CPPIB Credit Investments v Ren

Supreme Court of NSW|2018-10-18|Before: McDougall J, Ball J

Solicitors: Ashurst (Plaintiff / Trustee) Link Lawyers (Purchaser) Manning Lawyers (Vendor) File Number(s): 2017/109259

Judgment

HIS HONOUR: The essential questions for decision are: 1. did the purchaser of land under a contract for sale validly terminate that contract? 2. Did the vendor terminate the contract, in effect "for convenience"? 3. If the answer to each of the first two questions is "no", is the purchaser nonetheless entitled to relief against the forfeiture of his deposit?
The primary facts giving rise to those questions, although a little complicated, are not contentious.

First issue: validity of Mr He's notice of rescission

Mr de Meyrick of Counsel, who appeared with Mr Currie of Counsel for Mr He, put his client's case in two ways. First, he said, Ms Kong was in breach of cl 41.3 of the contract, by which she warranted that she was "solely entitled to the whole of the legal and beneficial title to the property as at the date of this contract and as at completion". He submitted that although the clause was framed as a warranty, it was either a condition, or an intermediate term, because it went to title - a matter of fundamental importance - so that a breach of it would give rise to a right to rescind [2] .
Alternatively, Mr de Meyrick submitted, Mr He was entitled to rescind "out of hand" as at 12 June 2018 because of the defect then apparent in Ms Kong's title. Mr de Meyrick submitted that his client was able to rely upon that right in these proceedings even though the notice of rescission had not mentioned it as a ground for termination.

First ground: breach of cl 41.3

Although Mr de Meyrick's argument focused on cl 41.3, it is necessary, as he acknowledged, to consider that clause in the context of the whole of cl 41 and in the context of the facts then known to the parties. Those facts include that the registered proprietors of the property at the date of contract were Mr Ren and Ms Kong. The parties knew that, if only because a copy of a title search disclosing that fact was annexed to the contract for sale.
I set out the whole of cl 41: 41 Transfer of Title 41.1 The Purchaser acknowledges that this contract has been executed by Xia Kong as sole Vendor. 41.2 The Purchaser hereby agrees to accept upon completion a Real Property Act Transfer passing the interest of Jerry Ren in favour of Xia Kong in the form of that annexed to this contract. 41.3 The Vendor warrants to the Purchaser that she is solely entitled to the whole of the legal and beneficial title to the property as at the date of this contract and as at completion. This provision does not merge on completion. 41.4 The Purchaser shall make no objection or requisition or delay completion with respect to the fact that Jerry Ren is not a party to this contract or anything arising under this special condition. 41.5 Notwithstanding anything hereinbefore contained, the Purchaser hereby expressly covenants and agrees with the Vendor that, in the event that the Vendor is prohibited, restricted or impeded from completing this Contract due to any circumstance or event arising from or related to the subject matter of this special condition, then the Completion Date will be extended as provided in the Special Condition for such period of time lost as a result of such prohibition, restriction or impediment. 41.6 The Vendor will use her reasonable best endeavours to remove, extinguish or discharge any prohibition, restrictions or impediment as aforesaid so as to enable the completion of this Contract. In the event that the Vendor is unable to do so on or before the expiration of TWO (2) calendar months from the Completion Date then the Purchaser may either rescind this Contract or by notice in writing request that the Completion Date be extended for a further period of up to FOUR (4) months, in which case the Completion Date will forthwith be extended for such period. If the Vendor is still unable to complete by the extended Completion Date, then either party may at any time afterwards terminate this Contract by notice in writing to the other and the Deposit paid by the Purchaser to the Vendor will then be refunded. 41.7 The Purchaser will have no claim against the Vendor of any nature whatsoever arising out of, or by reason of, this Contract or the rescission or termination thereof and the Purchaser hereby releases the Vendor from any claim for loss, damages or injuries suffered, sustained or incurred by the Purchaser arising out of, or as a result of, the termination of this Contract. Without limiting the generality of the foregoing, and notwithstanding any other provision of this Contract, the Purchaser will not be entitled (and hereby expressly waives any right the Purchaser may have) to damages or specific performance for delay or non-performance by the Vendor arising out of any prohibition, restriction or impediment to the completion of this Contract. This special condition does not apply to any breach of the warranty in special condition 41.3. 41.8 This Contract will terminate forthwith on the Vendor serving upon the Purchaser notice in writing of any defect or bar in or to the sale of the property by the Vendor becoming apparent and upon such termination the Vendor will refund in full the Deposit paid by the Purchaser and the Purchaser hereby releases the Vendor from any claim for loss, damages or injuries suffered, sustained or incurred by the Purchaser, arising out of, or as a result of, the termination of this Contract. Without limiting the generality of the foregoing, and notwithstanding any other provision of this Contract, the Purchaser will not be entitled to (and hereby expressly waives) any right the Purchaser may have to damages or specific performance for delay or non-performance by the Vendor arising out of any defect or bar in or to the sale of the property by the Vendor, or the termination of this Contract.
It is convenient to note at this point that cl 41.8 is the source of the alterative argument identified at [1(2)] above.

