SUPREME COURT OF QUEENSLAND

[1]  HOLMES JA: I agree with the reasons of Fraser JA and the orders he proposes.

[2]  FRASER JA: The appellant, Ms Thompson, entered into a contract dated 9 June 2006 in the standard REIQ/QLS First Edition form to buy a residential lot in a community titles scheme in Brisbane from the respondents, Mr and Mrs Riggall, for the purchase price of $817,500.  Ms Thompson was unable to pay the purchase price on the settlement date, 8 August 2006, and she also failed to settle on three extended settlement dates during September 2006.  After she again failed to settle on the extended settlement date of 17 October 2006 the Riggalls terminated the contract on 24 October 2006.  They resold the lot at auction on 24 November 2006 for $765,000 and that resale settled on 22 December 2006.

[3] After a trial on damages only, Tutt DCJ assessed the damages at $72,201.28,[1] which his Honour subsequently amended to $72,817.16.[2]  The components of that sum were $8,500 (the loss on resale of $52,500, less the deposit of $44,000), $1,948.03 holding costs (Body Corporate fees, rates and electricity charges incurred by the Riggalls after Ms Thompson’s default until settlement of the resale), $8,715.36 (legal fees relating to the contract), $28,065.25 (real estate agent’s fees and costs relating to the contract), and interest.

[4] Mr Ferrett, who appeared for Ms Thompson, accepted that Ms Thompson could not quarrel with the amount of $52,500 allowed by the primary judge for the loss on resale, regardless whether that item was assessed under the general law or under clause 9.4(1)(a) of the contract.  Accordingly Ms Thompson abandoned those grounds of appeal which had challenged the primary judge’s acceptance of the valuation evidence adduced for the Riggalls.  The evidence accepted by the primary judge included expert opinion evidence to the effect that the resale was at market value.

[5] Ms Thompson pressed only her challenge to the primary judge’s allowances under clause 9.4(1)(b) of the contract of the real estate agent’s fees and costs and the legal fees relating to the contract (appeal grounds 1, 2, 4 and 4A) and the allowance under clause 9.5 of the holding costs (appeal ground 5).

Ground 1: The learned judge erred by failing to decide whether the plaintiffs had elected to pursue damages at law or to recover amounts fixed under the contract.

Ground 2: The learned judge erred by allowing recovery of amounts fixed by the contract when the defendant (sic) had elected to pursue damages at law.

[6] Clause 9 of the contract provides:

“9.Buyer’s Default

9.1Seller May Affirm or Terminate

If the Buyer fails to comply with any provision of this contract, the Seller may affirm or terminate this contract.

9.2If Seller Affirms

If the Seller affirms this contract under clause 9.1, it may sue the Buyer for:

(1)damages;

(2)specific performance; or

(3)damages and specific performance.

9.3If Seller Terminates

If the Seller terminates this contract under clause 9.1, it may do all or any of the following:

(l)resume possession of the Property;

(2)keep the Deposit and interest earned on its Investment;

(3)sue the Buyer for damages;

(4)resell the Property.

9.4Resale

(1)The Seller may recover from the Buyer as liquidated damages:

(a)any deficiency in price on a resale; and

(b)its expenses connected with this contract, any repossession, any failed attempt to resell, and the resale;

provided the resale settles within 2 years of termination of this contract.

(2)Any profit on a resale belongs to the Seller.

9.5Seller’s Damages

The Seller may claim damages for any loss it suffers as a result of the Buyer’s default, including its legal costs on a solicitor and own client basis.

9.6Interest on Late Payments

(1)Without affecting the Seller’s other rights, if any money payable by the Buyer under this contract is not paid when due, the Buyer must pay the Seller at settlement interest on that money calculated at the Default Interest Rate from the due date for payment until payment is made.

(2)The Seller may recover that interest from the Buyer as liquidated damages.

(3)Any judgement for money payable under this contract will bear interest from the date of judgement to the date of payment and the provisions of this clause 9.6 apply to the calculation of that interest.”

