South Sky Investments Pty Ltd v Luppi [2012] QSC 27

[2] Construction of the unit was completed, and the necessary notices were given under the contract to trigger settlement. The date for settlement was extended by agreement to 9 November 2010, but the defendants failed to complete on that date.

[3] In June 2011, the plaintiff instituted the present proceedings, claiming:

1. Interest on the sum of $1,010,000 from 19 October 2010 to the date of settlement of the Contract calculated at 12% per annum, pursuant to clause 7.4 of the Contract;

(b) an order that the defendants have forfeited the deposit, together with any interest accrued on that amount, to the plaintiff;

(c) interest on all sums found due from 19 October 2010 up to and including the date of judgment at 12% per annum, pursuant to clause 7.4 of the Contract;

1. Such further or other orders as the Court deems meet;

2. Costs on an indemnity basis, pursuant to clause 7.3 of the Contract."

[4] No entry of appearance and defence was, or has since been, filed on behalf of either defendant in response to the service of the claim and statement of claim.

[5] For reasons which are not presently relevant, the plaintiff did not proceed immediately to prosecute the present claim. Under cover of a letter dated

15 November 2011 from its solicitors, the plaintiff served on the defendants a Notice to Complete, calling for settlement of the contract to occur on 15 December 2011. The covering letter stated:

"Our client puts you on notice that should you fail to attend settlement on 15 December 2011, our client intends terminating the contract on the basis of your breach and amending its claim against you in the Supreme Court to one for damages. A hearing date with then be sought and notice of that date will be provided to you."

[6] The defendants did not settle the contract on 15 December 2011.

[7] The plaintiff subsequently made application for default judgment.

[8] On 12 January 2012, it was ordered, inter alia, that:

"Pursuant to r 288 of the Uniform Civil Procedure Rules 1999 (Qld):

(a) Judgment be given for the plaintiff, conditional upon damages being assessed upon the plaintiff's statement of claim by this Court in the Applications list on 7 February 2012; and

(b) It is declared that the plaintiff has validly forfeited the deposit under the contract and any accrued interest and is immediately entitled to the deposit and any accrued interest."

[9] A copy of that order was then served on the defendants.

[10] On 7 February 2012, the matter came before me for an assessment of the damages recoverable by the plaintiff under the order made on 12 January 2012. The defendants did not appear at that hearing.

[11] For the purposes of assessing those damages, it needs to be noted immediately that this is not a case in which the plaintiff has resold the unit and seeks to recover the loss suffered upon a resale. This is a case in which the plaintiff has terminated the contract as a consequence of the defendants' breach and sues to recover common law damages.

[12] The relevant terms of the contract relating to "Buyer's Default" were as follows:

If the Buyer fails to comply with any obligation under this Contract, the Seller may:

(a) affirm the Contract and sue the Buyer for damages or for specific performance or both;

(b) terminate the Contract and do all or any of the following:

The Seller may recover from the Buyer as liquidated damages:

(b) the Seller's expenses connected with this Contract, any repossession, any failed attempt to resell and the resale; and

(c) the Rates, Body Corporate Levies and land tax that would have been payable by the Buyer if the Contract had settled.

The Seller is entitled to damages for any loss which it suffers as a result of the Buyer's default, including legal costs on a full indemnity basis.

Without affecting the Seller's other rights, if any money payable by the Buyer under this Contract is not paid when due (or the Seller extends the Settlement Date), the Buyer must pay the Seller interest on that money calculated at the Default Interest Rate from the due date for payment (or the original Settlement Date) until payment is made. Interest is capitalised on the first of each month. The Buyer must pay the interest at settlement. The Seller may recover that interest from the Buyer as liquidated damages."

[13] The "default interest rate" specified under the contract was 12 per cent.

[14] As I have said, this is not a case in which the plaintiff seeks to recover pursuant to

cl 7.2; rather, its suit is for damages pursuant to cl 7.1(b)(i). It has the benefit of an order forfeiting the deposit, and that forfeited deposit obviously needs to be accounted for when calculating the damages due to the plaintiff.

[15] The plaintiff adduced expert valuation evidence to prove, and I accept, that the market value of the unit as at 16 December 2011 was $700,000. This valuer also proffered the following opinion:

"Based on historical performance of the complex, the results of the recent relaunch, the pricing of the stock remaining for sale and the current challenging market conditions prevailing, it is likely that the remaining apartments for sale in Tower 1 will require a future sales period in the order of 24 months. I think it unlikely that a selling period less than this will be sufficient and a longer selling period may well be expected. Moreover, I would generally expect the more expensive apartments to take longer to sell."

