Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Statewide Developments Pty Ltd v Higgins [2011] NSWCA 35 Hearing dates: 1 February 2011 Decision date: 07 March 2011 Before: Macfarlan JA at 1; Handley AJA at 2; Sackville AJA at 3 Decision: 1. Appeal dismissed. 2. The appellant pay the respondent's costs of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: CONTRACT - damages - purchaser under a contract for the sale of a unit defaults - vendor terminates contract - vendor claims as damages mortgage interest payments - whether evidence established that the claimed loss was caused by the purchaser's breach CONVEYANCING - primary Judge orders return of deposit under s 55(2A) of the Conveyancing Act 1919 (NSW) by reason of the vendor's misrepresentation prior to the contract - whether any error shown in the exercise of the primary Judge's discretion Legislation Cited: Trade Practices Act 1974 (Cth), ss 51A, 52, 82 Conveyancing Act 1919 (NSW), s 55(2A) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 Carpenter v McGrath (1996) 40 NSWLR 39 Flight v Booth (1834) 1 Bing NC 370; 131 ER 1160 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 Havyn Pty Ltd v Webster [2005] NSWCA 182, ATPR (Digest) 46-266 Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 Higgins v Statewide Developments Pty Ltd [2010] NSWSC 383 Hungerfords v Walker [1989] HCA 8; 171 CLR 125 Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391 March v E & HM Stramore Pty Ltd [1991] HCA 12; 171 CLR 506 Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 Nassif v Caminer [2009] NSWCA 45; 74 NSWLR 276 Palasty v Parlby [2007] NSWCA 345; (2008) NSW Conv R 56-205 Robinson v Harman (1848) 1 Ex 850; 154 ER 363 The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 Texts Cited: P Butt, The Standard Contract for the Sale of Land in New South Wales (2nd ed, 1998) N Seddon and M P Ellinghaus, Cheshire & Fifoot's Law of Contract (8th Aust ed, 2002) Category: Principal judgment Parties: Statewide Developments Pty Limited (A.C.N. 120 080 404 842) (Appellant) Damian Paul Higgins (Respondent) Representation: Counsel: Mr M Leeming SC and Ms J Taylor - Appellant Mr P Barham - Respondent Solicitors: Mills Oakley Lawyers - Appellant Paladin Law - Respondent File Number(s): 289007/09 Decision under appeal Citation: Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183 Date of Decision: 2010-03-16 00:00:00 Before: Barrett J File Number(s): SC 2009/289007 Judgment 1MACFARLAN JA: I agree with Sackville AJA. 2HANDLEY AJA: I agree with Sackville AJA. 3SACKVILLE AJA: The appellant (" Vendor ") appeals from a decision of a Judge of the Supreme Court (Barrett J). His Honour ordered that the deposit paid under a contract of sale of a residential unit between the Vendor and the respondent (" Purchaser ") be repaid to the Purchaser: Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183. His Honour also dismissed a cross-claim by the Vendor for damages by reason of the Purchaser's breach of the contract of sale. 4The primary Judge found that the Vendor had been entitled to terminate the contract by reason of the Purchaser's breach. That finding is no longer is dispute. The issues on the appeal are whether the primary Judge erred: (i) in rejecting the Vendor's claim to damages by reason of the Purchaser's breach, particularly in rejecting the Vendor's claim to recover interest costs said to be the result of the Purchaser's breach of contract; and (ii) in determining that the deposit paid by the Purchaser should be returned to him pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW) (" Conveyancing Act "). 5By reason of a notice of contention filed by the Purchaser, the first issue includes the question of whether the Vendor failed to prove that any loss it may have sustained was a result of the Purchaser's breach of the Contract. 6The second issue requires reference to s 55(2A) of the Conveyancing Act . It provides as follows: "In every case where the court refuses to grant specific performance of a contract, or in any proceedings for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit with or without interest thereon". BACKGROUND FACTS The Contract 7The Vendor was the developer of a substantial home unit development at Homebush Bay. On 30 October 2003, the Purchaser entered into a contract of sale to purchase " off-the-plan " a residential unit and two car spaces within the development (" Contract "). At that time, the development site was vacant. The unbuilt unit was designated in the contract as " Apartment G02 " (" Apartment "). 8The Contract was in the standard form approved by the Law Society and Real Estate Institute (2000 Edition) and included a number of special conditions. The purchase price for the Apartment was $761,000. The Contract provided for a deposit of 10% of the purchase price ($76,100). That amount was paid by the Purchaser, initially by way of a bond as the Contract contemplated, and subsequently in cash. 9Under the Contract, completion of the sale was due fourteen days after service of a notice by the Vendor following registration of the Strata Plan subdividing the development site (Special Condition 31.1). The Vendor gave the notice contemplated by Special Condition 31.1 on 16 February 2007. The notice nominated the date for completion as 2 March 2007. 10Standard cl 9 of the Contract provided as follows: " Purchaser's default 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 - "9.1 keep or recover the deposit (to a maximum of 10% of the price); 9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1 for 12 months after the termination ; or 9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination , to recover - the deficiency on resale (with credit for any of the deposit kept or recovered; and the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract." (Emphasis added.) 11The Contract also included the following Special Conditions: * the Vendor was entitled to terminate the contract on or before 31 January 2004 if it did not enter into contracts for the sale of at least 120 apartments in the development approved by its financier (Special Condition 22.18); * the Purchaser was not entitled to make a claim or to rescind if there was a difference between the property as shown on the draft strata plan and the strata plan as approved " unless the difference detrimentally affect[ed] the property to an extent which is substantial " (Special Condition 26.2); * if the Purchaser completed the contract later than the completion date he was obliged to pay interest to the Vendor in the balance of the purchase price from the completion date until actual completion (Special Condition 33.1); * if the Purchaser defaulted in the performance of his obligations under the contract, including the completion of the contract, and the Vendor terminated the contract the Vendor was to be " entitled absolutely " to the deposit (Special Condition 36.3); and * the Purchaser represented and