Which case won?

The case for the sellers
  • We never agreed to accept anything less than a ten per cent deposit. The buyers agreed to this and signed the contract, which emphasised that they were “required to pay the deposit on the making of the contract, with time being essential in that regard”.
  • We agreed to allow several extensions of the cooling-off period to give the buyers ample time to organise their finances and we have been more than accommodating in our dealings with them. Their failure to complete the contract is not due to anything we did or failed to do.
  • Even though we sold the property, we incurred an additional fee of $7,000 in marketing costs as a result of the buyers reneging on their agreement.
  • The buyers failed to respond to many emails from our solicitors requesting updates and clarification of their position. This gave us no choice but to take the steps we did.
  • The price we ultimately sold the property for is irrelevant. The buyers agreed to pay the deposit under the contract and they should be held to that agreement.
The case for the buyers
  • The property owners did agree to accept a deposit of less than ten per cent of the purchase price.
  • The owners initially raised no complaint when we paid only a portion of the deposit and made no demands for the unpaid amount of the deposit to be paid.
  • We made genuine efforts to organise our finances and to complete the contract within the stipulated timeframe.
  • It does not matter that we failed to pay the deposit, as the owners managed to sell the property anyway. The owners suffered no loss as a result of our conduct – they even managed to make a profit of $180,000 on the sale, compared to what they would have received if we had bought the property as initially agreed.
  • In view of the windfall profit achieved by the sellers, it only fair that we should be released from the obligation to pay the unpaid amount of the deposit.

So, which case won?

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Expert commentary on the court's decision

"The fact the property was resold for an increased price is not normally in itself sufficient to warrant a court order providing relief to the buyers from forfeiture of the deposit.”
Supreme Court rules in favour of property sellers

In Proietti-Formaggio v Sacca [2022] NSWSC 1019, the Supreme Court of NSW found in favour of the owners, the Proietti-Formaggios (the couple selling the property in Sydney’s West Pennant Hills). Justice Darke ordered that the Saccas (the couple who had entered the contract to buy the property) pay the sellers the remaining deposit of $219,125, plus pre-judgment interest calculated from 1 February 2021.

Court rejects claim that sellers agreed to accept less than ten per cent deposit

In attempting to avoid paying the unpaid amount of the deposit, the Saccas and their solicitors utilised a two-pronged approach.

First, they argued that the Proietti-Formaggios had agreed to accept a deposit of less than ten per cent of the initial purchase price. However, when the buyers and their lawyer were cross-examined during the court proceedings, they gave evidence to the contrary.

Justice Darke noted that acceptance of a reduced deposit by the sellers could not be deduced from their lack of complaint and initial absence of demand for payment.

Would it be unjust or inequitable for the sellers to keep the deposit?

Secondly, the buyers relied upon section 55(2A) of the NSW Conveyancing Act 1919, arguing that the court should grant them relief against forfeiture of the deposit, because it would be unjust or inequitable to allow the sellers to keep it.

It was a strong factor in favour of the buyers that the sellers only suffered minimally as a result of the Saccas’ conduct. However, the court pointed out that the fact the property was resold for an increased price was not normally in itself sufficient to warrant a court order providing relief to the buyers from forfeiture of the deposit.

The court noted that the proper function of a deposit is in providing a sanction, so that buyers treat the making and completing of contracts with due seriousness.

To further analyse this question, the court examined past cases dealing with similar disputes.

Increase in value of property does not relieve buyer of responsibility to pay deposit

In Barrett v Beckwith (No 2) (1974) 1 BPR 9439, Justice Holland adjudged that although the value of a parcel of land had increased by 30 per cent, the buyers nonetheless owed the full deposit to the sellers, as giving the buyers relief against forfeiture purely on the basis that the value of the property had increased would mean that any buyer could default in such circumstances, without any fear that the deposit was in jeopardy.

In our case, Justice Darke used similar reasoning.

Buyers had ample opportunity to rescind contract

Another factor which worked against the purchasers was that due to the extensions to the cooling-off period that had been granted by the Proietti-Formaggios, the Saccas had had several weeks between 30 November 2020 and 12 January 2021 to rescind the contract.

If they had chosen to do so, they would have been liable to forfeit only 0.25% of the purchase price, or $5,875, to the vendors. However, the buyers did not seek to rescind the contract before the end of the cooling-off period.

Importance of communication in contractual dealings and legal proceedings

There were two distinct communication failures on the part of the prospective buyers in this case. The first was their failure to communicate with the sellers, respond to their requests for information and keep them up to date regarding progress in finalising the sale of the property.

Twice the sellers emailed, asking to be sent a copy of the conditional loan approval which the buyers had purportedly received, but did not receive a reply to either email.

Faced with silence in response to multiple emails requesting information, the sellers had few options but to issue a Notice to Complete and a Notice of Termination.

The second – arguably more damaging – communication failure by the buyers was that they did not provide an adequate explanation to the court of why they did not fulfil their contractual obligations.

As the judgment notes with a hint of surprise and reproach: “ordinarily it would be expected that a purchaser seeking relief under section 55(2A) would provide a full account of the circumstances that led to the forfeiture of the deposit”.

In the absence of such an explanation, the court was not convinced that the circumstances warranted the return of the deposit to the buyers. As well as failing in their bid to keep the deposit, the buyers were required by the court to pay the sellers’ legal costs.

We can only speculate whether the outcome might have been different if the buyers had fully explained to the court why they had failed to meet their contractual obligations.

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.

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