Plaintiff v Defendants

[2008] VSC 366

SALE OF LAND - Sale of apartments "off the plan" - Sale of lot in unregistered plan of subdivision - Whether contract of sale complied with s 9AA(1)(a) of the Sale of Land Act 1962 (Vic) - Whether "holding deposit" paid by the purchaser prior to conclusion of the contract constituted "deposit moneys paid by the purchaser" under s 9AA(2) of the Act - Purchaser's right to rescind where vendor fails to comply with s 9AA(2) of the Act - Whether right to rescind may be lost by election, waiver or estoppel - Whether contract of sale complied with s 9AB of the Act - meaning of "natural surface level of the land" considered - Sale of Land Act 1962 (Vic) ss 9AA(1), 9AA(2), 9AA(6), 9AB, 9AE(1) and 14(3).

1 The plaintiff, Everest Project Developments Pty Ltd, is a property developer. In late 2003 and early 2004, Everest purchased the lands at 200 Spencer Street, Melbourne and 55 Queens Road, Melbourne, with the intention of arranging for the construction of residential apartment buildings thereon. Everest had building plans prepared and lodged plans of subdivision for registration. A builder was engaged and the buildings constructed.

2 The Spencer Street apartment building comprises 371 residential units together with associated car-parking spaces and common property. The Queens Road apartment building comprises 195 residential units together with associated car-parking spaces and common property.

3 During the period October 2004 to April 2007, both before and during the course of construction, Everest sold lots in the unregistered plans of subdivision to various purchasers, including the defendants. The contracts of sale were in relevantly identical terms. In common language, these unit sales were made by Everest to the defendants, and other purchasers, "off the plan".

4 The defendants are the purchasers of 33 residential units and associated car-parking spaces. Each residential unit and car-parking space comprises a separate lot on the relevant plan of subdivision.

5 In May 2007, when building works were well advanced, Everest was placed into external administration. Subsequently, in September 2007, Becton Property Group Limited acquired control of Everest and the relevant deed of company arrangement was terminated. Becton then completed the two developments.

6 In October, November and December 2007, prior to the registration of the plans of subdivision, the defendants served notices purporting to rescind the contracts of sale. In the notices of rescission, the defendants relied upon alleged breaches of ss 9AA and 9AB of the Sale of Land Act 1962 (Vic) ("the Act"). Everest disputed the validity of these notices of rescission and commenced proceedings in this Court, seeking orders setting aside the rescission notices and declarations that none of the defendants had an entitlement to rescind any of the contacts of sale.

7 The defendants maintain their reliance upon the efficacy of their notices of rescission. They have counterclaimed for declarations that they validly rescinded the contracts of sale, for repayment of amounts paid by the issuers of certain "deposit bonds" purchased by them and provided to Everest as security for their obligations to pay a deposit under the contracts of sale, and for damages.

8 Each of the contracts of sale provided for the payment of a deposit equal to 10% of the purchase price. The contracts stated that either $500 or $1,000 of the deposit amount was "payable" on the signing of the contracts. However, with one exception, these instalments of the deposit had been paid to Everest prior to the contracts being signed.

9 The contracts each obliged the purchasers to deliver to Everest within seven days of entry into the contract, as security for the obligation of the purchaser to pay the deposit, a "deposit bond" issued by an insurance company. The contracts provided that, if this deposit bond was delivered in a form acceptable to it, Everest would repay the instalment of the deposit which had been paid, and the time for payment of the deposit would be deferred until the first to occur of a number of specified events.

10 Following the service of the rescission notices, the two plans of subdivision were registered and Everest was issued with home completion certificates and occupancy permits in respect of the relevant lots in the plans of subdivision. Upon the occurrence of these events, settlement was due under each of the contracts of sale if they remained valid and enforceable. When the defendants refused to complete the contracts of sale, Everest served its own notices of rescission in respect of the contracts of sale. As a result, Everest amended its claims in the proceeding to seek declarations that it has validly rescinded the contracts of sale and claims damages for breach of contract.

11 Everest has called upon the deposit bonds. However, only some of the issuers have paid Everest in accordance with those bonds. Where moneys have been paid, they have been placed into a trust account to abide the determination of this proceeding. Those issuers who have paid Everest have taken steps to recover the amounts paid by them from the relevant defendants. The other issuers are apparently insolvent and are unable to pay.

12 The trial was conducted on the basis that the only issue for determination was who had the entitlement to rescind each of the contracts of sale. All other issues were deferred for subsequent determination.

13 The defendants contend that their notices of rescission were valid because Everest did not comply with sub-sections 9AA(1)(a), 9AA(2), 9AB(1) and/or 9AB(2) of the Act. Accordingly, they contend that they were entitled to rescind the contracts of sale under s 9AE(1) of the Act, which provides:

(1) If the vendor under a prescribed contract of sale of a lot fails to comply with section 9AA or 9AB the purchaser may rescind the contract of sale at any time before the registration of the plan of subdivision.

14 There is no issue that each of the contracts of sale is a "prescribed contract of sale" within the meaning of s 9AE.

15 If any defendant has not established that Everest contravened either ss 9AA or 9AB of the Act, there is no dispute that Everest's notice of rescission was valid and effective.

II. FACTS RELEVANT TO ALLEGED BREACHES OF S 9AA OF THE ACT

16 Although the contracts of sale are all in the same form, there are some relevant factual differences concerning some of them. These are described below.

17 Everest adopted the following general procedure in respect of the sale of units in the developments.

18 Everest directly employed sales staff to sell the apartments off the plans of subdivision. Some of these sales staff operated in Sydney, and each of the contracts of sale relevant to this proceeding was entered into in Sydney. The sales staff were supervised by, and reported to, Darrel Robins, Everest's sales manager. Mr Robins was also directly involved in the selling process.

19 In order to locate potential purchasers, Everest engaged a number of agents to act on its behalf, on terms that they would be paid a commission, equal to 4% of the sale price, in respect of each unconditional contract of sale entered into by a purchaser introduced by the agent to Everest.