[7] The primary judge concluded that as a matter of construction of clause 9.3 of the contract the seller was “entitled to adopt “all” of the options contained therein subject to the provisions of clauses 9.4 and 9.5 where the seller elects to pursue recovery from the defaulting buyer under those clauses (which is the instant case) but at all times further subject to the overarching principle of “reasonableness” in the assessment of damages.”[3]  His Honour reasoned that although clause 9.3 provided that the seller may do “all or any” of the matters set out, clause 9.3 should be read down to accord with the principle in Hadley v Baxendale[4] that the recoverable damages are those which may fairly and reasonably be considered as flowing from the breach, that this construction was consistent with the remainder of the clause which set out the nature of the damages which the seller might recover from the defaulting buyer under clauses 9.4 and 9.5, and that it was also consistent with Dovaenda PtyLtd v Pagliari and Anor[5].  The primary judge went on to assess damages under clause 9, including in that assessment the allowances for the agent’s costs and the legal fees under clause 9.4(1)(b) which are in issue under appeal grounds 1, 2, 4 and 4A. 

[8] Mr Ferrett cited Jampco Pty Ltd v Cameron (No 2)[6] and Tiplady v Gold Coast Carlton Pty Ltd[7] for the proposition that after the Riggalls terminated the contract they were obliged to elect between suing for amounts under clause 9.4(1) of the contract or for damages under the general law.  Mr Ferrett then argued that the Riggalls’ pleadings demonstrated that they had elected to pursue damages under the general law rather than under clause 9.4(1), and that they therefore could not recover under clause 9.4(1).

[9] Those decisions are not directly on point.  As Mr Woodford, who appeared for the Riggalls, pointed out, Jampco Pty Ltd v Cameron (No 2) concerned a clause which provided that the vendor was entitled to terminate the contract and thereafter “either to sue the purchaser for breach of contract or to resell the property as owner.”  In deciding that the vendor was required to elect which course to pursue, Young J adopted Professor Butt’s reasoning[8] that the contract gave the vendor:

“the option, after terminating the contract, of either suing for damages in accordance with general law principles … or reselling the property as owner and claiming as liquidated damages any deficiency on resale and expenses of resale and the purchaser’s default.”[9]

Mr Woodford argued that this reasoning was inapplicable because clause 9.3 of the subject contract empowers the seller, after termination of the contract under clause 9.1, to do “all or any” of various things, including suing the buyer for damages and reselling the property with a consequential right of recovery of liquidated damages under clause 9.4(1).  I note also that the contract considered in Delbridge v Low[10] in terms required the vendor to elect to resell the property sold and claim liquidated damages or to sue for damages for breach.  As Mr Woodford also pointed out, Tiplady v Gold Coast Carlton Pty Ltd concerned a contractual provision which was not set out in the judgment.  That decision did not deal with the question whether the vendor was obliged to make an election.

[10]  Clause 9.3 authorises a claim under clause 9.4 with a claim for damages under clause 9.5 where the seller has terminated the contract under clause 9.1.  Ms Thompson did not plead that the Riggalls were bound to elect between a claim under clause 9.4 and a claim under clause 9.5 or that the prospect of claims under both provisions rendered clause 9 unenforceable as a penalty.  Mr Ferrett’s argument was instead to the effect that the Riggalls could not recover under clause 9.4(1) because they had elected to claim damages only under the general law.

[11]  The doctrine of election applies only where there are two legal rights which are inconsistent in the sense that neither one may be enjoyed without the extinction of the other, that extinction conferring upon the elector the benefit of enjoying the other which is denied so long as both rights remained in existence.[11]  It is not necessary to consider precisely how the doctrine might apply in the situation in which the Riggalls found themselves because it is clear that they terminated the contract under clause 9.1, pursued their claim under clauses 9.4 and 9.5, and did not engage in conduct which was inconsistent with that claim.  In arguing that an objective interpretation of the Riggalls’ conduct demonstrated that they had elected to claim damages only under the general law, Mr Ferrett emphasised the allegation in the Riggalls’ amended statement of claim that by reason of Ms Thompson’s breach of contract the Riggalls had suffered “loss and damage” and their claim for “loss and damages”.  Similarly, their reply denied that they had failed to mitigate “their damages” and that any items “of damage” were too remote, and it alleged that:

“the damages claimed by the Plaintiffs arise naturally from the Defendant’s breach and are otherwise such as may reasonably be supposed to have been in contemplation of the parties at the time the contract was made”. 

