Broadlands (Properties) Pty Ltd v Burns & Burns Pty Ltd
[1996] FCA 1130
•24 Dec 1996
THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NG 314 of 1993
)
GENERAL DIVISION )
BROADLANDS (PROPERTIES)
PTY LIMITED
VICTOR VIRGONA and MARIA VIRGONA
Applicants
BURNS & BURNS PTY
LIMITED
RICHARD ARTHUR BURNS
JULIA DENISE BURNS
Respondents
Coram: Whitlam J
Place:Sydney
Date:24 December 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The application is dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NG 314 of 1993
)
GENERAL DIVISION )
BROADLANDS (PROPERTIES)
PTY LIMITED
VICTOR VIRGONA and MARIA VIRGONA
Applicants
BURNS & BURNS PTY LIMITED
RICHARD ARTHUR BURNS
JULIA DENISE BURNS
Respondents
Coram: Whitlam J
Place: Sydney
Date:24 December 1996
REASONS FOR JUDGMENT
The applicants, Victor Virgona and Maria Virgona, are husband and wife. They are directors of the corporate applicant, Broadlands (Properties) Pty Ltd ("Properties"). The respondents, Richard Burns and Julia Burns, are also married to each other. They are real estate agents and directors of the corporate respondent, Burns & Burns Pty Ltd ("Burns & Burns"), which carries on business as real estate agents with offices in the Sydney suburbs of Pymble and Killara.
On 18 May 1990 the applicants purchased two apartments in a residential flat building located at 71 Kirribilli Avenue in the suburb of Kirribilli overlooking Sydney Harbour. The apartments may be distinguished by their lot numbers in the relevant strata plan. Properties purchased lot 1 for a consideration of $2.2 million, and Mr and Mrs Virgona purchased lot 2 for $1.3 million. On 6 December 1990 lot 1 was sold for $1.075 million, and on 7 April 1994 lot 2 was sold for $1.525 million. In this proceeding the applicants claim damages or compensation from the respondents for the capital loss on the purchase price of lot 1 and for all their costs, including borrowing costs, incurred in connexion with the purchase and sale of both apartments.
The contracts for the purchase of the Kirribilli apartments were exchanged on 23 February 1990. At that time Mr and Mrs Virgona resided in a residential property owned by them called "Broadlands", which was located at 10 Water Street in the Sydney suburb of Wahroonga. The amended statement of claim impugns the respondents' conduct leading up to the exchange of contracts for the Kirribilli apartments. Specifically, it is alleged that, in a series of meetings, Mr and Mrs Burns made oral representations which were false. It is also alleged that they failed to inform Mr and Mrs Virgona of certain matters connected with the proposed sale of a neighbouring residential property called "Windermere", which was located at 20 Water Street, Wahroonga. These allegations ground causes of action under the Trade Practices Act 1974 and the Fair Trading Act 1987 (NSW), in negligence and for breach of fiduciary duty.
So far as the terms of alleged representations are concerned, the applicants' pleading relevantly states:
"5.From approximately October 1989 [Properties and the Virgonas] were considering the purchase of units known as Units 1 and 2, 71 Kirribilli Avenue, Kirribilli ("the Kirribilli Units") on the basis that the purchase could be financed from the proceeds of sale of the [Virgonas'] home at 10 Water Street, Wahroonga ("the Wahroonga property").
THE FIRST MEETING
6.At a meeting in or about late November 1989, Maria Virgona in the presence of Victor Virgona ... informed [Mr and Mrs Burns]:
(a)of the proposal referred to in paragraph 5; and
(b)that unless the Applicants could finance the purchase of the Kirribilli Units from the sale of the Wahroonga property, the Applicants would forget about the deal.
7.In response to the information referred to in paragraph 6, [Mr Burns] in the presence of [Mrs Burns] ... represented to [Mr and Mrs Virgona] at the said meeting that:
(a)it was possible to sell the Wahroonga property for a price in the high $3 millions; and
(b)he had clients who would be very interested in purchasing the Wahroonga property if [Mr and Mrs Virgona] decided to go ahead with the deal.
THE SECOND MEETING
8.At a later meeting in December 1989, Maria Virgona in the presence of Victor Virgona ... informed [Mr and Mrs Burns] ... that they (the Applicants) would not go ahead with the deal unless a sale price of $3.7 million could be achieved on the sale of the Wahroonga property.
9.In response to the information referred to in paragraph 8, [Mr and Mrs Burns] ... represented to [Mr and Mrs Virgona] that:
(a)a sale price for the Wahroonga property of at least $3.7 million was achievable; and
(b)they already had clients in mind who would be interested in purchasing the Wahroonga property.
