A property developer who signed up the $4 million buy of a 52 acre development site in Rockbank, in Melbourne’s outer west in August 2017 has stumbled at the finish line when it failed to have finance available to settle 5 years later.
The contract required VS Property to settle with sellers Nick and Sherryn Zurzolo on 5 November 2020.
After signing, a dispute arose with the relevant water authority – to which the buyer became a party – in relation to the vendors’ grant of an easement to the authority over part of the subject land.
The dispute remained unresolved due in part to the buyer seeking a significantly higher amount of compensation for the easement than that which the Zurzolos had agreed to.
The settlement date of 5 November 2020 passed and with no resolution in sight.
In March 2022, the Zurzolos – who were facing personal and financial difficulties due to the delay – called for settlement on or before 2 May 2022.
Buyer and seller were both aware the value of the land had also increased significantly.
After a further failure to settle on 11 May, the Zurzolos purported to terminate the contract due to the purchaser’s failure to settle.
But then in late June they served a 14 day default notice on VS calling for settlement by 12 July under pain of termination.
The water easement dispute was eventually settled in July with a settlement deed that agree the settlement date be extended to 15 September 2022.
The buyer was however unable to put the finance required to settle in place and completion did not occur.
The vendors – who had been ready, willing and able to settle – terminated pursuant to the settlement deed provision that treated the contract as automatically at an end by reason of the buyers not completing on the due date.
VS contested the termination and issued court proceedings for specific performance.
Its first contention was that the settlement deed automatic termination provision was not engage because the failure to settle was not a “default” on its part resulted only by reason of delay in their lender’s processes.
Justice Michelle Quigly agreed there was a distinction between the terms ‘fault’ and ‘default’ but held the buyer’s conduct was indeed a ‘default’ notwithstanding it arose from someone else’s ‘fault’.
The buyers further contended the termination – in the absence of a prior 14 day ‘Default Notice’ that the contract itself otherwise provided – was invalid.
Justice Quigly also rejected this argument. In her view, the failure to settle triggered the operation of the termination clause but not to bring it to an automatic end but the settlement deed term specifying contract coming “immediately to an end” effectively overrode the 14 day default notice period in the contract itself.
By notification of termination in the absence of a default notice, the sellers had – she ruled – lawfully terminated the contract.
Not to be outdone, the buyers also argued the seller’s termination was in breach of a special condition requiring – in the case of an electronic settlement – the parties to ‘do everything reasonably necessary to effect settlement on the next business day’ if it does not occur by the end of the agreed date.
Justice Quigly noted the ‘next day’ settlement provision was only to apply in circumstances where the PEXA electronic workspace was ‘locked’ at the nominated settlement time but settlement has not occurred by 4:00pm (or 6:00pm, if the nominated settlement time is after 4:00pm).
She noted the provision dealt with a situation where settlement does not occur because of some technical malfunction arising after the workspace has ‘locked’ and dismissed the assertion that the clause could be relied on in these circumstances.
“I reject the notion that Special Condition 2.7 can be relied on in circumstances where settlement did not occur at the scheduled settlement time because the purchaser had failed to secure finance by the agreed settlement date,” she wrote in her 47 page judgment.
“It would be a nonsensical interpretation to [say] it provides carte blanche to allow an additional day to complete settlement for a reason not associated with the mechanism and requirements of the technical procedure of the electronic settlement regime”.
The buyer’s claim for specific performance was dismissed and damages for the buyer’s breach were ordered as was the removal of the buyer’s caveat. The judgment does not refer to any amount of damages that the seller’s had claimed.
VS Property and Holding Pty Ltd v Zurzolo [2024] VSC 89 Quigly J, 6 March 2024
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