//
[2016] WASC 395
General information, not legal advice.
Supreme Court of WA
2016-12-05
Original judgment source is linked above.
Second Defendant [Action dismissed 9 August 2016] : Not applicable
1 ACTING MASTER STRK: By chamber summons dated 8 July 2016 the plaintiff (OPR) seeks summary judgment.
2 OPR's claim relates to a contract of sale (Contract) dated 6 September 2014, made between OPR as seller and the first defendant (Mr Marron), as buyer.
3 Subject to some variations, the '2011 general conditions - joint form of general conditions for the sale of land' (General Conditions) form part of the Contract.[1]
4 The Contract concerned a property known as lot 24 on strata plan 65318 and being certificate of title vol 2897 folio 468 (also known as Apartment 24, The Whitfield, 78 ‑ 80 Old Perth Road, Bassendean, Western Australia) (Property).
5 Under the Contract, the purchase price for the Property was $515,000, and a deposit of $51,500 (Deposit) was payable within seven days of the date of the Contract, to be held by the second defendant (the settlement agent) as deposit holder. The settlement date under the Contract was to be 28 days after Landgate issues a duplicate certificate of title for the Property.
(a) Mr Marron paid the Deposit to the Settlement Agent.[2]
(b) Landgate issued the duplicate certificate of title for the Property on 5 April 2016,[3] so that the settlement date under the Contract was 3 May 2016.[4]
(c) Mr Marron did not effect settlement on 3 May 2016,[5] and on 6 May 2016, OPR served upon Mr Marron a default notice:
(i) stating that Mr Marron had failed to comply with his obligations under the Contract by failing to effect settlement on the settlement date or at all;
(ii) requiring Mr Marron to remedy the default by paying to OPR the balance of the purchase price within 10 business days of service of the default notice.[6]
(d) Mr Marron refused, neglected or failed to pay to OPR the balance of the purchase price within 10 business days of service of the default notice.[7]
(e) Mr Marron's failure to remedy the default by paying OPR the balance of the purchase price within 10 days of service of the default notice was in breach of the Contract.
(f) On 5 May 2016, by a letter issued by his solicitors to OPR's solicitors, Mr Marion repudiated the Contract.
(g) On 27 May 2016, OPR served a notice of termination of the Contract on Mr Marron, relying upon Mr Marron's failure to comply with the default notice; further and alternatively Mr Marron's repudiation of the Contract.[8]
7 The repudiation is described in the notice of termination as follows:
9 OPR claims against Mr Marron damages, interest and costs. It also seeks the Deposit and any interest accrued on the Deposit.
10 The Deposit (together with interest accrued on the Deposit) has been paid into court and these proceedings have been dismissed against the settlement agent.
11 OPR says that it has the Property for sale but the Property has not been resold.[9]
12 The relevant terms of the Contract are found in the General Conditions and are set out below.
(1) in default under the Contract; and
(2) has failed to comply with a Default Notice; or
the Seller has each right in clause 24.2, in addition to any other right or remedy of the Seller.
(a) affirm the Contract and sue the Buyer for damages for default;
(b) affirm the Contract and sue the Buyer for:
(1) specific performance of the Contract; and
(2) damages for default in addition to or instead of specific performance;
(c) subject to clause 23.1, retake possession of the Property;
(d) subject to clause 23.1 terminate the Contract by Notice to the Buyer, but only if the Default Notice given under clause 23.1 includes a statement that if the default is not remedied within the time specified in the Default Notice the Contract may be terminated; or
(e) where the Buyer repudiates the Contract, terminate the Contract by Notice to the Buyer.
If the Seller terminates the Contract under clause 24.2(d) or 24.2(e), the Seller may, subject to the further provisions of this clause, elect to exercise any one or more of the following.
(a) Forfeit the Deposit.
(b) Sue the Buyer for damages for default.
(c) Resell the Property.
...
24.6 Resale within 12 months
(a) Settlement of the resale of the Property occurs within 12 months after the Seller terminates the Contract; and
(b) after taking into account the costs and expenses of the resale and the amount of the Deposit which has been forfeited,
(c) is less than the Purchased Price, the Buyer must pay to the Seller, as liquidated damages, the difference between the amount held by the Seller and the Purchase Price; or
(d) exceeds the Purchase Price, the excess belongs to the Seller.