THE THIRD MEETING
10.At a later meeting in December 1989, [Mr and Mrs Virgona] informed [Mr and Mrs Burns] ...
(a)that they would not consider proceeding with the purchase of the Kirribilli Units unless they could be assured of selling the Wahroonga property for not less than $3,500,000.00; and
(b)that they required the advice of the [respondents] as to the price at which they would be able to sell the Wahroonga property.
11.In response to the information referred to in paragraph 10, [Mrs Burns] in the presence of [Mr Burns] ... represented to [Mr and Mrs Virgona] that:
(a)they (the Respondents) had a couple of buyers for the Wahroonga property in mind straight away;
(b)based on recent sales [Mr and Mrs Virgona] should have no problems in attaining a sale price for the Wahroonga property in the high $3 millions;
(c)although the dealing was confidential, she could say that a property in the same calibre as the Wahroonga property had been sold at a price of $3.8 million and she promised to identify the property when the sale had been finalized; and
(d)the Respondents had clients who were disappointed in missing out on the purchase of that property and they were sure that they would buy the Wahroonga property because they loved the street it was in.
THE FOURTH MEETING
12.In or about mid February 1990, Maria Virgona in the presence of Victor Virgona ... informed [Mr and Mrs Burns] ...
(a)that the Kirribilli Units could be purchased for $3,500,000.00; and
(b)that they would not proceed to exchange contracts for the purchase of the Kirribilli Units unless they could be assured that the Wahroonga property would be sold quickly for a cash amount approximately sufficient to finance the purchase of the Kirribilli Units.
13.In response to the information referred to in paragraph 12, and in response to the Applicants' requests that the Respondents identify the property referred to in paragraph 11(c) hereof, [Mrs Burns] in the presence of [Mr Burns] ... represented to [Mr and Mrs Virgona], on what was described as a strictly confidential basis:
(a)that [Burns & Burns] had acted as agent on the sale of a property known as "Windmere" [sic], which property was situated at 20 Water Street, Wahroonga;
(b)that "Windmere" [sic] had sold for $3,800,000.00;
(c)that the [respondents] knew several disappointed purchasers who had been interested in purchasing "Windmere" [sic] who would be likely to be interested in purchasing the Wahroonga property; and
(d)that in the opinion of [Mr and Mrs Burns] ... [Mr and Mrs Virgona] would have no difficulty in selling the Wahroonga property for the same price as "Windmere" [sic]."
Mr and Mrs Virgona have known Mr and Mrs Burns since, at least, 1981 when they retained Burns & Burns as agent to sell their then residence at 128 Braeside Street, Wahroonga. In 1982 Burns & Burns was the vendor's agent when the Virgonas purchased 10 Water Street. At that time Mrs Burns spoke at the Virgonas' request to the vendor who provided finance for the purchase, and she introduced the Virgonas to Mr David Beattie who acted as their solicitor on the purchase. Mr Beattie has acted as solicitor for Properties and
the Virgonas in a number of subsequent property transactions, including the purchase of lots 1 and 2 at Kirribilli. Mrs Burns also introduced her accountant, Mr Doug Pritchard, to the Virgonas. Mr Pritchard provided accountancy services to Mr and Mrs Virgona and their companies from that time up until April last year.
Mr and Mrs Burns dined occasionally in the early 1980s at a restaurant in a motel run by the Virgonas. Their social relationship was then ruptured by a dispute about the entitlement of Burns & Burns to a commission on the sale of a business. However, by 1987 social relations had resumed to the point where they attended a school dance together. About the same time Mr and Mrs Virgona altered the title on 10 Water Street from a joint tenancy to a tenancy in common. Whilst Burns & Burns was marketing the property next door to 10 Water Street, Mrs Burns says that she discussed with Mrs Virgona the possible sale of 10 Water Street. On 23 November 1987 Mrs Burns completed for Burns & Burns' records a form showing a current market value of $2 million for 10 Water Street. Later on that year, towards Christmas, Mr and Mrs Burns dined with the Virgonas at 10 Water Street.
In 1989 Mr Burns showed 10 Water Street to a potential purchaser. Mr and Mrs Virgona both say that Mr Burns told them beforehand that he thought that he could sell their property to this person for "over $4 million". Mr Burns denies such a conversation.
This brings me to the representations alleged in the amended statement of claim. Broadly speaking, Mr and Mrs Virgona appear to have come up to proof in their evidence in respect of those allegations. They were, however, substantially contradicted by Mr and Mrs Burns in their evidence. In the first place, the Burnses say that, prior to the exchange
of contracts on 23 February 1990, there were only two meetings at which the likely sale price of 10 Water Street was discussed, and they were in January and on 16 February. The Virgonas accept that the last meeting prior to the exchange was on 16 February.
