FEDERAL COURT OF AUSTRALIA

Trpkovski v Russell [2001] FCA 1871

SASHA TRPKOVSKI & ANOR v LYNN RUSSELL & ANOR

A 73 of 2000

SASHA TRPKOVSKI & ANOR v LYNN RUSSELL & ANOR

A 76 of 2000

HIGGINS, GYLES & STONE JJ

DATE             21 December 2001

CANBERRA

                                                                                                     GENERAL DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA

                                                                                         A 73 OF 2000

CANBERRA DISTRICT REGISTRY                         A 76 OF 2000

DISTRICT REGISTRY                                               

ON APPEAL FROM THE SUPREME COURT OF

THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:           SASHA TRPKOVSKI

                                FIRST APPELLANT

                                LOU BUJAROSKI

                                SECOND APPELENT

AND:                     LYNN RUSSELL and COLIN DOUGLAS PITSON

                                RESPONDENTS

JUDGES:                   HIGGINS, GYLES and STONE JJ

DATE OF ORDER:  21 DECEMBER 2001

PLACE:                      CANBERRA

THE COURT ORDERS THAT:

1.                  The appeal be dismissed, save that the respondents pay the costs of the day thrown away by the adjournment of the hearing on 24 November 1999.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

REASONS FOR JUDGMENT

HIGGINS J:

1  I have had the advantage of having read in draft the judgments of both Stone J and Gyles J.

2  I agree with Stone J that, on its true construction, Special Condition 1 provided that the monies payable under it were payable as a deposit ie, an earnest for performance.  Otherwise, of course, the reference to the 5% of the price payable on or before completion would be otiose unless it was payable as part of the deposit.  At completion, the whole of the price remaining was due and payable whether part of the deposit or not.

3  The terms of Special Condition 1, I also agree, create, on breach, an obligation upon the purchaser under each agreement that is, within the meaning of O 2 r 11 of the Supreme CourtRules, a “debt or a liquidated demand”, in respect of which final judgment may be entered in default of appearance or of defence, as the case may be (see also O 14 r 4; O 31 r 2).

4  It then follows that the contract of guarantee, upon default by the purchaser (Adwan P/L) required the payment by the guarantors (the first and second appellants), of, in each case, a liquidated sum equal to the deposit reserved by Special Condition 1.

5  As to interest thereon, pre-judgment, I agree with Stone J and have nothing to add.

6  On the questions of costs, however, the issue is whether the fact that the contracts were unstamped required the appellants, if they proposed to rely upon that fact, to have pleaded it.  If it was a mere objection to the admission of evidence, then it was for the defendants to have noted that, before they tendered the contracts, they needed to be stamped.

7  The relevant provision, referred to by the learned trial judge, was s 13A of the Stamp Duties and Taxes Act 1987 (ACT), (replaced by the Duties Act 1999) (“the Stamp Duties Act”).

8  Many of the State equivalents of the Stamp Duties Act merely prohibit the admission into evidence of the unstamped document.  In New South Wales, the practice is to admit unstamped documents into evidence, if the tendering party’s solicitor undertakes to have the document stamped and to pay the duty (if any).

9  In the Australian Capital Territory, however, the prohibition is more stringent.  An unstamped document:

“…shall not … be pleaded or given in evidence or be admitted to be good, useful or available in law or equity for any purpose, unless it has been pleaded.” (s 13A)

10    In breach of that provision the contract were “pleaded” before stamping.  On tender, they were rejected.  An adjournment was granted to enable them stamped.  That was able to be done within 24 hours but there was a day of hearing effectively lost.

11    The purpose of each form of this provision, those that merely render the evidence inadmissible and those such as s 13A that also prohibit the pleading of the document, is to protect the revenue.  Once that protection has been accorded, the evidence becomes admissible and is admitted.  See, for example, Dymock v Whymark (1964) 65 SR (NSW) 194, in relation to New South Wales practice.  Hill J applied that practice in Davis v FCT (1989) 86 ALR 195.  However, whether that practice would have been appropriate when, absent stamping, the pleadings are defective, is open to doubt.  However, there seems no reason why, as with extension of limitation periods or the grant of leave to proceed, the subsequent stamping of an unstamped document should not cure all relevant defects nunc pro tunc (see eg, Dixon v Royal Insurance Australia Ltd (1991) 105 ACTR 1; 105 FLR 129).