20 Once a potential purchaser was introduced to Everest by an agent, the potential purchaser met with a member of Everest's sales staff. According to Mr Robins, the usual procedure was to show the potential purchaser a model of the proposed apartment building, take them through the plans and discuss prices and rental guarantees. If the potential purchaser was interested in proceeding, he or she would be asked to make an initial payment in order to take the chosen unit off the market while the potential purchaser saw a solicitor and organised to either pay the deposit or to obtain a deposit bond in respect of the deposit.

21 Mr Robins stated that, in his dealings with prospective purchasers, he had a general practice of describing the initial payment as an "initial holding deposit". However, the standard form of receipt issued by the plaintiff in respect of these payments describes the payments as a "preliminary deposit on" the apartment referred to in the receipt. The receipts also contain an arithmetical calculation which treats the initial payment as part payment of the deposit, and thus part payment of the purchase price, in the event that a contract of sale is later entered into to purchase the apartment.

22 In most cases, an initial payment of either $1,000 or $500 was paid to Everest prior to a contract of sale being entered into. This payment was not always made by the purchaser. In relation to about one third of the contracts of sale relevant to this proceeding, the initial payment was paid by the introducing agent, presumably with a view to progressing the proposed transaction to a completed sale, so that a commission could be earned. There was no evidence as to any arrangements which may have existed between the relevant agent and the relevant defendants in this regard.

23 In four cases, it appears that the initial payment was paid at the time the contract of sale was signed, or at least on the same day. Further, in one case the initial payment was paid two days after the contract of sale was entered into. The relevance of these differences will become apparent.

24 In most cases, the initial payments were paid directly to Everest by either cheque, cash or credit card and a standard form of receipt was issued by Everest.

25 Against this background, the relevant facts can be demonstrated by an account of the dealings between Everest and the first two defendants, Mr and Mrs Mendoza.

26 On 13 December 2004, Ms M Angangan, an agent engaged by Everest to introduce purchasers, paid $500 to Everest in connection with the desire of Mr and Mrs Mendoza to purchase unit 1501 in the Spencer Street apartment building. The payment was made by credit card and banked to the account of Everest.

27 At the time of payment, Everest issued a standard form receipt:

Received from Dany and Zenny Mendoza (Paid by N Angangan)

Being Preliminary deposit on property Unit 1501 'Neo 200 on Spencer'

(a) Estate Project Developments Pty Ltd has no obligation to sell this property and you have no obligation to buy this property.

(b) The deposit is repayable to you in the event that a contract is not entered into between you and Estate Project Developments Pty Ltd.[1]

28 At this time, no binding contract of sale or purchase was in existence. This is plain from the form of the receipt. However, it is equally plain from the terms of the receipt that the initial payment is, in the event that a contract of sale is later entered into, to be treated as part payment of the deposit, and thus the purchase price, under that contract.

29 Subsequently, on 17 December 2004, Mr and Mrs Mendoza signed a contract of sale. Under this contract, Mr and Mrs Mendoza agreed to purchase Lot 1501 and an associated car-parking space, Lot 299P, for the sum of $485,000.

30 The contract of sale comprises "particulars of sale", "general conditions" and "special conditions". Clause 10 of the general conditions provides that, in the case of a conflict between conditions, the order of priority is special conditions, general conditions and then general conditions contained in legislation, such as Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic).

31 Special condition 1.1 contains the following relevant definitions:

on the list, current on the day of settlement, of authorised deposit-taking institutions regulated by the Australian Prudential Regulation Authority.

Deposit means an amount equal to the proportion of the price that is set out as the deposit in the particulars of sale.

Deposit Bond means an unconditional undertaking by an Insurer, in a form acceptable to the Vendor, to pay money to the Vendor, and includes any replacement deposit bond that is accepted by the Vendor.

Home means the apartment that is included in the Property.

Home Completion Certificate means a certificate issued by the Vendor's Certifier that the Home is completed within the meaning of the Building Contracts Act.

Occupancy Permit means an occupancy permit issued under the Building Act 1993 (Vic) in respect of the Property.

32 The particulars of sale identify the parties, the property sold and the price. The particulars of sale also contain express provisions for the payment of a 10% deposit, or the provision of a deposit bond as security for the payment of the deposit, and specify the date for payment of the balance of the purchase moneys. The relevant particulars are as follows:

DEPOSIT 10% of the price, of which $500.00 is payable on the signing of this contract.

Unless special condition 14 or special condition 15 applies, the balance of the deposit, $48,000.00 is payable within seven days after the day of sale.

Must the Purchaser deliver a Bank Guarantee? Yes No

Must the Purchaser deliver a Deposit Bond? Yes[2] No

DATE FOR 14 days after the Vendor's Solicitors notify the Purchaser or

PAYMENT OF the Purchaser's Solicitors in writing of the last to occur

(b) the issue of the Occupancy Permit for the Property; and

DATE is the date upon which vacant possession of the Property and Chattels must be provided, namely upon acceptance of title and payment in full of the price.

The emphasised figures are written in handwriting and initialled.

33 Clause 6 of the general conditions concerns payment of the purchase price, including the deposit. It is in the following form:

6.1 The purchaser must pay all money (except the deposit) to the vendor, the vendor's solicitor or at the direction of the vendor.

(a) to the vendor's estate agent or, if there is no estate agent, to the vendor's solicitor, or

(b) if the vendor directs, into a special purpose banking account specified by the vendor in the joint names of the purchaser and the vendor.

6.3 If the land sold is a lot on an unregistered plan of subdivision then the deposit:

(i) to the vendor's solicitor or estate agent to be held by the solicitor or estate agent on trust for the purchaser, or

(ii) if the vendor directs, into a special purpose account in an authorised deposit-taking institution in Victoria specified by the vendor in the contract in the joint names of the purchaser and the vendor,

34 Clauses 13, 15 and 16 of the special conditions contain the terms relevant to the payment of the deposit and the balance of the purchase price. They provide as follows:

The deposit must not exceed 10 percent of the Price.

The Purchaser must pay the Deposit to the Vendor's Estate Agent or the Vendor's Solicitor within the time required by this contract and it must be held by either of them on trust for the Purchaser until registration of the Plan.

The Vendor and Purchaser authorise the Vendor's Solicitors to invest the Deposit in a separate interest-bearing trust account at a Bank. The Purchaser must not make any claim on the Vendor's Solicitors for any matter arising out of this special condition 13.3.

