Contract, repudiation by purchaser, entitlement to repayment of deposit less damages incurred by vendor ,whether relief against forfeiture in equity, appeal from Magistrates’ Court & whether competent to raise question of law not raised at trial: Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd & Anor [2011] VSC 661 (16 December 2011)

January 11, 2012 |

In Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd & Anor Kaye J reviewed the law relating to deposits and  raising a legal point on appeal which was not agitated at trial.

Facts

The appellant (Fiorelli) engaged the first respondent (Professional Fence Makers) to build a fence and its property. Under the terms of an agreement the price was $47,300; being a deposit of $17,300, a first instalment of $15,000 and a final instalment of $15,000.  At the time the parties entered into the agreement there was a lack of detail about the the characteristics of the gate, in particular the means by which it would move. This became a significant matter in issue. Fiorelli, through its director, telephoned the second respondent and said that Fiorelli had engaged another company to supply and install the fence and gates and would not require the assistance of Professional Fence Makers. Fiorelli sought repayment of the deposit and return a steel plates it had provided Professional Fence Makers and ultimately it sued Professional Fence Makers for the deposit.  At trial the Magistrate found that there was the wrongful repudiation of the agreement by Fiorelli, that Professional Fence Makers accepted that repudiation and that Professional Fence Makers was entitled to retain the deposit.

Fiorelli appealed but only took issue with the Magistrate’s finding that Professional Fence Makers was not required to repay the deposit. Fiorelli contended that Professional Fence Makers was required to remit the balance of the deposit less  the amount spent by Professional Fence Makers purchasing materials .

Issue

Fiorelli’s counsel submitted that a vendor is entitled to forfeit a deposit involving a contract of sale where there is rescission by the purchaser but only in relation to contracts for the sale of real property, [17]. Alternatively, if as a matter of law Professional Fence Makers was entitled to retain the deposit, equity would assist Fiorelli to recover the amount consisting the sum of the deposit less the loss incurred by Professional Fence Makers due to the repudiation, [18]. Because  the deposit was more than one third of the contract sum and that was substantially in excess the amount is required to secure compliance with the contract Fiorelli submitted it was penal in nature. As such it would be unconscionable for Professional Fence Makers to retain the whole of the deposit, [20].

Kaye J considered the authorities regarding the functions of a deposit, in particular Howie v Smith, and stated, at [31]:

In any contract, a deposit constitutes an earnest, to bind the bargain, and a guarantee of due performance, of the contract, by the payee. Those two functions, of a deposit, have been long entrenched in contract law. Indeed, as Fry LJ explained in Howe v Smith the practice of giving something to signify the conclusion of a contract is one of great antiquity, deriving originally from Roman law, and which passed into the early jurisprudence of England. That practice was not confined to contracts for the sale of real property, but, it would seem, was common to all forms of contracts.

His Honour also considered the issue in the context of Baltic shipping company v Dillon, [37], where the High Court compared the operation of and drew the distinction between a deposit and part payments. Mason CJ in that decision stated that one of the distinctions between deposits and a part payment is that the deposit is forfeited if the plaintiff does not perform the contract.

Fiorelli sought relief in equity on appeal but did not make a claim in equity in pleadings or arguments at trial. Kaye J highlighted the first, and fatal, difficulty with this approach was that section 109 of the Magistrates Court Act requires that an appeal is  brought on the question of law. Fiorelli submitted that had the issue been raised before the Magistrate she would have been obliged to find in its favour, [43]. His Honour found that the magistrate made a decision strictly on the principles of law but now raising an alternate, different claim in equity does not constitute an error of law and precludes it being raised on appeal, see [44] [47].

Notwithstanding that finding Kaye J went further and noted that, as a general principle,  a party is not entitled, on appeal, to raise a point which is not taken at trial unless it could not possibly have been met by further evidence adduced [48]. At [49] [50] Kaye J considered that to raise a viable equitable claim at trial there would have have been further evidence led.

At 49ff is Honour considered whether the equitable principles relied upon by Fiorelli were sustainable, in particular whether Denning LJ’s decision in Stockloser v Johnson was good law in Australia.  In Stockloser Court of Appeal held that for equitable principles to be engaged the forfeiture clause must be of a penal nature and it must be unconscionable for the party to whom the deposit was paid to retain it. His Honour considered that even if the Court of Appeal’s decision in Stockloser was applicable there is some doubt that it would apply to a deposit, [55].  At [56][61] His Honour considered treatment of Stockloser in Australia, which is at best at a equivocal.

Issue

Kaye J undertook a very useful analysis of principles relating to deposits and forfeiture in the event of a breach of contract. The court made it very clear that grounds of appeal from the Magistrates Court are limited to questions of law. That precludes raising and arguing points on appeal not considered at trial. Pleadings remain important in the Magistrates Court. In this case equity,  available as an alternative to the statutory and common law claim, should have been pleaded. But as his Honour noted, when pleading an alternate cause of action it is vital to to consider what further evidence is required. His Honour pointed out very clearly that to establish the penal nature of a clause and/or its unconscionability so as to sustain a claim in equity required more than simply arguing that the principles apply.

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