Plaintiff v Defendants

2 The main question thrown up by the parties is whether the delivery of a promissory note by the purchaser for the amount of the balance of the deposit is a payment of the deposit in accordance with the contract. If it is, a Notice of Default and Rescission given by the vendor is not effective to bring the contract to an end, with the consequence that the first defendant's application for summary judgment, insofar as it is based on termination of the Contract, must fail.

3 I have concluded for the reasons given below that the delivery of the promissory note in this case is not effective as payment of the balance of the deposit under the contract. Given that conclusion, there is no dispute that the Notice of Default and Rescission given by the vendor has operated to terminate the contract.

4 In any event, the vendor is entitled to possession of the land as the plaintiff's occupation of it is pursuant to a licence agreement, which has been validly revoked. The first defendant is, accordingly, entitled to the relief it seeks, including possession of the land.

5 The defendants apply by summons filed on 25 November 2014 for the following relief:

(a) For summary judgment against the plaintiff pursuant Rule 23.01(1) of the Supreme Court (General Civil Procedure) Rules 2005 ('the Rules') and/or s 62 of the Civil Procedure Act 2010 ('CPA') on the grounds that the statement of claim does not disclose a cause of action, is scandalous frivolous or vexatious, is an abuse of the process of the Court and has no real prospect of success;

(b) Alternatively, that the statement of claim be struck out or amended pursuant to Rule 23.02 on the grounds that it does not disclose a cause of action, is scandalous frivolous or vexatious, may prejudice, embarrass or delay the fair trial of the proceeding or is otherwise an abuse of the process; and

(c) For summary judgment against the plaintiff pursuant to Rules 22.02 and 23.03, and ss 61 and 62 of the CPA, in respect of the defendants' counterclaim.

6 The affidavit filed on behalf of the defendants in support of their summons[1] establishes (and indeed in large measure the plaintiff's pleadings confirm) the facts set out in the following paragraphs.

7 The first defendant ('Simons') is registered proprietor of the land situate at and known as 141 Moody Street, Koo Wee Rup, in Victoria (Certificate of Title Volume 11445 Folio 076) ('the Property'). On 24 February 2014, Simons entered into a contract to sell the property to the plaintiff ('Mr Douglas') and his wife, Nella Douglas for the price of $355,000 payable by way of a deposit of $5,000 with the balance payable at settlement on 1 July 2014 ('the initial contract'). Under this contract (and the next contract) the purchasers were entitled to possession at settlement, on payment of the purchase price.

8 On 14 March 2014, Simons entered into a licence agreement with Mr and Mrs Douglas for them to occupy the property from that day, pending settlement of the initial contract. Under that licence agreement, the licence granted to Mr and Mrs Douglas was revocable upon the giving of notice, whether written or verbal, to the licensees. Mr and Mrs Douglas were responsible for the payment of the rates and utilities and agreed to pay a licence fee of $300 per week. There are other terms but they seem irrelevant at the present.

9 Mr and Mrs Douglas paid the deposit of $5,000 under the initial contract to the agents acting for Simons Builders (Stockdale & Leggo Real Estate). Mr and Mrs Douglas lodged a caveat on the title to the property on 23 June 2014 claiming an interest as purchasers under the initial contract.

10 Mr and Mrs Douglas failed to pay the balance of the purchase price due under the initial contract on 1 July 2014. After that the following events occurred:

(a) By letter dated 1 July 2014 from the conveyancer acting for Mr and Mrs Douglas to the conveyancer acting for Simons, Mr and Mrs Douglas sent a 'Notice of Novation' which proposed amendments to the terms of the initial contract;

(b) Simons' conveyancer responded on 2 July 2014 rejecting the proposed amendments to the initial contract and advised that Simons would agree to varying the terms to extend the settlement date to 15 September 2014 on the basis of an increase in the deposit, an increase in the licence fee and the payment of penalty interest on the unpaid moneys due under the initial contract;

(c) On 2 July 2014 at 4.13pm, having received no response from Mr and Mrs Douglas to their letter of earlier that day, Simons gave a Notice of Default under the initial contract;

(d) On 3 July 2014, Mr and Mrs Douglas' conveyancer sent a further Notice of Novation which, in effect, complained about the Notice of Default but conditionally accepted the earlier proposal subject to amendments; and

(e) On 7 July 2014, Simons' conveyancer rejected the proposed amendments advanced on behalf of Mr and Mrs Douglas and gave notice that the licence agreement was revoked and that Mr and Mrs Douglas were required immediately to vacate the property.