Submissions

As I have noted already, Mr de Meyrick submitted that the subclause ought be read as an intermediate term, breach of which would go to the root of the contract, or be sufficiently serious so as to entitle Mr He to rescind. He submitted [3] that: The effect of 41.3 is to guarantee to the Purchaser that there will be no problem with the transfer of Ren's interest to Kong, in that Kong has an unequivocal right to have clear title to then transfer to the Purchaser.
Mr de Meyrick submitted orally that at the time the contract was made, Ms Kong was not in the position to give that warranty because she was not the sole registered proprietor of the property, and perfection of her title by registering the transfer from Mr Ren would be a breach of the freezing order as continued by Ball J on 16 June 2017.
Mr de Meyrick submitted that the freezing order permitted only sale of the property on the terms specified; it did not, he submitted, permit a transfer from Mr Ren to Ms Kong or an adjustment of their respective interests prior to sale.
At one stage, I think, Mr de Meyrick submitted that even the execution and delivery of the transfer might have been done in breach of the freezing order. If that submission were made, it would raise a significant difficulty, in that the transfer was executed and delivered pursuant to an order made by a court of competent jurisdiction (see at [13] above). However, since the submission was not developed, I do not feel inclined to pursue this point.
Mr Beaumont of Senior Counsel, who appeared with Mr Condylis of Counsel for Ms Kong, submitted that it was necessary to construe cl 41.3 in context and by reference to the mutually known facts, in particular as they appeared from the contract itself. He submitted that cl 41.3 should be read in such a way as to render it consistent with the overall structure of cl 41. Mr Beaumont relied, in particular, upon the mechanism set out in cls 41.5, 41.6 for dealing with what might be broadly described as defects in title or impediments to settlement.