12    The learned trial judge was told that the plaintiffs would not offer an undertaking, thus an adjournment was inevitable even if an undertaking would have been effective.  It was expected that duty would be assessed at nil, given the rescission of the agreement, but that was not a certainty.

13    In those circumstances, even assuming that the appellants had, before the hearing, noticed that, at the time the original documents had been inspected, the contracts were then unstamped, their only remedy would have been an application to strike out the pleading which relied on the unstamped contracts.  That would no doubt, have led to the stamping of the contracts.  The application would then have been dismissed, though the appellants would have had the costs of the strike-out application.

14    More importantly, however, it was not in the interests of the appellants to cure possible defects in the respondents’ pleadings or evidence.  Further, they were defects curable, once the respondents noted the terms of s 13A of the Stamp Duties Act, within 24 hours.  The appellants could not have known, though they may have suspected, that, when the matter came on for hearing, the contracts would have remained unstamped.

15    What then, of the fact that the appellants did not alert the respondents to the need to have the contracts stamped when, at inspection, it may be assumed their advisers had noted that fact?

16    It is the case, as the learned trial judge noted, that it was for the appellants to have lodged the relevant instruments for stamping (s 22 Stamp Duties Act).  They did not do so but, of course, by then, they had no interest in doing so.  It is not suggested, nor could it have been suggested in the circumstances, that the appellants had done anything to foster or encourage the respondents’ inadvertence to the need to stamp the contracts.

17    The learned trial judge opined that there was some duty on the appellants to have put the respondents on notice concerning the non-stamping of the contracts.  His Honour said:

“(para 78) To wait until the day of hearing before indicating a reliance on s 13A, may have been appropriate in the days of trial by ambush, but it has no place in modern litigation.  To the extent that it unnecessarily increases the cost of litigation, that increased cost may fall upon those who, wishing to take advantage of s 13A, fail to do so at a time which will avoid the incurring of unnecessary costs.”

18    In so stating his Honour was drawing attention to the policy underlying O 23 r 15 of giving due notice to litigants of the case they have to meet to avoid surprise or ambush and, as a consequence, adjournments or injustice.

19    His Honour was, therefore, in my view, correct to point out, as I have done, that the appellants could have made an application to strike out a pleading relying on the unstamped instruments once the fact that the contracts were unstamped had come to attention.

20    The real question, however, is whether his Honour was correct so to characterise the failure of the appellants to take positive steps to ensure, against their interests, that the contracts were stamped before the hearing commenced.  I am prepared to assume, though it is not necessary so to decide, that the terms of s 13A, prohibiting the pleading the relevant documents, was designed to prevent proceedings continuing until stamping takes place, avoiding reliance on undertakings to do so in future (thus displaying a regrettable lack of faith on the part of the legislature in solicitors’ undertakings).  Thus, the appellants may be taken to assume that, if the contracts remained unstamped at the hearing then, on their tender, the appellants could expect an adjournment thus throwing away the costs (or part thereof) of the day.

21    Should a party, knowing or suspecting there is a defect in the other party’s case or pleadings, be required to bring that defect to the other party’s attention so as to afford them the opportunity of correcting it?  His Honour’s approach was that both parties were at fault so neither should have the costs thrown away by the adjournment.

22    The appellants contend that the respondents were, relevantly, solely responsible for the adjournment and so should pay the appellants’ costs to that extent.  They were aware of the defects and had the means to remedy them.

23    I consider that the guiding principle, supported by the majority judgments in Chamberlain v Law Society of the ACT (1993) 118 ALR 54, is that a practitioner should not engage in conduct which induces or fosters error on the part of another party and that includes persistence in error which that other party has committed.  In addition, rules may require positive disclosure of some matters (eg, O 23 r 15).

