Cole v Raykir Holdings Pty Ltd [2019] NSWSC 1017 | Case summary

Cole v Raykir Holdings Pty Ltd [2019] NSWSC 1017 | Case summary | Zoe

Introduction

These proceedings concern a contract for the sale of land entered into on 19 January 2018 in respect of a property in Kissing Point Road, South Turramurra, for a price of $2.83 million. The plaintiffs, Mitchell and Katherine Cole, were the vendors under the contract. The first defendant, Raykir Holdings Pty Ltd, was the purchaser. The second defendant, Ekaterina Charonova, was a party to the contract as a guarantor in respect of the purchaser's obligations. She was the sole director and secretary of the purchaser when the contract was made.
It is common ground that the contract has been terminated, but the parties are in dispute as to how and when the termination occurred and as to what, if any, monies are recoverable in respect of the contract.
The plaintiffs claim to have terminated the contract by notice given on 27 August 2018 following the failure of the defendant to complete the purchase by 24 August 2018. The plaintiffs contend that on 20 July 2018 they served a valid Notice to Complete which called for completion by 3 August 2018, and that on 2 August 2018 an agreement was reached to extend the Notice to Complete to 24 August 2018.
The defendants contend that the purported termination of the contract by the plaintiffs was a wrongful repudiation of the contract, and that the first defendant accepted the repudiation and thereby terminated the contract on 20 November 2018.
The property has since been sold by the plaintiffs to other purchasers for a price of $2.23 million, a deficiency of $600,000.
Numerous issues are raised in the proceedings. In brief, the salient issues are: 1. whether the Notice to Complete operated to make time of the essence in respect of completion of the contract; 2. the effect, if any, of the agreement reached on 2 August 2018 in relation to time for completion, and in particular whether it had the effect that completion by 24 August 2018 was an essential obligation under the contract; 3. whether the plaintiffs were entitled to terminate the contract on 27 August 2018 due to the failure of the first defendant to complete by 24 August 2018, or otherwise due to a repudiation of the contract by the first defendant; 4. whether the plaintiffs' claim to recover the balance of the deposit (of $141,500) is defeated because the relevant provision is unenforceable as a penalty; and 5. whether the various amounts claimed by the plaintiffs (including the $600,000 deficiency on the resale of the property) fall within the scope of the guarantee provided by the second defendant.

[4]

Summary of salient facts

The contract takes the form of the 2016 Law Society/Real Estate Institute standard form, supplemented by Additional Conditions (which are stated to prevail over the standard conditions if there is conflict between the standard and additional conditions).
The agreement is dated 19 January 2018. The date for completion is stated to be 6 months after the contract date. The price is stated to be $2,830,000, with a deposit of $283,000, leaving a balance of $2,547,000.
It appears that $141,500 was paid on exchange by way of deposit.
Additional Condition 35 provides: If the Vendor agrees to accept payment of the Deposit by instalments then notwithstanding the amount shown against the word "Deposit" on the front page of the contract and notwithstanding the provisions of clause 2, the amount of the deposit is an amount equivalent to 10% of the purchase price, which amount shall be paid by the purchaser as follows (a) the sum equivalent to 5% of the purchase price on the making of the contract; and (b) a further sum equivalent to 5% of the purchase price ("the Balance Deposit") on or prior to completion of this contract (by cash or settlement cheque as directed by the Vendor or the Vendor's solicitor). Provided that (c) in the event that the Purchaser defaults in the observance or performance of any essential obligation imposed on the Purchaser under or by virtue of this contract, or in the event of a valid termination of the contract by the vendor, the purchaser will forthwith pay to the Vendor the Balance deposit, notwithstanding that the damages which the Vendor has suffered as a result of such default are or may subsequently be proved to be less than ten percent (10%) of the purchase price; and (d) in any such case the Balance Deposit shall be recoverable by the Vendor from the Purchaser as a liquidated debt.
Clause 15 provides: The parties must complete by the date for completion and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.
Additional Condition 36 provides: 36.1 If completion does not occur on before 3:30pm on the due date as a result of the breach or default by a party hereto ("defaulting party"), then the other party ("the innocent party") may: - (a) at any time serve on the defaulting party a notice requiring completion of this contract on a specified date not being less than 14 days ("Notice Period") after the date of service of the notice; and (b) make time of the essence for compliance with the notice. 36.2 The parties agree that the Notice Period is a reasonable and sufficient period to make time of the essence for compliance with the notice. 36.3 For the purpose of calculating the Notice Period: (a) the Notice Period commences at midnight on the day on which the notice is served; and (b) a reference to a day means the period of time commencing at midnight and ending 24 hours later. 36.4 Any notice making time of the essence may specify any time of the day between 10:00am and 3:00pm as the time for performance of any obligation under this contract in which performance by that specified time is of the essence. 36.5 The innocent party shall be at liberty at any time to withdraw the notice without prejudice to its continuing right to serve further notice under this clause on the defaulting party. 36.6 If the purchaser completes this contract but does not do so on or before the due date, then on completion: (a) the purchaser must pay to the vendor interest on the balance of the purchase price from but excluding the due date to and including the date of actual completion at the rate of 9% per annum calculated daily. (b) Despite clause 14 of this contract, adjustments other than rents and profits are to be made as at the earliest of the due date, the date possession is given to the purchaser and the date of actual completion. 36.7 Payment of interest in accordance with this clause is an essential term of the contract. 36.8 The Purchaser need not pay interest for so long as the purchaser's failure to complete is caused solely by the inability of the vendor to complete, or, if the vendor was able to complete but failed to do so, by the vendor's failure to complete.