Decision

A submission as to the "effect" of a contractual term is difficult to analyse unless and until the content of that term - the legal obligations imposed by it - is determined by the orthodox processes of contractual interpretation. In this case, it seems to me, one must approach the words of cl 41.3, considered in both their contractual and their factual context, and determine what they mean as a matter of construction, before turning to the more general question of "effect". That is the approach I propose to take.
The starting point of the analysis is that, as Mr He acknowledged by cl 41.1 (and as was clear on the face of the contract in any event), Ms Kong was the sole vendor. The significance of that fact must be considered in light of the state of the title as disclosed by the search annexed to the contract [4] : Ms Kong was not the sole registered proprietor. That is why cl 41.2 bound Mr He to accept, on completion, the transfer from Mr Ren to Ms Kong in the form annexed to the contract.
In those circumstances, looking at the matter objectively, the parties each knew that as at the date of the contract, Ms Kong, not being the sole registered proprietor of the property, could not of herself give title to the whole of the legal and beneficial interests in the property. Further, they must have understood, from the wording of cls 41.2 and 41.4, that Ms Kong was unlikely to become the sole registered proprietor prior to settlement.
Clause 41.3 is to be construed, so far as possible, taking those known and mutually expected matters into account, and taking into account also the structure of cl 41 overall.
The warranty given by cl 41.3 is not that Ms Kong is the sole legal owner, or sole proprietor, of the property. It is (leaving aside for the moment the question of beneficial interest) a warranty that she is solely entitled to the legal interest in the property. Registration of the transfer from Mr Ren to her would perfect her legal interest in the whole of the property. And it would, as it was once put, feed the title that she contracted to pass to Mr He. In short, I think, the proper construction of cl 41.3 is that Ms Kong warranted that she was the only person then (at the date of exchange) entitled to the legal interest in the property, and that this situation would prevail as at completion.
There is no breach of the cl 41.3 warranty, so construed, simply because Mr Ren was a registered proprietor, as joint tenant with Ms Kong. In referring to the nature of their tenancy, I should make it clear that no one argued the effect of the execution and delivery of the transfer. That is to say, no one argued that the, or an, effect was to sever the joint tenancy. That no doubt reflected the obvious position that analysis of cl 41.3 did not depend in any way on the nature of the co-ownership. For the same reason, the trustee's contention as to the effect of the sequestration order (see at [17] above) may be put to one side for the moment.
It follows that cl 41.3, so construed, fits comfortably into the scheme of cl 41 overall. It warrants Ms Kong's entitlement. The subsequent subclauses then set out the way in which impediments to her realisation of that entitlement, even if only for a fraction of a second before perfection of Mr He's legal interest as registered proprietor, may be dealt with.
That process of construction reflects, to my mind, the plain reading of cl 41.3 considered in context. It is therefore not necessary to consider whether it should be read down, so as to be made to fit into the scheme of cl 41 overall.
Mr de Meyrick submitted that Ms Kong could not give the cl 41.3 warranty because she knew, at the time the contract was made, that Ball J had held that the BFA was not a binding agreement for the purposes of s 90C of the Family Law Act. It is no doubt correct to say, based on his Honour's conclusion, that the BFA did not have the attributes that would follow from s 90C. It does not however follow that the BFA had no other effect. It remained, I think, a contract binding upon Mr Ren [5] . And so long as it bound him - that is, unless and until it was set aside by a court of competent jurisdiction - he remained obliged to perform it.
Mr de Meyrick submitted, also, that it was significant that the trustee had indicated that he was not prepared to cooperate to ensure that the contract could be completed. That is correct, at least as at 2 and 10 May 2018.
The trustee was in a position to obstruct settlement, because one consequence of the making of the sequestration order was to sever the joint tenancy, convert it to a tenancy in common, and vest Mr Ren's interest as tenant in common in the trustee. I do not think either Mr de Meyrick or Mr Beaumont contended to the contrary; but if authority be needed, it may be found in Re Francis; ex parte Official Trustee in Bankruptcy [6] at 153 - 154.
It could be argued that the matters to which I referred in the preceding paragraph provide an alternative basis for saying that the cl 41.3 warranty was broken at the very moment it was given. Mr Ren's interests in the property had vested in the trustee five days before the contract for sale was made. And the interest so vested in the trustee was an interest as tenant in common, not as joint tenant. Even if the BFA did have the effect for which s 90C of the Family Law Act provides, the best result, from Ms Kong's position, might be that the trustee would hold his equitable interest as joint tenant on trust for her. That possible complication was not addressed in submissions.
Nonetheless, assuming for the moment that for the reasons just indicated, the cl 41.3 warranty was breached at the moment it was given, it does not follow that Mr He was, then or thereafter, entitled to rescind. To read the warranty as having that effect would put it entirely at odds with the carefully drafted scheme for which cl 41, overall, provides. I accept that a breach of the cl 41.3 warranty would give Mr He an entitlement to damages. But damages were not claimed, and no damages were proved in any event. To go further, and hold that the breach of warranty would give rise to a right of rescission, would be inconsistent with the bargain that the parties negotiated.
Neither Counsel put submissions on the statutory efficacy of the BFA; that is to say, neither Counsel invited me to consider for myself the question of whether it should have the effect for which s 90C provides. I do not propose to re-examine the question. I proceed, as it would appear Counsel were content to do, on the basis that Ball J's conclusion was correct [7] .
Mr de Meyrick's submissions did not demonstrate how, on the assumption that Ball J's conclusion as to the BFA were correct, there was an immediate breach of cl 41.3 on its proper construction. His submissions addressed, rather, the practical consequences that would follow from the assumed correctness of his Honour's view. That does not seem to me to go to the point, because those practical consequences are the very matters with which cls 41.5 and 41.6 were intended to deal. To put it another way, the parties, objectively, understood that the circumstances of the sale might have significant practical impediments to completion, and agreed upon a regime that would give Ms Kong an opportunity to overcome those impediments.
The other answer to this aspect of Mr de Meyrick's submissions is that stated at [53] above. The classification of cl 41.3 as an intermediate term, breach of which would entitle Mr He to rescind immediately, ignores its setting in the scheme of cl 41 overall. The parties understood that the circumstances in which the sale was effected were such that there might be difficulties in proceeding to completion. They agreed upon a regime whereby Ms Kong could try to resolve such difficulties as might arise.
It would be inconsistent with that regime - which, among other things, allowed her two months from the contractual completion date (agreed to have been 12 June 2018) to do so - to construe cl 41.3 as giving Mr He an immediate right of rescission within that period if there arose, or was found to exist, some prohibition, restriction or impediment on or obstructing completion. The words used in cl 41.5 (and picked up in cl 41.6) are very wide. There is no reason to restrict them to matters other than defects in title. That is consistent with the general position that a vendor need not have good title at the time of sale, so long as he or she can transfer good title at completion: Bell v Scott [8] at 392.

