Plaintiff v Defendant

2 On 1 April 2019, the parties entered into the contract. The particulars of sale contained in the contract provided for settlement on 22 March 2021 and a purchase price of $30,000,000. The parties were in dispute about whether this amount was plus GST but accepted that this dispute was not relevant in determining the plaintiff's claims. The clause which is the subject of the dispute between the parties is cl 28.4. Clause 28.4 is set out in the general conditions as amended by the special conditions. It is common ground that cl 28.4 (as amended by the special conditions) provides as follows:

28.4 If the contract ends by a default notice given by the vendor:

(a) the deposit up equal to 10% of the price is forfeited to the vendor as the vendor's absolute property, whether the deposit has been paid or not; and

(b) the vendor is entitled to possession of the property; and

(c) in addition to any other remedy, the vendor may within one two years of the contract ending either:

(i) retain the property and sue for damages for breach of contract; or

(ii) resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and

(d) the vendor may retain any part of the price paid until the vendor's damages have been determined and may apply that money towards those damages; and

(e) any determination of the vendor's damages must take into account the amount forfeited to the vendor.

3 In the period between 29 March 2019 to 4 May 2020, the plaintiff paid the sum of $4,500,000 to the defendant under the contract, including a deposit of $3,000,000 and an instalment of $1,500,000 of the purchase price. On 22 March 2021, the plaintiff breached the contract when it failed to pay the balance of the purchase price as tender for settlement under the contract. On 29 March 2021, the defendant issued a default notice to the plaintiff. On 17 August 2021, the defendant issued a rescission notice, terminated the contract, forfeited the $3,000,000 deposit and retained $1,500,000. The defendant has not sued or obtained judgment against the plaintiff for damages arising from the plaintiff's breach of contract. The defendant has not proved in the winding up of the plaintiff. The defendant has not had any damages determined under cl 28.4(d) of the contract. On 26 August 2024, the plaintiff demanded the defendant pay it the amount of $1,500,000. The defendant has not paid the plaintiff this amount.

4 The plaintiff abandoned its claims in paragraphs 14, 15 and 16(b) and (c) of its statement of claim. As a result, the parties agreed that the sole issue to be determined is the following:

Is the defendant entitled to retain the amount of $1,500,000 pursuant to General Condition 28.4(d) of the Contract until the defendant's damages have been determined?

5 The parties also agreed that the answer to this question solely depends upon the proper construction of cl 28.4(d) of the contract. The plaintiff accepted that if the defendant is entitled to retain the amount of $1,500,000, then this proceeding should be dismissed. The defendant accepted that if it is not entitled to retain this amount, then the plaintiff is entitled to judgment in the amount of $1,500,000.

6 The plaintiff submitted that cl 28.4(d) does not give the defendant any title to the $1,500,000 and the defendant has not had its damages determined within two years (or at all) of the contract ending. It submitted that on its proper construction cl 28.4 is a contractual mechanism agreed to by the parties which regulates the termination of the contract for the sale of land in Victoria. On this view, it is a clause which is to be read compositely, so that the obligations under the contract are temporally confined to a period of (as amended specifically by the parties) two years. The defendant does not have any entitlement to retain part of the purchase price under cl 28.4(d) unless it takes action in accordance with cl 28.4(c), including within two years of the contract ending. The plaintiff identified the following matters as basis for this being the proper construction:

(a) the construction of cl 28.4(d) is internally consistent with other sub-clauses of cl 28.4;

(b) as a matter of grammatical construction, each sub-clause of cl 28.4 uses the connective language of 'and' which suggests a composite construction of interrelated contractual rights;

(c) the context of the clause is a purchaser's default under a contract for the sale of land. The clause provides for a bargain in which the vendor's rights to loss and damage are contractually prescribed with certainty;

(d) there is a sound commercial rationale which underpins this construction. On breach, a vendor is entitled to be placed in the same position but for the breach. Those damages may fall to be assessed in a determination, depending on the rights exercised or pursued by the parties. A determination is necessary because it would be inappropriate for the vendor to just 'pocket the money' forfeited by the purchaser under a contract for the sale of land; and

(e) the construction is consistent with the historical intent and purpose of its predecessor provisions in Victorian land contracts.

