SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd

SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd - [2016] NSWSC 497 - NSWSC 2016 case summary — Zoe

Interest

The Vendor claims interest by reason of cl 41 of the contract.
Clause 41 is in the following terms: "In the event of the Purchaser failing to complete this contract in accordance with the provisions hereof for any reasons other then [sic: than] the default on the part of the Vendor the Purchaser shall in addition to any moneys payable pay at the time of completion interest calculated in respect of the balance of purchase money for the period from the time specified herein for completion or from such later time that the Vendor notifies the Purchaser that he she or it is ready, willing and able to complete and the actual time of completion at the rate of ten percent (10%) p.a. Such amount is agreed by the Purchaser to be a fair assessment of compensation for damages suffered by the Vendor and the condition for payment thereof shall be an essential term of the Contract. The right to interest does not limit any other rights the Vendor may have as a result of the Purchasers failure to complete this contract in accordance with the terms hereof."
The clause is directed to the circumstance of the purchaser not completing the contract: 1. "in accordance with the provisions hereof"; and 2. for reasons "other then [sic: than] the default on the part of the Vendor".
At the time that completion was called for, the contract provided that the purchase price was $3.325 million inclusive of GST. That is what the "provisions [t]hereof" then provided.
However, rectification has retrospective effect. Thus Powell J (as his Honour then was) said in Issa v Berisha [1981] 1 NSWLR 261 at 265: "…the effect of rectification, when granted, is to relate back to the time of execution of the document, and, after rectification, the document is to be read as if it had originally been executed in its rectified form."
I have found that the common intention of the parties was that the purchase price was $3.325 million plus GST (4 April 2016 judgment at [86]). The effect of the order for rectification will be that the document executed by the parties on 19 August 2015 reflects that common intention. The "provisions" of the contract will be taken to have always been to that effect. They will be "the provisions hereof".
The Purchaser failed to complete the contract in accordance with those terms. That was not a result of any "default" of the Vendor. It was because the Purchaser insisted on completing only on the terms of a document that I have found does not reflect the parties' common intention.
On 19 October 2015, and again on 9 December 2015, the Purchaser offered to settle on the basis of paying $3.325 million to the Vendor and paying $332,500 (the amount of GST on $3.325 million) into a controlled monies account. I do not see what difference those offers make. Neither would amount to completion "in accordance with the provisions" of the contract as rectified.

[4]

Clause 41 a penalty?

Alternatively, Mr George, on behalf of the Purchaser, submitted that cl 41 is void as a penalty.
In Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; 247 CLR 205, French CJ, Gummow, Crennan, Keifel and Bell JJ said: "[9] Mason and Deane JJ observed in Legione v Hateley [[1983] HCA 11; 152 CLR 406 at 445] that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability. [10] In general terms, a stipulation prima facie imposes a penalty on a party ('the first party') if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation." [Some citations omitted]
To be void as a penalty, the provision must impose on the "first party" (here, the Purchaser) a detriment to the benefit of the "second party" (here, the Vendor) that is "out of all proportion" to the loss the second party might suffer on failure of the "primary stipulation" (timely completion on the contract); or if the detriment is "extravagant and unconscionable in amount" or "inordinate or extravagant" or "oppressive" (J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity Doctrines and Remedies, (5th ed 2015, Lexis Nexis) at [18-075] and the authorities cited therein).
The contract was for the sale of commercial premises. The Vendor was obliged to give the Purchaser vacant possession on completion.
It must have been in the contemplation of the parties that, but for the sale, the Vendor would have sought to have the premises occupied by a tenant, and that, in contemplation of completion, it would have to procure that any such tenant vacate the premises. It must also have been in the contemplation of the parties that if, as has happened, settlement was delayed, the Vendor may well suffer damage by reason of not being able to have the property tenanted pending resolution of any dispute between the parties.
Further, the title search annexed to the contract showed there to be a mortgage to Westpac Banking Corporation on the title. The parties must thus have contemplated that, were settlement to be delayed, the Vendor might have to continue to service that mortgage.
In those circumstances, I am not satisfied that the requirement that the Purchaser pay the Vendor interest at 10 per cent per annum on the outstanding purchase price is "out of all proportion" to the damage that the Vendor was likely to suffer by reason of the delayed settlement, or otherwise such as to constitute it a penalty.
In coming to that conclusion, I have not had regard to the letter annexed to Mr Cleary's submissions of 15 April 2016.
It follows that the Purchaser is liable to pay interest on the purchase price in accordance with cl 41.
Costs
As to costs, the Vendor relies upon a Calderbank offer it sent on 4 December 2015 in which it offered to: 1. settle for a sale price of $3,637,500 (inclusive of GST) [sic: presumably the Vendor meant $3,657,500]; 2. forego interest under cl 41; and 3. pay its own costs.
A Calderbank offer may enliven the Court's jurisdiction to award indemnity costs from its date if it involves an element of compromise and if it was unreasonable for the offeree not to accept it.
In my opinion, the offer made by the Vendor on 4 December 2015 was, in substance, an invitation to the Purchaser to capitulate. It did not involve any substantial compromise. It was not unreasonable, in my opinion, for the Purchaser not to accept it.
Accordingly I see no basis to order indemnity costs.
I propose to order that the Purchaser pay the Vendor's costs of the proceedings on the ordinary basis.
The parties should now prepare short minutes to give effect to my reasons.

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Judgment (5 paragraphs)

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Cases Cited (3)

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