57 Clarke JA was of the same view. His Honour observed (at 45) that the "rule" that if the deposit is forfeited it must be set off against any damages, applied both to a deficiency on resale of the property, and to all general damages allowed pursuant to the principles in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145). If that were not so, the vendor would be overcompensated.
58 Cole JA dissented. His Honour held (at 75) that because a deposit is part payment of the purchase price, credit must be given for a forfeited deposit against a deficiency on resale (including expenses). Otherwise, his Honour said, the forfeited deposit need not be set off against a claim for general damages.
59 The claim in Carpenter v McGrath was for general damages. It was not disputed in this case that if the vendor had elected to claim general damages pursuant to clause 9.3.2, she would have been required to give credit for the amount of the forfeited deposit. However, she claims liquidated damages pursuant to clause 9.3.1. Carpenter v McGrath was not concerned with the claim for liquidated damages under the then condition 9(b). In any event, the clause was then in materially different terms from the present, as it made no express provision as to how the forfeited deposit should be credited.
60 I was told that there was no decision on the question of whether the forfeited deposit should be credited against costs and expenses recoverable under the second limb of 9.3.1. However, in Consolidated Credit Network Pty Limited v Illawarra Retirement Trust Limited (No. 2) [2005] NSWSC 1007, Campbell J (as his Honour then was) said (at [78]):
"78 The first defendant's cross-claim seeks damages under Clause 9.3.1 of the contract. The vendor has established that it has suffered loss in consequence of the purchaser's non-compliance with the contract, in the form of paying rates on the property for longer than it would have paid them if the contract had been performed, and paying legal expenses in connection with the termination of the contract, and the entering into of the new contracts with the new purchasers of the land. It will not be known, however, whether the payment of those amounts results in the vendor sustaining a net loss in consequence of the purchaser's breach, until it is known whether the contracts entered with the new purchasers will settle in accordance with their terms. If the new contracts settle in accordance with their terms, the likelihood is that, given that the new contracts are for the same purchase price as the contract with the plaintiff, the vendor will not, taking into account the amount of the deposit bonds which it is entitled to receive in consequence of the termination being held good, and its right to recover the other 5% of the deposit as damages for the purchaser's breach, suffer any net loss. It is for that reason that I have stood the proceedings over, to a date by which it should be known whether the new contracts have settled in accordance with their terms, for the purpose of deciding whether anything further needs to be done about the quantification of the vendor's claim for damages."
61 Whilst his Honour proceeded on the basis that a vendor claiming damages under clause 9.3.1 must show that he or she has suffered loss after taking into account the forfeited deposit, it does not appear that this issue was raised before his Honour. Hence, his Honour did not deal with the implications arising from the fact that clause 9.3.1 is a liquidated damages clause, nor with the implications arising from the fact that the clause provides for the deposit to be credited only against the deficiency on resale recoverable under the first limb.
62 In construing clause 9, it is essential to appreciate that 9.3 confers an election on the vendor who has terminated the contract either to claim unliquidated damages at common law for breach of contract, (cl 9.3.2), or liquidated damages in accordance with 9.3.1. The measure may be different (Eighth SRJ Pty Limited v Merity (1997) 7 BPR 15,189). That difference may well be substantial if the vendor is entitled to damages under the second limb of Hadley v Baxendale. However, whether the difference in calculation of damages at common law and liquidated damages under 9.3.1 is substantial or not, one cannot simply translate the principle that a forfeited deposit is set off against common law damages to clause 9.3.1. It may be that not crediting a forfeited deposit against liquidated damages under 9.3.1 gives rise to other rights (for example, relief against forfeiture), but that is not relevant to the construction of the clause.
63 Clause 9.3.1 expressly provides for the deposit to be credited only towards the deficiency on resale, and not against costs and expenses recoverable under the second limb of the clause. I do not think that if the credit for the forfeited deposit exceeds the deficiency on resale that the balance in favour of the purchaser can be carried forward in assessing the reasonable costs and expenses recoverable under the second limb. The clause could easily have provided for the forfeited deposit to be credited against both heads of recovery but did not do so.
64 The question then is what amount should be taken into account in assessing the deficiency on resale against which the deposit is to be credited. Consistent with the authorities I have referred to, and in ordinary parlance, the deficiency on resale would be the difference between the price of the first contract (less the vendor's cost of sale on the first contract), and the price of the second contract (less the vendor's cost of resale under the second contract). However, I think that construction of the expression "deficiency on resale" cannot be adopted having regard to the terms of the second limb of clause 9.3.1, at least so far as expenses of resale are concerned. The inclusion of reasonable costs and expenses of resale in the second limb of the clause as a recoverable head of damage precludes such costs and expenses being included in a calculation of the deficiency on resale. Such a construction is much clearer on the present contract than in Cratchley v Bloom where the Court of Appeal was divided on the question.
