Supreme Court New South Wales

• Medium Neutral Citation: David Anthony Burnet & Anor v Lily Maria Gubbay [2011] NSWSC 977
• Hearing dates: 23 August 2011
• Decision date: 29 August 2011
• Jurisdiction: Equity Division
• Before: Bergin CJ in Eq

Decision

Plaintiffs entitled to entry of judgment against defendant. Cross Claim to be dismissed.

• Catchwords: [LAND LAW] - purchase of land at auction - deposit cheque dishonoured - whether vendors affirmed contract - whether vendors entitled to terminate - whether promissory estoppel - relief against forfeiture
• Legislation Cited: Contracts Review Act 1980; Conveyancing Act 1919; Property, Stock and Business Agents Act 2002
• Cases Cited: Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570; Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; McDermott v Black (1940) 63 CLR 161; Sargent v A.S.L. Developments Pty Ltd (1974) 131 CLR 634
• Category: Principal judgment
• Parties: David Anthony Burnet (1st Plaintiff); Pamela Jane Clancy (2nd Plaintiff); Lily Maria Gubbay (Defendant)
• Representation: J Darvall (Plaintiffs); MW Sneddon (Defendant); Harry Simon (Plaintiffs); Spooner & Hall (Defendant)
• File Number(s): 2010/225317

Judgment

1 The plaintiffs, David Anthony Burnet and Pamela Jane Clancy, sold their $2.3 million home in Collaroy Plateau, New South Wales (the Property) to the defendant, Lily Maria Gubbay, on 12 December 2009 at auction. The defendant signed a Contract for the Sale of Land (the Contract) and provided a cheque for the deposit in the amount of $230,000 to the agent, Cranston Schwarz of LJ Hooker Freshwater. That cheque was subsequently dishonoured. After further discussions between the parties the plaintiffs terminated the Contract. The Property was sold to other purchasers in February 2010 at a price of $1.95 million. The plaintiffs sue the defendant for the shortfall between the sale price of $2.3 million and $1.95 million together with interest.

2 On 16 December 2009 the defendant's solicitor Damon Hall of Spooner & Hall telephoned the plaintiffs' solicitor, Kevin O'Kane, and advised him that the deposit cheque would not be honoured. Mr Hall advised Mr O'Kane that the defendant had "no money" and that she could not pay 10% or even 5% as a deposit. Mr Hall raised the prospect with Mr O'Kane as to whether a replacement deposit of $50,000 would be satisfactory. Mr O'Kane said he would obtain instructions. Over the next few days there were further discussions between the solicitors including whether there would be a bond for the balance up to 10% or alternatively a bond for 5%. Whatever those discussions may have involved, Mr Hall conceded in his cross-examination that as at 23 December 2009 there had been no agreement reached that the vendors would accept a $50,000 deposit in lieu of the $230,000 deposit (tr 37-38).

3 The solicitors also corresponded with each other during that period. At Mr O'Kane's request the defendant provided a Balance Sheet of her assets, which consisted of three properties. Those properties were in Manly (valued at $950,000 with liabilities of $226,000), Salamander Bay (valued at $380,000 with no liabilities listed against it) and Townsville (valued at $500,000 with liabilities of $492,000). The Balance Sheet recorded that the defendant had total assets of $1,830,000 over liabilities of $718,000.

4 Mr O'Kane asked whether a charge would be given over the Salamander Bay property. On 23 December 2009 Mr O'Kane wrote to Mr Hall in the following terms:

We refer to our letter yesterday asking you to advise whether your client is prepared to execute a charge for the amount of the deposit over her unencumbered property at Salamander Bay, and note we have received no response.

We have been instructed that, unless a satisfactory resolution occurs by 5.00 p.m. today, our clients will forthwith terminate the Contract and enforce their rights against your client.

5 On the same day Mr Hall wrote to Mr O'Kane in the following terms:

We advise that the Salamander Bay property is not unencumbered. We are instructed that it is subject to the same mortgage as the Townsville property being a mortgage to Westpac Bank. The combined total of that mortgage is $492,000.00. The Statement prepared by Mrs Gubbay showed that amount as against Townsville as she does not know precisely the split of the mortgage between the two properties.

