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Parties in a Contract of Sale Dispute its Termination

Pearl v Nannegari & Ors [2021] VSC 468 (5 August 2021)

The parties entered into a contract of sale of real property with the contract being subject to the purchaser obtaining finance.  The date for obtaining finance was extended however the parties' discussion regarding further extension did not result in an agreement for further extension.  The Court, in deciding whether or not the termination of contract was effected, relied on Property Law Act 1958. 

Facts:

The plaintiff, Marcus Wilmot Pearl (‘Mr Pearl’), and the first defendant, Abhishek Nannegari (‘Mr Nannegari’), entered into a contract of sale for the purchase of a property at 185 Danks Street, Albert Park (‘the property’) on 26 March 2020. 

A handwritten notation on the contract, accepted by both parties as being written by the real estate agent, specified that an initial deposit of $10,000 was paid and the remaining balance of the deposit was to be due ‘once finance [was] approved’. 

Settlement was due to occur on 12 June 2020 but the defendants were still unable to obtain finance, they were granted an extension of time to do so until 20 April 2020. The defendants sought an additional extension of the finance approval date to 4 May 2020 but was not granted.

The defendants’ solicitors sent a letter to the plaintiff’s solicitors stating that the contract was terminated, and indicating the defendant's’ intention to lodge a caveat on the title to the property should the $10,000 advanced as part of the deposit not be refunded by 5 May 2020. 

The plaintiff seeks that the $10,000 deposit money paid by the defendants be forfeited to the plaintiff and that the remaining balance of $158,000 be paid. The contract of sale is sought to be declared as validly terminated by reason of a material breach of the contract on the part of the first defendant.

Issues:

I. Whether or not notice served by defendant terminating the contract was out of time.

II. Whether or not the plaintiff is estopped from treating notice as out of time.

III. Whether notice of default served by plaintiff terminated contract

IV. Whether contract terminated by plaintiff’s acceptance of first defendant’s repudiation of contract 

Applicable law:

Property Law Act 1958 s 49(1) - provides that a vendor or purchaser of any interest in land, or their representatives respectively, may apply to the Court, in respect of any requisitions or objections, or any claim for compensation, or any other question arising out of or connected with the contract (not being a question affecting the existence or validity of the contract), and the Court may make such order upon the application as to the Court may appear just, and may order how and by whom all or any of the costs of and incident to the application are to be borne and paid.

Legione v Hateley [1983] HCA 11(1983) 152 CLR 406 - held that a representation must be clear before it can found an estoppel, and the party acting in reliance on the representation must be in a position of material disadvantage if the departure from the representation is permitted.

Aussie Invest Corp Pty Ltd v Pulcesia Pty Ltd [2005] VSC 362(2005) 13 VR 168 - where Dodds-Streeton J held that although the discretion conferred by s 49(2) was ‘unfettered, its exercise is “the exception rather than the rule” and will not be justified merely because the vendor will obtain a windfall’.

Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, 378 - provided that a contracting party who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not.

Havyn Pty Ltd v Webster [2005] NSWCA 182(2005) 12 BPR 22,837 - provided that in defending an application for the repayment of a deposit pursuant to s 49(2) PLA, purchasers must do more than establish that forfeiture of the deposit would result in a financial ‘windfall’ to the vendor, as will usually be the case. 

Simcevski v Dixon (No 2) (2017) 53 VR 357, 383 [93] - where Riordan J held that the discretion under s 49(2) to order the return of a deposit was conditioned by recognition of the critical function of a deposit being an earnest for contractual performance.

Analysis:

The first defendant believed that the finance approval date would not be strictly enforced and therefore did not rescind the contract within two clear business days of the approval date pursuant to general condition 14.2. 

The plaintiff submits that the email dated 28 April 2020 sent by Happy Conveyancing, on behalf of the first defendant, to the plaintiff’s solicitors was ineffective to validly terminate the contract pursuant to general condition 14.2 because the necessary preconditions outlined in the sub-clause had not been satisfied. Unless the plaintiff is estopped from treating the email of 28 April 2020 as being out of time, the defendants were not entitled to terminate the contract of sale.

Conclusion:

The court concluded that the notice served by the defendant terminating the contract was not out of time. The plaintiff was not estopped from treating notice as out of time. The notice of default served by the plaintiff terminated the contract. The contract of sale having become unconditional by 20 May 2020, the plaintiff is entitled to retain the $10,000 deposit paid and to recover the balance of the deposit of $158,000 as a debt.

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