Frank v Brown
[2000] NSWSC 290
•11 April 2000
Reported Decision: [2000] 10 BPR 18,119
New South Wales
Supreme Court
CITATION: Stanley Bernard Frank & Anor v Marion Brown [2000] NSWSC 290 CURRENT JURISDICTION: Equity Division FILE NUMBER(S): SC 1214/2000 HEARING DATE(S): 23 and 24 March 2000. JUDGMENT DATE: 11 April 2000 PARTIES :
Stanley Bernard Frank}
Michelle Yvette Frank } (Plaintiffs/First Cross Defendant)
Marion Brown (Defendant/Cross Claimant)
Jones & Jones Real Estate t/as Di Jones Real Estate (2nd Cross Defendant)JUDGMENT OF: Bergin J
COUNSEL : G Rundle (Plaintiffs)
R Kaye (Defendant)
J Gooley (2nd Cross Defendant)SOLICITORS: Patrick Hargraves & Co (Plaintiffs)
Michelle L Meyer (Defendant)
Murray, Stewart & Fogarty (2nd Cross Defendant)CATCHWORDS: Deposit cheque paid at auction replaced with cheque and bond the following day - Ostensible authority of agent to "accept" bond in part payment of deposit - Purported termination of contract for failure to pay deposit - Application for order for specific performance - Cross claim against agent for breach of duty and breach of s 84AB of Property Stock and Business Agents Act 1941 - Ratification of agent's acceptance of bond. LEGISLATION CITED: Property Stock and Business Agents Act 1941. CASES CITED: Howe v Smith (1884) 27 ChD 89;
Brien v Dwyer (1978) 141 CLR 378;
Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549 at 583;
Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 at 362;
Thornley v Tilley (1925) 36 CLR 1 at 12;
Koenigsblatt v Sweet [1923] 2 Ch 314 at 315.DECISION: Specific performance ordered. Cross claims dismissed.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONBERGIN J
DATE 11 APRIL 2000
1214/2000- STANLEY BERNARD FRANK & MICHELLE YVETTE FRANK v MARION BROWN
JUDGMENT
1 This litigation arises out of the contract for the sale of land (the contract) at 12 Bangalla Road, Rose Bay (the property) for $1.15 million between the defendant as vendor and the plaintiffs as purchasers.
2 Subsequent to the exchange of the contract after the public auction on 24 November 1999 the plaintiffs’ banker arranged with the defendant’s agent to replace the deposit cheque of $115,000 paid at the auction with a cheque for $65,000 and a bond guaranteed by Royal & Sun Alliance Insurance Ltd (Sun Alliance) in the sum of $50,000 (the bond).
3 The defendant purported to terminate the contract on 22 December 1999 claiming an entitlement to do so on the basis that the plaintiffs were in breach of their obligations under the contract for an alleged failure to pay the full deposit.
4 The plaintiff seeks an order for specific performance of the contract. The defendant resists the application and by cross claim seeks declarations of an entitlement to terminate the contract and retain the deposit of $115,000.
5 The defendant brings a second cross claim against Jones & Jones Pty Ltd trading as Di Jones Real Estate (the agent) in which the main claims include an alleged breach of fiduciary duty, breaches of s52 of the Trade Practices Act 1974 (Cth), breaches of s42 of the Fair Trading Act 1987 (NSW) and an alleged breach of s84AB of the Property Stock and Business Agents Act 1941 (NSW). All alleged breaches are claimed to have arisen from the purported agreement to vary the contract by acceptance of the cheque and bond to replace the cheque for $115,000.
Facts
6 The property was sold for $1.15 million at public auction on the evening of 24 November 1999. The contract was signed on that evening and the plaintiffs paid the deposit by cheque in the amount of $115,000. The agent negotiated on behalf of the defendant with the plaintiffs to reach an agreement for an extended settlement. This agreement was convenient to both the plaintiffs and the defendant as the defendant had not found another home to purchase and the plaintiffs had not sold the home in which they presently reside.
7 On 25 November 1999 the first plaintiff, Mr Frank, telephoned the St George Bank (the bank) and was advised by the Regional Manager, Ms Connie Mavridis, that it was better for him to utilise a combination of the bond and a cheque for the deposit. The first plaintiff had not heard of such an alternative but advised Ms Mavridis that he was happy for her to make contact with the agent.
8 On 25 November 1999 Ms Mavridis had a conversation with Mr Van Nguyen, the accounting officer of the agent. Although there is evidence of differing versions of this conversation I am satisfied that the conversation occurred as follows:
Ms Mavridis: I’m Connie from St George Bank have you banked the cheque for Mr Stan Frank for the purchase by auction yesterday?
Mr Van Nguyen: No.
Ms Mavridis: Would you mind if I exchange his cheque because I have advised my client that it is best for him to exchange with a combination of deposit bond and cheque?
Mr Van Nguyen: Yes okay no problem.
Ms Mavridis: Thanks I’ll arrange the paper work.9 Ms Mavrides also spoke to Mr Hennessy, a real estate salesman with the agent who was present at the auction the previous evening. Although their recollections differ in relation to the detail of the conversation Mr Hennessy gave evidence that he told Ms Mavrides that the replacement of the original cheque with a cheque and a bond would be “fine”.
