Nwai Pty Ltd v Johnston & Ors

Mr R Scruby (Plaintiff) COUNSEL : Mr J E Thomson (Defendants)

O'Sullivan Saddington (Plaintiff) SOLICITORS : Mullane & Lindsay (Defendants)

• 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1678/05 - NWAI PTY LTD v PAUL RONALD JOHNSTON & ORS

1 HIS HONOUR: In this matter the plaintiff seeks to recover the amount of a deposit payable by the purchasers under contract for the sale and purchase of a property being Unit 902, The York, 61 Shortland Esplanade, Newcastle. The contract is dated 7 June 2002. The purchase price payable under the contract was $1,475,000. The contract was a contract for purchase off the plan and when entered into the expected date for registration of the strata plan was 30 March 2004. The contract had a provision under which the vendor was entitled to extend that date if it gave notice six months prior to the original registration date. It gave such notice extending the registration date to 30 September 2004.

2 The contract provided that the purchasers could pay the ten per cent deposit by means of a bond which it did. The contract included provisions as to the requirement for the bond, namely, as to its term, and a provision that if the registration date were extended, then the purchasers after being notified of that must substitute a new deposit guarantee bond with an expiry date no earlier than three months after the extended date. What that meant was that when the registration date was extended to 30 September 2004, the expiry of the bond would have to be 30 December 2004. In fact, the substituted bond was not provided; that was a clear breach of the obligations of the purchasers under the contract.

3 There is a question as to whether or not this failure was a failure to comply with an essential term of the contract, having the result that no notice was required before the vendor was entitled to terminate the contract for breach. In my view, having regard to the provisions of clause 26.6, it was not an essential term, but, in any event, if it were, I think it is clear that it has been waived by the vendor upon giving the notice requiring completion, which it did, and which it relies on as its main case for entitlement to the amount of the deposit which is unpaid. In my view, the decision of the Court of Appeal in Alarm Facilities Pty Ltd v Jackson Constructions Pty Ltd (Court of Appeal, 10 May 1977 unreported), is authority for the proposition that the conduct amounted to a waiver of the right to rely upon this breach, if it were a breach, of an essential term. In those circumstances it is not necessary to look into this matter further.

4 Upon the strata plan being registered, the vendor became entitled under the contract to give a notice requiring completion to take place by a particular date. It gave that notice on 4 June 2004 requiring completion by 21 June 2004; that was not a notice to complete in the technical jargon of conveyancing transactions, it was a notice advising the purchasers of the registration of the strata document triggering a requirement to settle within a particular time.

5 The evidence is that the completion date, which the contract provides for and defines, was extended to 1 July 2004 by notification of 17 June 2004. It seems from the oral evidence given that this extension was given or perhaps required to be given through the builder not having surrendered control of this part of the development to the owner in time to allow the purchasers to make pre-settlement inspections by the original date given for settlement. In any event, the completion date as defined by the contract was extended by the vendor to 1 July 2004.

6 The contract was subject to a condition which stated that the planning certificate annexed to the contract identified the development site as being affected by contamination. It required the vendor to clean away the contamination during the course of the building works "and to provide evidence to the purchasers of compliance prior to completion." The contract also provided in special condition 27.2 that it was conditional on registration of the strata documents "and the supply by the vendor to the purchasers of an occupation certificate under the Environmental and Assessment Act by Newcastle City Council". That certificate was provided to the purchasers on 18 June 2004. Notice to complete was given on 5 July 2004 requiring completion by 21 July 2004. There is no argument about that notice being defective, so far as time was concerned.

7 The solicitors for the vendor at the time of service of the notice to complete stated in a letter to the solicitors for the purchasers that they noted the purchasers were in breach of the requirement for the deposit bond and that the vendor reserved its rights as to this. On any basis that was not a notice requiring the breach of the provision as to the deposit bond to be remedied within some particular time. At the time the notice to complete was issued and served, the vendor had not furnished to the purchasers evidence of clearance of contaminated soils; that was provided to them when this matter was brought up on 14 July 2004. On 29 July 2004 notice of termination of the contract was served. There were some negotiations before this as to an extended time for completion on certain terms which were not agreed as between the parties.

8 So far as the claim for return of the deposit is concerned, and leaving aside the claim of the purchasers for relief under s55(2A) of the Conveyancing Act 1919 the case of the vendor is that the notice to complete was invalid because the evidence as to compliance with cl 23.10 had not been furnished at the time the notice to complete was served. One argument is that the evidence had to be provided prior to the completion date under the contract; that argument cannot be successful because it is perfectly clear under the contract that completion date and completion are not necessarily the same. That however, does not mean that the argument is not good.

9 The vendor as is usual, at least in more recent times, relies on the decision of the Court of Appeal in McNally v Waitzer [1981] 1 NSWLR 294, which is to the effect that a notice to complete is not to be held invalid merely because some obligation, which the vendor is required to satisfy on settlement, has not been satisfied at the date of service of the notice provided that the vendor will be able to satisfy the obligation on completion. Some of the cases where that principle has been applied relate to matters such as charges for outstanding rates or charges for land tax which affect the property and which can be removed on settlement so that the vendor will be in a position to give a clear title on settlement.