[12]  Those expressions, and particularly the last one, were certainly consistent with a claim for damages for breach of contract assessed under the general law, but they must be understood in their context.  The amended statement of claim commenced by referring to the contract and summarising its material terms, including the material parts of clauses 9.1, 9.3, 9.4, and 9.5.  The pleading then alleged Ms Thompson’s breach of contract and that the Riggalls had “elected to terminate the contract”.  The particulars of the latter allegation identified the letter from the Riggalls’ solicitor to Ms Thompson’s solicitors dated 24 October 2006 by which the Riggalls terminated the contract and reserved their rights in the following passage:

“Our clients rely upon your client’s breach of clauses 2.5(1) and 5.1(1) of the terms of contract to terminate the Contract pursuant to clause 9.1.

In accordance with clause 9.3(2) of the terms of contract, our client keeps the deposit of $44.000.09 paid by your client.

Further, our clients reserve the right to:

1. recover the balance deposit outstanding under clause 2.2(3);

2. sue your client for damages under clauses 9.3(3) and 9.5;

3. resell the property under clause 9.3(4) and recover as liquidated damages under clause 9.4 any deficiency in price on a resale together with our clients’ expenses connected with this contract, any failed attempt to resell, and the resale.”

[13]  The words or conduct required to constitute an election must ordinarily be unequivocal in the sense of being consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other.[12]  The references in the Riggalls’ pleadings to “damages” were neutral as to whether their claim was under the general law or under clause 9, because each of clauses 9.3, 9.4, and 9.5 provided for the recovery of “damages”.  Where the amended statement of claim pleaded those particular clauses and incorporated the letter which unequivocally reserved the Riggalls’ rights under them upon their termination under clause 9.1, the references in that pleading to concepts referable to damages under the general law could not be construed as an election to claim damages under the general law to the exclusion of a claim under the contract.  If the Riggalls were required to and did make any election, it was to pursue their claim under clauses 9.4 and 9.5 of the contract rather than under the general law.  Jampco Pty Ltd v Cameron (No 2) is distinguishable, because the vendor’s pleading in that case did not invoke the relevant contractual provisions but instead pleaded a damages claim apparently referable only to the general law. 

[14]  The primary judge did not err by assessing damages under clause 9.

Ground 4:  The learned judge erred in awarding an amount under clause9.4(l)(b) of the contract the subject of the action because that clause is penal in nature.

Ground 4A: In the alternative, the learned judge erred in construing clause9.4(1)(b) of the contract the subject of the action to allow recovery of the costs of the first sale.

[15]  Mr Ferrett argued at the trial that the damages recoverable at common law comprehended expenses associated with the resale but did not comprehend the expenses associated with the contract which the Riggalls had claimed.  He accepted that if the claim was properly made under clause 9.4(1)(b) the claim for the real estate agents’ fees and costs was justifiable, but he argued that the clause was penal in nature.  That was said to follow because the correct approach to damages was to allow the costs which flowed from the breach rather than costs which would have been incurred in any event, so that the clause could not represent a genuine pre-estimate of damages.[13] 

[16]  The proposition that clause 9.4(1)(b) was unenforceable as a penalty was not pleaded in the amended defence but counsel for the Riggalls responded to the argument in his submissions.  He argued that Botherway v Stinson[14] was authority for the proposition that a vendor could recover from a defaulting purchaser the expenses incurred in marketing and selling the property to the defaulting purchaser and that there was no substance in the submission that the damages amounted to a penalty since “the plaintiffs’ damages sought” were not extravagant or unconscionable compared to their actual loss.  He cited Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd.[15] 

[17]  The primary judge awarded the Riggalls the amounts of the real estate agent’s commission and fees and costs and legal fees relating to the contract rather than the resale.  The primary judge did not refer to the submission that clause 9.4(1)(b) was unenforceable as a penalty but held, citing Botherway v Stinson, that the claimed real estate agent’s fees and costs were recoverable because they arose directly as a result of Ms Thompson’s default in settling the contract, constituted an expense for which the Riggalls were liable to the agent, and thus constituted a loss suffered by them which was recoverable from Ms Thompson.[16]  In the appeal, Mr Ferrett argued that clause 9.4(1)(b) was a penalty because it allowed the seller to recover both the expenses of the contract (which he submitted were not recoverable as damages under the general law) as well as the expenses of the resale (which he accepted were recoverable as damages under the general law).  He did not contend that such a conclusion would render the whole or any other part of clause 9 unenforceable, but he argued that the result was that the Riggalls could not recover the expenses connected with the contract and that they had not claimed the expenses connected with the resale.  Mr Woodford elaborated on the arguments which he had put at trial and he also submitted that the expenses connected with the contract were recoverable under clause 9.3.

