Day v Cengic [2004] ACTSC 33

Supreme Court of the ACT|2005-05-02

1. This is an application for summary judgment for debt and possession of a house at Yarralumla. The plaintiff is the registered proprietor as Crown Lessee, subject to a bank mortgage. On 29 April 2004, she sold the house at auction through an agent to the defendant for $1,400,000. Contracts were signed and exchanged on the day of the auction. The contract provided that the deposit was to be $140,000 (ten percent of the purchase price), but a special condition provided that the seller would accept $70,000 as part payment of the deposit. The buyer agreed to pay the balance of the deposit on or before completion or, if the buyer was in default, upon termination. The special condition further provided that if the buyer defaulted, the balance of the deposit became a debt due and payable to the seller.

2. The contract was in the standard form published by the Law Society of the ACT, and provided that completion was to be effected on the agreed date for completion or as otherwise determined by the contract, and if not so specified or determined, within a reasonable time. The contract specified as the date for completion "on or before 30 November 2004".

4. On 14 January 2005 the plaintiff served on the defendant a notice to complete pursuant to the provisions of the original contract. The validity of the notice is not challenged. The notice required completion on 31 January 2005. Its effect was to make time of the essence in that regard.

5. On 23 November 2004 the defendant paid stamp duty on the contract in the amount of $76,250.

6. The defendant contacted the plaintiff's solicitors, and apparently also the plaintiff's husband, on about 25 January. She apologised for the delay and explained that she was unable to settle on 31 January but hoped to be able to settle on 4 February "give or take a couple of days either way". This delay was due, she said, to business circumstances beyond her control, her bank's requirement of three days' notice prior to settlement and unexpected personal family issues. The plaintiff's solicitors informed the defendant that they were instructed not to allow further time. The defendant, who had been acting for herself in the conveyance, did not attend at the office of the plaintiff's solicitors at the time appointed in the notice to complete for settlement. The defendant on about that date instructed her present solicitors. They informed the plaintiff's solicitors that she would be able to settle on 22 February 2005.

7. On 8 February 2005, the solicitors for the plaintiff wrote to the defendant's solicitors in a letter endorsed "without prejudice save as to costs" which I shall set out in full because there is an issue between the parties as to its effect:

Thank you for your facsimile dated 4 February 2005.

For the purposes of clarifying the issues so we may seek instructions, we understand that:

1. your client continues to be unable or unwilling to settle this matter;

2. your client requests that our client delay exercising the rights available to her under clause 18 of the Contract for Sale dated 29 April 2004, until 22 February 2005.

As our client has rights that flow from your client's failure to perform which our client wishes to preserve, our client requires certain acknowledgements in writing from your client namely:

1. an acknowledgment of the validity of the notice to complete served 14 January 2005;

2. an acknowledgement that interest on $1,400,000 continues to accrue in accordance with clause 21.1.2 of the Contract for Sale and clause 3 of the licence agreement dated 30 November 2004 and is a debt due and payable by your client as buyer to our client upon the earlier of the date of termination or completion of the contract for sale;

3. an acknowledgement that your client continues in occupation of the Property from 30 January 2005 at a daily licence fee of $333.33 per day pursuant to the Licence Agreement dated 30 November 2004 until the earlier of the date of termination or completion of the Contract for Sale;

4. an acknowledgement that, in addition to the sum mentioned at 21.1.3 of the Contract for Sale, your client agrees to pay our client's legal costs on a solicitor/client basis on and from 10 January 2005 up to and including the earlier of the date of termination or completion of the Contract for Sale.

Please provide us with these acknowledgements by your client in writing by lunchtime tomorrow to enable us to obtain our client's further instructions.

We advise that nothing contained in this letter is intended to alter or prejudice our client's legal position under the Contract for Sale dated 29 April 2004, the Licence Agreement dated 30 November 2004 or the Notice to Complete served on 14 January 2005.