10 The question is how that principle applies to this case where the certificate as to removal of contamination is required to be provided to the purchasers. On the case of the purchasers, it is not reasonable to think that the vendor has fulfilled his requirement if he is just keeping that certificate ready to hand over on or just prior to settlement without the purchasers knowing whether or not that condition will be fulfilled. In my view there would be more substance in that argument had the purchasers sought the certificate at an earlier stage and not just raised this as a defect after having been served with the notice to complete. While I do not necessarily accept that the occupation certificate is compliance with special condition 23.10, the simple fact is that it is obvious enough that the local council would not have permitted the building to go ahead if the site were contaminated as it could hardly be decontaminated after a substantial building had been constructed, and, in any event, the Council must have been in breach of all health requirements had it allowed occupation of a contaminated site. In my view, therefore, it is quite unreasonable to think that the failure to provide this certificate prior to the notice being furnished was a proper reason to state that the notice to complete was defective. In saying that, I am, of course, well aware that technical points are very often taken by purchasers or for that matter by vendors wishing to resist a notice to complete. In this case, however, the plaintiff was able to comply with the term prior to completion and able to do so at the time of service of the notice. The certificate was handed over well prior to the date fixed for completion. In those circumstances it is my view that the notice to complete was valid and that on non compliance with it, the plaintiff was entitled to terminate the contract by notice which it did.

11 The next question is whether or not having done so the plaintiff is entitled to the deposit. While counsel for the defendants raised the argument that the vendor was not entitled to sue for a deposit unpaid at the date fixed for completion, claiming that this was entirely different from a forfeiture of a deposit which had been previously paid, in my view the law is now settled that the vendor has the right to sue in the circumstances described. The old decisions to the contrary have, I think, been overtaken, at least so far as Australia is concerned, by the decision of the Queensland Full Court in Coast Securities No.9 Pty Ltd v Alabac Pty Ltd [1984] 2 QdR 25, and there are other decisions of single judges to that effect explaining why what had originally been thought to be the position was not correct. It is proper to say that Mr Thomson, counsel for the purchasers, did not strongly rely on this argument but felt obliged to put it.

12 The next question then is whether or not the court should exercise the discretion which it undoubtedly has under s55(2A) of the Conveyancing Act to relieve the purchasers from the requirement to pay the deposit. It is accepted by the parties, although this seems somewhat irregular, as the deposit has not been paid, what is being put forward as a defence to that claim is really a counterclaim and is accepted that the onus is on the purchasers seeking the relief to justify the case for such relief. In those circumstances the technicalities need not cause concern.

13 There are a number of facts which bear upon this question of discretion. The first is that the vendor has resold the property for a price of $1,620,000. The evidence is that the contract was due to be settled at the end of June and it is now stated without objection that the contract has been settled. On the face of it, therefore, the vendor has received more than it would have received had the original contract with the purchasers gone ahead. There is some evidence on behalf of the vendor that it has not made a profit, having regard to the interest which it would have received had the moneys been paid, and having regard to the costs of resale, the outgoings on the property after settlement should have taken place and the like. There is some question as to whether or not all those items can be claimed when, as I understand it, the vendor was in occupation and could have leased the property. That does not really determine the matter but I think it correct to say that the claim of the vendor for interest on the net proceeds of sale which it says it should have obtained on the settlement date calculated at the borrowing rate of 9.25 per cent when, it did not borrow those moneys is not necessarily maintainable. This is not necessarily a matter where it would be appropriate for the court rate of interest to be the guide, but, even taking that figure at a reduced percentage of six per cent, the interest claim would be in excess of $60,000. However, once it is reduced to that figure, then, as counsel for the defendants points out, it may be that the damages suffered by the plaintiff taking into account the difference between the two sale prices and then taking into account the costs of resale and the holding costs would not be the figure put forward by the plaintiff of $20,000 but might mean that the plaintiff has, on the purchasers' argument, made a profit of something in the order of between $40,000 and $70,000.

14 There is the further matter to be taken into account that there were some negotiations for an extension of time and that the purchasers put forward a proposition in answer to the original offer put forward by the vendor which was not accepted by the purchasers. The evidence given by Mr Hadley in the witness box was that he did not consider the offer appropriate because there was no certainty in the figure at which it was suggested sharing of profits should cut in.

15 The next matter to be taken into account is that there is no evidence whatsoever by either of the purchasers as to why the matter was not completed. One may take it that when they entered into the contract they either intended to complete it thinking that they would have the moneys available to do so or that they had hoped to resell at a profit prior to completion date. Certainly the evidence is that prior to completion they were endeavouring to resell the property: that is not unusual with contracts for the purchase of units off the plan. Nevertheless, that was a risk, if it were a risk, that the purchasers were taking and should not be regarded as a risk that the vendor should be expected to bear.

16 There have been many cases on s55(2A). All of them endeavour to make a point of not limiting or setting out the bounds for the exercise of the discretion available. In this case it could not be said that there was any misrepresentation or any conduct of the vendor which gave rise to the inability to settle. It could not be said that the purchasers have suffered through some rezoning about which they could not complain after the date of the contract. It has not been shown that there is any windfall to the vendor when all the matters which it is relevant to take into account are taken into account and in any event a windfall is not in itself sufficient for the court to exercise its discretion. The main reason in my view why the purchasers have not established grounds for the court to exercise discretion in their favour is that they have given no evidence themselves as to any financial problems, nor of the reasons why they have not settled. In those circumstances it seems to me that it is not possible for the court to find that it is unconscionable for the vendor to retain its contractual right to the deposit and I so hold. 17 Order judgment for the plaintiff against the defendants for $147,500 plus interest of $13,229. The defendants to pay the plaintiff's costs. Liberty to the defendants to approach me in chambers not later than Tuesday 2 August 2005 if it is considered the interest figure is incorrect. The exhibits can be returned. **********

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