Parkes v Mamo

Was the defendant's termination of the contract effective?

1. Mr Smallbone of counsel, who appeared for the defendant, submitted that the defendant's termination of the contract on 11 January 2016 was valid because the plaintiffs were in breach of an essential contractual obligation, namely, the obligation to pay the deposit. He emphasised the significance of the payment of a deposit under contracts for the sale of land. Mr Smallbone submitted that the basal obligation to pay the deposit arose from the statement on the front page of the contract that there was to be a deposit of $140,000. He submitted that clauses 2.1 to 2.5 assume rather than establish the obligation to pay the deposit, and are merely regulatory in character.
2. Mr Smallbone further submitted that when a bond or guarantee is accepted by the vendor "for the deposit" within clause 2.6 of the contract, the payment obligation is postponed by the giving of security for the deposit by way of such bond or guarantee. Alternatively, he submitted that the bond or guarantee could be seen as a conditional payment. Mr Smallbone submitted that if the security or the conditional payment evaporates, the original obligation to pay remains. Mr Smallbone further submitted that clauses 2.1 to 2.5 of the contract are "suspended" while the vendor holds an effective bond or guarantee pursuant to clause 2.6.
3. Mr Smallbone submitted that when the Deposit Power Guarantee expired on 24 December 2015 the purchasers became obliged to pay the deposit of $140,000. It was argued that their failure to do so constituted a breach of an essential condition, and that in accordance with well-established principles the vendor was entitled to terminate the contract immediately and without prior notice (Brien v Dwyer (1978) 141 CLR 378).
4. Ms Nolan of counsel, who appeared for the plaintiffs, submitted that the Deposit Power Guarantee was accepted by the defendant "for the deposit" within clause 2.6 of the contract such that clauses 2.1 to 2.5, which deal with payment of the deposit, did not apply. She further submitted that the Deposit Power Guarantee was so accepted "in all its glory", including that it had an expiry date of 24 December 2015. Ms Nolan pointed out that there was nothing in the contract that required renewal of the Deposit Power Guarantee, and that no term to that effect should be implied. She submitted that in any event there was no breach in an essential respect such as would justify the vendor's termination of the contract.
5. Ms Nolan submitted in the alternative that the vendor was bound by an estoppel, probably an estoppel by convention, to the effect that the parties were proceeding throughout on the basis that the vendor had accepted the Deposit Power Guarantee in accordance with its terms for the deposit, and that there was thus no continuing obligation upon the purchasers to pay the deposit. Ms Nolan submitted that the estoppel precluded the vendor from terminating the contract on 11 January 2016 without warning.
6. There does not seem to be any doubt, and indeed it appears to be common ground, that in this case the vendor accepted a bond or guarantee for the deposit pursuant to clause 2.6 of the contract. On 3 June 2015 the purchasers made a request that the vendor accept a deposit bond. On 23 June 2015 the vendor indicated that he agreed to accept a 5% deposit bond on exchange. On 26 June 2015 the purchasers submitted a "deposit bond" together with a contract that had been executed by them, and sought confirmation that exchange of contracts was to proceed. The "deposit bond" submitted by the purchasers was a Deposit Power Guarantee with an expiry date of 24 December 2015 and a maximum amount of $70,000 (5% of the price). The Deposit Power Guarantee provided that, in consideration of the vendor accepting the Deposit Power Guarantee instead of the vendor's entitlement to some or all of the deposit under the contract, the guarantor would in certain circumstances pay an amount demanded by the vendor up to the maximum amount of $70,000. On 30 June 2015 the vendor, after attending to an agreed amendment to Special Condition 7(i), proceeded to effect the exchange of contracts. Later that day, in the course of confirming to the purchasers that exchange had occurred, the vendor specifically referred to the "Deposit Bond" that had been sent by the purchasers on 26 June 2015. In these circumstances, the vendor must be taken to have agreed to exchange contracts on the basis that the Deposit Power Guarantee was acceptable to it.
7. The contract that was entered into provided on its front page for a deposit of $140,000. Clauses 2.1 to 2.5 of the contract make provision in respect of the payment of the deposit. In brief, payment is required to be made on the making of the contract, and in that respect time is regarded as essential. However, if clause 2.6 operates, clauses 2.1 to 2.5 do not apply.
