Fernandez v Quince[2009] QDC 57

DISTRICT COURT OF QUEENSLAND

1. [1]
   This case involves a short point concerning the payment of certain moneys from the trust account of the second defendant. It proceeded on the following agreed facts^[1]:-

1.1By a written contract dated 29 March 2007 (‘the Contract’) the First Defendant agreed with the Plaintiffs to sell to the Plaintiffs the land at 60 Kamala Drive Pullenvale in the State of Queensland, more formally known as Lot 42 on SP158077 in the County of Stanley, parish of Moggill (‘the Land’).

1.2The Contract was unconditional upon its execution by the Plaintiff and the First Defendant.

1.3The purchase price for the Land pursuant to the Contract was $595,000.00.

1.4Pursuant to the Contract, a deposit (in part payment of the purchase price) would be paid by way of $100.00 payable when the Plaintiffs signed the Contract and $100,000.00 payable within 7 days from the date of the Contract.

1.5The deposit holder pursuant to the Contract would be the Second Defendant.

1.6The Contract contained the following relevant special conditions:

‘2.   The Buyer acknowledges and agrees that as from the date whereupon the contract becomes unconditional, the Seller shall be entitled, unconditionally, to the non refundable deposit monies and the parties direct Brisbane West Real estate to release to the Seller the said deposit monies less the amount equivalent to the commission liability for the Seller or the Sellers Agent.

3.  The non refundable amount of $200,000.00 will be paid by the Buyer, 6 months from the date of contract, to be released unconditionally to the Seller.’

1.7Settlement date for the Contract would be 29 March 2008.

1.8The Second Defendant is and at all material times was a duly incorporated company.

1.9Until 30 June 2007 the Second Defendant traded under the name and style of ‘Brisbane West Real Estate’, being Queensland registered business name BN18793228.

1.10The Contract included the Fifth edition of the Real Estate Institute of Queensland and Queensland Law Society’s standard terms of contract for houses and land (‘the Standard Terms’).

1.11On 29 March 2007 in accordance with the Contract, the Plaintiffs paid to the Second Defendant a deposit of $100.00 in part payment of the purchase price.

1.12On or about 3 April 2007 in accordance with the Contract, the Plaintiffs paid to the Second Defendant a deposit of $100,000.00 in part payment of the purchase price.

1.13If commission was due and payable to the Second Defendant on the Contract, it would amount to approximately $17,000.

1.14On or about 4 April 2007, the Second Defendant from the $100,100 of deposit monies released $83,227.50 of the deposit monies to the First Defendant.

1.15On or about 4 April, the Second defendant from the $100,100 of deposit monies transferred $16,872.50 of the deposit monies from its trust account to its general account in payment of its commission.

1.16By 1 October 2007, the First Defendant had defaulted on its obligations to pay the first registered mortgagee of the Land, Westpac.

1.17By 1 October 2007, Westpac had taken possession of the   Land as mortgagee in possession.

1.18By 1 October 2007, Westpac had given notice to the First Defendant that it intended to exercise its power of sale as mortgagee and sell the Land.

1.19By 1 October 2007, Westpac had announced an auction of the Land for Saturday 20 October 2007.

1.20As at 18 October 2007, the First Defendant had not remedied, in whole or in part, its failure to pay monies owed to Westpac as mortgagee of the Land.

1.21As at 18 October 2007, the First Defendant had failed to discharge Westpac’s mortgage.

1.22As at 18 October 2007, the First Defendant had failed to provide the Plaintiffs with any details of the outstanding debt owed to Westpac, despite having promised to do so.

1.23As at 18 October 2007, the first Defendant had failed to authorise Westpac to communicate directly with the Plaintiffs about the monies the First Defendant owed to Westpac, despite having promised to so authorise.

1.24As at 18 October 2007, the First Defendant had failed to bring settlement of the Contract forward to a date prior to 20 October 2007, despite being asked to do so by the Plaintiffs.

