Butcher v Harkins

[2001] NSWSC 15

CITATION:	Butcher v Harkins [2001] NSWSC 15
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2580/97 and 2733/98
HEARING DATE(S):	12-16 July, 5 August, 23 September 1999, 15 & 16 February 2000
JUDGMENT DATE:	2 May 2001
PARTIES :	Jeffrey Gordon Butcher & Judith Kay Radford (P, 2580/97 & 2733/98) Robert Edward Harkins (D, 2580/97) and (CD, 2733/98) Lachlan Elder Realty Pty Limited (D1, 2733/98) James Dive and Katrina Hishon (D2, 2733/98) Lachlan Elder Realty Pty Limited (CC, 2733/98)
JUDGMENT OF:	Austin J

COUNSEL :	G Moore (P) W Hodgekiss (D in 2580/97 & CD 2733/98) J Gooley (D1 & CC in 2733/98)
SOLICITORS:	Williams Woolf & Zuur (P) Murray Stewart & Fogarty (D1 & CC in 2733/98)
CATCHWORDS:	CONTRACT - termination for breach - what constitutes essential term - whether stopping of payment on cheque constituted repudiation CONVEYANCING - refund of deposit - scope of discretion under s 55(2A) of Conveyancing Act TRADE PRACTICES - misleading and deceptive conduct - representation as to future matter - whether real estate agents' brochure was misleading - whether plaintiffs should have obtained their own survey
LEGISLATION CITED:	Family Law Act 1975 (Cth) s 87 Real Property Act 1900 (NSW) ss 74J, 74O Conveyancing Act 1919 (NSW) ss 55(2A), 66T, 66X, 66W
CASES CITED:	Academy of Health v Power [1973] VR 254 Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Auty v Thompson (1903) 5 NZGLR 541 Brien v Dwyer (1979) 53 ALJR 123 Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Demagogue v Ramensky (1992) 39 FCR 31 Derry v Peek (1889) 14 App Cas 337 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Edgar v Farrow Mortgage Services Pty Ltd (1992) ATPR (Digest) 40-096 Emma Silver Mining Co v Grant (1879) 11Ch D 918 Finucane v NSW Egg Corporation (1988) 80 ALR 486 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 Hornsby Building Information Centre (1978) 140 CLR 216 Hymes v Byrne (1899) 9 QLJ 154 Kennedy v Panama Mail Co (1867) LR 2 QB 580 Lewis v Cook [2000] NSWSC 191 Lezam Pty Ltd v Seabridge Australia Ltd (1992) 35 FCR 535 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 MacCormick v Nowland (1988) ATPR 40-852 Main Lodge Pty Ltd v Barque Holdings Pty Ltd (1982) NSW ConvR para 55-049 McDonald's System of Australia Pty Ltd v McWilliams Wines Pty Ltd (1979) ATPR 40-140 Mellor v Walmesley [1905] 2 Ch 164 Oakes v Turquand (1867) LR 2 HL 325 Redgrave v Hurd (1881) 20 Ch D 1 Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) ATPR (Digest) 46-010 SA Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677 Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR 41-396 Saints Gallery Pty Ltd v Plummer (1988) ALR 525 Simons v Zarton Investments Pty Ltd [1975] 2 NSWLR 30 Stanton v ANZ Banking Group Ltd (1987) ATPR 40-755 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270 Tramways Advertising Pty Ltd v Luna Park Pty Ltd (1938) 38 SR(NSW) 632 Tsekos v Finance Corporation of Australia [1982] 2 NSWLR 347 TV-AM plc v Amalgamated Television Services Pty Ltd (1988) ATPR 40-891 Verrall v Nott (1939) 39 SR (NSW) 89 White v Foran (1987) 11 NSWLR 470 Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661
DECISION:	See under heading 'Conclusions'

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

WEDNESDAY 2 MAY 2001

2580/97 - JEFFREY GORDON BUTCHER & JUDITH KAY RADFORD V ROBERT EDWARD HARKINS

2733/98 - JEFFREY GORDON BUTCHER & JUDITH KAY RADFORD V LACHLAN ELDER REALTY PTY LIMITED & ORS

JUDGMENT (Revised for typographical errors on 3 May 2001)

HIS HONOUR:

The proceedings

1   This is a case about a most unsuccessful home purchase. The plaintiffs are Jeffrey Butcher and Judith Radford, who were the co-purchasers. Ms Radford is Mr Butcher's de facto wife. Since Mr Butcher was the one who did most of the negotiations, I shall frequently refer to his activities, but it should be understood that Ms Radford was actively interested and Mr Butcher had her full authority.

2   There are two proceedings. The defendant in the first proceeding, which commenced on 26 May 1997, is Robert Harkins. He was the vendor to the plaintiffs of the property at 10 Rednal Street Mona Vale. The Rednal Street property is a valuable waterfront home. The plaintiffs bought the property at an auction conducted by Lachlan Elder Realty Pty Ltd, the vendor's agent, bidding in the expectation that they would subsequently be able to sell their existing home at 41 Calvert Parade Newport for a sufficient price. Subsequently the contract for their purchase of the Rednal Street property was terminated, in circumstances that I shall describe. In the first proceeding the plaintiffs claim that they are entitled to recover from Mr Harkins a deposit of $200,000 plus interest, and damages representing their legal fees as purchasers. Mr Harkins claims that he is entitled to retain the deposit.

3   In the second proceeding, which was commenced by application and statement of claim filed in the Federal Court on 26 February 1998 and was transferred to this Court on 5 June 1998, the plaintiffs sue Lachlan Elder Realty for damages for misleading and deceptive conduct. They claim that a glossy colour brochure issued by Lachlan Elder Realty prior to the auction of the Rednal Street property was misleading, because it misrepresented the location of the rear boundary in relation to the swimming pool. They also claim that Lachlan Elder Realty misled them by advising, prior to the auction of the Rednal Street property, that they would be able to sell the Calvert Parade property for a price substantially higher than the price they eventually obtained for it. Lachlan Elder Realty denies the allegations.

4   On 29 April 1998 the company filed a cross-claim against Mr Harkins in the second proceeding, to protect itself in the event that the plaintiffs succeed against it. The cross-claim alleges misleading and deceptive conduct and negligence by Mr Harkins and seeks contribution from him with respect to any verdict against the company. Originally the solicitors who acted for Mr Harkins in the preparation of the contract of sale of the Rednal Street property were joined as respondents in the Federal Court proceeding. However, the proceeding against them was settled, and on 4 June 1999 (after the Federal Court proceedings had been transferred this Court) I made orders by consent entering judgment for the solicitors, with no order as to costs. The remainder of the proceeding, together with the first proceeding, subsequently came before me to be heard together.

5 In outline submissions lodged for the purposes of the hearing, the plaintiffs contended that the Court should exercise its discretion under s 55(2A) of the Conveyancing Act 1919 (NSW) to order the repayment of the $200,000 deposit to them, if the Court determines that they are not entitled to the deposit in any event. On the first day of the hearing counsel for Mr Harkins complained that the question of reliance on s 55(2A) had not been pleaded, and submitted that it was too late to raise the matter in outline submissions just before the hearing commenced. He contended that Mr Harkins would have called additional evidence with respect to the exercise of the discretion under the section, and would have made a cross-claim for payment of the remaining $72,000 deposit, if the matter had been placed in issue in a proper fashion. Further submissions by counsel for the plaintiffs and Mr Harkins led to agreement that the statement of claim in the first proceeding be amended to raise the s 55(2A) point, and a cross-claim be filed, and that directions be given with respect to the filing of additional evidence and the issue of subpoenas within a very short timetable. I made orders accordingly. Consequently the plaintiffs' application for orders under s 55(2A) is before the Court. Additionally, Mr Harkins now has a cross-claim in the first proceeding seeking payment of the balance of the deposit in the sum of $72,000 together with damages.

6   I shall first deal with the facts generally, and then consider the claims and submissions made in the first and second proceedings respectively. Some of my findings of fact (for example, with respect to valuation evidence) are more appropriate to the latter part of the judgment, than to the general narrative, and I have dealt with them accordingly.

Mr Harkins arranges to sell the Rednal Street property


7   Mr Harkins and his former wife purchased the Rednal Street property by a contract dated 19 December 1995. Annexed to the contract was a copy of a survey report by Mr F W Hannagan dated 4 August 1980, locating the mean high water mark for the property beyond the swimming pool. Prior to the purchase, Mr Harkins' solicitor obtained some documents from what was then the Lands Office, including a letter dated 30 May 1985 from Mr Dahlen of the Lands Office to the then owners, Mr and Mrs Pullicin, saying that in a recent inspection ‘the swimming pool was found to be entirely on your freehold land’. Mr Hannagan has given evidence that on the advice of his solicitor, he relied on the survey and Mr Dahlen's letter at the time of the purchase. Subsequently, he says, Mr Pullicin offered to give him other documents relating to the Rednal Street property.

8 Mr Harkins' former wife transferred her interest in the Rednal Street property to him in about May 1988, pursuant to a deed under s 87 of the Family Law Act 1975 (Cth). Mr Harkins re-married, but he and his wife decided to sell the property and move elsewhere.

9   In about May 1996 Mr Harkins approached Lachlan Elder Realty for advice about the sale of the property. He spoke to Mr Lachlan Elder. Mr Elder expressed the opinion that $1.5 million was the current reasonable selling price. Mr Harkins entered into an exclusive agency agreement with Lachlan Elder Realty on 16 May 1996. The property was not sold at that time.

10   On 16 September 1996 Mr Harkins granted a first mortgage over the Rednal Street property, and a second mortgage over another property owned by a company of which Mr Harkins was a director, in favour of Perpetual Trustees Victoria Ltd, to secure an indebtedness of $1.933 million.

11   On 19 November 1996 Mr Harkins entered into another agency agreement with Lachlan Elder Realty, which provided for the auction of the Rednal Street property. The agreement again identified the current reasonable selling price as $1.5 million.

12   Mr Harkins had been admitted to practise as a solicitor in this State in December 1994. At the relevant time he was employed by James Dive Partners, working in the commercial rather than the conveyancing field. He arranged for another solicitor in the office to prepare a contract for sale, and he asked her to uplift the purchase file from his former solicitor. His evidence is that, at the time, he recalled having seen a sketch which indicated that the mean high water mark traversed the swimming pool. He searched his extensive files for such a document, to no avail.

