Woolford v Oliver[2017] QMC 14

MAGISTRATES COURTS OF QUEENSLAND

The following legislation was cited:

Property Law Act 1974, ss 71, 71A, 72

Uniform Civil Procedure Rules 1999, r 293     

The following cases were cited:

Amnico Holdings Limited v Griese [2014] QSC 247

Braidotti v Queensland City Properties Limited (1990-1991) 172 CLR 293

Re Divoca Pty Ltd’s Caveat [1991] 2 Qd R 121

Phillips & Anor v Scotdale P/L [2008] QCA 127

Starco Developments Pty Ltd v Ladd [1999] 2 Qd R 542

Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503

Watpac Developments Pty Ltd v Latrobe King Commercial Pty Ltd [2011] QSC 392   

1. The sole issue in this case is whether the contract between the parties is an instalment contract under section 71 of the Property Law Act 1974 (PLA) and primarily turns on whether the payment required to be paid before completion was a “deposit” as defined in that section.  
2. By contract in writing dated 5 March 2015 the respondents (the vendors) agreed to sell to the applicants (the purchasers) a residential property at Cotswold Hills conditional on the sale of the purchasers’ property at Glenvale.   
3. The contract provided for a purchase price of $730,000.  In accordance with the contract, on 6 March 2015 a deposit of $5,000 was paid to the vendors’ real estate agent’s trust account.  The date of settlement was “on or before 2 September 2015”.        
4. In accordance with a special condition of the contract, on or about 27 March 2015 the purchasers elected to take early possession of the Cotswold Hills property by entering into a residential lease with a weekly rental of $650.  They paid a bond of $2,600 to the Residential Tenancies Authority.
5. The purchasers later waived the condition of the sale of their Glenvale property on either 28 August 2015^[1] or 1 September 2015^[2].
6. The date of settlement was varied from time to time subject to the payment of default interest and with time remaining of the essence.  It was first extended to 30 September 2015 then to 2 October 2015^[3].  On 9 October 2015 the purchasers sought a further extension to 23 October 2015 offering to increase rent by $50 per week. While the Statement of Claim only pleads an agreed extension to 2 October 2015^[4], the evidence in this application suggests that an extension to 23 October 2015 was accepted by the vendors’ solicitors in their letter of 9 October 2015 to the purchasers’ former solicitors and reaffirmed in a later letter of the 23 October 2015^[5].  The increased rent was paid from 9 October 2015 to at least 6 April 2016 when the purchasers were served with a Form 12 Notice to Leave pursuant to the Residential Tenancies and Rooming Accommodation Act 2008^[6].
7. However, as there was no agreement to extend beyond 23 October 2015 the vendors’ solicitors required settlement that day^[7].
8. As the contract did not settle on 23 October 2015, by facsimile dated 22 February 2016 from the vendors’ solicitors to the purchasers’ former solicitors, the purchasers were held in breach of contract^[8].  After receiving no response from the purchasers to correspondence in March 2016, the vendors’ solicitors purported to terminate the contract by letter 4 April 2016^[9].
9. Apart from correspondence of 23 October 2015 requiring settlement that day and 22 February 2016 advising of a breach, the purchasers were not provided with any notice to complete^[10].      
10. After some marketing in late 2015 and early 2016^[11], the vendors entered into a contract with a third party on or around 6 April 2016 to sell the Cotswold Hills property for $670,000^[12].
11. On 28 November 2016 the vendors instituted proceedings in this court seeking damages for, among other things, the shortfall in the sale price.                                                                                                                                              
12. The purchasers engaged their current solicitors shortly thereafter.  An Amended Defence was filed 20 February 2017 alleging that as the contract was an instalment contract as defined in section 71 PLA, the vendors had not validly terminated the contract on 4 April 2016 in accordance with section 72 PLA^[13].     
13. The purchasers apply for summary judgment under rule 293 of the Uniform Civil Procedure Rules 1999 (UCPR) on the basis that the vendors’ purported termination was ineffective due to non-compliance with section 72 PLA^[14]. 

