Malcolm v Malcolm
[2015] SADC 96
•16 June 2015
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MALCOLM & ANOR v MALCOLM & ANOR
[2015] SADC 96
Judgment of His Honour Judge Slattery
16 June 2015
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - AUTHORITY OF AGENTS - CONSTRUCTION AND EXTENT OF AUTHORITY
The parties were previously partners in a partnership called ACP Investments. The partnership business included the proposed development and sub-division of broad acre farming land at Streaky Bay. The defendant, as a partner, legally and beneficially owned a moiety interest in the Streaky Bay land and the plaintiffs each beneficially owned a 25 per cent share in that land. The land was purchased in 1993 for the sum of $60,000. A mortgage securing repayment of a loan of $42,000 was registered over the Streaky Bay land. The partnership accounts reflected the capital contributions of the partners to the purchase of the land.
Morrie Malcolm was the partner of the defendant, and was the father of the plaintiff Philip Malcolm. He was heavily involved in the efforts to develop the Streaky Bay land. Between 1993 and 1997 the development proposal for the land failed as did the partnership purpose.
Up to and after 1997 the defendant prepared partnership accounts; she paid all of the outgoings attributable to the Streaky Bay land after about 1998. There was a significant credit in favour of the defendant in her partnership capital account and the credit attributable to the plaintiffs in their partnership capital account was exhausted by 1998. The plaintiffs made no ongoing contributions to the partnership expenses apart from payments of the mortgage on the land.
In 2003 Morrie Malcolm approached Philip Malcolm and made an offer to purchase the plaintiffs interest in the land for $270,000. Morrie Malcolm then prepared documents for the transfer of the plaintiffs' interest in the land for $270,000. These documents included a contract for sale and purchase by the defendant, a transfer and various documents associated with the transfer. The plaintiffs' interest in the land was transferred to the defendant. The defendant did not execute any sale and purchase contract and the transfer executed by the defendant recorded the consideration as being for natural love and affection and for no consideration. The transfer was assessed for stamp duty at a value of $46,000, the value of the half interest in the land at the time. The partnership ended. The defendant became the only legal and beneficial owner of the land at Streaky Bay.
Whether Morrie Malcolm was acting as the express or implied agent of the defendant or with her ostensible authority; whether Morrie Malcolm purported to act as a principal; whether the defendant ever intended to appoint Morrie Malcolm as her agent on any basis and if so whether the defendant is bound by the acts of Morrie Malcolm; whether a vendors lien arises in favour of the plaintiffs; whether Morrie Malcolm was in breach of warranty of authority.
Held:
1. The defendant did not authorise Morrie Malcolm expressly or impliedly as her agent to bind her to a contract to purchase a half interest in the Streaky Bay land for $270,000;
2. The defendant did not clothe Morrie Malcolm with ostensible authority to bind her to a contract to purchase a half interest in the Streaky Bay land for $270,000;
3. Morrie Malcolm did not intend to become an owner of any part of the Streaky Bay land or to take a transfer of the half interest in that land from the plaintiffs;
4. Morrie Malcolm was in breach of warranty of authority.
Law of Property Act 1936 (SA) s 26, referred to.
Leggo v Brown & Dureau Ltd (1923) 32 CLR 95; Boulas v Angelopoulos (1991) 5 BPR 11477; Sinclair v Hudson (1995) 9 BPR 16259; Carminco Gold & Ors v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472; Poulet Frais Pty Ltd & Anor v The Silver Fox Company Pty Ltd & Ors (2005) FCAFC 131; Cox & Anor v Goldwest Developments NSW Pty Ltd (2000) 50 NSWLR 76; BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 3) [2009] FCA 1087; thomson v Palmner (1933) 49 CLR 507; Wossidlo v Catt (1934) 52 CLR 301; Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142, considered.
MALCOLM & ANOR v MALCOLM & ANOR
[2015] SADC 96The issues in this action
This action involves the determination of whether, in 2003, Mr Morrie Malcolm (now deceased), possessed any actual, implied or ostensible authority to bind the defendant Angela Malcolm, his then partner in life, to a contract to purchase the plaintiffs’ interest in unimproved, broad acre rural land for the sum of $270,000. The plaintiffs’ interest (a moiety) was legally owned by the plaintiffs Philip Malcolm beneficially for himself and the plaintiff Christopher Sawers.
