Kylsilver Pty Ltd v One Australia Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2274/00 KYLSILVER PTY LTD v ONE AUSTRALIA PTY LIMITED & ORS

1 HIS HONOUR: These proceedings arise out of six separate contracts for sale of land in Glenwood Park Drive Glenwood being lots 101, 102, 107 - 109, 111 and 112. They are vacant suburban residential allotments. They were sold by the plaintiff to the first defendant by separate contracts of sale exchanged on 23 February 1998 ("the Glenwood contracts"). The plaintiff is a land developer and subdivider. The first defendant conducts a business of organising first home buyers into homes by purchasing and reselling land to them and assisting them to organise finance and the services of a builder. Its customers are generally people who have been described in the evidence as "deposit challenged", meaning that, although they have the income to support the borrowing for a home purchase, they do not have savings and therefore do not have the wherewithal to pay the deposit on a purchase. The second defendant is the controller of the first defendant. He and his wife, who is the third defendant, guaranteed the first defendant's performance of the Glenwood contracts.

2 The purchase prices under the Glenwood contracts ranged between $130,500 and $134,950. A deposit of $1,000 was paid under each of the Glenwood contracts. Each contract contained the following special conditions: "16. In the event that the deposit paid by the Purchaser upon the exchange of this Contract is an amount which is less than ten percent (10%) of the purchase price, the Purchaser shall pay such further sum increasing the deposit to the amount which is ten percent (10%) of the purchase price upon completion or termination of this Contract. If this Contract is terminated, and the Purchaser fails to pay such further sum to the Vendor, the Vendor shall be entitled to recover it from the Purchaser as liquidated damages, in addition to any other moneys due and payable to the Vendor pursuant to any other provisions of this Contract. 17. Provided that the Purchser [sic] complies with all terms and conditions of this contract, the Vendor shall allow a rebate of the purchase price at settlement of Ten Thousand Dollars ($10,000.00). 18. Completion of this matter will take place on but not before 3rd July, 1998 or within three (3) calendar months of written notification by the Vendor's Solicitors to the purchaser's solicitors of registration of the plan of subdivision, whichever is the later." Each of the Glenwood contracts also contained a provision (clause 10) for the payment of 18 per cent interest if the contract was not completed on time and (clause 11) for the giving of a 14 day notice to complete if the contract was not completed by the completion date.

3 There had previously been exchanged between the plaintiff and the first defendant individual contracts for the purchase by the first defendant from the plaintiff of ten similar lots at Rouse Hill ("the Rouse Hill contracts"). Those contracts were exchanged as to seven lots in November/December 1997 and as to the balance of three lots on 29 and 30 January 1998. None of the Rouse Hill contracts is in evidence, but the evidence is that those contracts contained clauses to the same effect as special conditions 16, 17 and 18 set out above, save that clause 18 did not contain the words "on but not before 3rd July, 1998". It is also common ground that those contracts contained similar provisions relating to interest and the giving of notice to complete. There is no dispute that in the case of both the Glenwood contracts and the Rouse Hill contracts the contract price under each contract had been inflated by $10,000 over the plaintiff's asking price and that this had been done at the request of the first defendant.

