Posts Tagged damages

Real estate agent not authorised to accept termination notice given under s.31 of Sale of Land Act 1962

A purchaser of land in Victoria may terminate the contract “at any time before the expiration of three clear business days” after signing the contract. See: s.31(2) of the Sale of Land Act 1962 (Vic). The termination notice must be “given to the vendor or his agent” or left at an address specified in the contract. See: s.31(3). Termination entitles the purchaser to the return of most of the moneys paid under the contract. See: s.31(4).

In Eng Kiat Tan and Cheng Lo v Thomas Russell [2016] VSC 93 the Supreme Court of Victoria had to decide whether the vendor’s real estate agent was an “agent” for the purpose of being given a termination notice.

The High Court has said that the employment of a real estate agent to find a buyer of property does not necessarily create any authority to do anything which will affect the legal position of the employer; an agent does not even have implied authority to receive the purchaser money. See: Peterson v Maloney (1951) 84 CLR 91. In Brien v Dwyer (1978) 141 CLR 378 Gibbs J said that the expression “agent”, when used in relation to a real estate agent, was misleading because “Such so-called agents do not have a general authority to act on behalf of a vendor in relation to a contract.”

In Eng Kiat Tan the purchasers gave the termination notice to the real estate before the expiration of three clear business days after signing the contract. The vendor refused to accept that the contract had been terminated pursuant to the Act. The sale price was $4,480,000. The vendor resold the land to another purchaser for $4,070,000. The purchasers commenced a proceeding seeking recovery of the deposit and the vendor counterclaimed seeking the balance of the deposit and the loss suffered on the resale of the property. The purchasers claim failed and the vendor’s claim succeeded.

The purchaser argued that s.31 was remedial legislation and that the expression “agent”in s.31 must extend to the vendor’s real estate because, among other things, the purchaser had only three days to make inquiries as whether a person was or was not an “agent” with authority to accept the termination notice. The purchaser also referred to Lloyd and Rimmer’s Sale of Land Act Victoria where the authors say that for the purpose of s.31 “agent” includes but is not limited to the estate agent engaged by the vendor in connection with the sale.

The vendor argued that s 31 did not create a statutory authority to receive a termination notice: the purchaser had to establish that the vendor’s real estate had actual or ostensible authority to accept the termination notice and there were no facts which established any authority in the vendor’s real estate agent beyond that usually granted to real estate agent.

The trial judge held that s.31 did not create a statutory authority in a real estate agent to accept a termination notice.

Purchasers need to ensure that the sale contract identifies the person or persons upon whom a termination notice under s. 31 can be given or the place where a notice can be left.

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Vendor not entitled to interest on unpaid contract price where contract terminated

Vendors who terminate contracts for the sale of land on the ground of a default by the purchaser often claim interest on moneys that have not been paid calculated from the date of the breach to the date of termination. Clause 25 of the general conditions of the standard form of contract concerning the sale of land prescribed by the Estate Agents (Contracts) Regulations 2008 (Vic)  provides that:

“A party who breaches this contract must pay to the other party on demand:

…… ; and

(b)       any interest due under this contract as a result of the breach.”

Does clause 25(b) entitle a vendor to interest on the contract price from the date of a breach by a purchaser to the date the vendor terminates the contract?

Two cases in the Supreme Court of Victoria suggest that the answer to this question is “yes”. In Portbury Development Co Pty Ltd v Mackali [2011] VSC 69 the plaintiff sold a property for $1,600,000 with a deposit of $60,000, with the balance of purchase price payable on a nominated date. The defendant failed to complete and the plaintiff terminated the contract. The court accepted that the plaintiff’s termination was valid. The plaintiff’s claim included damages being, among other things, the difference between the contract price and the value of the property at the time of termination and “interest between default and rescission” based on a clause similar to clause 25. The court awarded the amount of interest claimed to the plaintiff, noting that such interest was under the terms of the condition payable on demand and remarking at [27]:

“By the notice of rescission the plaintiff made an appropriate demand for that interest. Accordingly, the plaintiff is entitled to judgment against the defendant for the sum of interest claimed by it.”

In Pettiona v Whitbourne [2013] VSC 205  the facts were similar to those in Portbury. The price of the property was $5,850,000. The purchaser failed to pay the balance of purchase price on the date nominated for settlement. A notice of default was served and the contract was terminated. The plaintiff claimed, amongst other things, interest on the unpaid balance for the period of default. The claim for interest, which was made under the terms of the contract, was not disputed by the defendant.

A recent case in the County Court of Victoria suggests that the answer to the question posed is “no”. In Yvonne Maria Van Der Peet Bill v Allan James Clarke [2015] VCC 1721 Judge Macnamara declined to follow Portbury and Pettiona in deciding that a vendor of land was not entitled to interest from the date of the breach to the date of the termination of the contract. At [77] His Honour analysed the issue as follows:

“To put it in a nutshell, how can interest be awarded upon an alleged principal sum that ultimately was never payable?”