The contract

14. The contract has the standard terms and conditions of an REIQ contract supplemented with special conditions.
15. Standard clause 3.1 provides that the purchasers must pay the Deposit to the Deposit holder as Stakeholder in the amount and at the times required in Item (8).  The amount is $5,000 payable on signing of the contract by the purchasers.
16. Standard clause 3.5 provides that the deposit is payable to the vendors (a) on settlement or (b) in case of the buyer’s default, on default.          
17. Standard conditions 4 and 5 provide that the contract is conditional upon pest and building inspection reports satisfactory to the purchasers and suitable finance being obtained within 21 days of the contract date. 
18. Standard clause 29 provides that any special conditions shall form part of the contract and shall prevail in the event of any inconsistency between them and the standard conditions. 
19. Special conditions in this contract are contained in Addendum A.  Special condition Clause 1 provides:

Deposit

Upon the contract becoming unconditional in regards to finance and building and pest, the $5,000 deposit becomes non-refundable and will be transferred directly to the Sellers

20. Special condition 3 provides that the sale of the Cotswold Hills property be conditional upon the sale of the purchasers’ Glenvale property.  It is noted that the purchasers waived this condition on 1 September 2015 by letter from their former solicitors to the vendors’ solicitors^[15] at a time when they were seeking extensions of time for settlement.     
21. Special condition 2 provides that the purchasers may take early possession of the property from 27 March 2015 by entering into a lease and being responsible for maintenance and repairs until settlement.

The PLA^[16]

22. Section 71 of the PLA relevantly provides:

71 Definitions for div 4

In this division—

deposit means a sum—

1. (a)
   not exceeding the prescribed percentage of the purchase price payable under an instalment contract; and

2. (b)
   paid or payable in 1 or more amounts; and

2. (c)
   liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser.

instalment contract means an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments.

…

prescribed percentage means—

1. (a)
   …

2. (b)
   otherwise—10%.

…

purchaser includes any person from time to time deriving an interest under an instalment contract from the original purchaser under the contract.

sale includes an agreement for sale and an enforceable option for sale.

vendor includes any person to whom the rights of a vendor under an instalment contract have been assigned

71A Application of div 4

…

1. (2)
   Where a contract for the sale of land may, at the election of the purchaser, be performed in a manner which would constitute it an instalment contract, it shall, unless and until the purchaser elects to perform it in some other manner, be presumed to be an instalment contract within the meaning of this section.

1. (3)
   This division applies—

1. (a)
   to an instalment contract entered into after the commencement of this Act; and

2. (b)
   despite anything to the contrary contained in any contract. …

23. Section 72(1) of the PLA relevantly provides:

72 Restriction on vendor’s right to rescind

1. (1)
   An instalment contract shall not be determinable or determined because of default on the part of the purchaser in payment of any instalment or sum of money (other than a deposit or any part of a deposit) due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in the approved form.

1. (2)
   A purchaser upon whom a notice in the approved form has been served may within the period mentioned in subsection (1) pay or tender to the vendor or the vendor’s agent such sum as would have been due and payable under the contract at the date of such payment or tender but for such default (including any sum in respect of which the default was made).

1. (3)
   Upon payment or tender under subsection (2) any right orpower of the vendor to determine the contract because of thedefault specified in the notice shall cease and the purchaser shall be deemed not to be in default under the contract. … 

Submissions

24. The purchasers submit that the contract is an instalment contract because they were bound to make payments (other than a deposit) prior to settlement without becoming entitled to receive a conveyance.  As the vendors had not validly terminated the contract by failing to serve a notice under section 72 PLA, the purchasers are entitled to summary judgment and that a trial is not necessary.   
25. There is no dispute that a notice under section 72 was not given.  The dispute is whether the contract is an instalment contract.        
26. The question is whether any one of the following payments render the contract an instalment contract (1) dealings around the payment of $5,000 (2) the payment of rent (3) the payment for repairs and maintenance of the property to third parties after taking early possession.

