Gairsay Pty Ltd v Berkley Farm Pty Ltd
[2002] TASSC 92
•8 November 2002
[2002] TASSC 92
CITATION: Gairsay Pty Ltd & Ors v Berkley Farm Pty Ltd & Ors [2002] TASSC 92
PARTIES: GAIRSAY PTY LTD [ACN 009 492 9888]
DOBSON, Elizabeth Gaye
GOURLAY, Sally Ann
v
BERKLEY FARM PTY LTD [ACN 065 389 433]
DUINDAM, Jacobus Johannes
DUINDAM, Joanna Catherina
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 592/1999
613/2000
DELIVERED ON: 8 November 2002
DELIVERED AT: Hobart
HEARING DATES: 13 - 16, 19 August, 8 - 11, 14, 15 October 2002
JUDGMENT OF: Blow J
CATCHWORDS:
Conveyancing - Relationship of vendor and purchaser - Matters arising between contract and conveyance - Conditions precedent and subsequent - Other conditions - "Restrictions on the use of the property" - Meaning.
Aust Dig Conveyancing [10]
Conveyancing - Relationship of vendor and purchaser - Breach of contract - Breach by the purchaser: remedies of vendor - Damages - Vendor's duties on resale.
Sullivan v Darkin [1986] 1 NZLR 214; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 Tas R 26; A H R Constructions Pty Ltd v Maloney [1994] 1 Qd R 460, referred to.
Aust Dig Conveyancing [89]
REPRESENTATION:
Counsel:
Plaintiffs: G L Sealy and E Bullard
Defendants: P W Tree
Solicitors:
Plaintiffs: Dobson Mitchell & Allport
Defendants: H S Murray
Judgment Number: [2002] TASSC 92
Number of Paragraphs: 47
Serial No 92/2002
File Nos 592/1999613/2000
GAIRSAY PTY LTD [ACN 009 492 9888], ELIZABETH GAYE DOBSON,
SALLY ANN GOURLAY v BERKLEY FARM PTY LTD [ACN 065 389 433], JACOBUS JOHANNES DUINDAM, JOANNA CATHERINA DUINDAM
REASONS FOR JUDGMENT BLOW J
8 November 2002
These proceedings relate to a group of real estate transactions concerning properties at Ouse. The transactions were entered into in 1996 by members of the Gourlay and Duindam families, and companies controlled by them. For many years the Gourlay family had owned and farmed properties known as "The Lodge", "Smedleys", and "Kings". The transactions were as follows:
(a)By an agreement dated 14 June 1996 R A Gourlay Pty Ltd (the owner of The Lodge and certain chattels) and Roger Anthony Gourlay ("Mr Gourlay") and his wife Louise Helen Gourlay (the owners of certain stock, plant and feed) agreed to sell The Lodge and the chattels, stock, plant and feed to the second and third defendants, Mr and Mrs Duindam, for $1,259,800 (excluding the prices of the stock and the feed). This contract provided for completion to take place on 1 July 1996.
(b)By an agreement of the same date Gairsay Pty Ltd ("Gairsay") (the first plaintiff, a company controlled by Mr Gourlay) agreed to sell Smedleys to Mr and Mrs Duindam for $370,000, of which $100,000 was to be paid on or before 30 June 1999, and the balance was to be paid on completion, which was to be on 1 July 2000, as to which time was of the essence.
(c)By another agreement of the same date Mr Gourlay's sisters, Elizabeth Gaye Dobson and Sally Ann Gourlay (the second and third plaintiffs) agreed to sell Kings to Mr and Mrs Duindam for $405,000, all of which was payable on completion, which again was to be on 1 July 2000, with time again being of the essence.
(d)By a lease dated 12 November 1996, Gairsay leased Smedleys to Berkley Farm Pty Ltd (the first defendant, a company controlled by members of the Duindam family) for a term of four years from 1 July 1996 to 30 June 2000. Mr and Mrs Duindam guaranteed the performance of their company's covenants.
(e)By another lease also dated 12 November 1996, Mrs Dobson and Miss Gourlay (the second and third plaintiffs) leased Kings (which was misdescribed in the lease) to Berkley Farm Pty Ltd for the same term of four years, with an identical guarantee from Mr and Mrs Duindam.
The first of the sale contracts was completed on or about 1 July 1996. Thereupon, loosely speaking, the Gourlays gave possession of the three properties and the other relevant assets to the Duindams, who commenced to operate them as a dairy farm, no doubt anticipating the finalisation of lease documentation relating to Smedleys and Kings in due course. The purchasers did not pay the $100,000 deposit in respect of Smedleys that was payable on 30 June 1999, three years after they took possession. The next year, about a month before completion of the contracts for the purchase of Smedleys and Kings was due, Berkley Farm Pty Ltd stopped paying rent. Those two properties were vacated. The purchasers did not complete the purchases of those two properties on 1 July 2000. On 7 July 2000, the vendors' solicitors notified the purchasers' solicitor that they were accepting the repudiation of each of the two contracts. The plaintiffs resold the two properties at lower prices. Their principal claims in these proceedings are for damages in respect of their losses on the re-sale of each property. The defendants contend that Mr Gourlay made false representations as to certain qualities of Smedleys and Kings; that such representations induced them to enter into the contracts for the purchase of Smedleys and Kings; that they were not obliged to perform those contracts because such representations were false; and that orders should be made for the rescission of both contracts, either in equity or pursuant to the Fair Trading Act 1990, s41(5)(a). They also contend that each contract contained a condition precedent to completion which, as a result of poor soils, was not satisfied. There are a number of ancillary claims that I need not mention at this stage.
The alleged representations
The defendants' case, as pleaded, is that Mr Gourlay, on behalf of all the plaintiffs, in order to induce Mr and Mrs Duindam to enter into the agreements for the purchase of Smedleys and Kings, represented to them that "(a) the plaintiff [sic] produced around 3,000 tonnes of silage per annum from the properties [ie, Smedleys and Kings], (b) the soil on the properties was of very good quality; [and] (c) the properties were ploughed every 7 years". It is pleaded that these representations were false, misleading and deceptive in that:
"(a)The plaintiff [sic] had not ever produced 3,000 tonnes of silage from the properties.