Morrie was the father of the plaintiff Philip. Until shortly before Morrie’s death in 2014, Angela was the life partner of Morrie. In 1993 Angela and Philip became the legal owners of a moiety interest each in land at Streaky Bay. The parties contributed $12,000 (Angela $12,000, Philip $6,000, Christopher $6,000) capital and they borrowed $40,000 from the Bank S.A. to fund the purchase.
In 2003 Morrie, who passed away in 2014, purported to act as an agent of Angela in a transaction with Philip and Christopher in which Angela was to purchase the moiety interest of Philip (and Christopher) for $270,000. The approach to Philip by Morrie initially did not mention Angela and Angela contends that it is open to me to find that the approach was made by Morrie in his personal right. Morrie attended to the preparation of documents that disclosed the purchaser as Angela. One of them was a contract of purchase by Angela of the moiety interest for $270,000; Angela says that she did not see or sign this contract and that she would never agree to this transaction. Angela contends that Morrie did not have actual authority to bind her to any such transaction. Angela contends that she expressly or impliedly consented to the purchase of the moiety interest for the sum of $5,000 and that purchase figure should be understood in the background of the partnership that existed between Angela, Philip and Christopher for the development of the land.
A number of issues arise on these facts including: whether Morrie entered into any form of contract to purchase the moiety interest personally for the sum of $270,000; whether Morrie, with the express or implied authority of Angela as principal bound Angela to a contract to purchase the moiety interest for $270,000; and whether in acting in the way that he did, Morrie was in breach of warranty of authority.
The facts: a summary
The plaintiffs’ in this action are old friends. They became friends during the time that they both lived in Western Australia. Philip is the son of the second defendant Morrie and was born on 8 December 1962. Morrie died in July 2014, some 3 weeks prior to the commencement of the hearing of this action.
Morrie lived with the first defendant, Angela, as husband and wife for a period of at least 14 years. Angela came to Australia from the Philippines in about 1980. In the Philippines, Angela had been educated to the university level and she had skills as an accountant.
Philip and Morrie were estranged from the time that Philip was very young. Morrie and Philip’s mother separated and Morrie did not see Philip from the time he was 14 years old until Philip was about 30 years of age. By that time, Morrie and Angela were living as husband and wife and had been doing so for some time.
This action involves the property at Streaky Bay. The property was a vacant block comprised in Certificate of Title register book volume 5109 folio 498 (the Streaky Bay land).
The Streaky Bay land was purchased by Angela and Philip from John Wharff on 6 February 1993 for the sum of $60,000. A mortgage on that property secured a borrowing from the Bank of South Australia in an amount of about $40,000.
The property was purchased by Philip and Angela under a partnership arrangement which evolved over a period of time between Angela, Philip and the co-plaintiff Christopher Sawers.
In 1998, Philip and his wife Julie left Australia to live in New Zealand. They have lived in New Zealand ever since. At that time, Philip and Christopher had executed a written agreement dated 30 August 1993 which recorded that Philip held one half of his own half interest in the property for the benefit of Christopher.
A formal deed of partnership between Philip, Christopher and Angela was executed on 26 April 1994.
The partnership accounts disclose that the initial contributions to capital of the partnership by the partners was Philip: $6,000, Christopher: $6,000 and Angela: $12,000. At that time (in or about May 1998) Philip made arrangements to and did pay out the balance of 25 per cent of the amount then owing on the mortgage of the Streaky Bay land ($7,116.03) and he and his wife left to reside in New Zealand. Philip unilaterally treated that payment as a discharge of any further liability that he had under the mortgage. He appears to have treated the lump sum payment as a discharge (in total) of his obligation to make capital contributions as a partner.
In 2003 Morrie made contact with Philip concerning the possibility of purchasing the interests of Philip and Christopher in the Streaky Bay property. Angela was registered as the proprietor of a moiety (50 per cent) in the land and she held that interest as a partner in the partnership which by then was called ACP Investments. The business of the partnership was primary production.
In the telephone conversation with Philip, Morrie made an offer to purchase Philip’s and therefore Christopher’s interest in the Streaky Bay property for the sum of $270,000. The intent of the offer made to Philip was that $135,000 each was to be paid to Philip and Christopher. The offer was accepted by them.
