Posts Tagged sale of land
Deposits hold a special place in contracts for the sale of land and do not fall within the general rules about penalties. Where a purchaser defaults the deposit (customarily 10 per cent) can be forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract. The vendor can forfeit the deposit as a minimum sum even if it makes a profit on the resale. On the purchaser’s breach, a vendor is also not limited to recovering the amount of the deposit; but may recover any deficiency on resale (after taking into account the forfeited deposit).
The special treatment afforded to deposits “derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money…”.
Where the principles governing deposits and the law governing penalties interact is where the contract provides, for example, for a deposit of less than 10 per cent to be paid and, in the event of a default, for the whole of the 10 per cent deposit to be paid. In such cases the requirement to pay the additional amount on default has been held to be a penalty.
In Simcevski v Dixon (No 2)  VSC 531 Riordan J considered a contract for the sale of land that provided for the payment of a deposit equivalent to 5 per cent of the purchase price. Upon default by the purchaser, the vendor sought payment of a further 5 per cent of the purchase price relying on clause 28.4 of the contract which provided that:
‘If the contract ends by a default notice given by the vendor:
(a) the deposit up to 10% of the price is forfeited as the vendor’s absolute property, whether the deposit has been paid or not; and”
While His Honour accepted that the anomalous position of deposits in the law of penalties protected them in most circumstances, he held that the obligation in cl 28.4 to pay further sum of 5% of the price was void as a penalty because:
- the obligation to pay a further sum of 5% of the purchase price did not purport to be by way of a deposit because the words in cl 28.4, being ‘the deposit up to’, had been deleted; and
- the further sum of 5% was only payable ‘[i]f the contract ends by a default notice given by the vendor’.
His Honour said:
“In my opinion, the circumstances of this case lead to the position, described by the Court of Appeal, in Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd, as:
[t]he irresistible inference that arises from [the] evidence and the inherent circumstances of the … transaction is that the [payment is to be made] in order to punish the [breaching party] for the inconvenience its conduct caused to the [innocent party] … rather than to protect any legitimate commercial interest of the [innocent party] arising from a breach … by the [breaching party].
His Honour also held that cl 28.4 was not a penalty simply because it was not a liquidated damages clause (ie a clause that refers to a sum fixed by the contract as a genuine pre-estimate of damage in the event of breach), but rather because it imposed an obligation to pay without any limit on the vendor’s right to claim damages to the extent that they exceed that payment.
Drafters of contracts must make it clear what is and what is not a deposit and provide for that sum to be paid without any reference to a breach. The case contains an extensive discussion of all the relevant caselaw.
 See: Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd  AC 573; Kazacos v Shuangling International Development Pty Ltd (2016) 18 BPR 36,353.
 Workers Trust, 578-9.
 See, among others: Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 23,629; Iannello v Sharpe (2007) 69 NSWLR 452.
  VSCA 161.
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  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.
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  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 :
“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  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  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  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.
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  NSWSC 237 at ).
In Ng v Filmlock Pty Ltd  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  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 :
“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 :
“….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 :
“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt  HCA 56 at  (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.”
A vendor who has terminated a contract for the sale of land should be wary of serving a second notice to complete because the second notice revives the agreement that has been terminated.
In Rona v Shimden  NSWSC 818 a vendor under a contract of sale claiming to have terminated the contract, gave notice to complete which was expressed to be without prejudice to its contention that the contract was terminated. White J at  analysed the position as follows:
The giving of a notice to complete may give rise to an estoppel which precludes the party giving the notice from asserting that the contract has been terminated. Here, the purchaser did not do anything consequent upon the service of the notice which could create such an estoppel. Estoppel aside, the service of a notice to complete without prejudice to a prior notice of termination takes effect as an offer to revive the agreement, capable of being accepted by performance in accordance with the terms of the notice to complete: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 at 9184, 9187.
In Naval and Military Club v Southraw  VSC 593 Byrne J accepted this analysis. See: also Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors  VSC 57.
Implied term that vendor must act in a reasonable manner when selling land pursuant to liquidated damages clause
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What duties does a vendor have in selling land pursuant to a liquidated damages clause in the sale contract following a default by the purchaser?