Within 7 days after the day of sale, the Purchaser must give the Purchaser's tax file number either to the Vendor's Solicitors or to the Bank. If the Purchaser gives its tax file number to the Bank it must, as soon as it has done so, give the Vendor's Solicitors written verification of this from the Bank.

The Interest will belong to the Vendor unless the Purchaser becomes entitled to a refund of the Deposit. If this happens, then, subject to special condition 13.6, Interest will belong to the Purchaser.

If the Purchaser breaches special condition 13.4, all Interest will belong to the Vendor even if the Purchaser becomes entitled to a refund of the Deposit.

This special condition 15 will apply if the Purchaser must provide a Deposit Bond.

The Purchaser must deliver to the Vendor's Estate Agent or the Vendor's Solicitors within 7 days after the day of sale a Deposit Bond for an amount equal to the Deposit.

If the Purchaser complies with special condition 15.2, the Purchaser must pay the Deposit to the Vendor's Estate Agent or the Vendor's Solicitors the first to occur of:

(b) the date that is 30 days before the Deposit bond expires; and

(i) the Vendor would be entitled to the release of the Deposit to it having regard to the provisions of this Contract and section 27 of the Sale of Land Act;

(ii) the Vendor rescinds or otherwise terminates this contract for breach by the Purchaser; or

When the Purchaser pays the Deposit, the Vendor will return the Deposit Bond.

If the Purchaser breaches special condition 15.2, the Purchaser must pay the Deposit to the Vendor's Estate Agent or the Vendor's Solicitors within 14 days after the day of sale.

If the Purchaser breaches special condition 15.3, the Vendor may claim on the Deposit Bond. If the Vendor exercises its rights under this special condition 15.5, the amount paid by the Insurer.

(a) will, to the extent of the payment, be deemed to satisfy the obligations of the Purchaser under special condition 15.3; and

(b) may be dealt with by the Vendor under general condition 6(3)(b) of Table A.

(a) either special condition 14 or special condition 15 applies; and

(b) before delivery of the Bank Guarantee or the Deposit bond (as the case may be) the Purchaser pays an instalment of the Deposit to the Vendor,

the Vendor must, when the Purchaser complies with special condition 14.2 or 15.2 (whichever applies), repay the instalment to the Purchaser.

35 Following execution of the contract of sale, Mr and Mrs Mendoza procured the issue of a deposit bond. The relevant deposit bond certificate is dated 20 December 2004. It expires on 20 December 2008. The deposit bond was provided to Everest.

36 The deposit bond delivered by Mr and Mrs Mendoza to Everest contains an undertaking by the issuer to pay to Everest an amount equal to or lesser than the full deposit of $48,500 specified in the contract of sale, upon conditions including the requirements that Everest deliver to the issuer:

(a) A copy of a valid notice of rescission or termination of the Contract served on the Purchaser/s by the Vendor/s and received by the Purchaser/s, entitling the Vendor/s to the recovery of the Deposit in accordance with the terms and conditions of the Contract.

(b) A written statement by the Vendor/s that the Deposit has not been paid wholly or partially, by the Purchaser/s to the Vendor/s in accordance with the Terms and Conditions of the Contract.

(c) A written demand by the Vendor/s on the Purchaser/s for any outstanding amounts in accordance with the Terms and Conditions of the Contract, limited to an amount not exceeding the Deposit Bond Amount.

37 Following the provision of the deposit bond certificate, Everest repaid the $500 which Ms Angangan had paid on behalf of Mr and Mrs Mendoza on 13 December 2004. The repayment was made by cheque drawn on Everest's bank account, and under cover of a letter in the following terms:

Please find enclosed cheque in the sum of $500.00 for refund of initial holding deposit paid by you for Unit 1501 sale to Mendoza_._[4]

38 Upon receipt, the deposit bond certificate was immediately delivered by Everest to its solicitors. From that time, until the deposit bond was called upon, it was held by Everest's solicitors on trust and in a strong-room pending registration of the plan of subdivision.

39 From 2006 to 2008, the builder engaged by Everest constructed the apartment building at 200 Spencer Street.

40 In October and December 2007, the solicitors for Mr and Mrs Mendoza served rescission notices on Everest, asserting a right to do so by reason of alleged breaches of ss 9AA and 9AB of the Act. Everest responded to the notices of rescission, denying their efficacy and asserting that the contracts of sale continued to subsist.

41 After service of the rescission notices, the plan of subdivision for the Spencer Street apartment building was registered on 20 December 2007. In December and January 2008 home completion certificates and certificates of occupancy were issued in respect of the lots in the Spencer Street plan of subdivision. Everest notified the relevant defendants, including Mr and Mrs Mendoza, of these events. They were also notified that, as a result, the contracts of sale had become due for completion on 6 February 2008.[5]

42 When Mr and Mrs Mendoza did not complete their contract of sale by the due date, Everest served a notice of rescission upon them, giving them 14 days to complete the contract of sale. In the notice, Everest stated that the contract of sale would be rescinded pursuant to general condition 6(2) of Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic) if the contract was not completed within the notice period.

43 Everest has since re-sold the apartment and car-parking space for $545,000, which is $60,000 more than the sale price to Mr and Mrs Mendoza.[6]

44 In summary, the relevant contracts of sale can be divided into the following categories.

(1) the purchasers paid the initial payment from their own moneys;

(2) a standard form receipt was issued by Everest for that payment;

(3) a contract of sale was subsequently entered into;

(4) a deposit bond was provided and accepted by Everest; and

(5) the initial payment was repaid by Everest to the purchaser.

This is the position in respect of many of the relevant contracts of sale.

46 Second, there are a number of contracts of sale where, as with Mr and Mrs Mendoza, the initial payment was paid by the introducing agent and the transaction otherwise proceeded in accordance with the first category.

47 Third, there are some instances where the initial payment was made on an identified apartment, but the purchasers then proceeded to enter into a contract of sale in respect of a different apartment.

48 Fourth, in respect of nine contracts, the initial payments were paid by agents in connection with proposed purchases by other persons, of apartments in other developments, undertaken by other companies associated with Everest. The form of the receipts issued to these defendants were not placed in evidence.

