Coppa v Barnett

Supreme Court of NSW|2012-05-03|Before: Stevenson J

Judgment 1The defendant, Mr Kenneth Barnett ("Mr Barnett"), is the executor of the estate of the late June Mary Lynch ("Ms Lynch"). 2An asset of Ms Lynch's estate was land comprised in Arcadia ("the Property"). 3The Property was listed for public auction on 26 February 2011. 4The plaintiff, Ms Maria Coppa ("Ms Coppa"), was present at the auction with her husband, Mr Bruce Hamilton ("Mr Hamilton"). 5Ms Coppa was the successful bidder and entered into a contract for sale of the Property for $750,000 ("the Contract"). 6Ms Coppa paid a deposit of $75,000 ("the Deposit"). 7The Contract called for completion by 9 April 2011. 8Special condition 32 of the Contract provided: - "Should either the Vendor or the Purchaser prior to completion, or if more than one, or any of them, die or become mentally ill or being a company is wound up or goes into liquidation the [sic] either party may at any time thereafter rescind this Contract by notice in writing served on the other party." 9Special condition 34 of the Contract provided: - "Should either party be unable or unwilling to complete by the completion date specified herein, then the other party shall be entitled at any time after the completion date, to serve a notice to complete making 'time of the essence'. The notice shall give not less than fourteen (14) days notice after the completion date. Both the Purchaser and the Vendor agree that the time of 14 days is considered to be reasonable and sufficient to render time being made essential." 10Clause 9 of the Contract provided: - "If the purchaser does not comply with the 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". (emphasis in original). 11Less than two weeks after the auction, on 11 March 2011, Ms Coppa was admitted to Cumberland Hospital. 12On 28 March 2011, Dr Deepa Malik ("Dr Malik"), the Psychiatric Registrar at Cumberland Hospital wrote a letter addressed "To Whosoever It May Concern". The letter was in the following terms: - "This is to certify that [Ms Coppa] has a serious mental illness and has been unwell for a few months. Her illness has impaired her judgement and she is considered to have been unfit to enter any contract in [sic] past few months." 13On 30 March 2011 Ms Phani Attota ("Ms Attota"), a social worker at the Sydney West Area Health Service, wrote a document headed: - "SOCIAL WORKER'S REPORT FOR THE MENTAL HEALTH ENQUIRY AND APPLICATION FOR FINANCIAL MANAGEMENT ORDER TO BE HELD ON 31/3/2011". 14Ms Attota recorded various observations concerning Ms Coppa, including statements about Ms Coppa attributed to Mr Hamilton. 15Mr Hamilton denies making many of the statements attributed to him. I shall return to this aspect below. 16Ms Attota concluded: - "We therefore recommend for an interim Financial Management Order and the continuation of the involuntary status for further treatment." 17It is not clear, on the evidence, what Ms Attota meant by her reference to the "continuation" of involuntary status. 18All the evidence reveals to have occurred, as at 30 March 2011, is that Ms Coppa was admitted to hospital on 11 March 2011. 19On 31 March 2011 the Mental Health Review Tribunal made a determination pursuant to s 35 of the Mental Health Act 2007 ("the Determination"). 20The Determination was admitted into evidence as evidence only of the fact of the Determination and not as evidence of the facts the subject of the Determination: Evidence Act 1995, s 91. 21The Determination read: - "[Ms Coppa] was brought before the Tribunal for a Mental Health Inquiry on 31 March 2011 at Cumberland Hospital... The Tribunal determined under Section 35 that: [Ms Coppa] is a mentally ill person, and...must be detained in or admitted and detained in Cumberland Hospital for further observation or treatment, or both, as an involuntary patient until a date no later than 12 May 2011." 22Under the heading "Reasons of Members", the Determination read: - "Relapse of bipolar disorder; moods symptoms + risk ongoing; need to stabilise on medication, no less restrictive care currently." 23On 15 April 2011 the Guardianship Tribunal made an Interim Financial Management Order in respect of Ms Coppa ("the IFM Order"). 