8. Clause 2.6 operates if the vendor accepts a bond or guarantee "for the deposit". In this case the vendor, who was willing to accept "a 5% deposit bond on exchange", accepted the Deposit Power Guarantee which in its terms provided that it was accepted "instead of the Vendor's entitlement to some or all of the deposit under the Contract of Sale". It does not appear that it was suggested during the dealings concerning the acceptance of a deposit bond that the vendor would thereafter retain an entitlement to be paid part of the deposit. The vendor's acceptance of the Deposit Power Guarantee should hence in my view be regarded as an acceptance of a bond or guarantee "for the deposit" within the meaning of clause 2.6 (cf clause 2.7 which refers to acceptance of a bond or guarantee "for part of the deposit").
9. It follows that clauses 2.1 to 2.5 of the contract do not apply. The purchasers did not become subject to the payment obligations set forth in those clauses. No other provisions of the contract impose any payment obligations in respect of the deposit (cf Ari v Decevic [2013] NSWSC 1967 at [59]).
10. In my opinion, upon a proper construction of the contract, the purchasers did not become subject to an obligation to pay the deposit. The vendor should be taken to have accepted the Deposit Power Guarantee for the deposit pursuant to clause 2.6 instead of the obligation to pay the deposit that would otherwise arise. That is to say, the acceptance of the Deposit Power Guarantee pursuant to clause 2.6, which renders clauses 2.1 to 2.5 inapplicable, should be regarded as having been accepted by the vendor in place of the rights that he would otherwise enjoy pursuant to those clauses.
11. This conclusion is consistent with the view expressed by Professor Butt concerning clause 2.6 in The Standard Contract for Sale of Land in New South Wales (2nd ed 1998, LBC Information Services) at [2.53]: This subclause (and the following subclause 2.7) deals with satisfaction of the obligation to pay a deposit by providing a "deposit bond" or guarantee. In such a case, clauses 2.1 to 2.5 do not apply, and rights and obligations regarding the deposit are regulated by the terms of the bond or guarantee.
12. I am unable to accept Mr Smallbone's submission that the reference to the deposit on the front page of the contract itself provides an obligation to pay the deposit. It seems to me that such reference serves only to identify the amount of the deposit for the purposes of the contract. The rights and obligations of the parties in relation to the deposit are dealt with elsewhere amongst its detailed provisions, especially in clause 2. It would be an odd result if, in circumstances where clause 2.6 operates and clauses 2.1 to 2.5 are expressly stated not to apply, an obligation to pay the deposit nonetheless exists. The language of the contract does not support that conclusion. Moreover, the central rationale for the provision of a deposit bond or guarantee is to obviate the need to actually pay the deposit.
13. I also do not accept that the payment obligations contained within clauses 2.1 to 2.5 are suspended while the vendor holds an effective bond or guarantee pursuant to clause 2.6. Again, that position is not supported by the language of the contract. Clause 2.6 operates upon acceptance by the vendor of a bond or guarantee for the deposit. Once that occurs, clauses 2.1 to 2.5 do not apply. There is nothing to suggest that this situation may be of a limited duration, related to the terms and conditions of the bond or guarantee accepted. In my opinion, once a bond or guarantee is accepted by the vendor for the deposit within the meaning of clause 2.6, clauses 2.1 to 2.5 can have no application at all.
14. In those circumstances it is not correct to characterise the bond or guarantee as security for the discharge of an obligation to pay the deposit, or as a conditional payment in discharge of such. Rather, a bond or guarantee accepted pursuant to clause 2.6 "for the deposit" is taken instead of the obligation to pay the deposit.
15. That is not to say that the purchasers are to be treated as if they had paid the deposit under the contract. They have not paid any deposit. The provision of the Deposit Power Guarantee is not payment of the deposit; it was accepted instead of such payment. The purchasers thus do not have any charge over the land pursuant to clause 2.8 of the contract. In addition, clause 16.7 of the contract would require the purchasers on completion to pay the whole of the price without any allowance for "any deposit paid".
16. The engagement of clause 2.6 only renders clauses 2.1 to 2.5 and 3 inapplicable. Other provisions of the contract, including those that concern the deposit, remain applicable. One such provision is clause 9.1, which provides that if the vendor terminates the contract due to a failure of the purchaser to comply with the contract in an essential respect the vendor can recover the deposit (to a maximum of 10% of the price). In my view, even when clause 2.6 is engaged, it would remain open to a vendor to recover the deposit in accordance with clause 9.1 from a defaulting purchaser. Even when clause 2.6 operates, the contractual notion of "the deposit", which is identified on the front page of the contract, continues to exist and can be the subject of an action by a vendor pursuant to clause 9.1 of the contract.
