Article by Michael Mitchell and Manoj Peiris
Originally Published 29th January 2009
Hunt & Anor v Kallinicos & Ors  NSWCA 5
- The NSW Court of Appeal has held that a term requiring payment of a specified sum on a particular date is enforceable as a debt due and owing, even in an executory contract of mutual obligations.
- This is an exception to the general rule that an unpaid vendor (where there has been no delivery of the asset) can only sue for specific performance or damages.
The appeal arose from the mediated settlement brought by Kallinicos (plaintiff) against Hunt (defendant) for the taking of accounts from an alleged partnership or joint venture.
Kallinicos and Hunt engaged in various property dealings most of which were effected through companies which were joined as the third, fourth and fifth defendants as alleged trustees for the partnership or joint venture. The defence denied the partnership but admitted that a number of properties had been purchased for joint ventures.
The mediation culminated in the execution of Heads of Agreement ("the Agreement"). Clause 4 provided that the defendants:
"...shall pay the sum of $900,000 to Kallinicos as follows:
- the sum of $450,000 by close of business on 4 February 2008;
- the sum of $450,000 by close of business on 7 September 2009."
Clause 14 provided:
"In the event that payment is not made within 3 business days of the due date, the plaintiffs may enter judgment for the sum of $900,000 or such balance is (sic) at that time outstanding and the first and third defendant consent to entry of such judgment."
When the first instalment was not paid within the period allowed, the plaintiff applied on notice for judgment to be entered for $900,000. Brereton J gave extempore reasons and entered judgment in favour of the plaintiffs for $900,000. The defendants appealed.
Decision of Court of Appeal
Counsel for the appellants argued that his clients' obligation to pay was interdependent with and conditional on prior or simultaneous performance by the plaintiffs of their obligation pursuant to the Agreement to execute and deliver a Deed of Release and Transfer of Shares.
The Court of Appeal noted a dearth of appellate authority on the point, but found the statement of Sir Owen Dixon persuasive in McDonald v Dennys Lascelles Ltd1 where he said (quoting from a judgment of Sir John Salmond):
"The general rule...that in an executory contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is shown by the express terms of the contract. And it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase money or any part thereof is made payable on a fixed day, not being the agreed day for completion of the contract by conveyance. In all such cases the purchase money or such part thereof becomes, on the day so fixed for its payment, a debt immediately recoverable by the vendor irrespective of the question whether a conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated the contract. Notwithstanding such repudiation the vendor is not bound to sue for damages or specific performance, but may recover the agreed purchase money."
The Agreement in the instant case required instalments to be paid on fixed days which were not the days for performance of the plaintiff's obligations in regard to the delivery of the Deed of Release and share transfers. The argument for the existence of an implied term making obligations mutually dependent and concurrent therefore failed because it would be inconsistent with the express terms of the Agreement.
The appellants also argued that the provision for acceleration of the debt was void and unenforceable as a penalty because the benefit to the plaintiffs of the acceleration bore no relationship to the damage they had suffered as a result of the late payment of the first instalment and was therefore disproportionate. This argument was rejected following established authority of the High Court of Australia2 and nineteenth century decisions of the House of Lords.3
- The Court of Appeal has clarified an important point of law relating to the performance of obligations under a contract of sale of assets. Even where a contract appears to provide for mutual obligations of sale and purchase, a clause providing for payment of all or part of the purchase price by a specified date (independent of the performance by the other party of its obligations) will be enforceable as a debt. Drafters of contracts of sale should ensure that all obligations that are intended to be mutual are explicitly made so by the terms of the contract.
1 McDonald v Dennys Lascelles Ltd (19933) 48 CLR 457, 475-6
2 O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359
3 Thompson v Hudson (1869) LR 4 HL 1 and Wallingford v Mutual Society (1880) 5 App Cas 685
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