Mr and Mrs Burns place the first of such meetings shortly prior to 17 January when Mrs Burns was admitted to hospital. Mr Burns, in particular, was conscious at that time of the dates of an upcoming case in the Land and Environment Court in which he was involved and which was scheduled to commence on 22 January. In that context he recalls Mr Virgona mentioning his own difficulties with a local government authority. The meeting was also held at 10 Water Street in the evening and afterwards Mr Virgona prepared a meal for all four of them. Mr Burns recalls sending flowers to his hosts afterwards, and a bill from Burns & Burns' florist records a courier delivery to 10 Water Street on 19 January.
Quite apart from the number of meetings, Mr and Mrs Burns deny the terms of conversations alleged by the Virgonas. In what they say was the first meeting in January, they agree that they were asked their views on the likely sale price of 10 Water Street. The Burnses say that, after some discussion between themselves, Mrs Burns suggested a price from $2.5 million to $2.7 million and Mr Burns $2.5 million to $3 million. They say that Mrs Virgona responded to the effect that the property was worth $3.9 million to $4 million and that she would not sell for less than such a price. At the meeting on 16 February, Mrs Virgona told the Burnses that she and her husband were definitely thinking of buying "on the harbour". Mrs Burns does not recollect being told that the property in question was 71 Kirribilli Avenue and says that she would have remembered because she knew the development. Both Mr and Mrs Burns are adamant that nothing was said about the purchase
price of any "harbour" property by either Mr or Mrs Virgona. At this meeting Mrs Virgona adhered to her view of the value of 10 Water Street. It was in that context that Mrs Burns says that she mentioned the price of $3.8 million for 20 Water Street, which reflected the extent to which one purchaser was prepared to go in an extraordinary contract involving vendor finance and a delayed settlement. Mrs Virgona stated that she wanted $3.5 million for 10 Water Street and did not have to sell. Mrs Burns concedes that she may have said that persons would be interested in buying in Water Street, but she denies that she would have said so by reference to 20 Water Street because that property was not "on the market" in any conventional sense. Faced with this conflict of evidence, it will be useful to trace the events leading up to the exchange of contracts for 20 Water Street and for the Kirribilli apartments.
By an agreement dated 1 September 1989 Burns & Burns was authorised to sell 20 Water Street by its owners, Larry and Robyn Webster, for a price of $4 million. On 26 October 1989 Mrs Burns wrote to Mr and Mrs Webster, submitting an offer on behalf of her "faithful clients", Peter and Christina Zervos. This offer was confirmed in a subsequent letter dated 1 November 1989, in which Mrs Burns said that "[Ric and I] feel that the market value [of 20 Water Street] is closer to $2.5 million than $3.5 million." On 3 November 1989 Mrs Burns wrote to the Zervoses with the Websters' requirements for a sale price of $3.8 million. By the next day, 4 November 1989, Mrs Burns was able to write to the Websters conveying an "incredible" offer from Mr Zervos to pay $3.8 million on terms including vendor finance of $2.6 million for six months. Mrs Burns subsequently confirmed to the Websters' solicitors that, subject to minor adjustments, a contract should be prepared
on that basis and forwarded to the Zervoses' solicitors. That contract was forwarded on 27 November 1989, the Websters' solicitors "looking forward to an early exchange".
On 20 January 1990 Mrs Burns wrote to the Websters and the Zervoses, confirming arrangements (inter alia) for an exchange "forthwith" on payment of $10,000 with two payments of $95,000 on 19 February 1990 and 19 March 1990 respectively. Contracts were exchanged on 26 January 1990. Mr Zervos failed to make the payment due on 19 February 1990. Negotiations to alter the agreed terms were inconclusive. On 26 March 1990 Mr Webster authorised Burns & Burns to auction 20 Water Street in May 1990 and accordingly Mrs Burns asked Mr Webster's solicitors to furnish a contract for that purpose. Those solicitors sent a notice of termination to Mr and Mrs Zervos's solicitors on 18 April 1990. Whilst dining at a restaurant with the Virgonas on 20 April 1990, Mr and Mrs Burns told them about the contract termination and the upcoming auction of 20 Water Street.
The vendor of the Kirribilli apartments was Carringbush Corporation Pty Ltd ("Carringbush"), the principal of which was one John Denoon. The vendor's agent was John Ledgerwood Real Estate Pty Ltd ("Ledgerwood Real Estate") of North Sydney.
The building at 71 Kirribilli Avenue had been renovated. After renovation was completed in June 1989 it comprised four apartments. Lots 1 and 2 are split level, lot 1 being located on levels 1 and 2 and lot 2 on levels 2 and 3. The apartments were initially marketed at prices ranging from $2.5 million to $2.7 million. The prices were adjusted in November/December 1989. Ledgerwood Real Estate advertised the apartments in the newspaper on successive Saturdays between 27 January and 24 February 1990 at prices from $2.1 million to $2.2 million. At this time the asking price for lot 1 was
$2.1 million and for lot 2 it was $2.2 million.