4 There is one conversation that both sides agree is of importance. There is no dispute that it was the only occasion on which the second defendant, Mr Sayer, and Mr Kemister, the principal of the plaintiff, met face to face. There is no dispute that Mr Singleton, an operative of the first defendant, was also present. There is no dispute that the meeting took place in the general vicinity of the Glenwood land and that the plaintiff arrived in a black Mercedes Benz whose air-conditioning was not working. There is disagreement in the evidence as to when the meeting occurred and also as to the terms of the conversation. Mr Sayer's affidavit evidence was that the conversation took place about 5 February 1998 and that he said words to the effect: "You know our position. My customers are deposit challenged. We show them how to save. We put them on a compulsory savings plan. We need three months to settle after the registration of the subdivision and we also want $10,000 added to the sale price which I want you to give back to me on settlement and we will on forward the rebate to the client. I want a clause in each of the contracts giving me a rebate of $10,000 on settlement. It shouldn't matter to you as you are getting the price you want and it helps me to arrange the finance I need for my buyers." Mr Sayer says that Mr Kemister demanded settlement within 14 days of registration of the plan of subdivision, but Mr Sayer insisted on the three months he had asked for. Mr Kemister after hesitation said, "The deal's done." Mr Kemister denied substantial portions of the conversation. He insisted that the conversation took place on St Patrick's Day, 17 March, after the Glenwood contracts were entered into. He says that the subject matter of the conversation was not the land the subject of the Glenwood contracts but further nearby lots which were the subject of discussion with a view to entering into further contracts, which did not in fact eventuate. He relied in his timing on an entry in his diary for that day "11. Meeting. Mills. 1 Australia". Mills was the vendor to the plaintiff of the Glenwood land. During the trial Mr Singleton checked his diary which he had not previously done. An entry in his diary showed that he was playing golf all day on St Patrick's Day. It showed an entry late in January 1998 which he believed referred to the Glenwood meeting.

5 Settlement in respect of seven out of the ten Rouse Hill contracts took place on 27 April 1998 after the completion date fixed by the contracts and after notice to complete had been given. A further Rouse Hill contract was completed on 13 May 1998 in similar circumstances. In respect of each of these eight contracts the rebate of $10,000 on the purchase price was allowed on settlement. The other two Rouse Hill contracts were terminated by the plaintiff on 22 May 1998 by reason of noncompliance with notices to complete. In respect of one the plaintiff sued in the local Court to recover the balance of the deposit. That action was settled on 24 September 1998 by the payment by the first defendant to the plaintiff of $10,000. The other contract was renegotiated and the first defendant purchased the lot under a fresh contract for a purchase price about $8,500 greater than the rebated purchase price under the original contract.

6 On 6 October 1998 the plaintiff informed the first defendant that the plan had been registered in respect of the Glenwood land. That established 6 January 1999 as the completion date under the Glenwood contracts. There is no doubt that the plaintiff's solicitors wrote to the first defendant's solicitors on 17 December 1998 stating that if the Glenwood contracts did not settle on 6 January 1999 the rebate would not apply. On 6 January 1999 the first defendant settled in respect of one only of the Glenwood contracts. Under the other six contracts the plaintiff gave on 11 January 1999 notice to complete requiring completion before 2 pm on 27 January 1999. Settlement figures sent by the plaintiff's solicitors to the first defendant's solicitors before 27 January 1999 showed the settlement figures made up without the rebates being allowed. Despite this and the letter to the solicitor of 17 December 1998 both Mr Sayer and Mr Singleton swear that it was not until the morning of 27 January 1999 that they heard that the rebates would not be allowed. Mr Sayer's evidence was somewhat equivocal as to whether funds were available to settle on 6 January 1999. Mr Sayer deposes that funds were available for settlement on 27 January 1999 and Mr Singleton deposes that he was running around collecting the cheques when news of the problem reached him on the morning of 27 January; he understood all the necessary funds to be available for collection that morning. There is no doubt that on 27 January 1999 the first defendant refused to settle at the full purchase prices whilst offering settlement with the rebates allowed and that the plaintiff refused to accept settlement at the reduced purchase prices. On 28 January 1999 the plaintiff served notices terminating the six contracts. The first defendant treated the contracts as repudiated and accepted the repudiation. There is no doubt that the six contracts are at an end. The plaintiff subsequently resold the six lots at prices ranging between $144,500 and $156,500, giving it a windfall profit in the vicinity of $157,000.

