Supreme Court New South Wales Medium Neutral Citation: Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWSC 528 Hearing dates: 5 & 6 March 2018 Date of orders: 30 April 2018 Decision date: 24 May 2018 Jurisdiction: Equity Before: Slattery J Decision: Plaintiff not entitled to deposit. Defendant/cross- claimant entitled to damages in the agreed sum of $100,000. Summons dismissed. Order for costs made on the ordinary basis unless motion filed seeking some other order within 7 days. Catchwords: LAND LAW - Conveyancing - Contract for sale - defendant/vendor alleges contract novated from second plaintiff (the original purchaser) to first plaintiff (the alleged new purchaser) - novation contested by plaintiffs - Notice of Termination issued by vendor to the first plaintiff - whether termination effective - first plaintiff initially sought declaration that the contract for sale was on foot and specific performance claim for a declaration and specific performance later abandoned - plaintiffs seek return of deposit in the alternative - cross claim by vendor seeking to retain deposit - whether vendor entitled to retain deposit under Conveyancing Act 1919, s 55(2A). Legislation Cited: Conveyancing Act 1919, s 55(2A) Real Property Act 1900, s 42(1)(d) Retail Leases Act 1994, s 16 Cases Cited: A Jones & Son Pty Ltd v Weeden [1964 – 1965] NSWR 1780 Alcova Holdings Pty Limited v Pandarlo Pty Ltd (1988) 15 NSWLR 53 Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 97,635 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 HG & R Securities Pty Limited v Sayer [2009] NSWSC 427 Maralinga Pty Ltd v Major Enterprises Pty Ltd [1972] 2 NSWLR 101 McMahon v National Foods Milk Ltd (2009) 25 VR 251 Olsson v Dyson (1969) 120 CLR 365 Orica Ltd v Commissioner of Taxation (Cth) [2010] FCA 197 Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1977] VR 454 Saunders v Leonardi (1976) 1 BPR 97,042 Schindler v Pigault (1975) 30 P & CR 328 Upper Hunter County Council v Australian Chilling and Freezing Co Pty (1968) 118 CLR 429 Vickery v Woods (1952) 85 CLR 336 Texts Cited: CJ Rossiter, Requisitions and Objections on Title: The time for delivery; the vendor's obligation to answer properly made requisitions; the purchaser's remedy for inadequate or erroneous answers (2000) 8 APLJ 97 JW Carter, Breach of Contract (2nd ed, 1991, The Law Book Company Ltd) RP Meagher, JD Heydon, MJ Leeming, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) Category: Principal judgment Parties: First Plaintiff/Cross Defendant: Fu Tian Fortune Pty Ltd ACN 611 503 256 Second Plaintiff/Cross Defendant: Defu Zhang Defendant/Cross Claimant: Park Cho Pty Ltd ACN 096 066 250 Representation: Counsel: Plaintiffs/Cross Defendants: G.W. McGrath SC; A. Norrie Defendant/Cross Claimant: N. Kirby Solicitors: Plaintiffs/Cross Defendants: Wilson Shen, Shen's Lawyers Defendant/Cross Claimant: Melvin Kee Khing Gan, Vinci Lawyers File Number(s): 2017/140558 Publication restriction: No Judgment 1. On 18 March 2016 the defendant, Park Cho Pty Ltd ("Park Cho"), contracted as vendor to sell commercial real estate, a motel and restaurant, on the Pacific Highway at Belmont ("The Belmont property") to the second plaintiff, Mr De Fu Zhang ("Mr Zhang") as purchaser. The contract for sale provided for the payment of consideration of $3,088,000 and a 10% deposit of $308,800. 2. Park Cho claims that this contract for sale was novated to the first plaintiff, Fu Tian Fortune Pty Ltd ("Fortune"), which then assumed the obligations under it as purchaser. Fortune disputes that a novation occurred and says that Mr Zhang remains the purchaser. 3. On 31 May 2016 Park Cho gave Fortune a form of Notice of Termination, which purported to terminate the contract, alleging default by Fortune in failing to complete the contract for sale. The Notice of Termination also declared that Park Cho would retain the deposit paid under the contract. 4. After Park Cho's purported termination of the contract, Fortune and Mr Zhang commenced these proceedings against Park Cho in July 2017 seeking a declaration that the contract for sale remained on foot and seeking its specific performance. Park Cho defended the claim for specific performance on the basis that it had lawfully terminated the contract for sale. Park Cho cross claimed, seeking a declaration it had lawfully terminated the contract and that it was now entitled to retain the deposit. 5. Park Cho decided to resell the Belmont property before trial. Fortune did not oppose the sale and abandoned its claim to specific performance. The proceedings were then reduced to a contest as to: who was the purchaser; whether the purchaser had breached the contract for sale by not completing and was liable in damages to the vendor; and whether Park Cho was entitled to retain the deposit, or whether Fortune was entitled to its return. The parties reached agreement in the course of the trial about the damages payable by the plaintiffs in the event that Park Cho's right to terminate the contract were upheld. 6. The proceedings were set down for trial on 5 and 6 March 2018. Mr G. M. McGrath SC of counsel together with Mr A. Norrie appeared for Fortune and Mr Zhang instructed by Shen's Lawyers. And Mr N. Kirby of counsel appeared for Park Cho instructed by Vinci Lawyers. 7. After the filing of the Summons the parties filed pleadings. The resulting Statement of Claim, Defence, Cross Claim and Defence to Cross Claim well-defined the issues now in before the Court. 8. What follows is a narrative of the relevant history. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' contentions are being recorded. For reasons of economy, this narrative does not always include reference to versions of the facts that have been rejected, although the factual contests between the parties were quite minor in the end. A Commercial Property on Lake Macquarie is Sold by Tender – 2016 to 2018 1. The issues between these parties draw upon conduct before contracts were exchanged on 18 March 2016. The narrative starts with the marketing late in 2015 of the Belmont property, which is situated on Lake Macquarie. 2. The Belmont property comprises a motel, bar and accommodation premises that are known as "Squids Ink on the Lake Motel". The Belmont property also contains a restaurant known as "Squids Ink - Restaurant on the Lake". Park Cho structured the sale as one by tender closing on 18 March 2016 and its agent Mr Jack Young issued an Information Memorandum in February 2016 providing material facts about the Belmont property and describing the operations of the motel to prospective purchasers. 3. Upon learning that the Belmont property was for sale, Mr Zhang engaged Legal Point Lawyers and Attorneys ("Legal Point") to act for him in respect of its purchase. And Park Cho engaged Joun Lawyers on the prospective sale. These legal representatives continued to act for their respective clients throughout the disputed sale process. New solicitors acted for both sides at the hearing. 4. Some pre-contract communications between Park Cho and Mr Zhang that are in contest did not go through these solicitors. Before the contracts were exchanged between Mr Zhang and Park Cho on 18 March 2016, Mr Zhang met with the real estate agent representing Park Cho, Mr Young. The plaintiffs alleged that the real estate agent made several misrepresentations directly to Mr Zhang that induced his entry into the contract for sale. This alleged conduct is detailed later in these reasons. The plaintiffs ultimately only pursued action on some of their initially pleaded pre-contract representations. 5. On 15 March 2016 Legal Point for Mr Zhang requested Joun Lawyers to provide certain information and documents relevant to the purchase. That request included the following matters: a copy of the all existing lease documentation over the Belmont property, signed by both the lessor and the tenants; information about any rental arrears; details of security deposits given by the tenants; evidence of any structural defects to the property; copies of land tax assessments; and details of any other circumstances that might reasonably lead to future litigation in respect of, or related to, the Belmont property. 6. Park Cho declined on 16 March 2016 through Joun Lawyers to provide the requested documents. It contended that the documents Mr Zhang had requested need not be provided until formal replies were given to requisitions after the exchange of contracts for the sale of the Belmont property. 