Additional Condition 42 provides: (a) If the Purchaser under this Contract is or includes a corporation (other than a corporation listed on the Australian Stock Exchange) then each person who signs this Contract on behalf of that corporation will be personally liable for the due performance of the purchaser's obligations under this Contract to the same extent as if that person was the Purchaser under this Contract. (b) In consideration of the Vendor entering into this Contract with the Purchaser at the request of Ekaterina Charonova ("the Guarantor") (as is hereby acknowledged by the Guarantor) the Guarantor unconditionally and irrevocably guarantees to the Vendor the due and punctual payment of all moneys payable by the Purchaser under this Contract and the due and punctual performance and observance of all covenants, conditions and provisions in this Contract to be performed and observed by the Purchaser. (c) This guarantee is a continuing guarantee and cannot be abrogated, prejudiced or discharged by any waiver by the vendor or by any other matter. (d) This guarantee is deemed to constitute a principal obligation between the guarantor and the vendor.
Clause 9 provides: 9 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 after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); 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.
On the front page of the contract Michael Flaherty, solicitor, is identified as the vendor's solicitor, and Strictly Conveyancing is identified as the purchaser's solicitor.
On 20 June 2018 Michael Flaherty sent an email to Strictly Conveyancing which included the following: I refer to the above matter and note: 1. late last week we were informed by the agent that your clients had contacted her advising that they were unlikely to be able to complete on the due date (19 July 2018). 2. My clients were extremely concerned at this prospect, particularly given they contracted to purchase an home [sic] after the contract for sale was exchanged with your client unconditionally. My clients purchase is to settle simultaneously with settlement of their contract for sale to your clients. 3. On Friday 15 June 2018 I telephoned your office. In your absence I spoke to Natasha [Zaki] advising her of the concerning news. She indicated she would obtain instructions and advise accordingly. … I look forward to hearing from you as soon as possible.
On 26 June 2018 Strictly Conveyancing sent an email in reply which indicated only that Strictly Conveyancing would again "chase up" their clients. On 27 and 29 June 2018 Michael Flaherty sent further emails to Strictly Conveyancing in which information was sought as a matter of urgency as to the purchaser's position.
On 2 July 2018 Strictly Conveyancing sent an email to Michael Flaherty in the following terms: Further to my previous email, my clients have advised that unfortunately they will not be in a position to settle this matter on 19 July 2018 as scheduled, as they have not been able to finalise their finances on time. They are aware the vendor is party to a simultaneous settlement and sincerely apologise for the delay. They have escalated finance with their mortgagee and hope to have this organised as soon as possible in order for settlement to proceed. As soon as we receive any further updates, we will contract [sic] your office immediately to arrange settlement.
On 4 July 2018 Michael Flaherty sent a letter to Strictly Conveyancing in the following terms: We refer to your email of 2 July 2018 and are extremely concerned by your clients' anticipatory breach of the contract. Our clients reserve all their rights in this regard. It is simply not satisfactory for your clients to express regret for their breach. We first raised this matter with you on 15 June 2018. We then wrote to you in detail including placing you on notice of our clients' likely loss and damage as a result of your clients' apprehended breach. Your clients have done nothing in response for two weeks. We reiterate and repeat all of the matters of which you were put on notice on 20 June 2018. Our clients will attempt to mitigate their loss as they are obliged. Our clients hold your clients liable for all loss and damage they incur. We strongly urge your clients to take all steps possible to avoid breach of the contract and the consequent loss and damage to be suffered by our clients.
On 10 July 2018 Strictly Conveyancing sent an email to Michael Flaherty in the following terms: We refer to the above matter and our earlier telephone conversation and confirm we have now spoken with our client regarding an update for settlement. Our clients have advised that they will most definitely be in a position to settle by 21 August 2018. They have every intention of settling earlier however do not want to mislead your client. In the event that they are in a position to settle earlier we will contact your office immediately to confirm. My clients have again asked me to please pass on their sincerest apologise [sic] to the vendor, they have experienced unwarranted delay with their lenders and they are doing everything within their power to action settlement as soon as possible.
Michael Flaherty sent an email to Strictly Conveyancing on 13 July 2018 in which advice as to the status of the purchaser's loan approval was sought. A handwritten note on a copy of the email suggests that Michael Flaherty Solicitors were informed that no loan had been approved.
Early in the morning of 20 July 2018 (at 6:22am) Michael Flaherty sent by facsimile to Strictly Conveyancing a Notice to Complete (and a covering letter dated 19 July 2018) addressed to the first defendant and to Strictly Conveyancing. The Notice to Complete is in the following terms: MITCHELL EDWARD COLE and KATHERINE CLARE COLE give you notice: That MITCHELL EDWARD COLE and KATHERINE CLARE COLE are ready and willing to transfer to you the property situated at 253 Kissing Point Road, South Turramurra [in] accordance with the Contract dated 19 January 2018. You are required to complete the purchase and to pay the balance of purchase money on or before 3pm on Friday 3 August 2018, and in this respect time is of the essence of the Contract. MITCHELL EDWARD COLE and KATHERINE CLARE COLE appoints 12:30pm on Friday 3 August 2018 as the time for completion. Unless you complete within the time specified in this notice, MITCHELL EDWARD COLE and KATHERINE CLARE COLE will be entitled to terminate the Contract.
I note in passing that on the same day a Notice to Complete was served upon the plaintiffs, in respect of their purchase of a property at North Turramurra, which called for completion of that contract by 12:30pm on 3 August 2018.
There is evidence that on 30 July 2018 the agent on the sale to the first defendant was informed by email from Kirril Charonov (who is associated with the first defendant and is the son of the second defendant) that because the valuation of the property had come in at only $2.35 million the first defendant was "short $480k". Mr Charonov stated in his email that: We do not have the extra cash available to settle on the 3rd of August, our only option is to wait for the settlement on a property we sold recently. The settlement is due 20th of August so we are aiming to settle on 253 Kissing Point Rd around the 24th of August. This is not good news for anyone, however we are doing everything we can to make this work.