10 Ms Mavridis organised what she had referred to as the “paper work” which included the plaintiffs signing the application for the bond. The cheque and bond were then forwarded by courier to the agent and whilst the courier was at the agent’s office some direction was sought from the bank as to what was to happen with the original cheque. Ms Mavridis advised that the agent could either destroy the cheque or send it back to the bank.
11 On 3 December 1999 the bond was received by the solicitors for the defendant apparently without any covering letter from the agent. The bond did not contain the details of the defendant’s address or the details of the property. However the completed portion of the bond included the detail of the $50,000 and contained the plaintiffs’ details and the agent’s details with reference to an expected settlement in March 2000. The bond also referred to the total deposit of $115,000 and a purchase price of $1.5 million.
12 Between 3 December 1999 and 9 December 1999 it is apparent that the solicitors for the defendant ascertained from the defendant that she was unaware of the replacement of the original deposit cheque with the cheque and bond. A number of calls were made by the solicitors for the defendant to the plaintiffs’ solicitors’ office and on 9 December 1999 the plaintiffs’ solicitors advised that they too were unaware of the replacement but would make contact with the plaintiffs and call the defendant’s solicitors back.
13 On 15 December 1999 with a sign of apparent frustration the defendant’s solicitors once again telephoned the plaintiffs’ solicitors because no response had been received and they were of the view that it was “not good enough”. Ms Karen Lewis, a solicitor employed by the defendant’s solicitor, advised the plaintiffs’ solicitor’s office that she had called the previous week and that the contract provided for 10% deposit and if it was not paid the defendant could terminate the contract. She apparently completed her conversation by saying “I want to know today or else”.
14 On 15 December 1999 the plaintiffs’ solicitors Patrick Hargraves & Co wrote to the defendant’s solicitors in the following terms:
We refer to our recent discussions and advise that we have now received instructions from our clients.
At exchange of Contracts our clients provided a cheque for the 10% deposit.
Subsequently, upon receiving advice from your client’s Selling Agents that the same was in order, those Agents refunded to our clients half of that deposit and, in substitution therefor, our clients furnished a Deposit Bond representing that part of the deposit and on the understanding that all interest earned on the part of the deposit which has been paid by cheque will be allowed to your client.
Our clients are unaware, on those agent’s part, of any lack of communication between your client and them and our clients acted in good faith and with the expectation that those Agents were acting with the full knowledge and agreement of the vendor.
15 This letter stated the position incorrectly because the plaintiffs had not provided a bond for half the deposit ($57,500) but for $50,000. However this would have been easily ascertained from the terms of the bond.
16 On 16 December 1999 Ms Lewis telephoned the plaintiffs’ solicitors’ office to speak with Mr A.G. Hatsatouris, a principal of the plaintiffs’ solicitors firm, and the author of the 15 December letter. He was not available. Ms Lewis said that she left a message that her client required the full 10% deposit to be invested by Friday (17 Dec 1999) plus adjustment of interest to her client. On the same day Ms Lewis telephoned the agent leaving a message that a “serious breach by someone” with the agent had occurred and that the purchaser was in breach of contract and that her client, the defendant, could terminate now. Ms Lewis said she wanted the full 10% deposit to be invested by Friday.
17 Ms Lewis also spoke to the defendant on that day. Her file note of 16 December 1999 is as follows:
T/a Marion reporting
She mentioned the issue to Andrew Hennessy at Di Jones when he came round to let her in with a spare key (when she got locked out) and he said something to the effect it was all okay. She will ring Di Jones herself.
18 In her affidavit of 17 February 2000 the defendant gave evidence that on Monday 13 December 1999 she had locked herself out of the property. She contacted the agent who held a spare key and Andrew Hennessy attended the premises. The affidavit that was filed said at paragraph 6 “Andrew said something about the bond being all okay” and then provided detail of some other conversation.
19 When the defendant gave her evidence in chief the following occurred:20 Mr Hennessy gave evidence that he visited the defendant on that day and had a conversation to the following effect:
Q Do you have a copy of that affidavit with you….?
A Yes.
Q And the affidavit in front of you was sworn by you on 17 February this year?
A Yes.
Q Could I take you to paragraph 6 of your affidavit? Do you wish to make any correction to the last sentence of that paragraph?
A Yes.
Q What correction is that?
A The one where I spoke to Andrew.
Q Mrs Brown you will have to keep your voice up.
A I said that the part where I didn’t speak to Andrew about the bond at all.
Q I beg your pardon.
A I didn’t speak to Andrew about the bond at all.
Q Do I take it that you wish to delete the words?
A Yes.
Q “Said something about the bond being all okay and”
A Yes.
(Tr.37 l 25-55)
Mr Hennessy: I’ve been informed that there might be a problem with the deposit.
The defendant: Yes I’ve spoken to my solicitor and your not holding the full 10%.
Mr Hennessy: As far as I’m aware we are and there isn’t a problem with the deposit as far as I’m aware.