7. On the same day, 16 March 2018, Mr Zhang lodged a written tender for the purchase of the Belmont property. His tender referred to himself (or nominee) as the purchaser. 8. Upon exchange of contracts on 18 March 2018, the final form of contract had attached to it a form of lease made between Park Cho as lessor and Mr Reece Bryan and Ms Patricia Callan as lessees. Under this form of lease Park Cho had leased part of the Belmont property to the tenants as a motel and restaurant for three years, commencing on 1 February 2015 and concluding on 31 January 2018, for a rent of $216,000 per annum plus GST ("the Bryan/Callan lease"). 9. It appears from the form of the Bryan/Callan lease attached to the contract that both the lessor and the tenants had signed the lease. The tenants took their leasehold estate as joint tenants. 10. The plaintiffs, Mr Zhang and Fortune, say that after exchange of contracts they discovered information about the Bryan/Callan tenancy that they had not known at the time of exchange. This new information included facts that the tenants: had not paid a security bond of $50,000 to Park Cho; were in arrears of rent and outgoings; and were in dispute with the lessor, Park Cho, about compensation, the tenants claimed, because of Park Cho's alleged failure to effect structural repairs to an upper part of the building erected on the Belmont property. And the tenants were claiming $8,000 from Park Cho for the alleged failure to undertake rectification works, a failure which was said to have inhibited the tenants' capacity to let the Belmont property out for functions. 11. After exchange, Mr Zhang paid the 10% deposit of $308,800 on 21 March 2016. On 24 March 2016 Legal Point sent requisitions on behalf of Mr Zhang, in the standard Law Society form of requisitions to Joun Lawyers. Between 5 and 27 April 2016 other correspondence took place between these parties relevant to the alleged novation of the contract for sale. These novation-related communications will be set out in more detail later in these reasons, when that issue is analysed. 12. But various disputes between these parties came to a head in late April 2016. By then Park Cho had begun to suspect that the purchasers did not have the finance to complete the contract. 13. Park Cho was right. Mr Zhang readily admitted under cross examination that neither he nor Fortune was in a financial position to settle the contract for sale at any time between 18 March 2016 and 31 May 2016. 14. On 29 April 2016 Joun Lawyers, on behalf of Park Cho, sought confirmation from Legal Point about whether the purchaser would settle the contract for sale the following day. But Legal Point would not commit to settlement the next day. 15. Instead about the same time, Legal Point launched correspondence on several fronts. Legal Point advanced allegations in its correspondence that Park Cho had not replied to Legal Point's 15 March 2016 pre-contract requests for information about the tenants. The same day, Legal Point sent an email setting out six areas of dispute about which the future contests between these parties focused. These six areas were: (1) the security bond; (2) outstanding rent and outgoings; (3) failure to repair the upstairs function room; (4) the site contaminant backflow prevention device; (5) unresolved ownership issues in relation to inventory; and (6) the licence deed for an adjacent Crown reserve. Analysis of the facts relevant to these six areas appears later in these reasons. 16. And on another front, on the same day, 29 April 2016, Fortune lodged a caveat over the Belmont property, asserting an equitable interest as purchaser under the contract. Mr Zhang signed the statutory declaration verifying the facts supporting Fortune's caveat. He did so as the sole director of Fortune. Importantly for the later dispute about whether the contract had been novated to Fortune, it was Fortune, not Mr Zhang that claimed this equitable interest as purchaser. 17. On 4 May 2016 Joun Lawyers replied by letter to the allegations about the six matters Legal Point had raised in their email of 28 April 2016. At the same time Park Cho (through Joun Lawyers) served a notice to complete on Fortune (care of Legal Point), nominating 3pm on 19 May 2016 as the time for completion. 18. On 16 May 2016 shortly before the date the vendor had nominated for completion, Legal Point sent a further letter to Joun Lawyers raising additional issues that Legal Point claimed must be satisfied prior to settlement. 19. On 18 May 2016 Joun Lawyers replied. In their reply Joun Lawyers contended, inter alia, that the purchasers had not been candid about their inability to raise adequate finance and that financial stringency was the real reason the purchaser was then attempting to delay settlement through its demanding correspondence. 20. Settlement of the contract for sale did not take place on 19 May 2016. 21. On 31 May 2016 Joun Lawyers wrote to Legal Point terminating the contract for sale on the grounds that the purchaser had failed to complete. The principal issue in these proceedings is whether or not that termination was effective. 22. Between mid-2016 and mid-2017 the parties corresponded but little of that correspondence is of present relevance. 23. In July 2017 Fortune commenced these proceedings by Summons, seeking specific performance of the contract for sale. 24. But Park Cho wanted to resell the Belmont property. Fortune did not oppose this and allowed its caveat to lapse, so the sale could go ahead. Park Cho sold the Belmont property for a slightly higher price than the consideration of $3,088,000 expressed in the 18 March 2016 contract. 25. The proceedings were finally listed for trial in March 2018 as a contest about whether or not Park Cho could retain the deposit. Legal Principles – Conveyancing Act, s 55(2A) and Relief Against Forfeiture 1. The principal bases upon which the plaintiffs, Fortune and Mr Zhang, seek return of the deposit are Conveyancing Act 1919, s 55(2A) and the principles of relief against forfeiture. Some brief examination of the applicable law is required. 2. Conveyancing Act, s 55 including s 55(2A) provides as follows: "55 Right of purchaser to recover deposit etc (1) In every case where specific performance of a contract would not be enforced against the purchaser by the Court by reason of a defect in the vendor's title, but the purchaser is not entitled to rescind the contract, the purchaser shall nevertheless be entitled to recover his or her deposit and any instalments of purchase money he or she has paid, and to be relieved from all liability under the contract whether at law or in equity, unless the contract discloses such defect and contains a stipulation precluding the purchaser from objecting thereto. (2) If such undisclosed defect is one which is known or ought to have been known to the vendor at the date of the contract the purchaser shall in addition be entitled to recover his or her expenses of investigating the title. (2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. (3) On the application of the purchaser the Court may order payment under this section and declare and enforce a lien in respect thereof on the property the subject of the contract. (4) This section applies only to contracts made after the commencement of this Act and shall have effect notwithstanding any stipulation to the contrary. (5) This section applies to land under the provisions of the Real Property Act 1900." 1. Conveyancing Act, s 55(2A) has received extensive judicial consideration. Conveyancing Act, s 55(2A) jurisdiction has statutory rather than purely equitable origins. But its discretionary character in relation to the return of deposits makes s 55(2A) at least akin to the grant of equitable relief against forfeiture. The jurisdiction is wider than jurisdiction that might be exercised only if unconscionable conduct is established: courts are obliged to consider generally the conduct of the parties, especially the applicant, the gravity of the matters in question, and the amounts at stake: Schindler v Pigault (1975) 30 P & CR 328 ("Schindler v Pigault") at 336 – 337. 