warranted that he had not relied on any representations made by the Vendor or its agent and that he had relied entirely on his own inquiries relating to the Apartment (Special Condition 40.1). Subsequent Events 12The construction of the block of units of which the Apartment formed part was completed by early 2007. The Apartment consisted of two storeys, the lower storey being on ground level. Glass doors at the eastern wall of the living area on the ground floor led to a garden. The garden was divided by a wall from the garden of the adjacent unit to the north of the Apartment. This wall was an elongation of the dividing wall between the Apartment and the neighbouring unit. The wall stopped short of the western boundary of the Apartment. A mesh wire fence was erected in the gap. From the garden, but not from the ground floor of the Apartment, it was possible to see through the gap towards Homebush Bay. 13On 27 February 2007, the Purchaser purported to rescind the Contract and demanded return of the deposit. The notice of rescission stated that: "inspection of the property on 24 February 2007 revealed that there is a substantial difference between the Draft Strata Plan and the lay-out of the Lot as constructed which detrimentally affects the property to a substantial extent, in that a wall has been constructed substantially obscuring views from the property." The notice also stated that construction of the wall was not revealed in the Contract. 14The Vendor did not accept the rescission and on 20 March 2007 served a notice, requiring the Contract to be completed on 4 April 2007. Completion did not take place on that date. 15On 20 June 2007 the Vendor served a notice pursuant to standard cl 9 terminating the Contract. The stated ground was that the Vendor had failed to comply with the Contract in an essential respect, namely completion in accordance with the notice to complete. The notice of termination stated that the Vendor exercised its right to keep the deposit. The Proceedings at First Instance 16On 17 July 2007, the Purchaser commenced proceedings in the District Court seeking return of the deposit paid by him. 17On 22 January 2009, the Vendor filed a cross-claim in the District Court. The Vendor sought damages for the losses sustained as a consequence of the Purchaser's default in failing to complete the Contract. 18On 18 March 2009, the Purchaser amended his claim to include a prayer for relief under s 55(2A) of the Conveyancing Act . On 15 June 2009, the proceedings were transferred to the Supreme Court. 19The proceedings were heard by Barrett J over three days from 3 to 5 March 2010. His Honour delivered judgment on 16 March 2010. His Honour: * made an order pursuant to s 55(2A) of the Conveyancing Act that the deposit paid by the Purchaser be returned to him; * otherwise dismissed the Purchaser's amended statement of claim; and * dismissed the Vendor's claim for damages. 20In a judgment delivered on 5 June 2010, Barrett J ordered that the Vendor pay one sixth of the Purchaser's costs and that otherwise there should be no order as to costs: Higgins v Statewide Developments Pty Ltd [2010] NSWSC 383. THE CLAIMS The Purchaser's Case 21The Purchaser justified his purported rescission of the Contract on the following grounds that: * the wall was not shown on the draft strata plan and the difference between the draft and approved strata plans entitled the Purchaser to rescind under Special Condition 26.2 of the Contract; and * the rule in Flight v Booth (1834) 1 Bing NC 370; 131 ER 1160 (which deals with discrepancies between the subject matter of a contract of sale and the property that is conveyed) applied in the circumstances of the case. 22The Purchaser also claimed that: * there had been a consensual oral rescission of the Contract; and * in any event, the Court should exercise its discretion in his favour under s 55(2A) of the Conveyancing Act , largely on the ground that he had been misled by the Vendor or its agent into believing that the Apartment would have 180 o views from the ground floor of the Apartment. 23The Purchaser's Further Amended Statement of Claim also pleaded that he had been induced to enter the contract by the Vendor's misleading and deceptive conduct in contravention of ss 51A and 52 of the Trade Practices Act 1974 (Cth) and that he was entitled to damages under s 82 of that Act . That claim was abandoned in final addresses at the trial. The Vendor's Case 24The Vendor's cross-claim particularised its loss and damage in consequence of the Purchaser's default as follows: "1. The loss in value of the Property since the date of the Contract. 2. Liability to pay increased interest expenses in connection with the development since the Date for Completion which it otherwise would not have incurred but for the Cross Defendant's default. 3. Liability to pay holding costs and expenses in respect of the Property including: i. strata levies to the Owners Corporation of SP 77916 ii other fees, costs and levies to the Owners Corporation of SP 77916 iii council rates iv. utilities including electricity, water and telephone v increased taxation liability; since the Date for Completion which it otherwise would not have incurred but for the Cross Defendant's default. 4. Liability to pay its solicitors in connection with their services in relation to the Contract, the Cross Defendant's breaches of the Contract and in respect of these proceedings. 5. Liability to pay any commission to its agent in respect of the sale." 25At the trial, the Vendor handed up a schedule of damages. The total damages claimed amounted to $198,535.30, comprising: * $14,606.14 paid in respect of strata levies, council and water rates during the period from July 2007 until July 2009; * $7,705.05 paid in land tax; and * $176,224.11 in interest, calculated from the date of the Purchaser's breach of the Contract (4 April 2007) until the hearing (which concluded on 5 March 2010). 26The interest calculations assumed that a principal sum of $684,900 was due on 4 April 2007 (that is, a sum representing the purchase price of $761,000 less the deposit of $76,100). The interest calculations used the actual rates of interest payable by the Vendor under a cash advance facility made available to it by the Commonwealth Bank and, as from about July 2007, a facility made available by Bankwest that replaced the Commonwealth Bank facility. 27As at 4 April 2007, the principal amount due to the Commonwealth Bank under its facility was $75,015,071 and the interest rate was 8.9% per annum. However, the amount due under the facility and the interest rate varied from time to time. For example, the amount due by the Vendor under the facility on 14 June 2007 had been reduced to $63,265,071. The interest rate applicable to the facility at that date had been lowered to 8.87% per annum. The evidence did not explain the reduction in the principal owing under the facility. 