Morrie then set about the preparation of documents for the purchase and it was arranged that settlement would take place on 20 January 2004. Morrie prepared documents and arranged for Angela to send the documents to New Zealand for execution. There were five documents that were sent. The first was a letter of appointment of Kevin Smith as conveyancer. The second was an authority to discharge the mortgage with Bank S.A.. The third was instructions to Smith the conveyancer for the transfer of property. The fourth was a transfer of the property as between Philip and Angela. The consideration disclosed on the face of the transfer was: “..by agreement between the partners and for no monetary consideration”. There was no mention of the sum of $270,000. The fifth document was entitled “Agreement for Sale of Land Share”. That document records that Philip (and therefore Philip and Christopher) agreed to sell the 50 per cent joint share of the land at Streaky Bay to Angela for the sum of $270,000, the proceeds to be divided equally between Philip and Christopher. It also records that upon return of the signed documents, the sum of $5,000 would be transferred to Philip Malcolm’s bank account in New Zealand.
Both Philip and Christopher signed these documents and returned them to Morrie. Angela signed the first four documents.
Angela alleges that she has never authorised Morrie to make any arrangement on her behalf to purchase the Streaky Bay land for $270,000. At the relevant time, the valuer general’s valuation of the Streaky Bay land was $92,000. Angela contends that she did not see the agreement for sale of land share document until 2008 at which time a claim was made upon her by the plaintiffs’ solicitors for specific performance of the agreement for sale of land share. Angela says that she has never signed that agreement.
Philip and Christopher allege that at the time that Morrie approached Philip, drew the documents and arranged for the documents to be sent to New Zealand for execution and return, he was acting as the authorised agent, expressly or impliedly, of Angela as principal. The plaintiffs also allege that the parties to that agreement for sale of land share (the Sale Agreement) were Philip and Christopher and Angela and Morrie.
The plaintiffs’ primary allegations are that Angela remains bound by the agreement and is susceptible to a claim by them for payment of the full amount of the purchase price under the Sale Agreement. As it is alleged that Morrie was acting as the agent of Angela at that time, if the plaintiffs were successful in obtaining a remedy against Angela under their primary claim, they could not obtain a remedy against Morrie, or more specifically Morrie’s estate under their primary claim because they would have already succeeded against the principal under the arrangement.
Alternatively the plaintiffs plead that in acting in the way that he did and procuring the execution by Christopher and Philip of the agreement for sale of land share, Morrie was acting in breach of his warranty of authority.
Angela denies that she ever gave any authority to Morrie to negotiate any contract on her behalf for the purchase of a one half interest in the Streaky Bay property for the sum of $270,000. Angela admits the receipt of the payment of $5,000 but she contends that this payment was appropriately made in the circumstances of the termination of the partnership ACP Investments, and the striking of final partnership accounts having regard to the benefits bestowed upon the partners by Angela continuing to pay outgoings in relation to the Streaky Bay land, the main partnership asset. She says upon taking the partnership accounts, no moneys were due and owing to Philip and Christopher under the partnership because any credit in their partnership account had been exhausted long ago by the attribution to those accounts of the debits reflecting the ongoing holding costs of the Streaky Bay land. On a proper accounting, those other specific partnership capital accounts of the other partners were substantially in debit. Angela admits that she is now the sole registered proprietor of the Streaky Bay property and that her holding the land in that capacity merely perfects her interest and entitlement as a partner of the former partnership.
The plaintiffs also claim for a vendor’s lien over the property.
Decision
For the reasons that appear below, I am not satisfied that the plaintiffs have discharged the onus of proof upon them that at the time of the transaction of sale, Morrie acted with any form of authority from Angela to bind Angela to a transaction with the plaintiffs to purchase their respective share in the Streaky Bay land for $135,000 each, in total $270,000. I am sufficiently satisfied that Morrie misled the plaintiffs by suggesting that he had any authority to bind Angela to such a transaction. I am satisfied that Angela only intended to enter into a transaction to take a transfer of the moiety interest for no consideration. This reflected her attitude that she had over many years continued to personally pay the cost of sustaining the partnership property by the payment of all rates, taxes, outgoings and debts associated with the property after the exhaustion of the credit in the partners’ capital accounts.