11 Sometime in July 2014, Mr and Mrs Douglas engaged Mr Anthony Chimonis of Business Support Services in Burwood Road, Hawthorn East, Victoria, as their solicitor. Then the following events occurred:

(a) By email on 16 July 2014, Mr Chimonis proposed that a new contract of sale be entered into and on 23 July 2014, Simons' conveyancer sent a new contract to Mr Chimonis providing for the purchase price of $355,000, payable by a deposit of $35,500 (of which $5,000 was accepted as having been paid), a further $10,000 of the deposit was payable on signing of the proposed new contract,[2] with the balance of the deposit to be paid by 4 August 2014, and settlement (or completion of that contract) on 1 September 2014. There was also to be a new licence agreement providing for an increased licence fee of $350 per week;

(b) Mr Chimonis responded by letter on 29 July 2014 enclosing the proposed new contract with amendments. The proposed new contract was signed by Mr Douglas only and had Mrs Douglas' name deleted both from the contract and the new licence agreement;[3]

(c) On about 30 July, Simons engaged solicitors, Mackinnon Jacobs Lawyers, to act on its behalf. On 1 August 2014, Mr Evans executed the proposed new contract and licence agreement on behalf of Simons. That contract and licence agreement had already been signed by Mr Douglas. On 4 August 2014, Mackinnon Jacobs forwarded a copy of the executed contract ('the Contract') and second licence agreement ('the Licence Agreement') to Mr Chimonis and at the same time advised:

(i) That the date for the payment of the balance of the deposit would be extended to 5 August 2014 on the basis that the deposit was to be paid into the trust account of Mackinnon Jacobs to be held as stakeholder pending settlement; and

(ii) That if the balance of the deposit was not received by 4.00pm on 5 August 2014, Simons reserved its right to terminate the Contract and revoke the Licence Agreement.

(d) On 5 August 2014, Mackinnon Jacobs received from Mr Chimonis a request that the payment of the balance of the deposit be delivered directly to Simons' place of business. Mackinnon Jacobs responded that the deposit is to be paid by bank cheque into their trust account to be held as stakeholder;

(e) On 6 August 2014, Mr Douglas delivered to Mackinnon Jacobs at Boronia Road, Boronia a promissory note dated 5 August 2014 by which Mr Douglas promised to pay to the order of Simons (or an agent or principle thereof) the sum of $30,500 on 20 August 2014 at 3.15 pm at the Property ('Promissory Note');

(f) On 6 August 2014, Mackinnon Jacobs wrote to Mr Chimonis advising that the Promissory Note was not payment of the balance of the deposit as required under the second contract and that Mr Douglas was therefore in breach of the terms of that contract and enclosed a Notice of Default and Rescission dated that day;

(g) On 8 August 2014, Mr Douglas delivered a somewhat unusual document directly to Mackinnon Jacobs called 'Notice of Conditional Acceptance' by which he acknowledged receipt of the letter attaching the Notice of Default and Rescission and conditionally accepted the claims made in it on proof of certain matters. The matters were that the Promissory Note is not a valid note, that the maker of the note has not engaged to pay the deposit sum, that a dollar amount on a note is not to be regarded as currency and that the note was not delivered on the day mutually agreed between the parties' solicitors, being 6 August 2014. The notice required proof of these matters within two days of receipt and stated that:

If you elect not to provide such proof of claim, it shall be agreed between the parties that no such proof exists and that you shall withdraw any rescission notice issued against the undersigned and notify the undersigned's solicitor as to such withdrawal, and that the contract is in order to proceed through to settlement.

(h) On 11 August 2014, Mackinnon Jacobs wrote to Mr Chimonis, sending him a copy of the so-called Notice of Conditional Acceptance and noted that it is a meaningless document. The letter reminded Mr Chimonis that Simons' Notice of Default and Rescission expires on 20 August 2014 and that all communications should be through him and not directly by Mr Douglas.

(i) On 14 August 2014, Mr Douglas delivered a further document directly to Mackinnon Jacobs called 'Notice of Default/Opportunity to Cure'. That notice recited the earlier notice requiring proof of certain matters and stated that because no such proof had been provided within the time allowed, Simons is in default. However, the notice went on to say that because Mr Douglas is desirous of reaching an amicable settlement with Simons he offers a further two days in which it could cure the default; and

(j) Mackinnon Jacobs responded the same day by writing to Mr Chimonis and attaching a copy of the so-called Notice of Default/Opportunity to Cure, again asserting that it was a meaningless document and complaining about the continued receipt of correspondence directly from the purchaser. This produced a response from Mr Chimonis on 21 August that he no longer acted for Mr and Mrs Douglas and 'the promissory note that you sent to us has been returned to you and you can take this matter up with Mr and Mrs Douglas'.

12 Mr Douglas did not pay the balance of the deposit under the Contract ($30,500) as required by the Notice of Default and Rescission. In consequence, on 21 August 2014, Mackinnon Jacobs wrote to Mr Douglas directly at the property by express post informing him that the period in which he was to remedy the default had expired and therefore the Contract was now rescinded and the Licence Agreement was revoked. The letter demanded that Mr and Mrs Douglas vacate the property by 28 August 2014, failing which proceedings were threatened. The letter also complained that Mr Douglas had undertaken building works on the property without permission of Simons and requested that Mr Douglas should ensure that those building works were removed, together with any property, fixtures and fittings belonging to him, before vacating the premises.