On 31 July 2018 Strictly Conveyancing sent an email to Michael Flaherty in the following terms: We refer to the above matter and advise that we have been advised by our clients that their loan has been approved, however the letter of offer is based on valuation which valued the property at $510,000.00 less than the purchase price. Accordingly, our clients will need to organise the shortfall funds for the settlement, and are relying on the proceeds of their sale which is due to settle 20 August 2018. We advise the purchasers will do everything within their power to complete the purchase, by 24th of August 2018. In this regard, we have been instructed to request an extension of settlement to this date. We thank you kindly for your assistance in this matter, and look forward to receiving your response.
Michael Flaherty replied by letter (apparently sent by facsimile) on 1 August 2018 in the following terms: We refer to your email of 31 July 2018 with respect to the above matter and note: 1. Completion of the contract was due on 19 July 2018; 2. On 10 July 2018, after many phone calls from our office to yours seeking information, you advised our office, by email that your client "will most definitely be in a position to settle by 21 August 2018". 3. Numerous phone messages were left for your office to discuss the relevance of 21 August 2018. Most of these phone calls were unanswered nor returned. 4. On 13 July 2018 we were informed by your office that your client did not have loan approval. 5. On 20 July 2018 a Notice to Complete was served on your client. 6. The Notice to Complete requires your client to complete the purchase on or before 3 August 2018. 7. Each day, we have left several telephone messages for an update, all of which have be [sic] unreturned. 8. We note your office emailed our office on 31 July 2018 at 5.04pm and refers to your client's sale settlement which is due for completion on 20 August 2018. We note this is the first time you have advised us of your client's sale. 9. We further note in your email the reference to the "extension of the settlement date". We note the settlement date has long passed. We advise we are relying upon the representations made by you on behalf of your client in your email of 31 July 2018, we are instructed our clients have carefully considered your client's request for indulgence and we are instructed that our clients would be agreeable to the extension of the Notice to Complete to 24 August 2018 on the following conditions: A. The deposit held in the trust account of Foster Raffan Trust Account be released to our clients forthwith; B. Your client acknowledges that the balance of the 10% deposit is now due and payable. C. At least two business days notice must be given if your client desires to settle prior to the requested date 24 August 2018; D. In addition to the interest being payable by your client pursuant to clause 36.6(a), your client pays to our clients the sum of $100.00 per day from 19 July 2018 until the date of completion. E. By way of further settlement adjustment, your client pay a fixed sum of $2,200 (inclusive of GST) towards our clients' costs. In the event your client is agreeable to the proposal, please confirm its acceptance by return letter by 12noon 2 August 2018. In the interim, our clients reserve all of their rights under the contract. We look forward to hearing for [sic] you.
Strictly Conveyancing sent an email to Michael Flaherty at 12:58pm on 2 August 2018. The email was in the following terms: We refer to the above matter and your correspondence dated 1 August 2018 and advise we have been instructed that our clients agree to release the 5% deposit, however they do not have the funds available to pay an additional 5% at this stage. Furthermore, our clients agree to pay all penalty rates charges mentioned in your letter. Please kindly confirm if your client is agreeable to the above.
Michael Flaherty sent an email in response at 1:10pm on 2 August 2018 in the following terms: Please note, (B) of my letter requests your client acknowledges that the balance of the deposit is due but does not call for payment of same. Please confirm your client's acceptance of the terms contained in my letter and provide me with your authority for the release of the deposit at your earliest convenience.
Strictly Conveyancing sent an email in response at 1:20pm on 2 August 2018 in the following terms: Thank you kindly for your email. We confirm our client acknowledges that the balance of the deposit is due and this will be paid on settlement. Please find attached herewith order on the agent.
Arrangements were then made for the release to the plaintiffs of the 5% deposit that was being held by the Vendor's accountants (Foster Raffan) as stakeholder pursuant to the terms of the contract for sale.
I note in passing that on 2 August 2018 the Notice to Complete in respect of the plaintiffs' purchase of the North Turramurra property was also extended to 24 August 2018.
From about 15 August 2018, Michael Flaherty was liaising with Strictly Conveyancing about completion of the contract which was scheduled to occur on 24 August 2018. Settlement figures were prepared and amended.
On 23 August 2018 Strictly Conveyancing sent an email to Michael Flaherty in the following terms: We refer to the above matter and apologise for not getting back to you yesterday. As you can appreciate, we have been waiting on our clients instructions which we have finally received today. Please see the below [sic] the correspondence that was sent to us today. I have received some very bad news today. My investor has decided not to proceed with this project at 253 Kissing Point Rd in South Turramurra. Without their investment I will not have the shortfall funds available for settlement. I am currently looking for another investor, however given the current property market conditions and tighter lending criteria from financial institutions, I do not have anyone willing to invest in this development at the moment. I understand that this is a very negative outcome, but I assure you that I have done everything I could to try and complete the purchase. Unfortunately, this is the current situation. Unfortunately, our client is unable to complete the purchase.
On 27 August 2018 Michael Flaherty sent a letter (apparently by facsimile) to Strictly Conveyancing which enclosed a Notice of Termination of the contract. The notice was addressed to the first defendant and to Strictly Conveyancing. The Notice of Termination was in the following terms: WHEREAS: A. A Notice to Complete was dated and served on 20 July 2018. B. You have failed to comply with the Notice to Complete. As Solicitor for and on behalf of the Vendors I GIVE YOU NOTICE that the Contract for Sale referred to in the Notice to Complete is terminated. Dated: 27 August 2018
Also on 27 August 2018 Michael Flaherty sent a letter to the first defendant in which a demand was made for immediate payment of the "5% Deposit owing" ($141,500), "Interest to date as agreed" ($23,865.04), and "Additional costs to date as agreed" ($3,600.00). The plaintiffs' rights to claim in respect of any loss or damage suffered were expressly reserved. A letter containing a similar demand and reservation of rights was sent on 27 August 2018 by Michael Flaherty to the second defendant.