Given the time of the year, we are today forwarding a Bank cheque for $50,000 to LJ Hooker Freshwater. A copy of that cheque is attached.

6 On the same day Mr Hall wrote to LJ Hooker Freshwater enclosing the bank cheque for $50,000. The covering letter simply stated, "We act for the Purchaser in the above matter and now enclose a Bank cheque for $50,000.00 for the deposit for the above property".

7 Mr O'Kane received Mr Hall's letter of 23 December 2009 after 5.00 pm. Mr Hall's office was closed from that time until after the Christmas break. On 30 December 2009 Mr O'Kane wrote to Mr Hall in the following terms:

We note that your client's deposit cheque was not honoured on presentation. Your client has not otherwise paid the deposit of $230,000 as required by the Contract.

Accordingly we attach a Notice of Termination of Contract. Please note that our clients require the deposit of $230,000.00, less any amount she has paid to date, to be paid to them forthwith.

8 The Notice of Termination of Contract was in the following terms:

WHEREAS by Contract signed by you, Lily Maria Gubbay, and dated 12 December 2009, you became the purchaser of [the Property] on a deposit of $230,000.00 and the balance of purchase money payable on completion and whereas by clause 2.5 of the Contract it was provided "If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate. This right to terminate is lost as soon as the deposit is paid in full." and

WHEREAS the deposit referred to in the Contract, of $230,000.00, was paid by the purchaser by cheque for $230,000.00, and

WHEREAS the said cheque was dishonoured on presentation and

WHEREAS the deposit has not been otherwise paid in full

NOW THEREFORE you are hereby given notice that the Vendor hereby terminates the Contract and that you have forfeited to the Vendor the part deposit paid of $50,000.00 and that the said contract is entirely at an end so far as it relates to the sale and purchase of the said land and further that the Purchaser will proceed to resell the said property and will hold you responsible and liable for any deficiency in price and for all costs charges and expenses occasioned by such resale and as well for the balance of the deposit of $230,000.00.

9 On 29 January 2010 Mr O'Kane wrote to Mr Hall referring to the termination of the Contract and noting that the defendant had still not paid the balance of the deposit of $180,000. Mr O'Kane requested that the balance be paid forthwith and noted that interest was accumulating.

10 On 3 February 2010 Mr Hall wrote to Mr O'Kane in the following terms:

We refer to the above matter and your clients' purported notice of termination served during the Christmas vacation under cover letter dated 30 January ( sic ) 2009.

Our client treats your clients' purported notice of termination dated 30 December 2009 as repudiation of the Contract between the parties dated 12 December 2009. We enclose by way of service notice of termination of the contract.

Our client otherwise reserve ( sic ) all of her rights.

Please advise by reply whether you have instructions to accept service of process on behalf of the vendors?

11 The Notice of Termination of the Contract served with that letter was in the following terms:

(1) By Contract of sale dated 12 December 2009 you agreed to sell to Lily Maria Gubbay [the Property].

(2) Your purported notice of termination dated 30 December 2009 is a repudiation of the Contract. We give you notice that the Purchaser terminates the Contract which is now entirely at an end. The deposit should immediately be returned to the Purchaser who holds you responsible for all damages and losses.

12 In a further letter to Mr O'Kane of the same date Mr Hall advised as follows:

The basis upon which your clients' purported notice of termination dated 30 December 2009 constitutes a repudiation of the contract includes, inter alia , the fact that your clients accepted and presented the bank cheque in the sum of $50,000 in payment of the deposit and any accrued rights which your clients may have had at that time were waived consequent upon your clients' election to re-affirm the contract: see Sargent v ASL Developments Ltd (1974) 131 CLR 634, 641-2.

We have copied this letter to the vendors' agent on the premise that they should not in the circumstances release the deposit to your client, and if they do, our client will be seeking recourse against them personally.