7 The defendant submitted that cl 28.4(d) confers an entitlement upon the defendant that is separate to cl 28.4(c). It submitted that cl 28.4 provides for a number of 'standalone rights'. The defendant outlined the following analysis of the contractual operation of the provisions:

(a) by the use of the word 'may', cl 28.4(c) gives a discretion to the vendor to take action in the terms of sub-cl (i) and (ii);

(b) if the defendant does not take action in the terms of sub-cl (i) or (ii) of cl 28.4(c) then it is 'barred' from taking those actions and loses the right to do so as its 'rights expire';

(c) if the defendant does not take action in the terms of sub-cl (i) or (ii) of cl 28.4(c) then it still has other rights, including to the deposit, possession, and the right to retain any part of the purchase price until its damages have been determined. The defendant could not initiate a damages claim but damages could still be determined through various alternative mechanisms, including a set-off, counterclaim or defence, an 'independent valuation supporting a defensible determination of damages that could withstand scrutiny if challenged', (although the defendant later abandoned that claim),[1] or by agreement between the vendor and the purchaser. The plaintiff could force the determination of damages by seeking declaratory relief;

(d) the limitation period is deliberately attached to cl 28.4(c) and not cl 28.4(d); and

(e) the defendant accepted that, upon its construction, if the defendant does not take action in the terms of sub-cl (i) or (ii) of cl 28.4(c), then the nature of the security in cl 28.4(d) materially changes. It does not secure any rights of the defendant in sub-cl 28.4(c) as those rights have been lost.

8 The defendant identified the following matters in support of its construction:

(a) cl 27.9 is a special condition that provides the 'rights of the parties under or arising under this Contract are cumulative and do not exclude any other rights of the parties'. The defendant submitted that the parties' deliberate inclusion of this clause demonstrates that the rights throughout the contract should operate cumulatively and independently, unless stated otherwise;

(b) there is no conditional language between cl 28.4(c) and cl 28.4(d). Clause 28.4(d) does not provide that it is, for example, 'subject to' or 'conditional upon' the defendant having taken action in accordance with cl 28.4(c). This is a deliberate drafting choice. First, there are other clauses of the contract in which conditional language is used. Second, the parties deliberately made some amendments to cl 28.4 (by the inclusion of special conditions) but did not amend cl 28.4(d) to make it conditional upon cl 28.4(c);

(c) the text of cl 28.4(d) is unambiguous and unqualified. It permits the defendant to retain any part of the price paid which includes the retained sum until its damages have been determined without reference to how that determination must occur. It does not provide that it is contingent upon any step being taken pursuant to cl 28.4(c);

(d) the remedies in cl 28.4(c) are granted 'in addition to any other remedy'. The defendant submitted that this phrase signals that cl 28.4(c) is not intended to restrict the remedy granted in cl 28.4(d);

(e) the use of the word 'and' at the end of each of the sub-clauses 'merely indicates the availability of multiple rights' and does not create interdependence. The defendant submitted that the presence of the word 'and' between the sub-clauses in cl 28.4 suggests that these sub-clauses are a 'cumulative list of alternatives regarding the vendor's options in the event of the contract ending and are not co-dependent rights';

(f) there is an explicit time limit in cl 28.4(c) but not in cl 28.4(d);

(g) cl 28.4(c) and cl 28.4(d) serve fundamentally different purposes. Clause 28.4(c) provides for discretionary remedies that the vendor may pursue whereas cl 28.4(d) provides security for the vendor's damages;

(h) the commercial purpose of cl 28.4(d) is to provide security to the vendor in the event of the purchaser's default. The 'security function' of cl 28.4(d) can only be effective if it operates independently of cl 28.4(c). The defendant submitted:

MR FENWICK: That security function would be severely undermined if the right to retain funds was dependent on the vendor exercising specific remedies under [28.4(c)] within the two year period. A vendor may have legitimate reasons for not immediately pursuing legal action, or reselling the property, including market conditions making prompt sale disadvantageous, ongoing negotiations with defaulting purchaser or third parties, the need to address issues affecting the property before the resale.