On 28 August 2018 Garry Pickering, solicitor, sent a letter to Michael Flaherty in which issue was taken with the validity of the Notice to Complete, and hence the termination of the contract. It was stated that the Notice to Complete was invalid because it did not allow a period of 14 clear days for completion. The letter also raised the prospect that the first defendant may be entitled to recover the "original deposit paid".
It should be noted, and the defendants seem to accept, that no challenge to the validity or effectiveness of the Notice to Complete had been made prior to Mr Pickering's letter.
Michael Flaherty responded to Mr Pickering's letter on 30 August 2018. Issue was taken with the assertion that the Notice to Complete was invalid, and it was stated that in any event the period for completion pursuant to the Notice to Complete had been extended to 24 August 2018 at the request of the first defendant and by agreement between the parties.
On 20 November 2018 Mr Pickering sent a letter to Michael Flaherty in which it was stated that the plaintiffs' purported termination of the contract was repudiatory, and the repudiation was accepted by the first defendant. A demand was made for the return of the deposit.
The proceedings were commenced by the filing of a Statement of Claim on 2 November 2018. The defendants filed a Cross-Claim on 20 December 2018. An Amended Statement of Claim was filed in Court by consent at the hearing on 29 July 2019.

[5]

Determination

The first issue to consider is the validity of the Notice to Complete served on 20 July 2018, and in particular whether it operated to make time of the essence in respect of completion of the contract.
The challenge mounted to the efficacy of the Notice to Complete was narrow in scope. The defendants submitted that the Notice to Complete was invalid and ineffective to make time of the essence because it failed to provide for a Notice Period that accorded with Additional Condition 36. It was submitted that, upon its true construction, Additional Condition 36 requires a period of 14 clear days after the date of service, but the notice called for completion by 3:00pm on the fourteenth day. Reference was made to Velik v Steingold [2013] NSWCA 303 at [53]-[59], which case concerned the expression "fourteen (14) days from the date the notice is served". At [54]-[56], Sackville AJA (with whom McColl and Gleeson JJA agreed) referred to Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 and Associated Beauty Aids Pty Ltd v Federal Commissioner of Taxation (1965) 113 CLR 662 in respect of the general rule of construction that where an instrument requires a period of time to be computed to a particular date, the date itself is not included and thus the period commences at the end of that day. However, Additional Condition 36.1 does not require the period of time to be calculated "from" the day upon which the Notice to Complete is served. In my view, the general rule (which, it should be noted, may give way according to the context in which the relevant words appear) is not engaged by Additional Condition 36.
Additional Condition 36.1 speaks of a specified date for completion that is not less than 14 days after the date of service. In this regard, the defendants referred to Rona v Shimden Pty Ltd (2005) 12 BPR 23,287; [2005] NSWSC 818 at [82] where White J (as his Honour then was) held that the expression "not less than" in a provision concerning the service of a Notice to Complete indicated an intention that at least 14 days' notice would be given.
Here, the Notice to Complete was served on 20 July 2018 (at 6:22am). It called for completion to occur on or before 3:00pm on 3 August 2018, and appointed 12:30pm on that day as the time for completion. It can be seen that no less than (or at least) 14 days' notice was given from the time of service, but that does not seem to me to be the relevant question. More pertinent is the question whether the specified date for completion (3 August 2018) is no less than (or at least) 14 days after the date of service (20 July 2018).
It is of course necessary to consider Additional Condition 36.1 alongside Additional Condition 36.3 which is expressed to operate for the purpose of calculating the Notice Period under Additional Condition 36.1. Additional Condition 36.3(a) provides that the Notice Period commences at midnight on the day on which the notice is served. The period thus commenced at midnight on the day being 20 July 2018. Additional Condition 36.3(b) then provides that a reference to a day means the period of time commencing at midnight and ending 24 hours later.
In my opinion, Additional Condition 36.3 operates so that a day (such as 20 July 2018) is taken to commence at 12:00am and extend for 24 hours thereafter. That is, the day is taken to commence one hour before 1:00am or, put another way, at 00:00 on the 24 hour clock. On that basis, the Notice Period for the purposes of Additional Condition 36.1 commenced at 00:00 on 20 July 2018. The whole of that day is thus included in the Notice Period, unlike the position where the general rule referred to above applies. It therefore seems to me that the specified date for completion (3 August 2018) is not less than (or at least) 14 days after 20 July 2018. On the basis that 21 July 2018 is regarded as one day after 20 July 2018, 3 August 2018 is in fact 14 days after 20 July 2018. The Notice Period given accorded with the requirements of Additional Condition 36.
Additional Condition 36.4 then goes on to state that the notice may specify any time between 10:00am and 3:00pm as the time for performance with time being of the essence. The Notice to Complete in this case did so by specifying that completion occur by 3:00pm on 3 August 2018 with time being of the essence.
It follows from the above that I am unable to accept the defendants' submission that the Notice to Complete was invalid and ineffective to make time of the essence because it failed to provide for a Notice Period that accorded with Additional Condition 36.
The defendants did not submit that the Notice to Complete was invalid or ineffective for any other reason.
I note, however, that by paragraph 9 of the Defence, which picks up paragraph 2 of the Cross-Claim, it was pleaded that the Notice was ineffective because: 1. by allowing only 13 days for completion it failed to specify a reasonable time for settlement (cf Velik v Steingold (supra) at [60]-[66]); and 2. it specified two different times for completion, being 12:30pm and 3:00pm on 3 August 2018.