Election/Waiver

13 The defendant accepted that if the Contract was validly terminated the plaintiffs are entitled to entry of judgment for the shortfall in the sale price of the Property. However the defendant claimed that the plaintiffs affirmed the Contract and that they were not entitled to serve a Notice of Termination. By Cross Claim the defendant seeks a declaration to that effect and that the plaintiffs repudiated the Contract that was accepted by the defendant. The defendant also seeks a declaration that she is entitled to the return of the $50,000. Alternatively the defendant seeks relief against forfeiture of the $50,000 under s 55(2A) of the Conveyancing Act 1900.

14 Mr Hall's letter to Mr O'Kane of 3 February 2010 claimed that the acceptance and presentation of the $50,000 bank cheque was conduct relied upon by the defendant to contend that the plaintiffs had re-affirmed the Contract. This contention was also propounded in the defendant's written submissions dated 16 August 2011. The defendant relied upon the passages of Sargent v A.S.L. Developments Pty Ltd (1974) 131 CLR 634 at 641-2 and Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 at 588 [56] in support of the proposition that the plaintiffs had elected to keep the Contract on foot by banking the cheque for $50,000 and accordingly lost their right to terminate the Contract for non-payment of the 10% deposit of $230,000. That could only have been the case if it had been established that the plaintiffs had agreed to accept the $50,000 as a substitute deposit for the $230,000. It was not so established.

15 In any event during final submissions the defendant eschewed any reliance upon the banking of the cheque to claim that there had been an election or waiver of the plaintiffs' right to terminate the Contract. It was accepted that the cheque was banked pursuant to the agent's obligation under s 86 of the Property, Stock and Business Agents Act 2002. However during final address Mr Sneddon contended that Mr O'Kane's failure to write to Mr Hall on 23 December 2009 advising him not to send the $50,000 cheque to the agent and the "keeping and the forfeiture of the $50,000" amounted to affirmation of the Contract by the plaintiffs.

16 Clause 2 of the Contract provides relevantly:

2. Deposit and Other Payments Before Completion

2.1 The purchaser must pay the deposit to the depositholder as stakeholder.

2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.

...

2.4 The purchaser can pay any of the deposit only by unconditionally giving cash (up to $2,000) or a cheque to the depositholder or to the vendor, vendor's agent or vendor's solicitor for sending to the depositholder.

2.5 If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate . This right to terminate is lost as soon as the deposit is paid in full.

17 Clause 9 of the Contract provides as follows:

9. Purchaser's Default

If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the Vendor can -

9.1 keep or recover the deposit (to a maximum of 10% of the price);

9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -

9.2.1 for 12 months after the termination ; or

9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and

9.3 sue the purchaser either -

9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover -

the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and service tax payable on anything recovered under this clause); and

the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and resale and any attempted resale, or,

9.3.2 to recover damages for breach of contract.

18 The fact that the money remained in the trust account did not amount to an affirmation of the Contract, because the Contract was on foot at the time the cheque was banked by the agent. It was paid in circumstances where there was no agreement that it was to replace the $230,000 deposit. Certainly Mr O'Kane had advised that unless a satisfactory resolution was reached by 5.00 pm on 23 December 2009 the plaintiffs would "forthwith terminate" the Contract. However such termination was to occur by "serving a notice" (cl 9). The letter of 23 December 2009 was not a notice within the meaning of that expression in clause 9 of the Contract. The Notice to Terminate was given under cover of Mr O'Kane's letter of 30 December 2009 and was dated 30 December 2009. The retention of the $50,000 amounts to no more than the payment by the defendant of part of the deposit in the face of an obligation to pay $230,000. This did not affect the plaintiffs' entitlement to terminate the Contract which it did for non-payment of the deposit and/or the dishonouring of the cheque for the deposit under clause 2.5 of the Contract.