2. The authorities in this State establish the following propositions of law about Conveyancing Act, s 55(2A). The subsection confers a wide discretion upon the Court; the subsection was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of the deposit; the vendor who forfeits the deposit in strict enforcement of the vendor's legal rights is not to be deprived of it under the subsection unless it is unjust and inequitable to permit the vendor to retain the deposit; the second part of the subsection "in any proceedings for the return of the deposit" are not necessarily limited to cases where the person claiming the return of the deposit would have a discretionary defence to a suit for specific performance, although undoubtedly the existence of such a defence is a material matter to consider; the subsection has been said to apply in every case where a purchaser claims the return of the deposit, whether or not the vendor could obtain specific performance, there is no reason why the purchaser should get back the deposit when the vendor cannot obtain specific performance but not recover it when the vendor rescinds the contract; and it is material to consider the vendor has validly forfeited the deposit at law but the court may nevertheless order the return of the deposit: Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268; Poort v Development Underwriting (Victoria) Pty Ltd (No 2) [1976] VR 779; (1977) VR 454, A Jones & Son Pty Ltd v Weeden [1964 – 1965] NSWR 1780 at 1789; 82 WN (Pt 1) (NSW) 326 at 335 and Maralinga Pty Ltd v Major Enterprises Pty Ltd [1972] 2 NSWLR 101. 3. Where a purchaser is otherwise entitled at general law to relief against the forfeiture of the deposit, Conveyancing Act, s 55(2A) is not applicable: Saunders v Leonardi (1976) 1 BPR 97,042; [1976] ACLD 755. An order under Conveyancing Act, s 55(2A) may be less advantageous to the purchaser than if the purchaser succeeded at general law. For example, in the exercise of the statutory discretion, terms as to costs, or other terms, can be imposed upon the successful purchaser: Schindler v Pigault. 4. The relevant law in relation to relief against forfeiture has been comprehensively stated in RP Meagher, JD Heydon, MJ Leeming, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) ("MGL") at [18-210] to [18-280]. A claim for relief against forfeiture calls attention to the forfeiture and how it occurred, its effects on the propriety of allowing it to stand, as distinct from the stipulation for forfeiture itself: MGL [18 – 220]. The classic bases for equity's intervention to relieve against forfeiture are fraud, accident, mistake and surprise: MGL [18 – 255]. 5. The application of these legal principles will arise once the preliminary issue of the possible novation of the contract for sale is resolved. The parties agreed that if that issue were resolved adversely to Park Cho (who claimed a novation to Fortune had occurred) that the plaintiffs would succeed, because Park Cho had issued its Notice of Termination to Fortune, not to Mr Zhang. Novation or Not? 1. The plaintiffs allege that Park Cho issued its 4 May 2016 Notice to Complete and its 31 May 2016 Notice of Termination to the wrong party, Fortune. The contract for sale as exchanged on 18 March 2016 named Mr Zhang as the purchaser. The plaintiffs contend that the identity of the purchaser never changed. 2. But Park Cho contends that by a process that satisfied all the requirements for a novation, Park Cho, Mr Zhang and Fortune all agreed before 4 May 2016 to substitute Fortune as the purchaser in place of Mr Zhang. 3. It was accepted on all sides that no formal document discharged Mr Zhang from his liability as purchaser under the contract for sale, discharged the old contract for sale, and remade a contract for sale as between Park Cho and Fortune. But the issue for trial rather was whether given the mutual conduct of the parties the Court should infer that a novation occurred. Park Cho contended that the inference of a novation should be drawn in all the circumstances and Fortune and Mr Zhang contended that it should not. 4. Park Cho cannot succeed in the proceedings without succeeding on this issue. Mr Kirby accepted, as he must, that if the original contract for sale had not been novated to Fortune that Park Cho had served the Notice to Complete and the Notice of Termination on the wrong party. 5. The facts relevant to the alleged novation cover a limited compass. On 18 March 2016 Mr Lee from Joun Lawyers for Park Cho announced by email to Mr Wu from Legal Point that contracts had been unconditionally exchanged. Mr Lee then made a request to Mr Wu in the following terms: "Dear Mr Wu, We are pleased to announce that contracts have been unconditionally exchanged for the above property. Please find a copy of the front page executed by your client. Our client would like find out if your client is willing to the release of the deposit unconditionally. As settlement is only 42 days away, our position is that your client should not have qualms about its release. We would also like to state that we will be more than happy to change the purchasing entity's details on the front page. Please advise us if the need arises and we shall inform you of the procedure. We feel comfortable shall be best to safeguard the interest of both parties. Best Regards, Jong-Suk Lee Principal Solicitor" 1. Mr Lee's (Joun Lawyers) email of 18 March 2016 to Mr Wu (Legal Point) was clearly referring to Mr Zhang, the original signatory to, and named party in, the contract for sale as "your client" and not Fortune. 2. It seems clear that someone had approached Mr Lee informally at or about the time of settlement to request a change of the purchasing entity's details and that is why he wrote the letter that he did on 18 March 2016. But at the same time he had sought on behalf of his client an agreement to the release of the deposit. 3. Little happened about this request for three weeks. Then on Tuesday, 5 April 2016 at 10.47am Mr Wu at Legal Point emailed Mr Lee at Joun Lawyers. In this email Mr Wu referred to an earlier agreement for the purchaser's name to be amended but he indicated that the purchaser was unwilling to agree to the release of the deposit to Park Cho before settlement. Legal Point's email was to the following effect: "Dear Mr Jong-Suk Lee, We refer to your email below. As previously agreed, the purchaser's name is to be amended as below: Fu Tian Fortune Pty Ltd (ACN 611 503 256) as trustee for Fu Tian Fortune Investment Family Trust Please confirm with us if you have any further concerns. In relation to the release of deposit, our client will rely on the terms of the Contract and is not going to agree to release the deposit at this stage. We await your reply on an urgent basis. Kind regards, Ge Wu Solicitor" 1. At 12.02pm the same day, Joun Lawyers responded to Mr Wu agreeing to the change in the purchaser but foreshadowing that a more formal document would be prepared. The letter was in the following terms: "Dear Sir, Thank you for your email. As far as the change of entity is concerned there are no issues and we thank you for the advice. As far as the formalities are concerned in relation to effecting the change I shall advise shortly. We also note your advice in relation to our request for early release of deposit. We shall get back to you as soon as possible. Best Regards, Jong-Suk Lee Principal Solicitor" 1. These two 5 April emails are the only evidence of communications passing between the two solicitors and the parties on the subject of novation. Neither solicitor was called in evidence. No other emails or letters between the solicitors or the parties about this subject were produced. 2. The terms of these emails are a basis to infer: (1) that a previous conversation had occurred between the solicitors in which some agreement about the substitution of Fortune in place of Mr Zhang had occurred; and (2) that the vendor, Park Cho, consented to the substitution – "as far as the change of entity is concerned, there are no issues". 3. One other piece of evidence is available to infer indirectly what that conversation may perhaps have been. Park Cho adduced evidence from its director, Joo Lin Cho Park, of a conversation the director had had with Park Cho's solicitor Mr Lee at Joun Lawyers on 4 April 2016. The conversation was to the following effect: "27 On or about 4 April 2016, Lee called me and we had a conversation to the following effect: Lee: I have been contacted by Zhang's solicitor. They have formally requested the purchaser be replaced with a company. Me: OK, I am fine with that. Lee: I will replace the purchaser with the company so that the company takes the place of Zhang. This means that the purchaser will now be the company. Me: Ok, go ahead." 