Author: whiggs

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Alienation of real estate by gift

(Source: Isin v Ozen [2016] NSWSC 1480; [157]-[165] per Hallen J)

Alienation of real estate will be effective, in equity, by gift, if the gift is “complete”: Corin v Patton (1990) 169 CLR 540; [1990] HCA 12, at 558, 563 – 570, 582 – 583; Costin v Costin (1997) 7 BPR 15,167; [1997] NSW ConvR 55-811; Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 8 BPR 15,565.

To effect the gift, the donor must do everything that, according to the nature of the property, is necessary to be done in order to transfer the property and render the gift binding on the donor: Milroy v Lord (1862) 45 ER 1185; (1862) 4 De GF & J 264.

What that means, in the context of Torrens system land, was the subject of debate until, in Corin v Patton, Mason CJ and McHugh J held, at 559, that:

“… the principle is that, if an intending donor of property has done everything which it is necessary for him to have done to effect a transfer of legal title, then equity will recognize the gift. So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. ‘Necessary’ used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part.”

Deane J, at 582, dealt with the way in which it can be determined that the stage had been reached when a gift of real property under an unregistered Transfer is complete and effective in equity:

“That test is a twofold one. It is whether the donor has done all that is necessary to place the vesting of the legal title within the control of the donee and beyond the recall or intervention of the donor. Once that stage is reached and the gift is complete and effective in equity, the equitable interest in the land vests in the donee and, that being so, the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title. In that regard, it is not a matter of equity ignoring the provisions of s 41 of the Act and treating the unregistered transfer as effective of itself to assign the beneficial interest in the land. It is simply that equity, acting upon the ‘fact or circumstance’ that the donor has placed the vesting of the legal title within the control of the donee and beyond the donor’s recall or intervention, looks at the substantial effect of what had been done and regards the gift as complete …”

It is, thus, now clear that for land held under the Torrens system, which is said to be the subject of the gift, the donee is unable to secure the registration of her or his title in her, or his, own name, without a transfer executed by the donors. The execution and delivery of the transfer is, therefore, to be regarded as “necessary” to be done by the donor.

In Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555; [1937] HCA 29, Dixon J (with whom Rich J agreed), wrote at 602-603:

“That delivery of the transfer to the donee or the donee’s agents is a condition which must be fulfilled before such a right will arise, appears to me to be clear. It is only by the control or possession of the instrument that the transferee could effect registration without any liability to interference or restraint on the part of the transferor. Further, I think that the donee must obtain property in the piece of paper itself and property in the paper could pass only by delivery (Cochrane v Moore (1890) 25 QBD 57). If property in the transfer remained in the transferor, his power of recalling it must also remain. For he would be entitled to possession of the paper, he could refuse to present it for registration, and he could destroy it. But, if by delivery to the donee or someone as bailee for her, the transferor has given her property in the instrument itself, then unless some further condition is expressly or impliedly prescribed by the statute, it would appear that the instrument, assuming it to be registrable, may be registered by the transferee independently altogether of the donor, and in spite of any objection on his part.”

The judgment of McTiernan J, at 609, was to like effect.

However, the delivery of the Transfer, on its own, is not enough. In Corin v Patton, Mason CJ and McHugh J continued, at 560-561:

“Whether or not it is correct to say that the production of a certificate of title is ‘necessary’ to achieve registration of a transfer of Torrens system land, it is apparent that a gift of such land cannot be regarded as complete in equity while the donor retains possession or control of the certificate of title … That is because it can scarcely be said that the donor has done everything necessary to be done by him if he has retained the certificate of title, by virtue of the possession of which the gift might well be thwarted.

In the present case Mrs Patton gave no authority for the mortgagee bank to hand the certificate of title to Mr Corin for the purposes of registration …

Accordingly, the transactions failed to pass the equitable property in the land to Mr Corin, and it is unnecessary to consider under whose control the instrument of transfer was after execution. Further, because the gift was incomplete, Mrs Patton could have recalled the transfer at any time. But it is not strictly relevant to ask whether or not Mrs Patton could have recalled the gift; that is not a criterion but rather a result of the efficacy or otherwise of the gift.”

Deane J, after the passage quoted above, continued, at 583:

“In the present case, the fact that Mrs Patton had taken no step to enable Mr Corin to procure the production of the duplicate certificate of title which was held by the bank meant that she had not done all that was necessary to place the vesting of the common law title within Mr Corin’s control … The plain fact remains however, that registration of the transfer and vesting of the legal title could not be said to be within Mr Corin’s control for so long as he was not entitled to procure production of the document of title. In any event, it is apparent that it remained in Mrs Patton’s power to intervene to prevent the vesting of any legal interest in him.”

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Witness credibility (deceased estates)

(Source: Isin v Ozen [2016] NSWSC 1480)

It is plain that the credibility of witness evidence is critical (lets say determinative) in cases where conversations are alleged with a deceased (for want of a better word!).

There may or sometimes will usually be contemporaneous documents including where authenticity of such documents is not in issue.

What follows is some relevant considerations to keep in mind in how these conversations are assessed and effect creditibility.

Black J has recently repeated in Coyte v Norman; Centre Capital (Newcastle) Pty Ltd v B Scorer [2016] NSWSC 1242 at [9]:

“…the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness’s motives and the overall probabilities”.