As to (a), the argument fails because the Notice to Complete provided for a Notice Period that accorded with Additional Condition 36, and by Additional Condition 36.2 the parties agreed that such a period is a reasonable and sufficient period to make time of the essence for completion to occur. Also, more than 14 days was in fact given from the time of service of the notice.
As to (b), 3:00pm on 3 August 2018 was stated to be the end of the period within which completion was required to occur, with time being of the essence, and 12:30pm on that day was stated to be a time appointed for completion to occur. The two times serve different purposes, and there is no inconsistency between them. In my view, the notice makes it sufficiently clear that the first defendant was required to complete the contract within the period ending at 3:00pm on 3 August 2018, failing which the plaintiffs would be entitled to terminate the contract. Accordingly, the specification of the two times does not cause the Notice to Complete to be ineffective to make time of the essence.
For the above reasons, it should be concluded that the Notice to Complete served by the plaintiffs on 20 July 2018 was valid and effective to make time of the essence in respect of completion of the contract.
The next issue to consider is the effect, if any, of the agreement reached on 2 August 2018 in relation to time for completion. The plaintiffs contend that the effect of the agreement was that the time for completion required by the Notice to Complete was extended to 24 August 2018. It was submitted that time was of the essence in this respect.
The defendants accepted that it was possible for the parties to agree to extend a Notice to Complete. The defendants further accepted that there were no strict form requirements in relation to such an extension. It was submitted, however, that as the Notice to Complete that was served on 20 July 2018 was invalid and ineffective, an agreement to extend the Notice to Complete would itself be ineffective to make time of the essence. It was put that a fresh Notice to Complete would have been required in order to make time of the essence in respect of completion by 24 August 2018. The defendants further submitted that in any event the conduct of the plaintiffs, in negotiating the extension of time, was inconsistent with maintaining that time was of the essence and thus amounted to a waiver in that regard.
Before considering these submissions it is necessary to identify the nature and effect of the agreement reached.
The agreement was made in the course of the communications that passed between 31 July 2018 and 2 August 2018. Those communications should of course be viewed in the context in which they occurred, including the contract for sale itself and the Notice to Complete that was served on 20 July 2018.
On 31 July 2018 Strictly Conveyancing made it plain that the purchaser would not be able to complete until their own sale settled. That settlement was said to be due to occur on 20 August 2018. Strictly Conveyancing advised that the purchaser would make every effort to complete the purchase by 24 August 2018, and "an extension of settlement to this date" was requested.
Michael Flaherty appears to have interpreted the request as one for an extension of the contractual date for completion. The Michael Flaherty letter of 1 August 2018 noted the reference to the "extension of the settlement date", and further noted that "the settlement date has long passed". That is apparently a reference to the contractual completion date of 19 July 2018 (6 months after the contract date). Michael Flaherty then indicated that the plaintiffs would be agreeable to "the extension of the Notice to Complete to 24 August 2018" on certain conditions. One such condition was that the purchaser acknowledge that the balance of the deposit "is now due and payable". Acceptance of the plaintiffs' proposal was sought by Noon on 2 August 2018.
Strictly Conveyancing did not respond until 12:58pm on 2 August 2018. However, Strictly Conveyancing indicated, inter alia, that whilst their client agreed to the release of the 5% deposit, funds were not available to pay an additional 5% "at this stage".
The Michael Flaherty response, given shortly thereafter, stated that the requested acknowledgment concerning the balance of the deposit being due did not "call for payment". Confirmation was sought of acceptance of the terms contained in the letter of 1 August 2018, together with an authority for the release of the deposit.
The response of Strictly Conveyancing contained an acknowledgement that the balance of the deposit was due and "will be paid on settlement". An authority to the stakeholder to release the deposit to the vendor was attached.
Even though Strictly Conveyancing did not expressly confirm acceptance of the terms of the 1 August 2018 letter, its response (including the provision of the authority) should in my view be taken to amount to such. Viewed objectively, the conduct of the plaintiffs and at least the first defendant gave rise to an agreement, on terms, to "the extension of the Notice to Complete to 24 August 2018".
The agreement was made in circumstances where no challenge had been made to the validity or effectiveness of the Notice to Complete that had been served on 20 July 2018. There is no evidence that the purchaser had even sought to reserve its position in that regard. In my opinion, the effect of the agreement was that henceforth the Notice to Complete was to be treated as if it called for completion to occur by 3:00pm on 24 August 2018, instead of by 3:00pm on 3 August 2018, with time being of the essence.
As a general proposition, and as recognised by the defendants, it is open to the parties to a contract for the sale of land to agree to extend the time stipulated by a Notice to Complete. Moreover, it is not necessary that any particular formality be met in the making of the agreement. I do not accept the submission that it was necessary for a fresh notice to be served. The agreement in this case is quite unlike the arrangement referred to in Tabbouch v Devlin (2008) 14 BPR 98,338; [2008] NSWSC 600 at [32]-[34], a case referred to in submissions by counsel for the defendants. Manufacturers House Pty Ltd v Ashington No 147 Pty Ltd (2005) 12 BPR 98,224; [2005] NSWSC 767 affords an example of parties agreeing, in the course of solicitors' correspondence, to several extensions. In that case, Smart AJ stated at [37] to [40]: The true effect of what was done by the parties as evinced by the correspondence was to extend by agreement the date by which completion was to take place. The amended date was of the essence of the agreement. That is permissible. It might be compared with a provision in a contract which states that the date of completion specified in the contract is of the essence of the contract. It could not be suggested that the parties could not, by agreement, extend the date for completion and provide that the extended date was of the essence of the contract. The position does not differ in substance where the mechanism of a notice to complete is used to make time of the essence and the parties agree to extend the completion date but treat completion by the extended date as being of the essence of the contract. That is the effect of the correspondence. The plaintiff correctly submitted that service of a Notice to Complete does not change the terms of the contract. It is a mechanism. Non-compliance with the requirements of a notice to complete fixing a reasonable time for completion evidences a fundamental breach or renunciation of the contract. See Ciavarella v Balmer (1983) 153 CLR at 446. Hitherto I have dealt specifically with the extension of the date for completion from 7 March 2005 to 21 March 2005, but similar considerations apply to the subsequent extensions. The correspondence as to the extensions prior to that of 18 May 2005 make it reasonably clear that the completion date under the notice to complete which made time of the essence is being extended. That does not mean that time is no longer of the essence. At the request of the plaintiff the date for completion has been extended to a later agreed date. The letter of 18 May 2005 from the vendor's solicitors extending the time under the notice to complete to 31 May 2005 specifically records that time is of the essence.