1. This conversation represents clear evidence of consent by Park Cho to the change of purchaser. It seems to be unconditional and not dependent upon the execution of a further document. But Mr Lee had communicated in his email of 5 April that before the change of purchaser could take place "I shall advise shortly" as "far as the formalities are concerned in relation to affecting the change". That statement seemed to signal that Mr Lee thought something else more formal should be done beyond that email itself in order to give effect to his instructions from Mr Park before the change of purchasers would be legally effective. 2. The authorities on novation (discussed below) support Mr Lee's caution. For a novation to be effective it would be necessary for it to be clearly mutually agreed and understood between Mr Zhang, Fortune and Park Cho that: (1) Mr Zhang was no longer liable on the original contract for sale, which was wholly discharged in relation to him; and (2) upon that discharge a new contract for sale was brought into existence and enforceable between Park Cho and Fortune. 3. An important right in the purchaser under the contract is to have the deposit applied in partial discharge of the purchaser's obligation to pay the purchase price. And the purchaser under the contract may authorise the application of the deposit to the use of the vendor prior to settlement. Only the actual purchaser under the contract is in a position to consent to that course. But Legal Point's refusal in its April reply email to authorise the release of the deposit is ambiguous: it does not indicate who Legal Point thought was the purchaser at the time of the refusal. The terms of the refusal were such that it could just have readily been the result of instructions from Mr Zhang or from Fortune. 4. By the time of the final piece of this correspondence at approximately noon on 5 April 2016 it is reasonably clear that both sides agreed that Fortune should be substituted for Mr Zhang as the purchaser, but that before any change of purchaser were to be given effect, some (unspecified) formalities would be required. 5. Those formalities would presumably have meant that Fortune, rather than Mr Zhang, would have become responsible to the vendor to pay the balance of the purchase price and that Fortune, rather than Mr Zhang, would have the final decision making power over the disposition of the deposit before settlement. The lack of completion of these formalities meant that important questions were still up in the air such as might commonly be encountered when a company was being sought to be substituted for an individual as the purchaser of a contract for the sale of land. Did, for example, Fortune have the financial resources itself to complete the contract? Did Park Cho require Fortune's obligations under any novated contract to be guaranteed by Mr Zhang? 6. None of these questions had been addressed by the 5 April 2016 correspondence. Whether Mr Zhang would have any continuing liability as a guarantor of the liabilities Fortune was to assume under the novated contract as part of an arrangement to discharge the original contract for sale was still an open question that might be resolved within the process of the "formalities" still to be addressed. In the absence of further conduct by the parties, uncertainty about these questions meant that the inference of a novation to Fortune could not readily be drawn as at 5 April 2016. 7. But Park Cho relies on other later conduct, which markedly strengthens the inference of a novation. From 5 April 2016 right through until the commencement of these proceedings, all parties conducted themselves on the basis that Fortune, not Mr Zhang, was the purchaser. Despite this, the parties never expressly dealt with the question of whether Mr Zhang was released from his previous obligations. The evidence of the parties' subsequent dealings is as follows. 8. First, the only counterpart of the exchanged contract that is in evidence is the counterpart signed by the vendor and received by the purchaser on exchange and then left in the purchaser's possession. It now has on its front page the name of the purchaser De Fu Zhang crossed out, thus "De Fu Zhang". And there is then written in an unknown hand above the crossing out the following "Fu Tian Fortune Pty Limited (ACN 611 503 256) as trustee for the Fu Tian Fortune Investment family trust" and an address is then provided. Mr Zhang says, and I accept, that at the time of exchange his name was not crossed out in this way. 9. As this counterpart remained in the purchaser's possession after exchange, the proper inference to be drawn from this alteration is that it was done by someone acting on the purchaser's behalf. It may further be inferred from the other known circumstances that it is likely that the alteration was an act in apparent performance of the consensus expressed between the solicitors on 5 April 2016 to substitute Fortune for Mr Zhang as purchaser. 10. Correspondence prior to 4 April 2016 between the parties was in the name of Mr Zhang as purchaser, notwithstanding the intimation in Legal Point's letter of 18 March 2016. But the title on the purchaser's correspondence changed by mid-April 2016. Legal Point wrote to Joun Lawyers on 13 April 2016 concerning a land tax certificate, heading the letter "Fu Tian Fortune Pty Limited purchase from Park Cho Pty Limited" and then referring to the Belmont property. On 22 April 2016 another letter from Legal Point to Joun Lawyers enclosing a draft transfer was headed up the same way. 11. The draft transfer provided with Legal Point's 22 April 2016 letter to the vendor's solicitor, sent in accordance with conveyancing practice, identified the property and the transferor as Park Cho and the transferee as "Fu Tian Fortune Pty Ltd". It is difficult to see how this course of correspondence could mean anything other than that the original purchaser, Mr Zhang, and the proposed new purchaser, Fortune, both believed that the vendor had agreed to the novation. 12. As may be seen elsewhere in these reasons, other issues concerning the tenancy of the Belmont property had broken out between the parties by late April. As a result, on 29 April 2016 Fortune, not Mr Zhang, lodged a caveat over the title to the Belmont property asserting its interest as purchaser under the contract for sale. This caveat became dealing number AK386425. It identified the registered proprietor as Park Cho. The caveator was described as "Fu Tian Fortune Pty Ltd". The estate or interest claimed under Schedule 1 of the caveat was an "equitable interest under the contract for sale of land between the registered proprietor and the caveator entered into on 18 March 2016". In support of this caveat Mr Zhang swore a statutory declaration as the sole director of Fortune that, "The caveator has good and valid claims to the estate or interest set out in schedule 1". 13. This caveat signals that by 29 April Mr Zhang and Fortune both believed that the vendor had agreed to the novation. Had they any doubt about the novation they could have also had Mr Zhang place a precautionary caveat on the title to the Belmont property. 14. On 16 May 2016 Legal Point wrote to Joun Lawyers raising a series of issues in relation to the tenancy security bond and the other matters that had arisen between these parties, again describing the transaction in the title to the letter as "Fu Tian Fortune Pty Ltd purchase from Park Cho Pty Ltd". The lack of response to that letter produced a follow up letter headed up the same way on 18 May 2016. 15. Joun Lawyers responded under the same heading on 18 May 2016. This indicated the vendor's continuing acceptance that the novation to Fortune had indeed occurred as requested by Legal Point. 16. Park Cho issued a Notice to Complete on 4 May 2016 to Fortune and not to Mr Zhang. The notice to Fortune was in the following terms: "(vendor) gives you notice: 1. The vendor is ready, willing and able to complete the conveyance from you of the property known as 690 Pacific Highway, Belmont in accordance with the contract for sale of land dated 18 March 2016; 2. You are required to complete the sale on or before and in this respect time is of the essence for the completion of the contract; 3. The vendor appoints on or before 3.00 pm on Thursday, 19 May 2016 at SAI Global located at Level 3, 60 Castlereagh Street, Sydney NSW as the time and place for completion or at such other place as the vendor may direct; and 4. Should you fail to complete the contract for sale of land within the period specified in this notice then you shall be in breach of the contract and the vendor shall exercise all other rights and remedies as are available to them by reason of your breach." 