Newlander Development Pty Ltd v Jung Kyun Han and Anor

The issue was whether a standard form contract for the sale of land providing for a non-refundable deposit (which did not exceed 10 per cent of the purchase price) was an instalment contract within s 71 Property Law Act 1974. Her Honour held that upon the proper construction of the contract, it was plain that it was not an instalment contract. Judgment was given for the defendants and their termination of the contract was held to be lawful.

Bowskill CJ

4 May 2023

The parties entered into a standard REIQ form of contract for houses and residential land. [7]. The reference schedule of the contract provided for a deposit to be paid as follows:

(a)$30,000 – “Initial Deposit payable on the day the Buyer signs this contract unless another time is specified below”. Handwritten below this are the words “48 hours from contract date”.

(b)$335,000 – “Balance Deposit (if any) payable on: 48 HOURS FROM UNCONDITIONAL DATE”. [9].

Clause 7 of the special conditions, which was handwritten, provided as follows:

“… Non-Refundable Deposit

First part of the $30,000 deposit is non-refundable after 48 hours from the contract date.

Balance Deposit of $335,000 is non-refundable after satisfactory [sic] of due diligence. Seller would be able to access the fund upon agreement with buyer.” [12].

As matters transpired, the plaintiff failed to settle and thereafter the defendants purported to terminate the contract. The plaintiff argued that due to the special conditions, the contract was an “instalment contract” within the meaning of s 71 Property Law Act 1974 and that accordingly the defendants’ purported termination was invalid. They sought specific performance. The defendants sought a declaration that their termination of the contract was lawful, and that they were entitled to forfeit the deposit pursuant to cl 2.4(1) of the standard terms of the contract, as well as an order for removal of a caveat lodged by the plaintiff. [1]. They sought summary judgment together with judgment on their counterclaim. [2].

The competing arguments

The plaintiff contended that because cl 7 of the special conditions stated that the deposit was “non-refundable”, the seller was not entitled to retain it in the event of the plaintiff’s default. The plaintiff argued that once it had paid the deposit, it lost its estate or interest in those funds and accordingly the money paid did not satisfy the definition of “deposit” in s 71 Property Law Act 1974 (but rather was a payment the plaintiff was bound to make under the contract without becoming entitled to receive a conveyance in exchange, so that the contract was an “instalment contract” as per s 71). [14]. The plaintiff argued that to the extent that other conditions in the contract were at variance, special condition 7 prevailed. [15].

Citing Phillips v Scotdale Pty Ltd (2008) Q ConvR 54-692, the defendants submitted that there was no inconsistency and regardless of the inclusion of the word “non-refundable” in special condition 7, the deposit was still susceptible to be forfeited and the contract was not an instalment contract. [16], [25].

The applicable caselaw

Her Honour meticulously reviewed the cases in this area.

In Phillips v Scotdale Pty Ltd (2008) Q ConvR 54-692, there was a special condition concerning payment of the deposit, albeit it was in different terms. In that case, Justice Keane observed that the liability referred to in s 71(c) Property Law Act 1974 is a liability to the loss of the sum by the purchaser which is final and absolute, not provisional or defeasible. (at [24]).

The Court also noted that it is generally accepted that “the essential characteristic of a deposit in a contract for the sale of land is that it is susceptible to being forfeited by a buyer to a seller upon the buyer’s breach... The possibility that the deposit might be lost to the buyer for other reasons as well is not apt to deny its essential character as a guaranteed payment. The circumstance that the purchaser’s entitlement to recover the payment may be lost by virtue of events other than the breach of contract by the purchaser does not detract from the character of the payment as a guaranteed payment to the vendor. Indeed, the circumstance that a payment made by a buyer may be forfeited to the seller by reason of events additional to the buyer’s breach serves to strengthen the character of the payment by the buyer as a guaranteed payment to the vendor.”(per Keane JA at [27]).

The plaintiff sought to distinguish Phillips on the basis that the wording of special condition 7 was dissimilar. [26]. It principally relied upon Starco Developments Pty Ltd v Ladd [1999] 2 Qd R 542 and Amnico Holdings v Griese [2016] 2 Qd R 512. [27].

Her Honour observed that since the contractual provisions in Starco were distinctive, the decision was not of any direct assistance in resolving the construction issue in this case. [28]. That said, McPherson J importantly clarified in that case (at [21]) that regardless of whether parties agree that a deposit be paid “forthwith” to the vendor (or in the current matter that it be “non refundable”), it remains the case that the buyer continues to have a right to recover that money from the seller in certain circumstances, and as such the deposit remains liable to be forfeited. That conclusion was supported by Amnico Holdings Ltd v Griese [2016] 2 Qd R 512.

The Victorian Court of Appeal examined the construction of an agreement which provided for the payment of a non-refundable deposit in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ASAL 55-139. There, the Court held that the crucial issue of construction should be approached by making the inquiry as to what reasonable business people in the position of the parties would have intended the clause to mean, and that as a matter of logic, “non-refundable” does not mean non-refundable in all circumstances (for example repudiation of an agreement or default of obligations).

Having regard to those principles, her Honour concluded:

“whilst the deposit money became the property of the defendants (Sellers) upon the payment to them of that money, under the contract it still operated as a deposit… and remained ‘liable to be forfeited and retained by the vendor’ for the purposes of the definition of ‘deposit’ in s 71 of the Property Law Act. The fact that special condition 7 did not include words to the effect ‘except where the Seller is in breach’ does not alter this conclusion, because the Buyer’s contingent right to recover the deposit, for example in the event of the Seller’s breach, arises as a matter of law. The contract is not an ‘instalment contract’ within the meaning of s 71 of the Property Law Act”. [38]–[39].

Disposition

The Court declared that the defendants’ termination of the contract was lawful and the defendants were entitled to forfeit the deposit.

A Jarro