The $5,000

27. The purchasers submit that the “deposit” provisions in clauses 3.1 & 3.5 of the contract are consistent with the traditional definition of “deposit” in that it represents a part payment and security for performance:  McDonald v Denny Lascelles Ltd (1933) 48 CLR 457.  That is also consistent with the definition of “deposit” in section 71 PLA in that a sum payable is a deposit if it is “liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser”.
28. However, special condition 1 provides that when the contract becomes unconditional in regards to finance approval, building and pest inspections, the $5,000 becomes non-refundable and must be transferred directly to the vendors.  The effect is that the $5,000 becomes unavailable and not liable to be forfeited in the event of a breach by the purchaser and thus not a “deposit” as defined in section 71 PLA.  From the contract’s inception, the purchasers were bound to allow the transfer of the $5,000 from the vendors’ agent to the vendors when the contract became unconditional and they could not withdraw.
29. The pest and building inspections were satisfied on 26 March 2015 and the finance condition was satisfied on the 14 April 2015^[17].  There is no dispute that the contract became unconditional in regards to finance, building and pest^[18] and that the $5,000 was then transferred directly to the vendors.
30. It was submitted that the principles in Starco Developments Pty Ltd v Ladd [1999] 2 Qd R 542^[19] apply in this case.  There, two identical contracts for the sale of land were varied by addendum extending the completion date in consideration of the purchasers authorising payment to the vendors of the deposits and interest.  Pursuant to the original contract, the purchasers paid a deposit to the vendor’s solicitors as trustee where the deposit and interest earned was to be paid to the vendor on settlement or, if settlement did not occur due to the vendor’s default, to the purchaser.  The addendum relevantly provided:

1. The vendor and Purchaser do hereby authorise the Trustee and Stakeholder referred to in the Contract to forthwith pay the deposit of [$19,000] plus all interest earned by the investment thereof to the vendor.      

31. McPherson JA at [21] noted that the purchasers ceased to be beneficiaries of the moneys held in trust only becoming entitled to it in certain events such as the vendor’s default.  In concluding that the varied contract was an instalment contract, at [22] McPherson JA said that the purchasers were immediately bound to make the payment or permit the payment to be made by the trustee without receiving a conveyance in exchange for the payment.  The purchasers were not entitled to withdraw unilaterally.
32. The variation in Starco is contrasted with Kaneko v Crawford [1999] 2 Qd R 514^[20] where, upon a collateral agreement to vary the contract of sale, the seller agreed to an extension of time to complete upon the payment by the purchaser of a sum.  It was held that the purchaser was not bound to pay that sum under the contract of sale in terms of the definition of “instalment contract” in section 71 PLA.  The variation of the contract extending time only came into effect when the voluntary payment by the purchaser was made in accordance with the collateral agreement^[21].  Thus the agreement to vary did not make the contract of sale into an instalment contract.                  
33. In the present case, it was submitted the position is even stronger than in Starco because special condition 1 provides that the $5,000 “[became] non-refundable” once the contract became unconditional and therefore was not liable to be forfeited.  The purchasers were bound by this under the contract from its inception on 5 March 2015. 
34. On the other hand the vendors submit that while special condition 1 made the $5,000 non-refundable upon the contract becoming unconditional, it was a deposit prior to the contract becoming unconditional and therefore, retained the character of a deposit thereafter^[22].  
35. In reliance on a passage in Phillips v Scotdale Pty Ltd [2008] QCA 127^[23] at [26] it was submitted that the contract would only become an instalment contract if special condition 1 operated to “finally and absolutely extinguish the [purchasers’] entitlement to the deposit”^[24].  Here, the purchasers’ entitlement to the deposit was not extinguished until the contract became unconditional^[25] and, the time to determine if a contract is an instalment contract is from its inception: Re Divoca Pty Ltd’s Caveat [1991] Qd R 121 at [126]^[26]. 
36. In Scotdale a deposit was to be paid in two instalments.  Special condition 13 relevantly provided:

…as soon as practicable after the payment of the balance of the deposit, the deposit holder shall pay to the Seller the deposit …and the Buyers shall have no claim against the Sellers (provided the Sellers are not in breach of the provisions hereof) or the deposit holder except where the Seller is in breach of its obligations under this Contract in which case nothing will prevent the Buyer from recovering from the Seller any amounts entitled to it under this Contract or at law.  (my emphasis)

37. The result there was that the purchaser had retained the right to recover the payment if the vendors breached the contract and that the purchaser had not once and for all lost that entitlement. 
38. At [25] Keane JA contrasted Starco where the purchaser had abandoned any future claim to recover the moneys.  That position was adopted by the purchasers in this case. 
39. In Watpac Developments Pty Ltd v Latrobe King Commercial Pty Ltd [2011] QSC 392, in adopting the analysis of Keane JA and finding the case indistinguishable from that in Scotdale, McMurdo J. (as he then was) at [24] to [26] found that the relevant condition did not result in a final and absolute extinguishment of any entitlement on the purchaser’s part to the moneys resulting in a conclusion that the contract was not an instalment contract because the amounts paid constituted a “deposit” as defined in section 71 PLA.  That condition provided:

The deposit of $370,000 be immediately released to the seller on the condition that the deposit is to be refunded to the purchaser if the contract is terminated due to the default by [the seller].      

40. That condition was a variation of the original contract in extending the date for completion.  It is noted that the purchaser’s rights to recover the payment had not been absolutely extinguished under the varied contract in that case.
41. In Amnico Holdings Limited v Griese [2014] QSC 247, in return for the vendor agreeing to an extension of time to complete a contract for the sale of land, the purchaser agreed to release the deposit paid under the contract to the vendor^[27].  There were no other caveats expressed in that agreement for the deposit to be refunded to the purchaser on the vendor’s default as there were in Scotdale or Watpac.  Nor was the deposit so paid expressed to be “non-refundable” as in the instant case.
42. Jackson J was confronted with a similar argument that was agitated by the purchasers in this case where it was submitted at [26]:

The buyer’s argument as to the agreement for transfer or release of the deposit is that although the amount paid by way of deposit under the contract to the agent was then a deposit (and the contract was not an instalment contract at that time) upon that sum being transferred or released to the [seller] it ceased to have the character of a deposit, so that the payment to the seller was a payment the buyer was bound to make without being entitled to receive a conveyance in exchange.                    

43. In a submission rejected by Jackson J, the purchaser sought to distinguish Scotdale on the basis that the sum in Scotdale retained its character as a deposit notwithstanding transfer or release to the vendor because of special condition 13 (not present in Amnico) that the purchaser could recover the amount from the vendor.  At [31] Jackson J concluded that, although the transfer or release of the deposit to the vendor meant that the money became the vendor’s property at law, upon termination by the purchaser for the vendor’s breach for a consideration which has failed, the purchaser would be entitled to “obtain restitution of the deposit …not founded on the rescinded contract … [but] on the equitable notions of fair dealing and good conscience …”^[28].                
44. However, unlike this case, the agreement to extend time for completion did not provide that the sum paid to the vendors “[became] non-refundable”. 
45. In my view the use of the words “the $5000 deposit becomes non – refundable” in special condition 1 changes the nature of the $5,000 as a deposit to one that does not retain that character of a deposit once the contract became unconditional.  There is no exception preserving the purchasers’ rights to recover the $5,000 as was found in Scotdale or Watpac.  Further, the words “becomes non–refundable” included in the contract from its inception precludes any claims by the purchasers on restitution grounds as was the case in Amnico.  In my view those words have the effect that the $5,000 payment to the vendors finally and absolutely extinguished the purchasers’ entitlement to the deposit^[29].  Therefore, the $5,000 ceased to be a deposit as that word in defined in section 71 PLA.                     
46. The vendors cited Re Divoca Pty Ltd’s Caveat [1991] Qd R 121 as authority for the proposition that, regardless of what transpires subsequently, the time for determining whether a contract is an instalment contract is from its inception.  Relevantly, that case was concerned with a contractual provision for a rebate by way of payment from the vendor to the purchaser at the time of settlement.  A deposit of 10% based on the original purchase price was paid.  It was held that the purchase price was not reduced by the rebate payable at settlement so that the original deposit did not exceed 10% had it been so reduced^[30].  The question was whether the deposit exceeded 10% of a reduced purchase price by virtue of the rebate.
47. I note that Re Divoca Pty Ltd’s Caveat was not referred to in Amnico which considered that very submission at [26] & [30] per Jackson J.  I reject the respondents’ submission that this is authority for the proposition stated.  It also appears inconsistent with the operation of section 71A (2) PLA.                   
48. I conclude that the purchasers were contractually bound by special condition 1 upon entering into the contract on 5 March 2015 and that when the contract became unconditional the $5,000 was a payment other than a deposit the purchasers were bound to make without becoming entitled to a conveyance for the purposes of section 71 PLA.  The contract became an instalment contract.  If I am wrong on this point, I shall consider the other grounds below.  