24The IFM Order was admitted as evidence only of the making of the order and not as evidence of the matters the subject of the order; Evidence Act s 91. 25By the IFM Order the Guardianship Tribunal ordered that: - (1)Ms Coppa's estate be subject to management under the NSW Trustee and Guardian Act 2009; (2)Mr Hamilton was appointed as financial manager of the estate; (3)The order be for a period of six months from 15 April 2011. 26On 18 April 2011 Ms Coppa's solicitors, Greenaway & Tohme, notified Mr Barnett's conveyancers, Taylor Associates Conveyancing Services, of the Determination and the IFM Order and served a Notice of Rescission of the Contract in the following terms: - "A. By Contract for the Sale of Land dated 26 February 2011 ("Contract") you agreed to sell and Maria Coppa of [xxx], Baulkham Hills, NSW 2153 ("Purchaser") agreed to purchase [the Property] for the sum of $750,000.00. B. Special condition 32 of the Contract states inter alia: 'Should either the Vendor or Purchaser...become mentally ill...either party may at any time thereafter rescind this Contract...'. C. The Purchaser has become mentally ill and has been determined by the Mental Health Review Tribunal to be mentally ill under the relevant provisions of the Mental Health Act 2007. As solicitors for the purchaser, we give notice that the Purchaser exercises the Purchaser's right of rescission and requires a refund of the deposit immediately pursuant to clause 19 of the Contract." (emphasis in original). 27On 31 May 2011 Mr Barnett's solicitors, Simpson & Partners, wrote to Greenaway & Tohme stating that Mr Barnett did not accept that Ms Coppa was mentally ill and sought further particulars including: - "Any other evidence relied upon by your client in support of her contention that she has become mentally ill for the purpose of special 32 of the Contract." 28That letter continued: - "We note that the decisions and findings of the Mental Health Review Tribunal and the Guardianship Tribunal would be inadmissible as evidence of Ms Coppa's mental condition in any proceedings between Mr Barnett and Ms Coppa regarding the purported rescission of the Contract." 29Thus, although Mr Barnett's solicitors did not refer, in terms, to s 91 of the Evidence Act, they gave clear warning of the limited basis upon which the Determination and the IFM Order could be received as evidence of Ms Coppa's mental condition. 30Ms Coppa's solicitors replied on 5 July 2011 as follows: - "You will appreciate that proceedings before the Mental Health Review Tribunal are confidential. Accordingly, it is not appropriate for confidential medical reports to be released by a financial guardian... ...as a matter of courtesy, we are able to provide you with a letter addressed to whosoever it may concern (and therefore able to be released to your client), dated 28 March 2011 and from a psychiatric registrar." (emphasis in original) 31 The letter referred to was that of Dr Malik. 32On 2 August 2011 Mr Barnett's solicitors caused to be served on Ms Coppa's solicitors a Notice to Complete. An earlier Notice to Complete had been served on 12 April 2011. This was not acted on. 33The 2 August 2011 Notice to Complete called for completion on 17 August 2011. 34Completion did not take place. On 18 August 2011 Mr Barnett served a Notice of Termination terminating the Contract. 35On 28 September 2011 Mr Barnett entered into a contract to sell the Property to third parties for $700,000.

The proceedings 36Ms Coppa, by her tutor Mr Hamilton, commenced these proceedings on 28 August 2011. 37Ms Coppa sought a declaration that she had validly terminated the Contract by her notice of 18 April 2011 and sought a return of the Deposit. 38On 28 October 2011 Ms Coppa filed a Removal of Tutor stating that Mr Hamilton was removed as tutor and Ms Coppa was "plaintiff in her own name". That document stated: - "The Guardianship Tribunal discontinued the Financial Management Order in respect of the Plaintiff on 15 October 2011". 39Nonetheless, Ms Coppa has not given evidence in the proceedings, nor has she adduced evidence from any medical practitioner as to her mental condition at the date of the Contract or at any other time. 40The only evidence of any opinion expressed by any medical practitioner before the Court is Dr Malik's note of 28 March 2011.