28The amounts due under the Bankwest facility also fluctuated from time to time, as did the rate of interest payable by the Vendor. For example, the limit under the facility was increased for unexplained reasons on 16 November 2007 from $66,615,401 to $77,464,218 and the interest rate was increased from 7.97% per annum to 8.23% per annum. 29The rationale for the approach taken to the calculation of the interest component of the Vendor's damages was explained by Mr Leeming SC, who appeared with Ms Taylor for the Vendor on the appeal. Mr Leeming said that the calculations assumed that the balance of the purchase price due at completion would have been wholly applied in reduction of the principal due under the facility in place at the date of settlement. Mr Leeming accepted, however, that there was no evidence that the Vendor would have followed this course, had the sale been completed in accordance with the Contract. The evidence was also unclear as to whether the facilities in place from time to time were secured only by the Vendor's interest in the Homebush Bay development or whether the funds advanced were used exclusively for that development. THE PRIMARY JUDGMENT 30Barrett J rejected the Purchaser's contentions that he had validly rescinded the contract of sale. His Honour concluded that: * the Purchaser's claim under Special Condition 26.2 failed because the draft strata plan indicated nothing about the placement of walls and thus there was no difference between the draft and approved strata plans that could be said to have detrimentally affected the property to a substantial extent; * the claim based on the rule in Flight v Booth failed because the construction of both the building and the " offending wall " was consistent with the terms of the contract of sale; and * the Purchaser had not established that there had been any oral agreement to rescind the contract of sale. None of these conclusions is now challenged. 31The primary Judge next considered the Vendor's cross-claim. His Honour noted (at [94]) that the Vendor had not sold the Apartment within 12 months after termination of the contract or at all. Consequently, the Vendor's right was simply to recover damages for breach of contract pursuant to standard cl 9.3.2 of the Contract. 32The primary Judge observed (at [96]) that, since the Vendor had regained title to the Apartment free from any obligation to transfer to the Purchaser, the unpaid purchase money did not represent that Vendor's loss. The central question was: "whether the [V]endor's position of continuing ownership of the property is more or less advantageous than the position that would have pertained if the [V]endor had conveyed the property to the purchaser and received the price in its place." 33Ordinarily, where the subject property had not been resold by a vendor, the vendor's loss was assessed by comparing the contract price with the value of the property at the time of breach (at [97]). If the value was greater than the price, no damage had been suffered. But if the value was less, it could be inferred that the difference was an element of the vendor's loss under the first limb of the principle in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145, along with the expenses of sale, but allowing for the deposit received under the contract of sale. His Honour was referring to the seminal passage in Hadley v Baxendale , where Alderson B stated (at Exch, 354; ER, 151) that a party may recover damages for breach of contract: "such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable breach of it." 34The primary Judge said (at [98]) that, despite item 1 of the Vendor's particulars of loss ([24] above), it had adduced no evidence as to the value of the Apartment at the date of the Purchaser's breach or at any time thereafter. The only evidence related to the disbursements attributable to the ownership of the Apartment, and to the Vendor's claim to recover interest. 35His Honour identified (at [99]) two problems with the way the Vendor had framed its claim to damages: " First, the court has no basis on which to make any finding about the extent, if any, to which the value of the property at the time of the purchaser's breach (or at any other time) was less than the purchase price, with the result that the court cannot include in any award of damages anything referable to any such head of loss. Second, the sum the defendant claims by reference to its own costs of borrowing is not a legitimate element of any award of damages." 36As to the first, his Honour observed (at [101]) that a party seeking damages for breach of contract must prove two things: not only that it had suffered damage as a result of the breach, but the amount of loss sustained. The Vendor had adduced no evidence as to the value of the Apartment and thus had not proved that it had suffered any loss as a result of the Purchaser's breach. The Court could not conclude that the value of the Apartment was or even may have been less than the purchase price under the Contract. 37The primary Judge also concluded (at [106]) that the Vendor's claim for damages in respect of interest charges it had incurred was inconsistent with authority. The general principle was that a defaulting purchaser was not liable for continuing interest payments incurred by the vendor under a mortgage on the property. His Honour cited (at [107]) the observation made by Professor Butt ( The Standard Contract for the Sale of Land in New South Wales (2 nd ed, 1998), at 520) that the vendor's obligation to pay the mortgage arises, not from the purchaser's breach, but from the vendor's decision to terminate the contract. 38His Honour also cited (at [113]) authority supporting the proposition that interest incurred by a vendor under a continuing mortgage does not constitute an element of damages flowing from a default by a purchaser, except where the second limb in Hadley v Baxendale applies: that is, unless the loss can reasonably be supposed to have been in the contemplation of both parties as the probable result of a breach at the time they made the contract: see Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391, at 396, per Young J. The primary Judge observed that if it were otherwise, a vendor could claim interest in every case where the property happened to be encumbered by a mortgage. 