The defendant: Well that’s alright if there isn’t a problem.
21 Ms Lewis’ file note is consistent with the defendant having spoken to the agent about the bond in which he said that everything was “all okay”. Although there was no cross examination of the defendant as to why she wished to resile from the evidence filed in her affidavit, I am satisfied that a conversation to the effect as given by Mr Hennessy and recorded in the solicitor’s file note took place.
22 On 16 December 1999 the defendant’s solicitors wrote to the plaintiffs’ solicitors in response to the plaintiffs’ solicitor’s letter of 15 December 1999 as follows:
The contract for sale of land executed by your client and my client requires a 10% deposit on exchange to be invested by the agent on behalf of both parties.
The agent has no authority to do anything in relation to the deposit other than as the contract provides or as both parties direct. As previously advised my client has not authorised the release of any part of the deposit nor agreed to accept a bond or guarantee for any part of it.
Accordingly my client requires the full 10% deposit to be invested by Monday, 20 December 1999 and an adjustment on settlement so that my client receives the full amount of interest she would have received had the full 10% being invested on exchange.
23 On 16 December 1999 the defendant’s solicitor also wrote to the agent enclosing this letter to the plaintiffs’ solicitors and advised that instructions had been received to demand that within three days a written explanation be provided setting out the full circumstances under which part of the deposit was released without the permission of the defendant.
24 On 20 December 1999 the agent wrote to the defendant’s solicitor in the following terms:25 On 20 December 1999 Mr Hatsatouris had a conversation with the principal of the defendant’s solicitors, Ms Michelle Meyer. Mr Hatsatouris’ evidence of that conversation is as follows:
We have invested in a Macquarie Bank Investment Deposit account after it was cleared (5 business days) within our sales trust account the sum of $65,000 (cheque received on 26 November).
We are in possession of a Deposit Bond XP 191962ST from St George Bank of $50,000 (being the balance of the 10% deposit).
It has been confirmed the vendor (your client) will receive the full interest earned on $65,000 deposit.
There was then a request for the defendant’s tax file number to enable the agent to provide it to the Macquarie Bank so that the defendant could receive the full interest.
26 Ms Meyer’s evidence of the conversation is as follows:
Mr Hatsatouris: What do we need to resolve this matter?
Ms Meyer: We have lost faith in the agent and do not want them to continue to hold the deposit as stakeholder.
Mr Hatsatouris: And you would be happy with the deposit bond if that occurs?
Ms Meyer: Yes.
Mr Hatsatouris: I’ll recommend to my client that we authorise the release of the deposit so that it can be held by you and we’ll send the appropriate authority.27 On 20 December 1999 the defendant’s solicitor wrote to the agent in the following terms:
Ms Meyer: My client didn’t know anything about any bond, has never been consulted in relation thereto and has not agreed to accept a bond.
Mr Hatsatouris: Mrs Brown can have all the interest on the $65,000 if a bond for $50,000 is acceptable to her.
Ms Meyer: The agent’s conduct is outrageous. Mrs Brown is concerned about the deposit and wants the agent removed as stakeholder and the deposit monies transferred today into my trust account for me to hold as stakeholder. I will seek my client’s instructions in relation to accepting less than the full deposit provided you forwarded by facsimile today a copy of your client’s direction to the stakeholder to release the deposit to me to hold as stakeholder and a letter confirming all the interest on the invested deposit would be payable to my client.28 It is also clear that the plaintiffs’ solicitor contacted the agent on 20 December 1999 and authorised the release of the deposit as requested by the defendant’s solicitor. This appears from Annexure “B” to Ms Meyer’s affidavit which records the telephone message at 3.20pm on 20 December 1999 from Timothy Schwan, the Managing Director of the agent, as follows:
You are clearly in breach of your duties as a real estate agent and as a stakeholder. Accordingly, my client directs that you forward a bank cheque for the deposit monies held by you in the sum of $65,000 payable to M.L.Meyer Trust Account by 4.00pm today.
You are also directed to forward the original deposit bond XP191962ST to my office forthwith.
My client reserves her rights in relation to loss or damaged suffered as a result of your action.
Has agreement from purchaser’s solicitor. Will forward chq tomorrow morning after receiving from you an undertaking he will receive advertising & agent fee.
29 This is apparently Ms Lewis’ file note which then proceeds to record that she discussed the matter with Ms Meyer (MLM) who “said to phone Timothy & tell him she is not going to do such an undertaking and the matter is between them & Mrs Brown”. Ms Lewis’ file note records that she then phoned Mr Schwan at “3.45 & told him”.
30 It is also apparent from this file note that the defendant phoned her solicitor after 4pm and informed her that the agent had communicated with her and indicated that it would not release the deposit until the defendant undertook to pay the agent’s commission.
31 Between 16 December 1999 and 20 December 1999 problems arose with communication between the agent and the defendant’s solicitor and the agent and the defendant. Ms Jones, of the agent, was interstate but received calls and messages on her mobile phone. When she returned the defendant’s calls she was unable to make contact because the defendant was away for the whole of the weekend 17 - 19 December 1999. When Ms Jones telephoned the defendant’s solicitor she was informed that she could not speak to Ms Meyer and was to put everything in writing.