13 On 25 August 2014, Mr Douglas delivered another notice called 'Notice of Default- Final' dated 20 August 2014. That notice recited the response to the Notice of Default and Rescission constituted by the so-called Notice of Conditional Acceptance, the absence of any proof of the matters stated in that notice, referred to the so-called Notice of Default/Opportunity to Cure, and the response to that notice and concluded that Simons is now in default 'to the undersigned', Mr Douglas.

14 Mr Douglas commenced this proceeding by writ on 27 August 2014. He was not represented by a legal practitioner. Endorsed on the writ is what purports to be a statement of claim. It reads a little like an affidavit and refers to exhibits. The relief sought is in the following terms:

That the Court make rulings for equitable relief in regards the following:

1. Decree that a trust relationship was formed at the signing of the Contract of Sale.
2. Order that the Notice of Default and Rescission issued by the defendant be withdrawn.
3. Order that the contract be reinstated.
4. Order that there be no penalty interest charged to the plaintiff.
5. Order that no further costs arising out of actions of the defendant in relation to this suit be charged to the plaintiff.
6. Order that the settlement on the property at 141 Moody Street, Koo Wee Rup, Vic be set to a new date that is mutually agreeable to the parties to the contract.
7. Order as to costs to the plaintiff in bring this suit.
8. Any other relief that the Court may see fit to grant.

15 The writ was issued by the plaintiff in person and no certificates under ss 41 or 42 of the CPA have been filed in respect of it.

16 The defendants entered an appearance, and on 30 September 2014 filed a defence and counterclaim seeking, amongst other things, the following:

(a) A declaration that Simons has rescinded the Contract, alternatively rescission of it;

(b) A declaration that the deposit has been forfeited to Simons;

(d) An order requiring Mr and Mrs Douglas (Mrs Douglas is added as a defendant by counterclaim) to lodge a withdrawal of the caveat;

(e) Damages, further or alternatively, compensation under s 118 of the Transfer of Land Act 1958;

(f) Interest pursuant to the second contract or pursuant to statute; and

17 The basis of the counterclaim is that the Contract has been brought to an end by the operation of the Notice of Default and that the Licence Agreement has been revoked. By virtue of the combination of those matters, Simons is entitled to possession of the Property and other relief, including forfeiture of the deposit, payment of the balance of the deposit, removal of the caveat, damages and interest.

18 At the return of the defendants' summons on 11 February 2015, Mr Douglas appeared by solicitor, Mr Ian Hone. He conceded, rightly, that the statement of claim was defective and needed to be reformulated. The statement of claim was then struck out with a right to re-plead by 5 March 2015. An amended statement of claim was delivered together with an Outline of Submissions (as ordered). That amended pleading claims declarations that Mr Douglas is not in breach of the Contract and that the Notice of Default is of no legal force or effect, because of the delivery and alleged acceptance of the Promissory Note. He also seeks an order for specific performance of the Contract.

19 In the course of discussion regarding the statement of claim, Mr Hone identified the issue to be determined. It was whether the delivery of the Promissory Note was effective as payment of the balance of the deposit and whether the consequence of acceptance of the Promissory Note (and the defendant denied acceptance of it or that it was of any effect) suspended the cause of action in relation to the debt and thus suspended the right to give a notice of default and rescission.

20 There are a number of conditions of the Contract that are material to the relief sought by Simons. It is unnecessary to refer to them all at this point. I refer only to those relevant to the question in issue.

21 General Condition 11 of the Contract provides for payment under the contract, as follows:

11.1 The purchaser must pay the deposit;

(a) to the vendor's licensed estate agent;

(b) if there is no estate agent, to the vendor's legal practitioner or conveyancer; or

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

...

11.3 The purchaser must pay all money other than the deposit;

(a) to the vendor or the vendor's legal practitioner, or conveyancer;

(b) in accordance with a written direction of the vendor, or the vendor's legal practitioner or conveyancer.

11.4 At settlement, payments may be made, or tendered:

(a) in cash; or

(b) cheque drawn on an authorised deposit-taking institution; or

(c) if the parties agree, by electronically transferring the payment in the form of cleared funds.

11.5 for the purpose of this general condition 'authorised deposit-taking institution' means a body corporate in relation to which an authority under sub-s 9(3) of the Banking Act 1959 (Cth) is in force.