Mr Denoon had three meetings with Mrs Virgona. The first meeting was in February 1990 at lot 2 with a Ledgerwood Real Estate salesman, Paul Watsford. The second meeting was on 14 February 1990, again at lot 2 with Mr Watsford. This time Mr Virgona attended. Mr Virgona checked to see that his motor car could be accommodated in the garage for lot 2. At that meeting Mr Denoon accepted an offer from the Virgonas to purchase lot 2 for $2 million and agreed to give them a right of first refusal over lot 1. Carringbush's solicitor, Mr Geoffrey Farland, noted on the morning of 14 February his instructions that the contract was to provide for settlement on 14 June 1990 with a 14 day notice to complete.
Mr Farland's secretary telephoned Mr Beattie on 15 February to ascertain the purchaser's details. However, Mr Farland sent the contract to Mr Beattie by hand on 16 February with the purchaser's details uncompleted. On 19 February Mr Farland's conveyancing clerk, Glenda Whitehead, telephoned Mr Beattie at 2.50 pm and noted that he "advised his clients may not be proceeding due to double garage being too small".
Mr Denoon had his third meeting with Mrs Virgona at Carringbush's offices at Neutral Bay a "few days after" his second meeting. At this meeting Mrs Virgona offered to purchase lots 1 and 2 for a total price of $3.5 million. Mr Denoon accepted on condition that there was a quick exchange of contracts. Mrs Virgona indicated that she wished to purchase lot 1 in a company's name. Mr Denoon telephone Mr Farland immediately after this meeting with instructions to prepare contracts for exchange by the end of the week with
10 per cent deposit and settlement in 28 days. Mr Farland's note is dated 19 February. Mr Denoon also distinctly recalls (because most potential buyers wanted time to sell their current residences) Mrs Virgona saying that she did not need to sell her residence at Wahroonga.
Mr Beattie spoke to Mr Farland on 21 February about the purchasers' details and certain requirements of the Virgonas, including alterations to the garage. Mr Farland forwarded the contracts to Mr Beattie by hand on 22 February, and exchange took place on 23 February.
To this point the most striking thing about the above evidence is the fact that, although the Virgonas did not have any "deal" as it is described in their pleading to purchase lots 1 and 2 until 19 February (that is some three days after their last relevant conversation with the Burnses), they assert that they informed the Burnses of such a proposal on no less than four earlier occasions. Further, the Virgonas say that they were able to inform the Burnses of the agreed purchase price of $3.5 million on 16 February. The suggested rough symmetry between the likely sale prices of 10 Water Street allegedly opined by both Mr and Mrs Burns and the purchase price of the Kirribilli apartments begins to look shaky. (Indeed, in her first affidavit Mrs Virgona said that in November 1989 she had inspected with Mrs Burns a property called "Berith Park" in Wahroonga and that they had discussed the net cost of its acquisition after excision and sale of two plots by reference to a likely sale price of $4 million for 10 Water Street. When the respondents proved that the Virgonas' inspection of Berith Park did not take place until 10 February 1990, Mrs Virgona had to change her evidence, thus removing another underpinning for the sale price allegedly required for 10 Water Street from early on in the piece.)
This brings me to the evidence of Mr Pritchard. He had a meeting scheduled with the Virgonas for the afternoon of 19 February 1990 to discuss tax problems, but he had also had a telephone conversation prior to that day with Mrs Virgona in which they discussed in general terms the proposed purchase of the Kirribilli apartments and the sale of 10 Water Street. Mr Pritchard denies Mrs Virgona's evidence that she told him that Mr Burns had brought around a potential purchaser of 10 Water Street for $4 million, that she had spoken to Mrs Burns about the likely sale price of 10 Water Street, and that she wanted to fund the purchase of the Kirribilli apartments by the sale of 10 Water Street. Mr Pritchard says that Mrs Virgona did say that she had a meeting scheduled with Mr Denoon on a day prior to 19 February and that one apartment was "not enough". He also says that he may have suggested one apartment be used as an office, and he recalled an "asking price" of $3.8 million being mentioned.
The Virgonas met Mr Pritchard on 19 February. Prior to that meeting he did not know the agreed purchase price of lots 1 and 2 and he had not discussed with Mrs Virgona the value of 10 Water Street. He had, however, spoken to Mrs Burns, who had told him that a likely sale price for 10 Water Street was $2.6 million to $2.7 million.