Assessment of potential losses that might take time to crystalise, it would be commercially unreasonable to interpret the contract as forcing the vendor to either sue or resell within two years or lose their security for damages. Such an interpretation would incentivise premature litigation and hasty property sales, potential to the detriment of both parties. The proper commercial interpretation is that [28.4(d)] provides ongoing security for the [vendor's] damages independent of whether the vendor choses to exercise the specific remedies in [28.4(c)].

9 The relevant principles in the construction of commercial contracts are well established. French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[2] said:

1. The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
2. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

...

1. Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[3]

10 Moreover, as the Court of Appeal recently observed, the Court must have regard to all of the words used in the agreement 'so as to render them all harmonious one with another' and to ensure the 'congruent operation [of] the various components of the whole'.[4]

11 The proper construction of cl 28.4(d) is that it only has effect if the defendant takes action in accordance with cl 28.4(c), including within two years of the contract ending. Clause 28.4 provides for a regime, inter alia, whereby:

(a) the defendant may take action in accordance with cl 28.4(c) to, inter alia, have its damages determined and, if it does, then it may retain any part of the purchase price pursuant to cl 28.4(d) until its damages are determined and then apply that money to its damages;

(b) if the defendant does not take action in accordance with cl 28.4(c), including within two years of the contract ending, then it cannot retain any part of the purchase price and the plaintiff is entitled to recover it; and

(c) if the defendant does not take action in accordance with cl 28.4(c) then it may nonetheless take such action later (subject to any applicable limitation period). The defendant could still, for example, sue for damages for breach of contract. But it cannot retain any part of the purchase price and the plaintiff is entitled to recover it.

12 First, this construction accords with the text of the condition and the contract. This is because:

(a) cl 28.4(d), which immediately follows cl 28.4(c), assumes that there is a process already underway to have the defendant's damages determined. This is because cl 28.4(d) expressly provides for the defendant to retain part of the purchase price 'until [its] damages have been determined'. This assumes that such a process has commenced. That process is the process identified in cl 28.4(c). I accept that cl 28.4(d) is not expressly stated to be subject to, conditional upon, or dependent upon cl 28.4(c). However, the absence of any such express statement is not determinative of its proper construction;

(b) cl 28.4(c) provides for an optional process for the defendant to take action to have its damages determined. It does not provide that the defendant 'must' take action in accordance with cl 28.4(c). Clause 28.4(c) commences with the words 'in addition to any other remedy'. It does not provide that unless the defendant takes action in accordance with cl 28.4(c) it loses the right to subsequently take that action. The parties must have intended there would be consequences of the defendant taking or not taking the optional action in accordance with cl 28.4(c) within two years of the contract ending. In the context of cl 28.4, it can only be that if the defendant takes action in accordance with cl 28.4(c) it may retain part of the price paid in accordance with the terms of cl 28.4(d). If the defendant does not take action in accordance with cl 28.4(c) then it may not retain part of the purchase price paid and the plaintiff is entitled to recover it; and

(c) the use of the word 'and' at the end of each sub-clause supports a construction that cl 28.4 sets out cumulative rights but that does not mean that there is no interdependence between those cumulative rights.

13 Second, this construction renders all of the clauses of the contract, including those within cl 28, all harmonious one with another and ensures the congruent operation of the various components of the contract. This is because cl 28.4(c) imposes a two-year period in which the defendant may take certain action. As I have said, the parties must have intended that there would be consequences of the defendant taking or not taking the optional action in accordance with cl 28.4(c). The construction I have found identifies that consequence.