13   Mr Harkins says he looked closely at the contract by which he had purchased the land, including the annexed Hannagan survey, Mr Dahlen's letter of 30 May 1985 and the permissive occupancy offer that the Lands Department had issued to him. He measured the distances shown on the sketch annexed to the permissive occupancy offer using a 100 metre tape of the kind used by surveyors, and satisfied himself that the swimming pool must be wholly within the freehold land. Relying on these measurements and knowing that he had done no significant alterations to the property, he concluded that his recollection must have been mistaken and saw no point in pursuing the matter further. He instructed his solicitor to incorporate a copy of the Hannagan survey in the draft contract. I accept Mr Harkins' evidence on these matters.

The plaintiffs become interested in the Rednal Street property


14   During August 1996 Mr Butcher met with his accountant to formulate an investment plan to secure long-term financial security for his family. As a result of that discussion he and Ms Radford decided to make investments in properties and shares using the equity in the family home in Calvert Parade as security to finance these ventures. They sold their motor yacht in order to reduce their existing debt to a negligible level and to complete major renovations to the Calvert Parade property. In December 1996, when the renovations were substantially complete, Mr Butcher commenced making inquiries with various real estate agents in the northern beaches area, concerning the availability of potential investment properties to the value of about $800,000 to $1 million. His principal idea was to acquire a property suitable for immediate redevelopment and on-selling. However, it appears that he had an alternative plan that would involve selling the Calvert Parade property and renovating the new property after moving into it.

15   One of the agencies he approached was Lachlan Elder Realty. Most of Mr Butcher's dealings with Lachlan Elder Realty were with Gordon Spring. During December 1996 and January 1997 Mr Spring showed the plaintiffs a number of properties which did not meet their requirements. Early in February 1997 Mr Spring contacted Mr Butcher to propose an inspection of the Rednal Street property by the plaintiffs, although it was not in the price range that Mr Butcher had stipulated. Mr Spring told Mr Butcher that the property would suit him because the house was huge and had plenty of room for him to run his business from home. Mr Butcher commented that he would look at the property with an open mind, but he and Ms Radford had just finished renovating the Calvert Parade property to get it exactly the way they wanted it, and they had no plans to move.

16   The plaintiffs inspected the Rednal Street property with Mr Spring on 6 February 1997. They saw the grounds and observed a swimming pool with various improvements adjacent to it, located between the dwelling and the waterfront. Mr Spring did not show Mr Butcher a draft contract at that time, but he handed the plaintiffs a glossy coloured brochure which depicted the property. The plaintiffs allege that he said:
‘These are all the details for the property. You have a full coloured brochure on the front and all the council outgoings land survey etc on the rear. That is everything you need to know.’
17   Mr Spring denies saying ‘that is everything you need to know’. It seems to me likely that he used some such words, but, within their context, those words did not convey a representation that the brochure contained all the information that a purchaser would need before entering into a contract of purchase. Rather, the statement conveyed that the brochure was a very helpful document which conveniently put together in a single place the answer to some questions that purchasers typically asked.

The selling brochure

18   The brochure handed to Mr Butcher by Mr Spring on 6 February 1997 is a single page, with colour photographs on one side and information on the other. There is a large photograph of the rear of the property, taken from Pittwater, showing boats moored there, a flat grassy area running back from the water for perhaps 10 metres, then a metal picket fence with a gate, running across the back of the property. A smaller photograph, evidently taken from the veranda, shows a depth of perhaps four or five metres from the back of the pool to the back fence. There is also a small photograph of the billiard room. At the bottom of the coloured side of the brochure the name Lachlan Elder Realty Pty Ltd appears in small print, followed by:
‘All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee it's [sic] accuracy and interested persons should rely on their own enquiries.’

19   On the other side of the brochure there is a narrative, written in marketing language rather than legal language. The brochure claims that the property is set in the best position in Rednal Street, closer to the water than any other home, and says ‘your privacy is guaranteed’. The property is described as having, amongst other things, ‘low maintenance grounds and level lawns to the waters [sic] edge’. A diagram appears adjacent to the description. It is the survey diagram prepared by Mr Hannagan and subsequently annexed to the contract of sale. I shall describe the diagram in detail when I deal with the contract. As I shall note, the copy of the diagram annexed to the contract has some freehand additions, some of which also appear in the diagram as reproduced in the brochure.

20   The diagram shows an irregular line running across the property between the pool and Pittwater, labelled ‘M.H.W.M.’, and the area between that line and Pittwater is labelled ‘Reclaimed Area’. In my opinion, a reader of the brochure who compared the diagram with the photographs on the other side would conclude that the ‘M.H.W.M.’ line was approximately the line of the fence.

21   At the bottom of the information side of the brochure, in small print, there is a clause about the quality of information, in terms almost identical to the clause at the bottom of the first page.

Mr Butcher's investigations of the Rednal Street property


22   After their visit to the Rednal Street property on 6 February 1997, the plaintiffs discussed various options with regard to the pool and the general entertaining area between the house and the waterfront. Ms Radford expressed concern to Mr Butcher that the pool was too large and too close to the house, and suggested that it be moved to the side boundary to run along the fence on the western side of the property.

23   The plaintiffs became interested in the Rednal Street property, although the investment would be considerably more than they had contemplated. On 12 February 1997 they asked Mr Spring how much they could expect the Calvert Parade property to sell for, so they could calculate whether they could afford the Rednal Street property. Mr Butcher stressed that the proposal to buy the Rednal Street property would come to nothing ‘unless the numbers stack up’. Mr Spring was very complementary about the presentation of the Calvert Parade property, and said he felt ‘really comfortable’ with a sale price of $1.2 to $1.3 million. Mr Butcher said he would be comfortable with $1.25 million but asked Mr Spring to obtain an opinion from Lachlan Elder.

24   Mr Spring denies saying that he felt really comfortable between $1.2 and $1.3 million but it seems to me likely that some such confident words were used. According to Mr Spring, Mr Butcher said that he wanted $1.35 million from the sale, but Mr Butcher denies this. I accept the evidence of Mr Butcher that the position he took, on the advice of Mr Spring and Mr Elder, was to expect a sale price of between $1.2 and $1.3 million, although no doubt he hoped for more.

25   On 14 February 1997 the plaintiffs met Mr Elder. They inspected the Rednal Street property and the Calvert Parade property. Mr Elder was, like Mr Spring, very complementary about the Calvert Parade property, and predicted a sale price of ‘absolute dead set minimum’ $1.2 million and up to $1.3 million or even more. He justified his estimate by referring to comparable sales in the area. Mr Elder denies using the words ‘absolute dead set minimum’, but I find that these were the words he used. I was impressed by Mr Butcher's evidence of his clear recollection of the words and his surprise that such words had been used.

26   For their inspection of the Rednal Street property they were accompanied by Paul Gillmer, an architectural designer retained by the plaintiffs. At the site, Mr Butcher told Mr Elder that he planned to turn the pool around and have it by the side boundary, to open up space for entertaining. Mr Elder was sceptical, saying the plan would be expensive to implement and the pool would encroach the mean high water mark. Mr Gillmer advised Mr Butcher that the idea of ‘moving’ the pool was feasible, based on the position of the high water mark indicated by Mr Butcher, in reliance on the diagram in the brochure.

27   Mr Butcher asked whether the vendor would be interested in an offer prior to auction. Mr Elder said he thought it unlikely because the sale was ‘the closest thing you will get to a mortgagee in possession sale’. Nevertheless Mr Butcher made an offer for the Rednal Street property of $1.2 million, offering as an enticement a deposit of $200,000, with settlement in six months' time. Later on the same day Mr Elder told Mr Butcher that the vendor would not accept offers prior to the auction, but would consider a six-month settlement period if a $200,000 deposit was paid and released to the mortgagee. However, a confirming letter from the vendor's solicitor referred to payment of a 20 percent deposit, rather than a deposit of $200,000. Mr Butcher told Mr Elder that a 20 percent deposit was beyond his means. Mr Elder reassured him, saying there had been a misunderstanding and that he would fix it before the auction.

28   On 15 February 1997 Mr Butcher inspected the Rednal Street property with a builder, Mr Scott Hindmarch. The purpose of the visit was to inspect the property thoroughly and obtain from Mr Hindmarch some ideas for its development. Amongst other things, they inspected the pool area. Mr Butcher showed the full colour brochure to Mr Hindmarch. He asked Mr Hindmarch if it was possible for the pool to be relocated to make a larger entertaining area. Mr Hindmarch said that on the basis of the survey on the brochure, it would be possible do so because the high water mark did not affect the area to which he wanted to move the pool. He did not measure the site or inspect any sewerage diagram, expressing his opinion solely by reference to the brochure diagram, which showed the mean high water mark to be well away from the existing pool. As a result of that discussion the plaintiffs formed the view that they could carry out the proposed restructuring of the swimming pool area provided the development did not exceed either of the side boundaries or the mean high water mark.

29   Some conflicting expert evidence has been adduced as to whether the plan to relocate the swimming pool was ever feasible in view of the likely attitude of the Department of Land and Water Conservation and the Council, and if it was, whether it was rendered impossible once the true location of the mean high water mark came to been known. Mr Winnacott gave evidence on behalf of the plaintiffs, basing his view on discussions with Ms Morris of the Department of Land and Water Conservation and his extensive general experience. He expressed the opinion that no owner of the Rednal Street property would be allowed to relocate a smaller swimming pool closer to Pittwater than the present one. Mr Gill, an architect, gave contrary evidence on behalf of the defendants. I prefer the evidence of Mr Winnacott. His experience is more directly relevant to the issue. Mr Gill is an architect, not a town planner, and has seldom dealt with the Department of Land and Water Conservation on such an issue. He discussed the issues with Mr McCulloch, who is a subordinate of Ms Morris at the Department, and did not put to Mr McCulloch the precise scenario of relocating a smaller pool towards Pittwater.

30   On 17 February 1997 Mr Butcher arranged for a draft contract for the Rednal Street property to be sent to his solicitor, Mr Zuur. The plaintiffs decided they would bid at the auction, on the basis of the opinions of Mr Gillmer and Mr Hindmarch that their plans for the property were reasonable and viable. Their plans for the swimming pool area were important to them because they regarded that area as the optimum part of the property and their proposals for it as one of their main development ideas. Both advisers gave their advice in reliance on the mean high water mark being in the place indicated by Mr Butcher, who in turn relied upon the brochure.