1. It was open to Park Cho to issue on a without prejudice basis a Notice to Complete to Mr Zhang, were there any doubt on Park Cho's part that the novation had been mutually agreed. 2. Completion did not occur on 19 May. Park Cho gave a Notice of Termination to Fortune and not to Mr Zhang on 31 May 2016. The notice was in the following terms: "1. By contract for the sale of land dated 18 March 2016 of 690 Pacific Highway, Belmont, NSW 2280 Park Cho Pty Ltd agreed to sell to Fu Tian Fortune Pty Ltd of 1 Anderson Street, Kingsford, NSW 2032 and it agreed to purchase the property being the whole of the land in title reference known as 690 Pacific Highway, Belmont NSW (property) for $3,088,000. 2. As a result of your default under the contract and the notice to complete dated 4 May 2016 making time of the essence for completion of the contract, we give you notice that the contract is terminated and is entirely at an end. The vendor will retain the deposit and take action for recovery of damages resulting from your default." 1. Both the issuing of the Notice to Complete and Notice of Termination are consistent only with a belief on the vendor's part that without further inquiry as to whether Mr Zhang would have any continuing secondary liability as guarantor for Fortune, the novation to Fortune had occurred. 2. When these proceedings were first commenced they were commenced by Summons by Fortune as the sole plaintiff. Mr Zhang was only subsequently joined as a second plaintiff when the novation issue was pursued. This is also consistent with a continuing belief on Fortune and Mr Zhang's part up to the time of commencement of these proceedings that the novation was agreed. Applicable Legal Principles – Novation 1. Park Cho submits that the contract for sale was novated to Fortune. A novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3 at 368 per Windeyer J. 2. The effect of a novation is to discharge the original contract between two parties (the continuing party and the outgoing party) and to substitute it with a new contract between the continuing party and a new party (the incoming party). The incoming party must perform the contractual obligations, bear the contractual liabilities and is entitled the contractual benefits (under the new contract) that were formerly the province of the outgoing party under the original contract. Put simply, the rights, obligations and liabilities of the outgoing party are extinguished and the rights, obligations and liabilities of the incoming party are substituted in their place. 3. The authorities (see, for example, Dixon J in Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7 at 345) clearly establish that the crux of novation is intention. Novation requires the consent of the parties in order for it to be valid (i.e. it is by way of tripartite agreement). Such intention may be express or, importantly for the instant case, may be implied from the circumstances: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 ("Fightvision") at 492 per the Court (Sheller, Stein and Giles JJA). 4. The events in issue in Fightvision were not dissimilar to those in the present case, in the sense that the purported novation had occurred with a degree of informality through a course of dealing. The Court dealt with the question of whether there had been a novation and applied the well-known statement of Sir Garfield Barwick in Upper Hunter County Council v Australian Chilling and Freezing Co Pty (1968) 118 CLR 429; [1968] HCA 8 at 437 that in relation to contractual intention "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements". The Court in Fightvision (at 493) concluded that there was no basis for disturbing the trial Judge's conclusion that a novation had occurred, a conclusion which his Honour had arrived at by reference to, inter alia, the content of conversations between the parties and the "overwhelmingly consistent pattern of conduct" in which they had engaged. 5. In McMahon v National Foods Milk Ltd (2009) 25 VR 251; [2009] VSCA 153 Nettle JA (with whom Neave and Dodds-Streeton JJA agreed) said at [77]: "As a matter of law, however, there is nothing to preclude a court from inferring the existence of a contract from the acts of the parties, as well as or in the absence of words, and so from the totality of the dealings between the parties. Hence, as matter of law, there is nothing to preclude inferring the existence of a contract of novation from conduct such as, for example, the conduct of a creditor in apparently accepting the liability of a new debtor in substitution for the old. And as was pointed out by the New South Wales Court of Appeal in Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd, the principle that no narrow or pedantic approach is warranted when searching for contractual intention in commercial arrangements applies equally when searching for an intention to novate.'" Similar principles are restated in Orica Ltd v Commissioner of Taxation (Cth) [2010] FCA 197 at [119]. 1. In applying these principles, the overwhelmingly consistent pattern of conduct between these parties from very shortly after 5 April 2016 supports the inference that a novation had occurred without further conditions and that all parties were content to treat Fortune and not Mr Zhang as the purchaser. Nothing in the parties' mutual dealings from very shortly after 5 April 2016 gives any suggestion that either side of the contract has any doubt that Fortune had become the purchaser. 2. Park Cho's Notices to Complete and Notice of Termination were given to the correct party, Fortune. Park Cho therefore does not fail at the threshold in maintaining its entitlement to the deposit. If it can establish that it validly terminated the contract, it has a prima facie entitlement to the deposit. 3. The question then becomes whether that prima facie legal position is displaced by the operation of Conveyancing Act, s 55(2A). Breach of Contract and Damages? 1. Fortune did not complete the novated contract on 19 May 2016, as was required by the Notice to Complete, so Park Cho issued its Notice of Termination on 31 May 2016. The issuing of the Notice to Complete was in accordance with the contract; it made time of the essence and would have entitled Park Cho to terminate the contract for sale, if there were no other impediment to the issue of the Notice to Complete or to terminate. Whether there was any impediment to the issuing of a Notice to Complete or to termination is dealt with later in this section, where the Court concludes there was no such impediment. 2. But Fortune's failure to complete was also a breach of the novated contract. As a result of this breach Park Cho suffered loss and damage. It claimed losses under a number of heads but these damages ultimately became the subject of agreement. Although the Belmont property was re-sold at a slightly higher price the costs and charges that were claimed to have been incurred as a result of the breach were not insubstantial and were of the following character: contract interest at 10% on the unpaid consideration from 30 April 2016 to 31 May 2016 in the sum of $24,365.59; mortgage interest from 31 May 2016 to the date of re-sale – 15 December 2017 – of $56,103.33; interest less rent on the loss of use by Park Cho of the proceeds of sale from 21 May 2016 of $61,218.10; electricity charges from 18 June 2016 to the date of exchange of the new contract for sale in March 2017 of $13,162.67; water rates for the same period of $10,153.65; council rates for the same period being $22,082.14; land tax for the same period being $7,403.28; and additional legal costs incurred in relation to the breach $15,000. But the parties' sensibly agreed upon a figure of $100,000 to cover all of these additional damages, excluding costs, and indicated that agreement to the Court on the second day of the hearing. 