The case of Cole v Raykir Holdings Pty Ltd  NSWSC 1017 considered whether a vendor had validly terminated a contract for the sale of land, and whether the deposit clause was a penalty.
The plaintiffs arranged via contract to sell land to the first defendant, with the second defendant to be guarantor of the purchaser’s obligation. The contract required a payment of a 10% deposit, with 5% payable on exchange and the balance upon completion, and the deposit clause provided for a payment of the full amount of the deposit in the event of the purchaser’s default.
The defendants were unable to complete the purchase because they could not obtain the finance. The plaintiff then filed a notice to complete upon the defendant, and upon its expiry terminated the contract. They sought damages payment of the remaining balance of the deposit. The defendant argued that the notice to complete was invalid for not giving sufficient time for completion and that the accelerated payment clause was unenforceable as a penalty.
The Court held that the notice period given for the notice to complete was valid and as time was of the essence, the notice of termination was also valid. The defendant’s inability to pay on time amounted to a refusal to perform and repudiation of the contract.
On the question of the penalty, the Court held that while an accelerated obligation to pay is not itself penal, the provision may not have been in the true nature of a deposit as it was not an “earnest or guarantee of performance.” The plaintiffs, however, were successfully awarded damages for their claim in an amount equal to the balance of the deposit.