31   The plaintiffs have given evidence that they would not have bid at the auction or contracted to purchase the Rednal Street property if they had known that the mean high water mark traversed the swimming pool. I accept that evidence. They have also given evidence that they would not have done these things if they had been aware that the Calvert Parade property might not be able to be sold for at least $1.25 million in sufficient time to enable settlement of the Rednal Street property in August 1997. I do not accept this evidence. In my opinion the plaintiffs were aware that there was a risk that the sale of the Calvert Parade property would not achieve a purchase price in the range estimated by Mr Spring and Mr Elder. They made an assessment, based on the advice of Mr Spring and Mr Elder, as to whether the price they wanted would be achieved.

The Rednal Street auction, and the engagement of Lachlan Elder Realty as agent for the sale of the Calvert Street property

32   The auction of the Rednal Street property was held on 18 February 1997. The plaintiffs were the successful bidders for the purchase of the property for $1.36 million. The contract was written up by Mr Spring for signature by Mr Butcher. During this process, Mr Elder produced a page containing provisions which became special condition 34. He told Mr Butcher that the page was to be inserted in the contract. Mr Butcher protested, saying that all he had ever offered was a 200,000 deposit, not a 20 percent deposit. Mr Elder said:
‘Jeff, it makes no difference, you are only paying $200,000 deposit and just top the rest up when you get a sale on Calvert Parade. It's no big deal.’

Mr Elder denies this conversation took place, but I prefer Mr Butcher's evidence on this point. It is supported by a diary note.


33   Mr Butcher signed the contract with the extra page inserted. Mr Spring then took the contract to Ms Radford who was at home and she signed the contract there. He then arranged to send the counterpart of the contract signed by Mr Harkins to Mr Zuur.

34   Mr Butcher negotiated an agency agreement with Lachlan Elder Realty for the sale of the Calvert Parade property. The company proposed a commission of 2.5%, but Mr Butcher made a counter-offer of 2% for the first $1.3 million and 10% thereafter. The counter-offer was accepted and a few days after the auction an agency agreement was entered into.

The contract of sale

35   The contract for the sale of the Rednal Street property is dated 18 February 1997 and provides for a completion date six months after the date of the contract - that is, 18 August 1997. The property is described as Lot 14 in Deposited Plan 9500. A copy of the Deposited Plan and the title folio are annexed. The purchase price is $1,360,000 and the deposit is $272,000. Clauses 2, 9 and 19 (printed clauses), and clauses 31 and 34 (typed special conditions) are relevant to the deposit and rights of termination:

‘ 2 Deposit and other payments before completion
2.1 It is an essential provision that on the making of this contract the purchaser must pay the deposit to the depositholder as stakeholder.
2.2 The deposit (or any part of it) can be paid by cash or cheque.
2.3 The deposit is taken to be paid on time if the vendor, the vendor's agent or the vendor's solicitor holds cash or a cheque for the deposit or any part of it as depositholder or for sending to the depositholder and the amounts so held total the deposit.
2.4 If the deposit is not paid on time or a cheque for the deposit (or any part of it) is not honoured on presentation, the vendor can terminate but only before the deposit is paid.
2.5 If any of the deposit or of the balance of the price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion.’

‘ 9 Purchaser's default
If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice and then -
9.1 keep or recover the deposit (except so much of it as exceeds 10% of the price);
9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -
9.2.1 for 12 months, or
9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and
9.3 sue the purchaser -
9.3.1 to recover damages for breach of contract; or
9.3.2 where the vendor has resold the property under a contract made within 12 months after termination, to recover the deficiency on resale (with credit for any of the deposit kept or recovered), and the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract and of resale and any attempted resale.’

‘ 19 Rescission of contract
19.1 If this contract expressly gives a party a right to rescind, the party can exercise the right -
19.1.1 only by serving a notice before completion; and
19.1.2 in spite of any making of (or attempt to satisfy) a claim, objection or requisition, any negotiation or litigation or any giving or taking of possession.
19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation -
9.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded;
19.2.2 a party can claim for a just and equitable adjustment if the purchaser has been in possession;
19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract;
19.2.4 a party will not otherwise be liable to pay any damages, cost or expenses.’

‘ 31 Release of Deposit
The Purchaser must authorise the depositholder to pay the deposit to such person as the vendor directs provided that
30.1 the vendor is not entitled to give any such direction until after the expiry of the cooling off period (if any);
30.2 until completion the deposit is not the property of the vendor;
30.3 the deposit must be used by the vendor only as a deposit for the purchase of residential real estate and the vendor may direct payment of the deposit only to the stakeholder in that purchase contract;
30.4 the vendor must not authorise the release of the deposit to the vendor in the purchaser's [sic] purchase contract;
30.5 if the stakeholder in the vendor's purchase contract repays the deposit the vendor must ensure such repayment is to the depositholder in this contract;
30.6 the vendor must give a copy of this clause to the vendor [sic] in the vendor's purchase contract.’
‘34.1 The deposit is payable as follows:-
a) as to the sum of $200,000 upon the date hereof;
b) as to the balance on the date the Purchasers exchange contract for the sale of their property at 41 Calvert Parade Newport OR
c) as to the balance on the date of completion of this contract
which it is the earlier.
34.2 Such deposit monies to be released to the Vendor forthwith for payment to the Vendor's mortgagee.’

The Hannagan survey


36   Annexed to the contract was a survey by Mr F W Hannagan dated 4 August 1980. According to the narrative part of the survey, the land had a frontage of 15.24 m to Rednal Street, with depths along the sides of about 59 m to ‘H.W.M.’ (an abbreviation not defined in the survey). A survey diagram is annexed to the narrative description. It shows a brick house, with a back veranda facing Pittwater. There is an oblong pool in the backyard, the long sides of which are parallel with the veranda. The closest side is, roughly, less than 1 metre from the back line of the veranda. I say ‘roughly’ because measurements are not given, but if one assumes that the diagram is to scale (although it does not expressly claim to be), one can make an estimate by judging the relative distances.

37   Roughly 1 to 1.5 metres beyond the pool (it is roughly 2 to 2.5 metres wide) there is a line crossing from one side boundary to the other, approximately parallel with the veranda and the long sides of the pool, labelled ‘M.H.W.M.’ (an abbreviation not defined in the survey). It therefore appears from observation that the ‘M.H.W.M.’ line is roughly 4 to 5 metres from the back of the veranda.

38   The Pittwater end of the survey diagram is designated by a broken line, parallel with the ‘M.H.W.M.’ line and roughly 4.5 to 5.5 metres beyond it. Thus, the distance from the veranda to Pittwater is roughly 8.5 to 10.5 metres. The area between the ‘M.H.W.M.’ line and the broken line is labelled ‘Reclaimed Area’. The diagram shows brick walls running along the side boundaries on both sides of the backyard, but no wall running across the property. The side boundary measurements, 59.13 m and 58.52 m respectively, appear to include the sides of the reclaimed area. The survey does not show any boat ramp or pontoon running into Pittwater.

39   Their are some additional ‘freehand’ lines and numerals on the survey diagram. The evidence indicates that the additional material was by Mr Harkins. The purpose of the additions seems to be to show calculations of areas, including the area of the house.

The permissive occupancy materials


40   Also annexed to the contract is a document dated 2 November 1988 evidencing an offer to Mr Harkins of a permissive occupancy relating to ‘reclamation, ramp, pontoon and berthing piles’. The diagram annexed to this document appears to have been drawn up after an inspection on 8 September 1983, and therefore it is later than Mr Hannagan's survey diagram. It claims to have been drawn on a reduction ratio of 1:500.

41   The permissive occupancy diagram does not show the location of the house or swimming pool, but there is a somewhat irregular line running across the back of the property described as ‘Original High Water Mark’. That line is located 14.8 m from the Pittwater end of the property on one side, and 15.5m from the Pittwater end of the property on the other side. The diagram shows a wall on each side of the property, beginning at the line of the Original High Water Mark and running towards Pittwater for 4.7 m along one side boundary and for 5.4 m along the other side boundary. At a point which is, on each side, 10.1 m from the Pittwater end of the property, the wall along the side boundaries ends, and the two sides are joined by a wall running across the property parallel with the Original High Water Mark. The wall is labelled ‘Solid Wall’. The area between the solid wall and the Pittwater end of the property is labelled ‘Reclamation’. Running from the Pittwater end of the property into Pittwater is a 6 x 1 m ramp leading to a 5 x 2.5 m pontoon, beyond which there are 9 berthing piles.

42   I infer from the permissive occupancy materials annexed to the contract that the permissive occupancy related to the area labelled ‘Reclamation’, as well as the ramp, pontoon and berthing piles. Although the diagrams are not exactly the same, I infer that the ‘M.H.W.M.’ line shown on the Hannagan diagram is the ‘Original High Water Mark’ line shown on the permissive occupancy diagram. Consequently what appears to be the boundary of the property on the Pittwater side in the Hannagan diagram, designated by a broken line, is in fact the Pittwater end of the reclaimed area, over which the vendor of the property has no title but only a permissive occupancy. The vendor's title runs only to the ‘M.H.W.M.’/’Original High Water Mark’ line, wherever precisely that may be.

Deposited Plan 7500

43   As I have said, the Rednal Street property is lot 14 in Deposited Plan 7500. The Deposited Plan diagram shows that the date of survey was 20 January 1919. The diagram shows the ‘Mean High Water Mark’ for lot 14 to be inside but very close to Pittwater. The boundary measurements are given in feet and inches but there is a conversion table to metres. It appears that the side boundaries of lot 14 were 60.06 m and 59.43 m, while the distance from the roadway to the Mean High Water Mark was 59.13 m and 58.52 m along those respective boundaries.

Inferences from the contractual materials


44   The measurements from the road boundary to the mean high water mark in the deposited Plan are identical with the boundary measurements in the Hannagan survey. This suggests that the mean high water mark rose after 1919 but the submerged land was reclaimed back to the 1919 mean high water mark before Mr Hannagan surveyed the property in 1980. The effect of that process was that the reclaimed area ceased to be within the title of the registered proprietor and became subject to a permissive occupancy.

