Case Note – Sue for Specific Performance or Termination for Breach of an Essential Term – don’t get fooled that each 5% clause is the same as the next!

Alexakis v Wan [2021] NSWCA 172 (11 August 2021)

The decision is a decision of the NSW Court of Appeal comprised of Meagher JA, Payne JA and Emmett AJA agreeing.

Facts

The respondent vendors entered into a contract with the appellant purchaser on 4 April 2019 for the sale and purchase of a residential property in Sydney. “Additional” clause 38 provided for the payment of the deposit in two instalments, the first ($150,000) on exchange and the second ($91,000) “on the 4th month after the contract date”. Clause 2.3 made payment of the second instalment by that time “essential”.

The appellant paid the first instalment on time. The second was paid on 7 August 2019. On 5 August 2019 the respondents purported to terminate the contract for breach by failing to pay the second instalment on or before 4 August 2019. The appellant brought a suit for specific performance. He argued that the respondents’ termination had been ineffective because the notice was given before the time for payment had expired. That payment was relevantly said to be due on or before 5 August 2019.

Legal issue

The issue in this matter is if Clause 21.5 of the contract allows for an extension of time for the payment of the second instalment. The appellant argues that this would occur in the instance that 4 August 2019 was a Sunday.

First instance

The primary judge dismissed the appellant’s claim to specific performance. Clause 38 was construed as requiring the second instalment to be paid during the calendar month that started at the beginning of 5 July 2019 and finished at the end of 4 August 2019. He also found that clause 21.5 did not operate to extend the time for payment to the next business day in circumstances where 4 August 2019 was a Sunday. He did so on the basis that clause 21.5 did not operate to extend time “in the case of clauses 2 and 3.2”, clause 2 making the time or times for payment of any of the deposit “essential”.

Appeal to the Supreme Court of New South Wales Court of Appeal

Meagher JA puts forward in his judgement that Clause 9 provides that if the purchaser did not comply with the contract “in an essential respect, the vendor can terminate by serving a notice”.

Clause 2.5 provides that if any of the deposit is not paid on the or a time that is made essential by Clauses 2.2 or 2.3, the vendor is entitled to terminate.

The Appellant’s argument that Clause 21.5 should have provided an extension on the required time of payment does not give effect to the requirements of Clauses 2.2 or 2.3. It further ignores the exception delineated in Clause 21.5 that there is no time extension allowed for Clauses 2 or 3.2.

The Court ruled that the Appellant’s argument does not give a congruent operation to these relevant provisions, which have the consequence that the times for payment of the deposit and provision of the deposit-bond are not extended by clause 21.5. Consequently, the appeal was dismissed.

Comments

It’s common practice in conveyancing in NSW, where property prices are high, for contracts for sale and purchase of land to exchange with 5% payable on exchange. Rather than writing 5% on the front page (which a purchaser should always prefer) the vendors solicitor inserts (what agents describe) a ‘top-up’ clause. The content of the clause is often not given much regard. Alexakis v Wan is a prime example of why significant care needs to be taken.

A common point of difference between dangerous clauses (as in the clause above) and ones which present less risk to a purchaser, is when the balance of the deposit is payable on a fixed date (dangerous) compared with on “the date of completion”. Take care to distinguish between the “date for completion” and the “date of completion”.

Clause 2.2 of the standard contract makes time for payment of the deposit essential. The contract also provides that if this day falls on a non-business day the deposit is still payable on that non-business day. Therefore if the date for payment of the balance of the deposit is a fixed date and the purchaser misses that date, the vendor could terminate for breach of an essential term.