McEwen v Theologedis [2004] VSC 244

2. The plaintiff ("the vendor") seeks the release to him of a deposit which has been paid by the defendants ("the purchasers") for the purchase of the vendor's property in St Kilda. He also seeks a related declaration.

5. In his originating motion dated 15 June 2004, the vendor provided the following grounds for seeking that relief:

1. The particulars provided by the vendor to the purchasers on 25 May 2004 satisfied the requirements of sub-sections 27(3)(a) and 4(b) of the Sale of Land Act 1962 ("the Act") and in particular did so by indicating that the purchase price of $680,000 was sufficient to discharge the mortgage over the property of some $600,000.

2. Sub-sections 27(3)(a) and 4(b) do not require that particulars be provided by a vendor which assumes that the mortgage sum is somehow "grossed up" on the basis of an assumed default.

3. Contrary to the purchasers' assertion, there is no prospect of default under the mortgage, pending settlement.

11. The vendor relies upon two affidavits sworn by George Ian Stogdale on 11 and 17 June 2004 respectively, and an affidavit sworn by Anne Gogos on 22 June 2004. Mr Stogdale is a member, and Ms Gogos is a senior associate, of the firm of Middletons; that firm acts as the vendor's solicitors in relation to the sale of the property.

14. The purchasers rely upon an affidavit of the first defendant, Georgina Theologedis, and an affidavit of the purchasers' solicitor, Panayotis Joannidis, both sworn on 21 June 2004.

18. Most of the relevant facts are not in dispute. The vendor is the registered proprietor of an investment property at 17 Clyde St, St Kilda (CT Vol 10594 Folio 839) ("the property"). The property was mortgaged to Westpac Banking Corporation by a mortgage dated 22 October 2001 ("the Westpac mortgage").

21. By a contract of sale dated 16 May 2004 ("the contract"), the vendor agreed to sell the property to the purchasers for the sum of $680,000. A deposit of $68,000 was paid around the time of signing of the contract ("the deposit"). The balance of the purchase price, namely $612,000, is payable at settlement on 30 July 2004 or earlier by agreement.

24. Special condition 3 of the contract provided for the deposit to be paid to the vendor's agent or solicitor, to be held in accordance with the Act until the earlier to occur of completion of the contract or the vendor becoming entitled to the release of the deposit. After deduction of agent's commission and expenses, the balance of the deposit, in the sum of $49,399, was paid to the vendor's solicitors.

27. On 25 May 2004, the vendor's solicitors sent a letter to the purchasers' solicitors, enclosing a deposit statement pursuant to section 27 of the Act ("the vendor's notice"). The vendor's notice, which was dated 20 May 2004, included the following information:

"Particulars of Mortgages to which the property is now subject -

Amount now required to discharge the Mortgage (As defined in the Act), including outstanding rates, taxes, charges due to statutory bodies and any other charge or lien for money or money's worth. $ as attached

1.2 The Mortgage does not provide for further advances.

1.3 Rates at which interest is ) Lower rate: %p.a. payable under the Mortgage ) Default rate: %p.a. as attached

1.4 Settlement Date is the date by which the amount secured by the Mortgage is to be repaid (unless the lender demands early repayment upon any breach of conditions)

1.5 Under the Mortgage, instalments of $INTEREST ONLY must be made at monthly intervals.

1.6 The Vendor is not in default under the Mortgage.

(Italicised text is handwritten on the vendor's notice)

40. Attached to the vendor's notice and incorporated into it by reference was a copy of a letter from Westpac Banking Corporation, also dated 20 May 2004 ("the Westpac letter"), stating that the loan amount secured by the Westpac mortgage was $600,000 and the amount required to discharge that mortgage as at 20 May 2004 was $602,566. It only became apparent during the course of this hearing that the additional sum of $2,566 represented accrued interest which would fall due for payment on the 1st of the following month. The Westpac letter also noted the following matters: the loan repayments were interest only; there was no provision for further advances; the loan due date was 27.06.2026; the lower rate of interest was 7.3% and the default rate was 9.3%; the loan was not in default.