Submissions

Mr de Meyrick relied on the principle that in some circumstances, a purchaser of land may rescind out of hand (or, as in days gone by it used to be said, brevi manu) if there became apparent a defect in title that could not be cured by the time for completion. The principle is well established. Mr de Meyrick referred to the decision of Finkelstein J in Valoutin Pty Ltd v Furst [9] . There are many other decisions to the same effect.
Mr Beaumont submitted that there were two reasons why this ground of support for the notice of rescission failed. First, he submitted, the right was inconsistent with the structure of cl 41, and thus was not available to Mr He. Secondly, Mr Beaumont submitted, Mr He, although aware of the existence of the right (or of the facts now said to support it), had elected to affirm the contract in any event.
In my view, both those answers are good. I shall explain why.

Decision

I start with the first. The claimed right, to rescind out of hand upon discovery of a defect in title, assumes that the defect cannot be cured before completion. In the present case, I do not think that this could be said to have been the case at the time the notice of rescission was given, 12 June 2018.
But in any event, whether the right exists cannot be considered in the abstract. It must take into account the provisions of the contract. I will not repeat what I have said as to the scheme of cl 41. It is enough to say that the parties must be taken, objectively, to have had in mind that there might be prohibitions, restrictions or impediments preventing completion, and expressly agreed to allow Ms Kong an additional two months from the date fixed for completion to deal with those matters.
It is inconsistent with that scheme to imply a right to rescind out of hand exercisable at the very beginning of that two month period. Mr He was contractually bound to allow Ms Kong that further time. He was contractually bound to accept title if she could deal with the prohibitions, restrictions and impediments. And he was contractually entitled to rescind only if, two months having elapsed, she had not done so.
I have referred already to the proposition, based on the High Court's decision in Bell v Scott, that a vendor need not have good title at the time of sale, as long as good title can be procured and given at the time of completion. That is subject to the rule that where the vendor neither has title nor the power to compel anyone else to give it, the purchaser may rescind as soon as he or she finds that out. That principle is traced to the decision of Sir John Romilly MR in Forrer v Nash [10] . His Lordship said: [w]hen a person sells property which he is neither able to convey himself nor has the power to compel a conveyance of it from any other person, the purchaser, as soon as he finds that to be the case, may say, "I will have nothing to do with it". The purchaser is not bound to wait to see whether the vendor can induce some third person (who has the power) to join in making a good title to the property sold.
There is a qualification to that rule, as Finkelstein J recognised in Valoutin at 149. That qualification is that if the right of rescission arises, it must be exercised, if it is to be exercised, as soon as the defect is discovered. It will be lost if the purchaser thereafter treats the contract as subsisting.
In this case, Mr He was aware of the suggested defects by the time, on 5 June 2018, Link wrote to ROL noting that, by reason of the trustee's assertions, Ms Kong "did not have unfettered and unrestricted power to pass the title to our client". That was said to be "in conflict with the representations made by your client in the Contract": clearly enough, a reference, somewhat ineptly phrased, to the warranty given in cl 41.3. The letter, having made those points, continued: We are instructed that if your client is unable to fulfil her contractual obligations under the exchanged Contract by the Date of Completion, i.e. 10 [sic] June 2018, our client will exercise hir [sic] right to rescind the subject Contract.
As I have noted already, two days after that letter was written, Link wrote to ROL in the following terms: Please see attached Transfer, and Settlement Adjustment Sheet. Further, we also enclose the Requisitions on Title, as our client now questions the Vendor's ownership as claimed under the Contract.
If Mr He wished to exercise his claimed right of rescission out of hand, he should have done so no later than 5 June 2018. He did not do so. Instead, he notified his intention to do so if Ms Kong could not fulfil her contractual obligations by 12 June 2018. That letter, so far from amounting to an exercise of any right of rescission, instead calls upon Ms Kong to make good her title.
Again, the letter of 7 June 2018 could only have been sent on the basis that the contract was still in force. There was otherwise no occasion to deliver a transfer. There was no occasion to set out the adjustments to be made on settlement. And the only basis on which requisitions on title could have been made was that there was a subsisting contract. I accept, as ROL replied, that the requisitions were out of time having regard to cl 5 of the contract, but that is, for present purposes, irrelevant.
The words of Long Innes CJ in Eq in Walker v Public Trustee [11] at 670 are apposite. In the events that happened, Mr He lost his right to repudiate because he "elected to regard the contract as still subsisting, and in effect practically invited [Ms Kong] to remedy the defect".