Where conversations are alleged with a party who is deceased, it was important to remember the principle expressed by Bryson AJ in Zahra v Francica [2009] NSWSC 1206 at [1] – [2]:

“In these proceedings the plaintiff makes claims against the deceased’s estate and the facts that he alleges depend for proof very largely upon his own evidence. In approaching his evidence and making findings on a matter he alleges, I bear in mind the need for careful scrutiny to which evidence in such a case should be subjected. This need is well established and was stated clearly by Isaacs J in Plunkett v Bull (1915) 19 CLR 544. Two more modern statements appear in the judgment of McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 at 789 in a passage which was cited with approval in the judgment of Sheller JA in Eggins v Robinson (2000) NSWCA 61 at [26]:

“… in a claim based on communications with a deceased person the Court will treat uncorroborated evidence of such communications with considerable caution, and will regard as of particular significance any failure of the claimant to bring forward corroborative evidence which was, or ought to have been, available.”

A clear re-statement of the principle showing its continuing applicability was made by Sheller JA in Eggins v Robinson ,see particularly pars [26] to [28] inclusive. Powell JA agreed with Sheller JA and Meagher JA reached the same conclusion although without referring to these authorities. It should be remembered that as appears in Sheller JA’s par [28] observations in the High Court of Australia in Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67 ALJR 170 at 171 show that the standard of proof is not affected, and the relevant standard is proof on the balance of probabilities.”

Further, Bryson J had said in Day v Couch [2000] NSWSC 230 at [9]:

“Where a claim is made against the estate of a deceased person and knowledge of the facts on which the claim is based is no longer available to the legal personal representative of the deceased, judicial experience requires a careful approach to fact-finding, although there are no special rules relating to the burden or to the standard of proof: “[I]n cases of this sort the Court scrutinizes very carefully a claim against the estate of a deceased person. It is not that the Court looks on the plaintiff’s case with suspicion and as prima facie fraudulent, but it scrutinises the evidence very carefully to see whether it is true or untrue”: Plunkett v Bull [1915] HCA 14; (1915) 19 CLR 544 at 548-549 per Isaacs J. In Birmingham v Renfrew [1937] HCA 52; (1937) 57 CLR 666, which related to mutual wills, there were also expressions of caution: see per Latham CJ at 674 and Dixon J at 681-682. See too Grundel v The Registrar General(1990) BPR 97-340 at11,219 per McLelland J. These observations do not establish any legal standard of proof differing from the ordinary civil standard relating to the balance of probabilities, and there is no legal requirement for corroborative evidence.”

As was stated by Hallen J in Isin v Ozen [2016] NSWSC 1480 these principles need to be considered where conversations involve a deceased.

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Marketing practices in initial public offerings (IPO) of securities Report 494

From Report 494 Marketing practices in initial public offerings of securities September 2016.

The report outlines the key findings from reviews we conducted by ASIC to examine how initial public offerings (IPOs) are marketed to retail investors. ASIC particularly considered the extent to which social media has become important for marketing. The report identifies some risks and recommendations that may be useful for firms and issuers to consider when developing an IPO marketing strategy.

Of particular importance was the area of concern identified in the report. They are summarised below.

Oversight weakness: Telephone communications

Firms should apply tighter controls over the marketing and selling of IPOs by telephone, such as:

  1. providing employees with standardised telephone scripts;
  2. recording and routinely reviewing telephone calls with clients;
  3. applying stricter requirements on documenting telephone calls with clients; and
  4. compliance staff routinely sitting at the sales desk when telephone calls are made
    to clients.

Oversight weakness: Social media posts

Firms should apply controls on social media posts similar to those in place for other
marketing, such as:

  1. educating employees on using social media for marketing IPOs in compliance
    with the Corporations Act; and
  2. ensuring that social media posts are reviewed before being posted.

Misleading communication: Marketing an IPO other than on its merits

Firms should ensure that marketing:

  1. is based on the merits of the IPO itself; and
  2. is not based primarily on asking investors to assist with meeting spread
    requirements, or on comparisons with other successful IPOs conducted by
    the firm.

Misleading communication: Prominence of forecasts

Firms and issuers should:

  1. take care when using forecasts to market IPOs, and not give undue weight to
    forecasts in the marketing messages; and
  2. if forecasts are used, ensure the assumptions and risks of the forecasts are also
    included in the marketing material.

Misleading communication: Marketing of emerging market issuers

Firms and issuers targeting investors from a non-English speaking background
should:

  1. ensure that communications are clear and accurate (including any statements
    about the regulatory framework in Australia and about ASIC’s role); and
  2. if marketing material is being produced in a language other than English, ensure
    these materials are fully understood by the firm or issuer, including getting
    translations before publication (if necessary).

Failure to monitor: Failing to update multimedia marketing including videos

Firms and issuers should check that:

  1. the content of videos used to market IPOs is accurate and consistent with
    disclosure in the prospectus; and
  2. the content of any videos remains correct after any changes or updates are made
    to a prospectus.

Inadequate controls on access to information: Access to institutional roadshows

Firms should apply tighter controls and educate their employees to limit access to
institutional roadshows to AFS licensees and their representatives.

Inadequate controls on access to information: Potential access to pathfinder prospectus

Firms should:

  1. apply tighter controls and educate their employees to limit access to restricted
    material (including pathfinder prospectuses) to sophisticated or professional
    investors;
  2. educate their employees about the need to limit circulation of restricted material
    (including pathfinder prospectuses) before the prospectus is lodged with ASIC;
    and
  3. ensure that restricted material (including pathfinder prospectuses) or passwords
    to access restricted material are not distributed by email.