24    However, it seems to me that, outside of those obligations, the practice of the Supreme Court remains governed by the decision of this Court in McKanna v Aspect Homes Pty Ltd (1983) 72 FLR 476.

25    In that case the defendant (appellant) had, on advice from his legal practitioners, deliberately refrained from applying to dismiss an action for want of prosecution until after the limitation period applicable to the matter had expired.  The learned judge at first instance (Gallop J) criticised the conduct of the defendant in failing to threaten action to dismiss for want of prosecution until after the limitation period had expired.  That delay had removed a powerful reason to refuse the application.  The reliance by the appellant on the error made by the respondent was not regarded as inappropriate, in the absence of any fostering or encouragement of the respondent in its persistent delay.  Their Honours (Blackburn, Sheppard and Neaves JJ), at 481, stated:

“In our opinion, and with due respect to him, the learned judge erroneously exercised his discretion to allow the late filing of the statements of claim, in that he wrongly held it against the appellant that the appellant deliberately refrained until the limitation period had expired, from moving to have the action dismissed.  That was a course which the appellant was entitled to take without procedural prejudice to himself.”

26    It follows that the appellants were perfectly entitled to await the production of the contracts at the hearing to see if they had, by then, been stamped and, if not, to take proper forensic advantage of that deficiency.  They were not under any obligation to draw s 13A to the attention of the respondents.

27    Thus, the appellants should have been awarded, as against the respondents, the costs thrown away by the adjournment and I would allow the appeal to that extent.

Associate:

Date: 21 December 2001

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

REASONS FOR JUDGMENT

GYLES J:

28    I have had the advantage of reading the judgment of Stone J in draft.  I agree that the judgment and orders of the Supreme Court of the Australian Capital Territory (“the Supreme Court”) as to liability and interest should not be disturbed and I agree generally with her Honour’s reasons for that conclusion.  The only hesitation that I have had arises out of the fact that half of the “deposit” was to be paid “on or before completion”.  This is unusual and, indeed, anomalous, as the purpose of a deposit is as an earnest of performance, that is, of completion.  I am satisfied, however, that the parties intended that that amount should be regarded as part of the deposit for the purpose of the provisions which are relevant in this case.

29    However, I agree with Higgins J that the appellants have established their complaint about the failure of the Supreme Court to order that the respondents here (the plaintiffs below) pay the costs of the day thrown away by reason of them seeking and obtaining an adjournment in order to stamp the contract and with his Honour’s reasons for that conclusion.

Associate:

Dated:  21 December 2001

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

REASONS FOR JUDGMENT

STONE J:

background

30    On 17 December 1997, Lynn Russell and Colin Douglas Pitson (“Vendors”) commenced proceedings for breach of contract in the Supreme Court of the Australian Capital Territory against Adwan Pty Limited (“Adwan”), Lou Bujaroski (“Bujaroski”) and Sasha Trpkovski (“Trpkovski”). The amended statement of claim referred to three agreements for the sale of land to Adwan all dated 15 October 1993. By these three agreements, three blocks of land were to be sold to Adwan for $390,000, $380,000 and $380,000 respectively.

31    The three agreements each provided in clause 2(1) that the purchaser should pay to the person named in the agreement as the stakeholder, a deposit amounting to 10 per cent of the purchase price. Clause 2(1) also provided that if the buyer was in default of the obligations imposed by the subclause then, “immediately and without the notice otherwise necessary under clause 19 the provisions of clause 20 will apply”.  Clause 20 specified the Vendors’ rights, “if the Buyer defaults in the observance or performance of any obligation imposed on him under or by virtue of this agreement”.

32    In each agreement, however, clause 2(1) was modified by Special Condition 1, which provided for payment of the deposit by instalments and for certain consequences should the buyer default in payment of the instalments. The instalments were to be paid, as to 1 per cent of the purchase price, on the making of the agreement; as to 4 per cent of the purchase price, seven days after the making of the agreement; and finally, as to 5 per cent of the purchase price, on or before completion.