22 General Condition 12 provides, under the heading 'Stakeholding' as follows:

12.1 The deposit must be released to the vendor if:

(a) The vendor provides particulars to the satisfaction of the purchaser, that either -

(i) there are no debts secured against the property; or

(ii) if there are any debts, the total amount of those debts do not exceed 80% of the sale price; and

(b) At least 28 days have elapsed since the particulars were given to the purchaser under (a); and

(c) All conditions of s 27 of the Sale of Land Act 1962 have been satisfied.

12.2 The stakeholder must pay the deposit and any interest to the party entitled when the deposit is released, the contract is settled, or the contract is ended.

12.3 The stakeholder may pay the deposit and any interest into Court if it is reasonable to do so.

23 The General Conditions as to the payment of the deposit and the holding of the deposit are included, in part, so as to comply with the provisions of the Sale of Land Act 1962 (Vic). They can only be properly understood from a contractual perspective if the relevant provisions of Division 3 of Part 1 of that Act are also taken into account. They are, so far as relevant and in summary, as follows:

(a) Deposit monies received by a legal practitioner, conveyancer or estate agent in the course of a transaction for the sale of land shall be held by that person as a stakeholder until, in the case of a cash transaction [which is the case here] the purchaser becomes entitled to a transfer or conveyance of the land, at which time the deposit monies may be paid to the vendor in his own right or as the vendor directs (s 24);

(b) Any deposit monies received by a vendor in the course of a transaction for the sale of land other than deposit monies released pursuant to s 27 shall be paid within 7 days after their receipt by the vendor -

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

(ii) into a special purpose account in an authorised deposit-taking institution in Victoria to be nominated by the vendor in the joint names of the purchaser and the vendor (s 25); and

(c) Deposit monies may be released in certain circumstances where the contract is not subject to any condition enuring for the benefit of the purchaser, where the purchaser has accepted title, or may be deemed to have done so, and the provisions as to the debts secured on the land are satisfied, amongst other things (s 27).

24 General Condition 27 of the Contract provided for the giving of a default notice:

27.1 A party is not entitled to exercise any rights arising from the other party's default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.

27.2 The default notice must:

(a) specify the particulars of the default; and

(b) state that it is the offended party's intention to exercise the rights arising from the default unless, within 14 days of notice being given;

(i) the default is remedied; and

(ii) the reasonable costs incurred as a result of the default and any interest payable are paid.

25 General Condition 28.4 of the Contract provides that if the contract ends by a default notice given by the vendor:

(a) The deposit up 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 year 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;

(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.

26 The applications are made pursuant to rr 23.01(1), 23.02, 22.02 and r 23.03 as well as under ss 61 and 62 of the CPA. Because the power under the CPA is a slightly less stringent test than the test under the Rules, I will confine consideration to that power. The relevant sections are as follows:

62 Defendant may apply for summary judgment in proceeding

A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.

63 Summary judgment if no real prospect of success

(1) Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.

(2) A court may give summary judgment in any civil proceeding under subsection (1):

(a) on the application of a plaintiff in a civil proceeding;

(b) on the application of a defendant in a civil proceeding;

(c) on the court's own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.

1. Court may allow a matter to proceed to trial

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.

27 The test for summary judgment under s 63 of the CPA was authoritatively expressed by Warren CJ and Nettle JA in Lysaght v Building Solutions Pty Ltd v Blanalko Pty Ltd.[4] The test is whether the respondent to the application for summary judgment has a 'real' as opposed to a 'fanciful' chance of success. The 'real chance of success' test is to some degree more liberal than the 'hopeless' or 'bound to fail' test, and acknowledges that there may be cases in which it appears that, although the respondent's case is not 'hopeless' or 'bound to fail', it does not have a real prospect of succeeding.[5]

28 Courts must, however, continue to exercise the power to terminate proceedings summarily with caution. The power to give summary judgment must be exercised in accordance with the overarching purpose of the CPA and taking into account the fact that, if granted, a party will be deprived of the chance to pursue its claim or defence.[6] Courts should, therefore, only exercise the power if it is clear that there is no real question to be tried. This is so irrespective of whether an application for summary judgment is made on the basis that:

(a) The pleadings do not disclose a reasonable cause of action, and no amendment could cure this error; or

(b) The action is frivolous, vexatious or an abuse of process; or

(c) The application for summary judgment is supported by evidence.[7]

29 Section 64 makes clear that even if there is no real prospect of success, a court may nevertheless allow a matter to proceed to trial if:

(a) It is not in the interests of justice to summarily dispose of the proceeding (s 64(a)); or

(b) The dispute is of such a nature that only a full hearing on the merits is appropriate (s 64(b)).