Submissions

Mr de Meyrick submitted that an email from ROL to Link dated 2 May 2018 amounted to an exercise, by Ms Kong, of the right given by cl 41.8. He submitted, alternatively, that an email dated 8 June 2018, being the email from ROL to Link advising that NAB would not be able to settle on 12 June 2018 (see at [23] above) had this effect.
The first email upon which Mr de Meyrick relied was sent in response to a request from Link, asking for "an update" as to the Circuit Court proceeding. Link's email, dated 2 May 2018, reads as follows: When we last met, we were advised the Vendor would have an update of her court proceeding regarding the family matter by 1 May. Please advise status, thanks.
ROL's reply reads as follows: In reply to your email, we understand that our respective clients have spoken and that your client has been kept up-to-date. However by way of a formal response we advise as follows: 1. Our client's former husband has been declared bankrupt by an Australian Court and Mr Bruce Gleeson (the Trustee) of Jones Partners, Kent St. Sydney, appointed Mr. Ren's Trustee in Bankruptcy; 2. The Trustee is aware of the sale of the Warrawee property to your client and has a copy of the contract; 3. The Trustee has not formally agreed for the sale to your client to proceed, however he has already indicated on a without prejudice basis to our client that: a. Subject to further legal advice the sale should proceed; b. He wishes to obtain a formal valuation of Warrawee but anticipates that the sale price will be within the expected range; c. the formal valuation and legal advice are likely to be to hand within the next 7 days; d. More likely than not if the sale is to proceed the current contract will need to be rescinded and a fresh contract exchanged with essential terms being unchanged except that there will be 2 Vendors, namely our client and the Trustee; e. As to the disbursal of sale proceeds this is a matter between our client and the Trustee and likely to be agreed upon after further settlement discussion with the Trustee within the next 10 days; 4. Our client does not resile from the position that she is beneficially entitled to the whole of the Warrawee property, the Binding Financial Agreement remains fully enforceable and that she is solely able to sell the property to your client. However, provided the Trustee remains commercially minded and agrees to a sale to your client on essentially the same terms, then she also will not interrupt the sale. We shall advise you of further developments as soon as our client hears further from the Trustee.
The email of 8 June 2018 reads as follows: We refer to the above matter. We have been advised that our client's bank will not be ready to settle on Tuesday, 12 June 2018. Our client is making inquiries with the bank to confirm the earliest date the bank will be ready and expects to be in a position to confirm a settlement booking on Tuesday.