39The primary Judge considered (at [117]) that the evidence adduced by the Vendor in this case could not satisfy the second limb of Hadley v Baxendale: "... no evidence has been led as to the [Purchaser's] knowledge of the [Vendor's] financing arrangements. Nor was any submission made that the [Purchaser] had in contemplation loss that the [Vendor] might suffer through inability to use the proceeds of sale to retire some of its acquisition and construction finance." It followed (at [118]) that the Vendor had not established that its damages should include a sum referable to the financing costs actually incurred by it. 40The primary Judge said (at [119]) that, in view of the conclusions he had reached, the only components of loss that the Vendor could claim were the direct costs of holding the Apartment, that is " costs that would have been avoided had the [Purchaser's] breach not occurred and which were occasioned by the continued ownership ". However, any rent derived by the Vendor from the Apartment had to be offset against the strata levies, local government rates, water rates and land tax paid by the Vendor. The Vendor had conceded that it had received $54,000 in rent " over the relevant period ". Accordingly, the costs of ongoing ownership had been exceeded by the benefits in the form of rent receipts. The quantum of damages established by the Vendor was therefore zero (at [121]). 41Finally, the primary Judge considered the Purchaser's claim for relief under s 55(2A) of the Conveyancing Act . His Honour reasoned as follows (at [130]-[133]): "130 In the present case, there is uncontradicted evidence, first, that the [Purchaser] relied on the scale model of the then proposed building in deciding whether to enter into a contract for 'off-the-plan' purchase; second, that the wall that led to the [Purchaser's] attempted rescission did not appear in the scale model and was incorporated into the building design a considerable time after the contract had been entered into; third, that Mr Wu, a representative of the selling agent, represented orally to the [Purchaser] that the property when completed would enjoy '180 degree water views'; and, fourth, that the presence of the wall in issue means that '180 degree water views' are not available from the ground floor living area. 131 Also uncontradicted is the [Purchaser's] evidence that the availability of the 180 degree views that are in fact rendered unavailable by the wall was a significant factor in his decision to enter into the contract. 132 I have already said that the [Vendor] was contractually entitled to take the course it in fact took in building the wall in question so as to obstruct in part water views from the lower storey of the subject unit. By taking the course thus contractually available to it, however, the [Vendor] dishonoured representations made by it (through both display of the model and the agent's representative) that had understandably been taken into account by the [Purchaser] as an important consideration in deciding to buy the particular property for the particular price. 133 That, to my mind, amply justifies an order under s 55(2A) that the [Purchaser] should have the deposit restored to him. It would be unjust or inequitable to allow the [Vendor] to have the benefit of the deposit when it had acted (admittedly in exercise of a contractual right) to undermine an important part of the circumstances that had induced the [Purchaser] to contract with it as he did." 42His Honour said (at [134]-[135]) that a second factor also pointed towards an order under s 55(2A) of the Conveyancing Act : "134 ... Had damages been awarded to the [Vendor], the deposit would have been brought to account as part of the damages ... 135 After a purchaser's default, the deposit represents a form of security for that purchaser's liability in damages (having been, before default, a form of security for the purchaser's obligation to perform the contract). Where the deposit exceeds the damages to which the vendor is entitled by reason of the purchaser's breach, the vendor's legal right (conferred by the contract) to keep the excess may not sit happily with the fact that the vendor's loss has been fully compensated and the vendor thereby made whole without resort to that excess. In the present case where assessment of damages has produced a zero entitlement for the vendor, the vendor's legal right to keep the whole deposit and the purchaser's consequent inability at law to recover any part of it likewise may not sit happily with the justice and equity of the case. Although the fact that a vendor has resold at a profit may not, of itself, be sufficient to warrant an order under s 55(2A) in favour of the defaulting purchaser, it is still a significant consideration ... A case such as the present in which the vendor has proved no loss or damage stands in the same light." SUBMISSIONS 43The course taken in written and oral submissions reflected the approach taken by the primary Judge. As has been seen, his Honour concentrated on two issues: whether the Vendor had established that it had sustained any loss and whether, in the absence of evidence attracting the second limb of Hadley v Baxendale, damages awarded against a defaulting purchaser could include a component for interest. His Honour adverted to the need for a party claiming damages for breach of contract to prove that it has suffered loss as a result of the purchaser's breach. However, he made no specific finding as to whether any of the expenses claimed by the Vendor were incurred as a result of the Purchaser's breach of the Contract. Vendor's Submissions 44In these circumstances, it is not surprising that the Vendor's written submissions focused on the primary Judge's approach to the recoverability of interest. The Vendor submitted that interest expenses are recoverable as damages naturally and usually arising from the breach of a sale contract that requires payment of the price on a particular day. According to the Vendor, the primary Judge had misinterpreted the decision in Palasty v Parlby [2007] NSWCA 345; [2008] NSW Conv R 56-205. That case confirmed that interest expenses can be recovered by a vendor under the first limb of Hadley v Baxendale , since the expenses are incurred directly in consequence of the purchaser's failure to complete on the due date. Accordingly, the primary Judge should have found that the interest expenses incurred by the Vendor were " damages that naturally and usually arise from a failure to complete the Contract ". 45Mr Leeming accepted that the Vendor had to demonstrate that it had made diligent efforts to resell the Apartment. He submitted that although the primary Judge had made no finding to this effect, the evidence established that diligent efforts had been made. The Vendor was therefore entitled to recover damages for costs connected with ongoing ownership of the Apartment to the time of resale or, as that had not occurred, until at least the time of judgment. 46The Vendor's notice of appeal sought judgment for the Vendor on the cross-claim in the sum of $198,535.30 plus interest at the Court rate from 3 March 2010. However, Mr Leeming accepted that the amount claimed as damages would have to be offset by the deposit (assuming the Vendor was permitted to retain it) and by the rental of $54,000 received in respect of the Apartment. The Vendor's damages claim was therefore limited to the sum of $68,435.30. 