8. The solicitors for the defendant replied in a letter dated 10 February and faxed on the same day, and expressed to be without prejudice:

We refer to your letter of 8 February 2005 and confirm the understandings outlined in your first paragraph, namely that our client is unable to settle the matter before 22 February 2005 and requests that your client delay exercising rights available to her.

Our client accepts and acknowledges the matters further outlined in your letter namely:

1. That she does not propose to challenge the validity of the Notice to Complete served 14 January 2005;

2. That interest continues to accrue in accordance with Clause 21.1.2 of the Contract for Sale and Clause 3 of the license agreement and is a debt due and payable upon the earlier of termination or completion;

3. Our client accepts the ongoing obligations of the license agreement dated 30 November 2004, including the daily license fee;

4. Our client agrees to pay the seller's reasonable costs on a solicitor-client basis on and from 10 January 2005, up to and including the earlier of termination or completion.

Finally, would you be so kind as to provide us with settlement figures good for 22 February 2005.

9. On 22 February 2005, Canberra Law Stationers attended at the appointed time and place on behalf of the plaintiff ready to settle. They were informed by agents representing the defendant that she was not in a position to complete. The plaintiff then instructed her solicitors to commence the present proceedings.

10. The action was commenced on 24 February 2005 by originating application, describing the nature of the action as enforcement of a contract made on 29 April 2004 and, in the alternative, recovery of a debt due under the contract, recovery of possession of land unlawfully occupied since 30 January 2005 and recovery of mesne profits in respect of the unlawful occupation. The relief claimed was described as specific performance of a contract for the sale of land made on 29 April 2004 and liquidated damages for delay in its completion, or, in the alternative, recovery of the deposit payable under the contract and recovery of possession of land being Block 4 Section 32 Yarralumla together with mesne profits. A statement of claim was attached to the originating application, which stated that summary judgment was to be applied for. The statement of claim pleads service of the notice to complete, the plaintiff's willingness and capacity to complete at all material times, and the defendant's failure to comply with the notice. The statement of claim also pleads the licence agreement, and asserts that the occupation period under that agreement has expired and that the defendant remains in occupation as a trespasser.

11. The prayer for relief in the statement of claim is as follows:

The plaintiff claims:

1. An order that the defendant specifically performs the agreement.

2. Liquidated damages calculated at the rate of $383.56 per day from 1 December 2004 to the date of completion.

3. Costs

and in the alternative, the plaintiff claims:

1. An order that the defendant pay to the plaintiff the balance of the deposit being the sum of $70,000.

2. An order that the plaintiff recover possession of the premises.

3. An order that the defendant pay to the plaintiff a sum calculated at the rate of $333.33 per day from 30 January 2005 to the date of recovery of the premises as mesne profits.

4. Costs.

12. An appearance was entered on behalf of the defendant on 3 March 2005, and the present application is made by notice of motion filed on 16 March. The notice of motion seeks leave to enter judgment in the following terms:

a. the defendant pay to the plaintiff the sum of $70,000;

b. the plaintiff do recover possession of the premises being Block 4 Section 32 Yarralumla and known as 126 Schlich Street, Yarralumla in the Territory; and

c. the defendant pay to the plaintiff mesne profits to be assessed.

The notice of motion also seeks the costs of the application and of the action.

13. On 3 March 2005, the defendant's solicitors wrote to the plaintiff's solicitors. They said that at that stage the defendant was $200,000 short of the balance required for settlement. They were hopeful of resolving the issue within days, but requested that the solicitor seek instructions as to whether the plaintiff was prepared to provide vendor finance for the gap of $200,000. They provided a valuation of a property owned by a company in which the defendant and her counsel are shareholders, and which on its face would suggest that the defendant's interest in the property, through the company, would vastly exceed the shortfall.

14. On 7 March, the solicitors for the plaintiff acknowledged the letter and said that they had sent a copy to their client seeking instructions. Meanwhile, they asked whether the defendant would consent to judgment for specific performance and liquidated damages and costs, that is to say, the first alternative relief sought in the statement of claim. They said that if the defendant would not do so, their client would have no alternative but to terminate the original contract and to pursue the alternative relief claimed.

