PNC Lifestyle Investments Pty Limited v REW08 Projects Pty Limited [2017] NSWSC 27 | Case summary

Supreme Court of NSW|2016-12-06|Before: Darke J, Mr J, Mr P

Introduction

The plaintiff, PNC Lifestyle Investments Pty Limited ("PNC") seeks a decree of specific performance of a contract for the purchase of Lot 136 in an unregistered plan of sub-division of certain land in Schofields. The contract was entered into on about 19 June 2014, in circumstances that are more fully described below, with the defendant, REW08 Projects Pty Limited ("REW").
On 1 October 2013 REW had entered into a contract to purchase the land that was to be sub-divided. REW later acquired ownership of the land. The plan of sub-division was eventually registered on 11 March 2016 as Deposited Plan 1198880. Lot 136 in Deposited Plan 1198880 is a vacant block with an area of about 509m2.
REW contends that in February 2016 it validly terminated the contract on the ground that PNC failed to pay the deposit as required by the contract. In answer to that contention, PNC asserts that certain payments it made to REW in December 2013 constitute the deposit under the contract. It further asserts, amongst other things, that REW, which made no suggestion prior to the purported termination of the contract that the deposit had not been paid, is estopped from terminating the contract.
REW also contends that the contract is void or unenforceable for illegality. It alleges that the contract is one associated with or in furtherance of illegal purposes, including the avoidance of stamp duty. PNC denies that the contract is unenforceable as alleged.