47The Vendor submitted, in the alternative, that the evidence supported a finding that the Purchaser knew of the Vendor's commitment to pay interest in respect of the development and that both parties must have had in contemplation that interest costs would be incurred until resale as a result of the breach of Contract. In particular, the reference in Special Condition 22.18 of the Contract to the Vendor's entitlement to rescind if 120 units had not been sold with the approval of the Vendor's financier, showed that the Purchaser must have been aware that funds had been lent for the development by a third party Lender. 48Mr Leeming accepted that the primary Judge's decision to order return of the deposit involved the exercise of a discretion and that it was incumbent on the Vendor to demonstrate that the discretion had miscarried if the appeal on this point was to succeed. He identified four errors: * contrary to his Honour's findings, the evidence did not establish that the Purchaser had relied on the scale model, especially having regard to Special Condition 40 (disclaiming any reliance on representations or warranties); * his Honour's finding that Mr Wu was the Vendor's agent was against the weight of the evidence and that any representations made by Mr Wu could not be sheeted home to the Vendor; and * in any event, the Purchaser was able to enjoy 180 views from the garden on the ground floor by looking through the gap where the wall ended; and * his Honour failed to take account of the losses sustained by the Vendor in consequence of the Purchaser's breach. 49Mr Leeming also argued that the primary Judge, in explaining the " second factor " that justified an order for return of the deposit, wrongly adopted a principle that a Vendor who fails to prove loss will ordinarily have to return the deposit. Purchaser's Submissions 50The Purchaser submitted that in the absence of any evidence as to the value of the property, whether at the time of the breach, or at any later time, the Vendor had failed to establish that it had suffered any loss. The fact that the Vendor had incurred some expenses after the Contract had been terminated carried the matter no further since, if the Apartment had increased in value since the date of the Contract (October 2003), the Vendor would not have sustained any loss (at least if the increase in value was as great or greater than the net expenses incurred). The absence of any evidence as to value left it open to conclude that between the date of the Contract (30 October 2003) and the date of the breach (April 2007), the value of the Apartment had increased to such an extent that the Vendor had suffered no loss in consequence of the Purchaser's breach. 51The Purchaser's written submissions sought to uphold the primary Judge's approach on the question of interest as a component of damages. However, in oral submissions Mr Barham, who appeared for the Purchaser, seemed to accept, or at least not dispute, that Palasty v Parlby holds that damages for interest costs incurred by a vendor may be awarded under the first limb of Hadley v Baxendale where the purchaser has failed to complete the contract of sale. 52To the extent that the second limb of Hadley v Baxendale was relied on, Mr Barham contended that nothing was " brought home " to the Purchaser concerning the Vendor's financing arrangements. The Purchaser could have had no idea, for example, as to whether the Vendor intended to apply any of the sale price of the Apartment to reducing any mortgage of the development. 53The Purchaser's written submissions adverted to a causation argument, but did not develop it in any detail. The submissions referred to the principle that an obligation which arises because a vendor makes a commercial decision to retain a property cannot be said to be the result of the purchaser's breach of contract. The Purchaser also invited this Court to find that " at some point " the Vendor made the commercial decision to retain the Apartment. 54The issues relating to causation were developed at greater length in the Vendor's written reply submissions and in the oral argument. Mr Barham accepted that, as the primary Judge had not made any explicit findings as causation, it was necessary to file a notice of contention supporting the decision on that basis. Mr Leeming did not object to this course and the Court granted leave to the Purchaser to file a notice of contention. 55Mr Barham submitted that no error had been demonstrated in the primary Judge's discretionary decision to order return of the deposit to the Purchaser. He contended that each of the matters relied on by his Honour was supported by the evidence and that he had not taken any irrelevant considerations into account. Vendor's Reply Submissions 56The Vendor responded to the Purchaser's submissions on causation in its written submissions in reply and in the oral argument. Mr Leeming accepted that it was necessary for the Vendor, in order to recover damages in respect of interest incurred after termination of the Contract, to show that it had undertaken diligent efforts to resell. He submitted, however, that the Vendor had adduced unchallenged evidence that showed that such efforts had been made. REASONING Causation 57The general principle in an action for damages for breach of contract is that stated in Robinson v Harman (1848) 1 Ex 850, at 855; 154 ER 363, at 365 per Parke B: "where a party sustains a loss by reason of a breach of contract, he 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". The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64, at 80, per Mason CJ and Dawson J; at 98, per Brennan J; at 134, per Toohey J: at 148, per Gaudron J; at 161, per McHugh J; Palasty v Parlby, at [43], per Mason P (with whom Tobias JA and Handley AJA agreed). 58Incorporated within that statement of general principle is the requirement that the plaintiff must establish that the loss resulted from the breach of contract. Accordingly, the plaintiff must prove that the loss for which compensation is claimed was caused by the breach relied on: N Seddon and M P Ellinghaus, Cheshire & Fifoot's Law of Contract (8 th Aust ed, 2002), at [23.31]; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310. Whether a plaintiff has established causation in this sense is a question of fact, ultimately to be resolved by common sense principles informed, where appropriate, by value judgments: March v E & HM Stramore Pty Ltd [1991] HCA 12; 171 CLR 506, at 515-517, per Mason CJ (with whom Toohey and Gaudron JJ agreed); at 524, per Deane J. 59The principles stated in Hadley v Baxendale concern remoteness of damage. As Toohey J observed in Amann Aviation, at 136, Hadley v Baxendale " marks out the limits of the heads of damage for which a plaintiff is entitled to be compensated ". See also Carpenter v McGrath (1996) 40 NSWLR 39, at 58-59, per Sheller JA; at 73, per Cole JA. 60The first question that must be considered in a claim for damages, once a defendant has been shown to be in breach, is whether the plaintiff has established that the loss claimed resulted from the breach. In many cases causation will not be in dispute or it will be clear that the loss claimed is causally related to the breach in the relevant sense. Nonetheless, the plaintiff must adduce evidence sufficient to establish a causal relationship between the breach and the loss claimed. 