Consideration

[18]  Clause 9.3 suggests that the vendor is entitled to recover “liquidated damages” under clause 9.4 as well as “damages” under clause 9.5, but I would not construe the provision as entitling the vendor to recover “damages” for losses in respect of which the vendor was also awarded “liquidated damages”.  Clause 9.4(1)(b) is more problematical.  In Menniti v Chan,[17] Wilson J held that clause 9.4(1)(b) allows for the recovery of the expenses of both the contract and a resale.  So much seems clear.  The expression in clause 9.4(1)(b) “expenses connected with this contract …and the resale” literally comprehends real estate agent’s fees and costs and legal costs incurred by the seller in contracting and in reselling, those being the usual expenses associated with such contracts.  It does not necessarily follow that the proper construction of the provision is that both sets of costs are recoverable where only one represents an expense caused by the buyer’s breach, but there are substantial difficulties in implying any such causal link.  Because clause 9.4(1) is concerned to specify recoverable heads of “liquidated damages” on any resale within that provision, the better view does seem to be that both sets of expenses are recoverable even though (for reasons to which I will shortly turn) only the expenses of the resale would ordinarily be recoverable as damages under the general law.

[19]  Accordingly, I accept that the effect of the contract is that where the seller terminates the contract under clause 9.1 and resells the property under clause 9.4 within two years of termination, clause 9.4(1)(b) entitles the seller to recover from the buyer the agent’s commission and legal fees incurred by the seller both in relation to the contract and in relation to the resale.  Before discussing the effect of that conclusion it is necessary to consider the damages which the Riggalls could have recovered under the general law.

[20]  As to the component of those expenses comprising legal fees of $8,715.36, those expenses were not the ordinary legal costs incurred in taking the contract towards completion.  Rather, the primary judge found that the claimed legal fees were incurred by the Riggalls “directly as a result of the defendant’s default in failing to settle the contract on the original settlement date of 8 August 2006.”[18]  The judge referred to the myriad of emails, correspondence, and attendances referred to in the evidence of Mr Riggall and the solicitor arising from Ms Thompson’s failure to settle on that due date for settlement.  On the primary judge’s findings the Riggalls incurred this expense as a result of Ms Thompson’s breach of contract and it was a not unlikely result of that breach.  This component of the Riggalls’ loss was certainly recoverable as damages under the general law.

[21]  The agent’s fees and expenses are in a different category.  I will discuss the evidence later but at this point it is sufficient to note that the Riggalls incurred real estate agent’s fees and costs in connection with the first sale of $28,065.25 (the amount awarded by the primary judge) and they also incurred real estate agent’s fees and costs in connection with the resale of $26,477.56.

[22]  There is ample authority for including the expenses of a resale in the damages awarded to a vendor who terminates a contract for the sale of land for breach by the purchaser.  In Liverpool Holdings Ltd v Gordon Lynton Car Sales Pty Ltd[19] Kelly J held that the vendor was entitled to recover expenses incurred by the vendor in an attempted resale as consequential losses which flowed from the purchaser’s breach in failing to tender settlement.  Such claims have been allowed in other Queensland decisions.[20]  In Rossco Developments Pty Ltd v O'Halloran[21] Blackburn CJ held that the vendor was entitled to recover as consequential damages the vendor’s expenses, actual or estimated, of a resale.  His Honour cited Williams on Vendor and Purchaser[22] for the proposition that those consequential damages were recoverable because the expenses were what the vendor had to pay to get the “value of the land in money.”[23]  Young J followed that decision in Jampco Pty Ltd v Cameron (No 2),[24] and his Honour’s decision on that point was followed in subsequent decisions in the Supreme Court of New South Wales.[25]  Tadgell J reached the same conclusion in Victorian Economic Development Corporation v Clovervale Pty Ltd.[26]

[23]  On the other hand there is authority for Mr Woodford’s proposition that the expenses of the contract, including agent’s commission and expenses the vendor incurred in taking the contract towards completion, may be recovered as damages under the general law.  In the New Zealand decision cited by the primary judge, Botherway v Stinson, Salmond J held that the vendor was entitled to set off against the vendor’s profit on the resale the agent’s commission on the aborted sale, on the ground that the “waste of this money is the direct result of the defendant’s breach of contract.”[27]  In Higgins v Statewide Developments Pty Ltd[28] and in Vitek v Estate Homes Pty Ltd[29] Barrett J held, citing Mallick v Parish,[30] that the vendor could recover “any expenses incurred in preparing to complete the sale.”  The issues in Mallick v Parish included the correctness of Cullen CJ’s direction to the jury that what the jury had to ascertain was:

“the amount of loss occasioned to [the vendor] by the [purchaser’s] repudiation of the contract; that would include any costs incurred, but you have no evidence as to what costs, if any, were incurred, loss of interest on the purchase money and diminution, if any, in the value of the land.”[31]

The jury nevertheless awarded the vendor 500 pounds damages.  On appeal, Street J (with whose reasons Sly and Gordon JJ agreed) held that there was no evidence either as to diminution in value of the land or as to what the Chief Justice had called “costs incurred”.  In the course of so finding, Street J observed that the recoverable damages in that case were limited to:

“the loss actually sustained, that is the difference if any between the value of the land at the date of the breach and the price agreed to be paid, together with the expenses incurred in preparing to complete the sale but less anything received by him under the agreement.” [32]

It is not clear from the report that there was in that case a claim for expenses of the kind described in the words I have emphasised (rather than additional expenses directly attributable to the purchaser’s breach) and no authority was cited for the proposition that such expenses were recoverable. 

[24]  In Golding v Vella,[33] which concerned a claim under a contractual provision which (like clause 9.5 of this contract) allowed the vendor to recover damages for breach of contract, Barrett J held that the heads of damages were confined to the plaintiff’s expenses of the abortive sale to the defendants and his holding costs pending resale.  His Honour reasoned that it was not appropriate to include costs of the resale because the task of the Court was to put the plaintiff in the position he would have occupied had the breach and, therefore, the loss of the original sale not occurred.[34]  Similarly, in Delbridge v Low,[35] in which the vendors had not paid any commission on the sale but they had paid a commission upon the resale, Derrington J found that the vendors were not entitled to recover the commission paid upon the resale because they had elected to claim damages under the general law rather than under a contractual provision which empowered the vendor to recover any deficiency arising from such resale and any expense arising from such sale.  His Honour held that the vendors could not recover the commission upon the resale because “the resale was irrelevant to the damages under this course which the defendants have followed.”[36]

[25]  Of course the assessment of damages must be referable to the facts of the particular case, but in my opinion the correct analysis in this quite typical situation is explained in McGregor on Damages:[37]

“This head of damage requires to be analysed rather carefully, since the expenses of the abortive sale would have been incurred even had the buyer not defaulted; putting the seller into the position he would have been in had the contract been performed still entails his having incurred these expenses.  The true analysis is this.  The seller recovers the full contract price less the net market value of the property left on his hands, i.e. the amount at which a resale has been or could be made deducting therefrom the costs of resale.  Thus the expenses to be looked at are not those of the abortive sale but those of the resale, or, where there has been no resale, the estimated costs of a resale.”

[26]  That accords with first principles.  In Laird v Pim[38] Baron Parke described the normal measure of damages in a claim by the vendor against the purchaser of land:

“The measure of damages… is the injury sustained by the plaintiff by reason of the defendants not having performed their contract.  The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase-money in consequence of the non-performance of the contract?”

The general rule is that damages for breach of contract are assessed as at the date of breach, although that may be departed from where it is necessary properly to compensate the innocent party.[39]  Accordingly, the major head of damages for a purchaser’s breach of a contract to buy land is usually the difference between the purchase price and the market value of the land at the date for completion.  However it has long been established that other heads of loss, including expenses incurred by the vendor as a result of the purchaser’s breach, are also recoverable.[40]  The broad principle is that an award of damages for breach of contract is designed to put the innocent party in the position that party would have been in had the defaulting party performed the contract;[41] the party who sustains loss as a result of a breach of contract is, “so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”[42]  That principle is qualified by the principles concerning remoteness of damage established in Hadley v Baxendale and developed in later decisions. The relevant law was summarised by Brennan J in The Commonwealth v Amann Aviation Pty Ltd:[43]

“Where a contract is rescinded for breach, the innocent party loses the benefit of performance of the contract so far as the contract remains unperformed. And there may be other losses resulting from the breach. The rule in Hadley v Baxendale prescribes the condition on which damages can be awarded in respect of a loss sustained by reason of a breach of contract:

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”

Applying the rule in C Czarnikow Ltd v Koufos, Lord Reid said that:

“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”

…

The measure of damages prescribed by Robinson v Harman ensures that the parties to the contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach.”