14 Third, this construction accords with the purpose of cl 28.4. The purpose of cl 28.4(d) is to displace, upon certain conditions, the common law position that where a contract for the sale of land comes to an end, the purchaser is entitled to recover instalments of the purchase price paid to the vendor over and above the deposit.[5] The displacement is conditioned by two matters:

(a) if the defendant takes action in accordance with cl 28.4(c), including within two years of the contract ending, the plaintiff is only entitled to recover instalments of the purchase price paid to the vendor over and above the deposit once damages are determined and only if there is any remainder once the retained amount is applied towards those damages; and

(b) if the defendant does not take action in accordance with cl 28.4(c), including within two years of the contract ending, the plaintiff may recover the instalments of the purchase price paid to the vendor over and above the deposit.

15 The purpose of the clause is to strike a balance between the right of the plaintiff to the instalment of the purchase price it has paid, given the contract has ended and it does not have possession,[6] and the right of the defendant to damages for the plaintiff's breach.

16 Fourth, this construction is what a reasonable businessperson would have understood cl 28.4(d) to mean. This is because this construction means that if the defendant wishes to retain part of the price paid, in circumstances in which the contract has ended, the deposit has been forfeited and it has possession of the land, and the plaintiff would otherwise at common law be entitled to recover the payment, then the defendant must take action in accordance with cl 28.4(c), including within two years. If the defendant does not take such action it still retains all of its remedies but cannot retain part of the purchase price in accordance with the terms of cl 28.4(d). In the absence of such a provision in the contract the defendant could not retain both the land and any part of the purchase money paid.[7]

17 Fifth, the contract expressly identifies that it is based upon the standard form of contract published by the Law Institute of Victoria. The general conditions expressly identify that they are based upon Form 2 prescribed by the Estate Agents (Contracts) Regulations 2008 (Vic). These regulations have now expired. Clause 35.4 in the pro forma document titled Contract of Sale of Land, co-published by the Law Institute of Victoria and the Real Estate Institute of Victoria in August 2019, is identical to cl 28.4 in the contract.[8] The construction I have found is supported by the learned authors of Victorian Land Contracts in which they make the following observations concerning cl 35.4:

Pursuant to general condition 35.4(d), the vendor may retain any part of the price paid until the damages to which the vendor is properly entitled have been determined[9] and may then apply that money towards those damages. The expression "any part of the price paid" encompasses money paid over and above the forfeited deposit, whether pursuant to an express term of the contract or otherwise. It will not include money paid in excess of the actual sale price, such as where additional payments have been made to secure extensions of time.

General condition 35.4(d) displaces the common law position that where a contract for the sale of land comes to an end, the purchaser is entitled to recover instalments of the purchase price paid to the vendor over and above the deposit.[10]

In order to take advantage of the ability to retain the money paid by the purchaser, the vendor must be in a position to compute the sum due to it for damages and claim such amount from the purchaser within the one year period which general condition 35.4(c) stipulates. So much seems evident from the wording of general condition 35.4(d) itself, the reference to "damages being determined" being a reference to the calculation to be made under general condition 35.4(c).[11] Under the Limitation of Actions Act 1958, a claim based in contract can be brought within six years from the date on which the cause of action first accrued, being the date on which the contract ended. It would be somewhat unjust for the vendor to be able to hold the retained money for any period longer than the one year provided for in general condition 35.4(d), with the purchaser being deprived of the use of the money in the meantime.[12]

18 Sixth, this Court considered a similar but not identical clause in Victorian Economic Development Corporation v Clovervale Pty Ltd.[13] In that case, the relevant clause provided (as set out in the judgment):

6(1) Where the default has been made by the purchaser and is not remedied all monies unpaid under this contract shall become immediately payable and recoverable at the option of the vendor.

(2) If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded.

(3) Where the contract is so rescinded and the notice is given by the purchaser, he shall be repaid any money together with any interest and costs payable under this contract and these shall be a charge on the land until payment.

(a) the purchaser, he shall be repaid any money together with any interests and costs payable under this contract and these shall be a charge on the land until payment.