61In Palasty v Parlby , upon which the Vendor placed considerable reliance, causation was not an issue. In that case, a vendor terminated a contract for the sale of a house by reason of the purchaser's failure to complete. The vendor forfeited the deposit and resold the house at a loss. The vendor sued for damages, including the loss on resale and interest on the unpaid balance of the purchase price from the date of the purchaser's breach until completion of the resale. 62Mason P held (at [53]) that the vendor was entitled to interest as a loss suffered due to the delay in the vendor receiving the purchase moneys to which he was entitled. The common law constraints on such a claim had been removed by the decision of the High Court in Hungerfords v Walker [1989] HCA 8; 171 CLR 125. Mason P considered (at [53]) that the vendor's loss flowing from the timely receipt of the purchase moneys really fell within the first limb of Hadley v Baxendale, since it was " a demonstrable loss incurred directly in consequence of the purchaser's failure to complete on the due date ". His Honour considered it appropriate, in the circumstances of the case, to calculate this head of damage by reference to the rates of interest set out in Sch 5 to the Uniform Civil Procedure Rules 2005. 63There was no dispute in Palasty v Parlby that the loss by way of interest foregone was causally related to the breach. The vendor had a need for funds and had promptly put the house back on the market once the contract for sale was terminated (at [3]). In these circumstances, Mason P allowed interest for the whole of the period until the resale was complete, observing (at [54]) that: "[I]nterest damages spanning this full period depended upon the vendor, showing as he did, that he acted diligently in his efforts to resell". His Honour did not state explicitly whether diligence had to be shown in order to prevent the causal link being broken or because lack of diligence would make the claim for interest damages too remote. 64As has been seen, the Vendor's claim for damages in the present case included interest costs incurred or attributable to the Vendor's retention of the Apartment from the date of the Purchaser's breach until the hearing, a period of nearly three years. In order to support its submission that it had diligently attempted to resell the Apartment after termination of the Contract, the Vendor relied on evidence given by Mr Touma, the Vendor's Project Manager for the Homebush Bay development. 65Mr Touma's affidavit evidence did not advert to the steps taken by the Vendor to sell the Apartment. Nor did his oral evidence in chief broach the subject. However, after Mr Touma had been cross-examined, the Vendor's then counsel sought leave to adduce further evidence from Mr Touma as to what " happened ... by way of attempts to sell " the Apartment. The primary Judge, over the objection of the Purchaser's counsel, permitted the further evidence to be given. 66It is convenient to reproduce the further evidence in its entirety: "Q. Mr Touma, in your position within the defendant company, do you yourself, by reason of your day-to-day functions and duties, have knowledge of sales of units in the building, in the Market Street development, since April, 2007? A. Yes, I do. Q. And what is the basis of that knowledge? A. I actually organise all the marketing campaigns now and co-ordinate the agents and the display suits. Q. How many units are there in building E all together? A. 17, from recollection. Q. How many of those have been sold? A. Three. Q. Does that mean that Statewide currently owns the other 14? A. Yes. Q. What can you tell the court about attempts to sell those 14 units since April 2007? A. We have run five separate campaigns, two overseas, and on one occasion we hired Colliers to run a campaign which ended in the middle of 2009, with no success, and currently we are re-applying to the council to split those units into smaller units and run another campaign. Q. The campaigns that you have referred to, do they include specifically unit G02? A. Yes. Q. That is included in the unsold--- A. It is one of the unsold. HIS HONOUR: Q. One of the four 14? A. Yes HARPER: Q. You made reference to applications to the council. Do any of those applications, or proposed applications, relate to unit G02? A. Yes. Q. Can you tell the court what the intention of [sic] that unit is? A. Turning it into two, one bedroom units. Q. On the basis of your experience in marketing, are you able to tell the court whether any offers have been made between April 2007 and today in relation to unit G02? A. Not off the top of my head at the moment, no." 67The following points should be made about this evidence: * except for the reference to the Colliers' campaign in 2009, nothing was said about when the " campaigns " were conducted, in particular whether any took place shortly after July 2007, when the Contract was terminated; * nothing substantial was said about the nature and extent of the campaigns conducted by or on behalf of the Vendor; * Mr Touma was unable to recall whether any offers had been made to buy the Apartment, leaving open the possibility that some offers had been made but rejected by the Vendor; * Mr Touma was not asked about the price sought for the Apartment and how the price related, if at all, to the purchase price in the Contract; * Mr Touma was not asked to explain why three units in building E had sold, but the Apartment had not; and * Mr Touma was not asked about general market conditions affecting units in the area of the Homebush Bay development over the period 2007 to 2010. 68The Vendor adduced no evidence about sales of other units in the development. It can be inferred from Special Condition 22.18 of the Contract that the development consisted of at least 120 units and probably substantially more. The fact that the amount due under the Commonwealth Bank's facility fluctuated substantially from time to time justifies an inference, in the absence of contrary evidence, that a significant number of units in the development were sold after April 2007. If that is the case, the evidence did not explain why units elsewhere in the development had sold but the Apartment had not. 69On this evidence, it is impossible to conclude that the Vendor used diligent efforts to sell the Apartment shortly after the Purchaser's breach, the termination of the Contract or indeed at any other time. The evidence is consistent with the Vendor not deciding to attempt to sell the Apartment until well after the Contract had been terminated (by which time market conditions may well have changed for the worse). The evidence is also consistent with the Vendor's attempts being unsuccessful because it refused to meet the market or because it placed a higher priority on selling other units in the development. Furthermore, the fact that the Vendor received some $54,000 in rental payments over an unspecified period strongly suggests that a commercial decision was made at some stage to retain the Apartment in order to lease it. The evidence did not reveal the period during which the Apartment was leased and rent derived by the Vendor. 