[27]  To return to the facts of this case, the agent’s commission and fees relating to the contract were not incurred as a result of Ms Thompson’s default.  Those fees and commission were payable by the Riggalls to the agent in accordance with the terms of their appointment of the agent dated 8 May 2006.[44]  The commission was payable where the contract of sale was completed or where the whole or part of the deposit paid was liable to be forfeited (as it was in the case of the aborted sale to Ms Thompson) and the marketing fees were payable unconditionally.  Had Ms Thompson not breached the contract the Riggalls would still have borne those expenses.  Those expenses (like the usual legal costs of taking the contract towards completion) could not be treated as having been wasted where the Riggalls were awarded “liquidated damages” for the deficiency on the resale; nor could they have been regarded as wasted had the Riggalls instead been awarded damages for the difference between the purchase price and the market value at termination.  An award on either basis would effectively secure to the Riggalls the ultimate object of their engagement of the agent, namely the monetary value of their land which they had bargained for in their contract with Ms Thompson.  However, the Riggalls incurred additional expense, in the form of a second set of agent’s commission and fees (and, presumably, legal fees), in securing to themselves the monetary value of their land.  That was a not unlikely result of Ms Thompson’s breach.  Indeed it is a commonplace result of such a breach, as the presence of the liquidated damages clause itself suggests.

[28]  In summary, had Ms Thompson performed her contract, in exchange for the transfer of the lot to her the Riggalls would have received $52,500 more than the market value of that property, they would have incurred agent’s fees and commission, and the usual legal costs, in connection with the contract, but they would not have incurred any similar expenses in connection with a resale.  Had the Riggalls claimed damages under the general law they would have been entitled to recover the loss in market value of $52,500 and the additional set of agent’s commission and fees and usual legal costs incurred in connection with the resale, but they would not have been entitled to recover the agent’s commission and fees and the usual legal costs incurred in connection with the contract.  The Riggalls would also have been entitled to recover any expenses they incurred as a not unlikely result of Ms Thompson’s breach which they would not have incurred in the ordinary course in connection with the contract: the legal costs awarded by the primary judge are an example of such an expense.

[29]  I therefore accept the premise of Mr Ferrett’s argument on the question whether clause 9.4(1)(b) is penal, namely that it entitles the Riggalls to recover the expenses of the contract (including agent’s commission and marketing expenses, and legal costs) even though under the general law the Riggalls could instead only recover the similar expenses of the resale.  I turn then to the questions whether this rendered that contractual provision an unenforceable penalty and, if so, the consequences of such a conclusion upon the Riggalls’ claim.

[30]  Lord Dunedin’s summary of the principles in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [45] remains authoritative.  Relevantly, Lord Dunedin said:

“1.Though the parties to a contract who use the words “penalty” or “liquidated damages” may prima facie be supposed to mean what they say, yet the expression used is not conclusive.  The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.

2.The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

3.The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach.

4.To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a)It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

…

On the other hand:

(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility.  On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.”

[31]  The High Court has recently emphasised Lord Dunedin’s statement that there is no penalty unless the contract confers an entitlement to damages which are extravagant or unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach: the recoverable amount must be “out of all proportion” to the real loss.[46]

[32]  As Dutney J observed in Kelly v Arkdev Pty Ltd,[47] in an ordinary stable property market the expenses of the contract would represent a genuine pre-estimate of a vendor’s actual loss.  In such a market there would be no diminution in market value and there would likely be little difference between the expenses of the contract and the expenses of a resale under clause 9.4.  The small difference between those two sets of expenses in this case illustrates the point.  The anticipated amount of the expenses of the contract was not extravagant in comparison with what the parties might have anticipated for the expenses of a resale.  However, the fact that the Riggalls did not claim the expenses of the resale in addition to the expenses of the contract is irrelevant to the question whether the clause is penal.  That question must be answered by reference to the potential operation of the clause in the circumstances existing when the contract was made.  The seller is entitled under clause 9.4(1)(a) to recover any deficiency on the resale and is also entitled under clause 9.5 to recover damages for heads of loss other than those identified in clause 9.4.  In that context, the seller’s entitlement to recover the expenses both of the contract and of the resale entitles the seller to profit from the buyer’s breach by selling the property free of those expenses connected with the contract which the seller otherwise would have borne.  Differing views upon the question whether the expenses of the contract or the expenses of the resale are recoverable as damages were expressed in the decisions cited in paragraphs 22 to 25 of these reasons, but no case was cited to the Court in which both sets of expenses were held to be recoverable.  Under clause 9.4(1)(b) the buyer might avoid paying expenses unreasonably incurred by the seller, but that provision nevertheless obliges the buyer to pay two sets of expenses when the buyer’s breach of contract could only result in the seller incurring one set of such expenses.

