In Sam Gayed v Nardine Elzahaby [2024] VSCA 85 the Victorian Court of Appeal confirmed that:
• where a purchaser has repudiated a contract for the sale of land, it is not necessary to serve a default notice before terminating the contract; and
• general condition 28.4(c) of the standard contract does not restrict a vendor to only claiming losses incurred during the period of 12 months after the termination of the contract.
The purchasers bought land for $3,190,000 and paid a deposit of 10% of the purchase price, being $319,000. Three weeks before settlement the purchasers’ solicitor advised the vendor that the purchasers would be approximately $160,000 “short” of the balance needed to settle. On the morning of the settlement, the purchasers’ solicitor said that the purchasers were unable to complete settlement because they were “unable to secure sufficient finance…”. The vendor’s solicitor informed the purchasers that the vendor accepted the purchasers’ repudiation of the contract and that the contract was at an end. Nearly two years later the vendor sold the land for $3,500,000.
The purchasers sought recovery of their deposit pursuant to s.49(2) of the Property Law Act 1958 and at common law or in equity. The trial judge noted that there was no jurisdiction under common law or equity to relieve against forfeiture of a reasonable deposit and that the statutory jurisdiction embodied in s.49(2) was “created to enable courts to grant relief in appropriate circumstances”[1]. The trial judge, while saying that each case involving s.49(23) depends on its own facts, endorsed the following observations by Daly AsJ in Chatham v Coral Park Pre-Training & Breaking Pty Ltd (2020) 66 VR 171:
• the order for the return of a deposit to a defaulting purchaser is the exception rather than the rule;
• it would be rare for a court to exercise its discretion in favour of a purchaser in the absence of some disentitling conduct by the vendor. This might comprise misleading or deceptive conduct, unconscionable behaviour, or possibly, an unduly harsh enforcement of the vendor’s contractual entitlements;
• where the purchaser proves misleading and deceptive conduct, a court is more inclined to order the return of the deposit if the contravening conduct induces the purchaser to enter a contract which it would not otherwise have entered;
• given the risk of the loss of deposit which each purchaser faces if they do not complete the purchase, the fact that the forfeiture of the deposit would cause hardship to a defaulting purchaser is not especially relevant. Nonetheless, the financial consequences of the failed transaction could be relevant particularly where the consequences might be considered lopsided;
• because section 49(2) gives the court a broad discretion, it is permissible to impose conditions upon the return of the deposit. This ameliorates the ‘all or nothing’ nature of the remedy under section 49(2);
• the conduct of the purchaser and the reasons for the purchaser’s default in completing a purchase are relevant to the exercise of the discretion.[2]
The trial judge rejected the purchasers’ claim that the deposit should be returned noting that the authorities are “clear that the mere fact of a vendor receiving a windfall payment is generally not a sufficient basis of itself to justify a return of a deposit to a defaulting purchaser”[3].
The purchasers’ appeal failed. The purchasers contended, among other things, that the trial judge erred in finding that the contract had been terminated where no default notice had been served as required by general condition 27 of the standard contract. The Court of Appeal held that the vendor was not required to serve a default notice and was entitled to bring the contract to an end by accepting the vendors’ repudiation. At [43] the Court said “No default notice was necessary because the contract was at an end once the applicants’ repudiation was accepted (as it was) by the respondent.”
The purchasers also contended that because of general condition 28.4 of the contract, the vendors were entitled only to losses arising within the first 12 month after the termination of the contract. General condition 28.4 provides:
“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; …”
(emphasis added)
Apart from the contract not having ended by the giving of a default notice and the vendor not having sued for damages for breach of contract, the Court of Appeal said the following about general condition 28.4(c):
“On its proper construction, general condition 28.4(c) does not limit a vendor to claiming losses incurred only within the 12 month period after which the contract was terminated. The clause provided a time limit for taking proceedings in circumstances where the clause had operative effect.”
[1] [2023] VCC 1992, [39] (Judge Cosgrave)
[2] Ibid, [59].
[3] Ibid [143]