15. On the following day, 8 March, the plaintiff's solicitors served a notice terminating the contract.

16. Termination is dealt with in clause 18 of the original contract, a clause which forms part of the standard contract published by the Law Society and which the parties did not alter. The clause provides, relevantly for present purposes, that if the buyer does not comply with a notice to complete, the seller may by notice in writing served on the buyer terminate the contract and may then keep or recover and keep the deposit and either sue the buyer for breach of contract, or resell the property and recover from the buyer as liquidated damages any deficiency on resale and all expenses of and incidental to the resale or attempted resale. The contract also contains provisions for termination by a buyer where there is default by a seller, but does not provide for automatic termination, for example where a buyer fails to comply with a notice to complete.

17. On 24 March 2005 the defendant swore an affidavit in which she said, amongst other things, that after entering into occupation, by agreement with the plaintiff's husband, she caused the house to be repainted internally and arranged for minor maintenance works on the swimming pool and parts of the house. She also said that her father died on 23 December 2004, causing her to be unable for several weeks to focus on her problem with the conveyance. She said that she had instituted steps, at the end of January, to market and sell as quickly as possible real estate in the land development owned by the company previously mentioned, in which she is a one-third shareholder. The property has been valued at more than $14,000,000 and is subject to a secured debt of $3,900,000. However, the market has slowed and no contract had been exchanged at the date of the affidavit. She also said that she had made application to another bank for a loan, which she hoped would be processed within ten working days. The defendant's position is that she wishes to proceed with the purchase. She has been unable to settle but says that she has at no time been unwilling to do so. I was informed by her counsel during argument that a buyer in the defendant's position was not entitled to a refund of stamp duty following termination. Clearly the defendant stands to lose a substantial amount if her purchase cannot be salvaged.

18. At the same time, it should be said that there is no evidence as to whether the market for houses in Yarralumla has altered since April 2004. If it has fallen, then the plaintiff would be likely to suffer a deficiency on resale, though if the valuation of the land owned by the company in which the defendant has an interest is not over-optimistic, the plaintiff no doubt has good prospects of practical recovery from the defendant. I do not put these considerations as necessarily relevant to the present application, but rather to make the point that it may be in the best interests of both parties to resurrect the original sale and take it to completion if this is able to be achieved in the short term.

19. Counsel for the defendant submits that the fact that she has spent money on improving the property gives her an arguable equitable setoff against the plaintiff's claim. He concedes that his client would not have a cause of action capable of standing alone, and that her rights are limited to being used by way of defence to the plaintiff's claim; but he submits that if summary judgment were entered, she would lose the opportunity to claim the setoff entirely, and that in those circumstances, the Court should exercise its discretion not to order summary judgment. The evidence does not permit me to arrive at any conclusion as to the amount spent by the defendant on the improvements, or on the amount, if any, by which they have increased the value of the property.

20. The Rules allow the plaintiff to apply summarily for judgment where the defendant enters an appearance and there is evidence that the defendant has no defence. The Court must be satisfied, on the basis of affidavit evidence, that there is no triable issue. It is a remedy given sparingly, consistently with the High Court's pronouncement in Fancourt v Mercantile Credits Limited [1983] HCA 25; (1983) 154 CLR 87 at 99 that it should be given with great care and only where it is clear that there is no question to be tried. If it appears to the Court that there is an issue of fact or law the proceeding must proceed to trial. In Edward Ward and Co v McDougall [1972] VicRp 49; [1972] VR 433, Gowans J dismissed an appeal from a Master who had refused an application for summary judgment on the ground that there was a real question of law to be investigated as to whether a claim which the defendant wished to bring could be the subject of an equitable setoff. His Honour referred to a number of cases where a similar issue had arisen, and concluded that there was no authority binding upon him which required him to say that a cross-claim for unliquidated damages could never be the subject of an equitable setoff against a common law claim for a liquidated amount. He had great difficulty in reaching a positive conclusion that the case before him was of a kind that would permit it, and if so, to what extent. His Honour said that if he were finally determining the action, this is a problem which he would have to resolve, but as he was dealing only with the question as to whether the plaintiff should have summary judgment or the defendant should be able to defend, it was not necessary for him to do so. His Honour was satisfied that there was a real case in law to be investigated.