In the present case, the agreement involved treating the Notice to Complete as if it called for completion by 24 August 2018 rather than 3 August 2018 as originally specified. There was no withdrawal of the Notice to Complete and no fresh notice was issued. Rather, the existing Notice to Complete was treated as altered to that extent. So altered, the Notice to Complete was to be read as requiring completion by 3:00pm on 24 August 2018, with time being of the essence.
I am unable to accept the submission that the plaintiffs, in negotiating the agreement, acted in a manner inconsistent with maintaining that time remained of the essence. By declining to merely extend the contractual date for completion, and instead offering to extend the Notice to Complete to another date, the vendors gave no reason to the purchaser to believe that the asserted position, that time for completion had been made of the essence, was no longer maintained (see Mehmet v Benson (1965) 113 CLR 295 at 305). I note that the agreement to extend was made when the time stipulated under the Notice to Complete had not yet passed (cf Petrie v Dwyer (1954) 91 CLR 99 at 105). As far as time is concerned, the agreement involved only an extension of time under a Notice to Complete, substituting an extended time for the original time (see Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 53). Finally, my earlier conclusion concerning the validity and effectiveness of the Notice to Complete precludes acceptance of the submission that the agreement to extend was itself ineffective.
Whilst it is not strictly necessary to say anything more about that submission, I should state that I would in any event doubt that the agreement to extend would have been ineffective in those circumstances. Even if the Notice to Complete had not provided for a sufficient Notice Period, I can see no reason in principle why that defect could not be overcome by an agreement to the effect that the notice be henceforth read as if it provided for a different and sufficient Notice Period. That is particularly so if, as here, the agreement is reached before the expiry of the original Notice Period, and the effect of the agreement is to extend the Notice Period by more time than is required in the first place. Counsel for the defendants conceded that he was not aware of any authority that stands for the proposition that an invalid or ineffective Notice to Complete cannot be the subject of an agreement to extend it which henceforth makes the Notice to Complete effective to make time of the essence for completion by the extended date. I have not been able to find any such authority myself.
It follows from the above that as a result of the agreement reached on 2 August 2018, time became of the essence in respect of completion of the contract by 3:00pm on 24 August 2018. Completion by that time became an essential obligation under the contract.
I turn now to consider whether the plaintiffs were entitled to terminate the contract on 27 August 2018 due to the failure of the first defendant to complete by 24 August 2018, or otherwise due to a repudiation of the contract by the first defendant.
The defendants submitted that the purported termination on 27 August 2018 was ineffective because it rested upon an invalid Notice to Complete. Again, for the reasons given earlier, I do not accept the premise of the argument. The Notice to Complete, taken with the agreement to extend it, effectively made time of the essence for completion of the contract by 24 August 2018. It was not suggested by the defendants that any conduct on the part of the plaintiffs after the making of the agreement amounted to a waiver of any essentiality of time in respect of the obligation to complete.
The evidence clearly establishes that the first defendant was not in a position to complete by 24 August 2018. That is the position even assuming that the first defendant had secured the approval for the finance that had been offered by Zagga Holdings Pty Ltd. Mr Charonov conceded in the witness box that as at 23 August 2018, the first defendant: 1. had "a shortfall of funds"; 2. required an investor to make up the shortfall; and 3. needed more time to complete. Mr Charonov deposed that on 23 August 2018 he told his conveyancer at Strictly Conveyancing that some potential investors had promised to get back to him by the end of August and "I just need a few more weeks". Mr Charonov further deposed that it was his expectation that he would "hear back" by the end of August in relation to two potential investors.
The parties were apparently proceeding towards a settlement on 24 August 2018 when, on the day before, Strictly Conveyancing informed Michael Flaherty that the purchaser was unable to complete the purchase. Viewed in the light of the agreement to extend the Notice to Complete to 24 August 2018 and the subsequent preparations for a settlement on that day, that was a clear statement of the purchaser's inability to complete by 24 August 2018. It was a reflection of the actual inability to complete that has been established on the evidence.
Moreover, it is my view that the statement amounted to an intimation to the plaintiffs that it would be useless for them to perform their obligation to complete by 24 August 2018. That being so, and because the intimation continued until the time for performance had arrived, the plaintiffs were excused or absolved from performance of the obligation (see Foran v Wight (1989) 168 CLR 385 at 396, 417, 433, 442 and 456). In those circumstances, and in the absence of any issue raised against the plaintiffs as to, in any sense, their readiness, willingness or ability to perform (see Uniform Civil Procedure Rules 2005 (NSW) r 14.11), the plaintiffs became entitled to terminate the contract due to the first defendant's failure to complete by 24 August 2018 and sue for damages for breach of the essential obligation (see Peter Turnbull and Company Pty Ltd v Mundus Trading Company (Australasia) Pty Ltd (1954) 90 CLR 235 at 246-7 and 250-1; Foran v Wight (supra) at 396, 419 and 433).
