Australia: The proper measure of a vendor's damages under a contract for the sale of land

HG Property Litigation Alert: 18 June 2015

Ng & Anor v Filmlock Pty Ltd & Ors [2014] NSWCA 389

This decision by the New South Wales Court of Appeal discusses the proper measure of a vendor's damages under a contract for the sale of land where the purchaser repudiates the contract and the vendor later re-sells the property.

On 21 November 2005, the Appellants (purchaser) entered into an option deed with the Respondents (vendor), under which they were granted an option to purchase a property owned by the Respondents. On 13 August 2007, the purchaser exercised the option, and the purchaser and the vendor entered into a contract with respect to the property for a purchase price of $7,210,000.

On 14 April 2008, the vendor served a notice to complete on the purchaser, which required the purchaser to complete the contract by 2 May 2008. The purchaser did not complete by 2 May 2008 and so, on 5 May 2008, the vendor terminated the contract on the basis of the purchaser's repudiation. Approximately 13 months later, the vendor re-sold the property for $3,100,000. The vendor then commenced Court proceedings against the purchaser (and guarantors) claiming damages by reason of the purchaser's failure to complete the contract.

The contract provided that, in the event of termination, the vendor could sue for damages calculated by one of two methods:

  1. if the property was resold within 12 months of the date of termination, the vendor could sue to recover the deficiency on resale and the reasonable costs and expenses arising out of the purchaser's non-compliance with the contract; or
  2. otherwise, the vendor could sue to recover damages for breach of contract.

At first instance, the Supreme Court of New South Wales found that the measure of the vendor's loss was the difference between the purchase price payable under the contract ($7,210,000) and the net amount received when the property was resold ($3,100,000) plus interest until the date of judgment.

The purchaser appealed the decision at first instance and argued that the vendor was only entitled to damages calculated as the difference between the price payable under the contract ($7,210,000) and the true value of the property as at the date the contract was terminated (5 May 2008) and not when it was resold some 13 months later.

The New South Wales Court of Appeal held that the Supreme Court at first instance had erred by assessing damages by reference to the resale price. The Court also held that, as the property was resold later than 12 months after the contract was terminated, the contract did not permit the vendor's damages to be assessed in this manner.

The Court of Appeal confirmed the general rule that damages for breach of a contract for sale of land are assessed as at the date of breach of the contract, which is usually addressed by comparing the contract price with the value of the land at the time of the purchaser's breach. It was also said that just because a sale of land might take longer than the sale of other types of assets, that does not of itself justify a departure from the general rule. Accordingly, the critical date was the date when the bargain was lost, in this case, the date when the vendor exercised its right to terminate the contract for breach on 5 May 2008.

Gleeson JA, in obiter, commented that the general rule "is not inflexible" and that the "the general rule will yield if 'in particular circumstances, some other date is necessary to provide adequate compensation'".

The Court of Appeal allowed the appeal, set aside the orders at first instance and, as there was no evidence as to the value of the property as at the date of termination, remitted the matter to the Supreme Court of New South Wales for the purpose of the parties adducing evidence as to this and then recalculating the damages to which the vendor is entitled.

Recently, the Queensland Court of Appeal cited this decision with approval in Baguley v Lifestyle Homes Mackay Pty Ltd [2015] QCA 75.

Vendors and agents should therefore be aware that, subject to the specific provisions of the contract, where a contract is terminated by reason of the purchaser's repudiation, the usual amount of the vendor's damages will be the difference between the contract price and the value of the property at the time of the breach, unless the particular circumstances of the case require that a departure from that rule is necessary to provide adequate compensation for the breach. The onus will fall on the party claiming a departure from the general rule to prove that such a departure is necessary.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Hayley Schindler
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