Plaintiff/First Defendant by counterclaim v Defendant/Plaintiff by counterclaim

REAL PROPERTY - Sale of land - Contract - Where purchaser found to have breached contract - Whether vendor entitled to deposit - Where term breached entitled vendor to walk away from agreement - Whether deposit paid in earnest of term breached - Vendor not entitled to deposit.

MISLEADING AND DECEPTIVE CONDUCT - Alleged misleading and deceptive conduct by purchaser during initial negotiation - Misleading and deceptive nature of statements not established - Reliance on conduct and damages not established - Documents provided by purchaser in lead up to settlement - Alleged misleading and deceptive statement in statutory declaration - Statutory declaration was misleading and deceptive.

For the Plaintiff/First Defendant by counterclaim and Second Defendant by counterclaim

1 CSC1957 Investments Pty Ltd, the defendant, agreed to sell to Castaway Avenue Pty Ltd, the plaintiff, a residential property at 58 Nicholson Street, Fitzroy. There were two contractual documents. One was a written contract of sale signed in early December 2019 by which CSC1957 Investments agreed to sell the property to Castaway Avenue for $3.4 million. The contract of sale was in the familiar form published by the Law Institute of Victoria Ltd and the Real Estate Institute of Victoria Ltd. It was amended to provide for the $100,000 deposit[1] to be payable on signing and to be deposited into Castaway Avenue's solicitors' trust account, rather than into CSC1957 Investments' solicitors' trust account or to some other third party. Settlement was to take place on 23 December 2019. The contract of sale required payment of the deposit and a further $2.213 million at settlement, and then $1.087 million on 23 December 2020, that is, a year later. This later payment, called in the contract the 'deferred payment', was to be secured by a mortgage over the property in favour of CSC1957 Investments. The other contractual document was a deed that was entered into at or about the same time between CSC1957 Investments, Castaway Avenue, Alexanndar Gulabovski in his personal capacity, in his capacity as a director of Castaway Avenue and in his capacity as trustee, beneficiary or appointor of the Site Nasi Trust, and Irene Meletsis in her capacity as beneficiary or appointor of the Site Nasi Trust. The parties referred to this document as 'the deed', and I will do the same.

2 Shortly prior to the time at which settlement was to take place, CSC1957 Investments informed Castaway Avenue that it would not proceed with the settlement. The property remains registered in CSC1957 Investments' name. Castaway Avenue seeks an order for specific performance of the contract of sale and equitable damages.

3 CSC1957 Investments justified its failure to settle on the grounds that Castaway Avenue had failed to comply with its obligations under the deed. It also now seeks to justify its failure to settle on the grounds that Castaway Avenue had failed to pay the deposit as required by the contract of sale. Castaway Avenue disputes that it had failed to comply with its contractual obligations under either document, and disputes that, even if it had, either failure permitted CSC1957 Investments to decline to settle. CSC1957 Investments seeks, in a counterclaim, an order compelling Castaway Avenue to remove a caveat it has lodged over the property, an order that Castaway Avenue pay to it the amount of the deposit, and declaratory relief. It also seeks damages from, and declaratory relief against, Mr Gulabovski, who is a defendant to its counterclaim.

B. Did Castaway Avenue breach its obligations under the deed?

B.1 The obligation in the deed to 'provide proof' of the interest rates

4 As the deed acknowledged, Castaway Avenue was to borrow all or nearly all[2] of the $2.313 million due at settlement. That borrowing was to be secured by a mortgage or mortgages over the property. As noted above, the deferred payment (or vendor finance) of $1.087 million was to be secured by a lower-ranking mortgage in favour of CSC1957 Investments.

1. The vendor, in consideration of this deed executed by the parties, has agreed to a contract of sale to sell the property ... to the purchaser for a sale price of $3,400,000 ...
2. The vendor has insisted on the other parties entering into this deed due to its concern that any breach of the terms of this deed or of the contract of sale will diminish the value of the property and, if that occurs, it wishes to establish a method of recovering the diminished value from the other parties to this deed.

6 It was common ground that the reference to the 'value of the property' should be read as a reference to the 'equity' in the property: that is, the difference between its value and the amounts needed to discharge any mortgages over it. Clearly enough, the deed was executed due to a concern on the part of CSC1957 Investments that Castaway Avenue's equity in the property might be reduced to a point where the mortgage in favour of CSC1957 Investments was insufficient to provide adequate security for the deferred payment when that payment became due.

1.3 The purchaser may obtain a mortgage or mortgages to a maximum value of $2,500,000.00 ...

2.1.1 The second, third, fourth and fifth parties [which includes Castaway Avenue] acknowledge that the purchaser is not providing any purchase monies apart from the deposit of $100,000.00 ... to the purchase price of the property ...

2.1.3 The parties acknowledge that each is aware of the vendor's concern of the possible diminishment of the value of the property from the end price arising from the possible breach of this deed and/or the contract of sale by the purchaser. To mitigate this concern, Alexanndar Gulabovski agreed to provide to the vendor accurate information as required by this deed. In the event that inaccurate [or] misleading information is provided to the vendor in relation to this deed, then Alexanndar Gulabovski agrees to be personally liable for any loss suffered by the vendor, as caused by the inaccurate or misleading information, to a maximum value of the vendor's mortgage.

...

2.2.1 The obligation on the part of the purchaser to pay interest on the $2.5 million mortgage(s) must not exceed 5% per annum as an acceptable rate and not greater than 6.5% per annum as a higher rate in the event of default. The purchaser will provide proof the mortgage(s) do not exceed this requirement.

2.2.2 The vendor is to be supplied with a monthly statement from Alexanndar Gulabovski not later than seven (7) days after the end of any month emailed to [an email address].

...

1. Entire Agreement

This deed is the entire agreement and understanding between the parties on everything connected with the subject matter of this deed, and supersedes any prior understanding, arrangement, representation or agreements between the parties as to the subject matter contained in this deed.[3]

8 The obligation on Castaway Avenue in cl 2.2.1 to 'provide proof the mortgage(s) do not exceed' the rates identified was, clearly, an obligation to 'provide proof' that the interest rates payable on its borrowings that were secured by the property did not exceed the rates identified. The word 'mortgage' is here used, as it often colloquially is, to refer to the underlying borrowing, rather than to the security itself. One of the principal issues in the case is whether Castaway Avenue breached this obligation and, if so, whether that breach permitted CSC1957 Investments to refuse to settle the contract of sale.

B.2 The context in which the obligation to 'provide proof' falls to be interpreted and the content of the obligation to prove the interest rate

9 It is not immediately clear what is required by an obligation to 'provide proof' that an interest rate does not exceed a certain figure. The terms of the agreements are to be determined objectively, rather than by regard to the subjectively-held intentions of the contracting parties.[4] The obligation is to be interpreted by reference to what a reasonable person would understand by that language, in light of the surrounding circumstances known to the parties and the object and purpose of the transaction.[5] I have set out in para 7 above some clauses of the deed that provide some of the context in which cl 2.2.1 is to be interpreted. But it is also necessary to consider some other background matters.

10 The property had previously been the home of Tom Karas, his wife Ms Meletsis and their children. In 2014, CSC1957 Investments purchased the property from Ms Meletsis and then leased it back to Mr Karas and Ms Meletsis (or an entity associated with their family) at a time, it seems, when Mr Karas was in or facing bankruptcy. After a while, CSC1957 Investments evicted Mr Karas and his family for unpaid rent. Then, in 2019, Mr Karas, whilst still an undischarged bankrupt, decided to purchase the property back. He approached Craig Charter, who then owned and controlled CSC1957 Investments, and his brother Shane Charter, and indicated his desire to do so. There were then a series of meetings between Mr Karas and Craig and Shane Charter at which they discussed the terms upon which CSC1957 Investments might be prepared to sell the property to Mr Karas.

11 A price of $3.4 million was agreed. Mr Karas said that he could pay or raise $2.4 million, but that a final payment of $1 million would have to be deferred for up to a year. It was proposed that the purchaser would provide a mortgage over the property to CSC1957 Investments to secure that final payment. Craig and Shane Charter were prepared to sell the property on that basis. Clearly enough, the mortgage to CSC1957 Investments would rank below any mortgage securing the borrowing needed to make the payment due on settlement. Craig Charter said, and I accept, that Mr Karas assured him that, despite being an undischarged bankrupt, he had access to $100,000 that he could use as a deposit, and also that he would have access to sufficient funds within 6 to 12 months of the sale to make the deferred payment, but that he would have to borrow the rest. It was important to Craig Charter that Mr Karas contribute $100,000 of his own money, rather than borrow the entire purchase sum, so that he had something immediate and direct that he would lose should he fail to settle; in Craig Charter's terms, some 'hurt money'.