Inadequate controls on access to information: Disseminating information
before a prospectus is lodged

Firms and issuers should not provide materials about an upcoming offer to the
media. If marketing is given to persons before a prospectus is lodged with ASIC, on the
basis of those persons being a sophisticated or professional investor, firms and
issuers should ensure that the recipient actually falls within this category.

Before providing the information, firms and issuers should undertake additional
verification (e.g. obtain an accountant’s certificate) to ensure that the person is a
sophisticated or professional investor. Self-certification by a person is not sufficient.

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Occupiers duty of care

See McKenzie v Day (No 2) [2016] NSWDC 236 where Neilson DCJ provides a salient summary of an occupiers duty of care.

The most recent statement of the applicable law is contained in the judgment of McColl JA, with whom Macfarlane JA and Beech-Jones J concurred, in Schultz v McCormack [2015] NSWCA 330, where her Honour said this:

“73 As occupiers, the respondents owed the appellant, as an entrant to their home, a duty to take reasonable care to avoid a foreseeable risk of injury to her, on the premise that she was exercising reasonable care for her own safety. The duty included the obligation to take precautions a reasonable person in the circumstances would have taken by way of response to the risk that a person may slip on tiles on the porch or the stairs.

74 The scope of the duty occupiers owe entrants has been identified in numerous cases which reflect the latter premise, that is to say, the obligation of the entrant to take reasonable care for his or her own safety. Thus, it is emphasised that the occupier’s obligation is one of reasonable care, not to make the premises as safe as “reasonable care and skill on the part of anyone can make them”. It is not an insurer of entrants. What constitutes the exercise of reasonable care depends on the circumstances of each case.

75 Just as stairs are inherently but obviously dangerous and the risks of misjudging footing or tripping are ordinarily avoided by people taking reasonable care for their own safety,[68] so too are wet surfaces, or surfaces which may be wet by reason, among other matters, of rainfall. Thus, the mere fact of a fall on wet steps is not sufficient to establish that an occupier has been negligent.[69] Further, it does not follow from the fact that the porch was wet, that there was some precaution that the respondents did not take that a reasonable person in their position would have taken.”[Endnotes omitted]

  1. However, it is worthwhile to consider some earlier cases. Perhaps the appropriate starting point is the decision of the Court of Appeal in Stannus v Graham (1994) Aust Tort Reports [81-293]. In that case, the plaintiff and her husband were renting premises owned by the defendant as a holiday flat. The plaintiff, who had fallen when she trod on a step on the premises, sued to recover damages for personal injuries. The trial judge found for the plaintiff because the top step had moved and because the defendant had failed to exercise reasonable care for the safety of the plaintiff and persons like her and that negligence had caused the fall. The trial judge found that a close inspection before the accident would have revealed movement in the top step, and the installation of a handrail would have been an easy matter and would have prevented the plaintiff’s fall. The appeal was allowed. The principal judgment was given by Handley JA, with whom Priestley and Meagher JJA concurred.
  2. Commencing at 61, 564, his Honour said this:

“This Court has hitherto declined to impose any tortious duty on occupiers to inspect their premises for the purpose of discovering unknown and unsuspected defects.”

His Honour then referred to Aslanidis v Atsidakos and continued thus:

“Subsequently, in Short v Barrett (5 October 1990, unreported), Meagher JA held that householders do not act unreasonably in taking their house as they find it and assuming it to be perfectly safe unless and until they either know it is unsafe, ‘or else receive a warning that it may be unsafe.’ The other members of the Court, Clarke JA and myself, agreed. The High Court granted special leave to appeal, but the appeal did not proceed … Mr Black did not refer us to any authority to the contrary of these decisions and, in particular, did not refer us to any case which establishes that an occupier of residential property has a duty to inspect the premises for the purpose of discovering unsuspected defects.

Indeed, the decision in Watson v George (1953) 89 CLR 409 supports the view that no such duty existed in the present case. This decision predates Australian Safeway Stores v Zaluzna […] but was not referred to in that case and I see no reason why it should be treated as impliedly overruled.

In that case, a paying guest in the defendant’s boarding house died from carbon monoxide poisoning due to a defective gas bath heater. The plaintiff relied upon the duty owed to persons who enter premises for reward to the occupier. This duty is not less onerous than the duty established by Australian Safeway Stores v Zaluzna. The Court held that the contract contained an implied warranty that the premises are as safe for their intended purpose as reasonable care and skill on the part of anyone can make them, although the occupier is not responsible for defects which could not have been discovered by reasonable care or skill on the part of any person connected with the construction, operation, or maintenance of the premises.”

His Honour then went on to quote further from Watson v George. His Honour then went on to say this:

“A concrete step such as this is more commonplace and less dangerous than a defective gas bath heater. It was regularly walked on by both caretaker, tenants, and others. It was not even established that a close inspection by an expert the day before this accident would have revealed that it was likely to move in the near future. Again, in the words of Fullagar J inWatson v George at 425:

‘… no other negligence being established, the case resolved itself into a question of whether the defendant’s (caretaker) had been negligent in that he had not observed or remedied the defect …’

In my judgment, this Court cannot hold that the defendant by her caretaker had been negligent in failing to observe and remedy any defect in its step prior to the accident.

The remaining ground on which the liability of the defendant was supported was her failure to install a handrail next to the steps. Since, in my view, there was no negligence in failing to observe and remedy any defect in the step, it cannot, in the circumstances of this case, have been negligent for the defendant and her caretaker to fail to install a handrail. The steps were not otherwise dangerous and there were but four of them. Persons using steps may misjudge their footing and slip or trip, but this is an everyday risk which members of the public avoid by taking care for their own safety. There is a step between kerb and gutter in city street and extensive steps outside public buildings in Sydney, such as the Joint Courts Building, the Public Library, the Art Gallery, Parliament House, and the Opera House.”

