Timing issues with payment of deposits by electronic transfer

While electronic transfer is considered a faster and more direct method of payment than the traditional cheque, the recent case of Long v Hijazi¹ suggests that parties to a property transaction may need to allow more time for payment of deposits where the contract provides for electronic transfer of funds.

Facts

The buyer and the seller were parties to a contract of sale for a property in Queensland.

The contract of sale:

• required the deposit to be paid “on the day the buyer signs this contract unless another time is specified below”.  (An alternative time was not specified); and
• contemplated the payment of the deposit by electronic transfer because it included the BSB and account number of the deposit holder’s trust account.

At 2.08pm on 19 October 2016, the seller’s real estate agent advised the buyer by email of the seller’s acceptance of the buyer’s offer to purchase.

The buyer forwarded the sale contract to her conveyancer, who responded later that evening, advising the buyer to pay the deposit.

The deposit was paid by electronic transfer to the deposit holder’s account at approximately 8.30pm and receipted into the deposit holder’s account the following day, 20 October 2016.

On 21 October 2016, the seller’s conveyancer advised the buyer by email that the buyer had breached the contract by not paying the deposit on the day the contract was signed and, accordingly, the seller terminated the contract.

On 25 October 2016:

• the buyer’s conveyancer emailed the seller’s conveyancer denying the breach and asserting that the sale contract was still on foot; and
• the seller’s conveyancer responded that the seller had withdrawn the termination and agreed that the sale contract was still on foot.

Later the same day, the seller’s conveyancer sent a further email to the buyer’s conveyancer advising that the seller could not proceed with the sale contract because the seller would suffer financial hardship if she did so.

The buyer commenced an action for a claim for specific performance and damages in the District Court of Queensland.

Decision

The seller relied upon the High Court’s decision in Brien v Dwyer²  as authority for the proposition that the earliest practical time for payment of the deposit after the communication of acceptance on 19 October 2016 was that afternoon.

In Brien v Dwyer, the purchaser was required to pay the deposit “upon the signing” of the sale contract.  The majority of Barwick CJ, Gibbs and Aicken JJ found that the deposit should have been paid at the time the offer was signed by the purchaser for transmission to the vendor, with Gibbs and Aicken JJ finding that it should have been paid at least before the exchange of signed counterparts or the signing of one contract by both parties.

The buyer argued that:

• The contract in this case was distinguished from Brien v Dwyer because the deposit was payable “on the day” the buyer signed the contract rather than “upon” or “on” of signing; and
• As the buyer would have no idea of when the seller would accept the contract, any requirement for simultaneous payment of the deposit would be absurd.  For example, if the seller signed the contract at 11.59pm, it would be absurd to require the deposit to be paid by midnight.

The buyer drew attention to the comments in Brien v Dwyer of:

• Gibbs J that: “The contract should be construed in light of what is likely to be the practice usually followed, so as to render its operation practicable and convenient.”; and
• Jacobs and Stephen JJ that: "The deposit in the contract in that case should be paid at the earliest practicable time after acceptance".

The buyer also referred to Hill v Sydney³ in which Jersey J found that the requirement that a deposit be paid “forthwith” upon execution of the contract by a purchaser should be read as meaning “as soon as reasonably practicable” and envisaged “speed rather than tardiness”.

Judge Dick was persuaded by the buyer’s argument, finding that the buyer was “ready, willing and able” to complete the contract of sale and had indicated that by payment of the deposit on the evening of 19 October 2016.

Lavan Comment

Judge Dick concluded that the deposit had been paid in accordance with the contract because the buyer, by arranging the electronic transfer of funds on the evening of 19 October 2016, had demonstrated the buyer was “ready, willing and able” to complete the contract.

The judge’s decision did not specifically address the question of whether the deposit should have been considered to be paid when transferred from the buyers’ account on 19 October 2016 or when it was receipted into the deposit holder’s account the next day.

While, ultimately, the answer to this question was not critical to Judge Dick’s decision, it is important to consider in the context of future transactions because the case would not have arisen if the buyer had paid the deposit to the deposit-holder by cheque at the time the buyer instead transferred the deposit by electronic means.

In the context of settlements, the courts previously have not excused buyers from meeting their payment obligations at settlement on the basis that a third party, such as a financier, was not able to provide the funds in time.⁴

However, in Tanwar Enterprises Pty Ltd v Cauchi,⁵ for example, the High Court made such a finding on the basis that it was reasonably within the contemplation of the purchaser that there might be a failure by the third party to provide finance.

By contrast, there is a strong argument that the treatment of deposits should differ from payments at settlement because of the uncertainty of the date on which a sale contract might be accepted and the deposit become payable, whereas a settlement date is agreed by the parties to allow the necessary arrangements to be made.

The House of Lords’ decision in R v Preddy⁶ suggests that the deposit would not be considered to be paid until the funds are credited to the receiving account.

However, as most contracts are constructed, the purchaser is obliged to pay the deposit without reference to the timing of receipt, so the position, as we have seen in this case, remains unclear.

The obvious major difference between payment of the deposit by cheque and payment be electronic funds transfer is that payment by cheque is effected by delivery to the recipient (and not by payment of the cheque into a bank account).  Whereas the electronic delivery is effected by payment into the relevant bank account.

What does it all mean?

The lessons from this case and the current law are:

• parties to any sale transaction should ensure that the language used in relation to the timing of deposit payments is unambiguous.
• where the electronic transfer of funds is contemplated, sufficient time should be provided to allow for the processing of such payments by third parties into the receiving account.  For example, such a contract should provide that the deposit is to be paid by electronic funds transfer within 5 business days of the contract date.
• careful consideration needs to be given as to what is required in order to comply with the requirements under the contract as to when the deposit must be paid.