7 The plaintiff sued the defendants in the District Court at Sydney to recover $73,345 being the balance deposits under the six contracts. Those proceedings were transferred into this Division of this Court, where the first defendant has brought a cross claim for relief on five bases, as follows: (1) That the first defendant was induced to enter into the contracts by a misrepresentation to the effect that the rebate of $10,000 would be allowed on completion whether or not there was compliance with the term of the contracts as to the date of completion (2) That the written contracts ought be rectified to coincide with a pre-existing oral contract containing a term to the effect that the rebate of $10,000 would be allowed on completion whether or not there was compliance with the term of the contracts as to the date of completion. (3) That there was a conventional estoppel arising from the fact that the parties to the contracts proceeded on a common assumption that the rebate would be allowed on completion whenever completion took place. (4) That there was an estoppel arising from the fact that the first defendant proceeded under an assumption that the rebate would be allowed on completion whenever completion took place which assumption arose from or was conduced to by the conduct of the plaintiff. (5) That the Court ought order the return of the deposits under s 55(2A) of the Conveyancing Act 1919 ("the CA").

8 Before proceeding to deal with the claims made under the cross claim I should say something about the credit of the witnesses and state my findings on the disputed questions of fact.

9 Three witnesses gave oral evidence, Mr Kemister, Mr Sayer and Mr Singleton. Mr Kemister was a witness of little credit. In his evidence there are many inconsistencies for which there is no reasonable explanation. There is justice in the submission of Mr Weber, of counsel for the defendants, that he repeated like a mantra, whether it was material to the question he was answering or not, the expression "if they settled when they were due to settle", which he saw as the justification for the plaintiff's course of action. He also denied knowledge of a number of matters which I find it to be quite incredible that he did not know, for instance that the plaintiff's "business involved packaging land and finance and on-selling to the public". In general, I do not accept Mr Kemister's evidence where it conflicts with other evidence in the case and in particular I generally prefer the evidence of Mr Sayer and Mr Singleton to that of Mr Kemister where they conflict. Mr Sayer was not without his difficulties as a witness. He was one of those witnesses who find difficulty in addressing the question actually asked and tend to insist on saying what they want to say whatever the question asked. However, he was prepared to make admissions or give versions of facts against his interest and gave, very much more than Mr Kemister, the appearance of a witness trying to give the Court frank evidence concerning the subject matter. Mr Singleton appeared to me a straightforward and frank witness who was generally credible.

10 So far as the Glenwood meeting is concerned, I find that it occurred late in January and that it did not occur on St Patrick's Day in 1998. I accept Mr Singleton's evidence in this regard and I accept that Mr Sayer is correct in placing it before the exchange of the Glenwood contracts. The word of those witnesses is supported by the probabilities arising from the subject matter of the conversation. It seems to me more likely that the conversation would have taken place before rather than after the exchange of the Glenwood contracts. I accept Mr Sayer's evidence that there were said in that conversation words to the effect of the words set out in [4] from his evidence. That receives some corroboration from the evidence of Mr Singleton and the affidavit evidence (which was not the subject of cross-examination) of Mr Fernandez.

11 It was suggested by Mr Walsh, of counsel for the plaintiff, that I should not accept Mr Sayer's evidence that he had available funds which would have permitted the first defendant to settle on 29 January 1999. I accept Mr Sayer's evidence in this regard, particularly in the light of the corroboration of Mr Singleton. The evidence as to whether funds were available for settlement on 6 January 1999 is rather more equivocal. The view I have is that funds were not readily available to the first defendant on that day, perhaps owing to the absence of moneys available from on purchasers and the lack of moneys available then to be drawn on a finance facility. However, equally I am far from certain that every effort was bent to obtain moneys for that day, because Mr Sayers believed that he was entitled to the rebate on settlement after the completion date, certainly if completion were effected within the time limited by a notice to complete. I accept Mr Sayer and Mr Singleton's evidence that they continued in that belief up to the morning of 27 January 1999.

12 On the basis of those findings I return to the claims set out in [7] above. As I have come to a clear view on how the discretion as to the deposits under s 55(2A) of the CA should be exercised, I propose to deal with that subject matter first.

13 It is submitted that that discretion cannot be exercised at all (at least in respect of the excesses over $1,000 per contract) as the deposits were not in fact paid. The plaintiff bases this argument on the words of the section. However, it concedes that the contrary was decided by McLelland CJ in Eq in Socratous v Koo (1993) NSW ConvR 55-685; and see Peter Butt, The Standard Contract for Sale of Land in New South Wales (2nd Ed, 1998) ("Butt") [9.105]. It says that I should not follow McLelland CJ in Eq's decision. However, in my respectful view, his Honour's decision was correct, for the reasons he gave, and I propose to follow it.