45   A very careful reader of the contract could have deduced all these things, because the Deposited Plan, the Hannagan survey and the permissive occupancy document were all annexures to the contract. Such a reader might also have observed a discrepancy between the location of the ‘M.H.W.M.’ line on the Hannagan survey diagram, which (as I have said) appears on the basis of relative distances to be roughly 4.5 to 5.5 metres back from Pittwater, and the location of the ‘Original High Water Mark’ line on the progressive occupancy diagram, which specifies the distance from the line to Pittwater as 14.8 m on one side and 15.5 m on the other. But I do not believe that such a discrepancy would put a very careful reader, let alone an ordinary reasonable reader, on inquiry as to the proper location of the mean high water mark. For one thing, it is not clear whether Mr Hannagan's diagram was drawn to precise scale. For another, one diagram shows the location of buildings and shows no solid wall, while the other diagram shows a solid wall but does not show the location of the buildings. The reasonable and even the very careful reader would infer that at least one of the diagrams was mistaken as to precise measurements not regarded by the draughtsman as material to his purpose. But any reasonable reader would infer from the contractual materials as a whole that the mean high water mark crossed the property at a point between the back side of the pool and Pittwater, and did not traverse the pool itself.

Post-contractual investigations of the rear boundary


46   On 22 February 1997 the plaintiffs visited the Rednal Street property for a post-sale inspection, in the company of two friends, Carly O'Bryen and Joan Davis. Mr Harkins was present.

47   During the visit, Mr Butcher had a conversation with Mr Harkins. According to the evidence of Mr Butcher, the conversation was to the following effect:
Mr Harkins: ‘I hear from the agent that you want to move the pool.’
Mr Butcher: ‘It's an option I been looking at to open up the rear of the house for entertaining.’
Mr Harkins: ‘You won't be able to do that, you can't touch it because of the high water mark.’
Mr Butcher: ‘The high water mark runs across the land down beyond the pool.’
Mr Harkins: ‘No, I'm telling you the mean high water mark runs through the middle of the pool.’
Mr Butcher: ‘That can't be right, but I will check it out anyway.’

48   Mr Harkins has given a different version of this conversation. According to his version, the following was said:
Mr Harkins: ‘Do you still plan to attempt to relocate the pool at 90 degrees to its present location?’
Mr Butcher: ‘No, that was just a crazy idea. In our present house we undertook extensive renovations and made many mistakes by rushing into it and later finding that what we had done had to be changed. This was very expensive. We have now decided to live in this house for a while before we decide to do anything, if we do anything.’


49   Mr Harkins: ‘It's just as well, Council would never have allowed any extensive rebuilding this close to the water. [He mentioned Pittwater Council's foreshore building policy and the privileged position here being much closer to the water than any of the neighbours.] The property may be even closer than shown. At one stage I believed that I had seen a document, possibly a permissive occupancy sketch, that showed the mean high water mark going through the middle of the pool, but I have never been able to find any such document.’

50   This evidence given by Mr Butcher was corroborated by the evidence of Ms Radford, and also by evidence of Ms Davis and Ms O'Bryen. Ms Davis says she overheard Mr Harkins saying to Mr Butcher, ‘you can't touch the pool because of the high water mark’, and later that the high water mark ‘runs through the middle of the pool’. She says she was standing 8 to 12 feet away from them at the time. Ms O'Bryen appears to have overheard more of their conversation, though her recollection of it differs from the recollections of the others in insubstantial ways. She recalls Mr Harkins saying, ‘you won't be allowed to do that, they will never let you touch it because of the high water mark’, and that the high water mark ‘runs through the middle of the pool’. She says she was standing approximately 6 to 8 feet away from them at the time. Both of them deny Mr Harkins' version of the conversation, which was put to them in cross-examination.

51   Mr Harkins attacked their evidence on the ground that they were too far away to overhear his conversation with Mr Butcher. He says that, given their own evidence as to where they were standing, they must have been at least 12 metres or 40 feet away from him. The evidence does not enable me to identify the precise distance between the witnesses and Mr Harkins, but on balance I reject the submission that they were too far away to hear the conversation. Nevertheless, I think it unlikely that they would have listened to every word of the conversation, since they were not directly parties to it.

52   My conclusion, on balance, is that neither the version of Mr Butcher nor the version of Mr Harkins accurately represents what was said in the conversation. Mr Harkins' version is probably closer to what was said than Mr Butcher's, because in my view Mr Butcher misunderstood what he was told. I reach this conclusion for several reasons.

53   First I find it implausible, even if (contrary to my view) Mr Harkins had an intention to defraud, that he would have behaved in the manner attributed to him by Mr Butcher. If Mr Harkins wished to conceal the true location of the mean high water mark by annexing to the contract a survey that he knew to be false, why would he tell Mr Butcher categorically, a few days after exchange of contracts, information implying that the contract was misleading?

54   Secondly, I have accepted Mr Harkins' evidence that he obtained various documents in respect of the Rednal Street property after he bought it, and it seems to me plausible that those documents might have included one of the early permissive occupancy sketches showing the mean high water mark as traversing the pool. Given that finding, it is also plausible that, while believing the Hannagan survey to be accurate, he would alert Mr Butcher to the possible existence of documents locating the mean high water mark at another point.

55   Thirdly, I accept that Mr Butcher's proposals would have given rise to issues under the Council's foreshore protection policy, especially given that the house and entertainment area were closer to Pittwater than any of the adjoining houses. I therefore find it plausible that Mr Harkins' warning would have related to the overall attitude of the Council to a development proposal, having regard to all relevant considerations, including any possible doubt about the location of the mean high water mark.

56   Ms Radford, Ms O'Bryen and Ms Davis overheard Mr Harkins say that Council would not allow extensive rebuilding of the pool, and they heard him refer to a diagram showing the mean high water mark going through the middle of the pool. None of them had any expertise in matters relating to council approvals or surveying. In their efforts to recollect the conversation, they have linked these two propositions causally. I regard it as probable that Mr Butcher made the same mistake. Although he had some experience with building and development applications, he appears to have been ill at ease with Mr Harkins, and perhaps overly suspicious. He interpreted Mr Harkins' disclosure about a possible sketch as a more positive assertion that the Hannagan survey was wrong. In my view, what they heard were separate propositions, one about the Council never allowing an extensive rebuilding proposal so close to the water, and the other about the possible existence of a sketch showing the mean high water mark traversing the pool.

57   Mr Butcher was sufficiently concerned about the location of the pool, after this conversation, that he instructed Mr Zuur to arrange for a fresh survey in order to clarify the location of the mean high water mark. On 14 March 1997 Mr Warren Bee, a surveyor, conducted a survey of the Rednal Street property, and formed the view that the rear boundary of the property did, indeed, traverse the swimming pool.

58   On 18 March 1997 Mr Butcher had a telephone conversation with Mr McCulloch, an officer of the Lands Department. In light of that conversation, on 19 March 1997 the plaintiffs' solicitor, Mr Zuur, wrote to Mr Harkins' solicitor asserting that the survey annexed to the contract was inaccurate. The letter reported that Mr Butcher had spoken to the Department of Land and Water Conservation, and had been told that the Department had no record of the pool being located on the land comprising the permissive occupancy, and any major works in relation to the pool would not be approved. The letter claimed that, as Mr Harkins alerted the plaintiffs to this fact shortly after exchanging contracts, he must have been aware of the true position prior to the making of the contract.

59   On 20 March 1997 Mr Butcher telephoned Mr Harkins. According to the evidence of Mr Butcher, the conversation was as follows:
Mr Butcher: ‘Hi, it's Jeff Butcher, how are you going?’
Mr Harkins: ‘I don't think I should be speaking to you, we have just received a letter from your solicitors stating your intention to claim damages over the discrepancies on the contract of sale of my property.’
Mr Butcher: ‘I was unaware of the letter being sent, although I have had discussions with my solicitor in regard to the matter. The purpose of my phone call is to discuss with you personally the matter of the survey shown in the contract being inconsistent with the survey I had done last week. I am now aware officially as I had discussed with you some weeks ago, that the mean high water mark runs through the middle of the pool which is different to what the survey shows in the contract.’
Mr Harkins: ‘I am aware of that, that is why I told you about it when you were at my place the other week. If this is an exercise in manufacturing claims, I wanted no part of it.’
Mr Butcher: ‘Why was the survey in the contract incorrect?’
Mr Harkins: ‘Maybe in those days the person who had it done knew who to pay.’
Mr Butcher: ‘But that makes the pool illegal and the Lands Department have no record of it on their lease agreement with you.’
Mr Harkins: ‘That's not a problem, the Council have issued a compliance certificate for the house and pool, the lease has been transferred a couple of times already and as your solicitor's letter states, the Lands Department have acknowledged that they will approve the existence of the pool on the lease.’
Mr Butcher: ‘That means only half the pool is under the owner's title and the other half is on Crown Land and the Council's compliance has been issued based on an incorrect survey. How did you know about the discrepancy as you were the one who made me aware of it?’
Mr Harkins: ‘I have in my possession somewhere, a copy of a survey which is the same as the one you had done.’
Mr Butcher: ‘Why wouldn't you put the correct survey in the contract showing the accurate plotting of the high water mark rather than the incorrect survey?’
Mr Harkins: ‘I can't remember, it must have been a flit in my concentration.’
Mr Butcher: ‘I have some concerns about this whole matter. As you are aware, I was wanting to significantly improve the backyard area and as a result of this, all improvements will be on Crown Land, if I have any chance of getting them approved in the first place.’
Mr Harkins: ‘I can assure you, under no circumstances will you ever get approval or consent to change the configuration of the pool area as it stands now. I would suggest you get proper legal advice as you need to understand the consequences of taking this any further.’


60   Mr Harkins denies that he made any reference to a survey other than Mr Hannagan's survey. In view of his evidence that he had recalled seeing a sketch showing the mean high water mark traversing the pool, it is likely that he made reference to a ‘sketch’ rather than a ‘survey’. He also denies the other specific statements attributed to him, although he admits he may have said the sentence beginning ‘That's not a problem’. He says he repeated a number of times that he would not discuss the issues, and that their respective solicitors should do so. I prefer Mr Harkins' version of the conversation to Mr Butcher's. Specifically, I reject the evidence that Mr Harkins admitted to having in his possession a survey similar to Mr Beer's survey report, and that Mr Harkins admitted to putting an incorrect survey in the contract due to a ‘flit’ in concentration.

61   Mr Butcher informed Mr Spring and Mr Elder (on 20 and 22 March 1997 respectively) that there was a ‘problem’ with the rear boundary of the Rednal Street property on 20 March 1997. Mr Elder said the problem had nothing to do with him.