49 Fifth, there are contracts where the evidence does not disclose whether an initial payment was ever made. In these cases, the evidence discloses only that the contract of sale was entered into and a deposit bond was subsequently delivered to Everest.

50 Sixth, there are four contracts of sale where the initial payments were made on the same day the contract was entered into. In these cases, I infer that the initial payments were made at the time of signing the contracts of sale. Notwithstanding this, the standard form of receipt was issued.

51 Seventh, there is one case where the only evidence of payment of a deposit is of a payment made after the contract of sale was entered into. Once again, notwithstanding this the standard form of receipt was issued.

III. DID THE CONTRACTS OF SALE COMPLY WITH S 9AA(1) OF THE

(1) A person shall not sell a lot in a plan of subdivision (whether certified or not) to anyone except a statutory body or authority if the plan has not been registered by the Registrar, unless -

(a) the contract for the sale of that lot provides that the deposit moneys payable by the purchaser are to be paid -

(i) to a legal practitioner, conveyancer or licensed estate agent acting for the vendor to be held by the legal practitioner, conveyancer or licensed estate agent on trust for the purchaser until the registration of the plan of subdivision; or

(ii) into a special purpose account in an authorised deposit-taking institution in Victoria specified by the vendor in the contract in the joint names of the purchaser and the vendor until the registration of the plan of subdivision; and

(b) the deposit moneys payable under the contract do not exceed 10 per cent of the purchase price of the lot.

53 Section 9AA(6) defines "deposit moneys" for the purposes of s 9AA(1)(a) in the following terms:

(6) In this section (except subsection (1)(b)) and sections 9AF, and 9AH deposit moneys in relation to the sale of a lot 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 lot and, in the case of any moneys paid into a special purpose account pursuant to subsection (2)(b), includes any interest from time to time accruing to that account in respect of those moneys.

54 It was submitted on behalf of the defendants that one or more of special conditions 13.3, 15.3, 15.4 and 15.5 of the contracts of sale do not comply with s 9AA(1) of the Act.

(1) Does special condition 13.3 comply with s 9AA(1) of the Act?

55 By special condition 13.3, the parties to the contract authorised Everest's solicitors to invest the deposit in a separate-interest bearing trust account "at a Bank". It was submitted that this was an ineffective attempt to comply with s 9AA(1)(a)(ii) of the Act because the contract does not specify the name of the bank in which the deposit may be invested, the definition of "Bank" in the contract is not limited to deposit-taking institutions in Victoria, and special condition 13.3 does not require the investment to be in an account in the joint names of the purchaser and the vendor. For the following reasons I do not accept this submission.

56 General condition 6.3 complies with s 9AA(1) of the Act. It provides that the deposit moneys must not exceed 10% of the price and that the deposit moneys must be paid either to a legal practitioner or to a licensed estate agent, in accordance with s 9AA(1)(a)(i), or into a special purpose account, in accordance with s 9AA(1)(a)(ii).

57 Special conditions 13.1 and 13.2 comply with s 9AA(1)(a)(i) and 9AA(1)(b) of the Act. They provide that the deposit moneys must not exceed 10% of the purchase price and that the deposit moneys must be paid either to a legal practitioner or to a licensed estate agent in accordance with s 9AA(1)(a)(i).

58 Although I accept that the special conditions prevail over the general conditions in the event of any inconsistency,[7] I do not accept the submission made on behalf of the defendants that there is inconsistency between general condition 6.3(b)(ii), which provides for payment of deposit moneys into a special purpose account in accordance with s 9AA(1)(a)(ii), and special condition 13.3.

59 When the contracts of sale are construed as a whole in light of the surrounding circumstances, clause 13.3 is not an ineffective attempt to comply with s 9AA(1)(a)(ii) of the Act, as was submitted on behalf of the defendants, but is a permissible provision consistent with special condition 13.2 and with s 9AA(1)(a)(i) of the Act. I am of this view for the following reasons.

60 First, the contracts have obviously been drafted in an endeavour to comply with s 9AA(1) of the Act. This is obvious from the terms of general condition 6.3 and special conditions 13.1 and 13.2.

61 Second, the Act does not regulate the manner in which interest earned on deposits paid into the trust account of a solicitor or estate agent must be dealt with. The definition of "deposit moneys" in s 9AA(6) includes interest earned on a deposit which is paid, but only where that interest accrues upon a deposit which is paid into a special purpose account in accordance with s 9AA(2)(b).

62 Third, in these circumstances, special condition 13.3 is consistent with the mandatory provision in special condition 13.2, requiring the vendor's solicitor to hold deposit moneys on trust for the purchaser until registration of the plan. Special condition 13.3 does no more than authorise the vendor's solicitor, while continuing to hold the deposit moneys on trust for the purchaser, to invest the deposit in an interest-bearing trust account at a bank. The course of a solicitor investing trust money in an interest bearing trust account is authorised by statute in certain circumstances. Until 12 December 2005, this course was authorised by s 174(2) of the Legal Profession Act 1996 (Vic). From that date, the course was authorised by s 3.3.13(1)(b) of the Legal Profession Act 2004 (Vic).

63 Accordingly, I conclude that special condition 13.3 does not contravene s 9AA(1) of the Act.

(2) Do special conditions 15.3 and 15.4 comply with s 9AA(1) of the Act?

64 It was submitted on behalf of the defendants that special conditions 15.3 and 15.4 of the contracts of sale do not comply with s 9AA(1) of the Act because they do not state that deposit moneys paid in accordance with these special conditions must be held in accordance with the requirements stated in s 9AA(1)(a) of the Act. It was submitted that this result follows because special condition 13 and special condition 15 should be construed as separate and distinct contractual regimes which do not inter-relate in any way. I do not accept this submission.