[16] The methodology for calculation of damages which the plaintiff sought to recover was as follows:

Plus Holding costs and interest (up to 7 February 2012)

Plus estimated holding costs post 7 February 2012 for a period of 12 months, calculated as follows:

Land Tax (paid to 30/6/12, ie 7 months @ $61.41 pm)

Body Corporate (paid to 30/4/12, ie 9 months @ $480.52 pm)

Insurance (paid to 1/11/11, ie 15 months @ $16.55 pm)

Electricity (paid to 1/11/11, ie 15 months @ $8.33 pm)

[17] In this form, the plaintiff sought to recover all of the losses it would suffer if the unit were resold in 12 months time. But, as I have already noted, this is not a case where the plaintiff has resold the unit. The proper primary measure of damage, in a case such as the present, where the value of the property has diminished, is the difference between the sale price and the current market value. The relevant principles are explained in Voumard "The Sale of Land" (6th ed) at [12.240] (omitting citations):

"Thus, a vendor who elects to treat the contract as at an end in consequence of the refusal or the failure of the purchaser to pay the purchase money or an instalment of purchase money is entitled to recover damages for the breach of the contract by the latter. By such an election the vendor reassumes the ownership of the property, and extinguishes the contract, not ab initio, but in futuro, so as to discharge all obligations thereunder as yet unperformed, but the contract remains alive for the purpose of allowing either party to vindicate rights already acquired under it. There is no obligation placed upon a vendor to resell the property. Any rise or fall in the property after the date fixed for performance is at the vendor's advantage or risk.

The damages to which a vendor is entitled in such circumstances are computed by placing her or him, so far as money can do it, in the same situation as if the contract had been performed. These damages include but are not confined to the difference between the contract price and the net value of the property thrown back on the vendor's hands (that is, its value at the date of the determination of the contract) but in estimating the damages the vendor must give credit for any deposit received under the contract. Accordingly a forfeited deposit must be set off against any damages claimed by the vendor. The vendor may recover in addition any incidental expenses which have necessarily flowed from the breach. ..."

[18] Whilst there is a general rule that in actions for breach of contract, damages should be assessed as at the date of the breach, this rule is not absolute.[1]

[19] Given the history of this matter, the duration of the defendants' breach and the repeated failures by the defendants to observe their obligations under the contract, it seems to me that the appropriate date for the assessment of damages is as at the date of hearing before me on 7 February 2012.

[20] The proper approach to the calculation of damages in this case, it seems to me, is as follows.

[21] One commences by deducting from the full contract price the net market value of the property left in the hands of the vendor. This net market value takes account of the market value less costs at resale.[2] On the evidence before me, the net market value is $700,000 less the amount of agent's fees that would be incurred on a sale at that price ($29,645) and the legal costs on such a sale ($2,200), yielding $668,155.

[22] The amount of the forfeited deposit of $101,000 needs to be deducted.

[23] The plaintiff is contractually entitled to interest at the rate of 12 per cent up to the date of assessment. The plaintiff is also entitled to recover for the outgoings (rates, land tax, body corporate fees, etc) incurred on the property up to the date of assessment.[3] On the evidence before me, these expenses and interest up to

[24] There remains, then, the question whether the plaintiff should also be entitled to recover for what it described as "holding costs" of the property for a period after the date of assessment. These are detailed in the schedule above. The valuer's evidence was that it may take up to two years (or longer) for the property to be resold, and on the basis of that evidence it was submitted that it was appropriate to recover these costs for a reasonable period, which was said to be 12 months. I do not consider these ongoing "holding costs" are properly recoverable in the present case, where the proper question is not as to what losses might be suffered in the event of an eventual resale, but rather is to assess, as at the date of assessment, the amount required to put the plaintiff in the same situation, as far as money can do, as if the contract had been performed. It has been held that a vendor in a case such as this is not entitled to claim for the continued payment of mortgage interest on the property as such payments cannot be regarded as flowing from any breach of contract by the purchaser.[4] By parity of reasoning, the ongoing "holding costs" after the date of assessment are not recoverable as damages. I would emphasise again that my conclusion in this regard is reached in the context of making an assessment of general damages as at the date of assessment, and not an assessment of the damages recoverable on a resale.

[25] Accordingly, I make the following assessment of damages:

Plus holding costs and interest up to 7/2/12 187,638.58

[26] The plaintiff has also sought an order that its costs be paid on an indemnity basis. Having regard to the provisions of cl 7.3 of the contract, it is entitled to such an order.

[27] I should also record that I am satisfied that the full version of the valuation report put in evidence before me contains information which is highly commercially sensitive to the plaintiff, and it is appropriate for the report to be placed in a sealed envelope on the file. A redacted version of the report, which obscures the commercially sensitive information, has been supplied for inspection on the file, if required.

1. The defendants pay interest on the judgment sum, or so much of it as is outstanding from time to time, at the rate of 12 per cent per annum, to be capitalised on the first of each month, from 8 February 2012 until the date of payment.

2. The defendants pay the plaintiff's costs of and incidental to this proceeding on an indemnity basis.

3. The expert valuation report of L Hamilton dated 16 December 2011 be placed in a sealed envelope marked "Not to be opened except by order of the Court or a Judge".

4. A redacted copy of such report be placed on the Court file.

[1] Johnson v Agnew (1979) 1 All ER 883, per Lord Wilberforce at 896.

[2] Kenning Investments Pty Ltd v Rusty Rees Pty Ltd (1992) Q Conv R 54-425.

[4] Carpenter v McGrath (1996) 40 NSWLR 39. See also Bridges v MacPhail (1977) 3 BPR 9317.