33    It was alleged that Bujaroski and Trpkovski (together, “Guarantors”) had personally guaranteed the performance of Adwan’s obligations under each of the three agreements. For each agreement, there was an executed guarantee in the following form:

“WE, Lou Bujaroski of 5 Oak Place Queanbeyan in the State of New South Wales and Sasha Trpkovski of 53 Barracks Flat Road Queanbeyan in the said State being Directors of Adwan Pty Limited A.C.N. 055 287 860 hereby personally guarantee the performance of Adwan Pty Limited of all of its obligations and responsibilities pursuant to Agreement for Sale between Adwan Pty Limited as Buyer and Colin Douglas Pitson and Lynn Russell as Sellers in respect of [description of relevant land] dated 15^th day of October 1993and shall forthwith indemnify the Sellers for all and any loss arising out of any default by Adwan Pty Limited in respect of its said obligations and responsibilities.”

34    On exchange of contracts, a cheque payable to Raine and Horne Manuka Trust Account was provided (being the stakeholders pursuant to the three agreements) for $11,500, being the amount due under the three agreements at exchange (1 per cent of the purchase price in each agreement). That cheque was dishonoured on presentation by the payee on 22 October 1993.  On 2 December 1993, no money having been paid, the Vendors served notices of termination on Adwan. Subsequently, on  21 July 1997 and possibly also on 15 January 1996, they demanded payment of the three deposits from Adwan and the Guarantors.

decision at first instance

35    Because Adwan had not entered an appearance in the Supreme Court of the Australian Capital Territory, default judgment was entered against it. There is no appeal against this judgment. The primary judge considered the liability of the Guarantors. His Honour held that the Guarantors were liable to pay to the Vendors the amount to which the Vendors were entitled as against Adwan, being the total of the deposits under the three agreements plus interest from the date of the notices of termination until 24 November 1999, being the date on which the matter was initially listed for hearing.

36    The hearing scheduled for 24 November 1999 was adjourned because the Vendors failed to ensure that their evidence was in admissible form. The problem was that the agreements had not been stamped as required by Stamp Duties and Taxes Act 1987 (ACT) and, by virtue of s 13A of that Act, could not be pleaded or given in evidence. The hearing was adjourned to enable the stamping obligations to be met.  For that reason the primary judge held that the Vendors were not entitled to interest after 24 November 1999. His Honour also held that, as all parties had ignored the provisions of s 13A of the Stamp Duties and Taxes Act 1987 (ACT), it was appropriate that they all bear their own costs of the adjournment. With this exception, however, his Honour ordered the Guarantors to pay the Vendors’ costs.

Notices of appeal

37    A notice of appeal (proceedings A 73 of 2000) was filed on behalf of Trpkovski citing both Trpkovski and Bujaroski as appellants and the Vendors as respondents. A second notice of appeal (proceedings A 76 of 2000) was filed on behalf of Bujaroski, citing Bujaroski as the appellant and the Vendors, Trpkovski and Adwan as respondents. This slightly confusing arrangement was regularised at the hearing, when it was ordered that, in both matters, Trpkovski would be known as the first appellant and Bujaroski as the second appellant. The proceedings have been discontinued as against Adwan, leaving the Vendors as the only respondents in both appeals.

grounds of appeal

38    The Guarantors both appeal from the whole of the judgment at first instance. It is not necessary to set out the grounds of appeal. Together they amount to a claim that the primary judge erred in his interpretation of the agreements and the guarantees and thus drew incorrect conclusions as to the Vendors’ entitlements and the Guarantors’ obligations. In my opinion his Honour was correct in his conclusions.  It will be sufficient for present purposes if I explain my reasons for this view and deal with the submissions made on behalf of the Guarantors in that context. Although Mr Arthur, counsel for Bujaroski, and Mr McKeown, counsel for Trpkovski, approached the matter differently, they each adopted the other’s submissions. Accordingly it is not necessary for me to deal with their submissions separately.