14 As to the principles on which the discretion should be exercised, in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 Street CJ in Eq (as he then was) said at 272 - 273: "It is one thing to recognize that there is a wide discretion conferred upon the court under this section; it is another thing to determine the guide lines for the exercise of that discretion. The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. It is clear enough that at law a vendor's right to forfeit a deposit to himself in the event of a purchaser's default bears no necessary relation to the damages actually suffered by a vendor. At law a forfeited deposit could result in a vendor making a profit which in justice and equity he ought not to be permitted to enjoy at the purchaser's expense.

In a complementary sense, an order for the return of the deposit does not necessarily affect the vendor's right to sue a defaulting purchaser at law and recover against him such damages as the vendor can prove. The jurisdiction under s55(2A) does not give to a court an overall discretionary supervision of monetary adjustments between parties to a contract under which a deposit was paid but which has been terminated. A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s55(2A) unless it is unjust and inequitable to permit him to retain it. If the court would not, in its discretion, specifically enforce the contract against the purchaser, then it may follow that it would be unjust and inequitable to allow the vendor to retain the deposit. In appropriate cases he should be left to prove the damages payable to him by the defaulting purchaser in accordance with the established rules governing the measure of damages, rather than simply pocketing the deposit, which might in some cases exceed the damages which would properly be recoverable by him at law. Equity has always looked with disfavour upon penalties or stipulations which result in a party to a contract making a profit at the expense of a defaulting party. It is clear that where the court in its discretion refuses specific performance, whether or not it also orders repayment of the deposit under s55(2A), it will still remain open to the vendor to sue the defaulting purchaser and recover against him whatever damages may be due to the vendor at law in the event of the contract having gone off through the purchaser's breach. The ordinary principles of contract law and of damages stand untouched by this section except in so far as it operates to qualify the ordinary right of a vendor to forfeit and retain a deposit.

Just as the judges whose words I have quoted declined to put a limiting gloss upon the scope of the section, I decline to state my view upon where the boundaries of the discretion are to be drawn. Specific instances of its application are to be found in the cases. They all, however, come under the general category of circumstances in which the court held it to be just and equitable to deny to the vendor the enjoyment of a forfeited deposit.

Attempted classifications within this general category will tend only to obscure rather than to elucidate the approach to the exercise of this statutory discretion."