Determination

PNC seeks to enforce the contract for sale dated 13 June 2014. The first issue to determine is whether REW validly terminated the contract on the ground that PNC failed to pay the deposit of $250,000 as required by the contract.
It is clear that the only money ever paid by PNC to REW consists of the two payments totalling $250,000 made in December 2013 following its entry into the Loan Agreement and the contract for sale, each dated 13 December 2013. The question therefore arises as to whether the payment of that money satisfies PNC's obligations in respect of the deposit under the 13 June 2014 contract.
The email communications on 13 December 2013 suggest that, at least at that time, the parties were proceeding on the basis that the $625 paid on that day was the 0.25% of the $250,000 deposit required by Special Condition 34 to be paid at the time of signing the contract for sale, and that the balance of the $250,000 deposit would be paid in the following week, prior to the expiration of the "cooling off" period, as further required by Special Condition 34.
The $249,375 payment made on 18 December 2013 met that requirement. Mr McCrudden accepted in cross-examination that he understood at the time that the $250,000 was paid as the deposit under the 13 December 2013 contract for sale. Prior to 19 February 2016 it was not suggested that PNC was in default of its obligations under the 13 December 2013 contract for sale.
Two Deeds of Mutual Rescission of Contract, and two further contracts for sale were entered into on about 19 June 2014, as described earlier in these reasons. The first deed (dated 13 March 2014) operated to rescind the 13 December 2013 contract for sale. It further provided (in clause 3) for the parties to simultaneously enter into a new contract for sale on identical terms (with updated plan documents). Clause 4 provided that any monies paid by the purchaser to the vendor "in respect of the property" shall be retained by the vendor in full and be used as the deposit for the new contract for sale.
In my opinion, the monies paid by PNC to REW in December 2013 are monies paid by the purchaser to the vendor "in respect of the property" within the meaning of clause 4. The "property" may be taken to be a reference to the land described in recital A to the deed, which is the land the subject of the 13 December 2013 contract for sale. The money was apparently paid on the basis that it was to be the deposit under that contract for sale of the property. Moreover, given that the expression "in respect of" has traditionally been construed as having a broad meaning (see, for example, Wonall Pty Limited v Clarence Property Corporation Limited (2003) 58 NSWLR 23; [2003] NSWSC 497 at [41]-[42] and the cases there cited), I would reach the same conclusion even if the money had been treated as payment of the Principal Sum under the Loan Agreement. The terms of the Loan Agreement indicate the existence of a relationship or association between the Principal Sum and the sale of the property. Clause 2 of the Loan Agreement states that enabling the sale of lots in the proposed sub-division is one of the purposes of the Principal Sum. Other provisions, such as clauses 3.3 and 3.5, which refer to the contract for sale of the property, further suggest the existence of a relationship or association between the Principal Sum and the property.
Accordingly, clause 4 of the first deed operated so that the $250,000 was to be retained by REW and used as the deposit for the new contract for sale, being the 13 March 2014 contract.
Notwithstanding the errors apparent within it (as referred to earlier), the second deed (dated 13 June 2014) similarly provided for the parties to simultaneously enter into a new contract for sale on identical terms (with updated plan documents), and that any monies paid by the purchaser to the vendor "in respect of the property" shall be retained by the vendor in full and be used as the deposit for the new contract for sale.
Again, it is my view, for the reasons set out above, that the monies paid by PNC to REW in December 2013 are monies paid by the purchaser to the vendor "in respect of the property" within the meaning of clause 4 of the second deed. Accordingly, that money was to be retained by REW and used as the deposit for the new contract for sale, being the 13 June 2014 contract. I note that Special Condition 31.11 of the contract provides that the deposit is to be released to REW; and Special Condition 34 provides that the deposit is to be paid to REW "for its use". There is thus no inconsistency between REW "retaining" the monies and the monies being "used" as the deposit.
I accept that clause 4 could have more clearly expressed the notion that the $250,000 paid in December 2013 was to be treated as payment of the deposit under the new contract for sale. Nevertheless, I consider that the ordinary meaning of the language employed in the clause is to that effect. It is clearly provided that any monies that fall within the clause are to be used as the deposit for the new contract for sale. That is, the parties agreed that such monies would serve the purpose of, or be treated as, the deposit under the new contract for sale.
I do not think that the circumstances in which the deeds were entered into, or the commercial purposes to be secured by them, lead to any different conclusion. The parties to the deeds were aware that the only monies PNC had paid to REW consisted of the amount of $250,000 paid in December 2013. The parties were further aware that the new contracts for sale to be entered into following rescission of the earlier contracts for sale would provide for a deposit in the same amount. The monies paid in December 2013 could thus be seen as able to be retained by REW and be used as the deposit for each new contract for sale.
Mention should also be made of clause 6 of the Deeds of Mutual Rescission of Contract. Clause 6 provides that the Loan Agreement is to remain in force and is to be attached to the new contract for sale. The clause suggests that in June 2014 the parties were proceeding on the basis that the Principal Sum had been lent in accordance with the Loan Agreement. Given that the only money paid by PNC to REW was the $250,000 paid in December 2013, that implies that such amount was paid as the Principal Sum.