12 Because he was an undischarged bankrupt, Mr Karas was unable to enter into the contracts himself. He asked Mr Gulabovski, who was then a financial consultant, to 'assist' him to 'purchase [his] home back'. Mr Gulabovski, who controls Castaway Avenue, agreed to 'put forward' his company as purchaser and to 'arrange whatever necessary finance was required'. Castaway Avenue then engaged Melbourne Legal Chambers, a firm of solicitors, to act for it in the sale.

13 Neither Craig nor Shane Charter knew Mr Gulabovski or had had any prior dealings with him or his company. They knew, and took some comfort from, the fact that he was then, in their eyes by reason of his role as a financial adviser, a professional person.

14 Craig Charter was concerned to ensure that there would be sufficient equity in the property for the lower-ranking mortgage to CSC1957 Investments to be of value in the event that the deferred payment was not made within a year of the settlement. He said, and I accept, that he did not trust Mr Karas. For this reason, at or about the same time that the contract of sale was being prepared, he retained Conlan Cummings Lawyers to prepare the deed with a view to protecting his and his company's interests.

15 Having regard to the above, I consider that the obligation to 'provide proof' of the interest rates falls to be interpreted in a context where:

(a) The deed was being executed at the same time as the contract of sale of a residential property;

(b) That contract of sale provided for a deferred payment by Castaway Avenue of in excess of $1 million that was payable 12 months later;

(c) The property was to be mortgaged by Castaway Avenue in favour of other lenders to secure the substantial borrowings required by it to purchase the property;

(d) The deferred payment was to be secured by a mortgage over the property in favour of CSC1957 Investments that would rank below the mortgages in favour of the other lenders;

(e) If the charges or interest rates on Castaway Avenue's borrowings used to purchase the property were high, and were not paid, then there was an appreciable risk that the equity in the property might not be sufficient to secure the deferred payment;

(f) The 'real' purchaser was an undischarged bankrupt who was using someone as a 'front' to purchase the property; and

(g) The company that was to assume the obligation to make the deferred payment, and the individual who ran that company, were not well known to the vendor and the vendor did not know whether or not they had substantial unencumbered assets behind them.

B.2.2 Interpretation of the obligation to 'provide proof' that the borrowings did not exceed the specified rates

16 The first definition of 'proof' in the Macquarie Dictionary is 'evidence sufficient to establish a thing as true, or to produce belief in its truth'.[6] In the context of this agreement, consistently with that dictionary definition, the requirement to provide proof required more than the provision of material that made it more likely than not that a certain interest rate was agreed; it was not an obligation to prove the interest rate on the 'balance of probabilities', as it were. Rather, in my view, cl 2.2.1 of the deed obliged Castaway Avenue to provide to CSC1957 Investments material that would affirmatively establish to the reasonable satisfaction of a person in CSC1957 Investments' position, concerned to protect their low-ranking mortgage, that the interest terms were as asserted. That is how reasonable business people in the parties' positions would have understood the obligation to 'prove' the interest rate. The purpose of the clause was to provide CSC1957 Investments with that comfort, prior to CSC1957 Investments transferring its property with a substantial part of the purchase price not payable for a year.

17 That obligation would, clearly, be discharged if the loan documents were provided. CSC1957 Investments would then have the relevant terms. But the obligation to 'provide proof' could not be discharged, for example, simply by providing documents that only suggested, in the absence of any indication to the contrary, that the interest rates were as alleged. For example, the obligation could not ordinarily be discharged by providing information that a certain interest rate had been offered by the lender, or that a loan at a certain interest rate had been applied for by the borrower, if there was otherwise no proof of the terms of the interest rates actually agreed.

18 Further, the question as to whether something has been 'proved' is to be weighed according to the proof which it is in the power of one side to produce.[7] Accordingly, in determining whether the material provided constituted 'proof' of the interest rate, it is appropriate to take into consideration not just what material was provided but also what material might have been provided but was not provided, and what explanations, if any, were given for the failure to do so, as those matters would go to whether the proof was to the reasonable satisfaction of the person in CSC1957 Investments' position. Similarly, it is appropriate to consider whether the material that was provided created, or assuaged, any doubts that might be held in the mind of a reasonable person in CSC1957 Investments' position.

B.3 Did Castaway Avenue breach its obligation to 'provide proof'?

19 It is convenient first to consider the terms of the loans that Castaway Avenue obtained, because that then allows a proper appreciation of what was and what was not provided to CSC1957 Investments.

B.3.1 The terms of and documents relating to Castaway Avenue's loans

20 In or around the middle of December 2019, Castaway Avenue obtained 'private' finance from two entities: Southage Pty Ltd in the sum of $2 million, and Rothman Consulting Pty Ltd in the sum of $500,000. Both lenders were represented by Velos Lawyers. Bill Velos of Velos Lawyers was also a director of Southage. The loan documents consisted of:

(a) A letter of offer to lend $2 million written by Velos Lawyers on behalf of Southage dated 16 December 2019, and a letter of offer to lend $500,000 written by Velos Lawyers on behalf of Rothman Consulting dated 17 December 2019;

(b) A 'certificate of acceptance' of the terms in the letter of offer from Southage executed by Castaway Avenue and Mr Gulabovski and dated 16 December 2019, and a 'certificate of acceptance' of the terms in the letter of offer from Rothman Consulting executed by Castaway Avenue and Mr Gulabovski and dated 17 December 2019. These documents had the usual, formal execution clause for Castaway Avenue, and a witness to Mr Gulabovski's signature;

(c) A lengthy 'general security agreement' between Rothman Consulting and Castaway Avenue dated 17 December 2019, and a lengthy 'general security agreement' between Southage and Castaway Avenue dated 18 December 2019;

(d) Mortgage documents in favour of Southage and Rothman Consulting in the form to be lodged with the registrar of titles; and

(e) Terms and conditions AA3553, which were referred to in the mortgage documents referred to in (d) above.

21 There was also a deed of priority that related to the priority that the different mortgages would have.

22 Both letters of offer were four pages long, with the fourth page being the 'certificate of acceptance' that provided for execution by Castaway Avenue as borrower and Mr Gulabovski as guarantor. Each letter was written by Velos Lawyers and commenced with the sentence 'on behalf of our client we are pleased to offer you a loan facility in accordance with the terms and subject to the conditions set out below', followed by three pages of numbered terms and conditions. The letter relating to the Southage loan was on Velos Lawyers' letterhead. The letter relating to the Rothman Consulting loan was not on Velos Lawyers' letterhead. Each letter included the following:

1. Rate of interest: 5% per annum with default rate of 6.5% if payment of interest is not paid on date due.

...

14. Conditions (1) ...

(2) This offer has been drawn on the basis of information supplied to the Mortgagee by the Borrower and the Guarantor and/or their agent and the Mortgagee reserves the right to amend/vary the terms of this offer or to withdraw the offer altogether in the event of any new information or any change in circumstances that are discovered by the Mortgagee.

23 Item 18 in each letter set out the costs and fees for the loan. The loan from Southage included a loan application fee of $20,000 payable at settlement and a 'deferred establishment fee' of $100,000 payable within 30 days of the draw down of the facility. The loan from Rothman Consulting included a loan application fee of $5,000 payable at settlement and a 'deferred establishment fee' of $25,000 payable within 30 days of the draw down of the facility. The deferred establishment fees appeared on the third page of each letter.

24 The 'general security agreements' were expressed in broad terms and included terms by which Castaway Avenue charged all its present and future property to secure, inter alia, any liability it or Mr Gulabovski, as guarantor, might have from time to time to Rothman Consulting and to Southage.

B.3.1.3 The mortgages and the terms and conditions

25 The Southage mortgage was executed by Castaway Avenue on 17 December 2019 and the Rothman Consulting mortgage was executed by Castaway Avenue on 18 December 2019. Each incorporated by reference the terms and conditions with document reference number AA3553. These terms and did not set any rate of interest. But they did provide that the security would cover any interest and costs associated with the mortgage and 'all amounts that are or may become owing to the Mortgagee under any agreement between the Mortgagor and the Mortgagee now or in the future'.[8] Castaway Avenue signed acknowledgements that it had received the terms and conditions.