13 After having regard to the matters deposed to in the affidavit filed on behalf of OPR, and in light of the terms of the Contract, I am satisfied that OPR's claim is a good one and that the affidavit does verify the essential elements of the cause of action upon which the application for summary judgment is based.
14 Once OPR has established a prima facie case the evidentiary onus shifts to Mr Marron to demonstrate that there is an arguable defence or other reason for trial.
15 On 12 July 2016, a defence was filed on behalf of Mr Marron in these proceedings. At the hearing of the summary judgment application, counsel for Mr Marron explained that the filing of the defence crossed with service of OPR's chamber summons for summary judgment and suggested that in the circumstances, the defence not be referred to in determining this application. Counsel for OPR did not make any submission in this regard and I am therefore prepared to proceed on this basis.
16 Mr Marron relies on his affidavit sworn on 22 August 2016 in opposition to the application for summary judgment.
17 Mr Marron says that on 14 December 2015, he advised OPR that he would no longer proceed with the purchase of the Property,[10] but by notice given on 22 December 2015, OPR advised him that there was no possibility of OPR releasing him from the Contract. Part of the 22 December 2015 communication is reproduced below:
We advise we are unable to release Mr Marron from the contract, and expect him to settle in accordance with the terms of the contract.
If we were to release any buyer from their obligations we would be in breach of our covenant to the Bank. There is no possibility of agreeing to release any buyers from the contract.[11]
18 Mr Marron says that on 29 January 2016, repeated again on 5 May 2016 and 30 May 2016, he advised OPR that he had repudiated the Contract, but despite receiving the notices, OPR required him to perform the Contract.
19 OPR responds to the communication of 29 January 2016 in a letter dated 31 January 2016. Relevantly, General Conditions 24.1(b), 24.2 and 24.3 are referred to in that communication and the final paragraph of that letter states as follows:
When the Seller has resolved as to what steps it will take against the Buyer we will advise you if you are still representing the Buyer.[12]
20 Mr Marron does not dispute that settlement did not take place on 3 May 2016; that he was served with a default notice and did not remedy the alleged breach within 10 days of service; nor that he was served with a notice of termination on 27 May 2016.
21 However, Mr Marron opposes summary judgment on the basis that:
(a) if the Deposit were to be released to OPR, there is a real risk that OPR will rely on cl 24.6(d) of the General Conditions to the Contract and keep the entire Deposit or any excess in accordance with cl 24.6(d);
(b) cl 24.6(d) of the General Conditions is unfair, void and should be set aside;
(c) OPR has failed to mitigate its loss; and
(d) the alleged breach of duty to mitigate loss raises an arguable defence which can only be resolved on evidence at trial.
22 Darke J in Sydney Developments Pty Ltd v Perry Properties Pty Ltd makes the following observations:[13]
[I]t has long been established that the principles concerning penalties and forfeitures do not apply to stipulations in contracts for the sale of land that provide for forfeiture of reasonable deposits. That is the case even though the amount bears no reference to the actual loss that might flow from the breach that gives rise to the forfeiture. This exception applies only in respect of payments that truly have the character of a deposit, and only to the extent that such payments are reasonable, not excessive, in amount ... Advantage cannot be taken of this exception merely because the parties to the contract have labelled or designated a payment as a deposit.
...
The nature of a deposit has been variously described (see, for example, Brien v Dwyer (supra) at 385‑6, 392, 398, 401 and 406). As pointed out by the High Court in Commissioner of Taxation v Reliance Carpet Co Pty Ltd (supra) at [22], a deposit in the conveyancing context has several aspects, including that a deposit is provided as an earnest to bind the bargain, and is provided as a form of security for the performance by the purchaser of its obligations under the contract (see Commissioner of Taxation v Reliance Carpet Co Pty Ltd (supra) at [25]‑[26]).
23 Where the deposit is an excessively large one it is possible that it may be regarded as penal in nature with the consequence that equity may give the defaulting purchaser relief against forfeiture.
24 There are a number of cases which consider the relationship between a deposit and the loss on resale of land. In Wireton Holdings Pty Ltd v Price,[14] the Court determined that:
Insofar as the 10% deposit exceeds the deficiency, the surplus is not to be regarded as a penalty. That is the effect of Cloud Top Pty Ltd v Toma Services Pty Limited (supra) and other cases.
