Retirement Village Bargo Pty Ltd v Anwar

1. [1]

   The Plaintiff, Retirement Village Bargo Pty Ltd (Purchaser), seeks the return of the deposit paid for the purchase of land from the Defendant, Mr Boyke Anwar (Vendor).

2. [2]

   On 21 May 2018, the Purchaser exchanged contracts for the purchase for $2,320,000 of 45 acres of rural land located at Bargo (Property) and owned by the Vendor (Contract). To date the Purchaser has paid the Vendor $1,450,000 towards the purchase price.

3. [3]

   The Purchaser claims it is entitled to a full refund because on 10 October 2019 it validly rescinded the Contract pursuant to s 66L Conveyancing Act 1919 (NSW) (2019 Notice). The alleged rescission came after the Plaintiff’s sole director, Mr Indira Budiman, discovered that a large quantity of possibly contaminated “rubbish” had been dumped on the cleared area of the Property. The Vendor subsequently sought to remediate the issue by digging up and removing the rubbish and soil and replacing it with other material.

4. [4]

   Alternatively, the Purchaser claims that if the 2019 Notice was invalid, then pursuant to Special Condition 18 of the Contract it has a right of refund of all the purchase money paid. That clause effectively provides that if the Vendor failed to complete within 2 years, then all sums paid towards the purchase price must be repaid with interest of 5%.

5. [5]

   On 26 October 2021, the Vendor says he terminated the Contract and that was communicated to the Purchaser in February 2022.

6. [6]

   Originally, the Vendor’s Cross-Claim sought orders for specific performance of the Contract and/or damages for the Purchaser’s alleged breach in the sum of that part of the purchase price not yet paid. However, at the commencement of the hearing Ms Winfield, counsel for the Vendor, indicated that the Vendor only sought orders that he was entitled to retain 10% of the purchase price ($232,000) as a forfeited deposit, and interest on that money. The Vendor accepts that $1,218,000 and interest must be repaid to the Purchaser.

7. [7]

   Therefore, the dispute concerns at most $232,000 plus interest and the parties agreed on the issues to be determined, which I set out below.

8. [8]

   First, was the 2019 Notice valid? This turns on whether s 66L of the Conveyancing Act was satisfied, because at the time of the 2019 Notice the Property was “substantially damaged” by both the dumped waste on the Property and the steps taken by the Vendor in attempted remediation of the dumping. The possible consequences are:

   1. (1)

      If the Property was “substantially damaged”, the Vendor properly accepts that he must repay to the Purchaser the whole of the sums already paid plus interest: see s 66L(4)(a). No party pleaded that the other had any other liability, should the 2019 Notice be valid: see s 66L(4)(b).

   2. (2)

      If the Property was not “substantially damaged”, the Vendor submitted the 2019 Notice amounted to a repudiation.

9. [9]

   Secondly, if the 2019 Notice amounted to a repudiation, it is necessary to consider whether the Vendor was entitled to accept the repudiation in February 2022 and terminate the Contract, or whether the Vendor was disentitled from terminating by reason of entering into a later contract for sale of the Property to a third party.

10. [10]

    Thirdly, if the Vendor was entitled to terminate in February 2022, an issue is whether the forfeited deposit is $50,000 or 10% of the purchase price, and if 10%, whether that sum amounts to a penalty.

11. [11]

    Fourthly, if the deposit was forfeited, an agreed issue was whether the deposit should be repaid to the Purchaser under s 55(2A) of the Conveyancing Act.

12. [12]

    Fifthly, there is a residual question of whether the Purchaser can obtain a refund pursuant to Special Condition 18.

13. [13]

    Finally, the Purchaser relies on its Purchaser’s lien under cl 2.8 of the Contract in relation to the money paid towards the purchase price and seeks a judicial sale of the Property.

Background

1. [14]

   In March 2016, the Vendor purchased the Property. It is close to the main road and town centre of Bargo. Of its 45 acres, only 3 hectares in one corner of the Property was cleared and the rest was covered in “mainly native vegetation”. The Property had previously been used as a horse training facility, and for animal grazing and market gardening. The Vendor originally intended to use the Property as a commercial vegetable farm. After his purchase, the Vendor started clearing scrap metal rubbish, a dilapidated shed and felled trees on the Property.

2. [15]

   In early 2018, the Vendor listed the Property for sale and in March 2018, Mr Budiman inspected the Property.

3. [16]

   At Mr Budiman’s first visit to the Property, he flew a drone over the Property and recorded a video by drone. The video shows an ariel view of a cleared area with various piles of rubbish including car parts, metal scrap material and fallen trees. The cleared area was otherwise mostly flat and grassed with a few trees, a corrugated iron shed, and an old stable. Another video in evidence was taken on the ground by Mr Ayoubi, who was the Vendor’s real estate agent. The state of the Property seen in that video is consistent with Mr Budiman’s evidence that during his inspection of the Property, the only waste was fallen tree debris, car parts and old buildings. There is no dispute that in 2018 there were no visible hazardous or general waste materials on the Property.