In answering that question His Honour said it was necessary to go to “some fundamental principles of the law of vendor and purchaser” and “one of Sir Owen Dixon’s most celebrated judgments” in McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 477-479. In McDonald the guarantors of a purchaser’s obligations under a terms contract contended that upon termination by the vendor the contract was cancelled as to the future and, because there would be no transfer of the property, the purchaser’s obligation to pay an outstanding instalment of the purchaser price came to an end. The High Court accepted the guarantors’ contention. Because the guarantors’ obligation was a secondary one their obligation was also terminated.

His Honour also considered the decision of the New South Wales Court of Appeal in Carpenter v McGrath (1996) 40 NSWLR 39 which he said accorded with the general principles that emerged from McDonald. In Carpenter the purchaser failed to complete a contract to buy land and the trial judge awarded damages to the vendor which included a claim for interest from default until termination. On appeal the Court of Appeal disallowed the claim for interest from default until termination. The Court’s reasoning was in effect that once the contract ended the vendor could not have sued for the purchase price and was relegated to a claim for the loss of the bargain. The interest operated to increase the amount payable on completion and because the purchase moneys were not payable interest could not be claimed.

Judge Macnamara said that while Portbury and Pettiona supported the award of interest, general principle flowing from the analysis in McDonald pointed away from an award being made and therefore the claim for interest failed.

A question that is unresolved is whether the position might have been different if the vendor had re-sold the land rather than retaining it because the vendor would, in determining the loss on any resale, arguably have been entitled to treat the purchase price as constituted both by the contract price and the interest payable under the contract.

 

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Date of termination confirmed as the date for assessing damages for breach of contract for sale of land

The general rule is that damages for a breach of a contract for the sale of land are assessed at the date of the breach. The task is usually to compare the contract price with the value of the land a the time of the breach. If the value is greater than the contract price, the vendor has suffered no loss. But if the value is less than the contract price, it may be inferred that the discrepancy is an element of the vendor’s loss (Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 at [179]).

 

In Ng v Filmlock Pty Ltd [2014] NSWCA 389 the NSW Court of Appeal heard an appeal by a purchaser of land from a judgment where the trial judge had assessed the vendor’s loss as being the difference between the contract price and the price obtained on a resale. The contract restricted the use of the resale price as an element in the quantification of loss to a resale within 12 months of termination but otherwise the vendor was entitled to damages for breach of contract. The resale took place more than 12 months after termination and therefore the general law applied. The land had declined significantly in value by the time of the resale.

The vendor argued that there was no available market as at the date of the breach of contract and therefore the resale price was relevant to the calculation of loss. The argument was based on a proposition said to be derived from the decision of the English Court of Appeal in Hooper v Oates [2014] Ch 287: the correct date for assessment of damages for breach of contract is the date of breach only where there is an immediately available market for the subject matter of the sale.

Emmett JA, after noting that the English Court of Appeal did not explain what was meant by an “immediately available market”, said at [26]:

“While a sale of land might take longer than the sale of other types of assets, it does not follow that there should be a departure from the general rule, which focuses on the value of the land as at the date of termination of the contract. There is good reason for that approach where the damages sought by the innocent seller are loss of bargain damages. The critical date is when the bargain was lost.”

While the appeal was successful the court accepted that in an appropriate case the interests of justice may require that “the date of breach” rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. See: Johnson v Perez (1988) 166 CLR 351 at 367.

Gleeson JA said at [58]:

“….whether a market value may be assessed in the case of land as at “the date of breach” is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role.”

And at [59]:

“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt [2013] HCA 56 at [109] (Keane J). A vendor claiming damages assessed at a date later than “the date of breach” must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima face or “usual” measure of damages.”

 

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Undertaking as to damages must not be a ritual or a formality

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

Parties seeking injunctions are required to offer an undertaking as to damages as the price for the injunction. All too often the undertaking is given lightly and without an understanding of the potential consequences.  If the person against whom the injunction is granted succeeds at trial and has suffered loss or damage the consequences can be severe. The inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen.

In Love v Thwaites [2014] VSCA 56 the Court of Appeal upheld a trial judge’s order that the party who obtained an injunction pay damages and interest of more than $5,000,000 pursuant to an undertaking.

This disastrous outcome was the consequence of the appellant seeking and being granted an interlocutory injunction restraining the Roads Corporation from demolishing a property.

The appellant gave the usual undertaking as to damages. During the proceeding the appellant had been asked to consent to the discharge of the injunction but the requests were refused.