65 General principles of contractual interpretation require the Court to consider what reasonable persons in the position of the parties would have understood the words to mean by reference to the text of the agreement, the surrounding circumstances known to the parties and the purpose or object of the transaction.[8] In interpreting the words and resolving any ambiguity, the Court should proceed in a common sense and non-technical way and give the agreement a commercially sensible construction.[9] The Court should have regard to all of the words used in the agreement "so as to render them all harmonious with one another"[10] and to ensure the "congruent operation of the various components as a whole."[11]

66 The application of these principles dictates the result that the contracts of sale provide that payments of deposit moneys in accordance with special conditions 15.3 or 15.4 must be paid and held in accordance with special condition 13.2. As I have said, special 13.2 complies with s 9AA(1)(a)(i), as does general condition 6.3(b)(i).

67 Accordingly, if either special condition 15.3 or special condition 15.4 requires the purchaser to pay the deposit at a time prior to the registration of the plan of subdivision, special condition 13.2 and general condition 6.3(b)(i) both require that any deposit moneys paid by the purchaser must be held on trust for the purchaser until registration of the plan. This is in accordance with s 9AA(1)(a)(i).

68 If at the time of payment under special condition 15.3 or 15.4, the plan of subdivision has already been registered, s 9AA ceases to have any relevance, and the deposit moneys must be dealt with in accordance with Division 3 of Part I of the Act. Under that Division, the deposit moneys must, when received by the vendor, be paid in accordance with s 25 of the Act within seven days after their receipt. However, if at the time of the payment of the deposit moneys the contract of sale has been rescinded by either vendor or purchaser, s 26 provides that the deposit moneys are to be paid to either the vendor or the purchaser, depending upon whose default gave rise to the rescission.

(3) Does special condition 15.5 comply with s 9AA(1) of the Act?

69 In paragraph 15 of the further amended defence, the defendants allege that each of the contracts of sale contravened s 9AA(1)(a) of the Act. In the particulars to this allegation, the defendants contend that one or more of the terms and conditions of the contracts of sale permitted the deposit moneys to be paid to Everest, and not to a legal practitioner or licensed estate agent in accordance with s 9AA(1)(a)(i), or into a special purpose account in accordance with s 9AA(1)(a)(ii).

70 In relation to special condition 15.5, the defendants alleged in their particulars that this condition did not comply with s 9AA(1)(a) of the Act because:

(B) special condition 15.5(b) permits the Vendor to deal with the money as it sees fit, and not as it must be dealt with in accordance with section 9AA.

71 Although the general particular asserts that the whole of special condition 15.5 does not comply with s 9AA(1), the particular ground relied upon refers only to special condition 15.5(b). There is no specific contention that special condition 15.5(a) provides for the payment of the deposit moneys payable by the purchaser under the contract to be paid directly to Everest, in contravention of s 9AA(1)(a). Such a contention was not directly advanced during the trial by counsel for the defendants, in either written or oral submissions. When it occurred to me that special condition 15.5(a) may contravene s 9AA(1)(a), I informed the parties that I wished to hear further argument as to whether special condition 15.5(a) of the contracts of sale complies with s 9AA(1) of the Act in circumstances where:

(1) The deposit becomes payable under special condition 15.3 at a time prior to registration of the plan of subdivision, such as under special condition 15.3(b) or (c)(iii);

(2) The purchaser fails to pay the deposit and thus breaches special condition 15.3; and

(3) The vendor does not rescind or otherwise terminate the contract of sale for breach by the purchaser, but claims upon the deposit bond, with the intention of treating the payment received by it as constituting payment of the deposit payable by the purchaser under special condition 15.3.

72 In particular, the parties were asked to consider whether special condition 15.5(a) provides for the vendor to be paid the deposit moneys directly, at a time prior to the registration of the plan of subdivision. In considering this issue, the parties were directed to the definition of "Deposit Bond", which provides that a deposit bond, in order to comply with the contract, must contain an unconditional undertaking by the Insurer "to pay money to the Vendor".

73 Special condition 1.1 defines "Deposit Bond" in the following terms:

Deposit Bond means an unconditional undertaking by an Insurer, in a form acceptable to the Vendor, to pay money to the Vendor, and includes any replacement deposit bond that is accepted by the Vendor.[12]

74 Under special condition 15.3, if a deposit bond is delivered to Everest in an acceptable form, the obligation of the purchaser to pay the deposit is deferred until the first to occur on a number of specified events, some of which may occur prior to the registration of the plan of subdivision. If such an event occurs, and the purchaser fails to pay the deposit, clause 15.5 permits Everest to claim on the deposit bond. There is nothing in the contract of sale which requires Everest to rescind the contract of sale, either for breach of the requirement to pay the deposit under special condition 15.3 or otherwise, prior to Everest claiming on the deposit bond. Accordingly, Everest may claim upon the deposit bond at a time when the contract of sale continues to subsist and before registration of the plan of subdivision.

75 In my view, clause 15.5(a), when read together with the definition of "Deposit Bond" provides for the circumstance that the deposit moneys payable by the defendants under the contracts of sale may, before registration of the plan of subdivision, be paid to Everest directly, in contravention of s 9AA(1)(a). This is because there are a number of specified events in special condition 15.3 which may occur prior to registration of the plan of subdivision. For example, the deposit bond may expire prior to registration of the plan of subdivision, as in fact happened with one of the deposit bonds in this case.[13] In these circumstances, a claim by Everest upon the deposit bond may, depending upon the terms of the deposit bond, lead to the issuer of the bond paying directly to Everest an amount equal to, or forming part of, the deposit moneys payable under the contract of sale. Of course, this will depend upon the terms of the deposit bond.

76 It was submitted on behalf of Everest that special condition 15.5(a) does not contravene s 9AA(1)(a) of the Act. A number of arguments were relied upon.

77 First, it was submitted that money paid under a deposit bond following a claim by Everest does not have the essential characteristics of a "deposit" because, on any possible combination of events, Everest could only claim on the deposit bond after the purchaser defaulted in the obligation to pay the deposit under special condition 15.3. In these circumstances, it was submitted that any money paid by the issuer of a deposit bond lacked the essential characteristics of a "deposit". In this regard, reference was made to the well known descriptions of a deposit as being "an earnest to bind the bargain"[14] or "a security arranged to ensure the due performance of the contract"[15] by the purchaser.