4. [17]

   On 22 May 2018, Mr Budiman caused another of his corporate entities, IMTKS Pty Ltd, to exchange contracts with the Vendor, paying a $50,000 “deposit” and agreeing to pay instalments towards the purchase price over the next year and 8 months until settlement. The Vendor refused to agree to include a term in the Contract that he was obliged to further clear the Property of existing waste. However, he gave an oral undertaking that he would continue to clear the scrap and fallen trees, and he took steps to do so.

5. [18]

   On 30 August 2018, IMTKS Pty Ltd and the Vendor entered into a Deed of Mutual Rescission of Contract. At the same time, the Plaintiff exchanged contracts (Contract) with the Vendor on the same terms. The payments that had already been made by IMTKS were to be treated as payments towards the Contract.

6. [19]

   Through the first half of 2019, the Purchaser continued to agitate for the Property to be cleared of metal scrap by sending text messages to Mr Ayoubi. Mr Ayoubi indicated that some of the metal scrap had been cleared.

7. [20]

   In September 2019, Mr Budiman asked Mr Ayoubi whether it was possible to bring the completion date forward to 18 October 2019. Mr Ayoubi conveyed that the Vendor “welcomed” an earlier settlement but noted that the Vendor was carrying out “improvement work” because he believed the Purchaser would not complete. The Vendor’s evidence was that the improvements included filling with soil holes created by removing tree stumps.

8. [21]

   When the Purchaser requested an accelerated completion date, Mr Budiman was unaware of events that had occurred from late June 2019. At a pre-settlement inspection on 20 September 2019, Mr Budiman discovered on the Property what the Vendor described as large piles of “unauthorised dumping at the property” and “large piles of dumped waste scattered throughout the property” that had not been there at the time of exchange. The details of what happened are outlined below as they are central to whether the 2019 Notice was valid.

9. [22]

   The Vendor did not accept the 2019 Notice was valid and asserted the Contract remained on foot. The parties engaged in some negotiation concerning the 2019 Notice and the purchase of the Property.

10. [23]

    In April 2020, Mr Budiman visited the Property and considered whether he was prepared to renegotiate the purchase of the Property at a lower price. However, he subsequently decided against it.

11. [24]

    On 25 May 2020, the Purchaser commenced proceedings seeking, inter alia, a declaration that the 2019 Notice was valid and it was entitled to a full refund of all money paid towards the purchase price.

12. [25]

    On 16 June 2020, the Vendor served a Notice to Complete, requiring completion on the PEXA system. The Purchaser submitted that the Notice to Complete was ineffective. While the Vendor made no submissions on the issue, it appears irrelevant in any event, because the Vendor does not assert that he has an entitlement to terminate based on the failure to complete in accordance with that notice. Instead, the Vendor only asserts that the Purchaser’s issuing of the 2019 Notice amounted to a repudiation. It is not in dispute that the Purchaser paid some of the instalments late. The Vendor relies on this fact in his defence of the validity of the 2019 Notice as detailed below. However, the Vendor does not seek any other remedy by reason of the late payments.

13. [26]

    The Vendor entered into two further contracts to sell the Property. On 26 October 2021, he exchanged on a sale to Peninsula Pty Ltd for a sale price of $2,850,000. That sale led to the vacation of the original hearing dates allocated in March 2022 and the withdrawal of the Vendor’s claim for specific performance. However, that sale did not complete.

14. [27]

    On 1 August 2022, the Vendor exchanged contracts with Bargoo Pty Ltd for the price of $2,850,000. That sale did not complete and the Vendor terminated that contract on 6 December 2022.

Was the 2019 Notice valid?

1. [28]

   The 2019 Notice was only valid if the Property was “substantially damaged”. The Purchaser pleaded that the Property was “substantially damaged” at the time of the Notice compared to the time of exchange by reason of:

2. [29]

   The Vendor accepts that various materials were introduced onto the Property in the following four ways.

3. [30]

   First, the Vendor had informally promised to the Purchaser to carry out some work on the Property between exchange and settlement, by way of removal of scrap metal and fallen trees. His evidence was that such work left various holes and depressions in the ground. The Vendor paid a man, Mr Christopher Binos, to bring clean soil to fill those holes. Counsel for the Purchaser referred to the clean soil in environmental terms as “Virgin Excavated New Material” (VENM and pronounced “Venom”). The Protection of the Environment Operations Act 1997 (NSW) Sch 5 Pt 18 defines the term in the following way:

4. [31]

   However, there was no evidence of the terms of the contract between the Vendor and Mr Binos, and whether Mr Binos agreed to provide VENM or did provide VENM.

5. [32]

   Secondly, in late June 2019 and shortly after Mr Binos had brought the soil to the Property, persons unknown dumped between 18 to 20 further “truckloads” of material variously described by Mr Anwar as:

6. [33]

   Mr Anwar was “shocked” by the dumping of this material. He later suspected Mr Binos had dumped the material. He reported the matter to the police and the Wollondilly Shire Council (Council) but did not tell the Purchaser. He also found out sometime before September 2019 that Mr Binos had been charged with illegally dumping material including asbestos on other people’s land.