70As the primary Judge pointed out, the Vendor did not adduce any evidence as to the value of the Apartment at the date of breach (April 2007) or its value at any time between that date and the date of the hearing. Mr Touma's evidence is consistent with the Apartment having risen significantly in value between October 2003 (the date of the Contract) and April 2007 (the date of the breach). This is not a case where a contract of sale was terminated only a short time after it had been entered into by the vendor and the purchaser. In such a case, in the absence of valuation evidence, there might be little reason to suppose that there was any material difference between the contract price and the value of the property at the date of breach. In the present case, however, nearly four years elapsed between the date of the Contract and the date the Vendor terminated the Contract. In the absence of any evidence from the Vendor (a property developer with knowledge of the market) as to the value of the Apartment at the latter date or even of general market conditions, it is reasonable to infer that the Apartment had increased in value over the four year period. 71In Carpenter v McGrath , Clarke JA observed (at 44) that it is wrong in principle to regard an obligation which arises merely because a vendor makes a commercial decision to retain a property as flowing from a breach of contract by the purchaser. It is not necessary in the present case to find that, following termination of the Contract, the Vendor made a commercial decision to retain the Apartment. The critical point is that the evidence does not enable a finding to be made that any of the losses claimed by the Vendor resulted from the Purchaser's breach of the Contract. 72On the evidence, the losses said to have been sustained by the Vendor might have resulted from any one of a number of decisions made by the Vendor. These include a decision to retain the Apartment in order to lease it, rather than attempt to resell it at the earliest opportunity; a decision to offer the Apartment for resale at a price higher than the market could reasonably bear; a commercial decision to give a higher priority to the sale of other units in the development; and a decision to refuse offers which, although lower than the Vendor's expectations, were nonetheless substantially higher than the price stipulated in the Contract. 73The Vendor adduced no evidence that, having terminated the Contract, it was unable promptly to place the Apartment on the market or to realise its true value (whatever that was) within a relatively short period. Nor was there any evidence that there were circumstances associated with the Purchaser's breach that prevented the Vendor selling the Apartment at any time during the three years between the date of the breach and the trial. Given the possibilities that are consistent with the evidence, none of the losses claimed by the Vendor can be said to have been incurred as the result of the Purchaser's breach of the Contract. The evidence is consistent with the claimed losses being the result of the Vendor's own decisions or conduct. 74For these reasons, the Purchaser's notice of contention should be upheld. The Vendor's cross-claim for damages was correctly dismissed by Barrett J. An Additional Problem 75There is an additional problem with the Vendor's claim for damages. It seeks damages for what might be described as losses on revenue account (the ongoing expenses associated with retention of the Apartment). The Vendor does not claim damages on capital account (the difference between the Contract price and the value of the Apartment at the date of breach or termination of the Contract). As has been noted, it has adduced no evidence as to the value of the Apartment at any time after the Purchaser's breach. 76In Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388, the High Court in the context of a claim for damages under s 82 of the TP Act , identified (at [50]) issues that arise in assessing damages where a claim is made for losses on both capital and revenue accounts. Their Honours pointed out that losses on capital account may be incurred at a time different from losses on revenue account and that care must be taken to ensure that any relief avoids double counting of losses. 77The fundamental principle is that the plaintiff is entitled to be placed in the same situation, so far as money can do it, as if the contract had been performed. The evidence in the present case, bearing in mind the lapse of four years between Contract and breach, does not permit a finding on the balance of probabilities that the Vendor's losses on revenue account would not have been more than offset by the Vendor's gains on capital account. On the evidence, an award of damages calculated solely by reference to losses on revenue account is as likely as not to place the Vendor in a better position than if the Purchaser had performed the Contract. If such an award were made, the Vendor would still retain the Apartment which could well be worth more than the sum of the Contract price and the net losses on revenue account. To award damages for the losses on revenue account in such circumstances would be the equivalent of awarding double compensation. Order for return of the Deposit 78In my opinion, the Vendor's submission that the primary Judge's exercise of the discretion conferred by s 55(2A) of the Conveyancing Act miscarried should not be accepted. I shall deal with each of the Vendor's arguments in support of that submission. Reliance on the Scale Model 79The Vendor submitted that the Purchaser's evidence of reliance on absence of an external wall in the scale model was " thin ". However, when the Purchaser's affidavit evidence is read with his oral evidence, it is clear that he was saying that he believed that there would be no external wall separating the Apartment from his neighbour and that he had formed that belief, in part, because the scale model did not incorporate an external wall. He also made it clear that he was expecting to have a view from the sitting area of the lounge room on the ground floor of the Apartment, not merely from one section of the courtyard. 