After the appellant’s proceeding was dismissed and the injunction discharged there was then a trial to determine the damages suffered by the Roads Corporation resulting from the granting of the injunction. The trial judge[1] set out the principles governing the assessment of damages as follows:

“30. In Davinski Nominees Pty Ltd v I&A Bowler Holdings Limited, Kaye J described the basis for the assessment of damages on an undertaking to the court as uncontroversial: damages flowing directly from the injunction and which could have been foreseen when the injunction was granted, following the decisions of the High Court in Air Express Limited v Ansett Transport Industries (Operations) Pty Ltd and European Bank Limited and Robb Evans of Robb Evans & Associates.

31.  In Air Express, Aickin J held that in a proceeding of an equitable nature ‘the damages should be those that flow directly from the injunction and which could have been foreseen when the injunction was granted’.

On appeal, Barwick CJ agreed with the reasoning of Aickin J. Gibbs J identified the generally accepted view to be that ‘the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice’ adding that the party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered’.

Stephen J referred to the court having the power, as far as monetary compensation allows, to make good the harm of which the grant of the injunction was a cause and that but for it he would not have suffered. Mason J said generally speaking, so long as the claim for damages is not trivial or trifling, an enquiry should be directed and the defendant will be entitled to recover the loss which is the natural consequence of the grant of the injunction.

The causal connection between the damage and the injunction is to be identified from the purpose for which the undertaking as to damages is designed to serve. That object is to protect a party from damage sustained in the event that it emerges that the plaintiff is not entitled to the relief sought. Its purpose is not to protect the defendant from damage otherwise sustained.

32.  In European Bank, the High Court, in a joint judgment, affirmed Air Express, restating the significance of the nature of the undertaking. It is not a contract between parties or some other cause of action upon which a party could sue, but is given to the court for enforcement by the court. The joint judgment emphasised the phrase ‘which could have been foreseen’.

It is well established that for damage to be reasonably foreseeable it need only be damage of a type or character that is foreseeable or damage of a type or character that could not be considered unlikely.Roads Corporation submitted that the tortious concept ‘reasonable foreseeability’ is a wider concept than the contractual ‘reasonable contemplation’.

The High Court in European Bank makes it clear that the inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen. “

(citations omitted)

The Court of Appeal dismissed the appeal. The Court accepted that the concept of mitigation of damage applied (at least by analogy) in this case.

Tate JA said at [62]:

“While there is no suggestion that the usual undertaking was here given lightly, the consequences that have flowed from the failure of Mr Love to make out his case at trial have been significant. In my view, these consequences provide a salutary lesson to practitioners and their clients to appreciate the conditions governing the grant of an interlocutory injunction. The usual undertaking carries serious risks; it would be wholly erroneous to view it as no more than a ritual or a formality.”

[1] Love v Thwaites (No. 4) [2012] VSC 521

 

 

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$1,000,000 in damages for loss of sperm even though purchaser not out of pocket

There is a translation key (widget) on the mirrored blog for ease of reading for non-English speaking members of the public or professionals. The mirrored blog can be found at http://roberthaybarrister.blogspot.com.au/

 

A wise senior building barrister once said to me that in analysing a legal problem you should “always start with the money” – that is analyse what methodology underlies  or underpins the claim for damages.

 

Too often little thought is given to how damages should be calculated before a proceeding is commenced.

In December 2013 the High Court in Clark v Macourt [2013] HCA 56  gave a decision concerning damages in a breach of contract case that has caused much discussion.

A person who provided assisted reproductive technology services to patients purchased the assets and practice of a company providing similar services.

The assets included a stock of frozen donated sperm.

A guarantor guaranteed the vendor’s obligations under the contract.

The vendor warranted that the identification of donors of the sperm complied with specified guidelines; however, of the stock of sperm delivered, 1,996 straws which the purchaser would have expected to be able to use were not as warranted and were unusable.

The vendor could not buy suitable replacement sperm in Australia but could in the USA.

The primary judge found that buying 1,996 straws of replacement sperm from the American supplier would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000. The purchaser could not have made any profit from the frozen donated sperm because ethically she could not charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the purchaser had outlaid to acquire it.

The question was,  how should the purchaser’s  damages for breach of warranty be fixed?     The primary judge gave judgment against the vendor and the guarantor for the costs  incurred in purchasing replacement sperm from the USA.

This was overturned by the NSW Court of Appeal which held that the purchaser had avoided any loss she would have suffered by purchasing replacement sperm and had charged each patient a fee which covered the costs of buying the sperm.

The High Court of Australia held 4:1  – that the appeal should be allowed and reinstated the decision of the primary judge with the consequence that the vendor’s loss and therefore the damages were $1 million.

The methodology underlying the decision was entirely uncontroversial:   the principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation, so far as money can do it as it would have been in if the broken promise had been performed.

Damages are assessed at the date of the breach. The case emphasises the importance of carefully considering  how the claim is pleaded:   in this case at the date of the breach the purchaser was in the position where she had to buy a $1 million worth of sperm to replace what she had lost.

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

 

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