It does not follow, however, that the parties could not also agree that such amount be treated as the deposit under a contract for sale. It is not necessary that there be an actual payment of a separate amount of $250,000 as the deposit. Even if PNC is ultimately not obliged to pay any further amounts under the contract for sale, the exchange of promises between the parties to the contract for sale, which promises include obligations upon PNC, means that PNC has provided consideration. I do not accept REW's submission that consideration is lacking. Further, contrary to the submission made by REW, the sum of $250,000 paid by PNC can serve as both the Principal Sum under the Loan Agreement and the deposit under a contract for sale. Under the terms of the Loan Agreement, the Principal Sum is only repayable in the event that one of the parties exercises a right of rescission under the contract for sale (see clauses 3.3 and 3.5). In that event there is no longer any need for the deposit, which is required to be refunded pursuant to clause 19.2 of the contract for sale. (I note also that interest ceases to accrue if one of the parties exercises a right of rescission under the contract for sale.) I did not understand PNC to contend that it would be entitled to repayment of the Principal Sum if the contract for sale proceeded to completion.
For the above reasons, I have concluded that the payment of $250,000 by PNC to REW in December 2013 satisfies PNC's obligations in respect of the deposit under the 13 June 2014 contract. The parties agreed, by clause 4 of the Deed of Mutual Rescission of Contract dated 13 June 2014, that such monies were to serve the purpose of, or be treated as, the deposit under that new contract. It follows that it was not open to REW to terminate the 13 June 2014 contract on the ground that PNC failed to pay the deposit as required by the contract. No other ground was advanced by REW as a justification of its termination of the contract. The termination of the 13 June 2014 contract was thus invalid.
In light of that conclusion, it is not necessary to deal with various other arguments raised by PNC against the validity of the termination, including its arguments based on estoppel and waiver, and its claim for rectification.
The next issue to determine is whether the 13 June 2014 contract is void or unenforceable for illegality as contended by REW. The argument is largely founded upon the inclusion of Special Conditions 53 and 55 in the contracts for sale.
Special Condition 53 provides: 53.1 The purchaser acknowledges that the Vendor will allow him/her to Rescind this Contract and simultaneously enter into a new contract on identical terms with updated Plan documents quarterly until the Plan of subdivision is finalised. A fee of $150.00 is payable by the Purchaser to [sic] each rescission. 53.2 At the time the Plan of subdivision is registered the purchaser may rescind the Contract and enter into an updated land Contract on identical terms and a home building contract.
Special Condition 55 provides: 55.1 A price reduction of $235,000.00 will be made at Settlement provided that the Purchaser has met all obligations under the contract.
In relation to Special Condition 53, REW submitted that the 13 June 2014 contract, which formed part of a transaction involving the exercise of a right of rescission under Special Condition 53 of the 13 March 2014 contract, was entered into for the purpose of delaying the payment of stamp duty or avoiding the payment of penalties, and was further part of an artificial or contrived scheme designed to avoid stamp duty (see ss 284D and 284E of the Duties Act 1997 (NSW)).
In relation to Special Condition 55, REW submitted that the purpose of the clause could only be to mislead persons such as lending authorities and purchasers of other lots in the development. Reliance was placed upon statements made by Windeyer J about a similar clause in Miro v Fu Pty Limited (2003) 11 BPR 21,231; [2003] NSWSC 1009 at [15] where his Honour said: I have said before and say again that this type of clause is quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. In my view it is likely that solicitors who purposely prepare contracts with contradictory clauses such as this may be guilty of professional misconduct. It is more serious when the solicitor is a party to the contract as vendor. Unreal stated consideration for reduction, although that is not the case here, does not improve the position. Instructions of clients cannot excuse such conduct.
It was further submitted that Special Condition 55 has the effect that the contract price is not accurately recorded on the face of the contract and accordingly it constitutes a fraud on the Chief Commissioner for Stamp Duties. However, it is difficult to see how the existence of a rebate clause such as Special Condition 55 could be so regarded. If duty is assessed on the basis of the price shown on the face of the contract more duty would be payable, not less.
REW accepted that the 13 June 2014 contract did not breach any statutory provision. Accordingly, REW did not suggest that the making of the contract was prohibited by statute, or that performance of the contract would involve the doing of any act prohibited by statute. Rather, its case was that the contract should be held to be unenforceable because it is associated with or in furtherance of illegal purposes.
In Gnych v Polish Club Limited (2015) 255 CLR 414; [2015] HCA 23 it was stated in the joint judgment at [35]: In Equuscorp Pty Ltd v Haxton, French CJ, Crennan and Kiefel JJ explained that an agreement may be unenforceable for statutory illegality in three categories of case, where: "(i) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute; (ii) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute; (iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a 'contract associated with or in the furtherance of illegal purposes'. In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute 'whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable'." [Footnotes omitted].