His Honour then went on at some length to point out that handrails were not to be found within reach of every person using a set of steps.

  1. The important point to note, of course, is that persons using steps may misjudge their footing and slip and trip, but that is an ordinary, everyday risk. The “Joint Law Courts” subsequently became a defendant in a fall on steps. The decision is Wilkinson v Law Courts Ltd [2001] NSWCA 196. In that case, the plaintiff, on 30 May 1995, fell down the steps outside the Joint Law Courts Building in Sydney. He sustained a broken ankle. At the time, the plaintiff was 34 years of age and was able bodied with full sight. At the time, there was no handrail, edge-delineation strips, nor warning signs present on or near the steps. The plaintiff was unsuccessful in this Court and his appeal to the Court of Appeal was dismissed by Heydon JA (as he then was), with Meagher JA and Rolfe AJA concurring. At [32], Heydon JA said this:

“In my opinion, the trial judge’s reasoning is wholly convincing. Stairs are inherently, but obviously, dangerous. Many measures might have been taken to make the stairs as safe as human skill could possibly make them; but the duty is only to take care which is reasonable under the circumstances. Among the essential circumstances is the following fact:

‘Persons using steps may misjudge their footing and slip or trip, but this is an everyday risk which members of the public by taking care for their own safety:’

Stannus v Graham … There are many places in Sydney where steps do not have strips on the edges: the Public Library, the Art Gallery, Parliament House, St James’ Church, and St Mary’s Cathedral.”

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Breach of duty of care – motor vehicle accidents – you decide?

You decide ?Mr Kidd gave evidence that he was driving a yellow bus, proceeding south-easterly on Talavera Road when he faced a red light at the Herring Road intersection and came to a stop. He had been a professional bus driver for six years and was well familiar with the intersection. He said the green arrow allowed two buses through on each phase. He was the first vehicle in the right-hand turn bus lane at the lights. He waited until he received a green arrow to turn right, and when that appeared he proceeded into the intersection. When he was about 15 metres into the intersection, he first noticed Mrs Aziz’s car proceeding in the opposite direction towards the intersection about 100 metres away. As he continued he became concerned that she might not stop, contrary to the red light he believed she must have been facing, and shortly before she entered the intersection, he proceeded to stop the bus when its front was about a third of the width of the lane or about a metre across the continuation of Mrs Aziz’s lane. He said she had room to drive around the bus. Mrs Aziz did not stop but collided with the front of the bus on the driver’s side. When she exited her car, she swore at and abused Mr Kidd, maintaining she had a green light.

Mrs Aziz agrees with Mr Kidd’s account of her conduct after the collision. She gave evidence that she proceeded into the intersection because she faced a green light and had right of way. She did not see the bus until she was in the intersection and could give no evidence of other vehicles. She made no attempt to drive around the bus.

Both Mr Kidd and Mrs Aziz were faced with two witnesses whose recollections differed from theirs. Esme Wilson and Loan Yen Banh were traffic officers located on the north-west side of the intersection not far from and to the north of where Mr Kidd allegedly stopped his bus at the red light. Both believed that Mr Kidd had entered the intersection against a red light. Ms Wilson was an experienced traffic controller who was controlling pedestrian traffic across Talavera Road on the north-western side. She was being assisted by Ms Banh.

Did the driver in the circumstances breach his duty of care?

In Aziz v Kidd [2016] NSWDC 254 Taylor DCJ made the following observations about breach of drivers duty of care.

  1. As was stated in Marien v Gardiner [2013] NSWCA 396 at [34]-[37], quoted in Warth v Lafsky [2014] NSWCA 94 at [55]:

“[34] The question whether there has been a breach of that duty is to be addressed prospectively and by reference to what a reasonable driver in the appellant’s circumstances would have done, if anything, by way of response to any foreseeable risks of injury or sources of danger to other road users: Wyong Shire Council v Shirt [1980] HCA 12; 146 CLR 40 at 47 – 48; Vairy at [60], [105], [124] and [126]; New South Wales v Fahy [2007] HCA 20; 232 CLR 486 at [57]. A person is not negligent in failing to take precautions against a risk of harm unless the risk was foreseeable, not insignificant and a reasonable person would have taken those precautions in those circumstances: s5B(1).

[35] Whether reasonable care has been exercised is not determined by asking if different conduct could have produced a different outcome and avoided a collision or accident: Derrick v Cheung [2001] HCA 48; 181 ALR 301 at [13]. The exercise of reasonable care requires, as the majority observed in Manley v Alexander at [11], ‘reasonable attention to all that is happening on and near the roadway that may present a source of danger’. That in turn requires ‘simultaneous attention to, and consideration of, a number of different features of what is already or may later come to be, ahead of the vehicle’s path’.

[36] The driver is not required, however, to know or predict every event which happens in the vicinity of the vehicle so as to be able to take reasonable steps to react to such events. As Hodgson JA (Ipp JA and Gyles AJA agreeing) said in Hawthorne v Hillcoat [2008] NSWCA 340 at [47], the driver is only required to take reasonable steps to be in a position to know what is happening or might happen in the vicinity of the vehicle.