26 The deed of priority was between Southage, Rothman Consulting, CSC1957 Investments and Castaway Avenue and was dated 19 December 2019. In that deed, the parties consented to the execution and registration of the various securities, and agreed that, regardless of the date of registration, Southage's mortgage would rank first as security for up to $2 million plus interest, costs and charges, then Rothman Consulting's mortgage for up to $500,000 plus interest, costs and charges, and then CSC1957 Investments' mortgage.

B.3.2 The material provided by Castaway Avenue to CSC1957 Investments and CSC1957 Investments' responses

27 The contract of sale provided for settlement to take place on Monday 23 December 2019 or earlier by agreement.[9]

28 The sequence of communications in the lead up to settlement was, in summary, as follows:

(a) On Wednesday, 11 December 2019, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors and asked for the evidence required by cl 2.2.1 to be provided. On Friday, 13 December 2019, another email was sent chasing up a response.

(b) A week later, on Wednesday, 18 December 2019, Castaway Avenue's solicitors provided the first page only of each letter of offer to CSC1957 Investments' solicitors. The covering email stated that only the first page of each letter of offer was being provided.

(c) The next day on Thursday, 19 December 2019:

(i) At 1:15pm, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors, noted that Castaway Avenue was 'required by the deed to supply "proof" of the 1st and 2nd loans/mortgages', and asked for 'executed copies of the respective letters of offer'. This was, in context, a request for a document that evidenced a binding agreement on the interest rate.

(ii) At 3:39pm the same day, Castaway Avenue's solicitors provided to CSC1957 Investments' solicitors what it described, in unqualified terms, as 'the letters of offer ... as signed by our client.' Surprisingly, they provided only the first two pages of the letters of offer. They were signed at the bottom of the second page by Mr Gulabovski and dated 17 December 2019. His signature was not legible, his name was not printed underneath the signature, and his signature was not witnessed. Nonetheless, the presence of a signature at the end of the second page tended to suggest that that was the end of the document. How these signatures came to appear on the bottom of the second page was not explained. Their presence did not sit easily with the full copies of the letters of offer obtained on discovery in this proceeding. The full copies did not have a signature at the bottom of their second pages, but did have the formally executed certificates of acceptance as their fourth pages. The effect of providing only the first two pages was to withhold from CSC1957 Investments the full set of fees that were payable on the loans, including the 'deferred establishment fees'. No explanation was given for the decision to provide only the first two pages of the letters of offer. I infer that it was a conscious decision by or on behalf of Castaway Avenue to withhold from CSC1957 Investments the fact that Castaway Avenue had agreed to pay sums including the 'deferred establishment fees' totalling $125,000. I reject Mr Gulabovski's denial of this.

(iii) At 9:23pm, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors and said:

My client is now insisting on copies of the loan agreements which have been signed by your clients. Are you able to provide our office with copies of the same? There is a clause in the loan offer which indicates that the loan offer may be varied in certain circumstances. This is of particular concern to our client and he would feel comfortable seeing the document in full.

(i) At 11:03am, Castaway Avenue's solicitors emailed CSC1957 Investments' solicitors and said:

[T]he terms of the loans are as stipulated on the letters dated 16 and 17 December 2019 [the Letters] which have previously been provided to your office. There has been no separate loan agreement signed, apart from a General Security Deed, mortgage and guarantee documents.

The concern your client has in relation to clause 14(2) of the Letters relates only to the offer itself. Given that the security documents have been signed, the terms of the offer cannot now be withdrawn or varied as they have been accepted.

This communication explicitly confirmed the implicit representation earlier made that the incomplete versions of the letters of offer that had been provided were the complete versions.

(ii) At 1:49pm, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors and attached a proposed statutory declaration. The context of the communication made it clear that CSC1957 Investments wanted it to be completed by the lenders (not the borrower). It was in the following terms:

I, of , , make the following statutory declaration under the Oaths and Affirmations Act 2018:

1. That the representations made in the loan offers are true and correct;

2. That the loan offer contains all the terms and conditions applicable to the loan;

3. That the figures and details contained in the loan offers are accurate and not subject to change; and

4. That the terms of the loan will not be amended without prior written consent of the vendor either prior to or after settlement.

I declare that the contents of this statutory declaration are true and correct and I make it knowing that making a statutory declaration that I know to be untrue is an offence.

(iii) At 2:21pm, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors and said, among other things, that CSC1957 Investments would 'proceed to settlement once the Statutory Declaration' had been 'addressed', which I take to be an indication that if Castaway Avenue provided a copy of the statutory declaration that had been completed by the lenders, then CSC1957 Investments would proceed with the sale.

(iv) The correspondence referred to in (vi) below indicates that there was then a conversation between the solicitors in which Castaway Avenue's solicitors informed CSC1957 Investments' solicitors that it was unlikely that the lenders would sign the statutory declaration, that Castaway Avenue was not prepared to sign the statutory declaration, and that Castaway Avenue would not provide any more of its loan documentation;

(v) At 4:11pm, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors in the following terms:

Your client has failed to comply with clause 2.2.1 of the Deed ... in that it has failed to provide 'proof' that the interest rates provided for in said Deed do not necessarily apply to your client's loan.

The loan that has been approved, according to the letters of offer, provides for various variations pursuant to item 14 of said loan offer, which include the possibility of the final loan interest rates being greater than those stipulated in clause 2.2.1 of the Deed.

Therefore, it is our position that your client has indeed failed to provide the 'proof' required by the Deed.

In the circumstances, and in the absence of the provision of that proof our client will not be proceeding with the sale to your client.

(vi) At 6:58pm, Castaway Avenue's solicitors sent a lengthy email to CSC1957 Investments' solicitors. In the course of that email, they repeated their contention that the signed letters of offer were sufficient proof of the terms of the loans, and they confirmed what they had apparently said earlier that day in a telephone call that that it was 'highly unlikely' that Southage would agree to execute a statutory declaration, and that 'our client would not provide you with copies of the mortgage, general security deed and guarantee documents as they were not required pursuant to the contract of sale'. They also confirmed that their client was not required to sign the statutory declaration and would not do so. They otherwise indicated a willingness and preparedness to settle, and reserved their client's rights.

(e) On Monday, 23 December 2019 at 11:42am, CSC1957 Investments' solicitors emailed Castaway Avenue's solicitors and confirmed that CSC1957 Investments would not be proceeding with the sale. They noted (among other things) that Castaway Avenue had 'failed to provide ... confirmation that no further amendments will be made to the loan offers provided ... Alternatively, clause 14(2) be struck out from the letters on the basis that the mortgagees will not under any circumstances vary the terms of the offers or withdraw said offers.'

B.3.3 Did the material provided constitute proof of the interest rates?

29 Castaway Avenue's central proposition was that it had provided those parts of the letters of offer that specified the interest rates, that the letters of offer had been signed by the borrower, and accordingly that it had provided proof that the interest rates payable did not exceed the rates specified in the deed.

30 Castaway Avenue did not provide to CSC1957 Investments (until discovery in this proceeding):

(a) A full copy of the letters of offer;

(b) A copy of the certificates of acceptance executed by Castaway Avenue and Mr Gulabovski;

(c) A copy of the mortgage documents that it intended to lodge;

(d) A copy of the terms and conditions that would apply to those mortgages;

(e) A copy of the general security agreements; or

(f) Any document signed by the lenders by which they acknowledged a binding obligation to charge only the interest rates referred to in the letters of offer.

31 It was in the circumstances detailed above that Craig Charter was suspicious. It is to be remembered that he did not trust Mr Karas, who was behind the purchase. He said that it would be unusual for interest at that rate to be charged by private lenders, even when secured by a first mortgage. I note that $500,000 of the borrowing was to be secured by a second mortgage, yet the apparent interest rate was the same. He pointed out that, for all he knew, the offers in the letters of offer had been varied by the lenders prior to their 'acceptance' by Castaway Avenue. He wanted to be provided with a full set of the contractual documentation, including a document executed by the lender, by which it could be established, once and for all, what the agreed interest rate was.