43. Requisitions on title were served on 21 May 2004 and answered on 1 June 2004. There was no challenge to the adequacy of those answers.

46. By a letter sent by facsimile on 9 June 2004, the purchasers' solicitors objected to the release of the deposit ("the purchasers' notice"). The purchasers' notice said that the purchasers were not prepared to have the deposit released, because:

"... upon the release of the deposit, the amount payable to the Vendor, after adjustments, may not be sufficient to satisfy the Vendor's Mortgagee's requirements and costs in the event of default."

50. On 11 June 2004, the vendor arranged for $3,720 to be deposited into his solicitors' trust account. He signed an irrevocable authority for the disbursement of so much thereof as would ensure that the last monthly mortgage payment due on 1 July 2004 was met. The vendor's solicitor informed the purchasers' solicitor of these steps, which he said were taken to ensure that there could be no default in repayment of the Westpac mortgage. The purchasers' solicitor said that the purchasers would still object to the release of the deposit, as there might be other defaults and matters that required adjustment at settlement, such as $3,000 for outstanding rates and an unquantified amount in case the property was damaged prior to settlement. In those circumstances, he said that a margin of $12,000 would not be a sufficient margin and the deposit could not be released.

53. Attached to the vendor's statement under section 32 of the Act are a number of documents which disclose outstanding statutory charges. The City of Port Phillip land information certificate, dated 26 April 2004, shows outstanding council rates and charges totalling $1,921.30; these were payable at various dates prior to 16 February 2004. An information statement from South East Water, dated 16 April 2004, shows a balance of $31.12 as owing for service charges in respect of the period to 30 June 2004. A certificate issued by the State Revenue Office under section 97 of the Land Tax Act 1958 shows land tax totalling $1,038.80 as owing for the 2003 and 2004 years.

56. An updated certificate from the City of Port Phillip shows that the amount owing for council rates and charges as at 17 June 2004 had increased from $1,921.30 to $2,415.50; the increase is due to interest and legal charges.

59. Whilst it was common ground that the purchasers have offered to release the sum of $58,000 from the deposit, it is not clear exactly when that offer was first made. It is not necessary for me to resolve now the factual dispute as to when the offer was first made.

63. Section 49(1) of the Property Law Act 1958 provides, amongst other things, that the vendor of any interest in land may apply to the Court in respect of any question arising out of or connected with the contract (not being a question affecting the existence or validity of the contract) and the Court may make such order upon the application as to the Court may appear just. The purchasers conceded that the present application was properly brought pursuant to section 49.

66. Division 3 of Part 1 of the Act deals with deposits for the purchase of land. A legal practitioner or estate agent who receives deposit moneys must hold them as stakeholder until, in the case of a cash transaction such as this one, the purchaser becomes entitled to a transfer or conveyance of the land (section 24(1)(a)).

69. The general rule is that deposit moneys are not released prior to settlement. Section 27 of the Act provides an exception to that general rule. It permits the early release of deposit moneys if the purchaser consents or is deemed to have consented to the release. The relevant parts of that section are in the following terms:

"(1) Where a legal practitioner or estate agent is holding deposit moneys as a stakeholder under section 24, the purchaser may by authorization in writing empower the legal practitioner or estate agent (as the case may be) to release those deposit moneys to the vendor ...

(a) where the contract is not subject to any condition enuring for the benefit of the purchaser; and

(b) where the purchaser has accepted title or may be deemed to have accepted title.

(3) An authorization in writing shall not be effective unless and until the vendor has given the purchaser a notice in writing setting out -

(a) if there is a mortgage over the land which is the subject of the transaction, the particulars specified in Schedule 1;

and the purchaser has given notice under sub-section (4) that he is satisfied with those particulars.