[37] Nor is the driver required to be in a position where he or she can react to everything which may happen in the vicinity of the vehicle. The driver is not required to travel at a speed which is within the ‘limits of visibility and control’ so as to be able to react to whatever ventures into the vehicle’s path: per Ipp JA (Heydon and Santow JJA agreeing) in Cole at [61], citing Grove v Elphick (1985) 2 MVR 74 andMorris v Luton Corporation [1946] 1 KB 114. Derrick v Cheung was such a case. An unattended infant child emerged from between two parked cars and darted into the path of the vehicle. The driver was not negligent despite the fact that he was travelling at a speed which did not enable him, upon seeing the child, to avoid the collision.”

  1. Certainly, under s 5B of the Civil Liability Act 2002, Mr Kidd was required to take reasonable care for the safety of other road users:Marien v Gardiner at [33]. He was required to “exercise quite a high degree of vigilance, especially in the presence of other traffic and in the vicinity of intersections” (Turkmani at [28], Warth at [56]). Here, Mr Kidd did that, observing Ms Aziz’s vehicle 100 metres away, observing that she seemed to be travelling fast, growing increasingly concerned that she might not stop at the intersection.
  2. The real question is whether a reasonable person would have taken precautions other than or in addition to those taken by Mr Kidd: see s 5B(1) of the Civil Liability Act 2002. In answering this question, one must bear in mind the circumstance that Mr Kidd is facing a green arrow and has the general right of way that is occasioned by that green light. It is far less significant, in my view, that Mr Kidd was turning across a lane of traffic, unlike in a situation where a driver is turning across a lane of traffic at an uncontrolled intersection: see Tran v Government Insurance Office (NSW) (1994) 20 MVR 182, Ilsley v Boots [1970] 2 NSWR 551, David v Hartman [1953] SASR 109. As the intersection in Tran was not controlled by traffic lights, the turning vehicle in that case had no general right of way over oncoming traffic. Here, Mr Kidd was not “disturbing the flow of traffic” (Tran at 183), as was the driver in Tran; rather, it was the traffic lights that had that effect on the flow of traffic.
  3. Some guidance is provided, in my view, in the decision of Tromp v Liddle (1941) 41 SR(NSW) 108. The headnote relevantly notes:

“A driver is entitled to assume that other drivers will observe the rules of the road. This does not mean that he may drive at any pace he chooses so far as roads coming in on his left are concerned, or with complete indifference to the possibility of a car suddenly emerging from the side road as the result of accident, miscalculation, ignorance or recklessness. It means that it is not unreasonable for him to act on the assumption that other drivers are obeying the rules unless there is something which should make him realise that they are not. Thus, the mere fact that he sees the bonnet of a car appear from a side street on his left does not make it imperative for him to stop; and he may, unless he gets some indication to the contrary, reasonably assume that the driver on his left is advancing to serve the normal purpose of seeing whether cars are approaching on the right.”

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Truth and Credibility of witnesses

Coote v Kelly; Northam v Kelly [2016] NSWSC 1447 is a medical negligence case which involved an alleged failure to diagnose a melanoma on the sole of the foot of the plaintiff.

In Coote Davies J had to weigh up the competing evidence of the Plaintiff and the deceased on the one hand and the four doctors on the other hand about the state or condition of a lesion – whether the lesion had appearance of plantar wart or melanoma.

His Honour made the following salient and considered observations.

  1. In Onassis and Calogeropoulos v Vergottis [1968] 2 Lloyd’s Rep 403 Lord Pearce discussed credibility. The first two matters he raised dealt with truthfulness, and he then went on to say (at 431):

Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.

  1. In Gestmin SGPS S.A. v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) Leggatt J said:

[15]   An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.

 

[16]   While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people’s memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.

 

[17]   Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called ‘flashbulb’ memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description ‘flashbulb’ memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).

 

[18]   Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.

 

[19]   The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.

 

[20]   Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness’s memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.

 

[21]   It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.

 

[22]   In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.

 

  1. In Campbell v Campbell [2015] NSWSC 784 Sackar J said:

[73] In Watson v Foxman (1995) 49 NSWLR 315 and 319, McLelland CJ in Eq made the following remarks:

 

…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

 

[74] I made the following observations in Craig v Silverbrook [2013] NSWSC 1687 at [140]-[142]:

 

[140]   Whilst a trial judge is entitled to make observations relating to the demeanour of certain witnesses, it is a notoriously crude and inaccurate methodology. Its defects have been exposed on numerous occasions.

 

[141 In that regard, I am of course mindful of the comments of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at [30]-[31]) when they remarked (citations omitted):

 

[30]   It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Societe d’Avances Commerciales (Societe Anonyme Egyptienne) v Merchants Marine Insurance Co (The “Palitana”):

 

“… I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour.”

 

[31]   Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility…

 

[142] In the recent decision of McGraddie v McGraddie and another [2013] UKSC 58; [2013] 1 WLR 2477, the UK Supreme Court emphasised that, especially in cases where a trial judge is faced with a stark choice between irreconcilable accounts, the credibility of the parties’ testimony, and the trial judge’s assessment of the character of witnesses and the manner in which the witnesses give evidence, is of primary importance. Those observations are particularly relevant to the present case. Similar observations have been made in Australian authorities (Fox v Percy at [23]; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [41] per McHugh J and see generally comments in Ritchie’s Uniform Civil Procedure NSW at SCA s 75A.20).