The proper construction of special condition 32 41Special condition 32 provides a right of rescission where, relevantly, the purchaser "becomes mentally ill". 42Although the clause does not say so in terms, in my opinion, on its proper construction, the clause is only enlivened if a party to the Contract (in this case the purchaser) "becomes mentally ill" after the date of contract. 43The use by the parties of the word "become" suggests that they contemplated that the right of rescission would only come about if a party's mental condition "became" or developed into one in which that person was "mentally ill". 44In my opinion, it cannot be supposed that the parties intended that either one of them would have the right to rescind the Contract because of a mental condition subsisting at the date of contract. 45In that event, the parties must have contemplated that the general legal position would apply, namely that: - "The incapacitated party [would] be able to avoid the contract if that person [could] show that he or she was suffering from such degree of mental disability at the time of making the contract that he or she was incapable of understanding it and that the other party was aware or ought to have been aware of this." (Seddon and Ellinghouse, Cheshire and Fifoot's Law of Contract, 9th ed (2008) at 17.53 - citations omitted). (emphasis in original) 46In Brennan v O'Meara [2009] NSWSC 1374; (2009) 14 BPR 27,441 Davies J considered a clause relatively identical and concluded: - "The clause does not say 'die or is mentally ill'. The word 'become' indicates a change of state. The wording of the clause generally points to the 'becoming' as a transition that takes place between the date of contract and completion although the clause does not expressly require it after the date of contract. However, if [the purchaser] was relying on 'becoming' mentally ill prior to the date of contract, he would come up against the principle that where a party deals with a mentally ill person (where the mental illness would otherwise avoid the contract ab initio) in good faith and for valuable consideration without knowledge of the mentally ill person's condition, the contract is good and cannot afterwards be set aside on the grounds of the mental illness". (citations omitted, emphasis in original) 47I agree. 48It is thus necessary that Ms Coppa show that she "became" mentally ill after the date of contract: that is, after 26 February 2011. Meaning of "mentally ill" 49The term "mentally ill" is not defined in the Contract. 50However the context to which the expression is used in special condition 32 suggests that the mental illness must be of a nature that causes an inability, or at least an impediment, on the part of the relevant party to fulfil their contractual obligations. 51This is the also the view expressed by Gzell J in Karfoal Pty Ltd v Lorence [2002] NSWSC 284; (2002) 11 BPR 20,129 in relation to a similar clause (although in the context of a party to the contract dying, rather than becoming mentally ill) by [13] and by Davies J in Brennan v O'Meara at [37]. 52I agree with the submission of Mr Stephenson, who appeared for Mr Barnett, that two questions arise. 53The first is, was Ms Coppa, at any relevant time, "mentally ill". 54The second is, if so, when did Ms Coppa become mentally ill.

