Pentagold Investments v Romanos

6 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1333/01 PENTAGOLD INVESTMENTS PTY LIMITED & ANOR V JOSEPH JOHN ROMANOS & ANOR

Facts 1 The plaintiff companies seek specific performance of contracts for the purchase of property 44 Wigram Street, Harris Park, from the first defendant and 46 and 48 Wigram Street, Harris Park, from the second defendant, under three separate contracts dated 15 September 1999. The contracts have been terminated and if the termination was effective it will be necessary for the plaintiffs to obtain relief against forfeiture before an order for specific performance can be made. 2 The contract for 44 Wigram Street provided for a purchase price of $750,000. Special Condition 17 of the contract provided that the deposit of $75,000 would be payable as to one tenth, namely $7,500, on exchange of contract and nine tenths upon approval of development application. The contract was contingent upon development approval in respect of properties 44 to 48 Wigram Street, Harris Park, for the erection of twenty four units within two hundred and seventy days from the date of contract If such approval was not obtained, either party could rescind the contract by notice in writing given to the other side. Completion was to take place within 365 days from contract with the purchaser required to give ninety days' notice for settlement. The contract for property 46 Wigram Street, Harris Park, was in the same terms and for the same price. The contract for the property 48 Wigram Street provided for a purchase price of $375,000 and a deposit of $37,500 payable in the same way as the deposit under the other contracts. Payment of the deposits as specified was an essential term under clause 2.2 and 2.3 of the contracts, which were as follows: 2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential. 2.3 If this contract requires the purchaser to pay any of the deposit at a later time, that time is also essential.

Under the definitions in clause 1 "normally" means "subject to any other provision of this contract". There was no relevant provision. 3 Under Special Condition 8 it was agreed that the deposit money would be released to the vendor if the vendor so required. Special Condition 9 provided that if the deposit was less than ten percent and in the event of the purchaser's default the purchaser would be liable to the vendor for the full ten percent deposit. 4 The contracts were varied by separate deeds dated 1 September 2000 by:

(b) requiring further deposits totalling $31,250 to be paid bringing the total preliminary deposits payable under the three contracts to $50,000;

(c) extending the time for development approval to 1 December 2000.

The additional sum of $31,250 was paid. 5 Development approval was given on 24 November 2000. The plaintiffs received notice of this at 5.00 pm on 1 December 2000. On 30 November 2000 the solicitor for the plaintiffs gave notice to the solicitor for the vendor/defendants requiring completion on 1 March 2001, the purchasers having decided that they would settle whether or not development approval was obtained. 6 Between 1 December 2000 and 11 December 2000 there were discussions about release of part of the deposit or early settlement on one property to enable Mr Joseph Romanos to purchase another property. Mr Romanos was considering properties in Prospect Street and Alice Street, Harris Park, but nothing came of those discussions. It is not clear whether the plaintiff purchasers understood the vendors were entitled to release of deposit moneys. On 19 December the vendors purported to terminate the contract by notice given by a new solicitor acting for them. No notice was given prior to termination. The balance deposit was paid by the purchasers to the vendors' agent the next day. Nothing really turns on this as if the defendants are correct, the contracts had been terminated by then. There is no evidence from the plaintiffs as to their reasons for not paying the balance deposits as required under the contracts. 7 Special Condition 22 of the contract provided that if the contracts were not completed for any reason other than the vendors' default then the vendors were to have the use and benefit of all engineering, architectural and survey plans available, including those lodged and approved by the local Council, without any payment. Although there is no evidence of the actual sums spent by the plaintiff/purchasers in connection with obtaining development consent, it was obviously quite significant. 8 The plaintiffs arguments were (a) that there was no entitlement to terminate as there was no breach; (b) if there was breach then relief against forfeiture should be granted; and (c) that payment of the deposit and acceptance by the agents amounted to affirmation of the contract. No claim of waiver or estoppel was argued. The claim of affirmation cannot succeed. This is: first because it has not been shown the agents had any authority to affirm; and secondly, because even after termination the vendors would have been entitled to claim the balance of the deposit. Was there a breach? 9 The balance of the deposits was payable "upon approval of the development application". It is, I think, obvious enough that the plaintiff/purchasers could not be expected to know the date of approval until told by Council. The purchasers could not have been expected to pay on 24 November. They knew of approval on 1 December at about 5.00 p.m. An essential time does not ordinarily equate with a reasonable time, but as 1 December was a Friday it seems to me to be obvious enough that it could not have been argued there was a breach of the contract if payment were not made after 5.00 p.m. on that date. The purchasers could not necessarily have reasonably been expected to have ensured that funds were available at all times after the possibility of development approval arose. It follows from this that I would have thought that payment on Monday 4 December of the balance of the deposit would have been sufficient compliance with the terms of the contract. I accept that during the negotiations for release of the deposit and earlier settlement no demand was made. However, I do not consider that really bears on the matter. I consider that failure to pay on the first reasonable possible day after notice of approval of the development application was in the hands of the plaintiffs was a breach bringing about the right to terminate. I repeat that there has been no case put forward based on estoppel. Relief against forfeiture 10 This claim is made upon the basis of the law laid down in Legione v Hateley (1983) 152 CLR 406; Ciavarella v Balmer (1984) 153 CLR 438; Stern v McArthur (1988) 165 CLR 489 and PC Developments Pty Ltd v Ravel (1991) 22 NSWLR 615. It is extraordinarily difficult to obtain from these decisions some common basis upon which this question must be decided. However, I proceed on the basis that the Australian Courts accept the statement in Shiloh Spinners Limited v Harding [1973] AC 691 at 722 that equity would grant relief on the traditional grounds of "fraud, accident, mistake or surprise, always a ground for equity's interference, the inclusion of which entailed the exclusion of mere inadvertence and a fortiori of wilful defaults". It also seems clear that a party having a legal right to terminate will be prevented in equity from exercising it if this would amount to unconscionable conduct. Whether or not in a case such as the present, where termination was based on failure to comply with an essential term, it is necessary that there be "exceptional circumstances" to justify relief, as seems to have been accepted in Ciavarella v Balmer at p 454, is not altogether clear, but probably it is exceptional circumstances which give rise to unconscionability. 11 The difficulty with the present claim is that there are no established facts upon which the court can act. While I can assume that the value of the properties with development consent is greater than the purchase price under the contracts, there is no evidence to establish whether this is sufficient to amount to a windfall. There is no reason put forward for non-payment of the deposit. Thus the default may have arisen through inadvertence, or it may have been purposeful. The latter would have prevented relief and the former may have done so (see Shiloh). In assessing the magnitude of the plaintiffs' losses against the gain of the defendants once again there is no quantification of the expenditure incurred by the plaintiff in gaining development consent, although I infer the amount would not have been small. I should say that I proceed upon the basis that an oral application was made, pursuant to s55(2A) of the Conveyancing Act 1919 for the return of the deposit and I propose to make an order for return. It is not possible to compare gain with loss. The fact that specific performance could be ordered and obtained, perhaps with some added compensation is not, in my view, itself sufficient. If it were then almost all claims for relief against forfeiture could succeed. It is impossible to eliminate from the equation the fact that what the vendors contracted for included the right to terminate. 12 I have concluded that the plaintiffs have not made out a claim for relief. I have come to this conclusion with considerable reluctance because the it is impossible to express any enthusiastic approbation of the conduct of the vendor/defendants. It may be that with more evidence an entitlement could have been made out but on the evidence presented it was not. The result is that the summons must be dismissed with costs. I will make an order for return of the deposit. 13 Orders.

3. The vendors refund to the purchasers the whole of the deposit paid under the contracts within seven days.

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