the plaintiffs, subject to the rights of any tenant, to have the property inspected to obtain any certificate or report reasonably required. 9 Evidence on behalf of the plaintiffs (and the plaintiffs themselves did not manage this part of their business but left it to agents) shows that after contracts were exchanged, repeated attempts were made on behalf of the plaintiffs to fix an appointment with the first defendant for a valuer to attend at the property. The purpose of having a valuer attend, obviously enough, was to further an application for finance to enable the purchasers to complete their purchase. 10 The purchasers had, while the previous contract was in effect, applied for and obtained finance and an advance of $360,000.00. Under those earlier finance arrangements, they obtained a further advance of $120,000.00, a total of $480,000.00. However, they were not able to complete the purchase with these funds. 11 Evidence of an agent on behalf of the plaintiffs is to the effect that at or about the time when the contract was formed on 24 February, he told the first defendant that it would be necessary for the plaintiffs to have a valuer look at the property. 12 I accept that this statement was made. In any event, a need for inspection by a valuer presents itself very usually in contracts for the purchase of property, particularly commercial property, for large amounts of the scale now under consideration. 13 If my finding, a requirement by the purchasers to have the property inspected for a valuer was a reasonable requirement. They had a contractual entitlement to have their valuer inspect the property. 14 The evidence shows that attempts to fix an appointment were repeatedly unsuccessful and, in my interpretation, were fobbed off by the first defendant. For one reason or another, an inspection was never available. 15 At this point, I should mention the intersection of the plaintiffs' claim for remedies with the defendants' reliance on the elapse of six years before the commencement of the proceedings and on a defence under the Limitation Act. 16 The statement of claim in these proceedings was issued on 6 June 2001, with the result that the plaintiffs cannot recover damages in respect of any cause of action which accrued by breach of a contract term and loss before 6 June 1995. Plainly enough, there was a breach of the obligation to allow inspection by a valuer and it did occur before 6 June 1995. 17 However, it is not damages for that breach which are now relevant. What is relevant is the interaction between that breach and other provisions of the contract which related to the time at which completion was to take place. 18 The contract provided, in effect, for completion by 16 June 1995, on failure of which the vendors had the right to issue notice to complete, making time for completion of the essence. They did this when completion had not taken place on or before 16 June, and the notice required completion by 24 July 1995. 19 On the face of the contract, according to the terms alleged, this was authorised. However, the purchasers did not have finance and could not complete. 20 In my finding, the unavailability of finance to them resulted from and was caused by their inability to have a valuer inspect the property. They had, indeed, before these contracts were entered into, obtained a finance approval for a significant amount of money, but it was not enough. 21 In my view, the vendors were not entitled to rely on what, on the face of things, was their contractual entitlement to give notice to complete when the vendor's own earlier breach of the provision relating to inspection of the property had put the purchasers in a position where they did not have finance and were not able to comply with notice to complete or, indeed, with the provision fixing 16 June as the contractual time for completion. 22 In relation to this, the vendor's solicitor made a number of observations in his submissions to me. He pointed out that the attempts to obtain an appointment for the valuer's inspection were relatively informal and were not supported by correspondence between solicitors or by highly explicit attempts to fix a time and place. This is correct, but I do not think that it is important. 23 A relatively informal exchange of telephone calls with a view to fixing a time for a valuer's inspection is what usually takes place; and, to be more to the point, produced an altogether clear result in that the first defendant repeatedly fobbed them off. 24 The defendants' solicitor also observed on the purchasers' opportunity to pursue their finance application before they entered into the contract. They had an unusually long period to do this because they had all the time that the first contract was in effect. 25 In my opinion, these observations, while they relate to events that are historically true, do not show that the purchasers did not act reasonably or take usual and reasonable steps to obtain an inspection by their valuer. 26 In my finding, the vendors were disentitled to rely on the provisions of the real estate contract and of the interdependent business contract fixing time for completion and, further, authorising means by which time was to be made of the essence, because the vendors were themselves in breach of another provision of the contract in a respect which directly impeded the purchasers from complying with their obligation to complete. 27 Unless and until this problem had been overcome in some way, the attempt by the vendors to make time of the essence was ineffective, in my opinion. 