Mr Pritchard's notes of this meeting (exhibit 6) have been received in evidence. They record his suggestion that lot 1 be purchased by Properties for $2.2 million and lot 2 by the Virgonas for $1.3 million. A proposal was discussed for a bridging loan for the total purchase price and for the sale of two properties. Mrs Virgona suggested the sale of another house at Wahroonga owned by Properties would realize $335,000 and the sale of 10 Water
Street $3 million. No final decision was made about the disposition of such sale proceeds, but Mr Pritchard suggested paying off the loan for the apartment registered in the Virgonas' name.
Mrs Virgona was to prepare some figures on "projections" and "asset values" for submission to Westpac Banking Corporation ("Westpac"). Mr Pritchard had introduced the Virgonas to Westpac, where the manager of their accounts from April 1988 to December 1990 was one Terry Crowe. The next day (20 February) Mrs Virgona delivered to Mr Pritchard a document (exhibit 14), which she said that she had already delivered to Mr Crowe.
Mr Crowe had also requested Mrs Virgona to let him have particulars of assets, liabilities and income. Westpac's copy of the document (exhibit 28) furnished to Mr Crowe was used by him to prepare an internal loan submission the week after contracts were exchanged. It should be noted that the Virgonas exchanged with no loan approvals in place for the Kirribilli apartments. Mr Crowe is quite clear on this point, though he acknowledges that when he prepared his loan submission he knew that the deposit cheques had been paid.
The document prepared by Mrs Virgona attributed a value between $3 million and $3.5 million to 10 Water Street and from $320,000 to $350,000 for the house owned by Properties. Mrs Virgona stated that these estimates were conservative. In particular, she noted proposed borrowings of $2.3 million by Properties and a short term loan to the Virgonas "pending sale of the Wahroonga (Water St) home" of $1.3 million. She noted that,
if Westpac desired, "some of the proceeds from the sale of Water St" could be applied to reduce Properties' borrowings or to service its interest payments.
In his submission dated 26 February 1990 to Westpac's State Credit Committee, Mr Crowe noted "what [the Virgonas] told me", namely: "They will sell both Wahroonga properties at a price they consider appropriate. Timing is uncertain but should not exceed one year. They are hopeful of achieving $3500 (no capital gains tax) from their Water Street home and $350 for the other property." He also noted: "Once Wahroonga properties are sold, they may wish to retain cash/borrowings."
In the first week of March 1990 Mrs Virgona, on behalf of Properties, signed a selling agency agreement in respect of its property at 7 Cherrywood Avenue, Wahroonga formerly occupied by the Virgonas' daughter. Burns & Burns was authorised to sell the property for $320,000. In the agreement Mrs Burns stated the current market value at "$280-300". The same week Mrs Burns organized a planning certificate for 10 Water Street from the local council and confirmed a 50/50 conjunction arrangement with Ledgerwood Real Estate on 10 Water Street. Burns & Burns also requested from Mr Beattie contracts for the sale of both properties.
Westpac wrote to Mr and Mrs Virgona on 29 March 1990 notifying the terms upon which it was prepared to offer new accommodation to Properties pursuant to a bills facility secured (inter alia) by a mortgage over lot 1 and a third party mortgage by the Virgonas over lot 2. These terms were accepted by the Virgonas. In the first week of April Mrs Virgona spoke to Mr Beattie about the inclusions in the contract for 10 Water Street, which was
forwarded later that day to Mrs Burns. During April Burns & Burns arranged for the production of a sales brochure for 10 Water Street and, as I have mentioned, Mr and Mrs Burns told the Virgonas about the need to auction 20 Water Street.
The next month, on 18 May 1990, the purchase of the Kirribilli units was completed and Properties borrowed $3.75 million under the Westpac bills facility. The property at 20 Water Street was passed in at auction on 20 May.
Although the Virgonas evidently regarded the offers for 7 Cherrywood Avenue conveyed by Burns & Burns as "insulting", on 30 May 1990 Mr Virgona instructed Mr Burns to accept an offer of $265,000 for the property. However, at the same time he withdrew from sale 10 Water Street, in respect of which there was no agency agreement in writing. The marketing of 10 Water Street had been, on any view, deliberately low-key. A week later, on 6 June, Mrs Burns and Mrs Virgona had an acrimonious telephone conversation, which resulted in a flurry of correspondence.
In a letter to the Virgonas dated 7 June, Mrs Burns set out what she perceived to be the difficulties with the Virgonas' instructions for the sale of both properties. Mrs Virgona replied at length on 13 June. The tone of Mrs Virgona's letter strikes me as triumphalist, rather than accusatory. Yet it is significant that, at the same time as she expressed her belief that "there are no buyers in our price bracket looking to live on the upper north shore", Mrs Virgona made no complaint about either the market prices given by Mr and Mrs Burns for 10 Water Street or the "inflated" purchase price for 20 Water Street agreed to by Mr and Mrs Zervos.