Gageler J, in his separate concurring judgment in Gnych v Polish Club Limited (supra) stated at [70]-[71]: Where a statute expressly or impliedly denies legal operation to an agreement, it is the statute itself which operates to render that agreement incapable of enforcement at common law. An agreement which is not denied legal operation by statutory force may still be unenforceable at the insistence of one or both parties by operation of the common law by reference to considerations of public policy. The cases in which that might occur, however, must now be closely confined. It is important to identify the considerations of public policy that might be in play in such cases. Although other considerations might arise in some circumstances, two overlapping considerations have generally been recognised in the decided cases to predominate. One of those considerations has long been identified in terms that a person ought not to be permitted by law to base a cause of action on an immoral or illegal act. The other, more focussed, consideration has been identified in terms that a person ought not to be assisted by law to benefit from an immoral or illegal act. That other consideration is reflected in what has been described as "the more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with the object of committing an illegal act". [Footnotes omitted].
As to the first of the considerations identified, Gageler J stated at [73]: The consideration of public policy that a person ought not to be permitted by law to found a cause of action on an immoral or illegal act is the product of an earlier age. The broader consideration of public policy is now rarely recognised by the common law to have application in relation to illegality which arises under a modern regulatory statute. That is the import of the observation by Mason J in Yango that "[t]here is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished". It is not the function of the common law to seek to improve on a regulatory scheme by supplementing the statutory sanctions for its breach. If a statute itself does not operate to deny legal operation to an agreement made in breach of one of its prohibitions, or to render that agreement unenforceable by reason of that breach, the coherence of the law is best served by a court respecting and enforcing that legislative choice. [Footnotes omitted].
As to the second of the considerations identified, Gageler J stated at [74]-[75]: But the other consideration of public policy - that a person ought not to be assisted by law to benefit from an immoral or illegal act - can have application where the first does not. That is the import of the further observation by Mason J in Yango that "there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty". A court examining the application of that consideration of public policy to the enforcement of an agreement made in breach of a statutory prohibition will examine the intention of a person in entering into the agreement and in seeking to enforce the agreement. The court will recognise that, "whilst persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken". The court will weigh the consequences of withholding a remedy to enforce the agreement in light of the objects or policies which the statute seeks to advance and the means which the statute has adopted to achieve that end. Ordinarily, it would be open to the court to conclude that withholding a common law remedy from a person whose intention was, and remained, to flout the statute was justified by reference to the narrower consideration of public policy only if the consequence of withholding the remedy could be determined by the court to be both proportionate to the seriousness of the illegality and not incongruous with the statutory scheme. The moulding of an equitable remedy, if sought, might involve other considerations and permit of greater flexibility. [Footnotes omitted].
It may be accepted that a purpose, indeed the primary purpose, of the transaction whereby the 13 June 2014 contract was entered into was to avoid any immediate liability for stamp duty on the conveyance. The transaction was effected at a time when PNC was aware that duty had become payable three months after 13 December 2013. The first Deed of Mutual Rescission of Contract, and the 13 March 2014 contract for sale, were backdated to cater for that situation.
Nevertheless, the transaction occurred in circumstances where stamp duty would ultimately be paid if the purchase proceeded; and if the purchase did not proceed to completion, any duty paid would generally be refundable (see s 50 of the Duties Act). I accept Mr Cseh's evidence to the effect that he always intended to pay the required duty, and his intention was only to delay the payment of duty. He accepted that delaying the payment was of some advantage to him (or PNC).
The legislative regime concerning the payment of stamp duty, the recovery of duty avoided as a result of avoidance schemes (see Chapter 11A of the Duties Act), and the recovery of interest and penalty tax in respect of tax defaults (see Part 5 of the Taxation Administration Act 1996 (NSW)) is comprehensive. The regime does not itself operate to render unenforceable an agreement made for the purpose of avoiding duty.
In the present case, the existence of the three contracts for sale (including the terms of Special Condition 53) and the two Deeds of Mutual Rescission of Contract have since been disclosed to the Office of State Revenue, and duty has been assessed (and paid) on the 13 December 2013 contract on the basis of a dutiable amount of $485,000. I note, however, that the backdating of the 13 March 2014 documents does not seem to have been disclosed.
The cardinal purpose of the comprehensive legislative regime to which I have referred is to ensure that the proper amount of duty is received by the State in respect of dutiable transactions. I consider that such purpose will be fulfilled without holding the 13 June 2014 contract to be unenforceable. Moreover, it is my view that holding the contract to be unenforceable would be incongruous with the legislative regime. Finally, it is my view that holding the contract to be unenforceable would be a disproportionate sanction having regard to the scale of any benefits that PNC might have expected to obtain, or in fact obtained, as a result of the transaction whereby the contract was entered into.