62   On 15 May 1997 Mr Butcher attended by appointment at the offices of Pittwater Council, where he was assisted by Ms Hough. She showed him the Council's file pertaining to the Rednal Street property. Mr Butcher obtained access to the Council file and has exhibited it to one of his affidavits. The file shows that the Land Department sent the Council copies of permissive occupancy offers and the annexed diagrams, when offers were made. Apart from an offer in 1988 which was annexed to the contract for the sale of the Rednal Street property (an offer to Robert Harkins) there are offers to Robert and Jeanne Harkins dated 18 June 1986 and to Mr and Mrs Pullicin dated 24 May 1984. In each case it appears that the annexed diagram was the same as the permissive occupancy diagram in the contract.

63   However, the Council's file also contains a diagram, identical in general shape and format to the diagram annexed to the permissive occupancy transfers (including reference to an inspection of the land on 8 September 1983), but differing from them in one important respect. Instead of showing the ‘solid wall’ and the distances from the mean high water mark to Pittwater on each side of the property, this diagram shows the mean high water mark bisecting a swimming pool measuring 9.1 m by 2.4 m.

64   The file shows that in 1978 Mr and Mrs Pullicin made an application to the Lands Department to amend their permissive occupancy by adding a ramp and pontoon, completing the reclamation beyond the mean high water mark, and establishing an in-ground swimming pool partly on the reclaimed area. Council granted building approval for the pool on 15 August 1979. On 19 July 1979 the Council wrote to the Land Board Office consenting to the permissive occupancy proposal under the relevant planning ordinance. According to a letter from the Land Board Office to the Council dated 27 July 1979, the permissive occupancy of Mr and Mrs Pullicin was amended on that day to include ‘the purposes of reclamation, in-ground pool and ramp/pontoon as per attached diagram’, for an increased annual rent. A diagram date-stamped 4 September 1979 by the Council, which appears to have been the annexure to the letter of 27 July 1979, shows the swimming pool bisected by a line which appears to be the mean high water mark. The diagram is rather less precisely drawn than the other diagrams on the file.

65   On 30 May 1997 Mr Butcher contacted the Department of Conservation and Land Management (formerly known as the Lands Department) and spoke to Ms Kerry Morris, an inspector at the Department. Ms Morris sent him a copy of a document entitled ‘Crown Land Foreshore Tenures Policy (Non-Commercial Occupations)’, issued by the Department of Conservation and Land Management in November 1991. According to clause 5.3 of that document, new leases or licences will not be granted for various structures, including ‘private swimming enclosures’. However, clause 7 provides protection for existing structures provided that no new structures or additions are proposed.

66   Thus, if part of the swimming pool at the Rednal Street property was beyond the mean high water mark and therefore on Crown land, the policy would permit continued use of the swimming pool for the remainder of its economic life, no ‘relocation’ of the pool wholly or partly on Crown land. Mr Butcher was left in no doubt by Ms Morris that the plaintiffs' plan to redevelop the pool and entertaining area could not be implemented if the mean high water mark traversed the swimming pool.

67   In my view the evidence demonstrates clearly that the plaintiffs regarded their plan for re-location of the swimming pool as an important part of their strategy for developing and then re-selling the Rednal Street property. I accept Mr Butcher's evidence that, if he had known that the mean high water mark traversed the swimming pool so that his plan for the pool could not be implemented, he would not have bid for the property at auction or agreed to a contract under which $200,000 would be released to the vendor.

The location of the rear boundary


68   One of the issues in contention between the parties is whether (as Mr Hannagan's survey represents) the mean high water mark crosses the property below the swimming pool, or crosses through the pool (as Mr Bee's survey depicts). The question was thoroughly canvassed at the hearing. Mr Bee gave evidence on behalf of the plaintiffs, supporting the conclusions drawn in his survey. Another surveyor, Mr Green, gave evidence on behalf of Mr Harkins, generally to the effect that there was ambiguous evidence as to the location of the mean high water mark in relation to the swimming pool. In their oral evidence both surveyors were taken through documentary records, mainly on the old Lands Department files. It is convenient to give my finding on the question at this point in my judgment.

69   Mr Bee's survey report dated 14 March 1997 states unequivocally that part of the swimming pool is ‘standing outside the mean high water mark boundary of the land as defined in Deposited Plan 9500’. Mr Bee's survey diagram shows a line described as ‘M.H.W.M. by Title’ passing roughly through the centre of the pool, running parallel with the line of the veranda and the long sides of the pool. The diagram gives the measurements of the side boundaries as ‘59.13 (Title)’ and ‘58.52 (Title)’, but does not give any other relevant measurements. A diagram prepared by another surveyor, Mr Souter, on 10 November 1997, showing only the reclaimed area, ramp, pontoon and berthing piles, also shows the swimming pool bisected by the ‘H.W.M. by title’.

70   In his oral evidence Mr Bee compared his survey diagram with Mr Hannagan's diagram by placing a transparency of one over the other. Mr Green also made comparisons between the two diagrams in his oral evidence. The major difference between the two diagrams is that Mr Hannagan recorded a shorter distance between the back of the garage (which is towards the roadside) and the front of the house. This led to his diagram showing the rear of the house as being closer to the roadside boundary than in Mr Bee's diagram. I am satisfied from the evidence as a whole that Mr Hannagan's measurement of this distance was wrong, and Mr Bee's is right. Surveying methods have improved since the time of Mr Hannagan's survey, and the improved methods employed by Mr Bee have served to expose Mr Hannagan's mistake. Consequently, if the measurements shown in Deposited Plan 9500 are used, the mean high water mark as identified by those measurements passes through the pool in the manner depicted by Mr Bee's diagram.

71   Mr Green accepted the accuracy of Mr Bee's measurements and agreed with his methodology. He accepted, in other words, that if the mean high water mark is located using the measurements in the registered deposited plan, it runs through the swimming pool in the manner shown by Mr Bee's diagram. His point was that there is substantial evidence in the Department's files and elsewhere to indicate that the mean high water mark is wrongly located by the deposited plan and should be located closer to Pittwater, beyond the swimming pool.

72   Mr Green described this other evidence as ‘ambiguous’. That is, if anything, an understatement. The permissive occupancy documents that I have described point to an anomaly which Mr Bee admitted he was unable to explain. Some permissive occupancy sketches based on inspection on 8 September 1983 show the mean high water mark as passing through the swimming pool, but sketches that are otherwise identical and profess to be based on the same inspection show a solid wall but do not show the swimming pool. The anomaly Mr Bee could not explain is that at some time in the 1980s, for no very clear reason, the Department chose to abandon the sketch showing the swimming pool for the purpose of permissive occupancy offers to succeeding owners of the Rednal Street property, and instead used the sketch that does not depict the swimming pool. The latter sketches were used in the most recent permissive occupancy offers. Consequently the permissive occupancy document annexed to the contract for the sale of the Rednal Street property to the plaintiffs did not show the location of the swimming pool in relation to the mean high water mark, although it indicated that there was an available permissive occupancy in respect of the reclaimed area beyond the mean high water mark.

73   Further research on the Department's files and other documents continued even during the hearing. The report of Mr T J Paterson, Metropolitan District Surveyor for the Metropolitan Lands Office, dated 23 April 1985 was regarded as an important document. Mr Paterson recorded discussions with the owners of waterfront properties in Rednal Street, including No 10 Rednal Street (then owned by Mr and Mrs Pullicin), and an inspection of existing structures along the waterfront. He said that ‘this inspection revealed that there are several variations from the authorised diagram involving additional structures and a redefined High Water Mark based on aerial photography and survey information from Water Board maps’. He said it would be appropriate to amend the existing permissive occupancies to reflect the present situation, noting that development of the foreshore facilities would require detailed consideration by various authorities and some substantial work such as dredging. He made some comments on the state of deterioration of existing structures, saying that ‘the other structures including the unauthorised swimming pool and timber ramp appear to have been in place for many years and are in satisfactory condition’.

74   Referring to No 10 Rednal Street, Mr Paterson observed that ‘the new interpretation of original high water mark indicates a variation from the occupancy diagram’. He referred to a larger area of reclamation on the property, on which a brick/block wall existed. He made several recommendations, including a recommendation that the permissive occupancy for No 10 Rednal Street be amended to cover a larger area of reclamation and the wall. It seems plausible that the replacement of the permissive occupancy sketch showing the swimming pool bisected by the mean high water mark with a sketch which showed the ‘solid wall’ but not the swimming pool, derived from Mr Paterson's recommendations. It may be that the replacement diagram omitted reference to the swimming pool because of Mr Paterson's assessment that it was an unauthorised structure but, being in a satisfactory condition, need not be demolished. He may have felt that the swimming pool should not be depicted in the diagram, lest by doing so the Department might elevate it beyond its current tenuous status.

75   On 30 May 1985 Mr Dahlen, an officer of the Lands Office, wrote to Mr and Mrs Pullicin enclosing an offer of a new permissive occupancy. The letter said:

‘A recent inspection of your Permissive Occupancy revealed that the reclamation is considerably larger than authorised. The inspection also revealed the existence of nine berthing piles as opposed to the authorised seven. The swimming pool was found to be entirely on your freehold land. This office is prepared to authorise all the variations.’

76   One can only speculate as to how Mr Dahlen was able to find the swimming pool to be entirely on the freehold land, especially given his finding that the reclamation was larger than authorised. Perhaps Mr and Mrs Pullicin persuaded him to accept Mr Hannagan's survey. Be that as it may, one would expect the Department to have abandoned use of the permissive occupancy sketch showing the swimming pool bisected by the mean high water mark once Mr Dahlen's determination had been made, and apparently they did so until relatively recently. The permissive occupancy offers made for some time thereafter were offers that did not include any occupancy in respect of the swimming pool.

77   However, it appears that the Department has changed its mind as to the relationship between the swimming pool and the mean high water mark. A Department sketch drawn on 9 June 1998 on the basis of Mr Souter's survey shows the high water mark by title bisecting the swimming pool.

