Gubbay v Burnet

Judgment 1BATHURST CJ: This appeal was heard on 30 May 2012. At the conclusion of argument the Court ordered that the appeal be dismissed with costs and that our reasons would be provided in due course. My reasons for joining in the orders of the Court now follow. 2The appellant, Ms Gubbay, purchased a property in Collaroy Plateau, New South Wales, from the respondents, Mr Burnet and Ms Clancy, at auction on 12 December 2009 for $2,300,000. She signed a contract for the sale of land and provided a deposit cheque in the amount of $230,000 to the agent of the respondents. Four days later the appellant's solicitor advised the respondents' solicitor that the cheque would be dishonoured as the appellant did not have the means to pay it. The appellant's solicitor raised the possibility of a $50,000 replacement deposit being accepted by the respondents in lieu of the $230,000 deposit. The respondents' solicitor sought instructions, and discussions were had in the ensuing days as to alternative arrangements that might be agreed upon. No alternative arrangements were agreed. 3On 23 December 2009 the respondents' solicitor wrote to the appellant's solicitor in the following terms: "We have been instructed that, unless a satisfactory resolution occurs by 5.00 p.m. today, our clients will forthwith terminate the Contract and enforce their rights against your client." On the same day, the appellant's solicitor wrote to the respondents' solicitors advising that "given the time of year" a bank cheque for $50,000 was to be forwarded to the real estate agent of the respondents. The cheque was sent to the agent that day, and was banked pursuant to the agent's obligation under s 86 of the Property, Stock and Business Agents Act 2002. 4On 30 December 2009 the solicitor for the respondents wrote to the solicitor for the appellant in the following terms: "We note that your client's deposit cheque was not honoured on presentation. Your client has not otherwise paid the deposit of $230,000 as required by the Contract. Accordingly we attach a Notice of Termination of Contract. Please note that our clients require the deposit of $230,000.00, less any amount she has paid to date, to be paid to them forthwith." The attached notice of termination included the following: "...you are hereby given notice that the Vendor hereby terminates the Contract and that you have forfeited to the Vendor the part deposit paid of $50,000.00". 5On 29 January 2010, the solicitor for the respondents again wrote to the solicitor for the appellant noting the termination of the contract, the appellant's failure to pay the balance of the deposit and the fact that interest was accumulating. 6On 3 February 2012, the solicitor for the appellant wrote to the solicitor for the respondents advising that the respondents' "purported termination served during the Christmas vacation" was taken by the appellant as repudiation of the contract between the parties, that the appellant gives notice that she terminates the contract, and that the deposit should be immediately returned to her. In a second letter to the respondents' solicitor of the same date the solicitor for the appellant wrote: "The basis upon which your clients' purported notice of termination dated 30 December 2009 constitutes a repudiation of the contract includes, inter alia, the fact that your clients accepted and presented the bank cheque in the sum of $50,000 in payment of the deposit and any accrued rights which your clients may have had at that time were waived consequent upon your clients' election to reaffirm the contract." 7The property the subject of the contract was subsequently sold to other purchasers for $1,950,000. 8In the first instance the respondents sought the shortfall between the sale price of $2,300,000 and $1,950,000, together with interest. The appellant cross-claimed, seeking a declaration that the respondents repudiated the contract, which repudiation the appellant accepted, and a declaration that she was entitled to the return of the $50,000. In the alternative she sought relief against forfeiture of the $50,000 under s 55(2A) of the Conveyancing Act 1900. 9The primary judge rejected the appellant's submission that the failure of the respondents' solicitor to write to the solicitor for the appellant on 23 December 2009 advising him not to send the $50,000 cheque to the respondents' agent, amounted to affirmation of the contract by the respondents (primary judgment at [14]-[15]). 10Her Honour observed that the contract for the sale of land relevantly provided: "2.5If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate. This right to terminate is lost as soon as the deposit is paid in full." And "9.Purchaser's Default If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the Vendor can - 9.1keep or recover the deposit (to a maximum of 10% of the price); 9.2hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1for 12 months after the termination; or 9.2.2If the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3sue the purchaser either - 9.3.1where the vendor has resold the property under a contract made within 12 months after the termination, to recover - the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and service tax payable on anything recovered under this clause); and the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and resale and any attempted resale, or, 9.3.2 to recover damages for breach of contract." 11Her Honour held that the fact the $50,000 remained in the trust account of the agent of the respondents did not amount to an affirmation of the contract because the contract was on foot at the time the cheque was banked by the agent and because it was paid in circumstances in which there was no agreement that it was to replace the $230,000 deposit. The retention of the $50,000 by the respondents amounted to "no more than the payment by the defendant of part of the deposit in the face of an obligation to pay $230,000" (primary judgment at [18]). This did not affect the respondents' entitlement to terminate the contract, which they eventually did by serving notice pursuant to cl 9 of the contract on 30 December 2009. 12Her Honour further found that "no conduct upon which the defendant relies would amount to a promissory estoppel as claimed" (primary judgment at [26]) and that the appellant's claim that the retention and forfeiture of the $50,000 by the respondents amounted to an accord and satisfaction of any accrued right to terminate the contract was not made out. Her Honour also found that there were no circumstances which would give rise to relief against forfeiture. 