The Streaky Bay land was broad acre farming land in a slightly marginal area of South Australia. It was also subject to fairly tight planning and development controls that affected development of the site by subdivision. There was an early intention to develop the land. It was not in dispute that, at trial, the value of the land was about $92,000. Accepting that the purchase price of the land reflected its then value, this shows a capital growth of about $3,000 per year over a 15 year period. The plaintiffs ask the Court to find that the defendant was prepared to purchase a half interest in that property having a capital value of some $46,000 for $270,000. I am satisfied that Angela did not expressly authorise Morrie to bind her to such an agreement. Morrie did not have any implied or ostensible authority to bind her to such an agreement. I am satisfied that Morrie acted in breach of warranty of authority in his dealings with the plaintiffs.
Preliminary Matter
In this action, the court has heard the summing up from counsel for the plaintiffs and the defendant on two occasions. This occurred as a result of what may be described as a misunderstanding between the parties.
Although the matter is not completely clear, the first defendant, Angela, was operating upon the apprehension that the plaintiffs asserted that Morrie had ostensible authority from Angela when he was dealing with Philip from 2003 onwards. There is no assertion in the pleading of the plaintiffs that Morrie was acting with ostensible authority. The plaintiffs’ pleadings did not plead that Angela held Morrie out to have any particular authority. They did not plead any course of conduct in which Morrie had, to the knowledge of Angela, dealt with Philip and Christopher, or either of them, in a particular way which would lead them to believe that Morrie had the authority of Angela and where Angela would be estopped from denying Morrie’s authority. However the plaintiffs did contend that the Court was in a position to find that Morrie had ostensible authority to bind Angela on the evidence.
This misapprehension, I am told, led to a decision by Angela not to lead any evidence; evidence initially was only led from plaintiffs and there were addresses of counsel on that basis. Angela then sought and was granted leave to reopen her case in defence, to lead evidence and to make further submissions. Angela then gave evidence in chief and was cross examined. The parties then addressed the court in further submissions and Angela put her case on a different basis than had been put previously, although there was some repetition.
Concessions by the defendant
In further submissions counsel for the defendants, Mr Hoile, informed me that, from the second defendant’s perspective there were a number of matters that were not under challenge. The first is that Philip was contacted by Morrie in late October 2003 by telephone. In that telephone conversation, Morrie made an offer to Philip to purchase the interest of Philip and Christopher in the Streaky Bay land for $270,000 ($135,000 each). It was also not in contention that Philip checked with Christopher and they both accepted the offer. The acceptance of the offer was communicated to Morrie.
Mr Hoile conceded that based upon that evidence I would be entitled to find that Morrie (now the estate of Morrie) is liable on the promise made by Morrie.
Mr Hoile then made submissions in relation to what he described as a tripartite collateral contract. It is not completely clear to me why Mr Hoile made that submission when it is understood that Angela contends that Morrie made the offer on his own behalf. However, confining these comments to the possibility only that Morrie was making an offer in a tripartite arrangement, it follows that in the absence of any writing recording the offer made by Morrie on his own behalf or in that arrangement, there is no entitlement to find that the estate of Morrie is now liable on that promise. The only record of the agreement refers to the transfer to Angela. Questions of part performance only arise in the context of actions involving Angela and not Morrie. These facts raise the spectre of an agency of Morrie (for Angela) and not that he was acting on his own behalf. I am therefore not assisted by the concession made by Mr Hoile.[1]
[1] Law of Property 1936 (SA) s26.
Mr Hoile then conceded that the unchallenged evidence of Philip was that in reliance upon the promise of Morrie, Philip then executed the transfer of his interest in the Streaky Bay property to Angela, as did Christopher. However, I am again unable to accept the submission of Mr Hoile that the significance of these actions arises only under the context of a tripartite collateral contract. For the reasons that I will develop later the only basis upon which they could arise is in the context of a possible agency by Morrie for Angela as principal in establishing a contract between Angela, Christopher and Philip for Philip and Christopher to transfer to Angela their interests in the Streaky Bay land.
Mr Hoile then conceded that there could be no challenge to the evidence of the plaintiffs in respect of their execution of the documents to transfer the land to Angela. Mr Hoile conceded that when the documents of transfer were provided to Philip, also included was the agreement for sale of land share which was consistent with the representation and promise made by Morrie to Philip (and Christopher) that Angela would sign an agreement and would thereby bind herself to a promise to pay $270,000 in consideration of a transfer of their interest in the Streaky Bay land to her. This amount was to be paid on 20 January 2004 and that on return of the signed documents, the sum of $5,000 would be transferred to Philip’s bank account in New Zealand. This amount of $5,000 was paid.