78   Mr Green, in his oral evidence, referred to aerial photographs which appear to show dredging in the early 1970s and perhaps a natural accretion to the land area by siltation before that time. He laid some emphasis on a sketch labelled ‘Proposed Marina - W J Arnold Pty Ltd and Foreshore Reclamation’. The sketch is not dated but appears to have been prepared well before the Department's inspection in 1983. It suggests a different position for the mean high water mark than as shown in Deposited Plan 9500. Mr Green also referred to a successful claim for accretion to another lot in Deposited plan 9500, and a similar claim being made by him for a property on the same shore of Pittwater but in a different deposited plan. Ultimately he concluded that there was a good case for making such a claim in respect of No 10 Rednal Street, partly on the basis of natural accretion to the shoreline and partly on the basis that measurements in Deposited Plan 9500 were either mistaken or incompatible with external evidence. He noted that the Department is aware that early surveys sometimes contain mistakes, because the colonial surveyors tended to consider the land below the actual high bank as worthless because it was not arable, and therefore sometimes took their measurements from the actual high bank at the time of survey, rather than the mean high water mark.

79   Mr Bee explained in his oral evidence that the task of a surveyor, in preparing an identification report, is to depict the property by title. In the case of a waterfront property, title is bounded by the mean high water mark by title, which is identified by using the measurements in the registered deposited plan. The surveyor's job is to locate the street boundary by observing or marking physical reference marks such as pegs and clouts, and then to measure out the side boundaries by using the measurements in the deposited plan. The location of the mean high water mark is determined by these measurements, rather than by physical observation. Mr Green did not disagree with this approach.

80   Indeed, it seems to me that there was very little, if any, disagreement between the surveyors. What emerges from their combined evidence is that the ‘documentary’ mean high water mark by title passes through the swimming pool but there are good grounds for arguing that the mean high water mark should now be located in a different position beyond the pool.

81   The location of the mean high water mark can be changed by process of application requiring the consent of the Department and the relevant Council, leading to the registration of a new deposited plan and the issue of fresh certificates of title for the affected properties. The applicant must demonstrate a case for recognition of the new location, and may do so by proving there has been a physical accretion to the land by the gradual movement of the high water mark, or by proving that the survey work upon which the deposited plan was based is erroneous in some relevant respect. Mr Paterson's report indicates that the Department has recognised some re-definition of the high water mark for the purpose of granting permissive occupancies over the reclaimed areas. But that does not amount to a change of the mean high water mark by title. At the date of the hearing, no application had been made to change the mean high water mark by title.

82   Mr Hannagan's survey report purports to identify the property which is lot 14 in Deposited Plan 9500. It incorrectly depicts the relationship between the swimming pool and the mean high water mark by title. It is misleading, regardless of whether there was ‘ambiguous’ or even very strong evidence to support a contention that the mean high water mark by title should be changed.

The plaintiffs allege fraud against Mr Harkins, and commence proceedings


83   On 26 March 1997 Mr Zuur wrote to Mr Harkins' solicitor, asserting that Mr Harkins had made fraudulent misrepresentations with respect to the rear boundary, and that the plaintiffs were therefore entitled either to rescind the contract or to seek damages. Mr Harkins' solicitor responded on 9 April 1997, describing the allegations as ‘extraordinary’ and advising that Mr Harkins relied on the contract and his rights under it.

84   On 13 May 1997 Mr Zuur wrote to Mr Harkins' solicitor threatening litigation. Mr Harkins' solicitor replied on 20 May 1997, denying that his client had made any misrepresentations.

85   The plaintiffs commenced their first proceeding on 26 May 1997. The statement of claim alleges that the plaintiffs as purchasers entered into the contract of sale of the Rednal Street property by reason of misrepresentations, fraudulent or innocent, by Mr Harkins, and by reason of his misleading or deceptive conduct.

86   In July 1997 the plaintiffs decided to seek orders amending the statement of claim and joining Perpetual Trustees Victoria Ltd as a defendant. Perpetual Trustees was Mr Harkins' mortgagee, to whom the deposit of $200,000 had been paid pursuant to clause 34.2 of the contract for sale of the Rednal Street property.

The sale of the Calvert Parade property


87   The marketing of the Calvert Parade property by Lachlan Elder Realty began in mid-March 1997. Quite early in the campaign Mr Spring informed Mr Butcher that a Mr Adams had made an offer of $ 1,175, 000, but that offer was rejected.

88   Arrangements were made for the Calvert property to be put to auction on 22 April 1997. Just prior to the auction date, a Mr Elliott made an offer of $ 1,075,000. At the last minute, Mr Butcher decided to postpone the auction, due to lack of interest by prospective purchasers, and also because the problems with the rear boundary of the Rednal Street property made him uncertain as to whether the sale of the Calvert Parade property should proceed.

89   Nevertheless, Lachlan Elder Realty continued their selling efforts. The proposed auction of the property was re-scheduled for 13 May 1997. The asking price was set at $1.3 million. Mr Elliott increased his offer to $1,125,000, but the offer was rejected. The auction was again postponed, and the matter was listed for private sale for a price on application.

90   Early in June 1987 Mr Spring told Mr Butcher that Mr Elliott was prepared to offer $1.15 million. However, the next day Mr Spring informed Mr Butcher that Mr Elliott had purchased elsewhere. Several days later, Mr Spring informed Mr Butcher that a Mr Shanahan had offered $ 1,050,000. On 23 June 1997 Mr Spring informed Mr Butcher that Mr Shanahan and his wife had signed a contract for the purchase of the Calvert Parade property for $1.1 million and had included a cheque for the deposit. Mr Butcher and Mr Spring discussed the matter and Mr Butcher expressed his frustration that the current offer was less than offers previously rejected, but that he felt obliged to sell so that he would be able to settle the purchase of Rednal Street if it was required.

91   On 24 June 1997 Mr Butcher wrote to Mr Spring explaining that the plaintiffs would happily accept the offer to purchase for $1.1 million, subject to some issues about leaving personal belongings on the property, and on the basis that the plaintiffs be given access to $75,000 out of the deposit. The letter stated that ‘due to my obligations elsewhere, access to these funds are paramount’. On the same day the plaintiffs exchanged contracts for the sale of the Calvert Parade property to Mr and Mrs Shanahan. The purchase price was $1.1 million and the deposit was $110,000. The agent was Lachlan Elder Realty. The contract was subject to the statutory cooling off period of five business days, which expired on 2 July 1997.

92   Special condition 30 of the contract required the purchasers, forthwith upon the request by the vendors, to authorise the release to the vendors of the deposit paid under the contract. The clause provided that the money released was to be used only by the vendors in the payment of deposit for the purchase by them of another property. The vendors warranted that the deposit would be held in trust by a stakeholder pending completion of the vendors' purchase, and the vendors undertook to notify the purchasers' solicitor of the name of the stakeholder. In its terms, special condition 30 did not authorise the plaintiffs to use Mr and Mrs Shanahan's deposit to pay the balance of deposit on the Rednal Street property in the sum of $72,000. This is because, under the contract for the sale of the Rednal Street property, all deposit moneys were to be released immediately to Mr Harkins for payment to his mortgagee. Nevertheless the plaintiffs relied on special condition 30 to obtain $75,000, to cover their cheque for $72,000 to Mr Harkins, in circumstances that I shall explain. It is not clear to me on the evidence whether Mr and Mrs Shanahan consented to this use.

93   There is evidence that on 25 June 1997 Mr Butcher instructed Mr Zuur to explore with Perpetual Trustees whether the sum of $72,000 could be paid into their solicitor's trust account rather than being credited to Mr Harkins' mortgage account immediately. The evidence does not indicate whether Perpetual Trustees received any such request, or if they did, whether they agreed to it.

Payment of the balance of deposit of $72,000, and Mr Harkins' purported termination


94   The exchange of contracts for the sale of the Calvert Parade property triggered the plaintiffs' obligation to top up the deposit for Rednal Street by paying an additional $72,000. Under the contract, the $72,000 was to be paid on the date of exchange of contracts.

95   By letter dated 2 July 1997 Mr Zuur wrote to the solicitor for the purchasers of the Calvert Parade property. He noted that the contract of sale of that property became unconditional at the expiry of the previous day, and requested that the agent be authorised to release $75,000 of the deposit to the vendors in accordance with special condition 30 of the contract. The letter said that the deposit was to be applied by the vendors to fulfil deposit requirements in a related purchase matter. On the morning of 3 July 1997 the purchasers' solicitor sent the requested authority to the agent by facsimile.

96   Mr Harkins discovered that contracts had been exchanged without payment of the $72,000, and at 4:46pm on the 2 July 1997 his solicitor transmitted by facsimile to Mr Zuur a ‘Notice of Termination of Contract’. The notice set out the text of clauses 2, 34.1 and 9 of the Rednal Street contract, and asserted that ‘in consequence of your default under Special Condition 34.1 of the Contract’ the plaintiffs as purchasers had ‘forfeited to the Vendor the deposit of $272,000 ... and that the Contract is entirely at an end so far as it relates to the sale and purchase of the property ...’.

97   On 2 July 1997 Mr Zuur wrote to Mr Harkins' solicitor stating that steps were being undertaken to make the $72,000 available pursuant to the Rednal Street contract. Mr Butcher formed the view that he should pay the $72,000 to Mr Harkins without prejudice to his claim in the first proceeding, and to any contention that the notice of termination was invalid. He prepared a personal cheque in the sum of $72,000, marked ‘Not Negotiable’, and at about 8:45pm on 2 July 1997 he and a friend called at the Rednal Street property. His friend handed the cheque to Mr Harkins personally. Mr Harkins attempted to return the cheque and said ‘I am afraid it is too late for that’. But Mr Butcher's friend did not take back the cheque, and left.

98   On the following morning Mr Butcher arranged with Lachlan Elder Realty to pick up a bank cheque from them for the sum of $75,000, which was to be released from the deposit on the Calvert Street property. At 9 am on the same day, he arranged with his bank, the Commonwealth Bank at Narrabeen, to meet payment of the personal cheque for $72,000, on the basis that he would be depositing a bank cheque for $75,000 that morning. Ms Gibbon, the bank manager, told Mr Butcher that there would be no problem, because any request by Mr Harkins for a special clearance of the cheque for $72,000 would not arrive until the next morning.

99   At 10 am on 3 July 1997 Mr Butcher received a call on his mobile telephone from Ms Gibbon. They had a conversation as follows:
Ms Gibbon: ‘Mr Harkins is at the counter. He has informed our staff that he is a solicitor and he is demanding immediate payment of this cheque. What do you want me to do and where are you with the bank cheque?’
Mr Butcher: ‘I am about to pick it up in Mona Vale and I'm not far away.’
Ms Gibbon: ‘Do you want me to ask Mr Harkins to wait until you get here or if you are too far away, provided you are on your way with the bank cheque, I can ring Mona Vale and get approval to pay him now.’
Mr Butcher: ‘Do nothing, I have to ring my solicitor. I'll ring you back in one minute.’