32 However on 20 December 1999 Ms Jones and the defendant had a conversation. The defendant could not recollect precisely what was said but had the recollection that Ms Jones had said of the bond that “we do it all the time and there’s nothing to it”. Ms Jones denied saying those words and recollected saying:33 The defendant said to Ms Jones “You should ask me if I accept the bond first”. Ms Jones’ evidence was that she replied:
Normally if someone is wanting to use a bank bond to bid at an auction we get permission from the vendor first. We find it is becoming quite a common practice to use a bond”.
34 On 21 December 1999 the defendant’s solicitor wrote to the agent again in the following terms:
Yes we should have got your permission, however, I suppose our account’s department felt they were still holding the full ten percent deposit. You were protected at all times and in fact receiving more interest this way.
35 On 21 December 1999 the agent’s letter in response referred to the history of the replacement of the original deposit cheque for the bond and the cheque. The agent claimed that it had understood that the original cheque would be dishonoured on presentation and that it had therefore agreed to the replacement in the “Vendor’s interest”. It went on:
Your employee, Timothy Schwan, has informed my client that unless she provides an undertaking to pay your commission, you will not forward to me the deposit moneys as directed by both the vendor and the purchaser.
My client is not obliged to give such an undertaking. Your entitlement to commission is a contractual matter between you and my client. Further, you have no rights whatsoever in relation to the deposit which you hold as stakeholder in trust for the vendor and the purchaser. Your status as stakeholder has been terminated.
If you do not forward a bank cheque for the deposit money and the original deposit bond as previously directed, by 4.00pm today, then legal action may be commenced without further notice to you.
It is unfortunate that these courses of events were not relayed to you.
As far as your client reserving the right to claim loss or damage suffered from the action of my office, it is a loss to me, as her position has been favoured, she is now (due to our negotiations) entitled to the full amount of interest pertaining to any amounts earned on the $65,000 deposit.
36 The understanding that the original cheque would not be honoured was in my view a misunderstanding of the communication from Ms Mavrides. It is clear that the plaintiffs had the funds available to transfer into the account upon which the $115,000 was written. Preparatory steps to achieve that transfer were already being taken by Ms Wong at the bank at the time Ms Mavrides had the conversation with Mr Frank in which she suggested the option of the combination of cheque and bond.
37 The defendant’s solicitor responded to the agent’s letter on 21 December 1999 advising that no further costs would be incurred in corresponding with the agent but stating that “any extra interest which my client might receive will be less than the legal costs she has incurred by reason of your actions”. The letter demanded that the agent forward “the deposit moneys” that day.
The events of 22 December 1999
38 Mr Hatsatouris gave evidence that he understood from his conversation of 20 December 1999 with Ms Meyer that the matter had been resolved. He also said that there was no reference to getting a letter done “that day”. He understood that it was to be done but the exigencies of Christmas week impacted upon the timing of its preparation.
39 There was a flurry of activity in the defendant’s solicitor’s office on 22 December 1999. A file note indicates that Ms Lewis left a message for Mr Hatsatouris that he should call her “urgently because my client may now terminate the contract”. The same file note recorded that Ms Lewis had a lengthy discussion with the defendant who advised that she would speak to her family and call her back in an hour with instructions whether to terminate or not. It was noted that Ms Lewis would “in the meantime” draft “2 alternative letters”.
40 What happened thereafter was that at approximately 12.09 pm the defendant’s solicitors faxed a letter to the plaintiffs’ solicitors in the following terms:41 At 12.44 pm the defendant’s solicitors wrote again to the plaintiffs’ solicitors advising:
I refer to telephone conversation on 20 December 1999.
I note that you have not yet provided me with a copy of the letter to the agent terminating her status as stakeholder and directing her to forward the deposit money and the original bond to me.
I forwarded a letter to this effect on behalf of my client yesterday.
Your client is in breach of contract (clause 2). Unless I receive the full deposit money by 4 pm today my client will exercise her right to terminate the contract (clause 9) and claim the deposit up to 10%.
42 At apparently 3pm the plaintiffs’ solicitors faxed the defendant’s solicitors the following letter:
Notwithstanding the last paragraph of my facsimile earlier today I am now instructed my client intends to exercise her right under clause 9 to terminate the contract.
Accordingly notice is hereby given that the contract is terminated.
My client will exercise her rights in relation to retention of the 10% deposit.
Further to our recent discussions we confirm our advice that our client has agreed that your client is entitled to all interest earned on the deposit of $64,000 held by the vendor’s agent and invested with Macquarie Bank. The balance of the deposit is covered by a deposit guarantee bond, the original of which is apparently held by the agent and, presumably, a copy thereof has been made available to you.
We note the agreement that your client is prepared to consent formally to the arrangements relating to the deposit but requires the agent to be removed as stakeholder.
As requested we enclose order addressed to the agent directing him to forward to you for investment together with accrued interest which will be held by you as stakeholder pending completion .