There are three possibilities:
- if a vendor acts unreasonably in failing to minimise loss arising from a purchaser’s breach, any damages will be reduced to the extent that the vendor’s loss would have been reduced had the vendor acted reasonably;
- the duty imposed on a vendor is similar to that imposed on a mortgagee exercising a power of sale granted under a security, the duty being to act in good faith;
- there is an implied term in the contract for the sale of duty that a vendor will exercise the power of resale in a reasonable manner.
In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd  VSC 57 Garde J rejected the first two possibilities and held that there was an implied term in the contract that the vendor would act reasonably in the exercise of its power of resale and that this implied term extended to all aspects of the resale. The contractual provision considered by the court was general condition 28.4 of the general conditions which 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; and
(d) the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and
(e) any determination of the vendor’s damages must take into account the amount forfeited to the vendor.”
His Honour held that the implied duty to act in a reasonable manner in exercising the power of resale did not mean that a vendor had to put the interests of the defaulting purchaser ahead of his own. At  His Honour said:
“Where the interests of a vendor and the purchaser in breach are in conflict, for example as to the urgency or method of the resale, the vendor is entitled to prefer his own interests to those of the purchaser in breach, provided that in so doing the vendor acts in a reasonable manner. The obligation on the vendor to act in a reasonable manner has been held to apply to price, time of resale and conduct in the form or method of resale. It would also extend to the terms of resale to be offered by the vendor.”
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This blog has previously referred to the important decision of Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd  VSC 222 which confirmed that amendments to the Sale of Land Act 1962 made in 2008 had caused “terms contracts” to cease to be regulated by the Act where multiple payments were made before the purchaser was entitled to possession of the land. The effect of the definition of “deposit” was that multiple payments formed part of the deposit. In Ottedin Dixon J considered the definition of “terms contract” that has applied since 31 October 2008. Section 29A provides:
“(1) For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is –
(a) obliged to make 2 or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or
(b) entitled to possession or occupation of the land before the purchaser becomes entitled to a conveyance or transfer of the land.
(2) In subsection (1)-
deposit means a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract;
final payment means a payment on the making of which the purchaser becomes entitled to a conveyance or transfer of the land.”
Before 31 October 2008 any payments made by the purchaser on or before the execution of the contract (ie the deposit) or upon becoming entitled to a conveyance or transfer (ie final payment) were not payments taken into account in determining whether the contract was on terms.
In Ottedin the purchaser, in December 2008 contracted to purchase land for $6.5 million and paid a deposit of $325,000 with settlement due in December 2009 upon which the purchaser became entitled to transfer and vacant possession of the land. The purchaser was unable to settle. By deed the parties deleted the particulars of sale and substituted new particulars under which the price remained the same but the settlement date was changed to December 2010, the deposit became $1,325,000 with $325,00 due on the day of sale and $1,000,000 due in January 2010 (increased deposit). There was also a provision for a contingent interim payment of $3,675,000 with a final payment of $1,500,000 due at settlement. Ottedin defaulted and sought to avoid the contract under s29O(2) of the Act on the ground that the contract was a “terms contract” that did not comply with the Act’s requirements concerning terms contracts. The contention was that apart from the initial deposit of $325,000 and the final payment, the contract (as varied) was a terms contract because it obliged the purchaser to pay two or payments after the execution of the contract, being the balance of the deposit ($1,000,000) due in January 2010 and the interim payment of $3,675,000. Dixon J rejected the purchaser’s contention and gave summary judgment to the defendant vendor. His Honour held that both the initial $325,000 and the increased deposit were each obligations to pay the “deposit” within the meaning of s29A. His Honour held that the contingent interim payment of $3,675,00 (which was not paid) was either a deposit or became part of the final payment but its characterisation did not matter because even if it was an interim payment before settlement, there was still only one payment. In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd  VSC 57 Garde J reconsidered the issues determined by Dixon J and held that he considered “the decision of Dixon J to be correct on the issues decided by His Honour that were sought to be reargued before me”.
 The decision is now reported at (2011) 35 VR 1.