 

[75] In Camden v McKenzie [2008] 1 Qd R 39 at [34] Keane JA (as he then was) made the observation that “the rational resolution of an issue involving the credibility of witnesses will require reference to, and analysis of, any evidence independent of the parties which is apt to cast light on the probabilities of the situation.” This remark was cited with approval by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in New South Wales v Hunt (2014) 86 NSWLR 226 at [56].

 

[76] Hallen J recently set out the relevant principles in Evans and Braddock [2015] NSWSC 249 at [70]-[77]. After referring to Watson v Foxman, his Honour said:

 

[71] In that case, his Honour was talking of a cause of action founded on s 52 of the Trade Practices Act 1974 (Cth) or s 42 of theFair Trading Act 1987 (NSW): see the discussion by McDougall J in Harbour Port Consulting v NSW Maritime [2011] NSWSC 813, at [10] – [18]. However, as McLelland CJ in Eq also pointed out, the views apply to all types of litigation.

 

[72] I also remember what was said by Emmett J (as his Honour then was) in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; (2011) 297 ALR 56, at [48]:

 

“When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2).”

 

[73] The credibility of a witness and his, or her, veracity may also be tested by reference to the objective facts proved independently of the evidence given, in particular by reference to the documents in the case, by paying particular regard to his, or her, motives, and to the overall probabilities: Armagas Ltd v Mundogas S.A. (The “Ocean Frost”) [1985] 1 Lloyd’s Rep 1, per Robert Goff LJ, at 57. Also see, In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547, per Black J, at [7].

 

[74] A court, in cases involving events which occurred long before the litigation, usually prefers to rely upon contemporaneous, or near contemporaneous, documents, which will often provide valuable and, usually, more revealing, information than what may be flawed attempts at recollection of those facts by persons with an interest in the outcome of the litigation: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200, per Jagot J, at [1247]. Greater weight is usually accorded to such documents, as often they provide a safer repository of reliable fact, particularly when it is clear that they have been prepared by a person with no reason to misstate those facts in the documents and where there is no suggestion that the documents are other than genuine: Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160, per Kenneth Martin J, at[157].

 

[75]   …

 

[76] The circumstances of this case, make what was written by Tamberlin J in Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben’s of Australia) (Federal Court of Australia, Tamberlin J, 29 June 1995, unrep), at 122 – 123 (in a passage cited with approval by the High Court when it upheld his Honour’s decision: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599, at [15]) appropriate to remember:

 

“[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time.”

 

[77]   Finally, I should mention an article by the former the Chief Judge at Common Law, P McClellan entitled “Who Is Telling the Truth? Psychology, Common Sense and the Law” (2006) 80 ALJ 655, in which he wrote, at 665, quoting a passage from the “Guidelines Relating to Recovered Memories” (2000) of the Australian Psychological Society:

 

“Memory is a constructive and reconstructive process. What is remembered about an event is shaped by how that event was experienced, by conditions prevailing during attempts to remember, and by events occurring between the experience and the attempted remembering. Memories can be altered, deleted and created by events that occur during and after the time of encoding, during the period of storage, and during any attempts at retrieval.”

Ultimately, His Honour formed the view that if the melanoma was present it was not discernible by the exercise of reasonable care on the part of the doctor.

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Class Action – payment to the class rep ?

The scheme provides for payment to the class representative. For example, in Johnston v Endeavour Energy [2016] NSWSC 1132 it amounted to $25,000. This payment is intended to compensate the representative for their time, inconvenience and burden associated with taking on and discharging the obligations of lead plaintiff in attending to matters on behalf of group members.

The appropriateness of compensating class representatives was established in Darwalla Milling Co Pty Ltd v F Hoffman-La Roche & Ors Ltd (No 2) [2006] FCA 1388; 236 ALR 322 where Jessup J recognised that he was dealing with a then novel request for payment outside the normal categories allowed in litigation. His Honour held that it was:

“76 … prima facie reasonable that particular parties who have sacrificed valuable time and incurred expenses in the interests of prosecuting [a] proceeding on behalf of group members as a whole should be able to look to the corpus of the settlement sum for some degree of compensation and reimbursement. More importantly, perhaps, I would hold that group members who have benefited from the proceeding could not be heard to deny the reasonableness of such a proposition.”

The circumstances of the case dicate the quantum of payment. in Johnston v Endeavour Energy [2016] NSWSC 1132 there were 54 personal injury (PI) claims!

You be the judge. Was $25,000 fair. I suspect so.

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Class Actions – lawyers costs – the proper approach

In Johnston v Endeavour Energy [2016] NSWSC 1132 Hoeben CJ summarised the proper approach to the task of evaluating the overall reasonableness of a proposed costs deduction from a class action settlement.

The applicable principles have recently been set out by Osborne JA in Matthews. In Courtney v Medtel Pty Limited (No 5) [2004] 212 ALR 311; FCA 1406 at [61] (Medtel) (Sackville J) described his expectation as to the content of the material to be provided to the Court:

“61   It is for the reasons I have given that I suggested to [the applicant] that evidence should be presented from an independent solicitor or costs consultant, directed to the following matters:

(i)    the reasonableness of the terms of the fee and retainer agreements (including the provisions for ancillary services, interest and an uplift factor);

(ii)    whether the fees and disbursements actually charged by the Solicitors have been calculated in accordance with the fee and retainer agreement;

(iii)    confirming that, so far as the solicitor or costs consultant can determine, no significant portion of the fees and disbursements charged by the Solicitors have been inappropriately or unnecessarily incurred in conducting the proceedings on behalf of Mr Courtney and the represented group.