On behalf of the second defendant, Mr Hoile conceded that the plaintiffs had made out a claim of an implied warranty made by Morrie that Angela would sign and bind herself to that agreement. Mr Hoile then contended that the evidence clearly established that that warranty was not true. That is a matter for my decision. Mr Hoile contended that if it was accepted that the warranty was not true, then a cause of action arose against Morrie for breach of warranty of authority that Angela would sign the agreement and bind herself to pay that amount of money.
On a question of damages on a successful claim for breach of warranty Mr Hoile conceded that the proper measure of damages was contractual. This concession was not put in contest by Mr Ower counsel for the plaintiffs’. In the text Law of Agency the learned author says as follows: [2]
An agent who commits a breach of warranty of authority is ‘bound to make good to the other contracting party what that party has lost, or failed to obtain, by reason of the non-existence of the authority’. The agent is, accordingly, only answerable for the loss to the plaintiff flowing from the assertion of authority being untrue; namely, the amount that the plaintiff has lost by being unable, by reason of the falsity of the warranty, to sue the alleged principal. As the doctrine is contractual in nature, the measure of damages equates to the loss the parties should reasonably have contemplated as likely to result from the breach of warranty. Damages for breach of warranty of authority can therefore cover loss of bargain if the bargain has been lost.
[2] G E Dal Pont (2nd Edition) Lexis Nexis Butterworths at [23.91].
In light of the above and my disagreement with some of the contentions of Mr Hoile, it is necessary to survey some of the evidence that has been given in this action. The plaintiffs called evidence from Philip Malcolm, his wife Julie Elizabeth Malcolm and Christopher Sawers. The defendant eventually called evidence from Angela Malcolm. As there is very little difference between the evidence of the witnesses concerning the initial arrangements for the purchase of the Streaky Bay land, I intend to summarise that evidence. There are differences of versions of evidence given in relation to a number of important points. I will assess the evidence of each witness separately in relation to those important matters.
A history of the parties’ dealings
Philip was born on 8 December 1962 in New Zealand. He only lived with his father for a very short time from then until he was about 13 or 14 years of age. He lived with his mother thereafter and between the ages of 14 and 30 did not have contact with his father.[3]
[3] T124.
In 1992, when he was 30 years of age, Philip again met his father at a wedding and saw his father again during a visit to Perth in December 1992. At that time Morrie had commenced a relationship with Angela and introduced Angela to Philip as his wife.[4] Angela had been born in 1960 in the Philippines and she had completed an accounting and book keeping course at university.[5] She came to Australia in 1980 and after meeting Morrie, commenced a relationship with him and changed her surname, by deed poll, to Malcolm.[6]
[4] T125.
[5] T246.
[6] T247.
Angela Malcolm is currently married to Mr Peter Balnaves.[7] I will refer to that matter again later.
[7] T264.
Angela was the person who first became aware of the Streaky Bay land. She saw an advertisement in a newspaper and as she always wanted to own property in Australia,[8] she investigated the matter. She did not tell Morrie about her interest and after her investigations she made a decision that she wanted to purchase the property. That is when she told Morrie.[9]
[8] T249.
[9] T249.
Angela intended initially to own the property herself but after discussing the matter with Morrie, he suggested to her that he had not done much for his son Philip and he wanted Philip to have a 50 per cent share in the property; Morrie thought that that would bring the family together.[10] In those initial discussions, there was no mention of Christopher. Morrie could not then have been aware of Christopher or of the inability of Philip to make a capital contribution to the purchase of the property, which was the reason for the involvement of Christopher.
[10] T249.
Both Philip and his wife Julie recall that discussions about the Streaky Bay land commenced when the parties met in Perth in 1992.[11] Julie recalls that Angela and Morrie discussed the Streaky Bay land with them and told them about it. They suggested that they had plans for the property and for redevelopment at that site. They wanted to know if Philip would be keen to come on board in a partnership with them.[12] Philip recalls that he was asked if he wanted to go into a partnership to purchase some land together,[13] but when he was told that the cost for his share would be $12,000 he knew that he could not afford it and so approached his friend Christopher.[14] At that time (in 1992) Julie recalls that Angela said that the purchase price for the property was $60,000 and that there was to be a mortgage from the Bank of South Australia for about $40,000.[15] She also recalls that mortgage payments were to be about $340-400 per month.[16] Those payments were to be made initially by Philip under a partnership arrangement.