Decision

Neither email refers to cl 41.8. Neither suggests that the problems facing Ms Kong were insuperable. On the contrary, the first email set out the steps that Ms Kong proposed to take, or the course that she proposed to follow, to ensure that the sale could proceed. True it is that the first email contemplated that the existing contract might be rescinded and a fresh contract might be required, but there was nothing in that email to indicate that Ms Kong was immutably resolved to abandon the existing contract.
At a level of somewhat greater generality, the first email was a proper professional communication in response to a request for information. I find it very difficult to see how such a communication, giving the information requested, could (let alone should) be interpreted as the exercise of a contractual right that is not referred to, either by reference to the source of the right or its substance, in the email.
I turn to the second email. It notifies Mr He that the settlement booked for 12 June 2018 cannot proceed. It does not suggest that Ms Kong wishes to abandon the contract, or to exercise her right under cl 41.8. On the contrary, it makes it clear that Ms Kong is seeking to appoint a date when settlement can occur. That is completely inconsistent with the construction put upon it.
Again, I have difficulty in understanding how a routine communication, exchanged in the course of a difficult conveyancing transaction, could amount to the exercise of a contractual right that is not referred to in it. Again, the email makes no reference to cl 41.8; nor does it refer to the substance of that right given by that clause. And as I have said, so far from indicating an intention to abandon the contract, it is consistent only with Ms Kong's desire to keep it alive and proceed to settlement.

Submissions

Mr de Meyrick relied upon s 55(1) of the Conveyancing Act 1919 (NSW). In the alternative, he relied on s 55(2A). I set out s 55: 55 Right of purchaser to recover deposit etc (1) In every case where specific performance of a contract would not be enforced against the purchaser by the Court by reason of a defect in the vendor's title, but the purchaser is not entitled to rescind the contract, the purchaser shall nevertheless be entitled to recover his or her deposit and any instalments of purchase money he or she has paid, and to be relieved from all liability under the contract whether at law or in equity, unless the contract discloses such defect and contains a stipulation precluding the purchaser from objecting thereto. (2) If such undisclosed defect is one which is known or ought to have been known to the vendor at the date of the contract the purchaser shall in addition be entitled to recover his or her expenses of investigating the title. (2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. (3) On the application of the purchaser the Court may order payment under this section and declare and enforce a lien in respect thereof on the property the subject of the contract. (4) This section applies only to contracts made after the commencement of this Act and shall have effect notwithstanding any stipulation to the contrary. (5) This section applies to land under the provisions of the Real Property Act 1900.

Decision - s 55(1)

I start with s 55(1). That section only applies "where specific performance of a contract would not be enforced against the purchaser… by reason of a defect in the vendor's title, but the purchaser is not entitled to rescind the contract". For the right given by the subsection to accrue, it must be shown that specific performance would not have been enforced by reason of a defect in Ms Kong's title. That has not been shown. Whether it could be shown would depend on the state of affairs that would have been reached had Ms Kong been given the opportunity that cl 41.5 intended to provide.
That state of affairs is known. As at 4 July 2018, the date fixed for completion by Ms Kong's notice to complete (see at [28] above), Ms Kong was ready, willing and able to complete.
CPPIB and the trustee had agreed to do what they needed to do to enable completion to occur. Each of them had given an undertaking to the Circuit Court in substantially those terms. Each of them turned up at settlement, armed with the necessary documents. Ms Kong was represented at the settlement. So, too, was NAB. Between them, those parties had everything that was required to ensure that Mr He would get the title that Ms Kong had contracted to give him, including in the manner (the transfer from Mr Ren to Ms Kong) that Mr He had contracted to accept.
In the circumstances, there is no basis for thinking that "specific performance of [the contract] would not [have been] enforced against [Mr He]… by reason of a defect in [Ms Kong's] title". There was, at least by 4 July, no such defect.
On my understanding of the evidence, the same could be said of the earlier date fixed for completion, 18 June 2018 (see at [27] above). But it is unnecessary to express a concluded view on that, because the position as at 4 July 2018 is sufficient to ensure that Mr He's claim under s 55(1) must fail.