1.25On or before Thursday 19 October 2007, the First Defendant repudiated the Contract.

1.26By letter to the First Defendant dated 18 October 2007, the   Plaintiffs by their then solicitors Chris Wlodarczyk & CIO notified the First Defendant that they were electing to terminate the Contract because of the First Defendant’s repudiation and demanded immediate repayment of their deposit.

1.27To date the First Defendant has failed to repay all or any part of the deposit.

1.28By letter dated 22 October 2007, the Plaintiffs by their then solicitors Chris Wlodarczyk & Co demanded that $16,872.50 of the deposit monies transferred to the Second Defendant’s general account be returned to their trust account, but the Second Defendant has refused and neglected to do so.

1.29The Second Defendant was, at all material times, a licensed real estate agent under the Property Agents and Motor Dealers Act (‘the PAMDA’).

1.30The First Defendant became a bankrupt on or about 16 July 2008 and is currently an undischarged bankrupt.”  

It was also common ground that the second defendant, the agent in the transaction, was not entitled to a commission because the transaction never settled.

2. [2]
   The plaintiff’s claim:-

1. (a)
   a declaration that the payment by the second defendant of the deposit monies of $100,100 were paid in breach of ss. 384 and 385 of the Property Agent and Motor Dealers Act 2000; and

2. (b)
   payment by the second defendant to the plaintiff of the deposit monies of $100,100.  

3. [3]
   Mr Monks for the plaintiff advanced three possible constructions of Special Condition 2 to seek to establish entitlement to repayment of those deposit moneys. Firstly, in relation to the commission amount of $16,872.50, they say this was paid in breach of Special Condition 2 and cl. 2.2.1 of the Standard Terms of the contract, a breach of trust and a breach of ss. 384 and 385 of the Property Agents and Motor Dealers Act 2000 (PAMDA).

4. [4]
   Special Condition 2 I have set out. Clause 2.2(1) provides:-

“2.2 Deposit

1. The buyer must pay the Deposit to the Deposit Holder at the time shown in the Reference Schedule.  The Deposit Holder will hold the Deposit until a party becomes entitled to it. 
2.  …”

5. [5]
   Section 384(2) of PAMDA provides that any money paid into a trust account may only be paid from the trust account in a way permitted under the Act. The effect of s.385(2)(b)(c) is that, a real estate agent as the second defendant was, may draw money from the trust account for his commission once the transaction has been finalised and the balance monies in trust less any commission has been paid to the person entitled, usually the vendor. It was accepted by Mr Monks that the parties may agree in writing to distribution other than in accordance with the Act^[2] provided any such agreement is clear and unambiguous. 

6. [6]
   The next alternative construction of Special Condition 2 relied on s.71 of the Property Law Act (PLA).  That section deals with instalment contracts for the sale of land being executory contracts whereby the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receiving a conveyance in exchange for the payment or payments.  It was common ground that this was an instalment contract.

7. [7]
   The significance of s.71, according to the plaintiffs, is that it defines “deposit” as an amount not exceeding 10 per cent of the purchase price payable under the contract which, if that definition governed the situation would mean the deposit under this instalment contract would have been $59,500, 10 per cent of the purchase price of $595,000 and the balance of the actual deposit paid ($100,100) namely $40,600 would be characterised other than as a deposit. The actual deposit of $100,100 represented 16.82 per cent of the purchase price.

8. [8]
   On this argument the term “non-refundable deposit monies” in Special Condition 2 would refer to the $59,500 or 10 per cent of the purchase price. The plaintiffs relied upon several authorities to establish that 10 per cent of the purchase price on the sale of land is recognised in common law, and reflected in s.71 of the PLA, as an amount not amounting to a penalty which a purchaser usually forfeits upon default.^[3]

9. [9]
   In support of this argument Mr Monks, acknowledging that the contract with a 12 month settlement which was beneficial to the plaintiffs, but argued that the entitlement of 10 per cent of the deposit rather than the entire $100,100 was also a benefit to the first defendant and he pointed to cl.3 pursuant to which the first defendant was to receive a further $200,000 six months from the date of the contract to be released unconditionally to him. His point was that it was unlikely that the parties intended that the first defendant would become the beneficial owner of the $100,100 deposit together with a further $200,000 six months later. Of course under s.75 of the PLA, once the plaintiffs had paid one third of the purchase price they were entitled to obtain a conveyance of the land subject to a mortgage back in favour of the vendor to secure the balance of purchase monies.