(b)The soil on the properties was not of very good quality in that:-
(i) it contained a high sodium content;
(ii) the paddocks known as 'Rex's Bottom Strip', 'Morris' Dairy', 'No 3', 'Morris' Bottom Silage' and 'Rushy' were poorly drained, lay wet and were unsuitable for cropping, and
(c)the properties had not been ploughed every 7 years."
The defendants' case is that Mr Duindam senior negotiated the purchases of the properties on behalf of himself and his wife, and that he heard and relied on the alleged misrepresentations.
Silage production
There are inconsistencies between the pleaded misrepresentations and the evidence as to what Mr Gourlay said. It seems to be common ground that he said something about silage quantities during an inspection of Smedleys and Kings by members of the Duindam family that occurred prior to contracts being prepared. On that occasion the two properties were inspected by the second defendant ("Mr Duindam senior"), his son ("Mr Duindam junior"), his son-in-law, whose name was Thornley, and a real estate agent named Collins. In his evidence Mr Duindam senior said Mr Gourlay told him he made 3,000 tonnes of silage; that he did not say how often he did so; that he caused him to understand that silage was cut up to three times (per season, I infer); and that there was about 3,000 tonnes of silage. Mr Duindam junior gave no evidence of any statement by Mr Gourlay about silage production. Mr Thornley gave evidence of a conversation on Kings. He said he thought Mr Duindam senior asked Mr Gourlay what had been grown on the block, "and Roger's reply was that you could grow up to 3,000 tonne of silage and there was the proof". His evidence was that Mr Gourlay indicated a number of silage stacks as he said this. Mr Collins gave evidence that Mr Gourlay mentioned 3,000 tonnes of silage, but added that he did not believe that there was that much silage there. He said he did not share his belief with anyone because he did not consider he was in a position to do so. Mr Gourlay's evidence was that he said he aimed to get 3,000 tonnes; that in a good year he could produce up to 3,000 tonnes of silage from the three properties (including The Lodge); and that the annual silage production from the three properties was never less than 2,000 tonnes. He denied representing that 3,000 tonnes of silage was ever produced annually on Smedleys and Kings.
I am satisfied that Mr Gourlay mentioned the figure of 3,000 tonnes of silage to Mr Duindam senior. I am unable to make a finding as to whether he was referring to the quantity of silage in storage or annual silage production. Although I consider Mr Thornley was an honest witness, I am not satisfied that his memory was so reliable that I should accept his version of what was said, given that he appeared a little uncertain as to what Mr Gourlay was asked, and given the apparently inconsistent recollections of Mr Collins and Mr Duindam senior. I think Mr Gourlay was a most unreliable witness, particularly in relation to matters of critical significance, but I consider his version of what was said as to silage production to be inherently plausible. For these reasons, I am not satisfied that he made a false, misleading or deceptive representation as to silage production.
Frequency of ploughing
It is convenient to deal next with the allegation that Mr Gourlay falsely represented that Smedleys and Kings were ploughed every seven years. Mr Duindam senior gave evidence that, in the course of the inspection of the properties, he asked Mr Gourlay about the history of ploughing on the properties, and that Mr Gourlay said he "ploughed the whole property every seven years". Under cross-examination, it was put to him that Mr Gourlay had said that, with the exception of the steep hill country and some very wet poorly drained areas, all of the land had been ploughed within the last four to ten years, and that the average pasture would have been cultivated no less than once every seven years. He responded to the effect that Mr Gourlay had not told him that, but had said that he ploughed all the land every seven years. Although Mr Duindam junior, Mr Thornley and Mr Collins all took part in the same inspection, none of them gave evidence of Mr Gourlay having made any statement as to the frequency of ploughing on Smedleys and Kings.
As a result of Mr Sealy splitting the plaintiffs' case, Mr Gourlay gave evidence twice during the trial ¾in August and in October. In August, when he was cross-examined by Mr Tree for the first time, he was asked on two occasions about the frequency of ploughing. On the first occasion, he gave evidence to the effect that every arable area on Smedleys and Kings was cultivated in the last seven to ten years prior to 1996, and that some areas were cultivated more frequently than others. He was not asked on that occasion about the making of any representation. Later on the same day, Mr Tree returned to this topic, and suggested that Mr Duindam senior had asked in relation to a particular paddock "How long ago was this ploughed?" and that Mr Gourlay had replied, "We plough all of the paddocks every seven years. This is about to be ploughed now." Mr Gourlay responded that he did not remember that particular incident. He went on to say that an average of about every seven years would have been true. Those things were said on 14 August. On 19 August I adjourned the trial until 8 October. It was on 8 October that Mr Sealy, for the plaintiffs, put to Mr Duindam senior that Mr Gourlay had said the land was ploughed within the last four to ten years, and that the average pasture would have been cultivated no less than once every seven years. When cross-examined on 11 October, Mr Gourlay claimed to remember the conversation with Mr Duindam senior. He said, "I told Mr Duindam that I averaged cultivating the paddocks about every seven years, which is ¾which is what the average was. Sometimes more often, sometimes less. But never more than ten."
It may be that, when he gave that evidence, Mr Gourlay did not believe any such conversation had taken place. Alternatively, it may be that he sincerely believed that he had told Mr Duindam the land had been cultivated every four to ten years, with an average of seven years. It may be that he had no recollection, but firmly believed that he would have said those things, and failed to draw a distinction between recollection and reconstruction. I regard his evidence as unreliable. But I think the evidence of Mr Duindam senior on this issue is unreliable as well. It may be that Mr Gourlay made a representation as to the frequency of ploughing which each of the other persons present either did not hear or did not remember. However I am not satisfied that the account given by Mr Duindam senior as to what Mr Gourlay said about the frequency of ploughing is accurate, reliable, or even fully truthful, since I have quite a low opinion of his credibility. I think his apparent hostility towards Mr Gourlay could at least have distorted his memory as to what was said in 1996. Further, I think it most unlikely that Mr Gourlay would have asserted that all the paddocks comprising Smedleys and Kings, or all of the arable land on those properties, were ploughed every seven years. The properties included various types of land, including fertile riverside land with alluvial soils, pastures within the flood irrigation system administered by the Lawrenny Water Trust, and higher, drier pastures. Because the properties comprised a number of different types of land, I accept Mr Gourlay's evidence that different parts of the properties were ploughed with different frequencies. I have no reason to doubt his evidence that such frequencies varied from about once every four years to about once every ten years, with the average being about once every seven years. I think it is quite possible that, as Mr Sealy suggested, Mr Gourlay said the ploughing averaged once every seven years, and that Mr Duindam senior has forgotten that the figure provided was expressed as an average. That is no more than a possibility. Taking all these matters into account, I am not satisfied that Mr Gourlay made a false, misleading or deceptive statement to the effect that Smedleys and Kings were ploughed every seven years.