Unpaid deposit

39    The appellants did not take issue with the right of a vendor who terminates a contract pursuant to the purchaser’s default, to retain (forfeit) a deposit that had been previously paid. It was submitted, however, that a vendor’s right to be paid any part of an unpaid deposit after termination could not, as a matter of principle, be quarantined from other consequences of termination. Consequently a vendor’s sole entitlement in such circumstances was to be placed in the position that he or she would have been in had the contract been performed in its entirety. In making this submission, Mr Arthur conceded that there were a number of authorities to the contrary. He submitted, however, that these cases were contrary to a fundamental principle of contract law and should not be followed.

40    This argument is based on a misconception of contract law that was corrected as long ago as 1933 in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457. In a well-known passage at 476 – 477, Dixon J (as he then was) stated:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.”

41    In Bot v Ristevski [1981] VR 120 (“Bot”), Brooking J considered the application of  these propositions to circumstances in which the vendor sought to be paid the amount of a deposit that was due but partly unpaid prior to termination. His Honour stated (at 122):

“The right of action for debt which arose in the present case … in consequence of the purchasers’ failure to pay the balance of the deposit within seven days of the sale note will, then, not have been extinguished by the subsequent determination of the contract unless the right to recover the balance of the deposit was conditional upon the subsequent completion of the contract.”

He pointed out (at 123) that the failure to proceed to completion did not result in a failure of consideration because the deposit operates as a “guarantee that the purchaser means business” as well as a part-payment of the purchase price. His Honour continued (at 124 – 125):

“I prefer to approach the problem by asking whether an unconditional right to recover and retain the deposit arose before the contract was discharged. If such a right did arise, it will survive the determination of the contract, and if the money has been paid before discharge the purchaser will not get it back, while if the money has not been paid before discharge the purchaser will be compelled to pay it. Whether the vendor obtained an unconditional right to recover and retain the deposit will depend upon whether the discharge of the contract will give rise to a total failure of the consideration for payment of the deposit. If it will, then the consequence of discharge will be that the vendor cannot recover the deposit, if unpaid, or retain it, if paid. … if, as I believe, the question of what constitutes the consideration will determine not only whether the deposit unpaid may despite the discharge be recovered, but also whether the deposit paid must in consequence of the discharge be refunded, those who contend that the unpaid vendor cannot recover must recognize that the paid vendor should repay, a proposition manifestly untenable.”

Brooking J concluded that a vendor who discharges a contract in consequence of the purchaser’s repudiation of it can recover, as a debt, a deposit that should have been paid before the contract was discharged.

42    Bot was followed by Wylie J in the High Court of New Zealand in the case of Pendergrast v Chapman [1988] 2 NZLR 177, where it was held that the plaintiffs were entitled to sue in debt to recover an unpaid deposit. Other authorities referred to by the respondents included the decision of Young J in JR Stevens Holdings Pty Ltd v Von Begensey (1992) 5 BPR 11,534 (“JR Stevens”), the decision of McLelland CJ in Eq in Socratous v Koo (1993) 6 BPR 13,226 (“Socratous”) and the decision of McPherson, Pincus JJA and Byrne J in Pacific Commerce Finance Ltd v Cleargate Pty Ltd (1994) ANZ ConvR 383. In JR Stevens, Young J commented that “the great preponderance of authority, especially the modern authority, is that a vendor, even after termination of the contract, may sue for and recover the amount of the unpaid deposit”. In Socratous, McLelland CJ stated (at 13,227 – 13,228):

 “There are three bases on which vendors who have terminated a contract for the purchasers’ breach might claim the amount of an unpaid deposit, namely (1) as a debt, the obligation to pay which accrued before, and survived, termination of the contract; (2) as an element in a claim for damages for the purchasers’ breach; and (3) where a cheque for the deposit has been given and dishonoured, in an action on that cheque.”