10. [10]
    The final alternative construction contended for by the plaintiff which was not strongly agitated, which I think is sensible, was that the reference in Special Condition 2 to the non-refundable deposit monies and the reference in Special Condition 3 to the non-refundable amount intended to refer to the same amount of money. I do not regard that as the proper construction of those clauses.

11. [11]
    Ms Muir for the second defendant argued that the deposit monies paid by the second defendant to the first defendant and to its general account in payment of commission, were both legitimate payments because, at the relevant time, the monies were beneficially owned by the first defendant. Any issue of the payment of commission was a matter between the two defendants and does not concern the plaintiffs. She relied upon Starco Developments Pty Ltd v Ladd^[4].  That was also a case involving an instalment contract which contained a clause similar in effect to Special Condition 2 authorising the holder of the deposit monies to pay the deposit forthwith to the vendor contrary to the normal practice whereby the deposit monies less commission are not accounted to a vendor until the transaction is completed.  In that case, McPherson JA said:-

“Clause 1 of the addendum changed this state of affairs.  By its terms, the vendors and the purchasers jointly authorized the trustee ‘to forthwith pay the deposit of $19,000 plus all interest earned by the investment thereof to the vendor’.

Some question was raised as to whether this provision had the effect of forfeiting the deposit, together with interest, to the vendor.  I doubt that it had that effect.  But, even if it did not, cl. 1 of the addendum clearly altered the prevailing legal regime under which the deposit and interest were being held.  Previously they were held by the solicitor as trustee for both parties.  Upon execution of the addendum, the parties authorised payment of that money to the vendor.  The purchasers ceased to be beneficiaries having even a contingent equitable interest in a trust fund and became entitled only in certain events, such as the vendor’s default, to claim recovery from the vendor of the amount of the deposit and interest as money had and received or by way of restitution, which would give rise to no more than a claim in personam by the purchasers against the vendor.”

12. [12]
    The second defendant argued that the above categorisation of entitlement and rights in relation to the deposit paid applies to this case. That is because, as and from the signing of the contract on 29 March 2007, it became unconditional, which is common ground, and pursuant to Special Condition 2, at that point the first defendant became beneficially entitled to the deposit monies. Hence, it was argued, the two payments were a legitimate disposition of the first defendant’s funds.  As to the commission payment, it was argued that, even accepting that the second defendant was not entitled to a commission, nevertheless the payment was made from funds of the first defendant and it was a matter between the first and second defendants if the former wanted to raise any issue of commission entitlement.

13. [13]
    As to the meaning of the term non refundable deposit monies, the second defendant argued there was no basis to support the argument that deposit was to be read as meaning 10 per cent of the purchase price given that Special Condition 2 expressly refers to deposit monies and deposit is defined in the contract as being the $100 and $100,000 respectively. Ms Muir argued that there needed to be consistency of meaning of deposit throughout the contract.

14. [14]
    There are a couple of things about Special Condition 2 which should be noted. It records two concepts, firstly the unconditional beneficial entitlement in the first defendant to the monies referred to and secondly a direction by both parties as to the payment of those monies. Further, it is clear to me that the word “said” qualifying “deposit monies” in the second last line of that Condition clearly refers back to the non refundable deposit monies referred to in the previous line.