I made it clear that I did not expect the evidence to involve an exhaustive review of the files maintained by the Solicitors. I had in mind an overview that could be undertaken over a period of about two days.”

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Principles that govern an application for approval of a settlement of a group proceeding

In Johnston v Endeavour Energy [2016] NSWSC 1132 Hoeben CJ carefully identified the principles that govern an application for approval of a settlement of a group proceeding.

Confidential opinions of counsel are required to address each of the principles below.

These opinions are usually sealed and handed up to the judge.

The principles are summarised as follows:

  1. The central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members as a whole (Rowe v AusNet Electricity Services Pty Ltd and Ors [2015] VSC 232 at [49] – [51]; Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16)[2013] VSC 74 (Matthews) at [34]; Wheelahan & Anor v City of Casey & Ors [2011] VSC 215 (Wheelahan) at [57] (EmertonJ) citing ACCC v Chats House Investments Pty Ltd & Ors [1996] 71 FCR 250; FCA 1119 at 258 (Branson J) (Chats House).
  2. There will rarely be one single or obvious way in which a settlement should be framed, either between group members and the defendants (inter partes aspects) or in relation to sharing the compensation among group members (inter se aspects) – reasonableness is a range and the question is whether the proposed settlement is within that range (Darwalla Milling Co Pty Ltd v F Hoffman-La Roche& Ors Ltd (No 2) [2006] FCA 1388; 236 ALR 322 at 336 [40] (Jessup J) (Darwalla).
  3. It is not the task of the Court to “second-guess” or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the range of reasonable decisions according to the known circumstances and the reasonably perceived risks of the litigation (Matthews, Darwalla, see also Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [22] (Flick J) (Pharma); Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [12] (Modtech) (Gordon J).
  4. In assessing the fairness and reasonableness of a proposed settlement the court relies heavily upon the candid, frank and confidential opinions provided to it by the plaintiff’s legal representatives requiring them to disclose the factors which were material to the decision to accept the settlement (Thomas v Powercor Australia Limited [2011] VSC 614 at [18] (Beach J) (Powercor); Wheelahan at [75]; Rod Investments (Vic) Pty Ltd v Abeyratne & Ors [2010] VSC 457 at [11] and [18] (Almond J) (Abeyratne); Lopez v Star World Enterprises Pty [1999] ATPR 41 – 678 at 42 – 670; [1999] FCA 104 (Finkelstein J) (Lopez).
  5. The factors adopted in Williams v FAI Home Security Pty Ltd (No 4) [2000] 180 ALR 459; [2000] FCA 1925 (Williams) indicate some of the considerations typically relevant to an assessment of an application for approval. As Goldberg J pointed out in Williams, this is a useful but not exhaustive guide. Those considerations are:
  6. (A)    The complexity and duration of the litigation.
  7. (B)   The reaction of the class to the settlement.
  8. (C)   The stage of the proceedings.
  9. (D)   The risks of establishing liability.
  10. (E)   The risks of establishing damages.
  11. (F)   The risks of maintaining a class action.
  12. (G)   The ability of the defendants to withstand a greater judgment.
  13. (H)   The range of reasonableness of the settlement in light of the best recovery; and
  14. (I)   The range of reasonableness of the settlement in light of all of the attendant risks of litigation.
  15. The factors in Williams are largely directed to the reasonableness of a compromise inter partes. They are, however, also relevant to a consideration of the agreements reached with the insurance intervenors. The procedure should likewise be fair and reasonable “inter se”.
  16. An important consideration is whether group members were given timely notice of the critical elements so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a relevant consideration in support of the settlement and all its elements (Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 (Stone J) (Aristocrat); Abeyratne at [22]; Horshamat [15], [25).
  17. Where a group member objects to the settlement, an important question is whether the objector is prepared to assume the role and risks of being lead plaintiff. It is easy for group members who face no adverse costs risk to want a plaintiff to fight to the very end. The weight to be given to objections will diminish where the objector is unwilling or unable to take on all of the economic and other burdens which the plaintiff otherwise bears (Wong v Silkfield [2000] FCA 1421 at[24] – [30] (Spender J)).
  1. The effect of those considerations is that the proposed settlement must be fair and reasonable and in the interests of all group members who will be bound by the settlement. In this context group members, who are not clients of Maddens, are not directly represented. It is their interests in particular which the Court, in an application of the present kind, is concerned to ensure are addressed fairly, vis-a-vis the plaintiff and other group members and having regard to the overall merits of the claims made on their behalf in the action.
  2. Notwithstanding the reservations expressed by Jessup J in Darwalla regarding lists of criteria, the factors identified by Goldberg J in Williams as typically bearing on an assessment of a proposed settlement provide a useful framework. Those factors are:
  1. The amount offered to each group member.
  2. The prospects of success in the proceeding.
  3. The likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer.
  4. The terms of advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding.
  5. The likely duration and cost of the proceeding if continued to judgment.
  6. The attitude of group members to the settlement.
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Nature of a deposit

A “deposit” is usually paid at the time of making a contract and has been described as “an earnest to bind the bargain” the subject of the contract. It is a payment that is made before the delivery of the item or property the subject of the contract.