65 I do not consider that on a proper construction of clause 9.3.1 the forfeited deposit should be set off against costs and expenses recoverable under the second limb of the clause. The deficiency on resale was said to be $19,000, being the difference between $320,000 and $301,000. I doubt that that is so, as this ignores the expenses of sale which would have been incurred had the first sale been completed. However, it is unnecessary to decide this question as, on any view, the forfeited deposit exceeds the deficiency on resale.
66 As the vendor had vacated the property prior to the date for settlement under the first contract, each of the items under paragraphs (a)-(g) referred to previously in these reasons is recoverable as either a cost or expense arising out of the purchaser's non-compliance with the contract, or a cost or expense of resale.
67 The last item claimed whilst described as "additional borrowings under mortgage from Mrs Dunstan" was for interest on an additional loan taken by the vendor on the security of Mrs Dunstan's house for $25,000. This loan was used to purchase the property. The interest on this loan was 7.67 per cent. The interest has been claimed from 26 September 2005 to date, in an amount of $2,474.05. However, the gross deficiency on sale was $19,000. The vendor has not had to pay agent's commission on the first sale. Had that sale been completed, she would have had to pay agent's commission of $7,040. The additional funds available to reduce the loan would have been $11,960. The vendor is only entitled to interest on that sum, on the basis that she was unable to use the funds due to her from the purchaser to reduce that borrowing.
68 Interest at 7.67 per cent from 26 September 2005 to today on that sum totals $1,357.14. The vendor will be over-compensated in relation to this item as she is entitled to the interest earned on the deposit. However, that is the consequence of not crediting the forfeited deposit against items recoverable under the second limb of clause 9.3.1. Save for amending the last item to $1,357.14, the vendor is entitled to the damages claimed under clause 9.3.1. Those damages total $17,106.74. She is entitled to interest at the prescribed rates on all but the last item.
69 The question then is whether the purchaser should be entitled to relief against forfeiture of the deposit to the extent the deposit cannot be credited against the liquidated damages payable under clause 9.3.1. In Clarke v Dilberovic & Anor (1982) NSW ConvR 55-083, Rath J ordered the return of part of a deposit pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW)). Whilst s 55(2A) does not in terms authorise this result, the same outcome may be achieved by ordering the return of the whole of the deposit on terms that the purchaser undertakes to recompense the vendor for its damages and to have those set off against the deposit (Poort v Development Underwriting (Vic) Pty Limited (No. 2) (1976) VR 779; Bernard v Weingarth (1997) 8 BPR 15,651 at 15,656; Lucantonio v Ciofuli (2003) 11 BPR 21,181 at 21,183). However, this is the exception rather than the rule, (Mulkearns & Anor v Chandos Developments Pty Limited (No.4) (2005) 12 BPR 22,993 at 23,006).
70 No claim for relief against forfeiture was made in the pleadings. After I raised the question, the purchaser sought leave to amend. That leave was opposed. The vendor gave evidence to the effect that had the sale been completed in September 2005, she would have been in a position to go into the market to buy a new property at that time. Because she received only $301,000, less the agent's commission, on the resale, and because the deposit has been tied up while these proceedings are pending, she has been unable to do so. She says that during this period the property market in the eastern suburbs has risen so that she is now substantially worse off than she would have been had the purchaser not defaulted.
71 It was submitted for the purchaser that such a claim for damages was always open to the vendor. That is true, but I do not think it meets the objection to the amendment.
72 The vendor did claim in her pleadings either liquidated damages or unliquidated damages in the alternative. Ultimately, and wisely, she elected to pursue her claim for liquidated damages. I say wisely because there was no expert evidence as to the movements in the property market, and I doubt that the vendor's evidence, standing on its own, would have justified a finding as to the extent, if any, of a claim for such damages, even assuming that such a claim could be supported under the second limb of the rule in Hadley v Baxendale. Moreover, there was no evidence as to what the vendor's financial position would have been in the last quarter of 2005 to show that she could have purchased a new property had the sale been completed. However, it is quite possible that had a claim for relief against forfeiture been pleaded at the outset, the vendor may have pursued a claim for general damages and adduced evidence to support such a claim. It is possible that such damages may have been higher than the liquidated damages to which she is entitled. Instead, the vendor's case was prepared on the basis, which I have held to be a correct basis, that she is not obliged to credit the forfeited deposit against recoverable costs and expense under the second limb of clause 9.3.1. In the circumstances, there is sufficient evidence of prejudice to the vendor if the amendment were allowed to justify its refusal.
73 I refuse leave to the plaintiff/cross-defendant to amend the defence to cross-claim in the manner sought on the second day of the hearing.
74 I direct counsel to bring in short minutes of order in accordance with these reasons. It will be necessary for a recalculation of interest to be made pursuant to s 100 of the Civil Procedure Act 2005 (NSW). The short minutes of order should provide for the plaintiff's summons and statement of claim to be dismissed. They should include a declaration that the contract was terminated by the defendant and an order that the deposit, together with interest accrued on it, be returned to the defendant. The short minutes should provide for damages in the amount I have referred to, and incorporate pre-judgment interest. I will also order that the plaintiff pay the defendant's costs of the proceedings including the costs of the cross-claim.