(a) that the particulars provided under paragraphs (a) and (c) of sub-section (3) are accurate; and

(b) that the particulars provided under paragraph (a) of sub-section (3) indicate that the purchase price is sufficient to discharge all mortgages over the property -

he shall give the vendor notice in writing to that effect within 28 days of receiving the particulars.

(5) A notice in writing under sub-section (4) stating that the purchaser is satisfied with the particulars shall be deemed to be the authorization required by sub-sections (1) (2) and (3).

(6) Where the purchaser is not satisfied with the particulars he shall within 28 days of receiving them give notice in writing stating that he is not satisfied with the particulars and giving the reasons why he is not satisfied.

(7) Where the purchaser fails to give a notice under either sub-section (4) or (6) within the time limited by the sub-section he shall -

(a) be deemed to be satisfied with the particulars provided; and

(b) be deemed to have given the authorization required by sub-section (1).

(8) Where a vendor knowingly or recklessly supplies false information to the purchaser regarding any particulars required to be given under sub-section (3) -

(a) he shall be guilty of an offence against this Act and liable to a penalty of not more than 50 penalty units; and

(b) the purchaser shall be entitled to rescind the contract for the sale of the land and recover the deposit moneys.

(10) Notwithstanding section 2(1) of this Act, for the purposes of this section "mortgage" means a charge or lien on land for securing money or money's worth."

94. The particulars specified in Schedule 1 of the Act include: the amount secured by the mortgage; the amount required to discharge the mortgage as at the date of particulars; whether the mortgage provides for further advances; the rate of interest presently payable under the mortgage; the date for repayment of the moneys secured by the mortgage; intervals for repayment, if repayment is by instalments; whether the vendor is in default under the mortgage.

97. It is common ground that sub-section (2) has been satisfied in this case. Have the purchasers authorised the release of the deposit?

100. I accept the vendor's submission that, on the proper construction of section 27, the purchasers' reasons must reflect the matters set out in sub-section (4). That is to say, the purchasers may only have regard to the accuracy of the particulars and the sufficiency of the purchase price to discharge all mortgages over the property. A purchaser may not refuse to authorize the release of the deposit on any other ground.

103. Section 27(4) concerns itself with whether "the purchaser is satisfied", not with whether "a reasonable purchaser would be satisfied" or "the purchaser is satisfied on reasonable grounds". Sub-section (6) is likewise concerned with the situation where "the purchaser is not satisfied." It does not matter that the purchaser may be proceeding on erroneous facts or assumptions; only that he or she be satisfied or not satisfied of the relevant matters.

106. In my opinion, section 27 provides that a purchaser can only rely on reasons given in a written notice. The written notice either complies on its face with the requirements of sub-section (6) or it does not. The purchasers can not, as they sought to do in this case, rely in oral argument on reasons which were not given in the purchasers' notice.

110. If a purchaser is not satisfied with the particulars provided by the vendor, sub-section (6) requires the purchaser to give notice in writing:

(a) Stating that he is not satisfied with the particulars;

(b) Giving reasons why he is not satisfied with the particulars; and

In this case, the purchasers' notice was given within the requisite period. Does it satisfy the other two requirements?

117. The vendor's notice only referred to moneys then owing under the Westpac mortgage. It did not refer to any moneys owing in respect of unpaid rates and land tax, both of which fall within the extended definition of "mortgage" in section 27(10) (being "a charge or lien on land for securing money"). To that extent, the vendor's notice was inaccurate, and could have been the subject of complaint by the purchasers under section 27(4)(a). However, the purchasers or their solicitors knew or ought to have known of the existence of unpaid rates and tax totalling approximately $3,000, because those matters had been disclosed in the section 32 statement which the purchasers received prior to signing the contract. The purchasers' notice did not dispute the accuracy of the particulars provided in the vendor's notice.