13The appellant alleged error on the part of the primary judge in relation to three issues: affirmation, promissory estoppel and accord and satisfaction. These formed the basis of her three grounds of appeal. 14In relation to the first issue, affirmation, during oral submissions counsel for the appellant, Mr Sneddon, agreed that in order to show affirmation it was necessary to demonstrate a clear and unequivocal act of election by the respondents affirming the contract in circumstances where they were confronted with two mutually exclusive choices. The appellant submitted that the two mutually exclusive choices in this case were taking the $50,000 offered as a deposit in lieu of the full deposit, or else terminating the contract. The election affirming the contract in this case, she submitted, was the respondents' choice to forfeit the moneys on 30 December 2009. The appellant submitted that the precondition to keeping the $50,000 by way of forfeit was to terminate the contract by giving notice pursuant to cl 9. Having not provided notice to terminate prior to providing notice that the $50,000 would be retained by the respondents, the respondents made a clear and unequivocal election to affirm the contract. Having made this election, the appellant submitted, the respondents had irrevocably extinguished the option of terminating the contract for non-payment of the deposit. The "purported termination" in the same documents as the affirmation (being the letter of 30 December 2009 and the attached notice of termination) therefore constituted repudiation by unlawful termination. 15This is simply not correct. First, at no point did the respondents agree that $50,000 would be accepted in lieu of the $230,000 deposit. Second, retaining $50,000 in circumstances in which notice of termination is given and cl 9 provides that on termination the respondents can keep the deposit, keep any moneys paid as security for anything recoverable and otherwise sue the appellant to recover their losses, is plainly not inconsistent with a right of termination. Third, an election against rescission will only be found where clear and unequivocal words or conduct are present. Relying on the letter accompanying a notice of termination as clear and unequivocal affirmation of a contract is folly. Finally, as was pointed out by counsel for the respondents, the notice of termination and notice of forfeiture were not simultaneous; both the letter and notice of termination refer first to the fact that the respondents give notice of termination, and second to the appellant's forfeit to the respondents of the $50,000 paid. It should also be noted that the affirmation argument was put differently before her Honour the primary judge, and her findings on the alterative bases, not challenged on appeal, admit of no error (see [10] above). 16In relation to the promissory estoppel issue, the appellant relies upon an alleged representation by the respondents' real estate agent to the husband of the appellant on 14 December 2009 that he, the agent, thought the respondents would accept the $50,000 deposit if it could be deposited quickly. Notwithstanding that the evidence of this representation was rejected by the primary judge (primary judgment [26]), taken at its highest this representation was made to a non-party to the contract by the real estate agent of the respondents, prior to the extended discussions and correspondence between the parties' solicitors referred to above. It was "beyond doubt that no agreement was reached by 23 December 2009 that a $50,000 cheque would be accepted in lieu of the $230,000 cheque" (primary judgment [26]). Furthermore, the detriment said to be suffered as a result of the alleged promise, being the loss of $50,000, would be set off against the liability under the contract which would amount to, at the very least, $230,000. No claim on the basis of promissory estoppel can succeed in these circumstances. 17Finally, in relation to the accord and satisfaction issue, the appellant submits that the accord was the agreement of the respondents to accept $50,000 in satisfaction of the ability to terminate the contract. Counsel for the appellant submitted that this agreement could be inferred from two letters written by the appellant's solicitor on 22 and 23 December 2009, in which attention was drawn to her inability to pay more than $50,000 by way of deposit, her desire to obtain finance and complete the purchase, and her intention to forward the $50,000 cheque to the agent of the respondents, combined with the respondents' retention of the cheque on the date of termination. The appellant also relied on the respondents' solicitor's failure to advise on 23 December 2009 that the $50,000 bank cheque was not a "satisfactory resolution" of the outstanding deposit. 18As has been said, at no point did the respondents agree that $50,000 would be accepted in lieu of the $230,000 deposit, either as satisfaction of the deposit or as an accord to keep the contract on foot. To the contrary, in response to the appellant's solicitor's suggestion that the respondents might accept the $50,000 deposit in lieu, discussions were had as to whether a bond for the balance of the deposit, or alternatively for 5 per cent of the purchase price, might be supplied by the appellant. The appellant's solicitor conceded in cross-examination that as at 23 December 2009, no agreement had been reached that the vendors would accept a $50,000 deposit in lieu of the $230,000 deposit. It is not possible to read the respondents' silence over the Christmas holidays followed by a notice of forfeiture that accompanied a notice of termination as an acceptance in place of their entitlement to terminate the contract. 19It was for the foregoing reasons that I joined in the orders referred to in par [1] above. 20BASTEN JA: The appellant failed to pay the full deposit on a house purchased at auction. Bergin CJ in Eq dismissed the appellant's claim for return of part payment of the deposit and gave judgment for the respondents for the shortfall between the purchase price under the contract and the price for which the property was later sold to another party: Burnet and Clancy v Gubbay [2011] NSWSC 977. The reasons given below were unexceptionable. For those reasons, and the reasons now given by the Chief Justice, I supported the orders dismissing the appeal made on 30 May 2012. 21TOBIAS AJA: I have had the advantage of reading in draft the reasons of the Chief Justice for his joining in the orders made by the Court on 30 May 2012. Those reasons accord with my own for joining in the making of those orders.