17. In summary, the vendor in this case accepted the Deposit Power Guarantee "for the deposit" within the meaning of clause 2.6. It accepted the performance offered by the purchasers in this respect (see Ma v Adams [2015] NSWSC 1452 at [50]). Clause 2.6 operated so that the provisions of the contract concerning payment of the deposit did not apply. Those provisions remain inapplicable even following the expiry of the Deposit Power Guarantee.
18. The vendor accepted the Deposit Power Guarantee in accordance with its terms, including as to its expiry date of 24 December 2015. The vendor must be taken to have been aware of the expiry date, which was clearly shown on the instrument that was provided by the purchasers some days prior to the exchange of contracts. (The present case differs in this regard from JR Stevens Holdings Pty Ltd v Von Begensey (1992) 5 BPR 97,377, in which Young J noted that the vendor had not agreed to accept in lieu of the deposit anything less than an unconditional bond for the amount of the deposit.) The vendor did not seek to include any additional provisions to deal with the possibility that the contract would not be completed by 24 December 2015. In particular, no provisions were added to the effect that in those circumstances the purchasers would be required to make a payment or provide a new deposit bond or guarantee. No terms to such effect would be implied.
19. It has not been shown that the purchasers were in breach of the contract. The vendor was not entitled to terminate the contract on 11 January 2016. His purported termination is invalid and of no effect. The contract remains on foot. Moreover, the defendant was not entitled to demand payment of the deposit. The defendant's Cross-Summons must be dismissed.
20. It is not necessary to deal with the purchasers' alternative argument based on estoppel. It is also unnecessary to deal with the submission made by Ms Nolan that the vendor waived any right he had to terminate the contract. However, I should note in relation to the estoppel argument that Mr Parkes gave evidence, which I accept, that he was never told by his solicitor that it was essential, or that he needed, to renew the deposit bond. I also accept his evidence to the effect that he did not understand that it was essential, or that he needed to renew, the deposit bond.

Other issues

1. Mr Smallbone advanced other reasons why the plaintiffs should not obtain a decree of specific performance. These are: 1. that the conduct of the plaintiffs since the purported termination of the contract amounts to a repudiation of the contract; 2. that the parties have abandoned the contract; and 3. that the plaintiffs have not shown that they are ready, willing and able to perform their obligations under the contract.
2. As I understand it, the alleged repudiation essentially rests upon the terms of the letter from Muscat and Co to Napier Keen of 23 February 2016, coupled with the continuing failure of the plaintiffs to replace the deposit bond or pay any part of the deposit. As far as the letter of 23 February 2016 is concerned, Mr Smallbone focused upon the statement that the plaintiffs wished to "affirm conditionally" the contract. The notion of conditional affirmation was submitted to be code for repudiation. As far as the failure to replace the deposit bond or pay any part of the deposit is concerned, Mr Smallbone noted that on 3 May 2016 the defendant made a demand for payment of the $140,000 deposit (or at least the payment of that sum into Court or into a jointly controlled account) yet on 10 May 2016 the plaintiffs expressly declined to make any such payment.
3. I do not accept that such conduct on the part of the plaintiffs can be characterised as repudiatory.
4. The Muscat and Co letter of 23 February 2016 must be read as a whole and in the context in which it was written. The letter was written in response to the defendant's Notice of Termination of Contract of 11 January 2016. Muscat and Co took issue with the validity of that notice on various grounds and stated that the purported termination was itself a repudiation of the contract. The purchasers' rights in respect of such repudiation were expressly reserved. The letter went on to make an open offer that the "sunset date" under the contract be extended to 1 June 2016 and that the purchasers would pay $70,000 in substitution for the deposit bond.
5. The words "affirm conditionally" were made in relation to that open offer. Viewed in their context, those words, and the terms of letter more generally, do not evince an intention on the part of the purchasers that they were no longer willing to perform in accordance with the terms of the contract. To the contrary, the letter, which was written in the shadow of the defendant's purported termination of the contract, suggests that the plaintiffs wished to keep the contract on foot, while at the same time being prepared to agree to amendments to it. It is true that the plaintiffs' stated position was that they were under no obligation to pay the deposit, but in my opinion the plaintiffs were correct in holding that view. In those circumstances, the failure of the plaintiffs to provide another deposit bond or pay some or all of the deposit cannot amount to repudiatory conduct.