Soil quality
I turn to the allegation that Mr Gourlay represented that the soil on Smedleys and Kings "was of very good quality". That allegation was first pleaded on behalf of the defendants in relation to Smedleys in a defence and counterclaim dated 2 September 1999 in an action commenced by Gairsay for the unpaid $100,000 deposit. It was repeated in relation to both Smedleys and Kings in subsequent pleadings. No witness gave evidence of Mr Gourlay ever saying that any soil was of "very good quality". The defendants' case is that he made representations to that effect.
Mr Duindam senior said that, during the inspection of Smedleys and Kings, he had a discussion with Mr Gourlay about the history of cropping on the land, during which Mr Gourlay "said it was good arable soils. It was no bother for us to grow whatever we wanted to grow there." He said he understood Mr Gourlay was talking about all of the properties, and not just one area. He said that, at that time, they were standing on the poorest soils, because that was where he wanted to start "because it didn't look right". He said that during the same inspection he heard his son start talking to Mr Gourlay about growing corn, and that he heard Mr Gourlay say, "Put water and seed on this and it'll just grow." If this was said, it amounted to an implied assertion that the soil was so good that fertiliser was not needed. Mr Duindam junior gave a somewhat different version of the same conversation. He said he asked Mr Gourlay a question to the effect of, "Roger, can you grow maize on this land?" and that Mr Gourlay replied, "Put the seed in the ground, water it, and watch it grow." He said that conversation took place at a point on the lower part of Kings. Mr Collins, the estate agent, gave evidence that during the inspection of the properties, at a time when Mr Gourlay was speaking to all of the group including Mr Duindam senior and Mr Duindam junior, he told them that the soils were "first class soils". Mr Thornley did not give any evidence of Mr Gourlay saying anything relevant to soil quality. During his first cross-examination, Mr Gourlay said he thought Mr Duindam junior had mentioned a desire to grow maize on Smedleys and Kings for silage; that Mr Duindam junior had asked him about the growing of maize on the property; and that he had grown maize there himself. He said he was sure he did not comment that the property "would grow anything". He said that fertiliser was necessary in addition to seed and water. It was put to him that he had described the country there as "first class arable land", and he said he thought he had. It was put to him that he had described it as "the best that you can get in this area" ¾not something that was ever said in evidence ¾but he denied that. He said that he had either described the land as "first class arable land" or "good arable land", and that he could not remember which. The questions that elicited this evidence did not refer to soil quality at all, but referred in general terms to his representations as to the quality of the land.
Mr Duindam senior is a very experienced dairy farmer. I think it would be readily apparent to anyone dealing with him that he is not a gullible or soft individual. If Mr Gourlay had said to him, or in his hearing, that corn or maize could be grown just by putting the seed in the ground and watering it, implying that the soil was so good that no fertiliser was necessary, I think it likely that this assertion would have been immediately dismissed as ridiculous, and that there would have been a strong risk of the prospective purchasers losing interest in the properties. All the evidence I have about fertiliser suggests that its use in the cultivation of crops is so common that a farmer in Mr Gourlay's position could not have retained any credibility if he had implied that the soils were so good that no fertiliser was necessary. I do not think Mr Gourlay was above overstating the qualities of the land that was for sale. Indeed, I am inclined to think that he might not have been able to stop himself from overstating its qualities. However I think he is far too clever to have said anything relating to soil quality that was likely to have been disbelieved, and to have thereby put the sales at risk. I therefore do not accept the evidence of him saying something to the effect of "Put the seed in the ground, water it, and watch it grow." However any prudent prospective purchaser would have enquired about the soils, and I have no reason to doubt the evidence of Mr Duindam senior that he did. In the light of my assessment of Mr Gourlay I accept that, in response, he made a statement in general terms to the effect that the soils were either "good arable soils" or "first class soils". To the extent that his words related to the poorer soils on Smedleys and Kings, I think that any such statement, if unqualified, or if taken in isolation, would have involved an overstatement as to soil quality.
But it is clear that Mr Gourlay said more. The two paddocks that caused the greatest problems during the years 1996 to 2000 were known as Morris' Bottom Silage and Morris' No 3. Mr Duindam senior conceded that, during the inspection of the properties, Mr Gourlay told him that those paddocks "lay wet". Further, it is apparent from the evidence of Mr Duindam senior that he realised at the time of the inspection that the soils on Smedleys and Kings were not of uniform quality, and that some areas had poorer soils than others. In order for any representations made by Mr Gourlay to have had the consequences that the defendants contend them to have, they need not only to have been made, but also to have been relied upon by the purchasers. Mr Tree, for the defendants, submitted that false representations by Mr Gourlay relating to soil quality were relied upon by the purchasers in deciding to purchase the properties. The purchasers did not ask Mr Gourlay for details of any soil tests that had been carried out on the properties, nor did they have any soil tests done or seek any advice as to the quality of the soils. These matters are significant as the evidence establishes that dairy farmers routinely have soil tests carried out, and that agricultural consultants are available to undertake such testing efficiently and inexpensively. Mr Tree submitted that these matters indicated that the purchasers must have taken Mr Gourlay's word for the quality of the soils. I take a different view. As I have said, I do not think Mr Duindam senior is or was a gullible individual. He had worked on dairy farms for decades in the Netherlands, New Zealand, the USA, and the Deloraine area. He had apparently had disappointing experiences in the USA, which he described as "the Land of the Great Promise". His son indicated that he treated Mr Gourlay with as much caution and disrespect as he considered appropriate for a used car salesman. I have no doubt that Mr Duindam senior would have been equally cautious. I think Mr Duindam senior must have known better than to rely on anything positive that Mr Gourlay said about soil quality. I think the fact that he did not ask to see soil tests results and the fact that he did not have soil tests undertaken indicate that, after making his own inspection of the properties, he did not anticipate any risk of soil problems that would warrant further investigation as to the quality of the soils.
