Auction buyer ordered to pay $350,000 shortfall after failing to settle

A property investor who terminated a contract to buy a Sydney Northern Beaches property after successfully bidding for it at auction has been ordered to pay the vendor almost half a million dollars in compensation and costs.

The compensation covers the shortfall between the original December 2009 winning bid of $2.3 million and the subsequent sale in February 2010 for $1.95 million: $350,000 plus interest and $50,000 in legal costs.

The case dates back to December 12, 2009, when David Anthony Burnet and Pamela Jane Clancy sold their $2.3 million home at Edgecliff Boulevard, Collaroy Plateau, to defendant Lily Maria Gubbay at auction.

Gubbay signed a contract for the two-bedroom house overlooking the ocean and provided a cheque for the 10% deposit of $230,000 to the agent, Cranston Schwarz of LJ Hooker Freshwater.

The cheque was subsequently dishonoured.

On December 16 2009, Gubbay’s lawyer told the vendors she had “no money” and the contract was cancelled by the vendors on December 29 2009.

Court documents reveal that Gubbay owned three other investment properties at the time – in Manly (valued at $950,000 with liabilities of $226,000), Salamander Bay (valued at $380,000 with no liabilities listed against it) and Townsville (valued at $500,000 with liabilities of $492,000).

“The Balance Sheet recorded that the defendant had total assets of $1,830,000 over liabilities of $718,000,” court documents say.

Gubbay was only able to pay $50,000 of the required $230,000 deposit, with her lawyer arguing that acceptance of this amount affirmed the sales contract.

However, Justice Patricia Bergin ruled otherwise: “The fact that the [vendors’] agent banked the $50,000 and the plaintiffs did not direct the agent to return it does not affect the plaintiffs' right to terminate.”

“That right is lost ‘as soon as the deposit is paid in full’. Those words in clause 2.5 of the contract evidence an intention of the parties that even though part of the deposit might be paid, the right to terminate was not lost until the full deposit was paid.”

Bergin also dismissed a counter claim from Gubbay for the return of the $50,000 deposit.

She said the conduct of Burnet and Clancy was “beyond reproach”

“They were entitled to terminate the contract when the deposit cheque was dishonoured on 17 December 2009. However they did not do so immediately and conducted professional discussions through their solicitors and provided the defendant with an opportunity to pay the full deposit. The defendant did not avail herself of that opportunity.”

Real Estate Institute of Australia acting president Pamela Bennett says the ruling reinforces the fact that an auction process is legally binding.

"At all auctions you must be able to pay the deposit. It is unconditional," she says.