32 In my view, Craig Charter was entitled to have the concerns he did. On analysis, Castaway Avenue provided only assertions that the contractual interest rates were in accordance with the rates contained on the first pages of the letters of offer, rather than proof that the contractual interest rates were no higher than the specified rates. A letter of offer, particularly one that reserved the right to withdraw or to amend the offer, combined with a later signature purporting to accept the offer, could not bind the lender unless it were established that the offer had not been amended or withdrawn before acceptance and that the acceptance had been communicated to the lender. In the absence of some acknowledgment by the lender that this was the case, CSC1957 Investments was reliant on Castaway Avenue's explicit or implicit assertions of those facts.

33 The way the letters were signed - an illegible and unwitnessed signature at the bottom of a page without the name of the person signing being recorded or anything written to indicate that the signature was on behalf of the company and without anything on the letter itself to suggest that the place where the signature was found was the place at which a signature was to be placed to indicate acceptance - would hardly allay this concern. One would expect there to be some more formal process of indicating acceptance of the offers given the sums under consideration. And indeed, after discovery, it became apparent that there was a more formal process for indicating acceptance of the offers. The fourth page of each letter of offer was a 'certificate of acceptance' that provided that Castaway Avenue and Mr Gulabovski 'hereby accept' the terms and conditions in the letter of offer, had a formal execution clause for Castaway Avenue, provided for Mr Gulabovski to sign on behalf of Castaway Avenue in his capacity as 'director/secretary' with his name recorded, and provided for him to sign it also as guarantor. His signature was witnessed.

34 Further, the letters of offer did not contain all the terms that would ordinarily be included in a lending arrangement. In the absence of provision of the actual terms of the contract, CSC1957 Investments was reliant on Castaway Avenue's implicit assertion that other terms and conditions of the loans would not or could not lead to some variation in the interest rate chargeable. Put another way, for all CSC1957 Investments knew, there were other terms and conditions agreed upon that might have provided for higher interest rates in certain circumstances apart from those contained in the letters of offer.

35 Seen in that way, it is apparent that Castaway Avenue did not 'provide proof' that the interest rates applicable to the proposed loans did not exceed the rates contained in the deed. It provided material that suggested the interest rates that applied, but withheld any proof that the contract as ultimately formed provided for interest, in all circumstances, only at those rates. The material provided did not, in my view, prove to the reasonable satisfaction of a person in CSC1957 Investments' position that the loans did not permit any interest rate above the terms identified in the first page of the letters of offer. Accordingly, Castaway Avenue did not comply with the obligation on it contained in cl 2.2.1 of the deed.

36 My conclusion is confirmed by the following further considerations (although I would have reached the same conclusion even without regard to them):

(a) By the time of these communications, it had become apparent that $500,000 of the moneys borrowed were to be secured by a second mortgage. There was no suggestion that Southage and Rothman Consulting were related lenders working together, as it were. An interest rate of 5% from a private lender for a loan secured by a second mortgage was, I accept, sufficiently low to excite some concern that there might be other terms and conditions that, for example, provided for the interest rate being further increased in some circumstances beyond the default rate listed on the first pages of the letters of offer;

(b) The material that was provided did not contain all the costs to the borrower of the loans, because the third pages of the letters of offer were withheld, by inference deliberately so as to prevent CSC1957 Investments becoming aware of them. It was apparent to CSC1957 Investments that contractual material relating to the return to the lender from the loan was being withheld. That is consistent with its request that the statutory declaration be signed by Southage and Rothman Consulting. But the statutory declaration was not signed by Southage or Rothman Consulting, and no proper reason for failing to sign it was put forward beyond the assertion that there was no legal obligation to do so;

(c) No valid reason was given for Castaway Avenue's failure to provide a document that had been executed by the lender that confirmed that a loan had been made on the terms set out in the letters of offer, or any confirmation from the lender that the interest rates payable on the loan could in no circumstances be more than the specified rates; and, finally,

(d) CSC1957 Investments was dealing with a company and individual who were prepared to act as a front for a bankrupt in order to purchase a property using funds that were not available to the trustee in bankruptcy. CSC1957 Investments was entitled to be more sceptical that would ordinarily be the case. This was not a case where the 'proof' could be found in assertion or fell to be assessed where there was a relationship of trust.

37 Finally, and for the avoidance of doubt, I have not concluded that Castaway Avenue in fact misled CSC1957 Investments as to the interest rates that were payable on its borrowings. The materials that were produced in discovery - the full letters of offer, the mortgage documents and the general security agreements - indicate, with one exception,[10] that Southage and Rothman Consulting had in fact agreed to lend on the specified interest rates. But I have concluded that Castaway Avenue did not comply with its obligation to 'provide proof' of that fact to CSC1957 Investments prior to CSC1957 Investments completing the contract of sale. Perhaps, Castaway Avenue was concerned not to reveal the full extent of the establishment fees that were being charged, as those fees may well have been moneys secured by the mortgages and may have caused CSC1957 Investments to object, or perhaps Castaway Avenue was concerned not to reveal the full terms and conditions as those terms and conditions, at least arguably, would have permitted the mortgagees to secure other subsequent advances or other indebtedness. These matters, however, are speculative, and I do not have to decide them.

C. Did the breach justify CSC1957 Investments in refusing to settle?

C.1 The time by which the proof had to be provided

38 I interpret cl 2.2.1 of the deed as requiring that the proof be provided prior to the date for settlement of the contract of sale, that is, prior to 23 December 2019.

C.2 What consequences flowed from the breach of cl 2.2.1 of the deed

39 Castaway Avenue submitted that the deed could be construed by reference to the contract of sale because the deed referred to the contract of sale but that the contract of sale could not be construed by reference to the deed. I disagree. I consider that the two documents were sufficiently connected that each may be interpreted by reference to the other. In my view, the two documents should be seen as together recording one agreement (or transaction).[11] The two contractual documents were entered into at or about the same time, and were intended to operate together. So much is apparent from the recitals to the deed referred to in para 5 above and from the other provisions referred to in para 7 above; the contract of sale created a risk for CSC1957 Investments, and the purpose of the deed was to provide protection against that risk. I also note, for example, that special condition 14 of the contract of sale required Castaway Avenue to arrange for any first or second mortgagee to consent to the registration of CSC1957 Investments as third mortgagee, which is a clear reference to obligations contained in the deed. The two documents were entwined, and the use of two documents, rather than one, is explained by the existence of a 'standard form' contract of sale document, and by the need to add additional parties in the deed.

40 I have formed this view notwithstanding the 'entire agreement' clause set out in para 7 above. That clause, cl 4, simply cannot stand as a true reflection of the parties' intentions, objectively ascertained, in light of the repeated references within the deed itself to the contract of sale and the broader context in which the two documents were entered into.

41 In my view, the obligation on Castaway Avenue in the deed to provide proof of the interest rates was an essential term of the agreement between the parties. It was an essential term because I am satisfied, from the nature of the agreement seen in its context, that CSC1957 Investments would not have agreed to sell the property on the terms it did without that promise.[12] Indeed, I am satisfied that the common purpose of the obligation was to ensure that CSC1957 Investments was not caught by an agreement to sell the property, with a substantial deferred payment secured by a lower ranking mortgage, without it first having been established to its reasonable satisfaction that the interest rates on the higher-ranking mortgages did not exceed the specified rates.[13]

42 Seen in this way, the failure by Castaway Advance to provide the proof was a breach by it of an essential term of that agreement and gave CSC1957 Investments the right to terminate the agreement including any obligations on it under the contract of sale. By CSC1957 Investments' communications referred to in paras 28(d)(v) and (e) above that it 'would not be proceeding with the sale', CSC1957 Investments communicated the exercise by it of that right, and thereupon brought the agreement between the parties to an end.

43 Castaway Avenue denied that any breach by it of cl 2.2.1 entitled CSC1957 Investments to avoid the contract of sale. Its basic contention was that, on a proper construction of the agreement, if Castaway Avenue failed to provide the proof required, then CSC1957 Investments had the right to recover compensation from Mr Gulabovski for any loss it suffered as a result, but that CSC1957 Investments remained obliged to settle the sale. It contended that the deed simply operated as 'a form of indemnity'. It noted Recital B, where it was said that CSC1957 Investments wished to establish a method of recovering from the other parties to the deed, and the absence of any explicit statement in the deed that a failure on its part to prove the interest rate meant that CSC1957 Investments did not have to settle the sale.