7. [34]

   A New South Wales COPS Report dated 7 May 2021 recorded the following summary of the police investigation:

8. [35]

   Mr Anwar considered the dumped material was a problem that he needed to fix:

9. [36]

   Thirdly, Mr Anwar asserts that shortly thereafter he paid about $90,000 to Mr Maher El Masri and Mr Wassim Choubassi, to remove the illegally dumped material, which they had informed Mr Anwar contained asbestos. They promised to scrape some 100 millimetres off the topsoil to ensure removal of any contamination, and to fill the holes with clean material. That work began in early July and continued into mid-September 2019.

10. [37]

    Again, this clean-up process involved removing the waste and scrapping about 100 millimetres of topsoil. Mr Anwar explained:

11. [38]

    However, when pressed, Mr Anwar accepted it was likely 10 centimetres that was removed.

12. [39]

    Further:

13. [40]

    Later Mr Anwar suspected Mr El Masri and Mr Choubassi in fact worked with Mr Binos.

14. [41]

    The only evidence about what dumped material was removed and introduced comes from Mr Anwar. His evidence was that Mr El Masri and Mr Choubassi replaced what they had removed including the topsoil with further “soil”. He said:

15. [42]

    Mr Anwar described the nature of the replacement material:

16. [43]

    Mr Anwar put in evidence the invoices and receipts he said related to the removal of the dumped waste material. Notably one docket dated 1 July 2019 states that 47.43 tonnes of “asbestos demolition waste” was disposed of and another one states that 27.32 tonnes of “general solid waste” was disposed of. Mr Anwar asserted that he did not know whether the material contained asbestos, but he was concerned that it might. His evidence was:

17. [44]

    Mr Anwar did not have either the originally dumped material or the replaced material tested as to its contents. However, he considered the replacement material would make it difficult to operate a farm. Mr Anwar hired a sifter to remove rocks and building waste and keep the soil remnant.

18. [45]

    By the end of July 2019, Mr Anwar says he had lost confidence in Mr Choubassi, in part because Mr Choubassi was not working quickly enough.

19. [46]

    Finally, in August 2019 Mr Anwar engaged Mr Ali Mourad, whom Mr Anwar understood to have expertise in earthworks, to assist by removing the remaining stockpiles of replacement material. Mr Anwar instructed Mr Mourad to remove all the sifted soil and said:

20. [47]

    Mr Mourad commenced that work in September 2019.

21. [48]

    Mr Anwar’s evidence was he spent about $500,000 in clean-up operations. There were no records in evidence to substantiate that sum.

22. [49]

    As noted above, on 20 September 2019 Mr Budiman attended the Property with Mr Ayoubi for a pre-settlement inspection. His evidence on arriving at the Property was:

23. [50]

    Mr Budiman reported this to Wollondilly Shire Council. On 26 September 2019 Mr David Savage, Compliance Team Leader at Wollondilly Shire Council, attended the site with Mr Budiman and Mr Anwar.

24. [51]

    Mr Savage gave evidence at the hearing that he had been employed by the Wollondilly Shire Council for 25 years and his experience included investigating hundreds of reports of illegal dumping, including asbestos dumping.

25. [52]

    At the site, Mr Budiman took photos, which showed that there were two large excavators, one small excavator and large piles of dirt or gravel-type material. All of the grassed areas previously seen in the 2018 photos and videos were no longer visible.

26. [53]

    Mr Savage took a 24-gram piece of broken fibrous cement sheeting which he believed might be asbestos and sent it for testing to AIRSAFE, an accredited laboratory used by Wollondilly Shire Council to analyse material samples. Mr Anwar gave oral undertakings to the Council to clean up all the material on the same day.

27. [54]

    On 1 October 2019, Mr Savage caused a “Notice of Preventive Action” pursuant to s 96 of the Protection of the Environment Operations Act 1997 (NSW) to be issued to the Vendor concerning “earth works and the alleged importation of fill”. On the presence of possible asbestos, the notice recorded:

28. [55]

    The notice provided directions to take preventive action including:

29. [56]

    Mr Anwar never received the Council’s notice dated 1 October 2019.

30. [57]

    Mr Savage’s understanding was that because the EPA had been notified that there were over 300 tonnes of possibly contaminated material dumped on the Property, they would investigate the matter. There was no dispute in the proceedings that this amount of material was dumped on the Property.

31. [58]

    On 3 October 2019, the Purchaser’s lawyer wrote to the Vendor’s lawyer expressing concern about the state of the Property:

32. [59]

    No response to this letter was ever received from the Vendor or his solicitors.

33. [60]

    On 4 October 2019, AIRSAFE provided Mr Savage with the test results of the single sample taken from the site at the meeting on 26 September 2019. The Test Report indicated “Crocidolite asbestos detected”. Crocidolite asbestos is one type of “asbestos” defined in Schedule 1 of the Protection of Environment Operations Act 1997 (NSW).

34. [61]

    Mr Anwar’s evidence was that no clean-up work occurred from 1 October 2019 until after 7 October 2019, the day on which an EPA operations officer, Mr Marc Cooper, attended the site. There is no evidence from Mr Cooper as to what was said on that day and he was not required for cross examination.