43    His Honour went on to consider the position where, as here, the purchaser’s obligation was to pay the deposit, not to the vendors, but to a third party as stakeholder. In such circumstances his Honour was of the view that the first basis referred to above is not available, because at the time of termination the vendors would have no accrued right to have the deposit paid to them,

“ … since at the time of termination of the contract the vendors would have no accrued right to have the purchasers pay the amount of the deposit to them. But no such difficulty affects the second basis. At the time of termination of the contract the vendors would have an accrued right to have the purchasers pay the amount of the deposit to the third party stakeholder. In the present case, the defendants committed a breach of their obligation to pay the amount of the deposit to the agent, and there is no reason in principle why the plaintiffs should not remain entitled after termination of the contract to claim damages for breach of that obligation. The plaintiffs having subsequently terminated the contract for the defendants’ repudiation and breach, the amount of damages attributable to the failure by the defendants to pay the deposit is to be measured by the amount of the deposit, since if it had been paid to the agent as stakeholder as the contract required, it would have been forfeited to and recoverable by the plaintiffs…It is now well established that a purchaser’s obligation to pay a deposit survives termination of the contract consequent upon the purchaser’s default [cites Bot, Damon Compania Naviera SA v Hapag-Lloyd International SA [1985] 1 WLR 435, Pendergrast v Chapman (above), JR Stevens]. There is in my opinion no legitimate basis for the view that a right to recover damages for a particular breach of contract is subsumed in or superseded by a right to recover “loss of bargain” damages (cf Lindgren and Nicholson “The Problem of Recovery of an Unpaid Deposit” 59 ALJ 11 at 18-19) although care must be taken to avoid double recovery.”

44    In this case the primary judge relied heavily on the decision in Ashdown v Kirk [1999] 2 Qd R 1 (“Ashdown”), a decision of the Queensland Court of Appeal, Fitzgerald P and Ambrose J agreeing with McPherson JA. In his Honour’s view, the comments made by McPherson JA in that case resolved the conflict that Lindgren (as he then was) and Nicholson had identified in the article “The Problem of Recovery of an Unpaid Deposit” (1985) 59 ALJ 11 to which his Honour referred. In Ashdown, the vendor was able to recover the unpaid deposit because the contract for sale contained a clause that entitled him to recover “as a liquidated debt the deposit or any part of it which has not been paid by the Purchaser”. However, McPherson JA went on to consider the position under the general law, as follows (at 8):

“A deposit is considered an ‘earnest’ of the bargain or its performance (Brien v. Dwyer (1978) 141 C.L.R. 378, 385) that is designed to demonstrate the sincerity of the contracting party who is to pay it. For that reason, it is ordinarily beyond the reach of equitable relief against penalties or forfeiture, at least if it is not excessive or unconscionable in amount, of which in Queensland the equivalent of 10 per cent of the purchase moneys is ordinarily considered the upper limit…The fact that [the deposit] was payable post-contractually in two amounts, rather than by a single sum on signing the contract, is uncommon in practice but certainly not unknown. It has been held to have the consequence of leaving the vendor with the right to recover the unpaid balance after terminating the contract. See Bot v. Ristevski [1981] V.R. 120; Pendergrast v Chapman [1988] 2 N.Z.L.R. 177, both of which were referred to with approval by this Court in Cleargate Pty Ltd v. Pacific Commerce Finance Limited (App. No. 186 of 1993, May 10, 1994, unreported) [since reported at (1994) ANZ Conv R 383]”.

45    In the light of the authorities I have considered it should now be regarded as settled that the fact that a deposit is unpaid at the date of termination does not preclude the recovery by the vendor of the relevant amount after termination pursuant to the purchaser’s default. It must not be overlooked, however, that whether the deposit can be recovered in an individual case will depend on the terms of the relevant contract. As Brooking J commented in Bot at  124 – 125:

“Whether the vendor obtained an unconditional right to recover and retain the deposit will depend upon whether the discharge of the contract will give rise to a total failure of the consideration for payment of the deposit.”

46    The primary judge made a similar point, stating that “the rights and obligations of the parties to a contract depend essentially upon the terms agreed between them”.  His Honour also pointed out that what the parties have agreed cannot necessarily be determined by the terminology they have used:

“Thus what parties have called a deposit may on proper analysis turn out not to be a deposit at all …or they may chose [sic] to deal with a deposit in a way which is not common or only partly consistent with the nature of a deposit otherwise understood or defined.”