(b) the vendor, then an amount equal to one tenth of the price ('the security') shall be forfeited to the vendor as his absolute property and he may recover possession of the land and at his option may within one year of the date of rescission either -

(i) retain the land and sue for damages for breach of contract; or

(ii) resell the land in such manner as he sees fit and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages.

In addition to the security the vendor may retain any part of the price paid to him pending the determination of damages and may apply the money in satisfaction or part satisfaction of those damages.

In particular, the vendor was not obliged, if it sued for damages, to sue within a year of the date of rescission on the footing that it retained the land (cl. 6(3)(b)(i)) or that it resold the land (cl. 6(3)(b)(ii)). The vendor was entitled to do either of these in accordance with the provisions of cl. 6(3)(b) if it chose, those provisions being for its benefit: Berry v Mahony, per Lowe J. If the vendor chose to rely on either of the options conferred by cl. 6(3)(b) it might have derived the benefit that an exercise of one of the options was designed to confer. The benefit to be derived by proceeding under cl. 6(3)(b)(i) would appear to be that the vendor would be entitled to retain any part of the price paid pending the determination of damages and to apply it in satisfaction of the damages as assessed: see the concluding lines of cl. 6(3)(b). In the absence of such a provision in the contract the vendor could not retain both the land and the purchase money paid ...[14]

20 The substantive difference between this clause and the clause in the present case is that cl 28.4(d) is a sub-clause of cl 28.4 and does not form part of cl 28.4(c) whereas the operative words commencing 'in addition' formed part of cl 6(3)(b) as observed by Justice Tadgell.[15] Nonetheless, the observations of Justice Tadgell support the construction I have found. This is because the observations of Justice Tadgell nonetheless identify the commercial purpose of a substantially similar clause, which is the purpose I have identified in the present circumstances.

21 Finally, the defendant's construction is not supported by the text, context or purpose of the contract and is uncommercial. In addition, the defendant's submissions were, at times, inconsistent on material matters. I have already addressed some of the defendant's submissions in my analysis of the proper construction of cl 28.4(d). It is convenient to address the other key submissions of the defendant.

22 First, the defendant's reliance upon cl 27.9 of the contract is misplaced. This is because the reference to the rights of the parties under or arising under the contract being 'cumulative' is a reference to the rights being cumulative to rights not arising under the contract (e.g. under the general law). This is supported by the text of the clause which provides that it does not 'exclude any other rights of the parties'.

23 Second, I reject the defendant's submission that if the defendant does not take action in accordance with cl 28.4(c) then the defendant is barred from taking those actions. Clause 28.4(c) provides that the defendant 'may' take those actions. If the parties intended those actions be barred then they would have used the word 'must' or alternatively expressly set out that they are barred if the action was not taken. In addition, this submission was wholly inconsistent with the earlier submissions of the defendant that the limitation period in cl 28.4(c) does not, in fact, 'do any work'.

24 Third**,** the defendant's submissions were contradictory on the purpose of cl 28.4(d). This was most stark in the following submissions of the defendant:

(a) the commercial purpose of cl 28.4(d) is to provide security to the vendor in the event of the purchaser's default and that if it was dependent upon cl 28.4(c) this would 'create an impossible situation for vendors in depressed market conditions' as they would be forced to sell at a significant loss or lose rights under cl 28.4(c); and

(b) the defendant, in fact, loses the right to take any of the actions in sub-clauses 28.4(c)(i) and (ii), including the right to resell the property and recover any deficiency in the resale price by way of liquidated damages, if it does not take action within two years of the contract ending.

25 Fourth, the defendant's construction would make commercial nonsense and work a commercial inconvenience. First, the defendant accepted that, upon its construction, if it took no action to have its damages determined within two years of the contract ending it could nonetheless retain part of the purchase price. The plaintiff would be deprived of the use of the money in the meantime, despite having a common law right to recover it. This would mean that the defendant could retain an instalment of the purchase price in circumstances in which it is not taking any steps to have to have its damages determined. It would make no commercial sense for the defendant to be able to retain an instalment of the price in those circumstances. Second, upon the defendant's construction, the defendant could not institute any proceeding itself to have the damages determined after the period of two years of the contract ending. This would mean that, in the absence of any agreement, the damages could only be determined upon a proceeding by the plaintiff against the defendant (e.g. by declaratory relief or a set-off). Finally, the defendant accepted that, upon its construction of the clause, the defendant could retain an instalment of the purchase price 'indeterminately'. This is a commercial nonsense.