There is no suggestion that the right of termination was lost due to any matters that occurred between the time of breach and the time of termination on 27 August 2018.
The termination was expressly based upon the failure of the first defendant to comply with the Notice to Complete which, by agreement, was treated as requiring completion by 3:00pm on 24 August 2018. In my opinion the termination was truly justified on that basis.
I also consider that the plaintiffs could have terminated the contract at that time on the basis that the first defendant had repudiated the contract. The relevant test for repudiation is whether the conduct of one party is such as to convey to a reasonable person in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it (see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44], citing Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659).
The agreement reached on 2 August 2018 meant that completion of the contract on 24 August 2018 became an essential obligation. The Strictly Conveyancing email of 23 August 2018 was a clear statement that the first defendant would not be able to perform the obligation. I do not accept the submission to the effect that the language of the email was equivocal in that regard. A declared inability to perform such as this amounts to a refusal to perform, and the other party need not prove inability as a fact (see Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 at [62]). (Of course, as it turned out, the inability to perform when the time for performance arrived was established on the evidence in this case.) The conduct of the first defendant was such as to convey to a reasonable person in the position of the plaintiffs a renunciation of the essential obligation to complete by 24 August 2018. The first defendant in fact failed to perform that obligation. Accordingly, it would have been open to the plaintiffs to terminate the contract on 27 August 2018 by accepting the first defendant's repudiation of the contract. The position would have been otherwise if, for whatever reason, time had not been made of the essence for completion by 24 August 2018.
It follows from the above that the plaintiffs validly terminated the contract on 27 August 2018 for the first defendant's breach of an essential obligation. In those circumstances, cl 9 of the contract provides that the plaintiffs can: 1. keep or recover the deposit to a maximum of 10% of the price (see cl 9.1); and 2. recover the deficiency on the resale of the property that occurred within 12 months of the termination, with credit for any of the deposit kept or recovered (see cl 9.3.1).
The defendants raised an argument that the plaintiffs could not recover the unpaid portion of the deposit because Additional Condition 35, which concerns the payment of that portion, was penal in nature. The practical significance of this argument is doubtful given that credit has to be given for any amount of the deposit recovered in the calculation of the deficiency on resale.
It was common ground that a deposit of $141,500, equivalent to 5% of the purchase price, was paid on exchange of contracts. The deposit is stated on the front page of the contract to be $283,000, or 10% of the purchase price. By cl 2.2, the deposit must be paid on the making of the contract. However, as the correspondence that passed between Michael Flaherty and Strictly Conveyancing prior to exchange shows, the plaintiffs were prepared to accept a 5% deposit on exchange, subject to Additional Condition 35. That provision operates (notwithstanding cl 2) if the vendor agrees to accept payment of the deposit by instalments. It provides that a sum equivalent to 5% of the purchase price is to be paid by the purchaser on the making of the contract and a further sum equivalent to 5% of the purchase price is to be paid by the purchaser "on or prior to completion".
It was submitted by the defendants, by reference to paragraphs (c) and (d) of Additional Condition 35, that the effect of the condition was that the second instalment (described as the Balance Deposit) only becomes payable as a debt on the purchaser's default. That is not correct. If there is no default by the purchaser, and the contract proceeds to completion, the Balance Deposit becomes due and payable. I do not accept the submission that the position is the same as that in Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 98,203; [2006] NSWCA 40 where the relevant provision (Special Condition 5) required payment only if the purchaser committed a default under the contract (see at [13], [15], [17] and [34]). The defendants also referred to Iannello v Sharpe (2007) 69 NSWLR 452; [2007] NSWCA 61, in particular at [33], where Hodgson JA referred to an unconditional promise to pay an amount on default. Again, the circumstances of that case markedly differ from those present here. The relevant provision (Special Condition 14) required the second payment only if the purchaser was in default of an essential obligation (see at [18] and [32]-[33]).
A different point arises in the present case. Under Additional Condition 35, the Balance Deposit is required to be paid "on or prior to completion", subject to the proviso contained in paragraphs (c) and (d) which makes the instalment due and payable in certain circumstances prior to completion. Those circumstances all involve default on the part of the purchaser. A provision which so accelerates the time for payment of an instalment of deposit money is not in itself penal (see Ashdown v Kirk [1999] 2 Qd R 1 at 8). However, it seems to me that, despite its description, the Balance Deposit lacks the character of a deposit. If the contract was performed in accordance with its terms, the Balance Deposit would not have to be paid before the actual completion of the contract. In those circumstances the Balance Deposit could not be characterised as an earnest of performance. Whilst no clear submission to that effect was developed, it seems to me that the Balance Deposit cannot be regarded as an earnest of performance and hence a payment truly in the nature of a deposit (see Kazacos v Shuangling International Development Pty Ltd (2016) 18 BPR 36,353; [2016] NSWSC 1504 at [26], [37]-[38], [44] and [50]). If that is correct then Additional Condition 35 would appear to be penal in nature. So, too, would cl 9.1. Those provisions would not fall within the established exception to the principles concerning penalties and forfeitures that operates in relation to provisions for the forfeiture of reasonable deposits (see Sydney Developments Pty Ltd v Perry Properties Pty Ltd (2016) 18 BPR 35,905; [2016] NSWSC 515 at [38] and the cases there cited). This analysis is not affected by the acknowledgment, given by Strictly Conveyancing on 2 August 2018, that the Balance Deposit was "due" and would be paid on settlement. No estoppel is alleged to arise from it.
It is not necessary to express a concluded view on this point given that, on the conclusions I have reached, the plaintiffs are entitled to recover the deficiency on resale pursuant to cl 9.3.1 of the contract. Under that clause, the plaintiffs have to give credit for any amount of the deposit recovered.