19 Mr Sneddon submitted that Mr O'Kane knew at the time that he prepared the Notice of Termination that the agent retained $50,000 and that the forfeiture was the election and affirmation of the Contract. He made the following submission (tr 70-71):

That is the election because they had a choice and they could have either done two things, not accepted the $50,000, it was paid into trust, not forfeited, they sought to take it. By taking the $50,000 that was the affirmation of the election to affirm the contract and in taking that step in forfeiting the money which was otherwise payable pursuant to clause 2 of the Contract, that was the affirmation and to seek to take the money in circumstances where they also sought to terminate. The question is having a right to terminate as at 30 December, yes. Having received the money in the trust account is of no moment because that is a legal consequence, but having made an informed decision knowing of your right to terminate for non-payment of the deposit which they had the right from 16 December 2009, but in circumstances where they say, here is the $50,000 paid towards, even on their case as part payment of the deposit, we are going to take that which acknowledges the existence of the contract because otherwise they are not entitled to take the money, it must have been an affirmation in respect of the contract because otherwise they wouldn't be entitled to demand the money, if it is otherwise not payable under the contract, and then once they take the money they also say we terminate.

20 This submission seems to suggest that the plaintiffs lost their right to terminate because they did not refund the $50,000 that had been paid to the agent. The defendant tendered this amount in circumstances where she knew that there was no agreement to accept it as discharging her obligations to provide the full deposit. There was no agreement to provide more time for the payment of the full deposit after 5 pm on 23 December 2009. However by dint of the Christmas break the plaintiffs did not exercise their right to terminate until 30 December 2009.

21 The fact that the agent banked the $50,000 and the plaintiffs did not direct the agent to return it does not affect the plaintiffs' right to terminate. That right is lost "as soon as the deposit is paid in full". Those words in clause 2.5 of the Contract evidence an intention of the parties that even though part of the deposit might be paid, the right to terminate was not lost until the full deposit was paid. The plaintiffs had a contractual right to forfeit the deposit pursuant to clause 9 of the Contract.

22 I am not satisfied that the plaintiffs waived their rights to terminate the Contract.

 Promissory estoppel

23 The next issue raised by the defendant was that there was a promissory estoppel said to arise by reason of a conversation between Mr Gubbay and Mr Schwartz. That conversation appears in an affidavit of Mr Gubbay sworn 21 March 2011. Mr Gubbay claimed that he spoke to Mr Schwartz on 14 December 2009 in which he asked Mr Schwartz not to deposit the $230,000 cheque that Mrs Gubbay had given to him because there were insufficient funds in the account. Mr Gubbay claimed that Mr Schwartz said "surely you can raise funds" and Mr Gubbay replied that it would take weeks to raise funds and he was sure that they would not be able to raise $230,000 even in that time. Mr Gubbay claimed that he asked Mr Schwartz why it was that a 10% deposit was required and suggested that "surely" a lesser amount could be accepted. He claimed that Mr Schwartz asked him "well what lesser amount?" and Mr Gubbay said that he would see what he could do with the bank.

24 Mr Gubbay claimed that later that day he spoke to Mr Schwartz again and informed him that he was still talking with the bankers but that he should be able to get $50,000 fairly quickly and anything more would take some weeks. He claimed that Mr Schwartz said "I think the client would accept that. When can you deliver the $50,000 to me?". Mr Gubbay claimed that he informed Mr Schwartz that he would organise this with the bank as quickly as he could and deliver it to his solicitor.

25 Mr Gubbay's affidavit evidence was that he and his wife met with Mr Hall on 15 December 2009 and explained that $50,000 was the most he expected "could be raised towards the deposit in the short term". He claimed that a few days after 15 December 2009 he spoke with Mr Schwartz in a conversation in which Mr Schwartz asked him whether he had raised the funds for the deposit. Mr Gubbay claimed that he informed Mr Schwartz that he had not "during this Christmas period, but I should have a cheque for $50,000 shortly to be handled through our lawyers". Mr Gubbay claimed that Mr Schwartz then asked whether the $50,000 was definitely all he could get and claimed that the following conversation took place:

Mr Gubbay: At this stage yes. You should be able to accept that in replacement of the ten per cent which as you know is beyond my wife's means.