15. [15]
    Again it seems clear to me that the clause unequivocally reflects an agreement between the parties that the non refundable deposit monies were to be unconditionally owned by the first defendant upon the contract being signed and becoming unconditional. As to the direction as to payment, I consider the reference to the retention of an amount equivalent to the second defendant’s commission records the intention of the first defendant, as beneficial owner of the funds, to provide a fund for payment of the second defendant’s commission when it became due.

16. [16]
    Mr Monks contended for another interpretation of the commission retention provision, namely that it reflected an intention on the part of the first defendant to provide a fund available to the plaintiffs in the event that a transaction did not settle and they were entitled to recover the deposit monies from the first defendant. That submission involved the concept of some form of trust for the benefit of the plaintiffs which would elevate their right in the event of default by the first defendant beyond that of a claim in personam, as articulated by McPherson JA in Starco, to one of a proprietary interest, albeit contingent in the commission monies retained.  I am unable to accept that submission.  The better view is, as I have said, that that provision simply intended to provide a fund for the payment of the commission at the appropriate time.

17. [17]
    What funds then does the term “non refundable deposit monies” refer to? The clause must of course be constructed objectively, looking at the objective framework within which the contract came into existence and to the parties’ presumed intention.^[5] 

18. [18]
    The construction that the term “non refundable deposit moneys” means all deposit moneys over and above 10 per cent would involve the parties, at point of contract:-

1. being aware that the contract was an instalment contract caught by Division 4 of the PLA;
2. intending that the word “deposit” in the contract had the same meaning as in s.71 of the PLA, that is 10 per cent, notwithstanding the clear term of the contract that the deposit meant $100,100;
3. intending that, notwithstanding the meaning of “deposit” in the contract as above outlined, there was to be another unspecified fund described as a non refundable deposit of $59,500 reflecting the common law position.

19. [19]
    Further, the argument would involve to the parties having the intention that reference to non refundable deposit monies really meant the non refundable component of the deposit monies.

20. [20]
    It must be borne in mind that contracts of this type are not usually drawn by lawyers or with the precision with which lawyers draft documents. They are drawn as this one was by the agent. One must be careful not to attribute to the parties at point of contract a state of knowledge gained upon reflection after the event.

21. [21]
    On balance I am unpersuaded that the combination of the Property Law Act definition of deposit at 10 per cent and the common law position as to that size deposit being accepted as a non-refundable deposit were matters intended by the parties as the meaning of the term non-refundable deposit moneys.  I think the better interpretation is that the term “non-refundable” qualifying the term “deposit moneys” was intended by the parties to further encapsulate the concept in the words immediately preceding those words in Special Condition 2 namely that the first defendant had an unconditional entitlement to the deposit money.  In other words having stated that concept, the clause was then intended to reinforce that expressed position by describing those deposit moneys as “non-refundable” consistent with the first defendant’s unconditional entitlement to them. 

22. [22]
    It follows from this interpretation that the first respondent was at all times after execution of the contract entitled to the $100,100 deposit and the payment to him of the sum of $83,222.50 was consistent with that entitlement and cannot be challenged by the plaintiff.

23. [23]
    As to the balance figure of $16,872.50 commission paid by the second defendant to itself, on the material before me that would appear to have been a payment to which the second defendant was not entitled and would not have become entitled until the transaction settled. It did not settle so no entitlement arose. On that basis the payment was made in breach of s.385(2)(c) of PAMDA absent any written direction of the kind contemplated by s.378(1)(b) from the first defendant.^[6]

24. [24]
    But that payment of commission by the second defendant to itself is not a matter in which the plaintiffs have any relevant interest. If anyone has an entitlement to seek to recoup that payment it would be the trustee of the bankrupt estate of the first defendant. The moneys paid were the first defendant’s funds. The plaintiffs had, and have, no interest in them.

25. [25]
    It follows from the above that, notwithstanding a possible breach of s.385 of PAMDA in relation to the commission payment of $16,872.50, the plaintiffs have no claim on, or to the return of, any part of the deposit of $100,100. The claim is dismissed with the plaintiff to pay the defendants costs to be agreed or in default of agreement on a standard basis.