Was Ms Coppa mentally ill? 55The only direct evidence about this is Dr Malik's document of 28 March 2011 in which he stated that Ms Coppa "has a serious mental illness". 56There is less direct evidence in Ms Attota's report of 30 March 2011. 57In that report Ms Attota attributed to Mr Hamilton various statements concerning Ms Coppa's condition and activities. 58Ms Attota stated: - "[Ms Coppa] was brought in by the Community Mental Health team following husband, Mr Hamilton's concern. According to him, she had shown signs of deterioration since January 2011 when she became highly argumentative, poor sleep, flight of thoughts, wanted to do a number of tasks at the same time, involving daughter to take up tasks which she is not used, increased spending, bidding at property auctions for a higher rate and signing the contract... Mr Hamilton raised concerns for erratic spending behaviour of [Ms Coppa] as she has put in a bid for a property for $750K which would have been only worth for less than $500K. She signed the contract on her name where she will not eligible [sic] to get a bank loan as she has no income at present. She paid $75,000 deposit for the property without the knowledge of husband and if she has to cancel the contract, she will be losing 15% of the deposit. As Mr Hamilton reported, the couple is already residing in a million worth property and has an investment property and would no way be able to afford another property." 59Apart from the statement that Ms Coppa would not be "able to afford another property" Mr Hamilton denied saying any of these things to Ms Attota. 60Ms Attota was not called as a witness and I am not able to reach any conclusion as to whether or not Mr Hamilton said these things. 61So far as concerns Ms Coppa's mental state, Ms Attota stated: - "On admission, she was angry, irritable and presented with grandiose delusions and illogical thinking. She was reported to be non-compliant with her medication. [Ms Coppa] continues to be elevated in mood, grandiose delusions, intrusive and over familiar with fellow patients." 62It is not clear whether this statement was made on the basis of Ms Attota's observations, or on the basis of what she has been told by staff at Cumberland Hospital. 63Ms Attota also recorded what purports to be a history of Ms Coppa's medical condition as follows: - "[Ms Coppa's] mental health began to deteriorate approximately 12 to 18 months ago before the birth of her child and she was diagnosed as having Post Natal Depression in 2003 but needed no admission. [Ms Coppa] had three previous admissions in Cumberland Hospital - the first was in 2005 where she had to transferred Westmead due to physical conditions and was discharged. The second was again with few weeks [sic] from relapse in mental state and was discharged on a CTO. The third one was in 2007 with Bipolar Affective Disorder with manic episode and non-compliance to the medication. She was again discharged on CTO." 64There is at least one error in this history. The daughter of Mr Hamilton and Ms Coppa is 8 years of age. Accordingly, Ms Attota's reference to "12 to 18 months ago" must be wrong. 65In all these circumstances, I do not think that I can place any significant weight on Ms Attota's report. Ms Attota has not been called as a witness. Mr Hamilton disputes significant statements attributed to him by Ms Attota. At least one statement by Ms Attota is clearly wrong. And Ms Attota does not make clear whether her remarks about Ms Coppa's current state are based on her own observations or reports from others. 66At most, Ms Attota's document can be said to be consistent with Dr Malik's statement that Ms Coppa "has a serious mental illness".

When did Ms Coppa become "mentally ill"? 67If any weight is to be given to the history recorded by Ms Attota, it would appear that Ms Coppa has had difficulties with her mental condition for many years. 68However the relevant question, for the purposes of special condition 32, is when Ms Coppa became "mentally ill" within the meaning of that clause, that is to say mentally ill in a way which caused her to have an impediment or inability in the performance of her contractual obligations. 69In that regard, the only medical evidence before me is that of Dr Malik who states in his letter of 28 March 2011 that Ms Coppa has been: - "...unfit to enter any contract in [sic] past few months." 70The evidence does not reveal upon what basis Dr Malik came to that conclusion. Indeed, the evidence does not reveal whether Dr Malik has seen Ms Coppa. In the heading to his report there is a reference to "Dr Amanda Bray". For all I know, Dr Malik was repeating something said to him by Dr Bray. 71However, that is all the evidence there is before me. 72As I have mentioned, on 5 July 2011 Ms Coppa's solicitors proffered Dr Malik's report to Mr Barnett's solicitors as evidence of Ms Coppa's mental condition. Dr Malik's report is particularised as the basis of the allegation in the Statement of Claim that Ms Coppa "is mentally ill". Dr Malik's letter has been placed into evidence by Ms Coppa as an annexure to Mr Hamilton's affidavit. 73As I have also mentioned, Ms Coppa has not given evidence in the proceedings. No explanation has been offered for that failure, especially in circumstances where the Guardianship Tribunal discontinued the IFM Order on 15 October 2011. 74Special condition 32 was only enlivened if Ms Coppa "became" mentally ill after the date of contract, 26 February 2011. It was for Ms Coppa to adduce evidence to show this. In my opinion she has not done so. 75In all these circumstances, I consider that the only conclusion I can come to is that Ms Coppa was unfit to enter into the Contract and was thus "mentally ill" within the meaning of that expression in special condition 32 at the date of Contract. Thus she did not, thereafter, "become" mentally ill for the purposes of special condition 32. 76There is no suggestion that there was any basis upon which Mr Barnett could have known of Ms Coppa's mental condition as at the date of Contract. 77Both Mr Barnett, and the agent on the sale Ms Daley, gave unchallenged evidence that on the date of the auction there was nothing about Ms Coppa's conduct, demeanour or presentation to suggest that she lacked capacity to enter the Contract or suffering from any mental illness.

