Proietti-Formaggio v Sacca

These proceedings concern a contract for the sale of a residential property in Cherrybrook Rd, West Pennant Hills. The contract was entered into on 30 November 2020, between the plaintiffs (Mr and Mrs Proietti-Formaggio) as vendors, and the defendants (Mr and Mrs Sacca) as purchasers. The purchase price was stated to be $2,350,000.

The details on the front page of the contract indicate that there was a deposit of $235,000, being 10% of the purchase price. However, only $5,875 (or 0.25% of the purchase price) was paid as a deposit at the time of exchange. Subsequently, further sums were paid as deposits in the amounts of $5,000 (on 25 January 2021), $3,000 (on 30 January 2021) and $2,000 (on 1 February 2021). The total amount paid as deposits was thus only $15,875. That is $219,125 less than the stipulated deposit of $235,000.

The plaintiffs seek to recover the outstanding $219,125 from the defendants in circumstances where the plaintiffs terminated the contract on 16 February 2021, following the defendants’ failure to complete within the time made essential by a Notice to Complete.

The plaintiffs rest their claim upon cl 9.1 of the Law Society/Real Estate Institute standard form contract (2019 edition), which provides that if the vendor terminates the contract for a failure by the purchaser to comply with the contract in an essential respect, the vendor can keep or recover (that is, forfeit) the deposit to a maximum of 10% of the price.

The defendants resist the plaintiffs’ claim, essentially on two bases. First, the defendants contend that the plaintiffs agreed to accept payment of a deposit of less than 10% of the purchase price. The defendants contend that, in those circumstances, any further recovery of the deposit is governed by Special Condition 8 of the contract, but that provision is penal in nature and thus unenforceable. Secondly, the defendants contend, in the alternative, that in the circumstances of the case, the Court should grant relief against forfeiture of the deposit pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW).

In the plaintiffs’ case, affidavits of Mr and Mrs Proietti-Formaggio were read, as were affidavits of Mr Russell Haddan (of David Russell Real Estate, the selling agent on the sale), and Ms Kylie Burnett (a paralegal employed by Helliars, solicitors for the plaintiffs on the sale). Mr Proietti-Formaggio, Mr Haddan and Ms Burnett were cross-examined, albeit briefly. No witnesses were called in the defendants’ case.

The contract for sale is dated 30 November 2020, and it seems to be common ground that the contracts were exchanged on that day. The contract employs the 2019 edition of the Law Society/Real Estate Institute standard form, supplemented by 13 special conditions.

Special Condition 13 provided for a cooling-off period of 10 business days from the date of the contract. Mr Haddan gave evidence to the effect that Mr Sacca asked for a longer than usual cooling-off period in order to organise finance. The plaintiffs agreed to the request. Mr Haddan handwrote Special Condition 13 into the contract. The contract was thereafter signed by the parties, and exchanged.

The defendants paid a deposit of $5,875 (or, 0.25% of the purchase price) on exchange. I note, in passing, that where a purchaser rescinds a contract within the cooling-off period provided for by s 66U of the Conveyancing Act, the purchaser forfeits 0.25% of the purchase price to the vendor, and such amount may be recovered from any deposit paid under the contract (see s 66V of the Conveyancing Act).

However, as noted earlier, the details on the front page of the contract indicate that the deposit was $235,000, being 10% of the purchase price. By cl 2 of the contract, the purchaser is required (subject to any other provision of the contract) to pay the deposit on the making of the contract (that is, upon exchange), with time being essential in that regard.

Reference should also be made to Special Condition 8 of the contract, which provides:

On 14 December 2020 (the day the cooling-off period would end), Ms Burnett spoke to Mr Daniel Keserovic of Bricknell Legal, the solicitors for the defendants on the purchase. Mr Keserovic requested an extension of the cooling-off period, and said that the purchasers did not yet have finance approval.

At 4:48pm on 14 December 2020, Ms Burnett sent an email to Mr Keserovic in the following terms:

On 15 December 2020, Mr Keserovic and Ms Burnett had a telephone conversation. Ms Burnett’s note of the conversation includes the following:

Ms Burnett obtained instructions from the plaintiffs to the effect that they agreed to the requested extension. At 3:17pm on 15 December 2020, Ms Burnett sent an email to Mr Keserovic in the following terms:

The defendants did not seek to rescind the contract before the end of the cooling-off period on 12 January 2021.