120. The only reason for dissatisfaction relied upon by the purchasers in the purchasers' notice was that "the amount payable to the vendor, after adjustments, may not be sufficient to satisfy the vendor's mortgagee's requirements and costs in the event of default." Mr McEwen submitted that that reason was not within the terms of sub-section 4(b). For the reasons which follow, I accept his submission.

123. Whilst the wording in the purchasers' notice does not slavishly follow the wording in sub-section 4(b), in my opinion sub-section (6) does not require that it do so. But the notice must be clearly referable to one of the matters in that sub-section.

126. It seems to me that the reference in the purchasers' notice to "the amount payable to the vendor, after adjustments" is misconceived. This is not the same thing as "the purchase price", which is what sub-section (4)(b) addresses. Mr Golombek said that "adjustments" might include rates and taxes, as well as things such as the cost of repairs in the event that the current tenants damage the property before settlement. As mentioned earlier, outstanding rates and taxes do fall within the extended definition of "mortgage" and to that extent regard may properly be had to them in considering the question of sufficiency. But there is nothing in section 27 to indicate that other "adjustments" can be taken into account. Section 27(4)(b) simply considers whether the particulars indicate that the purchase price is sufficient to discharge all mortgages over the property.

129. The purchasers also considered the sufficiency of the purchase price in the event of possible future defaults by the vendor under any mortgage. In my opinion, sub-section 4(b) requires the purchasers to have regard to the sufficiency of the purchase price as it appears at the time of receipt of the vendor's notice. It does not permit a purchaser to speculate as to future events that may or may not come to pass. The sub-section refers to whether "the particulars... indicate that the purchase price is sufficient", not "may be sufficient" or "will be sufficient if the vendor defaults" or "will be sufficient if some future statutory charge applies".

132. I have arrived at this conclusion based on what appears to me to be the ordinary and natural meaning of the statutory provisions. There do not appear to be any relevant authorities which might assist in this case.

135. Mr Golombek referred me to a number of extracts from Hansard, to which he said that I should have regard in construing section 27. He submitted that those extracts evinced a clear parliamentary intention to protect purchasers, particularly from losing their deposits. Even if section 27 was ambiguous and one could have regard to Hansard, in my opinion it does not evince an intention to favour the rights of purchasers above and beyond the rights of vendors. Nor does the section itself appear to favour one party only.

138. For these reasons, I conclude that the purchasers' notice was not valid in law, in that it did not comply with the relevant statutory requirements.

141. Much time was spent in the evidence and in submissions addressing the questions as to whether in fact the balance of the purchase price would be sufficient to discharge all mortgages (assuming either a default or no default under the Westpac mortgage), or whether there was any possibility of a default actually occurring. In the course of considering my reasons for decision, I became concerned as to whether the Court could look behind the purchasers' notice if I reached the conclusion that it appeared on its face to comply with section 27(6). My preliminary opinion was that it could not. For that reason, I called the parties back before me to address me specifically in relation to this issue. However, given that I have ultimately concluded that the purchasers' notice did not on its face comply with the section, there is no need for me to decide this issue.

145. I agree with Mr Golombek that it is not appropriate for me to order the release of the deposit. It is held by solicitors and real estate agents who are not parties to this proceeding.

148. The only appropriate substantive relief appears to be declaratory relief. After discussion with counsel, the appropriate declaration appears to be in the following terms:

"Declare that the defendants failed to give a notice under section 27(4) or 27(6) of the Sale of Land Act within the time limited by the relevant sub-section."

The effect of that declaration will be that the purchasers are deemed to have authorised the release of the deposit, by virtue of the operation of section 27(7). I will make a declaration in those terms.

153. It is of some concern to me that the costs of this proceeding are likely to far exceed any financial benefit of having the deposit released or not released one month early. However, the plaintiff having been wholly successful, I see no reason to depart from the usual order as to costs. I will order that the defendants pay the plaintiff's costs of this proceeding.