78 I do not accept this submission. As I have said, the fact that a claim is made on the deposit bond does not necessarily mean that the contract of sale will be terminated. In circumstances where the deposit has not been paid, Everest is entitled, but not obliged, to terminate the contract of sale.[16] It may elect to treat the contract as remaining on foot, and to hold the proceeds of the deposit bond as a deposit to secure the performance of the purchaser's obligation to pay the balance of the purchase price at settlement. If it does so, the proceeds of the deposit bond will "become the deposit" and will act as security for the future performance of the purchaser's obligation to pay the balance of the purchase price at settlement. [17]

79 Second, it was submitted that money paid under a deposit bond following a claim by Everest cannot constitute "deposit moneys payable by the purchaser" because special condition 15.5 only deems the payment of the proceeds of the deposit bond "to satisfy the obligations of the purchaser [to pay the deposit] under special condition 15.3". It was submitted that this procedure does not provide for the payment of "deposit moneys ... by the purchaser" within the meaning of s 9AA(1)(a), because the moneys are payable in satisfaction of the obligation of the issuer under the deposit bond, and not under the contract of sale.

80 I do not accept this submission. The contractual effect of the deeming provision in special condition 15.5(a) is that money paid pursuant to a claim by Everest on the deposit bond is to be treated as payment, for the purposes of the contract, of the "deposit moneys" as defined in s 9AA(6) of the Act. In the event that the deposit bond is called upon and the contract of sale remains on foot, these moneys will constitute "part of the purchase price received by the vendor or on behalf of the vendor" for the purposes of the statutory definition. The fact that the bond issuer is required to pay under the terms of the deposit bond, and not under the terms of the contract of sale, is not to the point. Of course, in such events the purchaser will be liable to the issuer of the deposit bond for the amount which is paid.

81 Third, it was submitted in the alternative that, if the money paid under a deposit bond is properly characterised as "deposit moneys payable by the purchaser", any payment by the issuer of a deposit bond would fall within the terms of, and accordingly be governed by, special condition 13.2 of the contracts of sale. Accordingly, it was submitted that, notwithstanding the terms of the deposit bond, which may provide for payment directly to Everest, special condition 13.2 nevertheless requires that the proceeds of a deposit bond must be paid to Everest's solicitor or estate agent.

82 I do not accept this submission either. Clause 13.2 is concerned with deposit moneys actually paid by the purchaser. It does not concern the deemed satisfaction of the purchaser's obligation to pay the deposit moneys under special condition 15.3. The definition of "deposit bond" provides for payment to be made directly to Everest as the vendor. This demonstrates that the deposit bond regime is both separate from, and inconsistent with, special condition 13.2 and general condition 6.3(b). The result of that inconsistency is that the deposit bond regime does not comply with s 9AA(1)(a) because it provides for circumstances in which the deposit moneys may be paid directly to Everest as the vendor.

83 Fourth, reliance was placed upon the fact that some of the deposit bonds, which were in fact obtained by the defendants and provided to Everest, contain a provision that a claim cannot be made on the bond unless and until the contract of sale has been terminated in circumstances permitting Everest to forfeit or recover the deposit. However, the terms of the actual deposit bonds are not relevant in this context. The issue is whether the contracts, on their proper interpretation, provide that the deposit moneys payable by the purchaser may be paid otherwise than in accordance with s 9AA(1)(a). For this reason also, it is not the point that some of the deposit bonds provided by the defendants to Everest provided that the bond issuer would pay the moneys demanded "to or at the direction of the vendor" or "to the person nominated in the contract of sale to hold the deposit". Under the terms of the definition of "Deposit Bond" it was open to Everest to require, or accept, a deposit bond which did not contain such conditions.

84 For the reasons stated, I conclude that special condition 15.5(a) of the contracts of sale contravened s 9AA(1)(a) of the Act. In these circumstances, the purchasers were entitled to rescind the contracts of sale prior to the registration of the plan of subdivision. Each of them did so.

85 It is accordingly unnecessary to consider the submissions made on behalf of the defendants in reliance upon special condition 15.5(b) of the contracts of sale. However, as the matter was fully argued, I will express my view briefly. In my view, if the contracts of sale did not permit the proceeds of the deposit bonds to be paid directly to Everest, but provided that the proceeds must be paid in accordance with special condition 13.2, special condition 15.5(b) would not contravene s 9AA(1)(a) of the Act. This is because special condition 15.5(b) does no more than recognise the right of a vendor who has an entitlement to rescind a contract of sale to forfeit the deposit in accordance with general condition 6(3)(b) of Table A of the Seventh Schedule to the Transfer of Land Act 1958. The exercise of this right is consistent with s 9AF(1)(a) of the Act.

86 The question remains as to whether, upon a proper interpretation of the contracts of sale, Everest would be entitled to treat the purchaser's breach of the obligation to pay the deposit under special condition 15.3 as a fundamental breach, elect to rescind the contract of sale, claim moneys equivalent to the deposit under the terms of the deposit bond, and then treat those moneys as a forfeited deposit. This raises an issue of contractual interpretation and not statutory interpretation. I express no opinion upon the proper interpretation of the contracts of sale in this regard.

IV. WERE DEPOSIT MONEYS PAID IN ACCORDANCE WITH S 9AA(2) OF

87 Having regard to my conclusion that special condition 15.5(a) of the contracts of sale contravened s 9AA(1)(a) of the Act, it is unnecessary for me to determine whether deposit moneys were paid in contravention of s 9AA(2) of the Act in respect of any of the contracts of sale. However, as the matter was fully argued, I will express my view.

(2) The deposit moneys paid by the purchaser prior to the registration of the plan under a prescribed contract of sale of a lot shall be paid (as the case requires) -

(a) to the legal practitioner, conveyancer or licensed estate agent acting for the vendor; or

(b) into a special purpose account in the authorised deposit-taking institution in Victoria specified in the contract in the joint names of the purchaser and the vendor.

89 Section 9AA(2) operates whenever, prior to the registration of the plan of subdivision, a purchaser pays deposit moneys "under a prescribed contract of sale". The relevant contracts of sale were all prescribed contracts, and the initial payments were all paid prior to the registration of the plan of subdivision. Accordingly, the only issue is whether the initial payments were, at any time, "paid" by the relevant defendants "under" their respective contracts of sale.