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The High Court has rejected the notion that the onus of proof in relation to detrimental reliance can shift to the party said to be estopped. In Sidhu v Van Dyke  HCA 19 0the Court had to consider the sufficiency of proof of detrimental reliance required to given rise to an equitable estoppel (proprietary estoppel).
The appellant and his wife owned land as joint tenants.
The trial judge found that the appellant had promised to give the respondent part of the land owned by him and his wife once that land was subdivided.
The appellant and the respondent formed a relationship which resulted in the respondent’s husband leaving her.
The respondent did not seek a property settlement from her husband because of the promises made by the appellant.
The trial judge accepted that respondent had worked on the land and gave up opportunities for employment and that these activities might be sufficient to amount to detrimental reliance for the purpose of an equitable estoppel; however, Her Honour concluded that the respondent may well have done all or most of those things in any event.
This conclusion was based on answers given by the respondent in the course of cross-examination. The trial judge also held that it was not reasonable for the respondent to rely on a promise of a transfer of land when performance depended on the land being subdivided and the consent of the appellant’s wife.
The Court of Appeal upheld the respondent’s contention that the trial judge erred in holding that it was unreasonable to rely on the promises.
The Court of Appeal also held that the onus of proof in relation to detrimental reliance shifted to the party said to be estopped (ie the male appellant) where inducement by the promise could be inferred from the conduct of the claimant (ie the respondent).
The Court of Appeal held that an award of equitable compensation measured by reference to the value of the respondent’s disappointed expectation was the appropriate form of relief, being the value of the land at the date of judgment.
The High Court rejected the notion that the onus of proof in relation to detrimental reliance shifted: reliance was a fact that had to be found and not imputed on the basis of evidence that fell short of proof of the fact; the respondent at all times bore the legal burden of proving that she had been induced to rely upon the appellant’s promises.
The Court said that the real question was the appropriate inference to be drawn from the whole of the evidence. The Court also held that the evidence established reliance.
As to the relief, the High Court said that “this category of equitable estoppel serves to vindicate the expectations of the represented against a party who seek unconscionably to resile from an expectation he or she has created”. See: French CJ, Keifel, Bell and Keane JJ at .
Had the respondent been induced to make a relatively small, readily quantifiable monetary outlay on the faith of the appellant’s assurances, then it might not be unconscionable for the appellant to resile from his promises to the respondent on condition that he reimburse her for the outlay.
However, the Court decided that this case was one to which the observations of Nettle JA in Donis v Donis (2007 19 VR 577, at 588-589 were apposite:
“[H]ere, the detriment suffered is of a kind and extent that involves life-changing decisions with irreversible consequences of a profoundly personal nature…beyond the measure of money and such that the equity raised by the promisor’s conduct can only be accounted for by the substantial fulfillment of the assumption upon which the respondent’s actions were based.”
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What is the effect of a purchaser of land nominating a nominee under a nomination clause contained in the contract: what rights and obligations does the nominee have?
The answer is none: the nominee has no contractual rights and no obligations.
In 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd  VSC 133 the vendor misrepresented the lettable area of the property. The purchaser nominated the plaintiff as purchaser. The director of the purchaser was also the director of the nominee. It was alleged that the nominee purchaser relied on the representations. The nominee clause provided as follows:
“If the contract says that the property is sold to a named purchaser ‘and/or nominee’ (or similar words) the named purchaser may, at least 14 days before settlement date, nominate a substitute or additional purchaser, but the named purchaser remains personally liable for the due performance of all the purchaser’s obligations under this contract.”
The contract authorised a substitute or additional purchaser.
The nominee purchaser brought an action for damages based on a breach of s 52 of the Trade Practices Act, s 9 of the Fair Trading Act and for negligent misstatement.
Judd J held that that the nomination did not have the effect of a novation and the plaintiff did not become a party to the contract of sale.
His Honour also found that by the time the plaintiff paid the purchase price and took the conveyance it was aware of the true lettable area of the property.
Thus, the cause of the plaintiff’s loss was either an informed choice to pay a price for the property and take the conveyance or, if the payment was involuntary, it was because the plaintiff was caused by its directors, in full knowledge of the true facts to make the payment in which case but for the nomination it would not have suffered any loss. The loss was caused by the nomination – not the representations. Judd J dismissed the proceeding.
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