25 In this case, the Deposit was 10% of the purchased price. It is not suggested by Mr Marron that by its size alone that it is penal in nature. Instead, Mr Marron complains that the effect of cl 24.6(d) of the General Conditions is that OPR has the potential to receive a windfall of up to $51,500. Mr Marron says that any excess amount held by OPR, after taking into account the costs and expenses or re‑sale and the amount of the Deposit should be paid to Mr Marron.
26 In relation to the forfeiture of the Deposit, Mr Marron has no arguable defence under the general law - and does not pursue such a defence. Instead, Mr Marron asserts that cl 24.6(d) of the General Conditions is unfair, void and should be set aside by operation of the legislative provisions that regulate unfair contract terms in pt 2 ‑ 3 of the Australian Consumer Law (ACL) and pt 2 div 2 sub‑div BA of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). Counsel for Mr Marron referred to the legislative provisions together as the Unfair Contract Terms Law (UCTL).
27 The written submissions filed on behalf of Mr Marron reference both the ACL and the ASIC Act. Although the terms are similar, the unfair contract term provisions of the ACL and the ASIC Act apply to different types of contracts. The submissions filed on behalf of Mr Marron do not address the question of the applicable legislation.
28 Under s 1(a) of the ACL, the ACL applies only to the extent provided by pt XI of the Competition and Consumer Act 2010 (Cth) (CCA). Section 131A(1) of the CCA, which is in pt XI, provides that the ACL does not apply to the supply, or possible supply, of services that are financial services, or financial products.[15]
29 Section 131A(2)(b) of the CCA also specifically provides that pt 2 ‑ 3 of the ACL (the part dealing with unfair contract terms) does not apply to, or in relation to, contracts that are financial products or contracts for the supply, or possible supply, of financial products.
30 The result is that as the Contract is not a financial product or a contract for the supply, or possible supply, of financial products, the ACL applies, and not the ASIC Act.
31 The ACL provides that a term in a consumer contract is void if:
(a) the term is unfair; and
(b) the contract is a standard form contract.[16]
32 The contract continues to bind the parties if it can operate without the unfair term.[17]
33 Part 2 ‑ 3 of the ACL is a statutory exception to the freedom of contract approach of the common law, but applicable only to standard form consumer contracts. For pt 2 ‑ 3 of the ACL to afford Mr Marron a potential defence, then the Contract must be a standard form consumer contract.
(a) a supply of goods or services; or
(b) a sale or grant of an interest in land;
to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
35 While it is assumed in the written submissions filed on behalf of Mr Marron assume that the Contract is a 'consumer contract', and the Contract discloses that the Property is a residential (and not a commercial) property, no evidence was filed which disclosed Mr Marron's purpose for acquiring the Property, nor that the acquisition was wholly or predominantly for personal, domestic or household use.
36 It is incumbent upon a defendant in a summary judgment application to condescend upon particulars.[18] Placing the most beneficial interpretation possible on the evidence of Mr Marron it is simply not possible to conclude that the Contract is a 'consumer contract' for personal use (and not investment or other purposes).
37 In failing to establish that the Contract is a 'consumer contract', Mr Marron fails to establish a threshold issue for the purpose of a defence under the unfair contract provisions of the ACL. However the defence does not fail on this basis alone. I address below the other impediment faced by Mr Marron.
38 For completeness however, I note that the written submissions filed on behalf of Mr Marron also assume that the Contract is a 'standard form' contract. Section 27(2) of the ACL provides that in determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the matters set out in s 27(2)(a) ‑ (f).
39 The question of whether the Contract is a 'standard form' contract is a question of fact, and again there is no evidence before me which addresses this question, nor any of the matters set out s 27(2)(a) ‑ (f).
40 However, unlike s 23(1), for the purpose of determining whether the Contract is a 'standard form' contract, Mr Marron has the benefit of a statutory presumption that it is a standard form contract in his favour.[19]
(a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.[20]
42 In determining whether a term of a consumer contract is unfair, a court may take into account such matters as it thinks relevant, but must take into account:
(a) the extent to which the term is transparent; and
(b) the contract as a whole.[21]
43 Section 24(3) provides guidance on the meaning of 'transparent' in this context and I find that cl 24.6(d) of the General Conditions is transparent in that it is expressed in reasonably plain language, legible, presented clearly and readily available to the party affected by it.