44 There are a number of difficulties with Castaway Avenue's contention.

45 The first difficulty with Castaway Avenue's contention is that it does not have proper regard to the purpose of imposing an obligation on Castaway Avenue not just to limit the maximum interest rates that it could agree to pay but also to 'provide proof' that it had done so. CSC1957 Investments was transferring ownership of a property for $3.4 million in circumstances where over $1 million of the purchase price was not going to be paid for up to a year, and where the purchaser would in the meantime be mortgaging the property to others to secure loans of up to $2.5 million plus interest and charges. In those circumstances, there was a very real risk that CSC1957 Investments' security interest as third mortgagee would be insufficient to cover the deferred payment. The higher the interest rates (and other charges) payable to the lenders, the greater the risk to CSC1957 Investments. If Castaway Avenue had not limited its interest to the agreed levels, then requiring CSC1957 Investments to comply with the contract of sale would expose it to a greater risk than it had agreed to assume. The obligation on Castaway Avenue not just to limit the interest that it could be charged but also to 'provide proof' of the interest rates payable makes perfect sense if the proof is seen as being required prior to settlement and its provision is seen as a condition of settlement.

46 The second difficulty with Castaway Avenue's contention is that it is by no means clear that Mr Gulabovski would be liable to indemnify CSC1957 Investments against any losses it might suffer if the interest rates agreed were higher than those specified in the deed. Mr Gulabovski was obliged by the deed to provide certain 'information' to CSC1957 Investments, but he was not obliged by the deed to provide the proof of the interest rates; that obligation was only imposed on Castaway Avenue. Nor was it said that Mr Gulabovski was obliged to ensure that Castaway Avenue did not borrow at any higher interest rate than the rate specified. Consistently with this, the deed did not in terms require Mr Gulabovski to indemnify CSC1957 Investments against any loss it might suffer as a result of any failure by Castaway Avenue to provide the 'proof' of the interest rate. In fact, the terms of the deed suggest that Mr Gulabovski might have been under no such obligation. Clause 11.2 of the deed provided that Castaway Avenue shall be liable for any losses arising from a breach by it, and cl 11.3 provided that Mr Gulabovski shall be liable for any losses arising from a breach by him, but nowhere was it said that Mr Gulabovski shall be liable for any losses arising from a breach by Castaway Avenue of the obligations placed on it. This indicates that the obligation to provide the 'proof' was intended to play some role other than giving CSC1957 Investments a claim in damages against Mr Gulabovski.

47 Castaway Avenue[14] contended that Mr Gulabovski would be liable for any loss occasioned by a breach by Castaway Avenue of cl 2.2.1 of the deed by reason of general condition 19 of the contract of sale. That condition provided that a signatory for a proprietary limited company purchaser is personally liable for due performance of the purchaser's obligations as if the signatory were the purchaser. However, despite the connection between the deed and the contract of sale, I would not interpret this general condition as applying to obligations assumed by Castaway Avenue in the deed. That general condition would be limited to the obligations contained in the contract of sale, and would not apply in the deed, where Mr Gulabovski was also a party, and where the deed explicitly and separately set out the obligations on him and the obligations on the company and who would be liable for what breach.

48 Castaway Avenue also contended that Mr Gulabovski would be liable for any loss occasioned by a breach by Castaway Avenue of cl 2.2.1 of the deed because of the obligation on Mr Gulabovski in the deed to 'provide to the vendor accurate information as required by this deed'. Again, however, I do not interpret the obligation on him to provide 'accurate information' as encompassing the obligation on Castaway Avenue to provide proof of the interest rates. Mr Gulabovski had a separate obligation under the deed to provide a 'monthly statement', which I take to be a monthly statement of the level of Castaway Avenue's indebtedness, or at least the interest payments being made. That, however, was a separate obligation to an obligation to prove (prior to settlement) the interest rates that had been agreed, and it is for any loss caused by a breach of this separate obligation that Mr Gulabovski would be liable to pay damages.

49 The third difficulty with Castaway Avenue's contention is that even if Mr Gulabovski were liable to indemnify CSC1957 Investments against any losses it might suffer in the event that the interest rates agreed were higher than those set out in the deed, that is no reason to limit the consequences of a breach by Castaway Avenue of the obligations on it. The deed does not reveal an intention that if the proof were not provided, CSC1957 Investments would nonetheless be obliged to settle, on the basis that CSC1957 Investments would later have an unsecured action in damages against an individual if, a year later, the deferred payment was not made and the equity in the property was insufficient to secure it.

50 Finally, there is a logical problem with Castaway Avenue's analysis. If Castaway Avenue did not make the deferred payment and there was insufficient equity in the third mortgage to cover the deferred payment, then to the extent that the shortfall arose from Castaway Avenue assuming a higher interest rate than that provided for in the deed, the associated loss to CSC1957 Investments would result from Castaway Avenue's decision to assume that higher interest rate. There would be no loss that resulted from the failure to 'provide proof' of the interest rate unless CSC1957 Investments would have been able to avoid the contract of sale if it had been made aware that the interest rate agreed to was higher than that set out in the deed; the obligation on Castaway Avenue not just to limit the interest that it could be charged but also to 'provide proof' of the interest rates payable makes little sense if CSC1957 Investments was obliged to settle the contract of sale even if the proof was not provided. Accordingly, unless the provision of the proof is seen as a condition precedent to the obligations on CSC1957 Investments under the contract of sale, the obligation to provide proof would be an obligation the breach of which was free of real consequence.

C.3 Did CSC1957 Investments have to serve a default notice?

51 General condition 27 of the contract of sale provided that a party is not 'entitled to exercise any rights arising from the other party's default' until the other party is given and fails to comply with a written default notice. It then provided, in substance, that the default notice must give the other party 14 days to remedy the default. General condition 27 is considered further in para 54 below. Castaway Avenue contended that because CSC1957 Investments had not served such a notice, the contract of sale remained binding on it.

52 I disagree. The requirement to serve a default notice is an aspect of the standard contract of sale of real estate. It governs how and when parties may exercise rights where one party breaches a term of that contract of sale. But here, for the reasons I have set out above, on the breach by Castaway Avenue of cl 2.2.1 of the deed, CSC1957 Investments was entitled to, and did, avoid any obligations on it under the contract of sale. That included any requirement to serve a default notice. Under the agreement between the parties, properly understood, CSC1957 Investments was entitled to 'walk away' from the contract of sale on the breach by Castaway Avenue of its essential obligation to prove the interest rates at which it was borrowing to purchase the property, and that is what it did.

D. The claim that Castaway Avenue did not pay the deposit

53 As noted above, the contract of sale required Castaway Avenue to deposit $100,000 into its solicitors' trust account at the time of signing of the contract of sale. The contract of sale was signed on 2 December 2019 and on 6 December 2019. Castaway Avenue did not do this. Instead, on or shortly before 19 December 2019, Rothman Consulting deposited $500,000 into Castaway Avenue's solicitors' trust account. That money was held, it seems, on trust for Rothman Consulting. Presumably, this was done at the direction of Castaway Avenue. Of the $500,000, $400,000 has since been removed, and so $100,000 remains in Castaway Avenue's solicitors' trust account which, it says, is further indication of its readiness and willingness to settle.

54 CSC1957 Investments contends that its refusal to settle may also be justified on the grounds that Castaway Avenue's failure to pay $100,000 into its solicitors' trust account at the time it signed the contract of sale was a breach by it of an essential term of the contract, notwithstanding that CSC1957 Investments was not aware of this breach at the time that CSC1957 Investments refused to settle. I accept that a vendor is able to justify its termination of a contract of sale on the basis of breaches by the purchaser that gave it that right, even if it was not aware of those breaches at the time it terminated the contract.[15] But an issue arises as to whether the failure to pay the deposit at the time of signing would have given CSC1957 Investments the right to terminate the contract of sale, or whether it would have been required first to comply with the 'default notice' provisions in general condition 27. General condition 27.1 provided that:

27.1 A party is not entitled to exercise any rights arising from the other party's default ... until the other party is given and fails to comply with a written default notice.

55 It then provided, in substance, that the other side be given 14 days to remedy the default.

56 Neither party provided me with any decisions that have considered whether or in what circumstances a party may terminate for breach of an obligation to pay a deposit where a condition such as general condition 27.1 is included in the contract.[16] It seems to me that the default notice provisions probably would apply unless the failure to pay the deposit can be seen as evincing an intention no longer to be bound by the contract. However, in light of my finding that CSC1957 Investments was entitled to refuse to settle because Castaway Avenue had failed to provide proof of the level of the interest payable its loans, it is not necessary for me to determine this issue.

