Buyer Beware at Auction

The New South Wales Supreme Court has confirmed that sellers are well protected when they decide to put their property between a gavel and a rostrum in its recent decision of David Anthony Burnet & Anor v Lily Maria Gubbay [2011] NSWSC 977.

On 29 August this year the buyer, Ms Gubbay, was successfully sued after she placed a winning bid of $2.3 million on a Sydney property, only to leave a dud deposit cheque for $230,000.00 after signing the Contract for Sale. In evidence it was found that the buyer later said she couldn’t afford the deposit despite owning a gross property portfolio worth close to $2 million.).

The contract with Ms Gubbay was terminated by the sellers pursuant to a clause of the contract which stated that If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate. This right to terminate is lost as soon as the deposit is paid in full.”

The property was relisted and sold a few months later for $1.93million, a difference of $370,000.00 to what Ms Gubbay had bid at the earlier auction. The decision was passed down by Bergin CJ that Ms Gubbay is required to come up with $447,000 – the difference between the sale prices with interest plus costs. Prior to this decision it was common for the seller to absorb the cost of relisting the auction and any difference in price.

Several cases were cited as the judgment was made before the New South Wales Supreme Court, including McDermott v Black dating back to 1940 but with strong relevance. They suggest that judgments should be made by considering all aspects of a contract in writing and that the “buyer” should have a full understanding of their responsibilities, as both parties are right to assume that a contract will be fulfilled when entering it.

With the current property market pushing many more owners to use the hammer to sell their properties it is vital that all parties have a full understanding of their rights and responsibilities at an auction site. As soon as the highest bid is made, above the reserve, the seller must be willing to accept it and the buyer must be willing to pay that amount, with a ten percent deposit made on the day of auction. Once the Contract of Sale of Land is signed it will be legally binding by the courts unless some defect in the contract can be identified.

Here at elringtons we pride ourselves on staying up to date with developments in the law so that we can inform our clients of their rights and responsibilities to ensure the best outcome.

For more information please contact one of our experienced property lawyers or conveyancers to make an appointment on 6206 1300, or by email on

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