35. [62]

    On 24 October 2019 Mr Cooper and Mr Anwar met again at the EPA’s Wollongong offices. Mr Cooper’s file note of that meeting recorded the following events after Mr Anwar’s discovery of the dumped material:

36. [63]

    Mr Anwar’s evidence was that he intended to continue the clean-up work from 7 October 2019, but bushfires “stalled” his clean-up operations. He does not give evidence when the works were recommenced and what, if any, works were carried out after 7 October 2019. Ms Winfield indicated that she might seek leave to adduce further evidence from Mr Anwar, however, no such application was made.

37. [64]

    I note that it is unclear from Mr Anwar’s affidavit evidence when the clean-up works recommenced or were completed. However, Mr Mourad carried out works until at least late April 2020. On 27 April 2020, Mr Anwar sent a text message to the environmental scientist he had engaged, Mr Buckley, asking:

38. [65]

    As noted above, Mr Anwar accepted in cross-examination that he was concerned about removing all of the foreign material that had been brought on the site and for that reason wanted Mr Mourad to “scrape the ground”.

39. [66]

    The risk of damage to land does not pass to a Purchaser until completion or another time stipulated by the parties after the Purchaser enters possession: Conveyancing Act 1919 (NSW) s 66K. In that context, s 66L provides:

40. [67]

    The provision refers to “land”, which is defined to include “buildings and other fixtures” under s 66J(1).

41. [68]

    Only a few decisions have considered the operation of s 66L in contrast to cases proceeding under s 66M, which provides for abatement of purchase price where the sale has proceeded to completion and the land has been “damaged”. Unlike in s 66L there is no substantiality requirement in s 66M.

42. [69]

    Section 66J(2) deems land which is damaged after the making of a contract for the sale to be “substantially damaged” if the damage renders the land materially different from what the purchaser contracted to buy. That is a question of fact.

43. [70]

    As Gzell J set out in Urban House v Purnell Bros [2007] NSWSC 1248 at [13]-[21], the provision was introduced in response to New South Wales Law Reform Commission, Passing of Risk Between Vendor and Purchaser of Land (Report 40, 1984). The purpose of Division 7 of the Conveyancing Act, headed “Passing of risk between vendor and purchaser”, is to protect uninsured purchasers where, for instance, a purchase is completed but the vendor’s insurer refuses to make payments under the policy: Stephenson v State Bank of NSW (1996) 39 NSWLR 101 at 113 (Sheller JA); New South Wales Law Reform Commission, Passing of Risk Between Vendor and Purchaser of Land (Report 40, 1984) [1.7]-[1.9].

44. [71]

    The concept of “damage” may be satisfied by damage caused either by natural forces, or malicious or accidental human action: Frankel v Paterson [2015] NSWSC 1307 at [116] (Young AJA).

45. [72]

    Generally, s 66L has been enlivened by physical damage to the land, including destruction: s 66J(1). It is possible to envisage various forms of physical damage including inclement weather events causing fallen trees on land, fences or buildings and other events which might trigger insurance claims.

46. [73]

    In the past, s 66L cases have often concerned fire damage. Urban House v Purnell Bros [2007] NSWSC 1248 ('Urban House’) concerned fire damage to an office building. Bakhos v Fenner [2007] NSWSC 641 (‘Bakhos’) concerned slight fire damage to the land and to an old and underdeveloped property which was subsequently repaired by the time of completion.

47. [74]

    Gzell J considered the relevance of a purchaser’s subjective intention in Urban House. In that case the purchasers were developers who had sought a lengthy completion period in order to advance development applications. Before settlement however, over half the property was damaged by a fire. His Honour stated at [28] - [33]:

48. [75]

    While the purchaser’s subjective intention was noted as a “material factor”, his Honour appears to have placed primary weight on the objective consideration the possible uses that might be made of the land:

49. [76]

    His Honour’s conclusion was that the land was “substantially damaged” because:

50. [77]

    In Bakhos, Bryson AJ did make reference to the purchaser’s intended use of the land. However, his Honour refused to grant relief under s 66L because any damage caused by fire was relatively minor and had been remedied prior to completion. His Honour observed at [43]-[44]:

51. [78]

    Here it is unnecessary to decide whether a purchaser’s subjective intention is relevant to the analysis or not. My view is that the applicable test requires a comparison between the objective uses to which land could be expected to be put and the impact on those uses by the damage that has occurred. I do not consider the proper construction of the legislation is that a purchaser’s undisclosed, or even disclosed, subjective hopes or intentions about future use ought give a vendor a means of resisting a purchaser’s exercise of the legislative right of rescission. Had the legislature’s intention been to limit a purchaser to only being able to exercise the statutory right if a particular use of land was affected, then one would have expected language to that effect.

52. [79]

    Here, the objective uses of the Property included use for horses and farming, as had occurred previously. There was also no reason to expect the land could not be used for development of any type of residence including a retirement village, subject to council approval. Ms Winfield did not make any submissions on the different uses which the Purchaser proposed for the Property.

53. [80]

    Having regard to the possible objective uses, I consider the Property was materially different from that which the Purchaser contracted to buy for the following reasons.