Mr Crowe telephoned Mrs Virgona "to keep in touch with developments" and made a note of the discussion on 20 June 1990. He noted: "Wahroonga mansion has not yet sold -they have switched estate agents and have engaged international consultant. She mentioned that another home in Water Street sold for $3.8m (similar standard to own) but deal fell through because buyer could not complete." Mr Crowe spoke to Mrs Virgona again on 26 July 1990. He noted that 10 Water Street was being marketed, in his words, "at half steam". Told that Cherrywood Avenue had sold for "approx $300", he noted that "they propose using these funds to purchase hotel licence" and that a Whale Beach property owned by a subsidiary of Properties was to be auctioned. Mr Crowe wrote "All a little vague but Mrs Virgona has estimated that at the very worst they would net $3,000 from Wahroonga mansion and Whale Beach."
By August 1990 Burns & Burns was once more acting as the Virgonas' agent for the sale of 10 Water Street. Mrs Burns wrote to a newspaper's real estate correspondent on 8 August: "The vendors would like about 3.5 million, my own opinion is that 2.5m to 3m will be more realistic." The Virgonas even signed an agency agreement dated 21 August. The property was auctioned on 29 September 1990, but passed in after the bidding had reached $2.46 million.
In early October 1990 Mrs Burns spoke to Wayne Taylor of the real estate firm Ray White Neutral Bay about selling lot 1 at Kirribilli. Mrs Burns introduced Mrs Virgona to Mr Taylor at lot 1. (Somewhat bizarrely, Mrs Virgona denies such an introduction, but I am quite satisfied that Mr Taylor's recollection is accurate.) The Virgonas then retained Ray
White Real Estate to sell lot 1 for Properties. The property was auctioned on 9 November 1990, and an agreement was concluded after auction for the sale price of $1.075 million. Burns & Burns had a conjunction agreement with Ray White on the sale, and Mrs Burns spoke to Mrs Virgona on the day of the auction.
Before settlement of the sale of lot 1, Mrs Virgona prepared updated information for Westpac. For this purpose she utilized another copy (exhibit 33) of the document that she had furnished to Mr Crowe and Mr Pritchard in February. The new document she created was dated 12 November 1990. In this document Mrs Virgona placed a value of $3 million on 10 Water Street and said that "we have estimated" that value "on to-days [sic] sort of market". Subsequently, on 15 November 1990, Mr Crowe had discussions with Mrs Virgona and was informed that the Virgonas had withdrawn 10 Water Street from sale. At the December rollover, following settlement of the sale of lot 1, Properties reduced its borrowings under the Westpac bill facility (which at one stage had risen to $3.9 million) to $3 million.
The relationship between the Virgonas and the Burnses might have ended at this point. However, on 5 June 1991 the Virgonas agreed to sell 10 Water Street to Darryl Courtney-O'Connor and his wife Lesley Courtney-O'Connor for $2.5 million. That sale was completed on 23 January 1992. (In the meantime Mrs Virgona had written to Mr Courtney-Connor on 4 November 1991 claiming that the value of the property was, in fact, $3 million.) In June 1992 Burns & Burns claimed commission from the Virgonas on the basis that it had introduced the Courtney-O'Connors in 1990 during the period of its exclusive agency for the sale of 10 Water Street.
In a letter dated 12 August 1992, Mrs Virgona instructed Mr Beattie to inform Burns & Burns that any claim for commission would be defended. She also wrote:
"... in addition we intend to seek legal advice as to what course of action is available to us against the Burns for misleading statements made by them at the time that we initially sought their advice about the sale of our home before we went ahead with the purchase of the Kirribilli Units. We relied on their statement that they had recently exchanged contracts for No 20 Water Street, a property similar to ours for $3.8 million and that we could expect a similar price for ours. They even told us that they had purchasers who missed out on that property and they were sure that they would be good prospects for ours."
On 12 March 1993 Burns & Burns commenced proceedings to recover the commission in the Local Court at Hornsby. The applicants then commenced this proceeding on 18 May 1993.
The protagonists (indeed, the leading antagonists) in this case are Mrs Virgona and Mrs Burns. They are both obviously intelligent and determined women. Mrs Virgona had only a basic secondary education and yet she has satisfactorily completed several years of the professional studies required for admission as a legal practitioner. She undertakes conveyancing for herself and the Virgonas' companies. Mrs Virgona married young and has raised several children, whilst all the time helping her husband in the development of his successful business. She looks after the book work with an obvious eye to detail, which is reflected particularly in her correspondence with Westpac. Significantly, when it comes to assess her evidence, Mrs Virgona is not slow to complain in writing when she is dissatisfied. She is not a backward person. Together, Mr and Mrs Virgona now run a very profitable, integrated relocatable homes business.
