What happens when a business sale falls through

For clients buying or selling a business, especially one involving leased premises, it is critical that we consider whether the business operates from leased premises, and how that lease is to be dealt with as part of the sale.  Usually, having leased premises will require a special condition to be inserted into the business sale contract making settlement of the sale/purchase conditional on an effective lease assignment, and if the lease is not assigned, what the ramifications are for the parties and, in particular, what happens with the deposit.

AMC C11 Pty Ltd v Crown Medical Group Ltd [2025] NSWSC 1030

This NSW Supreme Court case centred on a failed sale of a medical business and the subsequent dispute over the return of the purchaser's deposit. The Court’s reasoning is directly relevant for those entering contracts for the sale or purchase of businesses—especially where leases or other third-party agreements are involved.

Background: The Sale of a Medical Practice

The dispute arose from the sale of a medical centre located in Figtree, Wollongong. The purchaser, AMC C11 Pty Ltd, had entered into a contract with the vendor, Crown Medical Group Ltd, for the purchase of the business for $3.55 million. As part of that transaction, a deposit of $371,700 was paid.

The sale contract was a 2021 edition of the Law Society of New South Wales standard form contract for the sale and purchase of a business. Alongside the standard form clauses, the parties had included special conditions that became central to the dispute.

One of those special conditions—SC cl 49.2—required that a new lease be granted to the purchaser over the premises from which the business was operating. This condition had to be satisfied by 1 November 2024.

Failure to Secure Lease Triggers Rescission

The condition regarding the lease was not satisfied by the deadline. On 4 November 2024, the vendor’s solicitors issued a notice of rescission, relying on SC cl 49.6, which allowed either party to rescind the contract if the special conditions were not fulfilled.

Notably, the vendor claimed that the failure to secure the lease was due to the purchaser’s default. As a result, the vendor asserted that it had suffered damages exceeding the deposit and indicated that it would pay the deposit funds into court.

The purchaser strongly disputed any default on its part and maintained that the contract had been properly rescinded due to non-fulfilment of a condition, entitling it to a full refund of the deposit under standard form clause 23.2.1.

Court Proceedings: From Dispute to Default Judgment

The purchaser commenced proceedings in the NSW Supreme Court on 13 December 2024, seeking to recover the deposit.

While the vendor initially appeared in the matter (through its solicitors HFW Australia), it failed to file a defence, despite a court direction to do so by 27 June 2025. The solicitor acting for the vendor later filed a notice of ceasing to act, and the vendor was unrepresented from that point forward.

In August 2025, the purchaser filed a notice of motion seeking:

• Judgment for the refund of the deposit ($371,700),

• Interest,

• Costs,

• A declaration that it was entitled to the funds held in court from the earlier proceeding commenced by the vendor.

Issues Before the Court

Justice Parker was asked to determine several key issues:

1. Was the purchaser entitled to default judgment in the absence of a defence from the vendor?

2. Was the purchaser entitled to recover the deposit under the terms of the contract?

3. Should the Court issue a declaration enabling the purchaser to directly access the funds held in court?

4. Should the Court order the release of security for costs previously paid by the purchaser?

Court’s Consideration and Reasoning

1. Entitlement to Default Judgment

While the purchaser’s amended statement of claim did not specifically request judgment for a liquidated sum, the Court confirmed that this was not a bar to default judgment. Justice Parker relied on rule 16.10 of the Uniform Civil Procedure Rules 2005 (NSW), which allows the Court to grant judgment for the relief to which a plaintiff appears entitled, even if not explicitly pleaded.

“The evidence before the Court establishes that the plaintiff is entitled to a refund of the deposit… Accordingly, I consider that the plaintiff is prima facie entitled to default judgment.”

2. Recovery of the Deposit

Justice Parker found that the contract had been validly rescinded pursuant to the special condition, and under SF cl 23.2.1, the purchaser was entitled to the return of the deposit.

Importantly, His Honour noted that there was no evidence before the Court substantiating the vendor’s claim that the purchaser was at fault for the failure to secure the lease.

3. No Declaration on Funds Held in Court

The purchaser had also sought a declaration that the deposit held in court belonged to it. Justice Parker declined to make such a declaration, noting that the claim to the funds should be dealt with in the separate proceedings where the money had been paid into court.

“Although, in an appropriate case, the Court might shortcut recovery… it would be quite inappropriate to do so if there is any question about the vendor’s solvency.”

The Court instead suggested that any application to release those funds should be made in that other matter, and not in the present default judgment proceedings.

4. Release of Security for Costs

Although not specifically sought in the notice of motion, the purchaser also requested the release of a $30,000 security for costs previously paid. The Court agreed, considering it a consequential order to the judgment.

Final Orders

On 9 September 2025, the Court ordered:

1. Judgment for the purchaser in the amount of $371,700, plus interest of $23,182.

2. Costs awarded to the purchaser: $1,596 in costs and $3,699 in filing fees.

3. Release of the $30,000 security for costs to the purchaser.

Lessons to be learned

For clients buying or selling businesses in NSW—especially where leased premises or other third-party approvals are involved—this case offers several important takeaways:

1. Special Conditions Must Be Carefully Managed

The failure to satisfy the condition relating to the lease was pivotal. Both parties must take active steps to ensure that conditions precedent are met in time. A missed deadline—even where the party is not at fault—can lead to rescission and loss of the transaction.

2. Default Allegations Require Evidence

Vendors must be cautious before claiming that the purchaser was in default, especially if they intend to retain the deposit. Without evidence, such claims may be rejected by the Court, and the vendor could face orders for repayment and costs.

3. Understand the Role of Trust Accounts and Court Deposits

Where there is a dispute over the deposit, it is common for solicitors to pay the funds into court. However, retrieving those funds is a separate legal step that may require further proceedings, particularly where solvency is in question.

4. Failure to File a Defence Has Consequences

If a party (here, the vendor) fails to file a defence, the Court can and will proceed to enter default judgment, even in complex commercial disputes. This highlights the importance of complying with court directions and remaining legally represented throughout proceedings.

5. The Standard Form Contract Offers Clear Protections

The Law Society's standard form contract clearly sets out what happens on rescission—including the refund of the deposit to the purchaser. This case confirms the importance of following the standard terms, which provide predictability and legal certainty.

Conclusion

The Supreme Court’s decision in AMC C11 Pty Ltd v Crown Medical Group Ltd illustrates how contractual rescission, default procedures, and deposit recovery play out under NSW law. For both purchasers and vendors, it underscores the value of legal advice when negotiating contract terms, managing special conditions, and responding to disputes.

Whether you're buying a business, selling one, or acting as a landlord to a new tenant as part of a business acquisition, understanding your contractual rights—and responsibilities—can make all the difference when things don’t go to plan.