In the absence of appellate authority, this has come to be regarded as providing the test generally applied in such cases in this Court: Butt [9.121]; and see the decision of Young J in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 at 15,201 - 15,203 and my own decision in Baynard Pty Ltd v BRDG Holdings Pty Ltd (1998) 9 BPR 16,991 at 17,003 - 17,004. This Court has emphasised that the onus lies upon the purchaser to establish that it would be unjust and inequitable to permit the vendor to retain the deposit: Clarke v Dilberovic (1982) NSW ConvR par 55-083, at 56,494; Terry v Permanent Trustee Australia Ltd (1995) 6 BPR 14,091 at 14,105. 15 Upon a consideration of all the circumstances I have come to the conclusion that the Court's discretion under s 55(2A) of the CA should be exercised in favour of ordering the return of the deposits by the plaintiff to the first defendant and that this would extend to the whole of the 10% deposits, had the full amounts been paid. It is true that the first defendant did not settle on the completion day. However, it was ready to settle on 27 January 1999 in compliance with the notices to complete served on it. In that regard, I accept the evidence of Mr Sayer and Mr Singleton, whom I have found to be generally truthful witnesses, that funds were available on that day to settle the contracts. I also accept their evidence that they were personally unaware until that day that settlement would not be accepted except on the basis that the rebates would not be allowed, and that they had not been made aware of the contents of the plaintiff's solicitors' letter of 17 December 1998. Their word as to that receives some corroboration from the fact that they did not immediately protest, but spent January organising finance to settle on the basis that the rebates would be allowed. It is true that the plaintiff had taken its stance in its solicitors' letter of 17 December 1998. But there are two things to be said about that. The first is, as I have already found, that stance did not reach the attention of the first defendant's operatives, although that is not the plaintiff's fault. The second is that, eight days before Christmas, with the holiday shutdown imminent, the peremptory announcement gave little time to a purchaser to organise the additional sums necessary for a 6 January settlement or to debate the issue. In reaching my decision I have borne the foregoing in mind and the following additional facts: that the plaintiff had previously honoured a similar rebate arrangement when the Rouse Hill contracts were settled at the time fixed by notices to complete; that settlement was proffered at the expiry of the notices to complete provided that the rebates were honoured; that the balance of the deposits over $1,000 per lot were really in excess of the plaintiff's stipulated sale prices; that the plaintiff peremptorily terminated the contracts the next day after refusing to settle on the basis of granting the rebates, rather than allowing the dispute over their applicability to be discussed or determined; and that the plaintiff has not suffered any loss by the termination of the contracts, but has already realised about twice the balance deposits as a windfall gain (cf Delgado v Walker Developments Pty Limited (1989) NSW ConvR par 55-497). In my view, in all the circumstances it would be unjust and inequitable for the plaintiff to retain the deposits that have been paid. Had the whole 10% deposits been paid, that view would extend to the whole of them. 16 Since I have a clear view that the discretion under s 55(2A) ought be exercised in favour of the return of the deposits whether or not the first defendant is entitled to succeed on the other bases put forward, I do not propose to determine those bases. Before the Lucas & Tait decision it was said by Hope J (as he then was) in Maralinga Pty Ltd v Major Enterprises Pty Ltd [1972] 2 NSWLR 101 at 103, by reference to Victorian authority which his Honour did not specify, "that before proceeding to consider the exercise of the discretion conferred by this provision, the court should decide what the legal rights of the parties are." The authority referred to would appear to be Mallett v Jones [1959] VR 122, a Full Court decision. However, I do not take the proposition to be intended to be one of immutable generality, rather than a statement as to what was necessary or appropriate in the circumstances of those cases. The former was a suit in which there were claims for rectification and specific performance (which subsequently went to the High Court: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336). In the latter, in a case where the plaintiffs had with full knowledge of the fraud reaffirmed a contract induced by a fraudulent misrepresentation to them (for which they were awarded damages), the defendant subsequently rescinded for non payment of instalments. Here, the contracts are treated by both parties as at an end, there is no claim for specific performance, and the claims for misrepresentation and rectification and based on estoppel are material only to the return of the deposits. Assuming the first defendant could not make out these claims, I should order the return of the deposits on the facts I have found; a fortiori they would be recovered by the first defendant if the claims were made out. In these circumstances I can see no point in determining the claims and, in my view, in the circumstances of this case, the above mentioned authorities do not compel me to do so. 17 The last argument of the plaintiff is that the discretion ought be exercised against the first defendant on a lack of clean hands basis: the inflation of the purchase price by $10,000 per lot was to deceive lenders. Whatever may be said of this conduct, which cannot be characterised as worthy, it did no harm to the plaintiff, which willingly participated in it for its own purposes (bearing in mind my acceptance of Mr Sayer's version of the conversation of January 1998). I do not propose to refrain from exercising my discretion in the first defendant's favour on this ground. 18 Short minutes should be brought in to encompass the conclusions I have come to. It may be that it is sufficient for me to order on the cross claim that the $6,000 in fact paid be returned and to enter judgment for the first defendant on the plaintiff's claim. Any disputed question of costs may be raised on that occasion. Further, there have not been full submissions on whether the plaintiff's claim against the second and third defendants as guarantors (or indemnifiers) in respect of liability under the Glenwood contracts could succeed if the claim against the first defendant failed, as it has. Directions can be given on that occasion for the future conduct of that claim, if it is pressed. …o0o…

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