3. Thus by reason of Fortune's breach of contract in failing to settle in accordance with the Notice to Complete, it is agreed that Park Cho has suffered damages of $100,000. There was discussion at trial as to how a judgment for damages of $100,000 in favour of Park Cho would interact with orders that might be made under Conveyancing Act, s 55(2A). It was agreed, for example, that if the Court gave judgment on the Statement of Claim for the refund of the deposit but also found nevertheless that there was a breach by Fortune of the contract for sale then $100,000 could be retained by Park Cho and the balance of the deposit returned to Fortune. 4. But if Fortune were unsuccessful in seeking the return of the deposit the prima facie net effect would be that Park Cho could retain the deposit and would be entitled to judgment for $100,000. An argument is available that were that to be the outcome, the Court might, in its discretion under Conveyancing Act, s 55(2A), order that the deposit be retained but on condition that the $100,000 be satisfied from the deposit. But that would in substance amount to an order for the partial return of part of the deposit, namely $100,000 to Fortune and Fortune would have to make out the necessary grounds under Conveyancing Act, s 55(2A) for such a partial refund of the deposit. As will be seen below, Fortune has not made out the basis for the Court's exercise of its discretion under Conveyancing Act, s 55(2A) or the Court's equitable jurisdiction for relief against forfeiture. The partial return of the deposit need not be considered further. 5. But the question arises whether Park Cho was entitled to issue its Notice to Complete or to terminate for Fortune's failure to comply with the Notice to Complete. 6. Fortune argued that at the time the Notice to Complete was issued Park Cho was in breach of contract for failing to answer one of Fortune's requisitions, which was said to be a requisition on title. Fortune also argued that Park Cho was not ready, willing and able to perform the contract for sale because it could not convey the title it had contracted to convey, so that it was disabled from issuing the Notice to Complete. These two question contentions are now considered. But first, the applicable law in relation to termination by a party in alleged breach should be stated. 7. Termination by a Party in Breach - Legal Principles. If a party who has elected to terminate performance of a contract was, at the relevant time, itself in breach of contract or was not ready, willing and able to perform contractual obligations itself, that does not necessarily operate to impede the effectiveness of the election to terminate. In deciding whether a breach of contract or absence of readiness, or willingness precluded termination, regard may be had to the term of the contract which is alleged to have been breached and all relevant circumstances including the nature of the breach and the extent to which the party in question was allegedly not ready and willing to perform: JW Carter, Breach of Contract (2nd ed, 1991, The Law Book Company Ltd) ("Breach of Contract") at [1033] – [1036]. 8. If the promisee, the party electing to terminate, is only in breach of warranty, the breach will not preclude termination unless it amounts to repudiation. But if the promisee is in breach of the condition then generally speaking that will prevent termination. Whether or not the breach of an intermediate term will prevent termination will depend on whether the breach was sufficiently serious: see Breach of Contract at [1033] – [1036]. 9. Here, for the reasons which follow, Fortune's allegations either fail to establish that there was any breach by reason of Park Cho's failure to answer requisitions and even if there were such a failure, it would, at best, amount to a breach of warranty rather than a breach of condition and in no way precludes Park Cho from electing to terminate the contract. 10. Fortune has also raised Park Cho's readiness and willingness to perform the contract as preventing it from terminating. Fortune argues that the title that Park Cho was proposing to deliver under the contract would always have been defective, such that Park Cho was not ready, willing and able to perform the contract according to its terms. But as the further analysis below shows that contention also fails. 11. The Response to Requisition 3 – A Breach of Contract? The plaintiffs initially raised issues about Park Cho's lack of adequate response to requisitions on title numbered 3, 14 and 29 of the numbered requisitions made after contracts were exchanged. In the end, the plaintiffs only pressed their case in relation to the response to requisition 3. 12. But requisition 3 was only a requisition about the quality of the land or the use to which the land has been put. It was not a true requisition as to title. And therefore the vendor was not required by the terms of the contract for sale to respond to it. 13. The difference between the two types of requisition is explained by CJ Rossiter in Requisitions and Objections on Title : The time for delivery; the vendor's obligation to answer properly made requisitions; the purchaser's remedy for inadequate or erroneous answers (2000) 8 APLJ 97, an article referred to with approval by Ward J (as her Honour then was) in HG & R Securities Pty Limited v Sayer [2009] NSWSC 427 at [106] as follows: "A requisition on title where the purchaser is reasonably seeking information from the vendor in relation to a defect in title, which, if shown to exist, is of so serious a nature as to justify the purchaser terminating the contract (19) Requisitions on title falling into this category relate to defects in title which, if proved, are of so serious a nature as to deprive the purchaser of the substance of the bargain. Accordingly, if the vendor fails to supply information which the purchaser bona fide requests in order to establish whether such a defect in title exists, the purchaser is entitled to infer that the vendor is either unwilling or unable to perform the substance of the bargain. If the vendor's refusal is persistent and contumacious, the purchaser may be able to terminate on the ground that the vendor has committed an anticipatory breach of contract. In any case, the purchaser is entitled to serve upon the vendor a notice to perform the obligation to answer requisitions or, in some circumstances, a notice to complete the contract as a whole. A requisition on title where the purchaser is seeking information from the vendor in relation to a defect in title, which, if shown to exist, is not of so serious a nature as to justify the purchaser terminating the contract (20) Since the defect in title if proved to exist would not be such as to deprive the purchaser of the benefit of the substance of the bargain, the purchaser's remedy for breach of the vendor's promise to answer valid requisitions is similarly limited to the remedies outlined in (2) above, namely, to seeking an order for specific performance of the vendor's promise to answer and/or claiming damages for breach. A requisition on title where the purchaser is seeking information from the vendor in relation to the quality of the property or the state or quality of the improvements or the use to which the land has been put (21) As a general principle, the vendor makes no warranty about the quality of the property sold nor the state or quality of the improvements erected upon the property. The rule in relation to the sale of real estate is still caveat emptor. That being so, a defect in quality of the subject matter of the sale, however serious such a defect may be, cannot deprive the purchaser of the substance or indeed, any part of the bargain. Therefore, it would seem to follow that, notwithstanding the obligation of the vendor to answer, the purchaser's remedy is limited in the same way as that discussed in (2) and (4) above, namely, to seeking an order for specific performance of the vendor's promise to answer or to claiming damages for breach. The vendor's default in answering does not ground either a notice to perform the obligation or a notice to complete the contract, since the vendor's default and failure to remedy the default cannot lead to an inference of repudiation." 1. With these distinctions in mind, the contested parts of requisition 3, sub-paragraphs (a), (c) and (h) may be examined. The relevant parts of requisition 3 were as follows: (a) What is the nature of any tenancy or occupancy? (c) Please specify any existing breaches. (h) Please provide details of any security deposits…held by the vendor. 