In this matter Permanent Trustee Australia Ltd as custodian for the Howard Mortgage Trust as mortgagee exercising its power of sale at Milsons Point, Sydney for $1.125m. The purchaser failed to settle so Permanent gave notice of termination and kept the deposit.
The contract provided in the event of default, the vendor may recover any deficiency on resale as damages for breach of contract (including reasonable costs and expenses, after forfeiting the deposit). The land was later resold for $850k. After the breach of contract the Perpetual became the new custodian for the Howard Mortgage Trust and issued a creditor’s statutory demand for the difference between the contract price and what the land ultimately sold for (less the deposit).
The failed purchaser commenced these proceedings under section 459G of the Corporations Act seeking set aside a creditor’s statutory demand served by Perpetual. The plaintiff claimed that the sum payable was not a debt but damages. Justice White distinguished between unliquidated damages for breach of contract assessed by the court (not a debt), and liquidated damages for breach of contract assessed under the contract (which may be a debt as readily calculable under the contract).
It was significant that the defendant only claimed the difference between the contract price and the resale price and did not claim expenses such as lawyers costs (which was outside the terms of the contract). Therefore Justice White found that a creditor’s statutory demand may be issued for a claim for liquidated damages
Nevertheless the court found the defendant had no standing to issue the creditor’s statutory demand. Although the defendant was the new custodian, the custody agreement did not assign the benefit of the contract between Permanent and the plaintiff to the defendant.