37 I must say that it seems to me that those remedies to which his Honour referred would leave the vendor in no better position than the contractual right to resell and sue for the deficiency on resale referred to in condition 9.3.1 of the contract, mentioned above.
38 His Honour's judgment has been followed in Western Australia by Master Bredmeyer in Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WASC 44. In that case, however, it seems that the purchaser simply did not wish to have to sell some shares which it held in another company to raise the purchase price.
39 In the present case, the purchaser has established that he cannot find the purchase money, unless by one of the following means.
40 First, by giving control of the sale of the Mosman property to the bank. As under the orders of the Family Court his former wife has the greater interest in that property, and as orders of the Family Court make provision for its sale and the division of the proceeds, I do not see how legally the purchaser could give control of that sale to his bank.
41 Secondly, by accepting the loan from the Commonwealth Bank on terms which involve procuring his business partner to give a guarantee and his business partner's father to give a mortgage over his home. I do not see how the purchaser could or should, be compelled to accept a loan on those terms.
42 Thirdly, although the evidence does not cover it in any detail, by resorting to a lender of last resort - of the type familiar in caveat litigation in this Court - who might be prepared to lend, for a short term at least, on terms requiring less security than that insisted on by the Commonwealth Bank. Nonetheless, it can be anticipated - from the Court's knowledge of the practices of such lenders - that such a borrowing would incur an exorbitantly high interest rate, in excess of 45 per cent and quite possibly higher than 60 per cent, even in the absence of default. Indeed, the cases show that interest rates higher even than that are not unknown in that sphere of lending. In circumstances where the vendor is protected by a provision for contractual interest of 13 per cent, well above current market rate, it would be imposing undue hardship on the purchaser to proceed on the basis that the purchaser should raise funds at an exorbitant interest rate from a lender of last resort.
43 Were those the only potential sources of finance for completion, I would have refused specific performance. However, that leaves for further consideration the question of the sale of the Mosman property. On the evidence before me, it is clear that if that property is sold the purchaser will be able to complete. It is clear that there are orders of a superior court requiring its sale. The evidence also indicates that there is a potential purchaser presently interested. I am of course fully aware that the implementation of sales of matrimonial property under orders of the Family Court, particularly if the price is significantly less than the reserve set by those orders, is sometimes fraught with difficulty. But it seems inevitable that the Mosman property must be sold sooner or later, and that the purchaser will sooner or later be in a position to complete if the vendor is prepared to await that event.
44 In those circumstances, I am quite unpersuaded that completion of this contract is impossible for inability to raise the purchase moneys. I accept that it is not immediately possible, but it is likely to become possible within a reasonable time. Raising funds by that means will impose no hardship whatsoever on the purchaser.
45 For those reasons, I conclude that neither impossibility nor hardship is made out. This contract can quite possibly be completed, without hardship to the purchaser.
46 If the vendor endeavours to enforce an order for specific performance before the sale of the Mosman property is completed, then it will encounter significant difficulties in obtaining further directions or sanctions from the Court, because of impossibility or the hardship that would be occasioned in any event other than the sale of the Mosman property. Accordingly, I propose to grant a decree of specific performance but to make no further order or direction, leaving it to either party to bring the matter back before the Court, either to obtain rescission of the decree or further directions to enforce it. In adopting that course, I bear in mind that the contractual interest rate of 13 per cent continues to provide a powerful incentive for the purchaser to complete as quickly as he can.
47 On the authorities as they stand, once the decree for specific performance is made the vendor, as much as the purchaser, will be bound by that decree, and without wishing to foreclose argument to the contrary - because the matter has been of some controversy in the authorities - it would seem that, having obtained a decree for specific performance, the vendor would not be at liberty to terminate for breach including for failure to comply with the notice to complete, without the further leave of the Court.
48 I turn then to the second question, which is whether an order should be made requiring payment of the second instalment of the deposit. In Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40, Bryson JA, speaking for the Court of Appeal, held that provisions requiring a 5 per cent deposit to be topped up to 10 per cent on default were void as a penalty. In Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452, Hodgson JA, in the Court of Appeal, rejected two attempts to distinguish the relevant condition in that case from that in Iannello v Sharpe. Two reasons were advanced in the present case for distinguishing the present special condition from those in Luu and Iannello in that case. The first was that in each of those cases, the obligation to pay the second instalment of the deposit was in terms conditioned on default, and that is not so in the present case, where the provision does not refer to default but simply requires payment "upon the completion date". The second was that in this case there were circumstances in which the deposit could become payable and have effect as an earnest for performance of the purchaser's obligations under the contract.
49 As to the first of those arguments, it is correct that in this case the provision is not conditioned on breach or default under the contract. That, however, is not an answer. Where the right to receive such a payment arises on the happening of any number of events, some only of which are breaches of contract and some of which are not, but the event in the particular case is one which is a breach of contract, then the provision is a penalty and void [Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86; Bridge v Campbell Discount Co Ltd [1962] AC 600; O'Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 367, 390; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, 184-185, 211; Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445, [2]]. Even if, which for reasons to which I shall come I doubt, the second payment was exigible in events other than breach of contract, on the facts of this case it is exacted on breach of contract, and in those circumstances is a penalty and void.
50 In any event, I do not see how it could become payable under the present contract in circumstances that did not involve a breach by the purchaser of the contract. It was hypothesised that it could become payable as an earnest of the purchaser's continuing commitment to the contract where an extension was granted by the vendor of time to complete. That would itself involve either a contractual variation to the completion date or at least some allowance of an indulgence outside what was required by the contract so as to involve a departure from rather than adherence to the terms of the contract. If the contract is applied according to its terms, the only circumstance in which the second instalment would become due would be if, in breach of special condition 15, the purchaser did not complete on the completion date. Accordingly, both reasons advanced for distinguishing Iannello do not apply. As Hodgson JA said (at [33]), an unconditional promise to pay an amount on default cannot itself count as a deposit, because that is the very sort of promise that would normally amount to a promise to pay a penalty, unless it is a genuine pre-estimate of damages. In the light of Luu and Iannello, it could not seriously be argued, and indeed it was not, that the second instalment of five per cent could be seen as a genuine pre-estimate of damages.
51 Accordingly, I would hold that the obligation to pay the second instalment "upon the completion date" is void as a penalty.
52 My orders are:
1. Declare that the term of the contract comprised in the paragraph numbered 1 under the heading Terms of Sale Contract in the letter dated 1 September 2008 from Morgan Lewis Attorneys to C P White & Hetherington and referred to in special condition 12 of the contract dated 2 September 2008 between Andrew David Boyarsky as vendor and Andrew Peter Taylor as purchaser of the property at 45 XXXX Road, Bellevue Hill in the State of New South Wales, being Lot 101 in Deposited Plan 1130091, is void as a penalty.