1. Any requisition concerning performance of the respective obligations pursuant to the lease is a requisition as to quality (as distinct from requisitions as to title). It falls typically into this class, as it related to facts relating to the quality of the property sold which affects its value but where the purchaser obtains the appropriate title: Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 97,635. Non-response to such a requisition only gives a right of damages (and possibly only nominal damages) for breach of the obligation to reply. It cannot provide any ground to resist the Notice to Complete. This is the primary answer to the plaintiffs' complaints about failure to respond to requisition 3. But the requisition was answered. 2. Legal Point's requisition 3(a) as to the nature of the tenancy was answered by Joun Lawyers on 27 April 2016, which said, "full details have been provided in the contract". This answer referred to the contract for sale, in which the full signed lease was included. That was not only a sufficient answer; it was the best answer available. 3. Joun Lawyers' further letter in reply on 4 May 2017 also answered the concerns raised by Fortune in requisition 3(b) concerning the alleged breaches of the lease. These alleged breaches were the tenants' failure to pay the $50,000 security bond, and their arrears of rent and outgoings. Joun Lawyers' 4 May letter answered Requisitions 3(c) and (h) and by the time the Notice to Complete issued and confirmed that: 1. Fu Tian Fortune could deduct $50,000 from the purchase price to act as a Security Bond until the end of the lease; and 2. Park Cho would forgive the rental arrears in consideration for the tenants dropping their claim for compensation. 1. But all of these matters only go to questions of the value of the property and are at best requisitions as to the quality of the property. 2. Finally, there is another answer to this contention. Park Cho's offer to deal with the rental arrears in this way was not necessary to ensure completion. The Standard Conditions of the contract for sale provides that rent (including arrears) is to be adjusted as paid on completion and the purchaser assigns the debt (in relation to unpaid rent or other monies that the vendor has adjusted as paid) to the vendor: clause 24.1.2. On the issue of the security bond, cl 24.4.1 provides: "24.4 If the property is subject to a tenancy on completion – 24.4.1 the vendor must allow or transfer – • any remaining bond money or any other security against the tenant's default (to the extent the security is transferable);" 1. The deduction from the purchase price that Park Cho offered fully satisfied the vendor's obligations under clause 24.1.1. 2. And clause 24.5 provides a mechanism to ensure that necessary adjustments could continue to be made to ensure the incurring purchaser did not suffer unforeseen loss from a tenant's default: "Rights under this clause continue after completion, whether or not other rights continue." 1. The contract for sale provided a complete and efficient mechanism for rent and other rights to be adjusted between the parties at and after settlement. 2. Requisition 3 does was sufficiently answered by the time the Notice to Complete issued. Even if it had not been answered, the failure would not have disentitled Park Cho either from issuing a Notice to Complete, or from then terminating the Contract. 3. No Legal Lease – Was Park Cho Able to Complete? Fortune contends that it was entitled on settlement to a legal lease over the Belmont property but that there was never legal lease in place over the property. Fortune further submits that had it been required to settle on 19 May 2016, it would have been forced to accept an inferior lease title and therefore that Park Cho was never able to convey the promised title and therefore not in a position to issue a Notice to Complete. 4. This contention is not persuasive, either as to the purchaser's entitlement to a legal lease or as to whether such a legal lease was in fact provided. 5. First, it was never represented to Fortune or Mr Zhang on behalf of the vendor, Park Cho, that the Bryan/Callan lease would be registered on the title of the Belmont property. The vendor disclosed all registered dealings on the Belmont property by means of the title search that was included in the contract for sale. Through this, the plaintiffs were on notice that the Bryan/Callan lease was not registered. Nothing in the contract for sale provided for the lease to be registered beyond what was disclosed. 6. The Statement of Claim (at [14](b)) pleads that for there to be a "legal lease", the lease must be registered on title. Whether or not this is correct, the contract does not require the conveyance subject to a "legal lease" but only subject to a "lease (with every relevant memorandum or was no special condition variation)". The contract for sale did not require a "legal lease" on settlement as distinct from an equitable lease. 7. Mr Zhang claims that the Bryan/Callan lease was not registered in accordance with the Retail Leases Act 1994. Whether or not the Retail Leases Act has application here, Retail Leases Act, s 16 provides that leases of more than 3 years must be registered. The instant lease was for no more than 3 years: from 1 February 2015 to 31 January 2018. 8. And as the Bryan/Callan lease is for 3 years or less and as the lessees are in possession, there is no need for it to be registered to protect against a registered proprietor who subsequently takes with notice. For leases that are 3 years or less, the estate still passes to and will protect the lessee without registration: Real Property Act, s 42(1)(d) and Alcova Holdings Pty Limited v Pandarlo Pty Ltd (1988) 15 NSWLR 53. 9. The tenants were, at all relevant times, in possession for a term not exceeding three years under the Bryan/Callan lease. Fortune was entitled to acquire the "lease" for which it contracted under the contract for sale whether it was legal or equitable: that was a lease which bound Fortune under s 42(1)(d). Fortune acquired such a lease. Is Park Cho Entitled to Retain the Deposit? 1. It is now necessary to consider the grounds on which Fortune challenged Park Cho's entitlement to keep the deposit. Fortune advanced several species of alleged conduct to enliven the Court's Conveyancing Act, s 55(2A) jurisdiction and its jurisdiction to relieve against forfeiture. 2. To attempt to make out its Conveyancing Act, s 55(2A) case Fortune also relies upon the two matters which it deployed to contend that Park Cho was disabled from terminating the contract, namely an alleged breach of contract due to a failure to reply to requisitions and Park Cho's alleged lack of readiness, willingness and ability to perform the contract by reason of Park Cho proposing to convey on settlement what was an allegedly defective title. 3. But both of these contentions have failed to establish either a breach of contract or an inability to convey a proper title. They do not obviously raise any other form of misconduct relevant to the exercise of Conveyancing Act, s 55(2A) relief or relief against forfeiture and can be put to one side. 4. The Court now turns to the remaining matters which were posited as possible grounds for Conveyancing Act, s 55(2A) relief, or relief against forfeiture. Fortune did not pursue all of three matters with equal vigour. None of them raise any persuasive reason why the Court should exercise its s 55(2A) jurisdiction or to relieve against forfeiture. (a) Interest in the Property and Urgency of Sale 1. Fortune claims that Park Cho's agent, Mr Jack Young, made misleading statements that there was urgency in the sale and interest in the Belmont property. Fortune's pleaded case was that it was represented through the Information Memorandum (the real estate agent's brochure of 12 February 2016) that "there was such considerable interest in the [Belmont] property from other potential purchasers that it was essential for [Mr Zhang] to exchange contracts by 18 March 2018". 2. For the purposes of analysis the making of these statements can be accepted. But the statements these agents made were not misleading. There was purchasing interest in the Belmont property. On 7 March 2016 the vendor's agent, Mr Young, sent a spreadsheet to the vendor that indicated the many parties who were interested in the property. The spreadsheet shows many parties expressing interest in the Belmont property at or a little below $3 million. There is no reason to believe this spreadsheet is not accurate. 