It is therefore necessary to consider carefully the provisions of the agreements between the Vendors and Adwan as well as the terms of the guarantees.

Default by Adwan

47    It was not in contention that Adwan was in default of its obligation under Special Condition 1 and that the Vendors were thus entitled to terminate the contract.  There was dispute, however, as to the effect of Special Condition 1 which provided as follows:

“Notwithstanding the provisions of Clause 2(1) hereof the Seller shall accept the sum of [5 per cent of the purchase price] as part payment of the deposit set out in Schedule Item 8(4) and such [amount] shall be paid as follows:

(a)    the sum of [1 per cent of the purchase price] on the day this Agreement is made.

(b)   the balance of   [4 per cent of the purchase price]   within seven (7) days from the date this Agreement is made and in this regard time is of the essence and should the Buyer default then the sellers shall be entitle [sic] to terminate this Agreement forthwith. The balance deposit of [5 per cent of the purchase price] shall be paid on or before completion or if the buyer is in default upon termination and the said latter sum of [5 per cent of the purchase price] shall be a debt due and payable to the Seller recoverable in any court of competent jurisdiction and shall form a charge on the real estate of the Buyer.”

48    It can be seen from this clause that one effect of the termination of the agreement was to accelerate the time for payment of the “balance deposit” so that the relevant amount of that balance deposit became, on termination, a debt “due and payable to the Seller”. It was submitted, however, that the special condition did not specify the consequences of Adwan’s failure to pay the first and second instalments of the deposit. For this reason, it was argued, it was necessary to turn to clause 2(1) and clause 20 of the agreement (see [31] above). 

49    In my opinion this argument is misconceived. There is no need to resort to clause 20. The question of the Vendors’ right to the amount of the deposit is governed entirely by Special Condition 1. To the extent that there is any inconsistency between its provisions and the provisions of clause 2(1), Special Condition makes it clear that it is to prevail. This is also consistent with well-established principles of interpretation; see Ryan v Ferguson (1909) 8 CLR 731; Grant v Gas Properties (NSW) Pty Ltd (1982) NSW ConvR 55-0661.

50    On the date of the notices of termination (2 December 1993) the purchasers were in default of their obligations under Special Condition 1 of each agreement to pay the first two instalments of the deposit. Prior to termination of the agreements it could not be said that the Vendors had an accrued right to those amounts because the agreements provided that they were to be paid to the stakeholder (see [43] above). The effect of termination, however, was to crystallise the Vendors’ right to be paid those amounts. Whether that accrued right is to be characterised as a debt or as liquidated damages is, to my mind, immaterial. The purchasers had an obligation to pay to the Vendors a liquidated amount and the Vendors were entitled to those liquidated amounts. This consequence flows as a matter of law and there was not any need for specific provision for this outcome to be made in special condition 1.

51    It was, however, necessary for the parties to make specific provision for the Vendors to recover the last instalment. In the absence of the acceleration provision referred to in [48] above, the last instalment would not have been due at the date of termination and the Vendors would not have had an accrued right to the specified sum.  Special Condition 1, by providing for acceleration of the time for payment of the deposit balance, gave the Vendors the right to recover that sum as a debt due and payable at the time of termination.

Recovery on the guarantee

52    The terms of the guarantees are set out at [33] above. In each guarantee, the Guarantors “personally guarantee the performance of Adwan Pty Limited” and “indemnify the Sellers for all and any loss arising out of any default by Adwan Pty Limited” in relation to all of its obligations and responsibilities pursuant to the agreements. The appellants submitted that this guarantee fell into the second class referred to by Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 (“Sunbird”) at 256, the classes being described as follows:

“The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay.  This is a conditional agreement. The guarantor’s obligation to pay arises on the debtor’s failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.”

It should be noted that Mason CJ did not suggest that every guarantee necessarily fell into one of these classes. He was merely describing two commonly used types of guarantee.

53    The appellants submitted that, because the guarantee in this case fell into the second class, upon Adwan’s default, the Vendors had a cause of action against the Guarantors for breach of contract and were entitled to receive as damages an amount representing the actual loss suffered. It was submitted that this amount was equal to the loss of bargain damages, not to the amount of the deposit.