26 As a result, the defendant is not entitled to retain the amount of $1,500,000 pursuant to cl 28.4(d) of the contract. The plaintiff is entitled to judgment.

27 The defendant did not take action in accordance with cl 28.4(c) within two years of the contract ending. The defendant is not entitled to retain the amount of $1,500,000 pursuant to cl 28.4(d) of the contract. The plaintiff is entitled to judgment in the amount of $1,500,000. I will hear the parties on the precise form of order, including costs, but my preliminary view is that the following orders should be made:

(a) Judgment for the plaintiff in the amount of $1,500,000.

(b) The defendant pay to the plaintiff interest in the sum of $262,192 pursuant to s 58 of the Supreme Court Act 1986 (Vic).

(c) The defendant pay the plaintiff's costs of the proceeding on a standard basis in default of agreement.

28 As to interest, I make the following preliminary observations:

(a) the plaintiff is entitled to interest pursuant to s 58 of the Supreme Court Act 1986 (Vic) from the time when the amount of $1,500,000 was payable by the defendant to the plaintiff;

(b) the plaintiff was entitled to recover the amount of $1,500,000 on 17 August 2023 (being a period of two years from the contract ending) and therefore the amount of $1,500,000 was payable by the defendant to the plaintiff on that date; and

(c) interest from 17 August 2023 to 16 May 2025 is $262,192, being a period of 639 days x the current penalty interest rate of 10% (which is $410.3158 per day x 639 days).

29 But the issue of interest may be further addressed by the parties. This issue was only briefly addressed by the plaintiff in its written submission and was not addressed by the defendant.

30 The plaintiff has succeeded in its claim against defendant and prima facie costs should follow the event. But there may be sound reasons to depart from an order that the defendant pay the plaintiff's costs of the proceeding on a standard basis in default of agreement. This may be further addressed by the parties.

31 The parties are directed to confer on the orders and provide an agreed form of order, or marked up orders showing any dispute, by 4pm on 20 May 2025. The Court will then advise the parties of the next steps.

[2] [2015] HCA 37; (2015) 256 CLR 104, 116-7 [46]-[51] (Mount Bruce).

[3] Ibid 116-7 [46]-[51], quoted in Feeney v Southstar Homes Pty Ltd [2024] VSCA 153, [102] (McLeish and Niall JJA and Osborne AJA) (Feeney).

[4] Feeney (n 2) [103], quoting Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 (Gibbs J) and Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ).

[5] See Cowan v Stanhill Estate Pty Ltd (No 2) [1967] VicRp 73; [1967] VR 641, 650-2 (Cowan).

[7] Victorian Economic Development Corporation v Clovervale Pty Ltd [1992] VicRp 40; [1992] 1 VR 596.

[8] Law Institute of Victoria and the Real Estate Institute of Victoria, Contract of Sale of Land (August 2019).

[9] Inferentially, determined pursuant to general condition 35.4(c).

[10] McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 470 and 478; Cowan (n 4) 650-2.

[11] Which might involve either common law damages under general condition 35.4(c)(i) or a deficiency on a resale pursuant to general condition 35.4(c)(ii).

[12] David P Lloyd and William F Rimmer, Victorian Land Contracts (Thomson Reuters, 2020) GC 35.100.

[13] [1992] VicRp 40; [1992] 1 VR 596 (emphasis added).

[14] Ibid 603 (citations omitted) (emphasis added).

[15] This is despite the fact that the text of cl 6 as recorded in the judgment shows that these words appear at the end of cl 6 and did not form part of cl 6(3)(b).