Mr Tree called expert evidence to the effect that the prices that Mr and Mrs Duindam agreed to pay for Smedleys and Kings were greater than the market values of those properties in July 1996. He submitted that entering into contracts requiring the payment of excessive prices tended to support the contention that the purchasers had relied on false representations made by Mr Gourlay relating to the qualities of the properties. I reject that submission. It is significant that the purchase money was not required to be paid until some four years after the signing of the contracts. The parties might well have anticipated inflationary increases in the prices of farming land during that period, and might have made excessive allowance for such increases. It is also significant that the two contracts in question were part of a package. It is not uncommon for the components of such a package to include a mixture of favourable and unfavourable terms, sometimes as the result of advice from accountants. These possibilities were not explored during the trial. In the circumstances I am not prepared to treat the high prices included in the purchase contracts as evidence tending to support the defendants' contentions as to reliance.
My findings as to the alleged representations as to soil quality can be summarised as follows. I accept that Mr Gourlay made a general statement to the effect that the soils on Smedleys and Kings were either "first class soils" or "good arable soils", and that that statement was made either to Mr Duindam senior or in his hearing. That statement was qualified, at least to the extent of matters relevant to the soil quality of the two worst paddocks being brought to the attention of Mr Duindam senior. I am unable to make a finding as to whether it was qualified to any further extent during conversation in the course of the inspection of the property. However I find that the statement was not relied upon by the defendants, and did not induce the purchasers to purchase Smedleys or Kings.
It follows that the defendants' counterclaims for orders in the nature of rescission and/or damages must fail.
The conditions precedent to completion
The contracts for the sale of Smedleys and Kings each included a clause worded as follows:
"4 conditions precedent
4.1The following are conditions precedent to completion of this Agreement:
(a)that there are no restrictions on the use of the Property at this date which may hinder or prevent the Purchaser from using the Property for the purpose of farming unless disclosed in this Agreement."
Mr Tree submitted that the quality of the soils on each property was such as to hinder the purchasers from using the property for the purpose of farming; that the deficiency in the quality of the soils amounted to a restriction on the use of the property within the meaning of the clause; and that the purchasers were therefore not obliged to complete either contract. There is no doubt that the soils on parts of each property were less than ideal. It is therefore necessary to consider the meaning of the words "restrictions on the use of the Property".
The wording of cl 4.1(a) is common in Tasmanian contracts for the sale of land. However there does not appear to be any case law, reported or unreported, in Tasmania or elsewhere, as to what does or does not constitute a restriction on the use of a property which may hinder or prevent its use for a particular purpose, within the meaning of such a clause. No doubt the clause would apply to any restriction prohibiting or significantly limiting farming activities imposed by or resulting from a restrictive covenant running with the land, the zoning of the land, or the lack of any requisite planning permission from a local government authority. I need to decide whether the clause is wider in its scope, so as to extend beyond restrictions imposed by law, or by the exercise of powers conferred by law. In a sense, it could be said of each property that, as at the date of the contracts, some of the soils hindered the use of the property for farming, and thereby restricted the use of the property.
It is generally accepted that a vendor of real property does not ordinarily have any duty to bring patent or latent defects of quality to the notice of a purchaser, and that a purchaser not told of a defect is ordinarily obliged to complete the purchase: Voumard The Sale of Land 5 ed, par7110. If it had been the intention of the parties that any defects in the quality of the subject land hindering its use for farming would have entitled the purchasers not to proceed to completion, I think that would have been stated in the contracts in clearer language. The contracts appear to have been prepared by someone skilled in conveyancing, probably a solicitor. If the clause were interpreted as Mr Tree submitted it should be, the result would be that the purchasers would not have been obliged to complete if, during the four years between the contract and the completion date, they found that the property was less than ideal for farming. Such a result would be extremely unusual. I also think it would be unusual to characterise a defect like poor soil quality as a "restriction on the use" of a property. It is very common for contracts to contain conditions precedent to completion relating to matters like zoning, local government planning approvals, and restrictive covenants running with the land. For these reasons, I believe the clause was intended by the parties to relate only to restrictions of a legal or administrative nature affecting the use of the property, and not to defects in the quality of the property limiting its use. I reject Mr Tree's submission as to the meaning of the clause.
Repudiation
The purchasers were not relieved of their obligations to complete their contracts on 1 July 2000 by the operation of cl 4.1(a). They were not entitled to rescind the contracts as a result of anything said by Mr Gourlay. They are not entitled to orders in the nature of rescission on the basis of anything said by Mr Gourlay. Each contract was required to be completed on 1 July 2000. Time was of the essence in each case. The purchasers did not complete either contract. The vendors were therefore entitled to treat each contract as at an end. They elected to do so, as evidenced by the letters of 7 July 2000 from their solicitors to the purchasers' solicitor. They are entitled to damages for the loss of their bargains.
Damages
Resale prices
The plaintiffs auctioned Smedleys and Kings as separate lots on 25 October 2000. Mr Tree submitted that the plaintiffs had resold the properties for less than they were worth, and that his clients should not have to bear the consequences of the plaintiffs reselling each property for less than a reasonable price. In August 2000, prior to reselling Smedleys and Kings, Mr Gourlay obtained a valuation from an experienced real estate valuer, Mr Dickinson. He reported that he considered Kings to be worth $315,000 and Smedleys to be worth $270,000. The plaintiffs ultimately sold them for $300,000 and $215,000 respectively.
However an unpaid vendor exercising a right to resell does not owe a defaulting purchaser any fiduciary duties akin to those owed by mortgagees to mortgagors in connection with the exercise of powers of sale: Sullivan v Darkin [1986] 1 NZLR 214; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391 at 396 - 397; J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 Tas R 26. Such a vendor has a duty to take all reasonable steps to mitigate the loss resulting from the purchaser's default, and is not entitled to recover any part of the loss that results from the failure or neglect to take such steps: A H R Constructions Pty Ltd v Maloney [1994] 1 Qd R 460. When a contract expressly provides for the resale of the property and the recovery by the vendor of any loss on resale, and that is the case here, the contract will include an implied term that the vendor will exercise the power of resale in a reasonable manner: Boag (supra). The question of what is reasonable is a question of fact.