Conclusion as to entitlement to rescind 78In those circumstances, my conclusion is that Ms Coppa did not "become mentally ill" for the purposes of special condition 32 of the Contract. 79She was not entitled to rescind the Contract on 18 April 2011, or at all. 80Ms Berglund, for Ms Coppa, submits that, by reason of the IFM Order, Mr Hamilton could not have completed the purchase on Ms Coppa's behalf without the prior approval of the NSW Trustee. The IFM Order states that Mr Hamilton, as the appointed manager of Ms Coppa's estate, was not authorised to deal with it (other than to protect the assets) without authority from the NSW Trustee. However, there is no evidence of such approval being sought, let alone of any impediment to such approval being granted. 81In any event, I think these matters irrelevant. Ms Coppa was not entitled to rescind the Contract. If she could not proceed with the Contract, it was liable to be terminated, on notice, by Mr Barnett. 82There is no suggestion of any deficiency in Mr Barnett's Notice to Complete of 2 August 2011. 83In those circumstances, Mr Barnett was entitled to terminate the Contract, as he did, on 18 August 2011.

The deposit 84As Mr Barnett was entitled to terminate the Contract, by virtue of clause 9.1 of the Contract, he is entitled to recover the deposit. 85By her Statement of Claim, Ms Coppa, in the alternative, seeks an order pursuant to s 55(2A) of the Conveyancing Act 1919. 86It was unclear, in oral submissions, whether this claim was pressed. Nonetheless, I will consider it. 87That subsection is in the following terms: - "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." (emphasis added) 88The circumstances in which that claim is made is that, in one sense, Mr Barnett has received a windfall. 89Had the Contract proceeded in the usual way, he would have received $750,000 for the Property. 90As things have turned out, he has received $700,000 for the Property resulting from the sale of 28 September 2011 to the third parties. By reason of his entitlement to retain the Deposit, he has received a further $75,000: a total of $775,000. 91Thus, in this sense, as things have turned out, Mr Barnett is $25,000 better off than if Ms Coppa had completed the Contract in accordance with its terms. 92However, I am satisfied that this provides no reason for the Court to exercise its discretion under s 55(2A) to order that the Deposit (or any part of it) be repaid to Ms Coppa. 93In Havyn Pty Ltd v Webster [2005] NSWCA 182; 12 BPR 22,837 Santow JA (with whom Tobias JA and Brownie AJA agreed) summarised the relevant principles as follows (at [173]): - "(a) Section 55(2A) confers upon the court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture. (b) Notwithstanding this, it is important for a court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur. (c) That context is significant when considering the justice and equity of the case, and whether the court 'sees fit' to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show 'special circumstances' (or satisfy any like test) before a deposit will be returned. (d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited. (e) In considering an application under s 55(2A), it will often be material for the court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited. (f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former's misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge." (at [173]) 94Earlier in the Judgment Santow JA said: - "The purchaser must therefore do more than merely show that the deposit has been forfeited, and that it will thus result in a 'windfall' to the vendor as will usually be the case. The court should not take an approach to ordering the return of deposits under s 55(2A) which weakens the proper function of a deposit in providing a sanction so that purchasers treat the making and completing of contracts with due seriousness". (at [155], citations omitted) 95The relevant authorities were recently reviewed by Ball J in Baird v Chambers [2010] NSWSC 272; (2010) 15 BPR 98431. 