30 Whether a proceeding should be allowed to go to a full hearing on the merits must be determined according to the circumstances of each case.[8]

(a) The parties entered into the Contract on 1 August 2014 when Simons signed the amended contract which had been signed and forwarded by Mr Douglas;

(b) The Contract provided that the deposit was to be paid by 4 August 2014 but the letter from Simons' solicitors gave Mr Douglas until 5 August 2014 to pay the balance of the deposit. Time was of the essence of the Contract under General Condition 16 and each party was bound to perform their obligations thereunder strictly in accordance with its terms, and failure to do constituted a breach entitling the other party to rescind the Contract. But the right to rescind, or bring the contract to an end, is subject to giving a written default notice (GC 27.1) which specifies certain matters (GC 27.2 and 28.2);[9]

(c) In breach of the Contract, the deposit was not paid. The delivery of the Promissory Note was not accepted as, and did not constitute, payment in accordance with the terms of the Contract;

(d) By letter dated 6 August 2014 Mackinnon Jacobs wrote to Mr Chimonis serving a Notice of Default and Rescission of the same date. The notice was served by email on 6 August 2014 which is permitted under special condition 3.2 (which replaced General Condition 17.2 with a term which permits any notice to be served, inter alia, by email). The rescission notice was not complied with and the default was not remedied within 14 days of service of the notice, accordingly (pursuant to General Condition 28.2) the second Contract was at an end on 20 August 2014;

(e) If a vendor validly rescinds a contract upon the failure of a purchaser to complete in accordance with an essential time stipulation, then, in the absence of fraud, accident or mistake or other conduct of the vendor that has in some significant respect caused or contributed to the breach of the essential time stipulation, the contract will be at an end and the purchaser will have no basis for seeking specific performance;[10]

(f) The failure by the purchaser to pay the balance of the deposit on the agreed date, where time is of the essence of the contract, will constitute a breach going to the root of the contract. Such breach will confer on the vendor the right to rescind at once[11] subject to the terms of the contract, and specifically in Victoria, the provisions of General Condition 27 and 28[12] being complied with;

(g) It is clear that a vendor in Victoria faced with a defaulting purchaser is not confined to the remedy under the new standard contract of sale of real estate. The vendor may also exercise his or her rights under the general law. Where the vendor elects to bring the contract to an end because it has been repudiated by the purchaser, it is not necessary for him to give the notice required by new standard contract of sale of real estate;

(h) If the purchaser's failure to pay the balance of the price, and/or the deposit, together with any other relevant words and conduct by that party, sufficiently shows an intention to no longer be bound by the contract, the vendor may simply accept the repudiation, thus immediately putting an end to the contract (without the need for serving a rescission notice);[13]

(i) Mr Douglas would have readily understood what was required of him. The letter from Mackinnon Jacobs dated 4 August 2014, which enclosed the Contract made it very clear what was required. Mr Douglas plainly received this letter. The email of 5 August 2014 from Mackinnon Jacobs also made it clear what was required. The letter from Mackinnon Jacobs of 6 August 2014 which enclosed the default notice clearly set out what was required to remedy the default, that is to pay the balance of the deposit by 20 August 2014;

(j) Mr Douglas has in his statement of claim proceeded on the basis that he has not paid the balance of the deposit of $30,500 otherwise than by delivery of the Promissory Note. Mr Douglas had every opportunity to remedy the default but failed to do so, instead delivering to Simons' solicitors the Promissory Note and then other notices. Mr Douglas admits receiving the Default and Rescission Notice dated 6 August 2014. He admits understanding the default was to be remedied by 20 August 2014;

(k) It is clear that the provision of the Promissory Note and other notices did not constitute, and is not equivalent to, payment of the deposit; and

(l) Time was of the essence of the contract: General Condition 16.1. Faced with Mr Douglas' default in payment of the deposit, especially given the history of the initial contract, and the Douglas' failure to comply with their obligations thereunder and to complete that contract in accordance with its terms, Simons was fully entitled to serve a default notice, which Mr Douglas had proper opportunity to remedy. He failed to do so.

32 Mr Douglas did not dispute the elements and logic of the claims made by Simons as set out above except that he contended that the provision of the Promissory Note constituted performance of the contractual obligation to pay the balance of the deposit. It was pointed out that the General Conditions of the Contract specified a manner of payment required upon settlement (General Condition 11.4), being in the form of cash, bank cheque or electronic funds transfer. There is no provision specifying that the deposit must be in any of these forms or that it must not be in any other form.

(a) Because deposit funds are held by Simons' estate agent, legal practitioner or conveyancer as stakeholder pending settlement, there is no immediate right of Simons to access or use the funds, so there is no inherent prejudice in those funds being provided in the form of a Promissory Note payable on or before the date of settlement; and

(b) The effect of a Promissory Note in relation to a debt is not to discharge that debt, even conditionally, but rather to suspend any cause of action in relation to that debt. It followed that even if Mr Douglas had breached the contract by providing the Promissory Note rather than the funds in cash or by bank cheque, Simons was not entitled to issue the notice of default until such time as the Promissory Note had matured. Because the Promissory Note provided for payment on 20 August 2014, the 14 day period required by General Condition 27.2 ought not have begun until that date.