[11] T29; T125.
[12] T29.
[13] T125.
[14] T126.
[15] Exhibit P9, T32.
[16] T31.
When Philip knew that he could not afford to raise the $12,000, he approached Christopher and Christopher agreed to contribute $6,000 of the $12,000. Christopher also agreed to come into a partnership. Angela was not initially aware of this arrangement.
Philip recalls that the agreement was that they would get a 25 per cent share each and Angela would retain a 50 per cent share. Therefore, Angela would contribute $12,000, Philip would contribute $6,000 and Christopher would contribute $6,000 as capital. They would then contribute to the mortgage in their proportionate shares.
Documents for the purchase of the land were then drafted on the instructions of Morrie and Angela and they were then sent to Philip for execution.[17] There was also an agreement made between Philip and Christopher dated 30 August 1993 for equal division of the land between them and for the division of costs and expenses. [18] Options were given to Angela to buy out their interests in the property.
[17] Exhibit P6; T128.
[18] Exhibit P10.
Angela had purchased the property under an agreement dated 6 February 1993 and the vendor was Mr John Wharff. By an agreement dated 19 April 1993,[19] Angela agreed to assign to Philip one undivided moiety in the agreement of the land comprised and described in the agreement that she had made with Mr Wharff. The consideration for the assignment was $3,000.[20]
[19] Exhibit P6.
[20] Exhibit P6 cl 2.
Later Angela was informed of the involvement of Christopher Sawers. Initially she was quite angry about this involvement.[21] She was unhappy because she did not know Mr Sawers prior to that time. Eventually she agreed to the continued involvement of Mr Sawers in the project.
[21] T249.
Under the agreement made by Angela with Mr Wharff,[22] Angela paid a deposit of $6,050 and then assigned the 50 per cent interest to Philip which eventually she agreed would be raised half by Philip and half by Christopher.[23]
[22] Exhibit P6; T249.
[23] Exhibit P8;T249.
Angela said that she was always intended to hold the Streaky Bay land as a partnership asset. A partnership of ACP Investments was established under the terms of a deed of partnership made on 26 April 1994.[24]
[24] Exhibit P8
Under its terms, the date of the commencement of the partnership was 27 April 1993 and the place of business was the Streaky Bay land. The National Australia Bank was recorded as the bank intended to be the lender of the $40,000 under the mortgage and the partnership shares were to be held as to Angela, 50 per cent, as to Philip, 25 per cent, and as to Christopher 25 per cent.[25] Bank S.A. became the lender.
[25] Exhibit P8 page 8.
Clause 14 of the Partnership Agreement governed the winding up of the partnership. It required a full and general account to be taken of the assets, credits, debts and liabilities of the partnership and of the transactions and dealings of the partnership in order to enable the partnership business to be wound up, any assets sold and any distributions to be made.
It was not put in contention by any party that Angela was the person who kept the books and records of the partnership. She set up and filled out all partnership books.[26] The partnership had its own cheque account and Philip and Angela were signatories.[27] The payment of all partnership outgoings were made by cheque from a cheque book maintained by Angela.
[26] Exhibit D26; T251.
[27] T252.
The firm of accountants Chirnside Cherry and Associates were appointed as the accountants for the partnership and Angela arranged for the instruction of those accountants to prepare partnership books of accounts.[28]
[28] Exhibit D26; Exhibit D23; T253.
Exhibit D23 is the balance sheet and profit and loss accounts for ACP Farm Investments partnership prepared by Chirnside Cherry and Associates for the period ending 30 June 1994. The fixed assets were disclosed as land at cost and there were some plant and equipment. There was also a small amount of cash at bank. The liabilities of the partnership were two loans from Morrie Malcolm each in the total amount of $10,000, a loan from Angela Malcolm of $330 and a loan from Christopher Sawers of $500. The fixed liability was a loan from Bank of South Australia for $41,646.33. The proprietors’ capital accounts showed that after distributions made to the partners as at 30 June 1993 and 30 June 1994 the partnership capital accounts remained equal as between Angela on the one hand and Philip and Christopher on the other. In my view, there was no proper explanation of the two loans made by Morrie to the partnership in the amount of $6,000 and $5,000.[29] There is obviously some doubt about the quantum of those loans. That doubt is not significant in the overall resolution of this issue.
[29] T254.