44 Without limiting s 24 of the ACL, s 25 sets out examples of terms that may be unfair. A term which penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract is one such example.[22] Notwithstanding the examples provided at s 25, whether a term is unfair is a question to be determined on the facts of each case.
45 Whether or not there is a significant imbalance is a question of fact, and the requirement of a 'significant imbalance' directs attention to the substantive unfairness of the contract.[23]
46 In Australian Competition and Consumer Commission v CLA Trading Pty Ltd,[24] Gilmour J sets out some principles found in cases which have considered unfair contract terms regimes in Victoria and the United Kingdom.
47 Consistent with the approach adopted by Gilmour J in Australian Competition and Consumer Commission v CLA Trading Pty Ltd, whether the first criterion under s 24(1) is met requires a comparison to be made between OPR's rights and liabilities as a result of cl 24.6(d), with the rights and liabilities of Mr Marron as a result of that term, to see whether there is a significant imbalance between the two. That needs to be considered in the context of the Contract as a whole.
49 If the Contract had completed, then, as the Contract itself stipulates, the Deposit would have been counted towards the purchase price. If terminated through buyer default, then there is a risk of forfeiture of the deposit, and in some circumstances, an 'excess' being kept by the seller upon a re‑sale, after taking into account the costs and expenses of the re‑sale and the amount of the deposit which has been forfeited.
50 Having regard to the transparency of the provision and the Contract as a whole, I am not satisfied that it is arguable that the potential operation of cl 24.6(d) of the General Conditions would cause a significant imbalance in the parties' rights and obligations arising under the Contract.
51 Having found that 'significant imbalance' is not arguable, I do not have to deal with the second and third limbs of s 24(1) of the ACL.
52 At the hearing of the summary judgment application, counsel for OPR referred to cl 24.3 of the General Conditions and noted that it affords OPR with an immediate right to elect to forfeit the Deposit, independent of whether cl 24.6(d) is found to be an unfair term. It was suggested that in light of the potential operation of cl 24.3 of the General Conditions, no defence to summary judgment can be grounded on cl 24.6(d), and an argument that cl 24.6(d) is an unfair contract term.
53 In response, counsel for Mr Marron suggested that cl 24.3 of the General Conditions is also unfair, and by operation of the UCTL, might also be found to be void and might be set aside. For the reasons set out above in relation to cl 24.6(d) of the General Conditions, I am also not satisfied that it is arguable that cl 24.3 of the General Conditions creates a significant imbalance in the parties' rights and obligations arising under the Contract.
54 Mr Marron also complains that OPR failed to mitigate its loss and the breach of duty to mitigate loss raises an arguable defence which can only be resolved on evidence at trial.
55 Election within a specified period of time will be required if a contract specifies the period in which the right to terminate must be exercised. However, in the Contract, there is no express requirement for an election within a specified period, and Mr Marron does not suggest that such a period should be implied.
56 It is well accepted that a right to terminate does not have to be exercised immediately. A promisee is entitled to consider its position, so long as it does nothing to affirm the contract and so long as the promisors' position is not prejudiced in consequence of the delay.[27]
57 The prejudice to the promisors' position contemplated by Kitto J in Tropical Traders Ltd v Goonan is different to the prejudice complained of by Mr Marron in these proceedings. It is not suggested that the failure by OPR to terminate within a reasonable period of time amounts to unequivocal conduct which, if relied upon by Mr Marron, may lead to OPR being estopped from exercising its right of termination, unless and until notice removing the estoppel is given to Mr Marron.
58 Rather, in this case, Mr Marron says the failure to mitigate (that is, the failure to accept the repudiation and terminate in December 2015), gives rise to a defence in the proceedings, independent of affirmation of the Contract and estoppel.
59 In this regard, Mr Marron relies heavily on the decision of the Full Court in Hanel v O'Neill,[28] which held that the alleged breach of the duty to mitigate loss raised an arguable defence which can only be resolved on evidence at trial.
60 In Hanel v O'Neill, the Full Court overturned the decision of the magistrate to award summary judgment in circumstances which concerned a claim for rental arrears.