54. [81]

    First, I consider that as at the date of the 2019 Notice, the Property was not cleaned of all waste, which may have contained asbestos or other contaminants. Ms Winfield conceded her client “was certainly worried that it might be asbestos, there's no doubt about that”. Mr Anwar was also prepared to spend money having the material removed and disposed of as “asbestos demolition waste”. The situation was described by Ms Winfield:

55. [82]

    I do not accept Ms Winfield’s submission that the Purchaser must fail because there is no evidence as to the exact state of the Property on the date of the 2019 Notice. The large volume of material seen on site on 26 September 2019 was not removed by 1 October 2019, when Mr Anwar said he was told to stop work and he was only given permission to continue on 7 October 2019. Despite there being no evidence to support it, Ms Winfield submitted that work was not carried out from 7 October 2019 until December 2019. Nevertheless, the submission works against the Vendor, as it suggests that the Property was not in a significantly different state by 10 October 2019 from 26 September 2019. I also do not accept that it was possible to remove all the material between 7 and 10 October 2019. This also means that the Vendor’s submission that he had remedied the whole issue as at 10 October 2019 must fail.

56. [83]

    The Vendor also submitted that there was no positive evidence that the material on the Property contained asbestos at the time the 2019 Notice was served. The Vendor sought to support such a finding by relying on an expert report of an environmental consultant, Mr Ben Buckley of Benviron Group (Report). Mr Buckley had attended the Property on 3 December 2019 and 28 April 2020. He took 3 samples from stockpiles of material to carry out a “soil assessment of the soil materials to be excavated from the property” and concluded the samples tested did not contain asbestos.

57. [84]

    I did not admit the Report into evidence, because it was not sufficiently relevant to the facts in issue and was otherwise likely to be misleading for the purposes of s135 Evidence Act 1995 (NSW) because:

    1. (1)

       There was no evidence that the state of the Property had remained the same between the 2019 Notice being served and when Mr Buckley took his samples;

    2. (2)

       There was no evidence explaining why the particular samples were taken from the stock piles chosen. It could not therefore be assumed that the samples were appropriately representative of all the material on the Property;

    3. (3)

       It was not essential for the Purchaser’s case to prove that there was asbestos on the Property at the time of the 2019 Notice. Mr DeBuse for the Purchaser contended that the fact that building rubble and other waste was deposited on the cleared part of the Property was sufficient for the test in s 66L. Further, the report supported the conclusion that there remained waste to be removed.

58. [85]

    I indicated that the Vendor could re-agitate for the admission of the Report if its relevance could be established following leave being granted for further evidence to be adduced. No further application was made to rely on the report.

59. [86]

    In my view, the issue of the state of the Property called for an answer from the Vendor either by way of explanation or contradiction: Jones v Dunkel (1959) 101 CLR 298 at 321-322 (Windeyer J). The Jones v Dunkel inference is available in respect of a party’s failure to call a witness, and also the failure to bring forward documents generally: Jones v Dunkel at 320 (Windeyer J).

60. [87]

    I consider the Vendor ought to have brought forward the information that would have clarified the issues of what was dumped and what steps were taken to remove the dumped materials.

61. [88]

    Such information could have been found in documents in the Vendor’s possession relating to what precisely was paid for. Further or alternatively, Mr Mourad might have been called to give evidence. He was tasked with removing the material left by Mr El Masri and Mr Choubassi and he would have been able to explain what and how much was removed and where it was taken to, including whether it was disposed of as “asbestos” or other contaminated waste.

62. [89]

    The Vendor’s failure to adduce evidence relating to the nature of the dumped material permits an inference that the evidence would not have assisted him: Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at [64] (Heydon, Crennan, Bell JJ).

63. [90]

    In my view, the Property was rendered “materially different”, from that, for which the Purchaser contracted. In late June 2019, a large amount of material, including at least some pieces of asbestos, was dumped in the only part of the Property that could be used for any immediate residential or farming purpose. This area of the Property was then subject to the progressive removal of the dumped material and an unknown quantity of topsoil, which was replaced with unknown substances.

64. [91]

    The conclusion that the Property was “materially different” is also supported by the regulatory context in which the parties operated. A purchaser of a large rural property would have concerns about the introduction of a large quantity of unknown waste materials. The presence of such materials, whether or not they contained traces of asbestos, is a serious matter which may attract substantial penalties under law. For instance, s 144AAA(1) of the Protection of the Environment Operations Act 1997 (NSW) stipulates maximum penalties for the unlawful disposal of asbestos waste of $2,000,000 in the case of corporations and $500,000 in the case of individuals.

65. [92]

    There are also offences for the general disposal of waste where waste is wilfully or negligently disposed of in a manner harming or likely harming the environment under ss 115 and 119. The concept of “disposal” is sufficiently wide to encompass “permit[ting] disposal of asbestos waste” (ss 144AAA(2) and 115(3)). Although there is nothing to suggest a purchaser of land affected by dumping would be exposed to possible liability, the provisions demonstrate that a purchaser would view any dumping on land to be purchased seriously.

66. [93]

    Further, as noted above, the Vendor’s attempt to remediate the dumping included the removal of the pre-existing topsoil. The Vendor had previously used the Property, including that topsoil, to carry out some farming. In circumstances where it is not known what was introduced instead of that topsoil, I consider that the Property was materially different to that agreed to be purchased.

