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Benchmark - Cases & Commentary
Contract for Sale
    •  Termination
        -  NEW Assessing damages based on value of property
        -  Dishonour of deposit
        -  Failure to settle where time of the essence
        -  Misclassification of land

Assessing damages based on value of property 

Kennelling Investments agreed to sell commercial property to Mr Tilse. The purchase price was $1,155,000.00. The purchaser paid a deposit of $50,000.00 on exchange.

Mr Tilse defaulted under the contract and the contract was terminated.

Kennelling Investments then sued Mr Tilse for damages.

By the time of trial, the property had not been resold.

Kennelling Investments claimed that the value of the property had declined and claimed damages calculated as the difference between the purchase price and the market value of the property on the day the contract was terminated.

Kennelling Investments presented evidence to the Court that the market value of the property on the date of termination was $620,000.00.

Mr Tilse presented evidence that the market of the property on the date of termination was $1,150,000.00.

The two different valuers used by the parties had adopted different approaches to valuation. The valuers had agreed that the building on the property was economically obsolete and that the site was ready for redevelopment. They also agreed the best use of the site would be to redevelop it.

The valuer relied on by Kennelling Investments had used the traditional valuation method of assessing the prices achieved for comparable properties.

The valuer relied on by Mr Tilse had used four different methods of valuation and checked them against each other.

The Court analysed the methods used by Mr Tilse’s valuer, and found them to be of no assistance in determining the value of the property. Although the Court had reservations about the suitability of all the comparable properties referred to by the valuer relied upon by Kennelling Investments, the Court accepted the valuation that valuer had given.

Therefore, the Court awarded damages in the amount of $485,000.00 plus interest.

Kennelling Investments Pty Ltd v Tilse [2011] NSWDC 196

Termination of contract following dishonor of deposit and vendor’s entitlement to shortfall of ultimate purchase price as damages 

The vendors (Burnet and another person) entered into a contract to sell their home at Collaroy Plateau to Ms Gubbay for $2.3 million.

Ms Gubbay signed a Contract of Sale, and gave a cheque for a deposit of $230,000. However, that cheque was then dishonoured by the bank.

Under the terms of the standard Contract of Sale, the bank’s dishonouring of the deposit cheque gave the vendors the right to rescind the contract.

However, instead of rescinding the contract, the vendors entered into negotiations with Ms Gubbay, to give her a chance to put up a suitable deposit. The possibilities discussed were that Ms Gubbay would give security over different property that she owned, or that she would be permitted to give a smaller deposit.

Ultimately, the parties could not agree, and the vendors terminated the contract.
The vendors then sold the property to a new purchaser. However the price they obtained was only $2.95 million – $350,000 less than Ms Gubbay had agreed to pay.

The vendors then sued Ms Gubbay for that $350,000.

The Court held that the vendors had been entitled to terminate the contract and that Ms Gubbay was liable for the $350,000.00 shortfall as damages for her breach of contract.

Burnet v Gubbay [2011] NSWSC 977

Termination of contract for failure to settle on settlement date where time was of the essence 

Kelly-Corbett agreed to sell residential property to Mullins. Settlement did not take place on the settlement date, and time was of the essence. Kelly-Corbett elected to terminate the contract, and then sold the property to another purchaser.

Because Kelly-Corbett had entered into a contract to purchase a replacement property, she suffered loss because the sale to Mullins did not occur. Kelly-Corbett sued Mullins in the District Court of Queensland, under clause 9.5 of the contract (which stated that the vendor may claim damages for any loss it suffers as a result of the purchaser’s default), and for common law damages for breach of contract.

The District Court held in Kelly-Corbett’s favour, and awarded damages of about $160,000.

Mullins appealed to the Queensland Court of Appeal.

The Court of Appeal held that Kelly-Corbett had been ready and willing to complete on the settlement date. Further, it was not necessary for Kelly-Corbett to have moved all her possessions out of the property by the settlement date, because Mullins had previously made it clear that she would not settle on that date.

The Court of Appeal also held that a reasonable purchaser would realise that a vendor who is selling residential property is likely to have entered into a second contract to buy a replacement property, and that the proceeds from the first sale will be necessary to complete the second sale, and that the vendor may therefore incur financial losses if the first sale does not go through. Therefore, the purchaser was liable for losses of that type caused by her breach of contract.

The Court of Appeal dismissed the appeal. Mullins remained liable for the losses Kelly-Corbett had suffered.

Mullins v Kelly-Corbett [2010] QCA 354

Termination of contract of sale of vacant land not classified as residential property 

Arc Holdings entered into a contract to buy land from Riana. On the date for settlement, Arc Holdings purported to terminate the contract of sale, on the ground that the contract did not contain the warning statements required by the Queensland Property Agents and Motor Dealers Act 2000. Riana denied that Arc Holdings had validly terminated the contract.

Arc Holdings sued Riana and Riana’s real estate agent in the Supreme Court of Queensland. The trial judge held that Arc Holdings had not validly terminated the contract. Therefore, Arc Holdings’ refusal to settle had been a breach of contract, which allowed Riana to keep the deposit.

The warnings required by the Property Agents and Motor Dealers Act, s 366, were only required where the property being sold was residential property. Therefore, the issue before the Court of Appeal was whether the land that Arc Holdings had agreed to buy from Riana was residential property.

The property being sold in this case was vacant land, which would only be classed as residential property under the Act if it was in a residential area.

The Court of Appeal looked at the state and local planning instruments that affected the area where the land was located, and decided that the land being sold was not in a residential area. Therefore, it was not residential property, and so Arc Holdings had not been entitled to terminate the contract. Therefore, Arc had been in breach of contract, and Riana was entitled to keep the deposit.

Arc Holdings (Aust) P/L v Riana P/L [2010] QCA 269