90 In considering these questions, it is relevant that some of the defendants made their initial payments prior to a contract of sale coming into existence, others paid at the time of signing of the contract, and one purchaser paid a few days after the contract of sale was entered into.

91 I find that those defendants who made their initial payments at the time of signing the contract of sale, or thereafter, made those payments as part payment of the deposit moneys payable "under" the contracts. I make this finding because each of the contracts provided that an amount equal to the initial payment was "payable on the signing of this contract",[18] and such amounts were described in the special conditions as an "instalment of the Deposit".[19]

92 This result is not altered by the fact that the standard form of receipt was used in respect of these payments. Insofar as the standard form receipt provided that no contract of sale was in existence, it was false. The sales staff of Everest have simply used an inappropriate form of receipt. This cannot alter the true nature of the relations between the parties. Upon signing the contracts of sale, the relevant defendants were bound to purchase, and Everest was bound to sell to them, the nominated lots. There was no question of any lots being "held" pending a later decision by the purchaser as to whether to proceed.

93 Accordingly, when it paid the amount of these initial payments into its own bank account, Everest breached s 9AA(2) by failing to pay deposit moneys to one of the persons or entities provided for in s 9AA(2).

94 The position of the defendants who, directly or though an agent, paid their initial deposits prior to any contract of sale coming into existence is more complex. At the time of payment, it cannot be said that the initial deposits were paid by them, or on their behalf, "under a prescribed contract of sale", because no contract of sale was then in existence.

95 It was submitted on behalf of the defendants that the defendants in this category "paid" deposit moneys under the relevant contracts of sale at the time they entered into the contracts. It was submitted that this was so because, when the contracts of sale are construed as a whole in light of the surrounding circumstance constituted by the standard form of receipt, they provide that the initial payments are to be treated as part payment of the deposit payable under the contracts. Accordingly, upon entry into each contract of sale, Everest was obliged to immediately pay the amount of the initial payment to one of the persons described in s 9AA(2), to be held in accordance with the mandatory contractual requirements specified in s 9AA(1)(a). Reliance was placed upon the following matters:

(1) The form of the receipts issued by Everest for the payment of the initial deposit. Although that receipt clearly states that no contract of sale is in existence, the description "preliminary deposit" and the arithmetical calculation in the receipts each contemplate a contract of sale being entered into and, if that is the case, that the contract will provide for a deposit of 10% of the purchase price being payable "less" the amount of the preliminary deposit for which the receipt is given.

(2) The particulars of sale in most of the contracts provide that an amount equal to the initial payment "is payable on the signing of this contract", and provide that the balance of the deposit is payable within seven days unless special condition 14 or special condition 15 applies.

(3) Under special condition 15, the purchaser was obliged to deliver a deposit bond to Everest within seven days. If this was done, the time for payment of the deposit was deferred until the first to occur of certain specified events, some of which could take place before registration of the plan of subdivision. However, if the deposit bond was not provided within seven days, special condition 15.4 provides that the purchaser must pay the deposit in full within 14 days after the date of the contract of sale; in other words within a further seven day period. Reference to the receipts and the particulars of sale demonstrates that the amount of the initial deposit which had already been paid was to be treated as part payment of the deposit in these circumstances.

(4) In the event that the deposit bond is provided, special condition 16 expressly characterises the amount of the initial deposit as "an instalment of the deposit" and provides that it must be repaid to the purchaser.

96 I accept the defendants' submissions in this regard. The circumstances set out above demonstrate a clear intention to treat the initial payments as part payment of the deposit, and thus part payment of the purchase price, pending the provision of a deposit bond and the refund of the initial payments. Accordingly, when the contracts of sale were entered into, the parties intended that the initial payments "would become [part of] the deposit",[20] albeit for only a short period if the purchaser complied with the obligation to deliver a deposit bond. Of course, if no deposit bond was delivered, the initial payments would remain as part payment of the deposit moneys.

V. IF S 9AA(2) WAS BREACHED, DID THE DEFENDANTS ACT SO AS TO

97 In order to meet the possibility that the Court may conclude that s 9AA(2) was breached in respect of one or more of the contracts of sale, it was submitted on behalf of Everest that the purchasers had, by their conduct, lost their right to rescind the contracts of sale under s 9AE(1) of the Act. Reliance was placed upon principles of election, estoppel and waiver. Once again, having regard to my conclusion that the contracts of sale contravene s 9AA(1)(a) of the Act, it is unnecessary to decide this issue. However, as the matter was fully argued, I will express my view briefly.

98 In my view, the Act, upon its proper interpretation, excludes reliance upon doctrines of election, waiver and estoppel to defeat the right of a purchaser to rescind under s 9AE(1). The clear purpose and social policy underlying ss 9AA to 9AH of the Act is the protection of the section of the public comprising purchasers of lots in unregistered plans of subdivision. It would be inconsistent with that purpose and social policy to allow vendors to rely upon the conduct of purchasers as depriving them of their unqualified right to rescind under s 9AE(1).[21]

99 My conclusion in this regard is supported by s 14(3) of the Act, which provides:

(3) Any agreement whereby a person purports to waive any right which he may have under this Act to avoid a contract shall be void and of no effect.

100 Sub-sections 14(1), (2) and (4) of the Act are expressly limited in their operation to terms contracts. However, s 14(3) is not so limited.

101 Further, my conclusion in this regard is supported by the approach adopted by Doyle CJ in dissent in Astill & Anor v South Esplanade Developments Pty Ltd,[22] whose reasoning I prefer to that of the majority.

102 It is also unnecessary to consider the defendants' case based upon s 9AB of the Act. However, as the matter was fully argued, I will express my view briefly.

(1) The vendor shall disclose in a prescribed contract of sale of a lot details of any works affecting the natural surface level of the land in the lot or any land abutting the lot which is in the same subdivision as the lot which to the vendor's knowledge -

(a) have been carried out on that land after the certification of the plan of subdivision and before the date of the contract; or

(b) are at the date of the contract being carried out or proposed to be carried out on that land.