Mr Schwartz: Well you will need to pay the $50,000 very quickly. The Vendors are getting very anxious.

26 Mr Schwarz denied this conversation. Mr Gubbay gave no evidence of what he meant by the term "could be raised towards the deposit in the short term". However that expression seems to suggest that he did not understand that the $50,000 would be a replacement deposit but merely an amount raised towards the deposit. In any event, Mr Gubbay was not a party to the Contract and the conversations that he alleged that he had with Mr Schwartz were prior to the discussions and correspondence between the solicitors referred to earlier. They were also inconsistent with the conversations that were occurring between Mr Hall and Mr O'Kane and it is beyond doubt that no agreement was reached by 23 December 2009 that a $50,000 cheque would be accepted in lieu of the $230,000 cheque. I prefer the evidence of Mr Schwarz. I accept his denial. I am not satisfied that any conduct upon which the defendant relies would amount to a promissory estoppel as claimed.

Relief Against Forfeiture

27 The defendant sought relief against forfeiture under s 55(2A) of the Conveyancing Act 1919. In support of this application the defendant relied upon the following passage of Santow JA's judgment in Havyn Pty Ltd v Webster (2005) 12 BPR 22,837:

[173] By way of summation, I would conclude as follows:

(a) Section 55(2A) confers upon the court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture.

(b) Notwithstanding this, it is important for a court in considering the scope of the discretion conferred by s 55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur.

(c) That context is significant when considering the justice and equity of the case, and whether the court "sees fit" to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show "special circumstances" (or satisfy any like test) before a deposit will be returned.

(d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited.

(e) In considering an application under s 55(2A), it will often be material for the court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited.

(f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former's misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge.

28 Although reliance was placed on this passage of his Honour's judgment, the defendant was unable to point to any conduct that would justify relief in the circumstances of this case. The plaintiffs' conduct is beyond reproach. They were entitled to terminate the Contract when the deposit cheque was dishonoured on 17 December 2009. However they did not do so immediately and conducted professional discussions through their solicitors and provided the defendant with an opportunity to pay the full deposit. The defendant did not avail herself of that opportunity.

29 I am satisfied that the defendant is not entitled to relief against forfeiture. That claim will be dismissed.

Accord and Satisfaction

30 The defendant also submitted that there was a variation to the Contract such that the deposit payable was $50,000 in lieu of $230,000. It was submitted that the plaintiffs' retention and forfeiture of the $50,000 was as an accord and satisfaction of any accrued right to terminate the Contract. In support of this submission reliance was placed on McDermott v Black (1940) 63 CLR 161 at 183-5. That submission was changed slightly in oral submissions as follows (tr 77):

So the quid pro quo in relation to the acceptance of the $50,000 was an accord and satisfaction of the right to terminate the contract on 29 December 2009, so not the acceptance of the cheque. There's a prescribed legal obligation to do that, but the forfeiture followed by termination, election, accord and satisfaction, promissory estoppel, inconsistent rights, termination was invalid, we terminated, discharged.

31 I am not satisfied that the retention of the $50,000 in the circumstances of this case was an acceptance by the plaintiffs in place of their entitlement to terminate the Contract.

Contracts Review Act Claim

32 The defendant also made a claim under the Contracts Review Act 1980 contained in paragraph 17(a)-(j) of the Defence filed on 25 August 2010. That claim was abandoned during final submissions (tr 76).

Conclusion

33 There will be judgment for the plaintiffs for the shortfall between the purchase price under the Contract and the price for which the Property was sold in February 2010 with interest. The defendant's Cross Claim will be dismissed. The parties are to file Short Minutes of Order in respect of the quantum of the judgment including interest and an agreed order as to costs. If the parties are unable to agree on costs I will hear argument when the matter is listed for the filing of the Short Minutes of Order at 10.00 am on 2 September 2011.

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Decision last updated: 29 August 2011