Decision - s 55(2A)

I turn to s 55(2A). The first alternative, "refuses to grant specific performance", does not arise for the reasons just given. However, Mr Beaumont did not submit that, in the circumstances, the subsection was unavailable. I think it is correct to regard the somewhat unusual constitution of the claim as a "proceeding for the return of a deposit". Certainly no one argued to the contrary.
Although I have referred to this as a claim for relief against forfeiture. I do not wish to suggest that the jurisdiction under s 55(2A) is confined by, among other things, the general law jurisdiction to relieve against penalties and forfeitures. In terms, the statutory discretion is unconfined. However, the observations of Santow JA in Havyn Pty Ltd v Webster [12] at [173] are often cited in this context. His Honour there said: By way of summation, I would conclude as follows: (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.
In Dasreef Developments Pty Ltd v Velkovski [13] , Emmett AJA, sitting at first instance, referred at [40] to the characterisation of a deposit paid pursuant to a contract for the sale of land as being both an earnest of performance and as part payment of the purchase price. Thus, his Honour said at [41] (and I omit his Honour's reference to Havyn): Those considerations must be borne in mind when considering the scope of the discretion conferred by s 55(2A). The fact that the deposit is an earnest to secure performance is part of the context in which the discretion must be exercised. The Court will not lightly be moved to order the return of a deposit paid as an earnest for performance and forfeited in accordance with the express terms of the contract when performance has not occurred. That context is also significant when considering the justice and equity of the case and whether the Court should see fit to order the repayment of a deposit. However, the forfeited deposit should not be characterised as a windfall to the vendor simply because it is forfeited. In considering an application under s 55(2A) it would be relevant for the Court to consider several factors, including the nature of the deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited. The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. However, it must be an unjust and inequitable consequence as between the buyer and seller.
For present purposes, the single most significant feature of this case is that Mr He acted in a way that was both precipitate and inconsistent with the scheme of cl 41 when he purported to rescind. He was bound to allow Ms Kong the opportunity provided by cls 41.5 and 41.6 to give him the title that he had contracted to accept. He ignored that. Instead, as soon as the contractual date for settlement, 12 June 2018, had passed, Mr He, putting it colloquially, jumped the gun.
Further, this is not a case where Ms Kong, as it were, seized the opportunity given by Mr He's purported rescission to snaffle the deposit before Mr He could change his mind. The evidence is to the contrary.
On 13 June 2018, ROL wrote to Link in the following terms: We refer to your letter dated 12 June 2018 and the purported Notice of Rescisson ("the Notice") enclosed with that letter. Your client has no valid basis to rescind the Contract for Sale of Land dated 10 April 2018 ("the Contract") and the Notice is invalid. We note that: 1. You have not set out in the Notice the grounds that your client alleges give him the right to rescind; 2. Even if there was a valid basis for rescission, which there is not, your client is prevented from rescinding as at the date the Notice was issued by inter alia Special Conditions 35 and 41.6 of the Contract; and 3. We are instructed that Mr Ren's Trustee is happy for the sale to complete pursuant to the terms of the Contract. Our client requires your client to complete the Contract. We have booked settlement as follows: [details of the time, date and place appointed for settlement then followed] We will shortly forward revised adjustments and cheque directions.
In short, Ms Kong gave Mr He the opportunity to repent of his hasty decision. But Mr He did not accept that opportunity. Link replied the following day: We refer to your letter yesterday. We attach an email from your office on 8 June advising your client's bank would not be ready to settle by 12 June, and as at 5.12pm of the scheduled Completion date, your client still failed to establish title cleared of any prohibition, restriction or impediment (title search attached) as required under clause 41.6 of the Contract, notice of rescission was issued by our client accordingly. Contracts have now been rescinded under the terms of the Contract, and our client demands immediately [sic] release of the Deposit, or further action will be taken to recover the same.
Even then, Ms Kong did not pounce. ROL wrote to Link on 14 June 2018 in the following terms: We refer to your letter of today's date. Your correspondence is based upon a misinterpretation of the relevant provisions of the Contract. There has been no valid rescission of the Contract by your client and a time and place for completion has been appointed. If your client does not complete in accordance with the terms of the Contract at the appointed time on the appointed date, we anticipate that our client will issue a notice to complete in accordance with special condition 35 of the Contract. If your client then does not comply with the terms of the Notice to Complete we anticipate that our client will terminate the Contract, in which circumstances your client will lose his deposit.
Thereafter, on 15 June 2018, ROL emailed Link attaching an adjusted settlement sheet, giving cheque directions, and confirming the time, date and place of settlement.
Finally, when Mr He missed that opportunity to settle, ROL gave the notice to complete that fixed 4 July 2018 as the date for settlement. Again, Link disputed the efficacy of that. In an email of 20 June 2018, they reiterated that the contract was rescinded. They said that Ms Kong had no right to give a notice to complete. They added that they were instructed to commence proceedings to recover the deposit.
It was not until after Mr He missed the 4 July settlement date that ROL, on behalf of Ms Kong, gave the notice of termination. By that notice, Ms Kong forfeited the deposit and terminated the contract for sale.
That alone seems to me to be sufficient to resolve the s 55(2A) question against Mr He. He proceeded upon what was at best an erroneous construction of the contract (the alternative, that he decided to ignore cl 41.5, is hardly favourable to him). He was given every opportunity to reconsider and repent, and to proceed to completion. He did not do so.
The only excuse offered is that Mr He did not wish to buy into a law suit (and that was put by Mr de Meyrick in submissions, not in any of the correspondence in June and July 2018). But by the time the notice to complete was given, it must have been apparent to Mr He, had any consideration been given to what was then known, that he was not doing so. On the contrary, it must have been apparent to him that Ms Kong had got herself to a position where she could complete, and could give him the title that he had agreed to accept.
In short, the loss of the deposit is all of Mr He's own making.
Added to that, there is the fact that Ms Kong has suffered a substantial loss by reason of Mr He's failure to complete. First of all, the property has been resold, for $500,000 less. That accounts for almost half the deposit.
Further, there was a very substantial sum, almost $8 million, owing to NAB and secured by the mortgage. Ms Kong has suffered further loss by reason of interest accruing over the period of the delay in settlement. The resale was effected by a contract dated 7 August 2018. That contract called for completion on 2 October 2018, three months (give a few days) after the date fixed by the notice to complete. I do not know what was the rate of interest payable on the debt to NAB. But even if it were a very modest 6% (and that is, in context, so low as to be unrealistic), the delay of 3 months would amount to an interest loss of about $120,000.
In addition, although this must be relatively insubstantial in the scheme of things, there would be the costs referable to the resale.
In my view, when one considers all those factors, bearing in mind the character of a deposit as an earnest of performance, the discretion given by s 55(2A) ought not be exercised in favour of Mr He.