96His Honour noted that although the discretion conferred by s 55(2A) is a broad one, the discretion should not be exercised lightly. His Honour referred to the observations of Santow JA set out above and to the statement by the High Court in Romanos v Pentagold Investments Pty Limited (2003) 217 CLR 367; at [27] to the effect that the discretion is not to be exercised unless it would be unjust, or inequitable for the vendor to retain the deposit. 97A factor which might cause a court to order the return of a deposit include the resale of the property by the vendor at a substantial profit: e.g. Nelson v Bellamy [2000] NSWSC 182; (2000) 10 BPR 19,011; where the purchase price was $285,000 and the property resold for $349,750; Simos J ordered a refund of the deposit. 98But the mere fact of re-sale at a profit is not sufficient: eg per Young CJ in Eq in Borda v Burgess (2003) 11 BPR 21,203; [2003] NSWSC 1171 at [82] and the authorities referred to by Ball J in Baird at [16]. A fortiori, when the re-sale is at a loss. 99In Baird, Ball J suggested (at [18]) that an important factor to consider is the extent to which the purchaser's conduct fell short of the thing the deposit was intended to secure; namely completion in accordance with the Contract. 100In this regard, there are a number of matters to consider. 101First, from 31 March 2011 Ms Coppa was detained at Cumberland Hospital as an involuntary patient. The Determination states that Ms Coppa was to remain an involuntary patient until 12 May 2011. There is no evidence that Ms Coppa remained at Cumberland Hospital after that date. 102Further, by reason of the IFM Order, Mr Hamilton was appointed financial manager of Ms Coppa's estate. He could not have completed the transaction without the authority of the NSW Trustee. However, as I have said, there is no evidence such authority was sought. 103On the other hand, it cannot be said that Mr Barnett has behaved peremptorily. 104Although he served a Notice to Complete on 12 April 2011, he did not act on it. 105As Mr Stephenson points out, after service of his 12 April 2011 Notice to Complete, and following service of Ms Coppa's purported Notice of Rescission of 18 April 2011, Mr Barnett sought particulars from Ms Coppa's legal representatives as to the basis upon which it was contended that she had "become" mentally ill for the purposes of special condition 32. 106And Mr Barnett gave clear warning of his contention (which I have held to be correct) that the mere fact of the Determination and the IFM Order would not establish that the requirements of special condition 32 had been satisfied. 107The only medical evidence provided on Ms Coppa's behalf to Mr Barnett to justify her position was Dr Malik's letter of 28 March 2011. 108I have found that the opinion expressed in that letter, far from establishing the requirements of special condition 32, suggested that the requirements of special condition 32 had not been satisfied. 109In my opinion, Mr Barnett has behaved patiently and appropriately. 110He gave Ms Coppa, through her financial manager, ample opportunity to make out her case of entitlement to rescind relying on special condition 32. Such entitlement was not demonstrated then. It has not been demonstrated before me. 111To adopt Ball J's test, Ms Coppa's conduct has fallen well short of that which the deposit was designed to secure. 112Mr Barnett (or at least the deceased estate that he represents) may well receive a "windfall" as a result of forfeiture of the deposit. That "windfall" is likely to be less than the $25,000 to which I have referred, as he doubtless incurred some costs in arranging the re-sale of the Property. 113In any event, the authorities to which I have referred make clear that the mere fact of a "windfall" is not a sufficient basis to make an order under the section. 114I am not satisfied that it would be unjust or inequitable to allow Mr Barnett to exercise his contractual entitlement to retain the Deposit. 115I refuse to make an order under s 55(2A). 116I will hear the parties as to the form of final orders, and (as they have requested) as to costs.

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: 15 May 2012

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