(2) The vendor under a prescribed contract of sale of a lot shall disclose to the purchaser details of any works affecting the natural surface level of the land in the lot or of any land abutting the lot which is in the same subdivision as the lot which have not been disclosed in the prescribed contract of sale and which to the vendor's knowledge -

(a) have been carried out on that land after the date of the contract and before the registration of the plan of subdivision; or

(b) after the date of the contract and before the registration of the plan of subdivision have been commenced to be carried out or are proposed to be carried out on the land.

(3) The vendor shall make a disclosure under subsection (2) in writing as soon as practicable after the details required to be disclosed come to the knowledge of the vendor.

104 Section 2 of the Act contains a broad definition of "land" in the following terms:

land includes land of any tenure, and buildings or parts of buildings (whether the division is horizontal, vertical or made in any other way) and other corporeal hereditaments; and also an undivided share in land and any estate or interest in land;

105 In brief summary, it was submitted on behalf of the defendants that Everest contravened s 9AB of the Act because it did not disclose full details of the earthworks which were required to excavate the natural surface levels of the Spencer Street and Queens Road sites, for the purposes of constructing the apartment buildings. The short answer to the submissions made on behalf of the defendants in this regard is that none of the lots which the defendants agreed to purchase has a "natural surface level". Each apartment is above the ground floor. Each car-parking space is below ground level. In these circumstances, the surface level of each of the lots is entirely unnatural. The surface level of each lot is a concrete slab above or below the natural surface level of the land upon which the apartment buildings have been constructed.

106 As to the land abutting the lots purchased by the defendants, none of that land has a natural surface level either.

107 The apartments are abutted by air space, immediately adjacent apartments and common property in the sub-division. Air space does not have a natural surface level. The abutting apartments and the common property (comprising walls and other supporting structures of the apartment building, lift-wells, stairs, hallways and other common areas) are unnatural structures above the natural surface level of the land on which the apartment building is constructed.

108 The car-parking spaces are abutted by other car-parking spaces and common property comprising unnatural structures constructed below the natural surface level of the land upon which the apartment building has been constructed.

109 There may be room for argument that the purchaser of a ground floor apartment in a similar development may, because an external wall of the apartment abuts the natural surface level of the land upon which the apartment building is constructed, be entitled to disclosure under s 9AB of works affecting the natural surface level of the abutting land. That issue does not arise for determination in this proceeding.

110 I have found some technical contraventions by Everest of ss 9AA of the Act, each of which entitles the defendants to rescind the contracts of sale entered into by them under s 9AE(1). The conclusion which I have reached is unfortunate in the circumstances of this particular case, where the evidence demonstrates that the initial payments were all repaid and Everest has acted to ensure that any moneys received under the deposit bonds were paid to its solicitor, to be held on trust. Further, notwithstanding the notices of rescission given by the defendants to Everest, Everest nevertheless gave the defendants an opportunity, following registration of the plans of subdivision, to complete the contracts of sale if they wished. It was only when the defendants failed to comply with Everest's notices of rescission, that Everest rescinded the contracts of sale.

111 However, the provisions of ss 9AA(1), 9AA(2) and 9AE(1) of the Act are in absolute terms and are obviously intended to ensure that deposits paid by purchasers of lots in an unregistered plan of subdivision are fully protected at all relevant times. Everest chose, presumably for the commercial reason of assisting in the marketing of lots in the two developments, to give purchasers the option of providing a deposit bond to secure the due performance of their obligations under the contracts of sale, in lieu of requiring immediate payment of a deposit. Everest must have known that the purchasers would be liable to the bond issuer if the bond was called upon. In these circumstances it was for Everest to ensure that the deposit bond structure, including the receipt and retention of the initial payments pending delivery of the deposit bonds, complied strictly with the Act. The risk that the deposit bond structure did not comply was to Everest's account. If the structure was sanctioned by the Court, another less scrupulous developer using the same structure could legally receive proceeds of a deposit bond prior to the registration of the plan of subdivision, and deal with those proceeds so as to take them out of the reach of the purchaser in the event that the plan of subdivision is not registered and the purchaser becomes entitled to a refund of the deposit. Such a result would be entirely inconsistent with the underlying purpose of ss 9AA(1), 9AA(2) and 9AE(1) of the Act.

112 The claims by Everest in the proceedings will be dismissed. There will be judgment for the defendants. They are entitled to a declaration that they have validly rescinded the contracts of sale entered into by them. They are also entitled to judgment for damages to be assessed, including damages in respect of any moneys which they have paid, or are liable to pay, to the issuers of the deposit bonds provided by them. Where the claims by Everest upon deposit bonds have not been met, orders should be made directing Everest to withdraw its claims under those deposit bonds. I will hear the parties as to the precise form of the judgment and orders to be made, and as to costs.

[2] The "Yes" has been circled, and initialled, to indicate that special condition 15 applies. Special condition 15 is set out below.

[5] The plan of subdivision for the Queens Road apartment building was registered on 13 March 2008. Later in March 2008, home completion certificates and certificates of occupancy were issued in respect of the lots in the Queens Road plan of subdivision. Everest notified the relevant defendants of these events and, accordingly, their contracts of sale became due for completion on or about 28 March 2008.

[6] Not all of the units which are the subject of the contracts of sale relevant to this proceeding have been re-sold. Further, of those that have been re-sold, some have been sold at prices below the contract prices. These matters are only relevant to an assessment of damages if Everest is successful in the proceeding.

[8] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, [40].

[9] Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; [1932] All ER 494, 499, 503-4; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 437; Di Dio Nominees Pty Ltd, v Brian Mark Real Estate Pty Ltd [1992] VicRp 99; [1992] 2 VR 732, 740; MLW Technology Pty Ltd v May [2005] VSCA 29, [76]-[81]; Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 770-1.

[10] ABC v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.

[11] Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, [16].

[13] That deposit bond was later replaced by an extended deposit bond.

[14] Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378, 386-7, 398.

[16] Ibid, 386-7, 393-4, 397-9, 401, 406-7.

[20] Brian v Dwyer [1978] HCA 50; (1978) 141 CLR 378, 406.

[21] See, for example, Kok Hoong v Leong Kheong Kwong Mines Ltd [1964] AC 993, 1016-7; Equuscorp Pty Ltd & Anor v Antonopoulos [2008] VSCA 179, [27]-[29].

[22] [2007] SASC 231.