Philip’s understanding was that the land was to be held in the partnership and that the land was being farmed by the farmer from whom it was purchased (Mr Wharff).[30] Philip was always aware that money was required to pay rates and taxes and other outgoings in relation to the land. He understood that there were two loans. One initially for $40,000 and a later loan for about $10,000.[31] The later loan was involved with the plans and attempts to develop the land. Both Christopher and Philip understood that it was the intention of Morrie and Angela to develop the land. The prime mover in the proposal to develop the land was Morrie and Angela. Morrie was heavily involved in the process.
[30] T135.
[31] T132.
Angela gave evidence (that was not contradicted) that the proposed development did not “go well”.[32] By 1997 she knew that the process that was planned would not work. Advice had been received from a firm called Plan and Building Services.[33] That advice is addressed to Mr Morrie Malcolm at c/ Wallbridge and Gilbert Consulting Engingeers, concerning proposals by Morrie for a residential land division and associated works on the Streaky Bay land. Angela had concluded by 1997 that the hurdles in the way of a successful development were too great to overcome. She said that she knew that it was not going to work.
[32] T256.
[33] Exhibit D19.
It appears that in the period between 1993 and 1997 there had been a souring of the relationship between Philip and Angela. In 1998 Morrie and Angela travelled to New Zealand. Angela said that when she arrived in New Zealand she did not want to have anything to do with Philip and Julie. Morrie went and spoke to Philip and Julie separately to Angela.[34] Before that time, there had been communication between Angela and Philip and Julie in relation to the mortgage. There had been no telephone conversations with Angela or Morrie during that time.[35] Julie agreed that they did receive letters mainly from Angela regarding the property.[36] Exhibit P18 discloses a number of hand written letters. Julie was able to identify the handwriting on several of the letters as that belonging to Angela.[37] She thought that the majority of the letters received were in Angela’s handwriting and were signed by Morrie and Angela.
[34] T257.
[35] T34.
[36] T34; T59; Exhibit P18.
[37] T59.
Before Julie and Philip moved back to New Zealand in May 1998,[38] they paid out the remainder of the balance of the mortgage on their 25 per cent share in the sum of $7,116.05.[39] It was after that time that Angela and Morrie came to visit in New Zealand and Julie’s recollection is that she had no conversations about the land with either Angela or Morrie during that visit.[40] As far as she was concerned, the whole land issue was stagnant.[41]
[38] Exhibit P9; T32.
[39] Exhibit P9; T33.
[40] T35.
[41] T34.
Philip can recall that during the visit to New Zealand in 1998, Morrie said that he wanted to make an offer for the purchase of the land for about $45,000.[42] Philip spoke to Christopher and he was not interested in the offer and so Philip then phoned Morrie in response and declined the offer.[43] Philip can recall no further discussions with Morrie or Angela in New Zealand about the topic.[44]
[42] T136.
[43] T136.
[44] T136.
Philip can recall the discussions that then occurred some five years later, from 1993 onwards. Neither Philip nor Christopher had paid any costs for rates, taxes or other expenses attributable to the land and paid for by the partnership. They really had not turned their mind to the situation. Similar to Julie, Philip thought that the whole issue was stagnant.
Philip can recall discussions with Morrie in 2003. He received a telephone call from Morrie who said that he was prepared to offer $270,000 for the 50 per cent share of the property owned by Philip and Christopher.[45] Following that phone call, Philip spoke to Christopher and they were both agreeable to sell their 25 per cent share each for a total of $270,000 and that agreement was communicated to Morrie.[46] Morrie told Philip that he would have the documents drawn up,[47] and Morrie then sent over a bundle of material.[48] The bundle of material was a letter of appointment, authority to discharge mortgage, instructions for transfer of property, transfer and agreement for sale of land share.[49] Philip said that he particularly read the Agreement for Sale of Land Share.[50] Under that agreement, Christopher and Philip agreed to sell their 50 per cent share in the land at Streaky Bay for $270,000, to be shared equally between them. It also records that the settlement date by the purchaser, Angela Malcolm, was to be 20 January 2004. On return of the signed documents $5,000 would be transferred to Philip Malcolm’s account in New Zealand.
[45] T137.
[46] T137.
[47] T137.
[48] Exhibit P17.
[49] Exhibit P17.
[50] Exhibit P17.