Mrs Burns is also justifiably proud of the reputation that she has achieved as a leading real estate agent in the so-called North Shore area of Sydney. She works long hours throughout the week, dealing on behalf of all sorts of vendors with potential purchasers. This is, no doubt, high pressure work.
In his report to Westpac's State Credit Committee, Mr Crowe said that "[the] Virgonas are considered to be capable, reliable, well versed in their field and are very shrewd business people." He commented that they "have accumulated substantial assets over the years". This assessment accords with the evidence and my own impression. There was an attempt to present the Virgonas as inexperienced participants in the residential property market. The truth is that Mr Virgona has been a participant in that market all his working life. The Virgonas were no mere babes in the wood. Relatively speaking, their initial acquisition of 10 Water Street in 1982 was heroic compared with the purchase of the Kirribilli apartments.
Importantly too, the Virgonas' interest in residing near Sydney Harbour antedated any of the alleged representations by the Burnses about the value of 10 Water Street. This fact had eventually to be grudgingly acknowledged. Mr Beattie had a diary note for a new file to be opened for the Virgonas concerning a property at Cremorne Point to be purchased for $2.85 million with the release of the deposit on a "4 months sale". Mr Beattie has no recollection of the matter but says it would have been in 1988 or 1989. Indeed, Mr Crowe recalls the Virgonas mentioning in 1988 that they wished to move from 10 Water Street. Both he and Mr Beattie recall the Virgonas being gazumped on an expensive property in
McMahons Point, another suburb on Sydney Harbour. In the first half of 1989 Mr Beattie opened a file for the sale of 10 Water Street.
Mrs Virgona evidently always thought that 10 Water Street was a very valuable property, and she continued to think so after the unsuccessful auction in September 1990. The Virgonas made offers on expensive harbour-side properties well before the end of 1989 at a time when they had no finance approved by their bankers. To the extent that they had regard at that time to the value of 10 Water Street, they needed no encouragement from Burns & Burns.
The number of meetings between the Virgonas and the Burnses is less important than their content and timing. Nonetheless Mr and Mrs Burns give an entirely convincing explanation of how it is that they recall when these meetings took place. They relate the meetings logically to other verifiable events in their business and personal lives and are supported by pieces of evidence, such as the florist's bill which would appear to have no other explanation. I am satisfied that there were only two relevant meetings and that the first one was held only days before 19 January 1990.
As to the contents of the conversations, this is a case where there is a direct conflict of evidence and I regret to say, that, in my opinion, there is no real possibility of an honest mistake. (See Smith v NSW Bar Association (1992) 176 CLR 256 per Deane J at 271.) I have concluded that Mr and Mrs Virgona are not merely mistaken, but have deliberately invented their evidence. As I have already pointed out, the "deal" on the Kirribilli apartments was not done until after the final meeting with the Burnses on 16 February 1990.
The values attributed to 10 Water Street in the document given to Westpac in February 1990 are plainly Mrs Virgona's. She was detained in the witness box for a very long time on account of her refusal to acknowledge the logical inferences available from other persons' notes of conversations with her and from documents in her own hand. When the interlocutors, especially Mr Pritchard and Mr Crowe, were eventually called, there was direct evidence of what Mrs Virgona said. (Mr Pritchard did not query the value put on 10 Water Street by Mrs Virgona, given the "subjectivity" of the topic, but he knew what Mrs Burns had said the value was.) In addition, he denies that Mrs Virgona told him that she had spoken to Mrs Burns about the value of 10 Water Street. There was a half-hearted attempt to portray Mr Pritchard as other than a disinterested witness. I should say, therefore, that I am completely satisfied that Mr Pritchard gave his evidence truthfully and to the best of his recollection. It will be obvious that, where there is a conflict between him and the Virgonas, I accept his evidence.
Mr Crowe also confirmed that Westpac's information about the value of 10 Water Street came from Mrs Virgona. Westpac was more interested, at least initially, in the value of the relocatable homes estate (for which a valuation was furnished) and the income from that business. Later on, after the unsuccessful auction, Westpac was more concerned about having no security over 10 Water Street.
I have mentioned Mrs Virgona because she had most of the dealings with the bank. It was she who wrote the letters. Mr Virgona had signed some correspondence but, by and large, he has not authored any documents in a way that permitted him to be tied down to
their contents in cross-examination. Nonetheless, so far as the critical conversations with the Burnses in January and February are concerned, I also reject his evidence of what was said.