67. [94]

    Should the Purchaser’s subjective intention be relevant, I do not consider it of considerable weight, but I accept that Mr Budiman’s subjective intention in purchasing the Property was:

    1. (1)

       In the immediate short-term to use it as a hobby farm for his wife, for beekeeping and the production of Manuka Honey and growing tea tree plants; and

    2. (2)

       In the future to hopefully develop the site as a retirement village, subject to Council approval inter alia.

68. [95]

    Possible contamination of the Property with asbestos and other waste could raise an issue for any development approval. On 1 October 2019, the Council had given some indication of its position about the type of report that was needed after the material on site had been observed. It is possible that Council would take a similar approach to any development application.

69. [96]

    I do not accept Ms Winfield’s submission that Mr Budiman was only concerned that he had paid too much for the Property and issued the 2019 Notice to negotiate a lower price for the following reasons:

    1. (1)

       While the Purchaser paid some instalments of the price in 2018 and early 2019 late, I do not accept that such conduct requires a conclusion that it would have been unable to settle at completion and was looking for an “escape route”. In fact, Mr Budiman had sought an accelerated settlement in August 2019, when he was oblivious to the dumping on the Property.

    2. (2)

       Mr Budiman appeared to have the ability to raise funds in various ways through various corporate entitles. His uncontested evidence was that IMTKS was purchasing another property, his family was purchasing a family home for many millions of dollars, and his unchallenged evidence was that he owned other properties.

    3. (3)

       In late September 2019, Mr Budiman was orally notified that a valuation of the Property undertaken by Opteon Property Group as an agent of the incoming mortgagee, National Australia Bank (NAB), valued it at $1,300,000 and indicated that the purchase price of $2,320,000 was above market price (Valuer’s Report). He was not sent that report until 10 October 2019, a few hours before the 2019 Notice was issued. Mr Budiman’s expressed concern was that the Valuer’s Report, based on an inspection on 19 September 2019, made reference to “the property has half buried rubbish”, “imported soil material onsite” and listed the following as “Valuation Risk Alerts”:

    4. (4)

       Mr Budiman accepted in cross-examination that it could not be said that the valuation was based solely on the existence of asbestos. His opinion as to the basis for the valuation is irrelevant. The valuation must be read in its terms, which listed various risks, but also referred to other sales the valuer considered comparable. However, I consider it reasonable for Mr Budiman, as a layperson, to have concerns that Opteon considered it relevant to mention the observed existence of rubbish, imported soil materials and asbestos.

    5. (5)

       I do not consider that Mr Budiman’s later conduct of inspecting the Property in April 2020 and considering negotiating with the Vendor demonstrates that, at the time of the 2019 Notice, the state of the land was not of importance to the purchaser.

70. [97]

    For the reasons above, I find that the 2019 Notice had a proper basis and, accordingly, the Purchaser rescinded the Contract on 10 October 2019. On that basis, all of the money paid by the Purchaser to the Vendor towards the purchase price must be repaid.

71. [98]

    The Vendor conceded that if such a conclusion is reached, then interest is payable at the pre-judgment rate provided for in Civil Procedure Act 2005 (NSW) s 100(1). I will fix that rate at the current cash rate plus 2 percent to account for the loss of use of the money.

Did the 2019 Notice amount to a repudiation?

1. [99]

   If my conclusion is wrong and the 2019 Notice was invalid because the land was not “substantially damaged”, then the Vendor submitted that the Purchaser had repudiated the Contract and the Vendor had legitimately terminated the Contract and therefore was entitled to retain the deposit.

2. [100]

   Counsel for the Vendor submitted that the mere service of an invalid notice of rescission constituted a repudiation which was said to take effect on 26 October 2021. Ms Winfield further submitted there was authority to that effect, yet did not take me to any.

3. [101]

   Where a party purports to exercise a contractual right in the genuine belief of an entitlement to do so, it will not automatically amount to a repudiation. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432-3 Stephen, Mason and Jacobs JJ stated:

4. [102]

   While the Purchaser here was purporting to rely on a statutory right rather than a contractual right, I consider the same analysis applies.

5. [103]

   Having regard to the parties’ positions at the time of the 2019 Notice, the Purchaser acted with a bona fide belief that the 2019 Notice was valid and therefore sought a declaration that it was entitled to exercise its rights under s 66L. In a letter dated February 2022 the Purchaser accepted that if it had misunderstood its statutory rights, it would adhere to the Contract.

6. [104]

   Accordingly, the issue of the 2019 Notice itself does not provide a basis for concluding that the Purchaser was not ready or willing to perform the Contract.

Special Condition 12

1. [105]

   In case I am wrong and the Purchaser did repudiate by serving the 2019 Notice, entitling the Vendor to terminate the Contract, then the Vendor sought to retain 10% of the purchase price pursuant to Special Condition 12 of the Contract.

2. [106]

   Special Condition 12 provides:

3. [107]

   Counsel for the Vendor sought to invoke Special Condition 12 to claim an amount of $182,000, which is $232,000 (or 10% of the purchase price) subtracted by $50,000, which had already been paid by the Purchaser as part of the $1,450,000 sum. The Purchaser did not dispute the Vendor’s entitlement to the $50,000 if the Purchaser had repudiated the Contract by issuing the 2019 Notice.

4. [108]

   The clause must be construed to determine the following:

   1. (1)

      Does the clause have the effect of requiring a 10% deposit to be forfeited on the Purchaser’s breach?