3. And it was vital to Park Cho that the Belmont property be sold on 18 March 2016 (the closing date for the tender). Suncorp, the Mortgagee, had sent several letters of demand to Park Cho, and had threatened to take action due to its defaults under Suncorp's mortgage in mid-2015. Suncorp allowed Park Cho a short period into early 2016 to voluntarily sell the Property. (b) The Quality of the Existing Tenants 1. Fortune alleges misrepresentations were made to the purchaser before contract that the tenants were "good tenants paying rent in accordance with the lease". Fortune contends that in fact the tenants were behind in the rent. It is not disputed that the tenants were behind in the rent. But this claim fails. 2. Conversations did take place between Mr Zhang and the vendor's agent, Mr Jack Young, immediately prior to exchange of contracts. There is no dispute about these conversations and there was little cross-examination about them. 3. But even if these conversations are accepted at their highest, they do not establish a representation on behalf of Park Cho that the tenants were paying rent in accordance with their lease over the Belmont property. 4. This can be concluded from the plaintiff's own evidence of the representations. Mr Zhang deposes that on 18 March 2016, after he had agreed to the purchase price and had attended the real estate agency to execute the contract for sale, that he: 1. told the agent, Mr Yang, that he had not yet received finance approval (to which Mr Yang is said to have promised him that he would arrange a loan); and 2. then asked, "Is it a good tenant in the property?" to which Mr Yang is alleged to have replied: "Yes. The tenant is a good tenant, as far as I know, and keen to get a long-term lease. You can telephone the management agent, Ray Chan, and get more information." 1. Mr Zhang was thereby directed to the managing agent, Mr Ray Chan, if he wished for further assurance about the equality of the tenancy. But Mr Zhang did not telephone the managing agent. But instead the evidence is that he "immediately executed" the contract for sale. 2. From these facts it should be inferred that Mr Yang disclaimed reliable knowledge of the quality of the tenant; "a good tenant as far as I know". Mr Zhang did not take the matter further, even when the avenue for gaining reliable information was offered to him. No representation as to the quality of the tenant arises out of these exchanges. (c) The Crown Reserve 1. The plaintiffs allege that Park Cho represented that the purchaser would automatically obtain the benefit of a Crown land reserve adjacent to the Belmont property, which was being licensed by the vendor at the time of the contract for sale for $2,000 per annum. The licensed area included a gazebo on the foreshore and a jetty that ran out into Lake Macquarie. Both these physical features were on the foreshore and by the business conducted on the Belmont property. 2. But the making of such a representation is neither consistent with the communications contemporaneous with the contract for sale nor with the contract itself. The Information Memorandum gave no assurance that the purchaser would have the benefit of this licence. On the contrary it warned of the need for vigilance to ensure the licence was not revoked. It said in relation to this licence: "We are also informed of a license for a jetty and the foreshore area which is an annual license paid and kept up to date by the payment of a fee which we are advised by the Vendor is approximately $2000 per annum. It is important that this fee be maintained and kept up to date so as not to lose that right by the non-payment of the fee. We would assume, as is normal in these cases where it is a license, it is only an annual license and the Minister has the right to retract that license at any stage." 1. In addition to the contents of the Information Memorandum, the non-inclusion of the jetty and gazebo as part of the land being sold was also clearly disclosed in the contract for sale itself. The vendor disclosure required under the contract of the "plan of the land" included the annexure of Deposited Plan 200896. This plan makes quite clear that the jetty is not part of the land to be conveyed, and that the foreshore could not be assumed to be part of the land. Consideration 1. There is no basis to order the return of the deposit either under Conveyancing Act, s 55(2A) or by way of relief against forfeiture. 2. Conveyancing Act, s 55(2A) provides no avenue of relief to the plaintiffs because no special or exceptional circumstances are made out to warrant the exercise of this statutory jurisdiction. It would not be unjust or inequitable for the vendor to retain the deposit. All the grounds the plaintiffs/purchasers advanced to suggest unconscionable conduct, injustice, or inequity on the part of the vendor have failed. No alleged misrepresentations about the sale are made out. The purchaser obtained a legal lease, or at least the kind of lease estate for which the purchaser contracted. The vendor's agent did not misrepresent the quality of the tenancy at the Belmont property. The vendor adequately responded to requisition 3 and was not in breach of contract such as might prevent the vendor or from issuing a Notice to Complete or Notice of Termination. 3. Nor is relief against forfeiture available to the plaintiffs. The plaintiffs have not established any fraud, accident, mistake, or surprise here such as would permit them to take advantage of the equitable doctrine of relief against forfeiture. Even if unconscionable conduct were itself basis for enlivening this equitable jurisdiction – and that is not established – no such conduct is made out here. 4. As earlier indicated the parties reached agreement in the course of the trial about the damages payable by the plaintiffs in the event that Park Cho's right to terminate the contract is upheld. The damages represent the loss suffered by the vendor or associated with the re-sale of the Belmont property. Although the resale was at a slightly higher price, Park Cho's agreed loss on the resale was $100,000. The parties agreed that the purchaser would pay Park Cho the sum of $100,000 on this account. The Court has found that the purchaser was Fortune, not Mr Zhang, pursuant to this agreement. So judgment will be entered for Park Cho against Fortune in this amount. Conclusions and Orders 1. For these reasons the Court makes the following orders and directions: 1. Declare that the defendant/cross-claimant ("Park Cho") is entitled to the deposit monies paid under the contract for sale and purchase of the land situated at 690 Pacific Highway, Belmont, New South Wales ("the contract for sale") made between Park Cho and the first plaintiff/first cross-defendant ("Fu Tian Fortune"). 2. Declare that the contract for sale was first made between Park Cho and the second cross-defendant ("Mr De Fu Zhang") as purchaser on or about 18 March 2016 but that the contract for sale was novated on or shortly after 5 April 2016, so as thereafter to bind Fu Tian Fortune as purchaser in substitution for Mr Zhang. 3. Order that Fu Tian Fortune authorise the release to Park Cho of the deposit monies held by the selling agent under the contract for sale. 4. In addition to the release of the deposit ordered pursuant to order (3) hereof, enter judgment for Park Cho against Fu Tian Fortune for $100,000 for damages on account of Fu Tian Fortune's breach of the contract for sale. 5. Dismiss Fu Tian Fortune's and Mr Zhang's Amended Summons. 6. Otherwise dismiss Park Cho's cross-claim. 7. Subject to order (8), order that Fu Tian Fortune and Mr Zhang pay Park Cho's costs of these proceedings. 8. The costs order in order (7) above will only be made if no party files by 4.00pm on Monday 14 May 2018 a motion to seek a special costs order for which leave is hereby given and which may be effected by forwarding the motion to my associate and making it returnable before me at 9.30am on Thursday, 17 May 2018. 9. Stay orders (1) to (7) inclusive until 21 May 2018 for: (a) Fu Tian Fortune and Mr Zhang to consider their rights of appeal, and for (b) either party to propose by motion any adjustment to these orders to ensure they conform with the Court's reasons, (and leave is hereby given to file such motion by providing it to my associate and by making it returnable before me at 9.30am on Thursday, 17 May 2018). ********** 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: 24 May 2018