Mr Haddan spoke to Mr Sacca at about 5:30pm on 12 January 2021. Mr Haddan said that the cooling-off period had ended, and that the deposit was due. Mr Haddan gave evidence that Mr Sacca said something to him which made Mr Haddan think that he was surprised, but Mr Haddan could not remember the words that were said to give that impression. In any case, after speaking to Mr Sacca again, Mr Haddan sent a text message to Mr Sacca at 11:34am on 13 January 2021 in the following terms:

At 12:56pm on 13 January 2021, Ms Burnett sent an email to Mr Keserovic which included the following:

Having received no response, Ms Burnett sent a further email to Mr Keserovic at 4:30pm on that day, stating that the matter needed to be discussed with the vendors urgently.

On 14 January 2021, at about 10:45am, Ms Burnett had a telephone conversation with Mr Keserovic in which words to the following effect were said:

On 15 January 2021 at 2:57pm, Ms Burnett sent yet another email to Mr Keserovic. This email was in the following terms:

Ms Burnett sent another email to Mr Keserovic at 4:48pm on that day. This email was in the following terms:

Ms Burnett had further telephone conversations with Mr Keserovic on 20 January 2021 in which he said, amongst other things, that he was awaiting instructions.

On 21 January 2021, Mr Keserovic sent an email to Ms Burnett that included the following:

Later on 21 January 2021, Ms Burnett sent an email to Mr Keserovic seeking a copy of the conditional loan approval. She made a further request for the conditional loan approval on 22 January 2021. Ms Burnett deposed that she received no reply to either of those emails.

Thereafter, Ms Burnett appears to have taken steps towards completion of the contract for sale, such as the provision of a clear land tax certificate on 25 January 2021. The completion date of the contract had been extended, by agreement, to 29 January 2021.

Completion did not take place on 29 January 2021. On 1 February 2021, the plaintiffs’ solicitors served a Notice to Complete upon the defendants and their solicitors. The notice was in the following terms:

Later on 1 February 2021, the defendants’ solicitors sent a letter to the plaintiffs’ solicitors in which it was broadly stated that the Notice to Complete was invalid and unenforceable, and a request was made for the notice to be withdrawn. The grounds upon which the validity of the notice was challenged were not specified. No submissions were made at the hearing to the effect that the Notice to Complete was invalid, or ineffective to make time of the essence for completion by no later than the nominated date of 15 February 2021. The plaintiffs’ solicitors received no further correspondence from the defendants’ solicitors in the period up to and including 15 February 2021.

On 16 February 2021, the plaintiffs’ solicitors served a Notice of Termination upon the defendants’ solicitors. The notice contained the following:

There is no evidence that the validity of the termination was challenged by the defendants. No submissions were made at the hearing to the effect that the contract was not validly terminated by the plaintiffs on 16 February 2021.

The property was promptly placed back on the market, with Mr Haddan as the selling agent. He began contacting people who had previously shown an interest in the property. There was an open house inspection organised for Saturday 20 February 2021. It seems that a prospective purchaser who attended the inspection on that day was keen to buy the property. Mr Haddan gave evidence to the effect that a contract for sale was entered into between the plaintiffs and that person on Monday, 22 February 2021. The purchase price under that contract was $2,530,000. That is $180,000 more than the price under the contract with the defendants. The new contract settled about 8 weeks after it was entered into.

By cl 2 of the contract, the deposit of $235,000 (as identified on the front page of the contract) was required to be paid by the purchaser on the making of the contract. Indeed, payment by that time was an essential obligation. The defendants in fact paid a deposit at the time of exchange of only $5,875 (or, 0.25% of the price). Strictly, the defendants were thereby in breach of the contract in an essential respect, but the plaintiffs raised no complaint, and at least initially made no demands for the balance of the deposit to be paid.