43 Some time after 3pm the agent wrote to the defendant’s solicitors advising that the purchaser’s solicitors had instructed it to account to her “in regards to the deposit” and to “pay any money due to you forthwith”. The agent advised that Macquarie Bank was unable to process the bank cheque until the following day and requested once again that the defendant’s solicitors provide the defendant’s tax file number. The number was provided later that day.
44 At 3.52 pm the defendant’s solicitors wrote again the plaintiff’s solicitors acknowledging receipt of the plaintiffs’ solicitor’s letter at 3 pm. The letter went on to say:
My client has never consented to part payment of the deposit via a deposit guarantee bond .
On Monday, 20 December 1999, I said I would seek my client’s instructions in relation to accepting less than the full deposit provided you forwarded by facsimile on that day a copy of your client’s direction to the stakeholder to release the deposit to me to hold as stakeholder and a letter confirming all the interest on the invested deposit would be payable to my client. I did not receive the requested letters that day nor the next. Notwithstanding that you did not forward the requested letters, I sought but was unable to obtain instructions from my client to accept less than the 10 % deposit.
It was only after you were served with a termination notice today that the requested direction and letter have been forthcoming.
It is now too late to again seek my client’s instructions to accept less than the full deposit as my client has elected to terminate the contract for non payment of the 10% deposit.
Please note that your client telephoned my client and myself this afternoon in relation to this matter. My client does not wish to talk with your client and I told your client that as she has solicitors acting for her she should send communications to my client or me through her solicitors.
45 The plaintiffs were informed by Mr Hatsatouris that a problem had developed in relation to the deposit and that the defendant’s solicitor was threatening to terminate the contract. Mr Frank telephoned Mrs Brown direct and subsequently attended the defendant’s solicitor’s office to proffer a $50,000 cheque. The defendant’s solicitor informed Mr Frank “the contract is being terminated, I will hold the cheque on the file”.
46 On 22 December 1999 the defendant’s solicitor wrote to Sun Alliance enclosing the “original” bond in which the details of the property and the defendant’s address had been completed together with a copy of a notice of termination. The letter then requested Sun Alliance to forward a cheque for $50,000 payable to the defendant’s solicitor within two business days “as provided under the Bond”.(Ex F)
47 A further letter requesting payment of the $50,000 was forwarded to Sun Alliance on 23 December 1999 advising that the contract had been terminated “for non-payment by the purchasers of the full 10% cash deposit”. (Ex G)
The contract
48 The contract is the 1996 edition of the Contract for Sale of Land. In the front sheet of that contract the meaning of the term “vendor’s agent” is given as Di Jones Real Estate. The vendor’s solicitor is Michelle L Meyer and the deposit holder is the vendor’s agent. The relevant box “yes” is crossed indicating that the deposit was to be invested.
49 Clause 1 of the contract provides definitions in which the contract provides that the meaning of “normally” is “subject to any other provision of this contract”. The meaning of the term “terminate” is “terminate this contract for breach”.
50 Clauses 2 and 3 of the contract provide:51 Clause 9 of the contract provides:
2 Deposit and other payments before completion
2.1 The purchaser must pay the deposit to the deposit holder as stakeholder.
2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.
2.3 If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential.
2.4 The purchaser can pay any of the deposit only by unconditionally giving cash or a cheque to the deposit holder or to the vendor, vendor’s agent or vendor’s solicitor for sending to the deposit holder.
2.5 If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate but only before the deposit is paid in full.
2.6 If the vendor accepts a bond or guarantee for the deposit, clauses s.2.1 to 2.5 and 3 do not apply.
2.7 If the vendor accepts a bond or guarantee for part of a deposit, clauses 2.1 to 2.5 and 3 apply only to the rest of the deposit.
2.8 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.
3. Investment of deposit
If this contract says that the deposit is to be invested the deposit holder is to -
3.1 Invest the deposit (at the risk of the party who becomes entitled to it) with a bank, building society or credit union, in an interest-bearing account in NSW, payable at call, with interest to be reinvested; and
3.2 Pay the interest to the parties equally, after deduction of all proper government taxes or financial institution charges or other charges.
· the deficiency on resale ( with credit for any of the deposit kept or recovered and after allowance for any capital gains tax payable on anything recovered under this clause); and
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 cam terminate by serving a notice and after the termination -
9.1 keep or recover the deposit (to a maximum of 10% of the deposit)
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 after the termination; 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 either -
9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover -
· the reasonable costs and expenses arising out of the purchaser’s non-compliance with this contract or the notice and of resale and any attempted resale; or52 The defendant purported to terminate the contract pursuant to Clause 9 because of the plaintiff’s alleged breach of Clause 2 of the contract in failing to pay “the full deposit money”.
9.3.2 to recover damages for breach of contract.
The deposit
53 The deposit is not merely a part payment but is an earnest to bind the bargain entered into: Howe v Smith (1884) 27 Ch D 89 per Fry LJ at 101. It also has the function of indicating the purchaser’s genuineness such payment demonstrating that the purchaser “means business”: Brien v Dwyer (1978) 141 CLR 378 per Gibbs J, as His Honour then was, at 392.