[33]  In a stable market, where a prompt resale at about the purchase price would be anticipated if the purchaser fails to pay the purchase price on settlement, the expenses connected with the contract and the resale would likely comprise most of the “liquidated damages” recoverable under the clause, although interest and holding costs might also be recoverable.  In such a case, the clause might allow the seller to recover double the amount of the seller’s real loss flowing from the buyer’s breach, or something approaching that.  If that is thought to be an unusual example, the facts of this case provide another readily foreseeable illustration of the operation of the clause.  The agent’s commission and fees connected with the contract ($28,065.25) amount to more than half of the amount of the deficiency on resale ($52,500) and nearly one-third of the total loss proved to be recoverable as damages ($89,640.95, comprising $52,500 as the difference between the purchase price and the market value at termination, the holding costs of $1,948.03, the additional legal fees of $8,715.36, and the costs connected with the resale of $26,477.56).[48]  At the time of contracting the parties might perhaps have anticipated that somewhat larger losses (including a larger deficiency on a resale) might flow from a breach by Ms Thompson and the consequential termination of the contract under clause 9.1, but on any view the addition of the expenses connected with the contract very significantly increased the amount potentially payable by Ms Thompson as “liquidated damages” on breach in comparison with that recoverable from her as damages under the general law.  Where there was no apparent difficulty in estimating the vendor’s actual loss, either by using the technique adopted in the clause or by using an estimate of these commonly encountered expenses, it is not easy to see a rational justification for allowing the seller to recover the expenses connected with the contract in addition to the true loss.  None was suggested in argument.

[34]  In these circumstances the conclusion seems unavoidable that the amount recoverable under clause 9.4(1)(b) is out of all proportion with the loss which the parties might have anticipated at the time of contract as flowing from a breach by Ms Thompson and the consequential termination of the contract.  In the circumstances of this case I would hold that clause 9.4(1)(b) is a penalty and unenforceable.

[35]  What follows from that conclusion?  As I earlier noted, it was not contended that this flaw in clause 9.4(1)(b) rendered unenforceable the whole of clause 9 or any other part of it.  Rather, Mr Ferrett’s argument was that, in the absence of a claim for the expenses of the resale, a conclusion that clause 9.4(1)(b) was a penalty should result in the reduction of the award of damages by the whole amount allowed for agent’s commission and fees, namely $28,065.25.  I cannot accept that proposition.  It is clear that a conclusion that a liquidated damages clause is unenforceable as a penalty does not preclude the recovery of damages in such lesser amount as reflects the plaintiff’s actual loss.[49]  The Riggalls were entitled to recover damages for loss of bargain upon their termination of the contract for Ms Thompson’s failure to complete, either under the general law or under clause 9.5.  For the reasons given earlier the recoverable damages included each of the components allowed by the primary judge, other than the expenses of the contract, plus the expenses of the resale.  As Deane J observed in AMEV-UDC Finance Ltd v Austin,[50] it would be at least as unjust or unconscionable to deprive one party of compensation for the true loss caused by the event for which the parties had agreed that compensation was to be paid as it would be to force the other party to pay an amount which was demonstrably and unconscionably excessive.  In Challenge Finance Ltd v Forshaw (No 4),[51] Young J reviewed the authorities and held that where the only claim is made under a liquidated damages claim which is held to be a penalty, if some damage has been sustained by a breach it is the legal duty of the tribunal of fact to quantify the damages in the best way it can in the light of the evidence or the paucity of evidence before it.  I prefer to reserve that particular question in the absence of any submissions upon it, but in circumstances in which Ms Thompson did not plead and the primary judge did not find that clause 9.4(1)(b) was a penalty the Riggalls could hardly now be denied recovery of damages for such of their actual losses as were recoverable as damages under the general law or under clause 9.5.