6. I do not accept that there has been an abandonment of the contract. It seems to me that since 11 January 2016 the plaintiffs have asserted that the contract remains on foot, have asserted their interest in the land arising under such contract, and have sought the aid of the Court to have the contract performed. The defendant, for his part, has maintained that he validly terminated the contract on 11 January 2016, and has the right to recover the deposit pursuant to the contract. There was no mutual abandonment or abrogation of the contract in this case (see DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 at 434).
7. I am satisfied that at all relevant times the plaintiffs have been, and remain, ready, willing and able to perform their essential obligations under the contract: Mehmet v Benson (1965) 113 CLR 295 at 307-8. Mr Parkes gave evidence, which I accept, that he and Mrs Parkes are particularly attracted to the property. In addition, there is evidence that both in June 2015 and in January 2016 the plaintiffs were successful in obtaining approval for finance from the Commonwealth Bank to assist with the purchase of the property.
8. It appears that in June 2015 the plaintiffs obtained approval for two loans. The first approval was for a loan of almost $500,000. It appears that this loan was a refinance of an existing loan secured over the plaintiffs' residential property at Cambridge Park. That loan was settled in about September 2015. As a result of that refinance, funds of about $194,000 were deposited into an offset account held by the plaintiffs with the Commonwealth Bank. The second approval was for two loans totalling about $1.68 million. These funds were evidently intended to be used, at least in part, for the acquisition of the property under the contract with the defendant.
9. In January 2016 the plaintiffs obtained a further approval for two loans totalling about $1.67 million. Again, it appears that it was intended that such funds would be used, at least in part, to acquire the property from the defendant. A loan approval assessment prepared by the plaintiffs' finance broker, Mr Robert Abdallah, indicates that such loans were intended to be secured over the property and a further property owned by the plaintiffs at Worongary in Queensland. That property had an assessed value of more than $680,000, and was subject to an existing mortgage of about $380,000. The assessment prepared by Mr Abdallah, which was apparently accepted by the Commonwealth Bank, indicates that the two loans, together with other contributions from the plaintiffs, would produce sufficient funds to enable the plaintiffs to complete their contract with the defendant. It appears that the other contributions (totalling about $358,000) could be made using funds totalling at least $188,000 maintained by the plaintiffs since the refinance of September 2015, as well as surplus funds of about $170,000 which would be generated from the loan to be secured over the Worongary property.
10. An affidavit affirmed by Mr Abdallah was read. He was not required for cross-examination. Mr Parkes was not challenged in cross-examination in relation to the plaintiffs' ability to complete the contract.
11. There is no reason to think that the plaintiffs will be unable to complete the contract in the future in the event that the proposed plan of sub-division becomes registered.
12. None of the further grounds advanced by the defendant in opposition to a decree of specific performance have been made out. In my opinion, it is appropriate that orders for specific performance be made as sought by the plaintiffs.

Relief

1. Special Condition 4 of the contract requires the vendor to proceed with all due dispatch to obtain the consent of the local council to the proposed plan of sub-division, and thereafter lodge the sub-division plan for registration as a deposited plan. It is not clear what stage this process has reached, although I was informed that registration had not yet occurred. It was not suggested that it is not possible for registration to occur.
2. In these circumstances I consider that it would be appropriate for orders to be made in the following terms: 1. Declare that the Notice of Termination of Contract dated 11 January 2016 given by the defendant to the plaintiffs in respect of the contract for the sale of land dated 30 June 2015 is invalid and of no effect. 2. Declare that the said contract be specifically performed and carried into effect. 3. Order that the defendant do such acts and take such steps as are required to discharge his obligations under the said contract concerning the registration of the plan of sub-division referred to in the contract. 4. Order that if registration of the plan of sub-division is obtained, the said contract be further performed and carried into effect by the parties. 5. Grant liberty to the parties to apply in respect of the implementation of these orders. 6. Order that the Cross-Summons be dismissed.
3. There seems to be no reason why costs should not follow the event. Accordingly, the Court will also order that the defendant pay the plaintiffs' costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2016