54 The contract required a deposit of $115,000 being 10% of the purchase price of $1.15 million. The contract provides a number of different ways in which the deposit may be paid including cash or cheque (cl. 2.4); or, if the vendor accepts it, a payment of the full deposit in the form of a bond or guarantee (cl. 2.6); or, if the vendor accepts it, a payment of part of the deposit by bond or guarantee (cl. 2.7).
55 The deposit was to be invested in an interest bearing account such interest to be shared equally by the purchaser and the vendor. (cl. 3)
56 The defendant’s entitlement to terminate the contract in relation to a non-payment of the deposit arises pursuant to cl 2.5. The circumstances in which the defendant could terminate the contract were “if any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation”. If the defendant “accepted” the bond for part of the deposit clause 2.5 only applied to the cheque for $65,000 and there is no issue that the cheque was honoured and invested.
Did the defendant accept the bond
57 The plaintiffs submitted that the bond was accepted by the defendant pursuant to clause 2.7 of the contract by the conduct of the agent or alternatively by the conduct of the defendant’s solicitor.
58 Apparent or ostensible authority of the agent is authority as it appears to the plaintiffs regardless of any limit on the agent’s authority agreed as between the defendant and the agent: Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549 at 583; Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 at 362.
59 The agent was presented to the plaintiff as the defendant’s agent and the deposit holder with responsibility to invest the deposit pursuant to Clause 3 of the contract. Additionally, on the night of the auction the agent negotiated with the plaintiffs for the purpose of reaching an agreement in respect of the extended settlement. After the auction was completed and the plaintiffs paid the original deposit cheque of $115,000 a receipt was issued by the agent for that cheque. After contracts had been exchanged the agent informed the plaintiffs to contact it if there was “anything you want to know about the property”.
60 When the plaintiffs’ banker approached the agent to replace the original cheque with a cheque and bond, no indication was given to the plaintiffs or their banker that the agent did not have authority to accept the bond and the replacement cheque. Indeed the indication was quite the opposite with the agent indicating that such arrangement was “fine”. This remained the position during the conversation between the banker and the agent, after the conversation when the cheque and bond were couriered to the agent and up until the first week of December 1999.
61 In all the circumstances of the conduct of the agent I am satisfied that the plaintiffs have proved that the agent had the ostensible authority to accept the bond pursuant to clause 2.7 of the contract. I am satisfied that such acceptance occurred.
62 Although being so satisfied I should deal with the alternative submission made by the plaintiff that the defendant’s solicitor’s conduct amounted to a ratification of the conduct by the agent or alternatively an acceptance of the bond.
63 The solicitors for the plaintiffs and the defendant differ in their recollections of the 20 December 1999 conversation. The plaintiffs’ solicitor understood that the matter had been resolved on the basis that the agent was to be removed as the stakeholder. In other words the status quo was to remain in relation to the make up of the deposit.
64 The defendants solicitor’s recollection was that any agreement to “accept” the bond as part payment of the deposit was conditional upon Ms Meyer obtaining the defendant’s instructions which step was conditional upon:
· the plaintiffs’ solicitors sending her that day a copy of the fax which was required to be forwarded to the agent directing it to forward “the deposit” to her to be held by her as stakeholder; and
· the plaintiffs’ solicitors forwarding a letter to her confirming all the interest on the invested deposit would be payable to the defendant.65 It is clear from annexure B to Ms Meyer’s affidavit that Ms Meyer knew that the plaintiffs’ solicitors had contacted the agent after her conversation with them and “agreed” to the deposit being forwarded to her. This is also clear from Ms Meyer’s first letter of 21 December 1999 to the agent in which she threatened legal action against it for failing to forward the cheque and the bond “as (previously) directed by both the vendor and the purchaser”. I am satisfied that this was a reference to the letter of 20 December 1999 in which Ms Meyer directed the agent to forward to her the cheque and the bond and to her understanding that the plaintiffs’ solicitors had also directed such to occur.
66 The difficulty which arose was the agent’s refusal to act on these directions because it wanted an undertaking from the defendant that its commission would be paid before it released the deposit to Ms Meyer.
67 Ms Meyer also informed the agent on 21 December 1999 that “any extra interest” her client might receive would be less than her legal costs incurred by reason of the agent’s conduct. I have no doubt that this was a reference to Ms Meyer’s understanding that the plaintiffs had agreed that the whole of the interest earned on the $65,000 was to be paid to the defendant.
68 It is also clear that Ms Meyer did not contact the plaintiffs’ solicitors again until after the difficulty with the agent occurred. In the first letter of 22 December 1999 at 12.09 pm Ms Meyer complained that the plaintiffs’ solicitors had not forwarded a copy of their letter to the agent. There was no mention of the requirement to confirm that the whole of the interest would be payable to the defendant.
69 That letter made no mention of the difficulties that had been experienced with the agent nor did it suggest that the defendant had refused to accept the cheque and the bond as the deposit. It did not inform the plaintiffs’ solicitors that Ms Meyer had already demanded the release of both the cheque and the deposit to her.