21. Counsel for the defendant also relied on Z S Projects Pty Ltd v G & R Investments Pty Ltd (1987) 9 NSWLR 686, where Needham J was dealing with an application for summary judgment in an action seeking injunctions, inquiries as to damages and an account of profits for an infringement of copyright in architectural plans by a builder. His Honour was satisfied that the Commonwealth Copyright Act 1968 afforded an arguable defence to part of the relief claimed, and held that in those circumstances summary judgment should not be granted where, although there might be no defence to the action itself, there was a defence to part of the relief claimed.

22. In Phillips v Mineral Resources Developments Pty Ltd (1983) 2 Qd R 138, the Full Court (Kelly, Connolly and Macrossan JJ) allowed an appeal from the Master ordering summary judgment and gave the defendant leave to defend in circumstances where the defendant had an arguable case for an equitable setoff. It had been inappropriate for the Master to seek to determine whether the matters raised, if established, would entitle the defendant to a setoff: it was sufficient that there was a real case to be investigated as to whether the amounts in question could be set off against the plaintiff's claim.

23. Their Honours did not refer to an earlier decision of a single judge of the Supreme Court of Victoria, Tadgell J, in Eagle Star Nominees Limited v Merril [1982] VicRp 57; [1982] VR 557. His Honour had before him an appeal from a Master who had refused an application for summary judgment and granted leave to defend. The action was by a vendor for recovery of possession. The defendant after exchange of contracts had gone into occupation, but had subsequently defaulted. Prima facie the plaintiff was entitled to succeed but the defendant claimed an arguable defence by way of equitable setoff. The defendant asserted a representation by the plaintiff's agent that an existing insurance policy over the house and contents would be assigned to him; after he took possession the house was burgled and some of his belongings were stolen. The insurer refused the claim, presumably because the stolen goods were not the property of its insured, the vendor. Tadgell J was satisfied that, assuming the facts to be true, a potential claim by the defendant for damages for breach of the representation could not be raised as a defence of equitable setoff to an action for recovery of possession. The plaintiff was clearly entitled to possession; judgment for possession would not preclude the defendant bringing a subsequent claim for damages for breach of the representation.

24. It is not entirely clear that his Honour was correct as to the latter point: three weeks before the decision, the High Court had given judgment in Port of Melbourne Authority v Anshun Pty Limited [1981] HCA 45; (1981) 147 CLR 589. The principle laid down in that decision may well have prevented a litigant in the position of the defendant in Eagle Star Nominees bringing an action for damages for breach of representation after judgment in the action for possession.

25. Mr Arthur of counsel for the plaintiff submits that in the present action, the defendant's unquantified claim to be recompensed for expenditure on the house cannot possibly be raised as a reason disentitling the plaintiff to recover possession. He submits that there is nothing involved in the painting of the house, even if with the agreement of the plaintiff, that could make it unconscionable for the plaintiff to demand possession of the house. It could not be suggested, for example, that the painting of the house was some kind of assertion of ownership in which the plaintiff had acquiesced. It was not suggested that the defendant was led to think that she would be given credit for her expenditure on the house if she did not complete, and there had never been any question as to her obligation to pay the balance of the deposit in the event of termination of the contract.

26. With the exception of Phillips v Mineral Resources Developments Pty Ltd, the decisions cited are all of single judges of State supreme courts. Faced with different conclusions reached on factual situations having some similarity with the present case, I find myself unable to reach the requisite state of satisfaction that the defendant would be bound to fail should she seek to raise a defence of equitable setoff.