E. The claim against Castaway Avenue based on misrepresentation

57 CSC1957 Investments also contended that Mr Karas, acting as agent of Castaway Avenue, had represented, among other things, that the interest rates would not be above 5% or 6.5% per annum in default and that there would be 'no hidden fees or expenses' in the loan documents. CSC1957 Investments contended that these representations were false and that it had entered into the contract of sale and the deed as a result of them. It contended that Castaway Avenue had engaged in misleading or deceptive conduct under the Australian Consumer Law[17] and sought, under s 238 of the Australian Consumer Law, compensation and a declaration that the contract of sale has been repudiated. CSC1957 Investments also contended, as I understood it, that because it had been induced to enter into the contracts of sale as a result of those representations it was entitled to avoid the contract at general law.[18]

58 CSC1957 Investments relied on statements made by Mr Karas to Craig and Shane Charter at meetings in which they discussed the initial parameters of the transaction. Craig Charter, who controlled CSC1957 Investments at the time, said that the 'flavour' of the discussion with Mr Karas was that the loans would be 'at bank terms' and that they were 'talking about bank rates, bank fees'. Shane Charter similarly said that 'the whole flavour and talk was about banks, banks of around 5%' and that Mr Karas said '[y]eah, it will be 5 per cent.' In circumstances where Mr Karas was available but failed to give evidence, I accept the uncontradicted evidence of Craig and Shane Charter as to what they were told.[19] I am also prepared to accept that the consequences of any misstatements by Mr Karas may be visited on Castaway Avenue.

59 It has not been established that the loans entered into were at interest rates above 5% or 6.5% per annum in default, but the loans did have significant establishment fees that were, I am prepared to assume, higher than a bank would charge. But I am not satisfied, on the evidence led, that the statements made by Mr Karas were of a quality that entitled CSC1957 Investments to the relief claimed. The clear impression I formed from Craig and Shane Charter's evidence was that their discussions with Mr Karas were preliminary, vague and made on the understanding that the precise obligations between the parties would later be documented. I was not satisfied that the statements made by Mr Karas were 'commitments' in any relevant sense. Indeed, one of the aspects of their evidence that caused me to consider Craig and Shane Charter to be honest witnesses was their clear unwillingness to 'gild the lily' when giving this evidence.

60 Further, Craig Charter, who was at the relevant time in control of CSC1957 Investments, did not say that he entered into the deed and contract of sale in reliance on the accuracy or Mr Karas's statements or that but for those statements he would not have entered into the deed and contract of sale. Instead, he said that he engaged a solicitor to 'bolt [the arrangement] down properly'. Also, as is apparent from the discussion above, the deed was prepared to address the concerns CSC1957 Investments had in respect of the terms of Castaway Avenue's proposed borrowings. In this way, the terms of deed the were intended to subsume the statements made in the earlier discussions.

61 For these reasons, I am not satisfied that the comments made by Mr Karas justify a conclusion that Castaway Avenue engaged in misleading and deceptive conduct, or that they induced CSC1957 Investments to enter into the deed and contract of sale so as to justify them now rescinding those documents on that basis.

62 Further, CSC1957 Investments has not established that it has suffered any loss by reason of the alleged conduct. It has retained the property, and it is common ground that the property has increased in value. Accordingly, any entitlement to damages pursuant to s 236 of the Australian Consumer Law was not made out.[20]

63 In its reply and defence to counterclaim, CSC1957 Investments alleged that there was an implied term of the agreement that Castaway Avenue 'would not withhold any information which might have caused [CSC1957 Investments] not to enter into the proposed third mortgage and further to provide accurate and complete information to [CSC1957 Investments] as the proposed mortgagee'. CSC1957 Investments allege that this term was breached, and that for this reason also it was entitled not to proceed.

64 Again, it is not necessary for me to decide this issue. That said, I do not consider that such a term, to the extent that it went beyond the express terms relating to the provision of information, would be necessary to give business efficacy to the agreement. Further, although the memorandum of common provisions referred to in the proposed third mortgage contained terms providing that the mortgagor has not withheld any information which might have caused the mortgagee not to enter into this mortgage, the third mortgage was never in fact given, because the settlement did not proceed.

G. The claim that Mr Gulabovski engaged in misleading and deceptive conduct

65 CSC1957 Investments alleged that Mr Gulabovski had engaged in misleading and deceptive conduct and sought damages and a declaration to that effect. It relied on:

(a) Mr Gulabovski signing the statutory declaration, which contained an assertion that the loan offers contained all the terms and conditions applicable to the loan; and

(b) Mr Gulabovski, through his lawyers, dishonestly representing on 19 December 2019 that all the terms of the loan offers had been disclosed to it.

66 The statutory declaration signed by Mr Gulabovski on 23 December 2019 was in the following form:

I, Alexanndar Gulabovski of [address], director, make the following statutory declaration under the Oaths and Affirmations Act 2018:

1. ...

2. That the loan offer contains all the terms and conditions applicable to the loan;

3. ...

4. ...

I declare that the contents of this statutory declaration are true and correct and I make it knowing that making a statutory declaration that I know to be untrue is an offence.

67 The concern, of course, is that at the time that this statutory declaration was signed, Castaway Avenue's solicitors had only provided the first two pages of the letters of offer, and had not provided the general security agreements. This latter point establishes that the assertion in the statutory declaration was incorrect. But this aspect should be seen in context. Castaway Avenue's solicitors had already informed CSC1957 Investments' solicitors that there was a general security agreement and a mortgage, albeit that they had refused to provide copies of those documents. Accordingly, I do not consider that his statutory declaration, despite its wording, misled or deceived, or was likely to mislead or to deceive, CSC1957 Investments into thinking that there were no other contractual documents relating to the loan.

68 However, the statutory declaration did convey, and I am satisfied was intended to convey, to CSC1957 Investments that the versions of the letters of offer with which it had been provided were complete. That was misleading and deceptive because the versions of the letters of offer that had been provided did not include the final page, on which there were terms and conditions applicable to the loan.

69 Mr Gulabovski gave the following evidence on this point:

HIS HONOUR: So whose decision was it to send [pages] 1 and 2 and not [page] 3?---I don't recall, Your Honour, it may have been a discussion that I had at the time with the solicitors, it may have been just me telling them, 'They've asked for this information, I assume that's what they wanted', because I was complying with the deed. The deed said I had to provide proof of the interests rates. There wasn't a request in the deed for anything else, Your Honour.

...

[MR PERCY:] What I'm putting to you, Mr Gulabovski, to be fair, is that when you made that declaration on 23 December you knew that my clients had not been given all of the terms and conditions applicable to the loan?---No, that's not correct, they were provided everything we were required to provide.

...

MR PERCY: Mr Gulabovski, I want to put to you this, that at the time you made this declaration you knew that only two pages of the letter of offer in each case from Southage and Rothman, had been provided to my client; do you accept that?---No.

[MR PERCY:] I want to put to you this, that this declaration was intended to deliberately mislead my client into believing that they had received all of the pages of letters of offer, what do you say to that?---No, I provided a stat dec that I provided all the information that I was requested to provide, and that's what I thought I provided.

70 As the above makes clear, Mr Gulabovski did not positively contend that he believed that a full copy of the letters of offer had provided. But he did deny in answer to the third question set out above that he knew that only the first two pages had been provided. The evidence was otherwise that Mr Gulabovski was giving instructions to Castaway Avenue's solicitors - he was 'in regular contact with [the solicitors] about dealing with requests that were coming forward on behalf of [CSC1957 Investments]'. In these circumstances, and when the answers are read together, and when no other explanation was given for how it came to be decided to send only the first two pages (with Mr Gulabovski's signature at the bottom of the second pages), I do not accept that Mr Gulabovski was not aware that only two pages of the letters of offer had been provided, and indeed am prepared to infer that he was aware that only the first two pages of the letters of offer had been sent. Of course, as someone who had signed the letters of offer (and who was the recipient of them), he must have known that the third pages contained further terms and conditions for deferred establishment fees totalling $125,000 and that the fourth pages were the 'certificates of acceptance'.