The Payment of Rent

49. Pursuant to special condition 2 of the contract, the purchasers and vendors entered into a residential lease so that the purchasers could take early possession^[31].  On 26 March 2015 the purchasers paid a bond of $2,600 to the Residential Tenancies Authority^[32] and paid weekly rental of $650 from 27 March 2017 increased to $700 from 9 October 2015 to the vendors^[33].  There is some dispute as to whether the increased rent was agreed. 
50. The purchasers submitted that the contract from its inception contemplated that before they were entitled to a conveyance, they could, at their election, take early possession and pay an amount of money by way of rent^[34].  Further, it was submitted that section 71A (2) PLA applies here in that until the purchasers elect to perform the contract in some other way, for example by not taking early possession, the contract is presumed to be an instalment contract.   
51. Section 71 PLA makes it clear that the purchasers must be bound to pay money under “an executory contract for the sale of land” in order to fall within the definition of “instalment contract” and not under a separate agreement^[35].   
52. The question here poses some difficulty recognised by the authors of Land Contracts in Queensland^[36].  The contract for the sale expressly provides in special condition 2 that if the purchasers wish to take up early possession, they must enter into a residential tenancy agreement.  So, in contrast to Braidotti v Queensland City Properties Ltd (1990 – 1991) 172 CLR 293 where the liability to pay a weekly sum is contained in a clause of the contract for sale of land itself, here there is a separate agreement specifying the rent to be paid and other conditions.      
53. In Braidotti v Queensland City Properties [1990 – 1991] 172 CLR 293 under a contract for the sale of a farm, the purchasers who were developers, agreed to pay to the vendors $80 per week from the date of the contract until completion as the land was required to be maintained in a condition ready to plant crops.  This was designed to protect the vendors in the event the contract was determined by, for example, lack of rezoning approvals.        
54. In adopting the analysis in Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503, it was held by majority^[37] that the purchaser was bound to make those payments under the contract for sale within the meaning of “instalment contract” in section 71 PLA and thus the contract was an instalment contract. 
55. However, in this case special condition 2 of the contract provides that, at the purchasers’ election to take early possession, they can enter into a residential lease with the vendors.  While a separate residential agreement was entered into in this case, it was on the basis of rights created in special condition 2 of the original contract for sale^[38], that is, the liability to pay rent upon entering into a residential lease pursuant to the contract for the sale.  The position would be different where a contract for the sale of land did not have a condition like special condition 2 and the parties independently entered into a residential agreement granting the purchasers early possession. 
56. I am of the view that the rent payments were payments the purchasers were bound to make under the contract for sale within the meaning of “instalment contract” in section 71 PLA so that the contract is an instalment contract.
57. The next point is whether the payment of increased rent from $650 to $700 per week is such a payment under the contract for sale.  The purchasers submit that it does.  On the other hand the vendors submit that, even if that were agreed, it was not a payment the purchasers were bound to make under the contract of sale but an agreement to vary the tenancy agreement in consideration of an extension of time^[39].  I agree with the vendors’ submission on this point.  The position seems somewhat similar to that in Kaneko v Crawford discussed at [32] above.    