61 It is well accepted that where a promisor repudiates its obligations under a contract prior to performance falling due, there is no breach of contract. Therefore no question of mitigation on the part of the promisee can arise until the repudiation has been accepted as an anticipatory breach.[29]
62 The injured party's failure to terminate a contract in response to a breach may lead a loss to be too remote where the continuation of the contract after breach was not reasonably to be expected.[30] As Sir John Donaldson MR pointed out in delivering the judgment of the Court of Appeal in The Solholt:[31]
A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase 'duty to mitigate' he is completely free to act as he judges to be in his best interest. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff's loss as is properly caused by the defendant's breach of duty.[32]
63 I therefore find that any argument as to a failure by OPR to mitigate does not give rise to an arguable defence, but rather is to be considered when assessing damages. In reaching this conclusion, I have preferred the approach and reasoning adopted by the court in Tropical Traders Ltd v Goonan and The Solholt, to that of the court in Hanel v O'Neill.
64 The power to order summary judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.[33] It is only the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial, that summary judgment ought properly be granted.[34]
65 Even if the facts established are inconclusive, if it is not possible to say without doubt on the whole of the material that there is no question to be tried, there should be leave to defend.[35]
66 In all of the circumstances, I am not satisfied that there is a real question to be tried and therefore do not grant Mr Marron's leave to defend.
67 When OPR re‑sells the Property and if there is any shortfall, OPR may request a hearing to assess damages pursuant to cl 24.6(c) of the General Conditions.
[1] Variations to the General Conditions can be found at cl 12.2 of the Contract: affidavit of Timothy Oscar Willing sworn 8 July 2016, attachment '1', page 22.
[2] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [6].
[3] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [9], attachment '5'.
[4] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [10], attachment '2', page 11.
[5] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [11].
[6] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [13], attachment '7'.
[7] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [14].
[8] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [15], attachment '8'.
[9] Affidavit of Timothy Oscar Willing sworn 8 July 2016 [20].
[10] See also affidavit of Timothy Oscar Willing sworn 8 July 2016 [7], attachment '3', pages 89 ‑ 90.
[11] Affidavit of Wayne Marron sworn 22 August 2016 [18], attachment 'WM‑6'.
[12] Affidavit of Wayne Marron sworn 22 August 2016 [19] ‑ [20], attachment 'WM‑8'.
[13] Sydney Developments Pty Ltd v Perry Properties Pty Ltd [2016] NSWSC 515 [38], [41]. See also McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, 470 (Starke J).
[14] Wireton Holdings Pty Ltd v Price [2011] ACTSC 65 [73].
[15] This is subject to an exception, immaterial in the context of these proceedings.
[18] Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109, 113 (Brinsden J); Bank of Western Australia Ltd v Patton (Unreported, WASC, Library No 990111, 11 March 1999) 7 (Sanderson M).
[23] Director General of Fair Trading v First National Bank plc [2001] UKHL 52; [2002] 1 AC 481 [37], referred to by Gilmour J in Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 [54].
[24] Australian Competition and Consumer Commission v CLA Trading Pty Ltd [54].
[25] Jetstar Airways Pty Ltd v Free [2008] VSC 539.
[26] Dowling v Dalgety Australia Ltd [1992] FCA 35; (1992) 34 FCR 109.
[27] Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, 55 (Kitto J, Taylor & Menzies agreeing).
[28] Hanel v O'Neill [2003] SASC 409 [59] ‑ [61], [76].
[29] JW Carter, Contract Law in Australia (6th ed) [36‑05].
[30] Sneddon N, Bigwood R & Ellinghaus M, Cheshire & Fifoot: Law of Contract (10th Australian ed) [23.40].
[31] Sotiros Shipping Inc v Sameiet Solholt [1983] 1 Lloyd's Rep 605 (The Solholt).
[32] Reproduced in Mann Judd (a firm) v Paper Sales Australia (WA) Pty Ltd (Unreported, WASCA, Library No 980565) 10 (Ipp J).
[33] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99 (Mason, Murphy, Wilson, Deane & Dawson JJ); SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138 [2].
[34] Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57], SMEC Australia Pty Ltd v Valentine Falls Estate [20].
[35] Fancourt v Mercantile Credits Ltd (99).
(1983) 154 CLR 87
(2000) 201 CLR 552
(1933) 48 CLR 457
(1992) 34 FCR 109
(1964) 111 CLR 41