Is the Delivery of a Promissory Note Payment of the Deposit?

34 The question is therefore whether the delivery of a Promissory Note by Mr Douglas for the amount of the balance of the deposit is a payment of the deposit in accordance with the Contract.

35 This is primarily a question of construction of the obligations under the Contract. The provisions of the Contract, although not specifying that the deposit monies must be paid in any particular form (cash or cheque or electronic transfer), clearly contemplate that the monies must be paid in a form in which they may be deposited in a banking account or an account in an authorised deposit-taking institution ('ADI') (a term which is defined by reference to s 9(3) of the Banking Act 1959 (Cth)).[14] The meaning of 'pay the deposit' in General Condition 11.1 of the Contract must be construed having regard to the provisions not only in the Contract but of the Sale of Land Act, which imposes upon the parties to the Contract the requirement that the deposit monies be held by a stakeholder, and for that purpose be paid into an account.

36 Deposit moneys received by an estate agent as stakeholder must be paid into a trust account in accordance with the requirements of the Estate Agents Act 1980[15] and are trust moneys for the purpose of the Estate Agents (General, Accounts and Audit) Regulations 2008. Under the Legal Profession Act 2004, moneys received by a Law Practice as stakeholder will constitute trust moneys required to be paid into a trust account held at an ADI. The receipt of cash may, of course, be handled in this way. Perhaps in exceptional cases this occurs. But the wheels of commerce, business and the performance of land transactions would grind to a halt if it occurred more than occasionally. It is simply not in the expectation, nor is it the intention, of the parties to a contract for the sale of land to pay or receive a deposit, even the relatively modest sum or $30,500, by cash.

37 The old law was that the tender of money in payment of a debt must be by 'legal tender'. That is, notes or coin issued by the Reserve Bank,[16] of not less than the correct amount. Generally speaking, a creditor is under no obligation to accept a negotiable instrument - even a bank cheque - in payment of a debt.[17] That rule is subject to two qualifications. First, the agreement may specify a mode of payment otherwise then by legal tender (as this Contract does for the settlement monies). Secondly, a creditor may waive the right to payment by legal tender.[18]

38 In George v Cluning[19] Barwick CJ remarked that to construe an agreement as requiring payment by legal tender in modern times would require very precise indications to that effect. In that case, Mason J (Aitken J agreeing) observed (at p 62-3):

In my opinion the appellant, through his solicitors, by receiving the respondent's personal cheque without objecting to it on the ground that it did not constitute legal tender, must be taken to have accepted the cheque as payment of the amount for which it was drawn. The practice of giving and accepting personal cheques in payment of debts and liabilities is now so widespread that there is a general expectation on the part of persons making payments that a personal cheque, given in payment of a debt or liability, will be accepted unless the payee objects before or at the time of receipt that the cheque does not constitute legal tender. ...

39 This decision of the High Court shows that without specific provision in the contract to the contrary, parties to a commercial transaction expect to pay or to be paid by cheque. The entitlement to pay or be paid by cheque and any obligation to receive payment in that form, is, however, not absolute. As Miles J said in Stirling Properties:

The payee may waive the right to be paid in cash and if the payee accepts tender of a cheque without objection to its form, the payee is deemed in the language of the old law to have 'waived' the right to payment in cash. Similarly if the payee rejects the tender of the cheque for a reason other than the form of the tender the payee is deemed, in the terms of the modern law, to have declined to exercise his or her right to object to payment in that form and hence to have waived the right to payment in cash.[20]

40 The acceptance in modern day transactions of a personal cheque, as referred to in the High Court in George v Cluning, as a method of payment is only acceptable if there is no interference with the processing of the cheque and the receipt of payment under it. Such interference may take the form of a post-dated cheque, a cheque arranged to be put aside or stopped or given with an instruction that it not be processed.[21]

41 Mr Douglas submitted that the delivery of a Promissory Note for the amount of the outstanding deposit monies had the effect of suspending any cause of action in relation to the debt. He relied on a number of decisions dealing with promissory notes. In particular, he relied upon the decision of the Full Court of the South Australian Supreme Court in Rocky Castle Finance Pty Ltd v Taylor; Rocky Castle Finance Pty Ltd v Gillen.[22]

42 In that case, the question was whether under a managed investment scheme the payment of a series of promissory notes by Rocky Castle (who provided finance to the investors) to a creditor of the investors (the manager) comprised 'payments' for the purpose of the loans for which the investors had applied (that is, had the loan moneys been advanced by the lender). The promissory notes were accepted by the manager in discharge of a part of each investors debt to it. In the course of the consideration of this aspect of the matter Justice Vanstone noted the meaning of a promissory note by reference to the Bills of Exchange Act 1909 (Cth). Section 89 of the Bills of Exchange Act 1909 (Cth) defines a promissory note in the following terms:

(1) A promissory note is an unconditional promise in writing made from one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer.