100   Mr Butcher then rang Mr Zuur, who gave him certain advice. He then rang Ms Gibbon again on his mobile telephone and told her:
‘I've spoken to my solicitor and under the circumstances I am going to stop the cheque until there is further clarification. Tell him [referring to Mr Harkins] that I have put a stop payment on the cheque and I'll see you shortly.’

101   About 20 minutes later, Mr Butcher arrived at the bank and deposited a bank cheque in the sum of $75,000 into his personal bank account.

102   Mr Harkins' solicitor sent a facsimile letter to Mr Zuur at 6:10pm on 3 July 1997. The letter asserted that the contract for the sale of the Rednal Street property was at an end because payment had been stopped on the $72,000 cheque.

103   On 4 July 1997 Mr Zuur wrote to Mr Harkins' solicitor asserting that:
· the notice of termination purportedly given by Mr Harkins on 2 July 1997 was defective for a number of reasons;
· Mr Harkins had presented himself at the counter of the Commonwealth Bank at Narrabeen and had demanded immediate payment of the $72,000 cheque;
· Mr Butcher had formed the view that there was a likelihood that Mr Harkins was attempting to have the $72,000 paid to himself rather than to his mortgagee, notwithstanding the requirements of special condition 34.2 of the Rednal Street contract;
· Mr Butcher directed the bank to stop payment of the cheque until such time as the behaviour of Mr Harkins could be clarified; and
· the wrongful notice of termination given by Mr Harkins, and his attempt to convert the $72,000 cheque to his own use, amounted to a repudiation of the contract.

Mr Butcher's caveat and the lapsing notice


104   On 13 May 1997, even before commencing the first proceeding, the plaintiffs lodged a caveat against the title to the Rednal Street property, claiming interests of two kinds. First, the caveat asserted that the plaintiffs had an interest as purchasers under the contract of sale. Secondly, it claimed an interest by way of equitable charge over the payment, on 18 February 1997, of the deposit of $200,000.

105 The plaintiff's lodged a further caveat on 10 July 1997, claiming an interest by way of equitable charge over the deposit of $200,000, asserting that the Rednal Street contract had been terminated by the vendor, and relying on clause 2.5 of the contract. The second caveat was permissible, notwithstanding s 74O of the Real Property Act because, the contract having been terminated in the meantime, the second caveat was not based on the same facts as the first.

106 On 18 July 1997 a lapsing notice under s 74J of the Real Property Act 1900 (NSW) was served on the plaintiffs on the instructions of Mr Harkins. This had the effect of requiring the plaintiffs to take proceedings in this Court to extend the operation of the caveat. On 23 July 1997 they filed an amended statement of claim by consent, seeking additional relief by way of orders extending each caveat until further order. They sought interlocutory relief in the same terms.

The hearing before Santow J


107   The interlocutory application of the plaintiffs for orders extending the operation of the caveats was opposed by Mr Harkins. The application was heard by Santow J, who delivered his reasons for judgment on 5 August 1997. His Honour extended the plaintiffs' caveat until further order.

108   Santow J pointed out that, on an application to extend a caveat, the plaintiffs must merely demonstrate that they have a case to argue. He reviewed the arguments as to whether the obligation to pay $72,000 under the Rednal Street contract was an essential term, and the contentions as to whether Mr Harkins had waived any right to terminate for non-payment of that amount by attempting to cash Mr Butcher's cheque on 3 July 1997. He concluded that while there were some significant impediments to the plaintiffs ultimately making good their contentions, they had persuaded him that they had a case to argue on these points.

109   In his Honour's view, it was therefore arguable that the Rednal Street contract had been terminated as a result of Mr Harkins' repudiation by issuing a notice of termination without sufficient grounds, when the plaintiffs accepted that repudiation. His Honour further found that if Mr Harkins' repudiation did result in a termination based on insufficient grounds, the plaintiffs' equitable charge under clause 2.5 of the contract arguably conferred a caveatable interest which continued because there had been no termination by the vendor for the purposes of that clause.

110   Subsequently the plaintiffs agreed with Mr Harkins to withdraw the caveat provided that the sum of $200,000 was retained in an interest-bearing deposit pending determination of the first proceeding.

The plaintiffs' arrangements for accommodation


111   The plaintiffs had contracted to sell the Calvert Parade property and it was necessary for them to give vacant possession to the purchasers in July 1997. By that time it was clear that the Rednal Street contract had been terminated, although there was a dispute as to whether it was terminated by Mr Harkins or the plaintiffs. The plaintiffs had no choice but to find alternative accommodation. It was also necessary for Mr Butcher to make arrangements for accommodation for his business which he had conducted from home.

112   On 22 July 1997 the plaintiffs entered into a residential lease, as lessees, of a property at 8 Ruskin Row, Avalon for a term of six months. On 27 August 1997 the family company of the plaintiffs (of which the plaintiffs are the sole shareholders) entered into a commercial lease of property at 26/1-3 Jubilee Ave, Warriewood.

Other allegations of misleading and deceptive conduct


172   There is no evidence that either Mr Spring or Mr Elder made any representations to the plaintiffs with respect to the location of the mean high water mark in relation to the swimming pool. On the other hand, there is evidence that Mr Elder warned Mr Butcher on 14 February 1997 that his proposal to move the swimming pool may encroach the high water mark.

173   Paragraph 19(a) of the statement of claim alleges that throughout the period from 1 February to 18 February 1997 the company failed to advise the plaintiffs that the brochure was inaccurate with respect to the location of the mean high water mark in relation to the swimming pool. I reject this contention.

174   Failure to advise is capable of constituting misleading or deceptive conduct, where the defendant remains intentionally silent ( Edgar v Farrow Mortgage Services Pty Ltd (1992) ATPR (Digest) 40-096), and where there is an obligation to make disclosure ( Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) ATPR (Digest) 46-010, at 53,047; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 at 49,153) .

175   Neither Mr Spring or Mr Elder was aware of any deficiency in Mr Hannagan's diagram until they were informed by Mr Butcher on 20 and 22 March 1997 that he had discovered a problem. In my opinion, Lachlan Elder Realty could reasonably be expected to rely upon the documents provided to them by Mr Harkins' solicitors, without any duty to undertake independent inquiries to verify information that was, on its face, reasonable to rely upon. There was nothing in the draft contract for sale and accompanying documentation to give rise to any cause for concern with respect to the mean high water mark. There was nothing in the information provided to the company which would imply the existence of any title by accretion, nor suggest any duty of inquiry on its part on that matter.

176   Moreover, if the company had undertaken inquiries by recourse to the records of the Council and the Department of Land and Water Conservation, nothing would have been discovered that would have demonstrated the inaccuracy of Mr Hannagan's survey diagram. While some records are inconsistent with the diagram, others (especially Mr Darlen's letter of 30 May 1985) support the view that the swimming pool was wholly located on the freehold land. The true position would have come to light (as, indeed, it did come to light) only by obtaining a fresh identification survey report. It cannot be contended, in my view, that Lachlan Elder Realty had any duty to commission a fresh survey or to advise potential purchasers to do so, given that the brochure warned readers to rely on their own inquiries.

Other aspects


177   Since my conclusion is that Lachlan Elder Realty did not engage in misleading or deceptive conduct in the matter alleged by the plaintiffs, it is unnecessary for me to deal with submissions on two matters that would arise if I had formed the contrary view.

178   The first is whether, on the evidence, the brochure could be said to have induced the plaintiffs to bid at the auction on 18 February 1997. Ms Radford gave evidence that she did not rely on the brochure, but the effect of the Butcher's evidence, when considered together with the evidence of Mr Gillmer and Mr Hindmarch, is that the brochure and in particular the diagram in the brochure was an important influence on his decision to bid.

179   By the time the auction was held, the plaintiffs' solicitors had a copy of the contract of sale and had explained its terms and conditions to them. That fact leads counsel for Lachlan Elder Realty to submit that if there was any reliance upon the Hannagan diagram by Mr Butcher, it must have been reliance on the full diagram and survey report annexed to the contract, rather than on the diagram which was part of the brochure.

180   Were it necessary do so, I would find against Lachlan Elder Realty on this point. While in many cases the misleading effect of a brochure can be cancelled by the submission of an accurate draft contract upon which the purchaser is advised, the question whether the misleading brochure induced the purchaser to bid must depend on an assessment of all of the facts. In this case the contract was made available only just before the auction, after Mr Butcher had made all his plans and had inspected the property with the assistance of experts. It is true that he did not investigate the proposal to move the swimming pool, which would have required the approval of the Council, but the proposal was clearly an important part of the attraction that the property held for him, and his development of the proposal relied specifically on the diagram in the brochure.

181   The second question is whether, if I had found that the company distributed a misleading brochure, I should find that it acted as Mr Harkins' agent so that, while Mr Harkins may have some liability, the company is not liable for misleading or deceptive conduct. It is clear that, in distributing the brochure and marketing the property, the company was acting as the agent of Mr Harkins. The information about the location of the mean high water mark was supplied by Mr Harkins and the company did no more than to pass that information on, making it clear by the wording of the ‘disclaimer’ that it was not the source of the information. In those circumstances it is probable, in my view, that the company would not have engaged in misleading conduct even if the content of the brochure had been misleading (contrary to my finding): Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661; Saints Gallery Pty Ltd v Plummer (1988) ALR 525; Lezam Pty Ltd v Seabridge Australia Ltd (1992) 35 FCR 535; cf Hornsby Building Information Centre (1978) 140 CLR 216.

Did Lachlan Elder Realty engage in misleading or deceptive conduct in the sale of the Calvert Parade property?


182   The statement of claim in the second proceeding alleges that the company represented to the plaintiffs that they could expect to sell the Calvert Parade property for $1.3 million at any time, to enable them to complete the sale of the Rednal Street property by the completion date of 18 August 1997. In fact, say the plaintiffs, there is a traditional downturn in the property market for properties like the Calvert Parade property, during the months of May, June and July, which the company should have but did not take into account. Because of that downturn, the plaintiffs say that they could not reasonably have expected to sell their property for $1.3 million unless they exchanged contracts prior to the end of April 1997. In fact the company did not inform the plaintiffs about the traditional downturn in the market until mid June 1997, when they also advised the plaintiffs that they could not expect the purchase price of more than $1.1 million.