54    The “obligations and responsibilities” of Adwan pursuant to the agreements included its obligation to pay 10 per cent of the deposit upon execution of the agreements and another 40 per cent of the deposit seven days later. Those obligations survived termination of the agreement. Because of Adwan’s failure to pay these amounts to the stakeholder, the Vendors suffered damage as a result of the loss of their ability to forfeit these amounts. That loss is recoverable even if the guarantee falls in the second class proposed by Mason CJ in Sunbird. The “balance deposit” can be subjected to a similar analysis. The agreements provided that, after the contract had been terminated following Adwan’s breach, Adwan had an obligation to pay the remaining 50 per cent of the deposit to the Vendors as a debt. Adwan failed to perform this obligation and the Vendors were deprived of this sum. The Vendors accordingly suffered further damage, being equivalent to 50 per cent of the deposit (or 5 per cent of the purchase price), which they can recover from the Guarantors.

Guarantors’ obligation to pay interest

55    The appellants submitted that the terms of the guarantee do not oblige the Guarantors to pay interest. Accordingly, it was submitted, the amount payable by the Guarantors crystallised when default orders were made against Adwan. Mr Burley, counsel for the Vendors, submitted in response that the Supreme Court had a discretionary power to award interest pursuant to s 69 of the Supreme Court Act 1933 (ACT) despite the fact that the guarantee did not itself provide for the payment of interest.

56    The cause of action against the Guarantors arose when Adwan failed to perform its obligations under the agreements. On the terms of the guarantee, the Vendors did not need to give the Guarantors notice prior to terminating the contract for sale or exercising their rights under the guarantee. After the Vendors had terminated the contract for sale following Adwan’s default, the Guarantors were obliged by the terms of the guarantee to pay the sum of $115,000 (being the sum of the three deposits) to the Vendors (see [33] above). They failed to do so and, subsequently, the Vendors commenced proceedings against Adwan and the Guarantors. Whether or not the Vendors named Adwan as a defendant; they were entitled to recover their loss from the Guarantors. Section 69 of the Supreme Court Act 1933 (ACT) provides that the court can award interest for the whole or any part of the period between the date when the cause of action arose and that at which judgment was entered. The primary judge had the discretion to award interest to compensate the Vendors for the fact that they were deprived of the money to which they were entitled as from the date of termination; Bennett v Jones [1977] 2 NSWLR 355 at 367 – 370. In exercising his discretion, the primary judge made an exception for the period following the adjournment of the hearing as the Vendors caused this delay; no complaint has been made in relation to this aspect of his Honour’s decision.

Costs on the day lost

57    As indicated in [36] above, the primary judge refused to order that the Guarantors pay the Vendors’ costs occasioned by the adjournment of the hearing on 24 November 1999. His Honour criticised the Guarantors because they omitted in their defences to take the point that an action on unstamped contracts was not maintainable. The appellants submitted, however, that the question of whether the agreements were in admissible form was one that could only be addressed at the hearing, not in the pleadings or at any other stage. The Guarantors’ solicitors may have known that the documents had to be stamped, they could not have known that the documents would not be stamped when the matter came on for hearing.

58    Although the appellants’ submission has some force, the Court has a broad discretion in relation to costs. It was open to the primary judge to find, on the basis of the evidence before him (including that of a solicitor involved in the proceeding) that the Vendors were not solely responsible for the adjournment. In the circumstances I am not disposed to interfere with his Honour’s decision on this point.

Associate:

Dated:              21 December 2001

Counsel for the First Appellant:             Mr C McKeown

Solicitor for the First Appellant:             Batterham & Co

Counsel for the Second Appellant:                    Mr R J Arthur

Solicitor for the Second Appellant:                    Bernard Collaery & Associates

Counsel for the Respondents:                            Mr S C G Burley

Solicitor for the Respondents:                            Goldrick Farrell Mullan

Date of Hearing:                                               10 August 2001

Date of Judgment:                                             21 December 2001