27. I expressed some concern in argument about the fact that when proceedings were commenced, the contract had not been terminated. The plaintiff had sought to leave her options open, on the one hand seeking specific performance and on the other seeking to recover the balance of the deposit and possession of the premises. By the time the application for summary judgment was made, the plaintiff had given notice of termination, and counsel for the defendant did not suggest that the notice was defective or that any challenge could successfully be mounted to the termination. Nevertheless it appeared to me that the plaintiff had commenced proceedings seeking, in the alternative, relief to which she was not entitled at the time the proceedings were commenced; and that she now seeks summary judgment for that relief.

28. Counsel for the plaintiff submitted that this is a course properly open to a vendor. He relied upon a decision of the High Court, Ogle v Comboyuro Investments Pty Limited [1976] HCA 21; (1976) 136 CLR 444, as authority for the proposition that there is no inconsistency in claiming remedies of specific performance and damages in the alternative. The facts, however, were somewhat different in Ogle: shortly before the date for completion, the purchaser intimated that he would not complete by that date. The vendor sued for specific performance. In the course of resisting an application for summary judgment, counsel for the purchaser submitted that the purchaser was not bound to complete the contract, and the purchaser ignored a subsequent request by the vendor to undertake to complete by a reasonable date to be nominated by the purchaser. The vendor treated this conduct as repudiation, rescinded the contract and commenced fresh proceedings against the purchaser for damages, though without discontinuing the suit for specific performance; it was discontinued prior to the hearing of the action for damages. Barwick CJ acknowledged that prior to the judicature system, the second action would have been flawed by reason of the rule that no case at law antithetic to the basis of a suit in Chancery could be permitted. This rule, said the Chief Justice, had no application post-judicature and it was open to a plaintiff to sue concurrently for specific performance and, in the alternative, for damages at common law, ultimately choosing between the remedies. The decision does not, however, deal with the issue which has arisen here, where the plaintiff has commenced proceedings seeking damages, not at common law but by virtue of a contractual term the operation of which had not yet been triggered.

29. Ogle may also be distinguished as a case where it was accepted by all of the justices constituting the High Court that the purchaser regarded himself as no longer bound by the contract. The defendant in the present proceedings has always accepted that she was bound by the contract, and made it clear that she wanted to complete the contract as soon as she could.

30. Counsel for the plaintiff also relied upon a decision of the House of Lords, Johnson v Agnew [1980] AC 367, in which Lord Wilberforce stated as an uncontroversial proposition of law that where time was of the essence and the purchaser failed to complete, the vendor could either treat the purchaser as having repudiated the contract, accept the repudiation and proceed to claim damages for breach of contract; or seek specific performance and damages for any loss arising from delay in performance. Secondly, his Lordship said, the vendor might proceed by action for both remedies, specific performance and damages, in the alternative, electing which remedy to pursue at trial. It is clear, however, that his Lordship was referring to damages for breach of contract at common law, rather than to a claim for payment of a sum of money arising under a specific clause in the contract for sale.

31. There are thus two reasons for my lack of satisfaction that the plaintiff should have summary judgment for recovery of the balance of the deposit of $70,000. The first is that this is not something to which she was entitled when proceedings were commenced on 24 February. The defendant on that date would have had a good defence to that part of the claim, namely that the plaintiff was not entitled to it because the contract had been neither completed nor terminated.

32. The second reason is that the defendant has deposed to facts, unchallenged by the plaintiff, arguably capable of giving rise to an equitable setoff which would be lost to her if summary judgment were ordered.

33. The plaintiff also seeks summary judgment for possession of the property. For this relief, the plaintiff relies on paragraphs 11, 12 and 13 of the statement of claim, in which she pleads the licence agreement, the defendant's entry into occupation and the expiry of the occupation period. However, counsel for the plaintiff did not argue that summary judgment should be ordered for possession if the application was otherwise unsuccessful, and such an outcome would be inconsistent with the approach adopted by Needham J in Z S Projects Pty Limited cited above. It seems to me that the Court should exercise its discretion against entering summary judgment in terms of one of the orders sought, where there is an arguable defence to the principal relief sought.

34. For those reasons the application will be dismissed. I shall hear the parties in relation to costs.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

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Judgment (40 paragraphs)

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Cases Cited (5)