Ultimately, there was no dispute that if the plaintiffs were entitled to recover under cl 9.3.1, the "deficiency on resale" was $600,000. In light of what was stated in Galafassi v Kelly (supra) at [193]-[194], the plaintiffs did not press for the inclusion of interest pursuant to Additional Condition 36.6 or, as I understood it, any other amount not part of the purchase price that would have been payable on settlement (including pursuant to the agreement reached on 2 August 2018). Evidence was not adduced to prove the amount of the costs and expenses that would fall within the second limb of cl 9.3.1. In these circumstances, the plaintiffs are entitled to recover from the first defendant under cl 9.3.1 the amount of $458,500 (being $600,000 less the credit of $141,500 for the amount of the deposit kept).
The final issue to consider is whether that amount is also recoverable from the second defendant pursuant to the guarantee she provided.
The terms of the guarantee are contained in Additional Condition 42 which provides: (a) If the Purchaser under this Contract is or includes a corporation (other than a corporation listed on the Australian Stock Exchange) then each person who signs this Contract on behalf of that corporation will be personally liable for the due performance of the purchaser's obligations under this Contract to the same extent as if that person was the Purchaser under this Contract. (b) In consideration of the Vendor entering into this Contract with the Purchaser at the request of Ekaterina Charonova ("the Guarantor") (as is hereby acknowledged by the Guarantor) the Guarantor unconditionally and irrevocably guarantees to the Vendor the due and punctual payment of all moneys payable by the Purchaser under this Contract and the due and punctual performance and observance of all covenants, conditions and provisions in this Contract to be performed and observed by the Purchaser. (c) This guarantee is a continuing guarantee and cannot be abrogated, prejudiced or discharged by any waiver by the vendor or by any other matter. (d) This guarantee is deemed to constitute a principal obligation between the guarantor and the vendor. The second defendant signed the contract on behalf of the first defendant, and also signed as guarantor.
The defendants submitted that the subject matter of the guarantee was confined to obligations to be performed under the contract for sale. It was then submitted that as the contract has been terminated there are no obligations to be performed under it, and the plaintiffs are suing the first defendant for damages. Reference was made to Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 257-8 where it was held that the terms of a guarantee did not include a promise to pay a sum of money in the event that the purchaser failed to complete a contract to purchase a home unit. The guarantee was held to be confined to a promise that the purchaser would perform its contractual obligations including the payment of monies payable under the contract.
The guarantee in the present case expressly provides that the guarantor will be personally liable for the due performance of the purchaser's obligations under the contract "to the same extent as if that person was the Purchaser under this Contract". The plaintiffs here seek to recover an amount under cl 9.3.1 of the contract. It is true that the contract was terminated on 27 August 2018, but a provision such as cl 9.3.1, which is in essence a liquidated damages clause, may still be enforced (see Galafassi v Kelly (supra) at [152]). The obligations that arise under it survive the termination. In Cooper v Ungar (1958) 100 CLR 510, Dixon CJ, delivering the judgment of the Court, stated (at 513): …such a provision gives a contractual right to the vendor. It is a right in the nature of a power and when he pursues it he is acting under the contract and not in derogation of the contract or on the footing that it is discharged completely. (See also McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, especially at 476-7.)
The liability of a guarantor is regarded as strictissimi juris, such that ambiguous provisions in a contract of guarantee should be construed in favour of the guarantor (see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561). However, I consider that an obligation of the purchaser to pay an amount found to be recoverable under cl 9.3.1 of the contract is clearly an obligation "under this Contract" within the purview of Additional Condition 42(a). The guarantor has thus promised to be personally liable for the due performance of the obligation as if she was the purchaser. Moreover, by Additional Condition 42(d), the guarantee is deemed to constitute a principal obligation between the guarantor and the vendor. It follows in my view that the second defendant is herself liable to pay any amount found to be recoverable under cl 9.3.1.
Even if the guarantee was held to be confined to a promise that the purchaser would perform its obligations under the contract, the failure of the first defendant to perform the essential obligation to complete by 24 August 2018 would thereby cause the second defendant to breach the contract of guarantee. The damage flowing from the breach of the guarantee will be the same as the damage flowing from the first defendant's breach (see Sunbird Plaza Pty Ltd v Maloney (supra) at 272-3). The first defendant's breach was a breach of an essential obligation. It entitled the plaintiffs to terminate the contract and sue for damages, including loss of bargain damages (see Sunbird Plaza Pty Ltd v Maloney (supra) at 260; Foran v Wight (supra) at 430). On that basis the second defendant would be liable for damages based on the difference between the contract price and the value of the property at the date of termination less the amount of the forfeited deposit (see Cratchley v Bloom (1984) 3 BPR 97,206 at 5). Expert valuation evidence was not adduced as to the value of the property as at 27 August 2018. The sale price of $2.23 million achieved on the resale on 15 April 2019 is the best evidence available. The only other evidence of note was that a valuation (not itself in evidence) obtained by a prospective lender in late July 2018 assessed the value at $2.35 million, and by that November 2018 the plaintiffs had been advised by their agent that no offers in excess of $2.1 million had been received. In those circumstances I would have assessed the value of the property at the date of termination at $2.23 million, $600,000 less than the contract price. On that basis the damages would have been assessed as $458,500.
On either basis, the second defendant would be liable to the plaintiffs under the guarantee in the amount of $458,500. Given that the plaintiffs apparently advanced their claim on the basis of cl 9.3.1 only, the Court will rest its conclusion on that ground.
Before leaving this topic it should be noted that in the course of the hearing there was an express abandonment by the defendants of a foreshadowed argument that the making of the agreement on 2 August 2018 effected a discharge of the second defendant from her liability under the guarantee. A claim by the first defendant under s 55(2A) of the Conveyancing Act 1919 (NSW) for the return of the deposit paid was also abandoned.

Cole v Raykir Holdings Pty Ltd

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