Each of the contracts in question contained a clause in the following terms:
"8 purchaser's default
If the Purchaser fails to complete the purchase as provided in this Agreement, then, unless the failure is due to the Vendor's wilful default, in addition to any other remedies available, the Vendor may:
(a)resell the Property and the Chattels in any manner and on any terms the Vendor chooses; and
(b)claim any loss on resale from the Purchaser as liquidated damages.
Any profit on resale will belong to the Vendor."
After the letters from the vendors' solicitors to the purchasers' solicitor on 7 July 2000, the vendors decided to auction the properties. Through Mr Gourlay, they took the precaution of obtaining from Mr Dickinson the valuation advice that I have referred to. In the six weeks prior to the auction, the properties were advertised six times in "Tasmanian Country" and twice in the Saturday Mercury. The real estate agent handling the sales received about 14 enquiries concerning the properties. Mr Gourlay said he was aware of at least eight inspections of the properties. The auction was at Hadleys Hotel in Hobart at 2pm on a Wednesday. Only one other property was offered for sale at that time. About 60 to 80 people attended the auction. I accept the evidence of the real estate agent, Mr Archer, that that was a very good attendance. A reserve price of $315,000 had been set for Kings. That was the figure suggested by Mr Dickinson. The bidding reached $300,000. Mr Archer, who was acting as auctioneer, conferred with the vendors, obtained instructions that $300,000 was acceptable, tried to improve the bidding, failed to, and accepted the bid of $300,000. The reserve for Smedleys had been set at $270,000, which was $10,000 lower than Mr Dickinson's valuation figure. A bid of $242,000 or thereabouts was made by a person bidding on behalf of the vendor, but there were no bids from prospective purchasers. That property was passed in. Over the next couple of weeks, the purchaser of Kings offered $215,000 for the property. Another person offered $225,000, but on terms which involved a deferred settlement. Gairsay decided to accept the offer of $215,000, rather than enter into another contract that provided for a deferred settlement. It entered into a contract dated 9 November 2000 which provided for completion on 24 November 2000 ¾the same day that the auction contract for the sale of Kings was due for settlement.
I am not satisfied that the vendors, in reselling the properties, failed to act reasonably, or failed to discharge their duties to take all reasonable steps to mitigate their losses. I have no reason to think that a better price would have been obtained for either property if a different advertising strategy had been adopted, or if the vendors had decided not to accept what was offered but to hold out in the hope of obtaining a better price. Another valuer, who gave evidence for the defendants, Mr Lewis, wrote the following in a report in June 2002:
"It was widely known at the time of the sale that there was a problem with the productivity of the properties due to salinity and water logging [sic] issues … which probably adversely affected buyer perception.
In addition there was very little genuine competition at the auction which did not assist maximise [sic] the sale price of the properties. Properties can sell below estimated market value when competition is lacking at the date of a sale."
Having regard to that evidence, particularly in relation to the reputation of the two properties, I think the vendors acted reasonably in taking the best offers available for quick settlements at and shortly after the auction. It follows that they are entitled to recover their losses on the resale of the two properties, calculated by reference to the prices obtained upon their resale, and not by reference to the values attributed to the properties by any valuer.
Interest
Gairsay has claimed interest from 30 June 1999 in respect of the unpaid $100,000 deposit. Mr Sealy relied on the Supreme Court Civil Procedure Act 1932, s34, as a basis for an interest claim in respect of that sum, but that section is inapplicable. It applies in respect of a debt or sum certain "recovered in any action". But in this action Gairsay is entitled to recover its loss upon the resale, rather than the deposit. It is not entitled to enforce the contractual term requiring the payment of the deposit because it has accepted a repudiation of the contract. It is proper, however, for the contractual obligation to pay $100,000 on 30 June 1999 to be taken into account when considering the plaintiffs' claims based on Hungerfords v Walker (1989) 171 CLR 125.
Mr Gourlay gave evidence to the effect that, if Mr and Mrs Duindam had paid their deposit and completed their purchase of Smedleys, he would have caused Gairsay either to invest the money received at interest, or to lend it to himself and his wife at a commercial rate of interest so that they could pay off the mortgage of their house in Melbourne. The second plaintiff, Mrs Dobson, said that she would have given her share of the proceeds of the sale of Kings to her husband, an accountant, to invest through his firm until November 2001, and that he would thereafter have invested it with a trustee company. Her husband gave evidence that he would have arranged for the money to be invested through his firm at an interest rate equal to the firm's overdraft rate. The third plaintiff, Miss Gourlay, gave evidence that she would have invested her share of the proceeds of sale of Kings with the same trustee company that her sister had mentioned. I have no reason to doubt any of that evidence. I accept it. Letters setting out the relevant interest rates were tendered by consent. Mr Sealy's interest calculations were not disputed. It is clear that the plaintiffs are entitled to recover damages in respect of the interest they would have earned on the moneys which, but for the failure of the purchasers to pay the deposit and complete the purchase contracts, they would have received: Hungerfords v Walker (supra); State of Tasmania v Shaw (No 2) [2002] TASSC 12. I have recalculated the interest in respect of the $100,000 deposit, applying the interest rates that were used by the plaintiffs' solicitors, without challenge, in calculating Gairsay's Hungerfords v Walker claim. Otherwise I have updated the interest calculations to today's date.
Miscellaneous expenses
As a result of the purchasers not completing the purchase contracts, the plaintiffs incurred expense in advertising the properties for resale and in obtaining Mr Dickinson's valuation. The first plaintiff paid half these expenses. The other plaintiffs paid the other half. The plaintiffs also had to pay insurance premiums, Central Highland Council rates, Lawrenny Water Trust rates, and, in the case of Kings, Lawrenny Water Trust herbicide charges, in respect of the period from 1 July 2000 until completion of the resale transactions. There was no dispute as to how much was actually paid. I am satisfied that these expenses were all reasonably incurred and that the amounts paid were reasonable.