70 On all the evidence I am satisfied that it is more probable than not that Ms Meyer did inform Mr Hatsatouris that her client “would be happy” with the deposit bond if the stakeholder was removed. Although Ms Meyer requested Mr Hatsatouris to forward confirmatory correspondence to her I am of the view that no specific time limit was placed on its receipt.
71 In my view Ms Meyer’s conduct in demanding the cheque and the bond on 21 December 1999, after becoming aware that the plaintiffs had directed the deposit be paid to her, is consistent with such a conversation having occurred. There is nothing in the demand suggesting that this was a step conditional upon instructions being obtained to accept such cheque and bond or conditional upon any correspondence being received.
72 In all the circumstances I am satisfied that Ms Meyer’s conduct amounted to a ratification of the agent’s conduct or alternatively independently amounted to acceptance of the bond pursuant to Clause 2.7 of the contract. In those circumstances the defendant was not entitled to terminate the contract.
73 A further point was raised by the defendant during the hearing and I allowed an amendment to the defence to include a claim that the bond was ineffective and did not constitute an immediately enforceable security to the benefit of the defendant. The main point in support of this defence was that the details required to make the bond effective had been omitted.
74 However that suggested defect was cured by the defendant’s solicitors completing the details prior to claiming the $50,000 from Sun Alliance on 22 December 1999.
75 The other point relied upon by the defendant in support of this defence was that, properly construed, the bond expired upon the termination of the contract. In the circumstances of my findings it is not necessary to embark upon this construction argument but it seems to me that the wording of the bond would lead to a construction that it would only expire on termination if the purchaser was entitled to a refund of the deposit.
76 In all the circumstances I am satisfied that the defendant was not entitled to terminate the contract and that the plaintiffs are entitled to the relief sought in the Amended Summons.
Cross claim against the agent
77 The defendant signed a Sales Inspection Report and Auction Agency Agreement (and continuing Agency) with the agent on 11 October 1999 (the agency agreement). The agency period was agreed as 11 October 1999 to 17 February 2000 with authority given to the agent to sell the property by public auction on 24 November 1999. (Cl. 2)
78 That agreement provided relevantly that:
6. The agent is authorised to enter into and sign a contract for sale in terms to be provided by the principal or their solicitor to the agent.
9. The sale of the property is to be advertised in accordance with the marketing Agreement of the same date between the principal and Di Jones Marketing Pty Ltd.
12. The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of a principal after the parties have entered into a binding contract.
13. It is irrevocably agreed that all moneys that shall be paid by the purchaser as deposit money shall be:
*a) Held by the Agent in their trust account as stakeholder pending completion; or
*b) invested by Agent as stakeholder in an interest bearing account on terms and conditions as agreed upon between Principal and the Purchaser and as notified to the agent in writing.
The Agent is entitled to deduct their above fee, expenses and charges from such moneys on receipt of authorisation from the Purchaser or their Solicitor to account to the Principal or their Solicitor.
The Agent is authorised to deduct from the deposit and to pay to Di Jones Marketing Pty Ltd any amount owing pursuant to the marketing agreement referred to in clause 9, on receipt of authorisation from the Purchaser or their Solicitor to account to the Principal or their Solicitor.
79 Although neither (a) nor (b) of Clause 13 was deleted from the agency agreement the front sheet of the contract required investment of the deposit pursuant to Clause 3 of the contract.
80 The defendant and the agent also entered into a Marketing Agreement on 11 October 1999 in which the defendant agreed to pay $9122.50 as a fee for the preparation of the advertising material in marketing the property. On 15 October 1999 the agent wrote to the defendant setting out the fees to be paid for the marketing program particularising each amount payable to the various entities with which the advertisements would be placed.
81 Problems between the defendant and the agent arose quite early in the agency period. The defendant’s solicitor wrote to the agent on 2 November 1999 advising that the defendant had felt insulted by the agent’s request to receive the advertising fees “in advance” and that the defendant had “lost confidence” in the agent because the agent had allegedly made an error in the initial advertisement of the property. A demand was made for the agent to agree by 5pm that day to pay the advertising costs of $9,000 or the defendant would “look to another agent or withdraw the property from sale”.
82 The agent responded on 3 November 1999 advising that it was the policy of the agent to request payment of advertising fees before the first open house inspection and gave reasons for such a policy. The agent also rejected the allegation that it had made a mistake in relation to the initial advertisement and pointed out that the problem was caused by the particular newspaper in which it was published and that there would be no cost to the defendant in relation to the advertisement.
83 It is obvious that although it was alleged that the defendant had “lost confidence” in the agent the defendant continued on in the relationship and authorised the agent to proceed with the auction on 24 November 1999.
84 The defendant claims that the agent was not authorised to agree to the variation to the contract whereby the deposit cheque for $115,000 was replaced with the cheque for $65,000 and the bond in consideration of the defendant receiving all the interest earned on the invested $65,000.
85 It was submitted that such action was in breach of s84AB of the Property, Stock and Business Agents Act 1941 (the Act) and that the agent is liable to compensate the defendant for the loss, damage or expense incurred by reason of such unauthorised action. Section 84AB provides relevantly:
(1) A real estate agent may fill up a proposed contract for the sale of residential property, by inserting details of the purchaser’s name, address and description, the purchaser’s solicitor’s name and address, the purchase price and the date.
