The recent case of Blanco v Wan 2021 considered whether a contact for the sale of land could be set aside for unconscionability and whether a payment clause was a penalty. The deposit in this contract for the sale of property was stated to be 10% of the purchase price but only a partial amount was actually paid by way of deposit and the balance was never paid. Arrangements were made for settlement of the contract but the settlement did not proceed as the Respondent was unable to settle by the relevant time.
The Applicant served a notice of termination of contract and sought a declaration that the termination of the contract was valid, that they were entitled to the deposit and sought an order for the payment of the remaining balance and costs associated with issuing the notice to complete.
The Court found that the condition in the contract, to the extent that it would permit the applicant to recover or forfeit a further amount of $125 000, was penal in nature and thus unenforceable. The condition operated in circumstances that imposed additional detriment upon the respondent that was extravagant, exorbitant and disproportionate to the interest sought to be protected, which was the applicant’s interest in due performance and the completion of the contract. However, the Court did not accept the Respondent’s argument that the contract should be set aside as being unjust or unfair as there was no material inequality of bargaining power, and the contract did not operate in an unconscionable, harsh or oppressive manner. The Court ordered the that the application was entitled to recover the deposit of 80 000 together with any interest earned, but not the $125 000.