Mitigation of damage ¾ income pending resale
There were two cottages on Smedleys and one on Kings. When the first defendant, Berkley Farm Pty Ltd, vacated the properties, the house on Kings was vacant, but both houses on Smedleys were occupied by tenants who were liable to pay rent. The tenants in one house moved out without warning during September 2000 without having paid any rent to Gairsay or Mr Gourlay. The other tenant paid rent to Mr Gourlay pending the resale of Smedleys. Mr Gourlay said that rent was either $40 or $50 per week; that the total amount paid was nearer $1,000 than $500; and that he received that rent for a period of four months. Doing the best I can, I assess the rent so paid to have been $800. As the owner of Smedleys, Gairsay was entitled to this rent. During the trial Mr Gourlay produced relevant extracts from that company's accounting records, which had not been produced when discovery was made. It appears that this rent was not recorded in the accounts of Gairsay, nor was it brought into account when the plaintiffs' claims were particularised. However I have no reason to doubt Mr Gourlay's evidence as to the quantum of the rent received. It was not submitted that the plaintiffs acted unreasonably in not reletting the vacant houses, nor in not attempting to recover outstanding rent from the tenants who had fled without paying.
After Berkley Farm Pty Ltd vacated Smedleys and Kings, Mr Gourlay made an arrangement for a neighbour named Chopping to use some of the land for farming for the second half of the year 2000. They saw an agricultural consultant who prepared a document entitled "Lease of land at Ouse; Memorandum of Understanding", which they both signed on 19 July 2000. It provided for Mr Chopping to lease the land for $3,000 per month, but for Mr Gourlay to pay the council rates, the water rates, and 67 per cent of the fertiliser expenses. Mr Chopping used parts of the properties for some months during the second half of 2000, but the arrangements set out in the document of 19 July were superseded by later arrangements made orally between him and Mr Gourlay, and no rent was ever paid. Pursuant to the new arrangements, Mr Chopping and individuals associated with him carried out work on the properties at Mr Gourlay's request to prepare them for sale, and Mr Chopping incurred expenses for the hire of a post driver, the repair of a bridge, the purchase of fertiliser, and the spreading of that fertiliser on the properties. By agreement between Mr Gourlay and Mr Chopping, the plaintiffs paid "Chopping and Son" $1,665.93, made up as follows:
| Reimbursement for hire charge for post driver | $100.00 | |
| Labour charges | $3,031.50 | |
| Hire of equipment for bridge repairs | $94.40 | |
| Labour and truck hire for fertiliser spreading | $966.95 | |
| Interest on overdue fertiliser accounts | $254.58 | |
| Subtotal | $4,447.43 | |
| Stock agistment fees payable by Chopping | ($2,081.50) | |
| Rental for poppy area payable by Chopping | ($700.00) | |
| Balance | $1,665.93 | |
None of these figures were brought into account when the plaintiffs' claims were particularised. I learned of the arrangements with Mr Chopping as a result of Mr Tree's cross-examination of Mr Gourlay. Prima facie, the amounts of $2,081.50 and $700 that were credited to Mr Chopping should be taken into account in reduction of the plaintiffs' damages. There are two matters that I need to determine: (i) whether it has been established that the plaintiffs failed to take reasonable steps to mitigate their losses by obtaining income from the properties pending their resale; and (ii) whether the expenditure on the properties, against which the sums of $2,081.50 and $700 were set off, should be taken into account in the plaintiffs' favour in the assessment of their damages.
In releasing Mr Chopping from the agreement made on 19 July 2000, Mr Gourlay acted against the interests of the defendants. Mr Chopping had entered into an agreement to pay rent of $3,000 per month for six months, but that arrangement was superseded by one whereby he was liable to pay less, and may well have made less use of the properties. But the resale of the properties was of paramount importance, and it was reasonable for the plaintiffs to decide to have them auctioned in late October 2000. Had Mr Gourlay not already negotiated the mutual abandonment of the agreement made on 19 July, it would have been reasonable for him to have done so in order to be able to offer the properties at auction on the basis that the purchaser could have vacant possession in late November. In those circumstances, I am not satisfied that the plaintiffs would have been able to negotiate any more lucrative revised arrangement with Mr Chopping. Accordingly, I am not persuaded that the plaintiffs failed to discharge their duty to mitigate by failing to derive a greater income from the properties pending their resale.
The sum of $1,665.93 paid to Chopping and Son was not included in the plaintiffs' claims, apparently through oversight. I believe Mr Gourlay would not have allowed this expenditure to be incurred if any of the amounts in question were unnecessary or unreasonably high. I believe all the expenditure in question would have been reasonably warranted for the purpose of maximising the likely sale prices of the properties. I do not think Mr Gourlay would have allowed any of this expenditure to have been incurred if he was not getting value for money in that respect. It would be improper for the balance sum of $1,665.93 to be taken into account in the plaintiffs' favour, because it has not been claimed in the relevant particulars. But it would be inappropriate for the sums of $2,081.50 and $700 to be taken into account in the defendants' favour in the assessment of damages, and the corresponding liability of the plaintiffs to Mr Chopping not to be taken into account in the plaintiffs' favour. The plaintiffs were entitled to receive those amounts, but they did not receive them because they incurred expenditure which more than offset them. I will therefore ignore those amounts and the amounts payable by the plaintiffs to Mr Chopping.
Losses on resale ¾ conclusion
The first plaintiff's losses in relation to the sale of Smedleys, including interest to the date of judgment, are as follows:
Sale price on Smedleys Sale Agreement $370,000.00 Sale price on subsequent sale to Paton $215,000.00 Loss on resale $155,000.00 Interest on $100,000 deposit 30/6/99 - 8/11/02 $31,472.87 Interest on balance sale proceeds ($270,000) 1/7/00 - 24/11/00 $3,433.81 Interest on balance loss on resale ($55,000) 25/11/00 - 8/11/02 $8,181.99 Central Highlands Council rates 1/7/00 - 24/11/00 $1,081.16 Insurance costs 1/7/00 - 24/11/00 $182.08 Advertising costs $865.55 Valuation costs $467.50 Lawrenny Water Trust rates 1/7/00 - 24/11/00 $2,818.90 $203,503.86 Less rent for house ($800.00) $202,703.86
There will be judgment for the first plaintiff against the second and third defendants for $202,703.86 accordingly.