[36]  Although the primary judge did not deal with this point, the question whether the Riggalls were liable for any and if so what expenses on the resale was litigated.  Both Mr Riggall and the agent gave evidence by affidavit that the Riggalls had engaged the same agent to effect the sale and the resale on commission on materially identical terms and that the Riggalls had incurred a liability to the agent for the cost of marketing the property both in the sale and in the resale.[52]  The rate of commission was the same under the two engagements: 5 per cent of the first $18,000 and 2.5 per cent of the balance, plus GST.[53] The amount of the commission payable under the contract (at $817,500) was therefore $22,976.25 and under the resale (at $765,000) it was $21,532.50, in both cases, inclusive of GST.  The marketing costs under the contract were $5,088.12[54] and under the resale $4,945.06.[55]  The agent, Mr Goodson, gave evidence in cross-examination that he had been paid the commission on the second sale, that he had not yet insisted upon payment of the commission on the first sale because of the Riggalls financial difficulties, but that he expected to be paid after the litigation.  In cross-examination Mr Riggall gave similar evidence.  Counsel pursued the point, asking whether the Riggalls were obliged to pay the commission on both sales (Mr Riggall said that he had checked and that they were) and asking about the amount of commission payable on the resale (Mr Riggall said that the amount was in his affidavit and he thought it was about $23,000).  The evidence thus established that the Riggalls incurred agent’s fees and costs of the resale of $26,477.56 ($21,532.50 plus $4,945.06), which is $1,587.69 less than the amount allowed by the primary judge for the agent’s fees and costs of the contract.

[37]  For these reasons, the primary judge’s assessment of damages should be adjusted only by reducing the component allowed for the agent’s fees and costs by $1,587.69, and making consequential adjustments for interest.  Making those adjustments to the primary judge’s calculation of damages, the judgment sum should be reduced from $72,817.16 to $70,724.55.[56]

Ground 5: The learned judge erred in awarding amounts pursuant to paragraph 8(d) of the amended statement of claim because the amounts claimed were not recoverable under the contract.

[38]  This ground relates to the small amount allowed by the primary judge for the Riggalls’ holding costs (mostly comprising body corporate fees).  Mr Ferrett argued that the amount was not recoverable because the Riggalls retained the benefit of the property after Ms Thompson defaulted until the resale and Ms Thompson gave evidence that she observed the property being used on a number of occasions.

[39]  Ms Thompson’s evidence was that the property was visible from her own residence, that from time to time she saw that lights were on and off in the property, and that between June and November 2006 she noticed that somebody had been moving the windows and sunshades (or sunscreens) fairly regularly.  Mr Riggall gave evidence that the property was unoccupied in the relevant period.  In cross-examination he explained that he had turned on lights as a security measure, that for a brief period his teenage sons were living on the boat kept at the jetty in the Brisbane River at the front of the property, and that it was possible that they might have stayed in the unit at times.  The primary judge reviewed this evidence and found that the claimed holding costs flowed directly from Ms Thompson’s default of her obligations under the contract and were therefore recoverable by the Riggalls.  His Honour accepted the evidence given by Mr Riggall that the property was unoccupied from the time of its sale to Ms Thompson and concluded that following termination of the contract the Riggalls incurred the body corporate fees and other costs associated with their continuing ownership of the unit until the resale and received nothing in return.[57]  Those expenses were recoverable under clause 9.5[58] and also as damages under the general law principles discussed earlier.[59]  Ms Thompson could not avoid liability for any of those expenses unless she proved that the Riggalls failed to take reasonable steps to mitigate them,[60] but these modest holding costs were an unavoidable result of her breach and there was no evidence that the Riggalls had acted unreasonably in not renting their lot during the quite short period in which they incurred the costs.

Proposed orders

[40]  I would allow the appeal to the extent of reducing the judgment ordered in the District Court from $72,817.16 to $70,724.55.

[41]  Although Ms Thompson has had that small measure of success it resulted from a point which was not pleaded in her amended defence and she abandoned the grounds of appeal which had mounted the only substantial attack on the judgment.  I would not disturb the costs orders made in the District Court and I would order the appellant to pay the respondents’ costs of the appeal.

[42] DAUBNEY J: I also respectfully agree with the reasons for judgment of Fraser JA and with the orders proposed.