The Facts

Buyer and sellers exchange contract for sale and purchase of land

On 19 January 2018, a buyer and seller exchanged contracts for the sale and purchase of a property in Kissing Point Road, South Turramurra, in NSW. The sale price was $2.83 million, with a 10% deposit of $283,000.

The buyer was a company. The sole director and secretary of that company signed the contract as guarantor.

On exchange of contracts, the buyer paid a five per cent deposit of $141,500. A clause in the contract provided for the balance of the deposit to be paid "on or prior to completion".

The date for completion was 19 July 2018, being six months from the date of exchange.

Under the contract, if the buyer did not complete on the due date then the sellers could issue a notice to complete, making time of the essence. The new completion date set out in the notice to complete had to be "not less than 14 days after the date of service of the notice".

Buyer unable to settle, sellers issue notice to complete

As the 19 July 2018 settlement date approached, the buyer gave notice that it may not be able to settle on that date because it could not finalise its finances in time. However, it stated that it could settle by 21 August 2018.

At 6:22am on 20 July 2018, the sellers issued the buyer with a notice to complete, requiring completion of the sale on or before 3pm on Friday 3 August 2018.

The notice to complete stated that time was of the essence, and that unless the buyer completed within the time specified, the sellers would be entitled to terminate the contract.

Sellers agree to extend completion date under notice to complete

The buyer subsequently notified the sellers that its finance had been approved, but that the bank had arranged a new valuation of the property, which was $510,000 less than the purchase price.

The buyer needed more time to organise the shortfall in funds and requested that the date for completion under the notice be extended to 23 August 2018. The sellers agreed to this extension.

Buyer still unable to settle and sellers terminate contract

On 23 August 2018, the buyer notified the sellers that it had failed to rectify the shortfall in funds.

On 27 August 2018, the sellers terminated the contract by notice to the buyer and sent the buyer and guarantor a demand for payment of the balance of the deposit, plus interest, and reserved their rights to claim damages.

Buyer claims sellers repudiated contract, legal proceedings commence

In response, the buyer alleged that the sellers' purported termination was invalid and amounted instead to a repudiation of the contract by the sellers. The buyer gave notice that it accepted the sellers' repudiation, that it was itself terminating the contract and demanded that the sellers repay the five per cent deposit already paid.

In November 2018, the sellers commenced legal proceedings against the buyer and the guarantor in the Supreme Court of NSW.

Prior to the hearing date, the sellers sold the property to another purchaser for $2.23 million, which was $600,000 less than the original sale price which the buyer had agreed to pay.

case a - The case for the property buyer

case b - The case for the property sellers

  • It is not our fault that the bank's valuation changed, and we were unable to obtain finance.
  • We never told the sellers that we would be unable to complete the purchase. We simply flagged that we might not be able to complete.
  • The notice to complete was invalid because it allowed less than 14 days for completion after the date of service of the notice. The notice was served on 20 July 2018 and required completion by 3 August 2018. That is only 13 days for completion, if you exclude the day on which it was served, which is the general rule when interpreting contracts of this nature.
  • Since the notice was invalid, time was not of the essence, which is a legal requirement for the sellers to terminate the contract.
  • The sellers cannot make time of the essence by extending the completion date under an invalid notice to complete. The sellers should have withdrawn the original notice and served us with a new notice to complete.
  • In any event, the conduct of the sellers in negotiating the extension of time was inconsistent with maintaining that time was of the essence.
  • The sellers' conduct amounted to a wrongful repudiation of the contract and the contract was therefore validly terminated by us, not by the sellers.
  • In those circumstances, the sellers cannot recover anything from us or from the guarantor. The guarantee only extends to the guarantor performing its obligations under the contract, and there are no obligations under that contract if it was terminated by us.
  • We seek an order that the sellers repay our $141,500 deposit.
  • While the general rule of construction may be that the date of service is not to be included in calculating a notice period, that rule did not apply in this case. There was a specific provision in the contract stating that the notice period would commence "at midnight on the day on which the notice is served". That is, under this contract the day of service was included when calculating the 14 days.
  • The notice to complete was therefore valid and time was of the essence.
  • When the buyer agreed to an extension of the completion date under the notice to complete, they never made any suggestion or complaint that the notice to complete was invalid.
  • Since the notice to complete was valid, so was the agreed extension. Time continued to be of the essence, and we were entitled to terminate the contract for breach of an essential obligation.
  • Irrespectively, the buyer's behaviour conveyed to us an intention not to be bound by the contract any longer. This was a repudiation of the contract that also entitled us to terminate.
  • If we cannot recover damages from the buyer, of course we can instead recover damages from the guarantor, since the guarantee makes her liable as if she had purchased the property herself.
  • Because the sale did not proceed, we have subsequently made a loss on the resale of the property and we seek an order for damages in the sum of $600,000, less the five per cent deposit already paid.

So, which case won?

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