The second and third plaintiffs' losses on the sale of Kings, including interest which I have recalculated to the date of judgment, are as follows:
Sale price on Kings Sale Agreement $405,000.00 Sale price on sale to Paton $300,000.00 Loss on resale $105,000.00 Interest on price of Kings Sale Agreement 1/7/00 - 8/10/02 $66,930.02 Less Interest on sale price to Paton 24/11/00 - 8/10/02 $38,151.84 Interest to 8/10/02 $28,778.18 Interest on $105,000.00 (8/10/02 - 8/11/02 at 5.2%) $448.77 Central Highlands Council rates 1/7/00 - 24/11/00 $386.49 Insurance costs 1/7/00 - 24/11/00 $182.08 Advertising costs $865.55 Valuation costs $467.50 Lawrenny Water Trust rates 1/7/00 - 24/11/00 $3,632.86 Lawrenny Water Trust herbicide $175.42 Total
$139,936.85
The second and third plaintiffs will each recover judgment against the second and third defendants for half that total amount.
Claims pursuant to the lease of Smedleys
The lease of Smedleys to the first defendant expired on 30 June 2000. As at that date the rent was in arrears to the extent of $1,368.25. Under the lease, the first defendant was required to pay the Lawrenny Water Trust rates, but it had failed to pay $408.58 in respect of them. The lease required the tenant to pay interest to the landlord on any moneys due and payable thereunder at the rate set by the landlord's bank as its benchmark rate for overdrafts of $100,000 or more. A letter setting out the benchmark rate of the bank in question has been tendered by consent. The lease required the tenant "to pay punctually for all water, gas, electricity, telephone, heat and other utilities that are provided to the land", but it omitted to pay $138.23 for herbicide provided by the Lawrenny Water Trust. I think the herbicide falls within the term "other utilities". The first plaintiff is therefore entitled to recover that amount. The first defendant gave the first plaintiff a rent cheque which was dishonoured. The first plaintiff's bank charged it a dishonour fee of $35. I think that sum is recoverable by way of damages resulting from a breach of the lease. The first plaintiff is claiming the service costs on a notice to quit, served after the lease expired, but there is nothing in the lease conferring a right to recover such expenditure. I do not know of any basis upon which such expenditure is recoverable in the absence of an express term to that effect in the lease. That claim fails. Mr Gourlay gave evidence that he made phone calls in relation to the resale of the properties, for which he was charged $191.72. That amount has been claimed by the first plaintiff, Gairsay, in connection with the Smedleys lease agreement. No such expenditure is recoverable from the first plaintiff, who was the tenant. If Gairsay had reimbursed Mr Gourlay for his phone calls, it might have been entitled to recover that sum from the purchasers by way of damages, but no claim has been made on that basis. The claim for telephone expenses must fail.
Clause 12(2)(b) of each of the two leases required the tenant to "maintain all boundary and subdivisional fencing in a stock-proof condition". The plaintiffs have claimed $1,848.88 for expenditure on fencing materials, by way of damages in respect of alleged breaches of this clause in each lease. Mr Gourlay gave evidence that, when the properties were leased in 1996, the fences were not perfect but were in "reasonable stock-proof shape". Mr Duindam senior conceded that there were some small faults in the fencing when the properties were vacated, "at least to the value of about $200", but disputed the quantum of the claim in relation to the fences. Mr Gourlay produced some documents for the purpose of substantiating the claim in relation to the fences, but the most elementary scrutiny reveals that they offer no substantiation at all. The only documents produced were two copies of monthly statements from Webster Ltd addressed to him and his wife. They show that they owed that company $1,705.40 as at 30 September 2000; that they purchased some pipe for $120 inclusive of GST on 18 November 2000; and that they were charged $23.48 interest on 30 November 2000, making up the $1,848.88 that has been claimed. I do not accept Mr Gourlay's evidence that these accounts relate solely to fencing materials, particularly since they relate at least in part to interest and the purchase of piping. There is no evidence that the fencing materials cost any more than the couple of hundred dollars conceded by Mr Duindam senior. The fencing was required on both Smedleys and Kings. The expenditure was split equally between the first plaintiff and the other plaintiffs. It will be entitled to recover $100 under this head, as will they.
For the reasons stated above, the first plaintiff will have judgment against the first defendant, and the other defendants as its guarantors, for the following amounts:
Outstanding rent to 30 June 2000 $1,368.25 Outstanding Lawrenny Water Trust rates to 30 June 2000 $408.48 Interest on the above amounts calculated to 8 November 2002 $533.43 Lawrenny Water Trust herbicide accounts $138.23 Cheque dishonour fee $35.00 Half cost of fencing materials $100.00 Total
$2,625.96
Claims pursuant to the lease of Kings
The lease of Kings described the land thereby leased as "The whole of the land in Certificate of Title Volume 196785 Folio 1." That certificate of title related to Smedleys. The second and third plaintiffs and the first defendant intended the lease to set out the volume and folio number of the certificate of title for Kings. It is common ground that I should make an order for rectification. Accordingly there will be an order for the lease in respect of Kings (exhibit P10) to be rectified by changing the description of the land in item 1 of the reference schedule on page 16 thereof to read, "The whole of the land in Certificate of Title Volume 95713 Folio 4".
That lease was in similar terms to the lease of Smedleys. As at 30 June 2000, the first defendant was in breach in that it had failed to pay rent of $1,875, Central Highlands Council rates of $1,051.23, and Lawrenny Water Trust rates of $408.58. A claim was made for service costs on a notice to quit, but I refuse that claim on the same basis as for the Smedleys notice. Interest is recoverable by the second and third plaintiffs pursuant to a clause entitling them to interest according to their bank's benchmark rates for overdrafts of $100,000 or more. They banked with the Trust Bank, which subsequently became the Colonial Trust Bank, and was subsequently acquired by the Commonwealth Bank. Letters setting out the applicable interest rates have been tendered by consent.