   2. (2)

      If the payment required is not in the nature of a further deposit, can the payment be justified as “liquidated damages” or is the payment a penalty?

5. [109]

   The Vendor made no submissions on the operation of the clause other than what is summarised below:

   1. (1)

      While the front page of the Contract identifies a deposit of $50,000, on the next page it refers to “10% unless otherwise stated” and, as Ms Winfield submitted, “[t]here is caselaw that suggests a deposit to be forfeited is generally considered in New South Wales to be 10%”.

   2. (2)

      The “$50,000 is not the deposit, as is generally accepted at 10%, and it's only to ensure the compliance with the contract or to presumably put the actions in train.”

6. [110]

   While it might be accepted that a 10% deposit is usual in New South Wales: see, eg, ST Investment Pty Ltd v Geng [2020] NSWSC 329 at [20] (Darke J), I must decide the case on the terms of the Contract before me rather than the highly generalised notion that $50,000 cannot operate as a deposit sum, because deposits are “generally accepted at 10%”.

7. [111]

   Counsel for the Purchaser submitted that if the clause operated to increase the deposit to 10%, it would be penal and could be set aside.

8. [112]

   Darke J in Blanco v Wan [2021] NSWSC 273 explained principles concerning clauses purporting to require a “further deposit” and the interaction with the doctrine of penalties. Those principles are:

   1. (1)

      First, it is not open for parties to avoid the operation of the penalties doctrine by simply labelling a payment obligation as a “deposit” where it cannot be so classified legally. However, the parties’ label may be a relevant factor to be considered: Iaanello v Sharpe (2007) 69 NSWLR 452 at [31] (Hodgson JA, with whom Santow and Basten JJA agreed).

   2. (2)

      Secondly, a true deposit functions as an earnest to bind the bargain and secure the purchaser’s performance of obligations under the contract: Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [22], [25]-[26] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ).

   3. (3)

      Thirdly, where an obligation to make a payment is not properly an obligation to pay a deposit or a payment instalment for a deposit because, for instance, it does not serve to secure performance and is instead payable on default, then it is relevant to ask whether it is a penalty: Iaanello v Sharpe (2007) 69 NSWLR 452 at [32] (Hodgson JA, with whom Santow and Basten JJA agreed).

9. [113]

   I am not persuaded that Special Condition 12 was intended to increase the “deposit” from $50,000 to 10% of the purchase price. Instead, properly construed, the parties drafted the clause as a liquidated damages clause, despite employing the heading of “Deposit”.

10. [114]

    Accordingly, the next question is whether the clause is unenforceable as a penalty. That question is to be resolved as at the time of formation: Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86-87 (Lord Dunedin).

11. [115]

    Unlike Blanco, it was not open for the Purchaser here to pay the so-called “Deposit” amount prior to completion: Blanco at [76]. Special Condition 12 is conditional upon the purchaser defaulting and the Vendor’s termination. Accordingly, like in Iannello, the stipulated sum could not have been paid in order to secure performance or commit the Purchaser to payment of the balance. To the extent it permits the Vendor to recover a sum approximating $180,000, it operates as a collateral stipulation that must be compared to the impact of the Purchaser’s default on the Vendor’s legitimate interests.

12. [116]

    The Vendor did not bring forward any evidence of any legitimate interest at the time of formation sought to be protected: see eg Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 578-579 (Gageler J) 612 (Keane J) and 625-626 (Nettle J).

13. [117]

    The Purchaser submitted that the Vendor’s only possible legitimate interests in this case would be those identified by Darke J at [89] of Blanco:

14. [118]

    Like in Blanco, here there was no evidence that additional transactional costs and lower sale price were any concern for the Vendor, nor any evidence demonstrating the risk of a lower sale price at the time of formation. No submissions on the issue of penalty were made by the Vendor.

15. [119]

    As the deposit sum of $50,000 is expressly preserved by Special Condition 12, any legitimate interest must be something other than the interests sought to be protected by the deposit.

16. [120]

    Without any assistance from the Vendor as to what such legitimate interests may be, I conclude that the approximate $180,000 sum is out of all proportion or wholly disproportionate to protection of the Vendor’s legitimate interests.

17. [121]

    Although events after contractual formation are merely circumstantial evidence, the fact that the Vendor was able to negotiate and exchange contracts for resale at a higher sale price allows at least an inference that a lower resale was not in the contemplation of the parties at formation. That is reinforced by the fact that even at the time of formation the Vendor had taken steps to improve the Property including evening the ground and removing scrap metal and other rubbish from the Property.

18. [122]

    Had it been necessary to decide and on the evidence before me, I would have concluded that Special Condition 12 was unenforceable as a penalty.

Was the Purchaser entitled to enforce Special Condition 18?

1. [123]

   For completeness, I consider the Purchaser’s submissions about Special Condition 18.

2. [124]

   The Purchaser submitted that, if the 2019 Notice was invalid, then it is entitled to a refund of all money paid plus interest because of the operation of Special Condition 18, which provides:

3. [125]

   In opening, counsel for the Purchaser submitted:

4. [126]

   The Purchaser submits that the Vendor did not complete because of the failure to create an online PEXA workspace and because the Vendor had entered into other contracts to sell the Property. I do not consider the other sale contracts relevant. The Vendor was not finally disabled from performing the Contract while he still held title. He may have placed himself in breach of the Contract, had he completed on another sale. That did not eventuate.