71 The provision of the statutory declaration was part of a process whereby a property was being sold. The misleading and deceptive conduct was therefore made in trade and commerce. I conclude that by signing the statutory declaration, and having the solicitors whom he was instructing send the statutory declaration to CSC1957 Investments, Mr Gulabovski did engage in conduct that was contrary to s 18 of the Australian Consumer Law.

72 However, given that CSC1957 Investments avoided the sale, and that it is common ground that the value of the property has gone up, CSC1957 Investments has not established that it has suffered any loss because of Mr Gulabovski's misleading and deceptive conduct. Accordingly, an entitlement to damages pursuant to s 236 of the Australian Consumer Law was not made out.

73 Mr Gulabovski resisted the making of a declaration that he had engaged in misleading and deceptive conduct (if I so found) on the basis that making such a declaration would serve no purpose. CSC1957 Investments did not pursue its application for a declaration that Mr Gulabovski had engaged in misleading and deceptive conduct in the event that I formed the view that that conduct was not causative of financial loss. In these circumstances, I will not make such declaration.

H. The claim by CSC1957 Investments to the deposit moneys

74 As noted above, there is presently $100,000 in Castaway Avenue's solicitors' trust account. CSC1957 Investments claims an entitlement to that sum.

H.1 Castaway Avenue was ready, willing and able to settle

75 Castaway Avenue contends that it was ready, willing and able to settle. I accept that this was the situation. The correspondence leading up to the planned settlement makes it clear that Castaway Avenue wished to settle on 23 December 2019 and was intending to do so. The amount payable at settlement was $2,503,372, being the $2,213,000 payment, the $100,000 deposit, stamp duty of $187,000 and adjustments of $3,372. Castaway Avenue had arranged loans totalling $2.5 million. I accept the evidence given by Mr Velos and Mr Gulabovski that the loan funds were available. Even if the lenders' various fees and charges associated with those loans had to be paid out of the funds when they were drawn down (instead of being able to be paid after settlement out of other funds), with the result that the full $2.5 million was not available to be used to pay CSC1957 Investments or the stamp duty, the 'shortfall' would be a figure of approximately $165,000. I accept the evidence given by Mr Gulabovski that he had ready access to sufficient additional funds to meet that shortfall. CSC1957 Investments had indicated prior to the settlement time that it did not intend to settle and it did not join the virtual PEXA meeting at which settlement was to take place. In such circumstances I do not accept that a failure to make the entire funds 'available' within the PEXA system in advance of the scheduled meeting indicates that the funds were not able to be accessed as required in the event that CSC1957 Investments attended the virtual meeting and sought to settle the sale.

H.2 Did the agreement permit CSC1957 Investments to terminate the contract of sale and retain (or obtain) the deposit?

76 Castaway Avenue disputed that the $100,000 described as a 'deposit' in the contract of sale was, in fact, a deposit. It pointed out that although general condition 11 required the 'deposit' to be paid to the vendor's agent or to a special purpose account in joint names, under the particulars of sale the money was to be paid instead into the purchaser's solicitors' trust account, and was to remain there until settlement. Further, it contended that this took it out of the definition of 'deposit moneys' in s 23 of the Sale of Land Act 1962. That definition is as follows:

[D]eposit moneys ... includes any moneys which are part of the purchase price received by the vendor or on behalf of the vendor before the purchaser becomes entitled to a transfer or conveyance of the land ...

77 I am not persuaded that the definition of 'deposit moneys' in s 23 of the Sale of Land Act 1962 means that the moneys deposited was not a 'deposit'. First, the definition uses the word 'includes', and so is not intended to be exhaustive. Second, I do not accept that payment of moneys described by the parties as a deposit into the purchaser's solicitors' trust account cannot be said to have been received 'on behalf of' the vendor. It would certainly be arguable that the purchaser's solicitors were acting as some form of 'stakeholder'. This is consistent with s 24 of the Sale of Land Act 1962, which provides that 'any deposit moneys received by a legal practitioner ... in the course of a transaction for the sale of land shall be held by that legal practitioner ... as a stakeholder ... until the purchaser becomes entitled to a transfer ...'. But ultimately, I consider that the true character of the moneys paid is not controlled by a definition of a term in the legislation, but is controlled by the nature of the payment in the context of the contractual relations between the parties.

78 The obligation was to pay a sum of money on the signing of the contract, with the sum to be held there until settlement. A consequence of Castaway Avenue's argument would be that this was a contract for the sale of land where there was no deposit paid. But it is difficult to see what purpose that payment could have had but as a deposit in the true sense, and that is the term that the contract of sale and the deed used to describe that payment. The agreement that it be paid into the purchaser's solicitors' trust account was a quirk, but does not, in my view, mean that the ultimate destination of that sum depends on something other than the terms of the contract in a context where that sum was to act as an assurance.

79 In ordinary circumstances, if a purchaser breaches an essential term of a contract of sale, and the vendor elects to terminate that contract of sale, then accrued rights including a right in the vendor to recover the deposit as a debt subsist.[21] But this case is unusual because the breach by Castaway Avenue that gave CSC1957 Investments the right to terminate the agreement was not a breach of an obligation recorded in the contract of sale, but was instead a breach of an obligation recorded in the deed. It is true that Castaway Avenue had also breached its obligation to pay the deposit on signing, but, as noted above, that breach would not have evinced an intention no longer to be bound by the contract of sale and so probably would not have permitted CSC1957 Investments to terminate the sale unless it first served a notice of default in accordance with the general conditions of the contract of sale.

80 There was no special condition that dealt with the situation where the vendor refused to settle on the basis that the purchaser had not complied with a term of the deed. The deed itself did not specify what was to happen to the deposit if the sale did not go ahead due to a failure on the part of a party to comply with the deed.

81 If a deposit were seen only as part of the purchase price paid early, it would not be receivable by a vendor if the contract of sale were terminated by the vendor prior to sale.[22] The reason for which a deposit may be recovered as a debt from a defaulting purchaser notwithstanding that the sale does not proceed is because the deposit is not seen only as part of the purchase price paid early. Instead, it is also seen as an 'earnest of performance' or a 'pledge' and it is for that reason that the vendor may ordinarily recover the deposit from a defaulting purchaser.[23] This approach reflects the approach taken long ago in Hinton v Sparkes,[24] where Bovill CJ concluded that the question was whether there was a term of the contract, express or implied, that the deposit shall 'in the event which has happened' become forfeited. Eve J in Hall v Burnell[25] observed:

Money paid as a deposit must ... be paid on some terms implied or express, and in a case where no terms are expressed it becomes necessary to inquire what terms are to be implied.

82 Accordingly, in my view, the question comes down to what obligations the deposit paid was intended to assure. I consider that the deposit, as would ordinarily be the case, was an earnest for the performance by Castaway Avenue of the obligations on it that were contained in the contract of sale. But it does not necessarily follow that it was also an earnest of the obligation on Castaway Avenue under the deed to provide proof of the interest rates.

83 On balance, I consider that the deposit was not an 'earnest' of Castaway Avenue's obligation to provide proof of the interest rates at which it was borrowing the sums to complete the purchase. There was nothing in the contract of sale or the deed that connected the deposit with that obligation. The obligation to pay the deposit was contained in a standard form contract of sale that usually stands alone. In these circumstances, and notwithstanding that the two documents may be seen as part of the one agreement or transaction, I see no reason why the obligation on Castaway Avenue in the contract of sale to pay a deposit should be seen as an assurance of the obligation on it in the deed to provide proof of the relevant interest rates. That is not the role that I consider the deposit, applying the objective theory of contract law, was intended to play.

84 For this reason, on termination of the agreement between the parties (including the contract of sale) on the grounds that Castaway Avenue had breached an essential term of the deed, the deposit was not forfeited. Accordingly, Castaway Avenue, or perhaps Rothman Consulting, is the owner of the $100,000 currently in the trust account of Castaway Avenue's solicitors.

85 Castaway Avenue claimed that CSC1957 Investments was liable to it for breach of contract. The damages it claimed was the interest that it says it had paid, or was obliged to pay, to Southage and Rothman for those entities keeping the moneys available so that Castaway Avenue would be able to settle the sale.

86 In light of my finding that CSC1957 Investments was entitled to avoid the settlement, I do not need to determine whether Castaway Avenue would have been entitled to those damages.

87 It follows from my analysis set out above that Castaway Avenue no longer has a caveatable interest in the property. Accordingly, the caveat it has lodged should be removed.