80The Purchaser was cross-examined to the effect that he must always have expected an unbroken external barrier to be erected between his courtyard and his neighbour's unit, but he firmly denied the cross-examiner's suggestion. The primary Judge was entitled to accept the Purchaser's evidence on these matters and to conclude that he had been induced to enter the Contract in reliance on representations that there would be no wall interrupting 180 o views from the Apartment. 81The Vendor did not dispute that a misrepresentation by a vendor or its agent, if acted upon by a purchaser, is a material factor which can be taken into account in determining whether an order for return of the deposit should be made: Havyn Pty Ltd v Webster [2005] NSWCA 182; ATPR (Digest) 46-266, at [164]-[165], per Santow JA (with whom Tobias JA and Brownie AJA agreed). The Vendor submitted that the primary Judge had erred in failing to consider whether provisions of the Contract, specifically the Purchaser's acknowledgement in Special Condition 40 that he had not relied on any representations, negated or counteracted the Purchaser's evidence of reliance. 82It was never put to the primary Judge that even if he found that the Purchaser had relied on misrepresentations made by the Vendor, he should disregard or discount that finding because of Special Condition 40. The Vendor's defence to the Purchaser's claim for return of the deposit did not refer to Special Condition 40 and the provision was not mentioned in the Vendor's written or oral submissions on the issue of whether an order should be made under s 55(2A) of the Conveyancing Act . It was not an error for the primary Judge not to mention Special Condition 40 in relation to the claim for return of the deposit when the Vendor never asked his Honour to do so. Agency of Mr Wu 83The Vendor submitted that there was evidence suggesting that Mr Wu was an employee of a mortgage broker, rather than an agent of the Vendor and thus any representations made by Mr Wu could not be sheeted home to the Vendor. Mr Leeming relied for this submission principally on emails showing that Mr Wu was associated with a company known as Professional Loan Consultants Pty Ltd (" PLC ") and that Mr Wu had on occasions referred to the Purchaser as " my client ". 84While there was evidence that Mr Wu was associated in some way with PLC, there was other evidence that he acted as an agent of the Vendor. The Purchaser gave evidence that was neither objected to nor challenged, that Mr Wu was the agent for the Vendor. The Purchaser also gave evidence that Mr Wu made available plans of the development for inspection and provided him with a copy of the Contract. These are actions that would normally be associated with an agent of the Vendor rather than a mortgage broker. Moreover, in opening the case before the primary Judge, counsel for the Vendor specifically stated that " Mr Wu runs his own real estate agency ". 85As Mr Barham pointed out, Mr Wu's association with a company that may have been a finance broker is not inconsistent with him also having acted as the Vendor's agent. Nor is his reference in emails to the Purchaser as " my client " inconsistent with Mr Wu being the Vendor's agent. It would not be particularly remarkable that an estate agent hoping to share commission with another agent should refer to a prospective purchaser he introduces to the property as " my client ". 86No error has been demonstrated in the primary Judge's finding that Mr Wu was the Vendor's agent at the time he made the representations to the Purchaser concerning 180 o views. Extent of the Views 87The Purchaser's evidence, accepted by the primary Judge, was that the scale model and Mr Wu's representations induced him to believe that he would enjoy 180 o views from the lounge room on the ground floor of the Apartment. The fact that it was possible to obtain views from a section of the ground floor courtyard was common ground at the trial and was obviously appreciated by the primary Judge. That fact casts no doubt on his Honour's finding that the Purchaser had been induced to enter the Contract by misrepresentations concerning the extent of the views he would enjoy from the ground floor of the Apartment. The Vendor's Loss 88For reasons that have been given, the Vendor did not establish that it had sustained any losses as a result of the Purchaser's breach of the Contract. The primary Judge was therefore not in error in proceeding on the basis that no such losses had been sustained. The " Second Factor " 89The Vendor submitted that the primary Judge had erred in identifying a " second factor " pointing towards an order under s 55(2A) of the Conveyancing Act in favour of the Purchaser. Mr Leeming contended that his Honour had incorrectly held that whenever a vendor is unable to demonstrate any loss in consequence of a purchaser's breach the purchaser is entitled to a return of the deposit. 90If this is what his Honour intended to say, it would be inconsistent with authority. In Havyn v Webster , Santow JA explained the principles to be applied in exercising the statutory jurisdiction conferred by s 55(2A) of the Conveyancing Act . They include (at [173]) the following: "(b) ... it is important for a Court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur . (c) That context is significant when considering the justice and equity of the case, and whether the Court 'sees fit' to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show 'special circumstances' (or satisfy any like test) before a deposit will be returned. (d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited. (e) In considering an application under s 55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited." (Emphasis added.) See also Nassif v Caminer [2009] NSWCA 45; 74 NSWLR 276, at [88]-[91], per Sackville AJA (with whom Basten JA agreed). 91I do not, however, interpret his Honour as stating or applying the general principle attributed to him. He was speaking of the particular circumstances of the case which, as he had already found, made it unjust or inequitable for the Vendor to retain the deposit. His Honour was making the point that where the Vendor had actively sought to make out a damages claim but had failed to prove any loss, it did not " sit happily with the justice and equity of the case " to allow it to retain the deposit. In context, his Honour was referring to the justice and equity of the case reflected in his earlier findings. 92In any event, even if the " second factor " identified by the primary Judge incorporated error, his Honour had already found (at [133]) that circumstances existed which " amply justified " an order for return of the deposit and that it would be unjust or inequitable to allow the Vendor to have the benefit of the deposit when its own conduct had undermined matters that had induced the Purchaser to enter into the Contract. The second factor was put forward as an alternative and independent basis for ordering the deposit to be returned. Conclusion 93The appeal must be dismissed. The Vendor must pay the Purchaser's costs of the appeal. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 March 2011