However, there is no evidence that the plaintiffs ever agreed to accept an amount of less than $235,000 as the deposit under the contract. I note that Mr Proietti-Formaggio and Ms Burnett gave evidence to the contrary, and that such evidence went unchallenged. Moreover, such an agreement cannot be inferred from the plaintiffs’ lack of complaint and initial absence of demand. That conduct must be viewed in light of the fact that the contract was subject to a cooling-off period during which the purchaser could rescind and forfeit only 0.25% of the purchase price, such cooling-off period being for an initial period of 10 business days, with the period later extended by agreement to 12 January 2021. There would be little point in demanding payment of the balance of the 10% deposit for so long as it was open to the defendants to rescind and forfeit only the $5,875 they had actually paid. I note further that there are clear indications in the evidence that, at the end of the cooling-off period, the parties understood that the balance of the 10% deposit remained payable. Examples include: Ms Burnett’s emails to Mr Keserovic on 13 January 2021; Mr Keserovic’s enquiry to Ms Burnett on 14 January 2021 as to whether the agent had received the deposit; and Mr Keserovic’s email to Ms Burnett on 21 January 2021 which referred to a present inability to pay “the whole deposit”, and an intention to make a payment of $10,000 “towards” the deposit.

In these circumstances, I do not think it can be said that the vendor has agreed to “accept a reduced deposit” within the meaning of Special Condition 8 of the contract. That being so, the condition is not engaged, and does not operate in relation to any recovery of the deposit following a default by the purchaser. It is thus not necessary to consider whether Special Condition 8 is unenforceable as being in the nature of a penalty. In any case, as already mentioned, the plaintiffs rest their claim for recovery of the balance of the deposit upon cl 9.1 of the contract, not Special Condition 8.

Clause 9.1 operates where the purchaser does not comply with the contract (or a notice under or in relation to the contract) in an essential respect, and the vendor terminates the contract by notice. Here, the plaintiffs terminated the contract following the defendants’ failure to complete within the time required by the Notice to Complete served on 1 February 2021.

The plaintiffs were entitled to serve the Notice to Complete on 1 February 2021 as the contract failed to complete on 29 January 2021 (see cl 15). Further, the Notice to Complete fixed a time for completion of not less than 14 days from the date of service, being a period deemed by the parties to be sufficient (see Special Condition 4(a)). The notice was thus effective to make time of the essence for completion of the contract by no later than 15 February 2021, but it seems that the defendants took no steps towards completion. The failure of the defendants to complete within that time was a failure to comply with the contract in an essential respect. It was not submitted that the plaintiffs were not ready, willing and able to complete. In my opinion, the plaintiffs were entitled to terminate the contract on 16 February 2021. The defendants did not make any submission to the contrary.

In these circumstances, cl 9.1 of the contract entitles the vendor to keep or recover the deposit to a maximum of 10% of the price (i.e., $235,000). The plaintiffs seek to recover $219,125 from the defendants, being the unpaid portion of the $235,000 deposit. (Presumably, the plaintiffs have already recovered the $15,875 that was paid by the defendants). The plaintiffs are entitled to recover the claimed amount of $219,125 unless the defendants succeed in obtaining relief against the forfeiture of the deposit, pursuant to s 55(2A) of the Conveyancing Act. I turn now to consider that claim for relief.

The relevant principles were recently summarised by me in Culjak v Akrawe [2022] NSWSC 949 at [83]-[87] as follows:

I should add that s 55(2A) can operate in respect of an unpaid deposit. As explained by McLelland CJ in Eq in Socratous v Koo (1993) 6 BPR 13,226 at 13,228, the section may be relevant in either an action to recover an unpaid deposit (as in the case here), or in a claim for damages for breach of an obligation to pay a deposit. His Honour stated:

It is thus open to the defendants to raise as a defence a contention that, if the deposit were to be paid, the circumstances are such that the Court would order its repayment under s 55(2A).

In this regard, the defendants pleaded their defence as follows:

The matter in (i) was established on the evidence. As for (ii), the evidence disclosed that the failure of the defendants to complete caused the plaintiffs to incur additional marketing costs in the order of $7,000. As for (iii), there was no evidence of any representation made by the plaintiffs’ agent (Mr Haddan) that the plaintiffs would not terminate the contract, and no such suggestion was put to Mr Haddan in cross-examination. The defendants did not adduce evidence of the genuine efforts made by them to complete the contract, as asserted in (iv), or of the notification of such efforts to Mr Haddan, as asserted in (v). Again, it was not suggested to Mr Haddan in cross-examination that he was informed of such efforts.