183   In my opinion, the plaintiffs' allegations are not supported by the evidence. Several matters are significant. One is that on 12 February 1997, after he inspected the Calvert Parade property for the first time, Mr Spring completed a residential listing which stated that in his opinion the market value of the property was $1.2 million. He gave evidence, which I accept, that in forming that view he had regard to sales of other properties. Moreover, Mr Spring gave Mr Butcher a booklet showing the results of auctions for the previous five years, which gave Mr Butcher direct access to some of the information upon which his opinion was based.

184   Neither Mr Elder nor Mr Spring was a qualified valuer. Valuation evidence was given by licensed valuers for both sides - Mr O'Neill on behalf of the plaintiff and Mr Dundas on behalf of Lachlan Elder Realty. Mr O'Neill estimated that the Calvert Parade property had a value of $1.4 million on 17 June 1999. The estimate of Mr Dundas was that the Calvert Parade property had a value between $1.05 and $1.1 million as at 18 February 1997. If it were necessary for me to choose between the valuations (making some allowance for the fact that they are valuations at different dates), I would prefer the evidence of Mr Dundas to the evidence of Mr O'Neill, on the ground that the former seemed to have pursued a more thorough investigation and methodology. But it is unnecessary for me, in the view I take of the case, to reconcile the valuation opinions for the Calvert Parade property. Perhaps the more significant point to make about the valuations is that the figures are in a range from below the bottom end of the range given by Mr Elder and Mr Spring to above the top end of their range. That suggests that the estimates of Mr Elder and Mr Spring had a reasonable basis.

185   That conclusion is supported by other evidence which shows that, particularly in the volatile top end of the residential property market, the selling price sometimes exceeds the price estimate given by the agent and even the price desired by the owner. That suggests that a sale of the Calvert Parade property at significantly above Mr Dundas' valuation would be a practical possibility, especially having regard to the high standard of presentation of the property.

186   It is true that both Mr Spring and Mr Elder were enthusiastic about the presentation of the Calvert Parade, both giving an estimated range of $1.2 to $1.3 million and creating the impression of a real prospect that even more my be achieved. The agency agreement entered into between the plaintiffs and the company a few days after the auction on 18 February 1997 contained the statement that the agent's opinion as to the current reasonable selling price was $1.3 million. It is clear, however, that the figures given on behalf of the company in the agency agreement and orally were estimates rather than valuations. That was the evidence of Mr Marcolongo and Mr Abercrombie, and Mr Butcher conceded in evidence that the figure of $1.3 million was an ‘indication’ rather than a guarantee.

187   In my view, while there is some evidence that the specialised market in highly priced waterfront properties turned down in the winter months (especially during the school holidays), and some of the agents took their holidays at that time, the evidence as a whole does not show that there was a downturn of such significance that a vendor required to sell during those months would have to accept a discount to the price otherwise obtainable. Mr Elder's evidence, which I accept, is that the principal slowing down was caused by prospective vendors choosing not to list their properties in the winter months and especially during the school holidays. His evidence was that these factors did not affect the purchasers, only the amount of properties available.

188   Mr Elder informed Mr Butcher in mid-June 1997 that activity in the northern beaches market would slow down during the winter months, but he did not say that there may be a downturn in buyer interest during the months of May, June and July.

189   As to the allegation that the company continued until early June to represent that the Calvert Parade property could be sold for $1.3 million, it must be remembered that in April and May 1997 Mr Spring transmitted to Mr Butcher the offers of Mr Adams and Mr Elliott, which were rejected by Mr Butcher. Another offer was made by Mr Elliott in early June, also rejected, and Mr Shanahan's offer later in June was initially rejected as well. Although the evidence does not show that Mr Spring advised Mr Butcher to accept any of these offers, it implies that Mr Spring did not hold the opinion that the plaintiffs could except to sell the Calvert Parade property for $ 1.3 million at any time. The best offer was from Mr Adams at $1.175 million. Mr Spring did not categorically advise against acceptance, though it is true that his attitude was that it would be sensible to wait and see a better offer emerge. However it was Mr Butcher who decided to reject the offer.

190   It appears, with the benefit of hindsight, that the price estimates given by Mr Elder and Mr Spring in February 1997 were significantly over-optimistic. But, there was a reasonable basis for those estimates in the statistics of comparable sales, confirmed by the valuation evidence before the Court. In my opinion the estimates were given honestly. There is no substance to the allegation that the agents were aware that there would be a substantial downturn in the market in May, June and July. In those circumstances counsel for Lachlan Elder Realty submits that there is no evidence of misleading and deceptive conduct within the meaning of s 52 of the Trade Practices Act (citing Stanton v ANZ Banking Group Ltd (1987) ATPR 40-755 at 48,193; Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR 41-396). I agree.

191   I should say something more on the question of honesty. During the hearing I was somewhat concerned about the position of conflict of interest in which Lachlan Elder Realty was placed. They were acting for Mr Harkins with regard to the auction of the Rednal Street property. It was in their interest, so as to earn that commission, to encourage the plaintiffs to bid. When the plaintiffs made it clear that they would need to sell the Calvert Parade property and realise a certain price for it, in order to be able to afford to bid for the Rednal Street property, Mr Elder and Mr Spring no doubt saw the opportunity to earn another commission. Therefore, their self-interest strongly pointed towards giving a rosy estimate of the achievable purchase price for the Calvert Parade property, although they were aware that the plaintiffs were looking for more balanced advice and would rely on it.

192   After reviewing all of the evidence, however, I have concluded that these facts do not affect the outcome of this case. In the first place, their interest in earning commissions does not appear to have led Mr Elder and Mr Spring to give unreasonable or unjustifiable pricing advice. In the second place, Mr Butcher was well aware of Lachlan Elder Realty's interest in negotiating successful sales of both properties, and yet he chose to seek to rely upon the advice of Mr Elder and Mr Spring.

The plaintiffs' losses


193   In the statement of claim in the first proceeding the plaintiff seeks orders which would have the effect of requiring Mr Harkins to return the deposit of $200,000. In the second proceeding the plaintiff seeks to recover from Lachlan Elder Realty damages in the following categories:
· interest on the deposit of $200,000;
· agent's commission and advertising costs, and conveyancing costs in respect of the sale of the Calvert Parade property;
· legal and valuation costs in respect of the first proceeding and some collateral proceedings;
· reimbursement of rental, removal expenses and storage of personal effects incurred during the period until they acquired their property at Panima Street Newport;
· loss of the value of the Calvert Parade property, on the basis of O'Neill's valuation of $1.4 million;
· interest.

194   Included in the claim for reimbursement of rental expenses is a claim for rental of factory premises for the plaintiffs' carpet cleaning business, which they conduct through a company, the shares in which are held by them equally. They say that while they were living in the Calvert Parade property, they were able to conduct the company's business from that property, and the company did not pay rent to them personally. They say that their departure from the Calvert Parade property was caused by the misleading conduct of Lachlan Elder Realty, and therefore they claim the factory rental as damages.

195   As at 3 June 1998, when Mr Butcher swore an affidavit which annexed the relevant receipts, the plaintiffs' total claim for losses was $471,412.37. In the view I take of the matter, the plaintiffs are entitled to the return of the $200,000 deposit, but they are not entitled to recover damages from Lachlan Elder Realty. It is therefore unnecessary for me to make specific findings about the quantum of damages.

196   In case the matter goes further and I am shown to be wrong in my conclusions, I should make some observations on the question of damages. Mr Butcher has given evidence, which I accept, that but for his dealings with Mr Harkins and Lachlan Elder Realty, he would still own the Calvert Parade property. It seems to me that all of the categories of damage relied upon by the plaintiffs would be available against Lachlan Elder Realty if I had found that the company engaged in misleading or deceptive conduct. I include rental with respect to the factory premises, having regard to the facts to which I have briefly referred. Moreover, I accept the plaintiffs' evidence on defining the losses in the various categories. I was unimpressed by some oral evidence given by Mr Barden, who seems to have had a serious falling out with Mr Butcher, and I reject it, to the extent that it is inconsistent with the evidence of Mr Butcher.

Cross-claim in the second proceeding


197 The cross-claim seeks recovery in respect of misleading and deceptive conduct, negligence and contribution under the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).

198   As to the first count, the cross-claim alleges that if Lachlan Elder Realty engaged in misleading or deceptive conduct, its conduct was the product of misleading or deceptive conduct on the part of Mr Harkins, the cross-respondent. Since I have found that Lachlan Elder Realty did not engage in misleading or deceptive conduct, the question raised by the cross-claim does not arise.

199   As to the claim based upon negligence, the cross-claim alleges breach of a contractual and a tortious duty of care, and claims an indemnity on the basis that the company was acting within the scope of its authority as agent of Mr Harkins. Damages are the gist of these various claims. As far as I can see (and subject to further submissions that the parties may wish to make when the time comes for making orders) damages will be suffered for the purposes of the cross-claim only if Lachlan Elder Realty is held liable to compensate the plaintiffs in the first proceeding. Since I have found that there is no such liability, it seems to be unnecessary to make any findings on these matters.

200   Similarly, the claim to contribution arises only in respect of any liability that the company may have to the plaintiffs, and I have found that there is none.

201   It appears to me that the appropriate order is to dismiss the cross-claim, and hear argument as to costs in the context of the overall costs of the case.

Conclusions


202 The plaintiffs are entitled to orders under s 55(2A) for the repayment of the $200,000 deposit with interest. I shall hear submissions on the appropriate rate of interest. The plaintiffs' claims to other relief in the first proceeding have not been made out, and therefore that proceeding should otherwise be dismissed (subject to the question of costs).

203 The cross-claim in the first proceeding, seeking recovery of the additional deposit of $72,000, should be dismissed on the ground that, in the exercise of my discretion under s 55(2A), I have decided that it is appropriate to restore the whole of the deposit to the plaintiffs with interest.

204   The plaintiffs have failed to establish their case against Lachlan Elder Realty. Therefore the statement of claim (and, subject to submissions, the cross-claim) in the second proceeding should be dismissed, subject to the question of costs.

205   I shall direct the plaintiffs to bring in draft short minutes of orders to reflect these reasons for judgment, and stand the matter over for the hearing of any submissions about the nature and content of the orders, and submissions on the question of costs.
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Last Modified: 06/12/2001