Conclusion and orders

I conclude that, as between Mr He and Ms Kong, Ms Kong is entitled to the deposit paid and interest thereon. There ought be a declaration to that effect, and an order that the deposit be paid out to her or as she may direct. In this context, it may be noted that Ms Kong has resolved her dispute with the trustee over entitlement to the deposit. That is recorded by a deed of settlement dated 21 September 2018. Since it has not been suggested that Ms Kong will not abide by the deed, it is unnecessary for me to say anything more about it.
There remains the question of costs. On the view to which I have come, Mr He ought pay Ms Kong's costs. The trustee intervened. He was not made a party. His intervention did nothing to make the resolution of the dispute simpler. There ought be no order as to his costs.
I make the following orders: 1. direct the parties to bring in draft orders to give effect to these reasons. 2. List matter for directions at 10am on 25 October 2018 before me for the making of orders.

Endnotes

At least on the face of the register, as the transfer (see at [13] above) had not been registered.
See Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [47]-[49] (Gleeson CJ, Gummow, Heydon and Crennan JJ).
Written outline dated 24 September 2018, [6].
And in any event, I would infer, in the absence of evidence of the contrary, that Link obtained a title search for Mr He before attending to exchange of contracts.
Senior v Anderson (2011) 250 FLR 444 at [94]-[97] (Strickland J, with whom on this point May and Murphy JJ agreed).
(1988) 19 FCR 149.
And I note that his Honour's reasons are consistent with the decision in Senior. See in particular Strickland J at [43].
(1922) 30 CLR 387.
(1998) 154 ALR 119.
(1865) 35 Beavan 167 at 171; (1865) 55 ER 858 at 860.
(1938) 38 SR (NSW) 662.
(2005) 12 BPR 22,837.
[2017] NSWSC 1698. 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: 18 October 2018

At a glance

Court

Decision date

Before

Source

Judgment (16 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (6)