On the other hand, Mr and Mrs Burns exhibited a professional familiarity with land prices in the Wahroonga area. They were conscious of the need to avoid giving the impression that they were valuers. Their description of their approach to the appraisal of 10 Water Street rings true. Of course, Burns & Burns was interested in obtaining listings for properties that could be sold. The evidence does not suggest however, that either of the Burnses encouraged false hopes in potential vendors. Their professional interest required them to do the best that they could for their principals. However, the letter sent by Mrs Burns to The Sydney Morning Herald journalist reflected a restrained approach to the market, seemingly at odds with that of Mrs Virgona.
Mrs Virgona letter of 13 June 1990 is most significant. The auction of 20 Water Street a couple of weeks beforehand had been spectacularly unsuccessful. Yet Mrs Virgona made no complaint about the prices suggested by Mr and Mrs Burns for 10 Water Street. (Indeed, she made no complaint about what she had been told about the price agreed to be paid by the Zervoses for 20 Water Street.) Mrs Virgona did complain about the delay in marketing her house pending the auction of 20 Water Street, but she acknowledged that she had agreed to this course. Had Mr and Mrs Burns made the statements attributed to them by the Virgonas, this would have been the occasion to mention them at the very time an entirely different state of the market for expensive properties in Wahroonga had been starkly revealed. This was not an occasion when Mrs Virgona was holding anything back. The reason such statements were not mentioned is that they were not made. I accepted the
Burnses' denial of the statements attributed to them by the Virgonas. In my view, they are entitled to such a finding (which the evidence compels) and not simply to have the question whether the alleged representations were ever conveyed, determined by reference to considerations such as the onus of proof.
So too with the alleged non-disclosures about 20 Water Street. Mr and Mrs Burns say that the contract for this property was not mentioned until 16 February 1990, that is, after the exchange on 26 January and before Mr Zervos's default on 19 February. Even Mr and Mrs Virgona do not say that the "same calibre" property sale was mentioned in November 1989 when the Zervoses' offer for 20 Water Street was, in fact, conveyed. The Virgonas accept that it was only at the meeting on 16 February that 20 Water Street was identified. Yet Mrs Virgona did not go into print until 12 August 1992 to complain about what was allegedly said about the contract for 20 Water Street.
It is alleged, in effect, that the respondents were bound to disclose all the terms of the Zervos contract to the Virgonas. This overlooks the context in which 20 Water Street was mentioned. I accept the evidence of Mrs Burns that the contract price for 20 Water Street was referred to in order to dampen Mrs Virgona's unrealistic expectations for 10 Water Street. In that context the exceptional price of $3.8 million fell to be explained as one that was inflated by the delayed settlement and the provision of finance by the vendor. As Mr Burns said at the time, 20 Water Street was being purchased "on the drip". That slang expression sums up the elements identified by the Burnses to the Virgonas. Most importantly, however, it should again be emphasized that I accept that the price for 20 Water
Street was only mentioned at all in order to explain the significantly lower prices anticipated by the Burnses for a sale of 10 Water Street.
It follows that, in my opinion, the alleged representations have not been made out and that the respondents' conduct was neither misleading nor deceptive. It is also alleged that the respondents owed a fiduciary duty to the applicants. This duty is said to have been breached by the failure to disclose the terms of the Zervos contract for 10 Water Street until after 23 February 1990 (when the contracts for the Kirribilli apartments were exchanged) and by the respondents declining to market 10 Water Street until after the May auction of 20 Water Street. One of the accepted fiduciary relationships instanced in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 by Mason J at 96-97 was agent and principal. But, on any view, Burns & Burns was not the agent for the sale of 10 Water Street until the beginning of March 1990 at the earliest. Even then, it is apparent that the Virgonas were conscious at the time that no formal agency agreement had been executed. Prior to the exchange of the Kirribilli contracts the Burnses were, in my opinion, under no fiduciary obligation to the Virgonas in what they said about property prices in Wahroonga. Once Burns & Burns did become de facto agents for the sale of 10 Water Street, their obligations in marketing that property would be governed by any agreement with the applicants. So far as any such agreement is concerned, the Virgonas plainly accepted that Burns & Burns would concentrate its efforts on the marketing of 20 Water Street ahead of the May 1990 auction.
The application will be dismissed. The parties have asked to be heard before any order for costs is made. Counsel may approach my Associate to arrange a mutually convenient date for this purpose.
I certify that this and the preceding 24 pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam
Associate:
Date: 24 December 1996
Counsel for the applicant: J.J.J. Garnsey QC and M.C.L. Dicker
Solicitors for the applicant: Lane & Lane
Counsel for the respondent: J.R. Sackar QC and M.T. McCulloch
Solicitors for the respondent: Minter Ellison
Dates of hearing: 3-20 April, 19-30 June, 11-26 October &
13-15 November 1995
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