28 However, the vendors acted as if it was effective. Time ran out. The purchasers made no attempt to complete - and, indeed, they could not because they did not have the money, and the vendors gave notice of termination. 29 It is alleged in the further amended statement of claim, paragraph 23, that this took place on 24 July 1995 when the vendors served a notice of termination, which the purchasers allege constituted a repudiation of the real estate contract, with effect on both contracts. 30 The vendors claim that their termination was lawfully authorised, but my conclusion is that this is incorrect and it had no effect except to constitute an altogether definitive refusal by the vendors to go any further with the contract. 31 The purchasers accepted this. They did not make any further attempts to compel the vendors actually to transfer either the land or the business; not surprisingly in view of their not being financed and not being able to do so. 32 The purchasers' inactivity and the lack of attention by either party from 24 July onwards to any step directed to completing the contract show, in my view, that the purchasers accepted the vendor's repudiation, and that further performance of obligations under contract terms was not required. 33 If there was any doubt about acceptance of repudiation, issuing the proceedings in 2001 would have made that altogether clear. However, the general inactivity of both parties shows that they had accepted that this was the position long before that. 34 On the face of things, the purchasers are entitled to damages for the vendors' repudiation, and the ordinary measure of damages is the difference between what the purchasers would have had to pay to get the title and business agreed to be sold and what they were worth at the time when the contract should have been completed. 35 However, the evidence of Mr McDonald on behalf of the plaintiffs shows that the market value of those assets in 1995 was less than the contract price, so that measure of damages yields nothing for the purchasers. 36 In my opinion, the remedy is the usual remedy where money is paid for a consideration which wholly fails as the moneys paid under these contracts did. The total failure consisted of the vendors taking an unreasonable position, asserting that they were entitled to termination, when they were not, yielding no advantage to the purchasers. 37 These circumstances, in my conclusion, entitle the purchasers to judgment for repayment of the moneys which they paid under the contracts; that is, the deposit of $125,000.00, the further payment of $125,000.00 on account of the price, and the deposit of $18,000.00 in respect of the business contract. 38 The plaintiffs put forward another claim for damages relating to the loss of the property at Lakemba which they had mortgaged to obtain finance, yielding them two advances: $360,000.00 and a further $120,000.00. 39 They had obtained that finance and actually obtained the loan of $360,000.00 before they entered into the contracts of 24 February 1995. It cannot be found that they made those arrangements on the basis of that contract. 40 I think for this reason alone it could not be found that they lost any commercial opportunity or advantage under the financing arrangements as a result of any breach of the contracts of 24 February 1995. 41 But a further principle prevents recovery of losses incurred by the plaintiffs in respect of their financing arrangements. If they were to incur losses of that kind, they would have to bring their claim within the second rule in Hadley v Baxendale and show that there was some special contemplation in a contract provision, or perhaps in some other way, that protecting their position under the financing arrangements was an interest which the contracts of 24 February 1995 and performance of obligations under them were to protect. There was no such contract provision according to the terms alleged and no arrangement to the same effect, according to the evidence. 42 Accordingly, the plaintiffs are not, in my conclusion, entitled to recover any losses arising from their being forced, as their evidence would show, to sell off a property at Lakemba which they had pledged to obtain that earlier finance. 43 In any event, the evidence put before me does not enable that loss to be quantified as at the time when it occurred, said to be about September 1995. 44 My conclusion then is that the plaintiffs are entitled to judgment for $268,000.00, and I give judgment accordingly. 45 I have been asked to order interest. There have been unreasonable delays, first in bringing these proceedings, which took about six years from the time of crisis, then about seven and a half years in bringing the proceedings on for hearing. 46 There were several events in which appointments for hearing were vacated, more than one of them because of defaults on behalf of the plaintiffs. Seven and a half years is altogether an unreasonably lengthy time for proceedings to be brought on for hearing. In my view, if these proceedings had been conducted on a reasonable basis, they would have been disposed of within about two years. 47 Notwithstanding my first disposition against allowing any interest at all, I am of the view that I should allow interest on the basis that, if the proceedings had been properly conducted, they would have been brought on for determination within about two years. I allow interest for two years at ten per cent, a total of $53,600.00. Orders: 1. Give judgment for the plaintiffs against the first and second defendants for $321,600.00. 2. Costs reserved. ********** 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.