(2) A real estate agent may insert in or delete from a contract for the sale of residential property any description of any furnishings or chattels to be included in the sale of the property
(3) A real estate agent may participate in the exchange or making of the contracts for the sale of residential property, subject to subsection (4).
(4) If a prospective party to a proposed contract for the sale of residential property for whom a real estate agent acts in relation to the exchange or making of the contract notifies the real estate agent, or it is apparent from the proposed contract, that a solicitor is or will be acting for the party, the real estate agent may only participate in the exchange or making of the contract if expressly authorised to do so by the party or the solicitor.
(5) A real estate agent who exercises any function described in subsection (1), (2) or (3) on behalf of any person who is a party or a prospective party to any contract or proposed contract is liable to compensate that person for any loss, damage or expense suffered or incurred by that person as a result of any negligent act or omission, or any unauthorised action, of the real estate agent in the exercise of that function.
(6) A contract is not invalid merely because of the failure of a real estate agent to comply with subsection (4).
86 Although the agent submitted that s84AB of the Act did not apply to it, I am of the view that the agent’s conduct was governed by s84AB(3) & (4) of the Act. The Act limited the agent’s authority to participate in the exchange of contracts and/or the making of a contract to the extent that it was expressly authorised to do so by the defendant or the defendant’s solicitor.
87 The defendant alleges the agent’s action was not expressly authorised and caused the defendant to suffer damage. It was submitted that it was necessary for the defendant to expend legal costs in ascertaining what had happened and on litigation in respect of the contract.
The agent’s authority
88 The agent was expressly authorised by the agency agreement “to enter into and sign a contract for sale in terms provided” by the defendant or the defendant’s solicitor (cl. 6). Such terms were those contained in the contract.
89 It is submitted that as Clause 2 of the contract contained terms which provided various methods by which a deposit could be paid the agent was authorised to accept the bond for part of the deposit (cl. 2.7). If the agent was not so authorised then clause 2.7 should have been deleted from the contract. It was submitted that another feature to which regard should be paid in assessing the breadth of the agent’s authority is that neither of the alternatives in clause 13 of the agency agreement was deleted.
90 It was submitted that the instructions to the agent were thus ambiguous and could reasonably be understood in more than one sense and the defendant should be bound by whichever of those senses upon which the agent acted bona fide: Thornley v Tilley (1925) 36 CLR 1 per Isaacs J at 12.
91 It was submitted that by reason of the inclusion of all the paragraphs in Clause 2 of the contract it was reasonable for the agent to assume it was expressly authorised to replace the original cheque with a cheque and a bond particularly in circumstances where it believed that such replacement was in the defendant’s best interests and it was acting bona fide in the defendant’s best interests.
92 I have no doubt that the agent acted bona fide on an understanding that what it was doing would be to the defendant’s advantage. That advantage was that the defendant would receive more interest from the whole of the interest on $65,000 than half the interest on $115,000 for the same period and that with the cheque and the bond the full deposit was held.
93 There is no doubt that neither the defendant nor her solicitor was communicated with prior to the acceptance of the cheque and bond on 25 November 1999. When the defendant raised it with Mr Hennessy she was informed that everything was “okay” and the full ten percent deposit was held. When the defendant informed Ms Jones that such consent should have been obtained Ms Jones apologised to the defendant for the failure to obtain the defendant’s consent prior to the replacement taking place.
94 Ms Jones of the agent had a conversation with the defendant on 22 December 1999 in which Ms Jones asked the defendant whether she had decided that she did not want to sell the property. The defendant responded that was not the case and that she was going to sell the property to the plaintiffs.
95 At no stage has the defendant claimed that if she had been told prior to agreement being reached she would have refused to accept the cheque and the bond to replace the cheque for $115,000.
96 An initial request was made to invest the whole of the deposit by Friday 17 December 1999 however the defendant’s approach changed on 20 December 1999. The focus was then upon the removal of the agent as stakeholder to be replaced by the defendant’s solicitor holding the cheque and bond.
97 I am satisfied that the agent was not expressly authorised to enter into a variation of the exchanged contract to allow a refund or return of the $115,000 cheque for the $65,000 cheque and bond. What was required was an authority from the defendant. So much was recognised by Ms Jones when she apologised to the defendant for the agent’s failure to obtain her consent.
98 However I am satisfied that the agent’s action in accepting the cheque and the bond was ratified by the defendant’s solicitor’s actions in calling upon and receiving the cheque and bond from the agent. The demand for payment of the bond upon Sun Alliance put the matter of its acceptance beyond doubt.
99 The ratification of the agent’s actions is equivalent to antecedent authority: Koenigsblatt v Sweet [1923] 2 Ch 314 at 315 which in the circumstances of this case leads to a failure of all the claims the defendant brings against the agent. The second cross claim must fail in its entirety.100 The plaintiffs are to bring in short minutes of order reflecting the finding that they are entitled to an order for specific performance. The first and second cross claims are dismissed. I will hear the parties on costs if there is no agreement as to an appropriate consent order.
Orders
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