43 Her Honour observed that it seemed to be clear that acceptance of a promissory note in payment of a debt has the effect of suspending the cause of action in relation to the debt, as opposed to satisfying it.[23] She observed, however, that the promise to pay arising out of the promissory note was not the equivalent of payment under the transaction documents.[24]

44 Justice Blue, with whom Justice Stanley agreed, came to a similar conclusion by a detailed analysis of the terms of the transaction documents. His Honour noted a number matters relevant to promissory notes, including the following:

(a) A promissory note is a species of a bill of exchange. The provisions of the Act applying to Bills of Exchange apply to promissory notes subject to qualifications;[25]

(b) Promissory notes were recognised and governed by the common law before they were governed by statute. The Act is not a complete codification of the law but rather a digest of the law on the subject in the context of the broader common law;[26]

(c) Under the common law, prior to the statute, it was held that if a creditor took a bill of exchange from a debtor in respect of an antecedent debt owed by the maker of the promissory note, there was an implied agreement by the creditor to suspend enforcement of the antecedent debt until the Note became payable and this constituted good consideration;[27] and

(d) Where a creditor takes from a debtor a bill of exchange in respect of an antecedent debt, general contractual principles applying to implied contracts and implied terms dictate whether in all the circumstances it should be implied that the underlying debt is to be regarded as discharged absolutely, discharged conditionally upon payment being made, suspended or unaffected.[28]

45 Mr Douglas contended that the conduct of Simons' solicitor in retaining possession of the Promissory Note made the accompanying protest irrelevant and the subsequent notice of default ineffective. It was not open to them to hold onto the Promissory Note, with the accompanying rights to payment it conferred, whilst also denying that payment had been made. This was, in the words of Mr Hone who appeared for Mr Douglas, a 'double-dip', in that Mr Douglas was held under an obligation to honour the Promissory Note on presentation whilst at the same time Simons called for payment by other means. By this, Mr Douglas was held in 'thrall' and that amounted to unconscionable conduct such that Simons ought to be deemed to have accepted the Promissory Note (notwithstanding its protestations) or alternatively, Simons ought to be estopped from denying its acceptance of the Promissory Note.

46 The answer to this proposition, is in my view, straight forward. The correspondence shows clearly that Simons did not accept the Promissory Note as a payment under the contract of the balance of the deposit due. Absent such acceptance, Simons did not take the Promissory Note in satisfaction of the debt due and there is no suspension of the cause of action in relation to the debt. It is as if there had never been a Promissory Note tendered. The continued holding of the Promissory Note by Simons' solicitor is not inconsistent with the reliance by Simons on the notice of default. Having refused to accept the Promissory Note as payment Simons had elected to require the payment in the usual form, by legal tender which might (unusually) be cash or more likely (by conventional practice) by a bank cheque (a cheque of the kind referred to in clause 11.4(b) of the General Conditions referred to above) or, if it is accepted as such, by another appropriate means, including a personal cheque or electronic transfer.

47 In contending that the continued holding of the Promissory Note by Simons' solicitor amounted to unconscionable conduct, Mr Hone cited no authority in support. In my view there can be no unconscionable conduct in this case by Simons seeking to have payment of the deposit in a form that accorded with the Contract and which could be held by its solicitor as a stakeholder as required by the Contract and the Sale of Land Act. Nor can it be found to be unconscionable for Simons to reject the unilateral tender of the Promissory Note where there is no antecedent agreement that such a form of payment would be acceptable.

48 Similarly no authority was put to support an estoppel. There is neither representation, conduct or convention that can be called in aid of the proposition that a Promissory Note is a payment allowed, or allowable by Simons under the Contract. Nothing said or done by Simons is called in aid of the alleged estoppel other than its solicitor stating that tender of the Promissory Note was not payment under the Contract, without returning the original Note.[29] Mr Douglas was not encouraged to think that the tender of the Promissory Note would be sufficient performance of his obligation to pay the balance of the deposit. When he tendered it, unilaterally and without any prior arrangement, nothing was done to encourage him to act on the footing that it would satisfy payment or that it would be called on (I note that it was valid for the precise time of 3.15 pm on 20 August 2014 at the Property and not otherwise, which made performance extremely difficult - if not impossible).

49 Simons contended that in any event the delivery of the Promissory Note could not be payment of the balance of the deposit because it was a mere promise to pay. That is true, although if it had been accepted by Simons it may[30] have constituted payment on the same footing as acceptance of a personal cheque would amount to a valid payment by virtue of a waiver of the right to payment by legal tender. The letter from Simons' solicitors of 6 August 2014, referred to above,[31] made it clear that the Promissory Note was not accepted and therefore the purchaser was in breach of the contract because he had not paid the balance of the deposit then due.