I have already stated that Special Condition 55 ought not be viewed as a provision aimed at defrauding the Chief Commissioner for Stamp Duties. It is otherwise difficult to discern any illegal purpose advanced by the inclusion of Special Condition 55. REW did not suggest that any statute would be contravened. Its position was merely that such a provision was improper in that it could only serve the purpose of misleading persons such as lending authorities and other purchasers.
Whilst I accept that the presence of such a clause in a contract for sale (particularly where the clause is not referred to on the front page of the contract) could aid unscrupulous persons in seeking to mislead others concerning the true price under the contract, I am unable to accept that such a clause can only be employed for such a purpose. There was evidence given in the present case, which I accept, that the price shown on the front page of the contract accurately reflected the value of the property to be sold, and that the rebate provided for in Special Condition 55 reflected the discount which was given to certain initial purchasers (including PNC), who were prepared to pay a large deposit which would be immediately released to REW. At least in this case, I do not think it can be said that the rebate clause was in any way improper. The inclusion of Special Condition 55 does not in my view advance REW's argument that the 13 June 2014 contract should be held to be void or unenforceable.
For the above reasons, I do not find the 13 June 2014 contract to be void or unenforceable for illegality.
REW submitted, in the alternative, that the conduct of PNC in relation to stamp duty, and its agreement to include Special Condition 55, leads to the conclusion that specific performance should be declined because PNC does not come to Court with clean hands.
There are aspects of the conduct of PNC in relation to this transaction which are less than satisfactory. The suggestion of, and later the participation in, the backdating of documents to avoid an immediate liability for stamp duty falls within that category. However, I take into account that Mr Cseh was, throughout that process, guided by lawyers and had no strong reason to think that what he was doing was improper. Moreover, I have accepted that Mr Cseh always intended to pay the required stamp duty, and that his intention was only to delay such payment. The stamp duty, as assessed, has now been paid. Finally, I do not think that PNC engaged in any improper conduct by entering into agreements that included Special Condition 55. In these circumstances, I do not think that a lack of clean hands defence has been made out such as would justify the withholding of a decree of specific performance.
In my opinion, it is appropriate for a decree of specific performance to be made in respect of the 13 June 2014 contract. The contract remains on foot, REW's purported termination of the contract being invalid. Aside from the contention that PNC failed to pay the deposit, it is not suggested that PNC is or has been in breach of the contract. Special Condition 55 would thus operate so that PNC obtains the benefit of the rebate, and would not be required to pay any further part of the purchase price. That being so, I accept that PNC is ready, willing and able to proceed to complete the contract.
The only remaining issues are those that arise under a Cross-Claim brought by REW against PNC. In particular, REW claims that if the Court holds that the $250,000 that was paid in December 2013 constituted a deposit under the 13 December 2013 contract, then PNC has failed to advance the Principal Sum under the Loan Agreement and there has thus been a total failure of consideration for the interest payments subsequently made by REW.
I have found that in December 2013 the parties were proceeding on the basis that the $250,000 paid by PNC was to be the deposit under the contract for sale. I have further found that clause 6 of the Deeds of Mutual Rescission of Contract suggests that in June 2014 the parties were proceeding on the basis that the Principal Sum had been lent in accordance with the Loan Agreement. As I have endeavoured to explain, it was open to the parties to agree that the $250,000 would serve as both the Principal Sum under the Loan Agreement and the deposit under the contract for sale. I therefore do not accept that there has been a total failure of consideration as alleged. It seems to me that, in accordance with clauses 3.1 and 3.4 of the Loan Agreement, interest on the Principal Sum began to accrue from 13 December 2014 and continued to accrue until registration of the plan of sub-division. REW is not entitled to recover the amount of its interest payments on the ground of a total failure of consideration.
The other aspect of REW's Cross-Claim is its claim for the recovery of the deposit up to 10% of the contract price (that is, $48,500). This claim rested upon the contention that REW had validly terminated the 13 June 2014 contract for sale. As I have rejected that contention, this aspect of the Cross-Claim also fails.

Conclusion

A decree of specific performance should be made in respect of the contract for sale dated 13 June 2014. The balance of the Amended Statement of Claim should be dismissed, subject to the possibility that PNC may seek to claim damages at a separate hearing. The Cross-Claim should also be dismissed.
I direct that, within 14 days, the parties bring in Short Minutes of Orders to give effect to these reasons. The Short Minutes should also deal with costs.
If agreement is not reached as to the appropriate form of orders, or as to costs, the matter will be re-listed for further directions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 February 2017

PNC Lifestyle Investments Pty Limited v REW08 Projects Pty Limited

At a glance

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Judgment (5 paragraphs)

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Legislation Cited (2)

Cases Cited (5)

Cited By (3)