K. The discretionary nature of the relief claimed by Castaway Avenue

88 It is of some concern that the contract to purchase this property was made by a party that was apparently acting as a 'front' for Mr Karas who was an undischarged bankrupt. It was also of some concern that Mr Karas apparently had access to funds that, presumably, were not in the control of his trustee in bankruptcy. Mr Karas was aware of this case and connected into it virtually, but was not called as a witness. I have not heard his side of the story.

89 Had I found that CSC1957 Investments was obliged to settle the contract of sale, a question would have arisen as to whether or not I ought, in the exercise of my discretion, nonetheless refuse to make an order for specific performance on the grounds that equity, as a court of conscience, should not aid what may have been a transaction that had an unlawful purpose. CSC1957 Investments did not ask that I refuse any relief on this ground. That, however, would not preclude the court refusing relief on that ground. Again, in light of my earlier findings, it is not necessary for me decide this issue.

90 Nonetheless, as foreshadowed to the parties, I propose to provide a copy of these reasons to the trustee in bankruptcy.

91 For convenience, I deal with this issue as it relates to all potential witnesses together.

92 CSC1957 Investments asked me to draw a Jones v Dunkel[26] inference against Castaway Avenue for failing to call Mr Karas as a witness. It was Mr Karas who proposed the transaction and commenced negotiations with Shane and Craig Charter. On occasion, Mr Karas also joined Mr Gulabovski in attending appointments with Castaway Avenue's solicitors. Mr Karas was also the only person who would have been able to contradict the evidence of Shane and Craig Charter as to the negotiations that took place prior to Mr Gulabovski's involvement. There was no explanation for Mr Karas's absence. I infer that Mr Karas's evidence would not have assisted Castaway Avenue's case. As noted above, I have relied on this inference as part of the process of accepting the evidence of Shane and Craig Charter as to the nature of the discussions between them and Mr Karas. But, as the above reasons makes clear, the outcome of this case has not turned on those discussions.

93 CSC1957 Investments also asked me to draw a Jones v Dunkel[27] inference against Castaway Avenue for failing to call its solicitor, Mr Mario Merlo. Mr Merlo acted for Castaway Avenue during the transaction and in this proceeding. He was present at the trial in his capacity as instructing solicitor for Castaway Avenue and Mr Gulabovski. Given his involvement in the transaction, Mr Merlo may have given evidence to explain why the letters of offer were signed on the second page by Mr Gulabovski and not provided to CSC1957 Investments in full. The documents he authored were tendered by agreement, but there was otherwise no explanation as to why Mr Merlo was not called. I would be prepared to draw an inference that his evidence would not have helped Castaway Avenue's case or Mr Gulabovski's case, but I have not relied on this inference in drawing the conclusions I have.

94 Mr Gulabovski said that he had access to the funds necessary to complete the purchase. All or some of any additional funds required would have come, he said, from Third Quadrant Pty Ltd. He produced a document showing that there were funds that existed in an account in that name. No one from Third Quadrant Pty Ltd gave evidence. Mr Gulabovski's evidence that he had access to those funds was given in a simple and straightforward manner, and was not contradicted by any other evidence. The ability to settle was consistent with the contemporaneous assertions by Castaway Avenue that it wanted to proceed with the sale. I do not consider that his evidence in this respect was sufficiently controversial to require corroboration. I have not drawn an inference that Third Quadrant Pty Ltd could not give evidence that would support his and Castaway Avenue's case.

95 Mr Gerard Conlan acted for CSC1957 Investments during the negotiations and he or his firm communicated with Mr Merlo's firm on behalf of CSC1957 Investments. Craig Charter expressed dissatisfaction with Mr Conlan's firm's performance as his solicitor, in part due to Mr Conlan's admission into hospital in late 2019 that led to a more junior solicitor taking over some of the management of the file in the lead up to the proposed settlement. Mr Conlan's firm no longer acts for CSC1957 Investments and did not instruct in this hearing.

96 I accept that Mr Conlan probably would have been available, and no reason was given for not calling him. But there was nothing before me to indicate that Mr Conlan's evidence would have assisted me in deciding this case. Accordingly, I do not draw an inference that his evidence would not have helped. But even if I had drawn such an inference, my findings and conclusions would have been unchanged.

97 I will make a declaration to the effect that the contract of sale is not binding on the parties and that CSC1957 Investments is not entitled to the deposit. I will dismiss Castaway Avenue's application for specific performance and for declaratory relief. I will make an order that the caveat lodged by Castaway Avenue be removed. I will otherwise dismiss each party's applications for damages.

98 I will hear the parties on the form of order, and on the question of costs.

[1] Castaway Avenue disputed that this payment was properly to be considered as a 'deposit'. This is considered in Part H below.

[2] There was a dispute as to whether or not the $100,000 deposit could be borrowed. See, eg, cl 2.1.1 referred to in para 7 below.

1. [3] The emphasis in cl 2.2.1 has been added.

[4] See, eg, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116-117 [46]-[49] (French CJ, Nettle and Gordon JJ).

[6] Macquarie Dictionary (online at 5 September 2022) 'proof'.

[7] Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63; 98 ER 969, 970 (Lord Mansfield); Vetter v Lake Macquarie City Council (2001) 202 CLR 439, 454 [36] (Gleeson CJ, Gummow and Callinan JJ).

[8] This is in the definition of 'Secured Money' in cl 11.1.

[9] At one stage the parties planned for a settlement to take place on Friday 20 December 2019. That date was then pushed back to Monday 23 December 2019.

[10] There was a piece of correspondence, after the settlement had gone off, where Southage charged Castaway Avenue interest at 10% on moneys that were said to be available still for settlement. Mr Velos said that this was a mistake.

[11] See, eg, Smith v Chadwick [1882] UKLawRpCh 73; (1882) 20 Ch D 27 (CA), 62-3 (Jessel MR); McVeigh v National Australia Bank Ltd [2000] FCA 187; (2000) 278 ALR 429, 451 [77] (Kenny J); JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd (No 2) [2020] WASCA 112 [80] (Buss P and Vaughan JA).

[12] Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322, 337 (Dixon, Williams, Webb, Fullagar and Kitto JJ), citing Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW), 632 (Jordan CJ); DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 431 (Stephen, Mason and Jacobs JJ).

[13] Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115, 138 [48] (Gleeson CJ, Gummow, Heydon and Crennan JJ).

[14] In fact, this submission was made by counsel who appeared for both Castaway Avenue and Mr Gulabovski.

[15] Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, 370-1 (Rich J); Thompson & Morgan (United Kingdom) Ltd & Defender Ltd v Erica Vale Australia Pty Ltd (1995) 31 IPR 335, 347 (Lockhart, Gummow and Hill JJ); Downer Edi Ltd v Gillies [2012] NSWCA 333; (2012) 92 ACSR 373, 410-411 [131]-[138] (Allsop P).

[16] Cf Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378; Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367.

[17] Competition and Consumer Act 2010 (Cth) sch 2 as applied in Victoria by the Australian Consumer Law and Fair Trading Act 2012 (Vic) s 8 ('Australian Consumer Law').

[18] See, eg, Wauton v Coppard [1898] UKLawRpCh 149; [1899] 1 Ch 92, 98 (Romer J); Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, 223-4 (Dixon CJ, Webb, Kitto and Taylor JJ); JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378, 380 (Keely, Hill and Drummond JJ).

[19] Craig Charter also said that 'we were of the firm understanding that these were going to be, you know, bank type loans'. That, however, was not evidence of what was in fact said.

[20] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, [3148] (Elliott J).

[21] Bot v Ristevski [1981] VicRp 13; [1981] VR 120, 129 (Brooking J).

[22] See, eg, McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, 477 (Dixon J).

[23] Howe v Smith [1884] UKLawRpCh 142; (1884) 27 Ch D 89, 101 (Fry LJ); NLS Pty Ltd v Hughes [1966] HCA 63; (1966) 120 CLR 583, 589 (Barwick CJ); Commissioner of Taxation of the Commonwealth of Australia v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342, 351 [25] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ); Pearl v Nannegari [2021] VSC 468, [43] (McDonald J).

[24] [1868] UKLawRpCP 10; [1868] LR 3 CP 161, 165.

[25] [1911] UKLawRpCh 96; [1911] 2 Ch 551, 553.

[26] [1959] HCA 8; (1959) 101 CLR 298, 308 (Kitto J).