Payments for repairs and maintenance to third parties

58. In taking early possession, the purchasers were responsible for all maintenance and repairs from the date of possession until settlement: special condition 2(d). 
59. Despite written submissions, it was conceded at the hearing (or at least not vigorously agitated to the contrary) that payments made by the purchaser to third parties other than the vendors are not payments that fall within section 71 PLA:  see Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 at 507, 515, 532 cited with approval in Braidotti v Queensland City Properties Ltd (1990 – 1991) 172 CLR 293 at 299.  I agree with that and do not propose discussing this further.  The purchasers would fail on this ground.       

Summary Judgment

60. This is an application by the purchasers as defendants seeking summary judgment under rule 293(2) Uniform Civil Procedure Rules 1999 (UCPR) which provides:

293 Summary judgment for defendant

1. (1)
   A defendant may, at any time after filing a notice of intention to defend, apply to the court under this part for judgment against a plaintiff.

1. (2)
   If the court is satisfied—

1. (a)
   the plaintiff has no real prospect of succeeding on all or a part of the plaintiff’s claim; and

2. (b)
   there is no need for a trial of the claim or the part of the claim;

the court may give judgment for the defendant against the plaintiff for all or the part of the plaintiff’s claim and may make any other order the court considers appropriate.

61. There are numerous cases considering summary judgment applications^[40].  One often quoted case is Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232 on the meaning of “no real prospect of succeeding”.  It was noted there that summary judgment will only be granted in the clearest of cases.  Note also for example Reardon v Deputy Commissioner of Taxation [2013] QCA 46 on the question of whether a trial is necessary having regard to whether any cross examination would disclose a real issue.  The same considerations apply to a defendant applying for summary judgment as apply to a plaintiff under rule 292: see for example Theo v Logan City Council [2012] QPELR 78 per Robin QC DCJ. 
62. The purchasers referred to Bernstrom v National Australia Bank Limited [2002] QCA 231, a decision in the years shortly after the UCPR came into force.  In that case Jones J, with whom the other members of the court agreed^[41], noted with approval a decision of Wilson J in Foodco Management Pty Ltd & Diaz Keinert Pty Ltd v Gomai Travel Pty Ltd [2001] QSC 291 adopting at [37] a passage by Lord Woolf in Swain v Hillman [2001] 1 All ER 91 on a like provision in the United Kingdom (footnotes omitted)^[42]:

“…the court now has a very salutary power, both to be exercised in a claimant’s favour or, where appropriate, in a defendant’s favour. It enables the court to dispose summarily of both claims or defences which have no real prospect of being successful. The words ‘no real prospect of succeeding’ do not need any amplification, they speak for themselves. The word ‘ real’ distinguishes fanciful prospects of success or …they direct the court to the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.”

And later, of the rationale for those new rules, His Lordship said:-

“It is important that a judge in appropriate cases should make use of the powers contained in Pt 24. In doing so he or she gives effect to the overriding objectives contained in Pt 1. It saves expense; it achieves expedition; it avoids the court’s resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant’s interests to know as soon as possible that that is the position . Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.”      

63. I have concluded that the purchasers were bound to make payments (other than a deposit) under the contract for the sale of land without becoming entitled to receive a conveyance in exchange thereof on two bases (1) the $5,000 ceased to be a deposit once the contract became unconditional (2) the rent payments the purchasers were liable to make upon entering into a residential lease pursuant to special condition 2 of the contract for the sale of land.   
64. The consequence of this is that the contract became an instalment contract.  This means that, pursuant to section 72(1) PLA, the vendors could not determine the contract without serving the purchasers with a statutory notice.  There is no dispute that such a notice was not given.
65. I accept the purchasers’ submissions that the court would be in no better position after a trial to determine this question of law.
66. I give judgment for the purchasers who are the defendants in the claim.  I will hear the parties as to costs.