5. [127]

   Within the 2-year window, the Purchaser resisted completion by relying on the 2019 Notice. I do not consider it can be said that the Vendor was “at fault” in failing to complete within the timeframe, where the Purchaser was not prepared to do so. Instead, the parties were in ongoing dispute about whether the Purchaser had validly rescinded or remained compelled to complete.

6. [128]

   As noted above, in February 2022 the Purchaser wrote to the Vendor and accepted that if the 2019 Notice was invalid, then it would complete the purchase. At that time, the Purchaser did not raise the issue of the operation of Special Condition 18.

Section 55(2A) Conveyancing Act

1. [129]

   The Purchaser listed as an issue that if the deposit was forfeited, then it ought to be refunded pursuant to s 55(2A) Conveyancing Act, which I note provides:

2. [130]

   In resisting an order under that section Ms Winfield submitted:

3. [131]

   I do not accept that submission. If the deposit is forfeited, then the section might have operation. It does not apply to vendors seeking to retain a forfeited deposit.

4. [132]

   Mr DeBuse did not make any written or oral submissions as to why it would be appropriate to make an order under the section. I therefore assume it was abandoned and do not intend to make any determination in favour of the Purchaser.

Judicial sale

1. [133]

   The Contract at cl 2.8 provides:

2. [134]

   The Vendor sensibly accepts that the Purchaser has an equitable interest in the Property to the extent of the amounts paid towards the purchase price under the Contract.

3. [135]

   At general law, the purchaser’s lien is a plain basis for judicial sale where a sale contract is not completed due to no fault on the part of the purchaser: Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 at 57 (Holland J). I have not found any fault on the Purchaser’s part.

4. [136]

   Further, the Court has an inherent jurisdiction to order a judicial sale where appropriate: see eg New Beach Apartments Pty Ltd v Epic Hotels Pty Ltd [2007] NSWSC 474 at [16]-[25], [27].

5. [137]

   Judicial sale is the standard remedy of an equitable chargee seeking to enforce their equitable interest: Sood v Christianos [2008] NSWSC 1018 at [16].

6. [138]

   Vacant possession is an incident of judicial sale and orders for possession can be made ancillary to an order for judicial sale pursuant to the Court’s inherent equitable jurisdiction: Morris Finance Ltd v Free [2017] NSWSC 1417 at [124] (Ward CJ in Eq, as her Honour then was); Boutros v Nationwide Capital Pty Ltd [2013] NSWCA 246 at [43] (Gleeson JA).

7. [139]

   It has been said that an order for judicial sale should only be made in special or exceptional circumstances, however, that is where an order for judicial sale is sought over the objection of a prior mortgagee: Koovousis v Tony, trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218 at [20]-[21] (Lindsay J); Morris Finance Ltd v Free [2017] NSWSC 1417 at [34] (Ward CJ in Eq).

8. [140]

   The Vendor accepts that it is open to the Court to order a judicial sale, but resists judicial sale only on the basis that the Vendor has done all that he can to sell the Property without success.

9. [141]

   I do not accept the Vendor’s submission that previous attempts at sale are a basis for refusing to make an order for judicial sale. The Property is not currently on the market, nor is there any evidence that it is rented, and the Vendor accepts that a large sum must be repaid to the Purchaser. Continuing delays will result in further accrual of interest and further prejudice both parties’ positions.

10. [142]

    Counsel for the Purchaser accepted that the Vendor could be given “one further opportunity to redeem” by a relatively short period of time of no more than six weeks: see eg King Investments Solutions Pty Ltd v Hussain [2005] NSWSC 1076 at [111] (Campbell J).

11. [143]

    There is nothing before me to suggest that judicial sale would be obstructed in some manner by the Vendor, so as to require any orders for possession in this case. There Vendor does not reside at the Property and there is no hardship in his vacating: see King Investments Solutions Pty Ltd v Hussain [2005] NSWSC 1076 at [133] (Campbell J) citing Heath v Crealock (1874) 10 Ch App 22 at 32 (Lord Cairns LC).

12. [144]

    This is an appropriate case to order a judicial sale with immediate effect and will hear the parties as to the steps that should be taken to effectuate the sale including whether orders for possession will be required and more recent valuation will be necessary for the Court to set a reserve price.

Conclusion

1. [145]

   For the reasons above:

   1. (1)

      The Plaintiff has been successful and is entitled to a full refund of the sums paid and interest thereon.

   2. (2)

      It is appropriate that the Plaintiff be empowered to conduct a sale of the Property.

2. [146]

   Costs ought to follow the event.

Orders

1. [147]

   I make the following orders:

   1. (1)

      Parties are to confer on appropriate orders giving effect to this judgment, and any special costs order, and provide those orders to the Associate of Peden J within 7 days of this judgment.

   2. (2)

      If the parties cannot agree, the parties are to provide competing orders and submissions of no more than 2 pages and any evidence to the Associate of Peden J within 10 days of this judgment. Any dispute is to be determined on the papers if appropriate.