50 Having found that the tender of a Promissory Note which was not accepted by Simons does not constitute payment of the balance of the deposit under the Contract, it follows that there was no payment made and no suspension of the cause of action in respect of the debt. Thus, the Notice of Default and Rescission was a valid notice. It was not complied with, and in consequence, the Contract was terminated. By contemporaneous and subsequent letters, Simons terminated the Licence Agreement. Mr Douglas and his wife, the second defendant by counterclaim, are thereby occupying the property as trespassers. They have no right to occupation under the Contract or the Licence Agreement.

51 For these reasons, Mr Douglas's claims in the amended statement of claim are without foundation, and Simons' claims in the counterclaim have been established and the defendants by counterclaim have no defence to those claims.

52 I note that Simons conceded that because Mr Douglas has continued to pay an occupation fee equivalent to the fee payable under the Licence Agreement, there is no claim for interest on the outstanding deposit moneys.

53 In accordance with the relief claimed by the defendants in their Counterclaim, it is in my view appropriate to make orders in favour of Simons to the following effect:

(a) A declaration that the first defendant has duly rescinded the Contract of Sale dated 1 August 2014;

(b) A declaration that the deposit of $35,500 has been forfeited to the first defendant;

(c) The first defendant recover possession of the land situate at and known as 141 Moody Street, Koo Wee Rup in the State of Victoria, being the land more particularly described in Certificate of Title Volume 11445 Folio 076;

(d) The defendants by counterclaim forthwith file, or cause to be filed, with the Registrar of Titles a Withdrawal of Caveat AL174529M;

(e) The plaintiff pay the first defendant the sum of $30,500;

(g) The plaintiff/first defendant by counterclaim, and the second defendant by counterclaim, in person, shall pay the defendants'/plaintiff by counterclaim's costs of the proceeding, including the costs of this application on a standard basis.

54 I will give the parties and opportunity to make submissions as to the form of the orders before finally making them.

[1] The affidavit of Peter Charles Evans, sworn 25 November 2014, the second defendant, who is a director of the first defendant.

[2] Curiously, both parties ignored the requirement for payment of $10,000 on the signing of the Contract.

[3] Mrs Douglas' name was deleted from the front of the Contract of Sale. However, In the Particulars of Sale Mrs Douglas' name was not deleted. It is not disputed that this contract was intended to be entered into with Mr Douglas only.

[4] [2013] VSCA 158 [35].

[5] Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 [29] (Warren CJ and Nettle JA, with whom Neave JA agreed).

[7] Ibid [35] (Warren CJ and Nettle JA, with whom Neave JA agreed).

[8] Barber v State of Victoria [2012] VSC 554 [15].

[9] Subject to the effect of the delivery of the Promissory Note, there was no dispute that time was and remained of the essence of the Contract.

[10] Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57.

[11] Ibid, Holland v Wiltshire at p 418 per Kitto J.

[12] Previously Clauses 5 and 6 of the former Table A.

[13] Under Clauses 5 and 6 of Table A or GC27 and 28.

[14] See the Interpretation of Legislation Act 1958 s 38.

[16] Reserve Bank Act 1959, s 36(1), Halsbury's Laws of Australia para [110-8065].

[17] Stirling Properties Ltd v Yerba Pty Ltd (1987) 74 ACTR 1 at 6 ('Stirling Properties'), citing Chitty on Contracts, 25th ed, Vol 1, paras 1420 and 1436.

[18] George v Cluning (1979) 28 ALR 57 ('George v Cluning'), Stirling Properties at 7.

[20] Stirling Properties at p 7, See also Wardle v Agricultural and Rural Finance Pty Ltd, Agricultural and Rural Finance Pty Ltd v Brakatselos [2012] NSWCA 107 [220]-[223].

[21] Signorelli v MG South Pty Ltd [2012] NSWSC 1606, Josland v Mullawey Properties Pty Ltd (1993) 6 BPR 13, 285; BC9302373 (Young J).

[22] [2014] SASCF 1 [17]-[20] ('Rocky Castle').

[23] Byles on Bills of Exchange in Cheques 27th Ed, (Sweet & Maxwell 2002) at 14-06.

[25] Bills of Exchange Act 1909 s 95, Rocky Castle at [88].

[26] Stock Motor Ploughs Ltd v Forsyth [1932] HCA 40; (1932) 48 CLR 128 per Dixon J at 137, Rocky Castle at [88].

[29] Although a copy of the Promissory Note was sent to Mr Douglas' solicitor, presumably because Mr Douglas had by-passed that solicitor in directly delivering the Note to Simons' solicitor.

[30] I do not decide that it would as it is not necessary to do so.

[31] Para 11(f), Exhibit PCE-16 to the affidavit of Peter Charles Evans sworn 25 November 2014.