The evidence does establish that the defendants made efforts, over a considerable period, to obtain finance. On 21 January 2021, the defendants’ solicitors informed the plaintiffs’ solicitors that a conditional approval had been obtained “for 100% of the price”. However, no conditional loan approval was ever shown to the plaintiffs, despite requests that it be provided. I note further that Ms Burnett gave unchallenged evidence to the effect that at no time after service of the Notice to Complete did the defendants give any indication that they wanted to settle the contract, or could settle the contract. The circumstances in which the defendants failed to complete were thus left unexplained.

This is not a case where it can be said that the failure of the purchaser to complete was brought about by, or contributed to in some way by, any conduct on the part of the vendor. Nor has it been shown that the failure to complete occurred due to factors outside the control of the purchaser. In the absence of an explanation from the defendants, the Court simply does not know what circumstances ultimately caused the failure to complete.

It is clear that the strongest factors in favour of granting relief under s 55(2A) are that the plaintiffs suffered very little loss as a result of the defendants’ failure to complete, and were indeed able to resell the property quickly for a price $180,000 greater than the price under the contract with the defendants.

The fact that the plaintiffs resold the property at a profit seems to me to be a factor of considerable weight, though not decisive on its own. It has been said that the fact that the property was resold for an increased price is not normally itself sufficient to warrant an order under s 55(2A) (see, for example, Baird v Chambers (2010) 15 BPR 28,337; [2010] NSWSC 272 at [16] per Ball J. See also Clurstock Pty Ltd v Timanu Pty Ltd (1988) NSW ConvR 55-419 at 57,831 per Young J; Nassif v Caminer (2009) 74 NSWLR 276; [2009] NSWCA 45 at [68] per Macfarlan JA). The decision of Holland J in Barrett v Beckwith (No 2) (1974) 1 BPR 9439 is an illustration of the point. In that case, relief was declined, notwithstanding that the value of the land had increased by between 20 and 30 percent above the contract price. His Honour observed (at 9444) that were relief to be given simply on that basis:

The contract in this case was on foot from 30 November 2020 to 16 February 2021. The plaintiffs accommodated the defendants’ requests in relation to cooling-off periods, such that the period was ultimately extended to 12 January 2021. The defendants did not seek to exercise the right to rescind during that period, so the contract remained binding upon them. Even though it was recognised, at least by the defendants’ solicitors, that the defendants were required to pay the balance of the 10% deposit, only a further $10,000 was paid. The plaintiffs took no action in respect of that state of affairs, and afforded the defendants every opportunity to complete the purchase. The defendants did not at the time explain, and have not since explained, the circumstances in which they failed to complete. The evidence is unclear as to whether the defendants did not complete because they were unable to complete within the required time or, having the ability to do so, chose not to for some reason. A text message sent by Mr Sacca to Mr Haddan on 20 February 2021 suggests the former is more likely, but no firm conclusions can be drawn from the evidence as a whole. If the defendants were in fact unable to complete, it is unclear whether they were nonetheless likely to become able to complete within some further period.

The lack of explanation for the failure to complete, which is the event that grounds the forfeiture of the deposit, makes it very difficult for the Court to reach a conclusion that, in all the circumstances, it would be unjust or inequitable to allow the plaintiffs to recover the deposit that was bargained for (see Nwai Pty Ltd v Johnston (2005) 12 BPR 23,939; [2005] NSWSC 1368 at [16] per Windeyer J). Ordinarily, it would be expected that a purchaser seeking relief under s 55(2A) would provide a full account of the circumstances that led to the forfeiture of the deposit. In the absence of such an account in the present case, and notwithstanding the fact that the plaintiffs were able to quickly resell for a considerably enhanced price, I am unable to be satisfied that in all the circumstances it would be unjust or inequitable to allow the plaintiffs to recover, and retain, the deposit. That is to say, the Court is not satisfied that the circumstances are such as to warrant the exercise of the discretion under s 55(2A) to make an order for the return of the deposit.

For the above reasons, the defendants’ defence based on s 55(2A) of the Conveyancing Act has not been made out.

The plaintiffs are entitled to recover the sum of $219,125 plus pre-judgment interest calculated from, say, 1 February 2021. A judgment will be entered against the defendants accordingly. The plaintiffs are directed to submit within 7 days an interest calculation to enable the judgment sum to be calculated. There seems to be no reason why costs should not follow the event, as is usually the case. Accordingly, the Court will also make an order that the defendants pay the plaintiffs’ costs of the proceedings.