Clause 12(1) of the lease of Kings required the tenant to "keep the buildings and improvements in good repair having regarding [sic] to their condition at the beginning of the lease". The second and third plaintiffs claim that, in breach of this clause, the first defendant failed to keep a pump in good repair. They are seeking to recover $2,295.81 paid to an electrician for rewiring the pump motor, and $209.86 paid to Aurora Energy, allegedly for reconnecting the pump. Mr Gourlay gave evidence that the starting gear had been playing up, and that the pump was inoperable. Mr Duindam senior gave evidence that the pump was working when his company moved out, and still in the same condition as when it had moved in. I reject his evidence as to this pump. The account from Aurora Energy shows the payment of a connection fee, thereby supporting Mr Gourlay's version and contradicting the claim that the pump was working. The valuation report written by Mr Dickinson on 29 August 2000 says, "Water pump needs repair …". In my view Mr Gourlay would not have incurred unreasonable or unnecessary expenditure. However the amounts claimed will not be recovered in full, for two reasons. The most elementary scrutiny of the Aurora Energy accounts tendered in support of this claim reveals that, of the $209.86 claimed, $87.60 was outstanding as at 20 October 2000 and is completely unexplained; $43.81 is the "New Service Establishment Fee", which I regard as recoverable; and the remaining $78.45 represents monthly charges, most likely relating to electricity used. Secondly, Mr Gourlay's evidence was that Gairsay paid half of the amounts billed, even though they related to Kings, which was not its property. No claim has been made by Gairsay in relation to these amounts. The second and third plaintiffs will therefore only be able to recover half of $40.81, and half of $2,295.81.
During the tenancy of the first defendant, unsuccessful attempts were made to enlarge a dam on Kings. The second and third plaintiffs claim that, as a result, the tenant failed to keep that particular improvement in good repair, in contravention of cl 12(1) of the lease. Mr Gourlay gave evidence that the dam was unserviceable in mid-2000, and that he therefore had it repaired. Mr Duindam senior gave evidence that the dam was left "as we found it". His son gave evidence that, after the attempt to enlarge it, the dam was of reduced capacity. He was not asked whether he was referring to the dam's condition at the end of the tenancy or at some earlier time. I reject the evidence of Mr Duindam senior on this issue. Mr Gourlay arranged for $5,500 to be spent on the repair of this dam. I am sure he would not have incurred unreasonable or unnecessary expenditure in the circumstances. His evidence is supported to some extent by a comment in Mr Dickinson's valuation of 29 August 2000 namely, "Other matters to be attended to are to repair the upper dam so that irrigation can be undertaken this summer (estimated cost $5,000)." The amount claimed for the dam repairs was $6,556, but scrutiny of the account tendered in support of this claim reveals that only $5,500 related to the repairs to the dam, and that $1,056 related to work done on irrigation drains. There was evidence that the repaired dam was slightly bigger than the original dam, but I have no reason to think that the dam could have been repaired significantly more cheaply if its original size had been maintained. Once again, half the expenditure was borne by Gairsay, which was not the owner of the property. The second and third plaintiffs will therefore be entitled to recover only $2,750 in respect of this claim.
For the reasons stated above the second and third plaintiffs will have judgment against the first defendant, and the other defendants as its guarantors, for the following amounts:
Rent $1,875.00 Central Highlands Council rates $1,051.23 Lawrenny Water Trust rates $408.58 Interest on the above amounts to 8 November 2002 $1,076.25 Half cost of pump repairs $1,169.81 Half cost of dam repairs $2,750.00 Half cost of fencing materials $100.00 Total
$8,430.87
Each of the second and third plaintiffs will have judgment against the defendants for one half of this amount.
Claims for damages for conversion
The lease of Smedleys to the first defendant included not only the real estate but also "buildings and improvements", which were defined to include (inter alia) the plant and equipment on the land. Mr Gourlay gave evidence that at the commencement of the lease the plant and equipment on Smedleys included an 8,000 litre concrete water tank and two concrete water troughs, but that they were not there at the end of the lease. These items were not included in any of the sales. Mr Duindam senior gave evidence that he had taken the water tank onto an adjoining property, still had it, and no longer wanted it, and that he had given the troughs to a Mr Pitt, who made no charge for taking them away. The first plaintiff has sued the second and third defendants for damages for the conversion of these items. There is no evidence that Mrs Duindam was involved in their removal. Gairsay is entitled to recover damages from Mr Duindam senior equal to the value of the goods at the time of their removal. The evidence as to their value is inadequate. Mr Gourlay said he paid about $1,400 to $1,500 for the tank in 1990, and about $500 for the troughs. I do not know when he bought the troughs. I do not know whether these were new prices or second-hand prices. What I do know is that Mr Duindam senior found no use for these items. If they had been of any significant value, I expect he would have sold them. Gairsay has not proved on the balance of probabilities that they were of more than nominal value at the time of their conversion. I assess its damages at $50 for the tank and $20 for the troughs. Pursuant to the Supreme Court Civil Procedure Act, s35, interest thereon will be recovered for the period from 1 July 2000 to 8 November 2002 at 10 per cent per annum. By my calculations that interest totals $16.49. The first plaintiff will recover $86.49 from the second defendant in respect of its claims in conversion.
Fertiliser
In the plaintiffs' updated particulars of damage dated 15 October 2002, $8,386.40 is claimed for fertiliser purchased from Roberts Ltd, on the basis that such fertiliser was needed as a result of neglect on the part of the defendants. This item is not connected to anything pleaded in the statement of claim. The statement of claim alleges breaches of the leases of Smedleys and Kings by the first defendant, but does not allege any breach that could have resulted in a need for fertiliser, nor does it include any claim in tort that could have any connection with a need for fertiliser. Mr Gourlay gave evidence that the fertiliser was needed to prepare the properties for sale, but the cost of the fertiliser has not been claimed in the statement of claim or the particulars in connection with the preparation of the properties for sale. The claim in the particulars must therefore fail on the basis that it does not involve the particularisation of any claim pleaded in the statement of claim.
Conclusion
For the above reasons, I order as follows:
1That the lease dated 12 November 1996 between the second and third plaintiffs and the first defendant be rectified by changing the description of the land in item 1 of the reference schedule on page 16 thereof to read "The whole of the land in Certificate of Title Volume 95713 Folio 4".
2That judgment be entered:
(a) for the first plaintiff against the defendants for $2,625.96;
(b) for the first plaintiff against the second and third defendants for the further sum of $202,703.86;
(c) for the first plaintiff against the second defendant for the further sum of $86.49;
(d) for the second plaintiff against the defendants for $4,215.44;
(e) for the second plaintiff against the second and third defendants for the further sum of $69,968.42;
(f) for the third plaintiff against the defendants for $4,215.43;
(g) for the third plaintiff against the second and third defendants for the further sum of $69,968.43; and
(h) for the plaintiffs on the counterclaim.
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