As Lord Justice Cotton says in Howe v. Smith[44], at page 95:—

The deposit, as I understand it, and using the words of Lord Justice James, is a guarantee that the contract shall be performed. If the sale goes on, of course, not only in accordance with the words of the contract, but in accordance with the intention of the parties in making the contract, it goes in part payment of the purchase-money for which it is deposited; but if on the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then according to Lord Justice James, he can have no right to recover the deposit.
I do not say that in all cases where this court would refuse specific performance, the vendor ought to be entitled to retain the deposit. It may well be that there may be circumstances which would justify this court in declining, and which would require the court, according to its ordinary rules, to refuse to order specific performance, in which it could not be said that the purchaser had repudiated the contract, or that he had entirely put an end to it so as to enable the vendor to retain the deposit. In order to enable the vendor so to act, in my opinion there must be acts on the part of the purchaser which not only amount to delay sufficient to deprive him of the equitable remedy of specific performance but which would make his conduct amount to a repudiation on his part of the contract.

In the same case, Fry L. J., said:—

Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must, therefore, inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.

In layman’s terms it can also be considered a bond for performance, indicating a sincere intention to be bound, which is forfeited if the party breaches the contract.

The common law relating to deposits in a contract for the sale of land is to the following effect.

First, a label or description in a contract of a payment as a ‘deposit’ is not determinative of its character as such: Coates v Sarich (1964) WAR 2, 15; Freedom v AHR Constructions Pty Ltd [1987] 1 Qd R 59, 66.

Second, a deposit fulfils two functions; first, its primary function is an earnest given by the purchaser to bind the bargain and to provide security for its performance; second, it is also a part payment of the purchase price: Howe v Smith (1884) 27 Ch D 89 ; Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378.

Third, on termination of a contract for breach, at common law the deposit paid by the purchaser is forfeited to the vendor: Brien v Dwyer; Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367; Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342. The vendor has an unconditional right to retain the deposit paid by the purchaser because the consideration has not failed. Wickham J in Farrant v Leburn (1970) WAR 179 explained:

The agreement to pay [the deposit] was not in consideration of conveyance but was in consideration of the contract. It was the price or part of the price of the vendor’s promise to sell and this promise, having been given by the vendor, the consideration for the purchaser’s promise was fully executed (184).

This explanation of a deposit at common law resonates with the words deleted from the definition of ‘terms contract’ in the Bill. In Farrant, the vendor had rescinded the contract for the purchaser’s ‘fundamental breach’ in failing to pay a deposit which was payable immediately on entry into the contract.

Further, the vendor can recover any unpaid deposit that has accrued due prior to contractual termination: Bot v Ristevski [1981] VicRp 13; [1981] VR 120. By contrast, on termination for breach, an instalment of the purchase price belongs to the purchaser at common law on the basis that the consideration for the payment, being the conveyance or transfer of the land, has failed and thus the instalment can be recovered, subject to the vendor’s right to counterclaim for damages: McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457.

Fourth, the payment of a deposit within the contractual time stipulation is deemed, at law and in equity, to be an essential term of the contract (Brien v Dwyer) with the consequence that any breach of any nature or degree justifies termination without notice: Koompahtoo Local Aboriginal Land Council v Sampine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [48]. Repudiation is a separate and independent ground for summary termination at common law: Koompahtoo [44].

Most of the cases on the subject of deposits to which I have referred concerned deposits which were payable on or around the time of entry into the contract. That accords with the common understanding of a deposit as an upfront payment as an earnest of the purchaser’s intention to perform and as security for the vendor. A bird in the hand, as they say. Gibbs J stated in Brien v Dwyer that the primary purpose of the deposit would not be served unless the deposit were paid at the very time when the purchaser assumed his obligations under the contract (392). This is reflected in the standard form offer and acceptance. The notion of a purchaser’s mere unperformed promise to pay a deposit being the earnest of performance and the security is inconsistent with long established principle. A promise to pay a deposit that survives termination is in substance a liquidated damages clause.

However, it must be accepted that in appropriate circumstances a deposit can be paid by instalments over an extended period: Romanos v Pentagold Investments Pty Ltd. In that case, the majority (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ) stated:

In Brien, Jacobs J described a deposit as:

[A]n assurance to the vendor, a security to him pending completion. He can take his property off the market and not concern himself with other offers in case the sale should go off, with the comfort at least that the deposit is there for his security’.
This reasoning is no less applicable to contracts providing for the payment of a deposit in particular instalments at times each stated to be essential. That is the present case. Further, Brien is authority for the proposition that once there has arisen an entitlement to rescind for failure to pay the deposit, that entitlement may be exercised without the necessity that the purchaser first be given notice requiring payment to be made at a reasonable time [20].

How can a deposit be characterised from a something like a part payment?

In Howe v Smith (1884) 27 Ch D 89 Fry LJ said at 101:

Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture motive in the payer to perform the rest of the contract.

In Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342 the High Court said at 351-352 [27] (footnotes omitted):

The expression “an earnest to bind the bargain” reflects, as Fry LJ put it in Howe v Smith, the adaptation by the common law of “[t]he practice of giving something to signify the conclusion of the contract, sometimes a sum of money, sometimes a ring or other object, to be repaid or redelivered on the completion of the contract, [which] appears to be one of great antiquity and very general prevalence”. The practice was received from Roman law into the mediaeval common law by the time of Bracton, and thus preceded the development of the modern law of contract and of the equitable principles which it includes. The quotation by Fry LJ from Bracton indicates that where something was given by way of a deposit before delivery then if the buyer repented and wished to resile from the contract the buyer lost the deposit; if the seller was responsible for the non-performance then the seller was required to return double the amount of the deposit. Writing in the same period as Fry LJ, Benjamin said that in the modern law “the true legal effect of earnest is simply to afford conclusive evidence that a bargain was actually completed with mutual intention that it should be binding on both [parties]”.