Philip then signed all of the documents and arranged for his wife Julie to send them back to Australia to Morrie’s address.[51] Philip gave evidence that most of the conversations concerning this transaction were with Morrie, that Angela was in the background and he understood that she was involved because she was an owner of the property.[52] Julie has recollections only of what she was told by Philip about his phone calls with Morrie.[53] She had no knowledge of how the figure of $270,000 was calculated by Morrie. The same position pertains in relation to Philip and Christopher; they were not informed by Morrie as to how the offer of $270,000 was calculated. The documentation discloses that Julie took receipt of the transfer documents in Exhibit P17. [54] She said that she then faxed a copy of the transfer documents to her uncle who was a solicitor seeking his advice.[55] All that she understood of the documents was that the purpose of them was to transfer the whole of the land into Angela’s name and that she understood that upon sending the documents back to Australia, they would be hearing from Morrie and were expecting to receive some money.[56]
[51] T141.
[52] T146-7.
[53] T83; T94; T95; T96; T97.
[54] Exhibit P17.
[55] Exhibit P13; P14; P17; T73.
[56] T77; T80; T100.
Although Julie looked at the agreement for sale of land share and the transfer, she did not compare the two and when looking at the transfer she did not understand the words “… for no monetary consideration…”. She also said that she referred the documents to her uncle because although she trusted Morrie, she wanted advice on the transaction. She was not able to get any advice from her uncle prior to Philip signing the documents and returning them to Australia.[57] She did receive some advice from her uncle about the documents after they had been sent.[58] She did not have any understanding of what the market value of the property was; there was no discussion of market value.[59]
[57] T99.
[58] T79.
[59] T76; T101; Exhibit D22; T102.
Angela said that she knew nothing of Morrie approaching Philip and that Morrie had told her that he had received a call from Philip saying that he wanted money.[60] She said that Morrie told her that Philip wanted to finish the partnership, and to be paid $5,000 in exchange for his 50 per cent share being transferred to Angela.[61] She said that she was told nothing of any conversation about an agreement to pay $270,000 for the 50 per cent share[62] and she said that, when looking at Exhibit P17, she only was aware of the first four documents and was not aware of the fifth document, the agreement for sale of land share which she said that she had never seen prior to the preparation for this trial.[63]
[60] T258.
[61] T259.
[62] T259.
[63] Exhibit P17; T262; T259.
There are a number of points to be made about the explanation given by Angela. She did not have any contact with Philip or Christopher concerning the sale of their 50 per cent share. She knew of Christopher’s involvement and yet there was no mention of any consideration of the wishes of Christopher concerning the sale of the partnership share. The partnership agreement[64] clearly discloses a partnership interest of 25 per cent for each of Christopher and Philip and 50 per cent for Angela. It was therefore never possible for Philip to make a request to be paid for 50 per cent of the partnership interest. Each of the partners owed fiduciary duties as partners to the other. The conduct of the partners’ as between themselves was governed under the partnership agreement.[65] That partnership agreement required under Clause 11 for the partners to be faithful to the other in relation to partnership business. Unfortunately, the copy of the partnership agreement enclosed within Exhibit P8 does not contain pages 3 and 4 of the agreement. In the usual course, it may be anticipated that those pages contain prohibitions upon partners purporting to bind other partners in respect of non partnership matters. In any event, I am satisfied that under general equitable principles and under the Partnership Act Philip did not have any form of authority to purport to bind Christopher in respect of his partnership share.
[64] Exhibit P8.
[65] Exhibit P8.
I am therefore satisfied that whatever Morrie might have told Angela about what Philip wanted to do with the partnership, it would have been necessary for Christopher to have been included in any steps that were in contemplation. Angela gave evidence of her training as an accountant and her experience as a bookkeeper. In the usual course, I would have expected Angela to have been aware of those matters. They were not touched upon in evidence.
Philip then had the conversation with Morrie. He recalled that after the conversation in which he indicated to Morrie that he and Christopher were prepared to accept $135,000 each for the purchase of their respective shares in the land it was arranged that Morrie would prepare some documents and send them over. Philip recalled something being said by Morrie to the effect that Philip and Christopher would receive $5,000 immediately.[66] Philip’s only memory was that he received the documents, saw them and signed them. He recalls that he asked his wife, Julie, to send them back to Australia and he understood that that is what she did with them.[67]
[66] T137; T139.
[67] T140; T141.
The only money that was received was $5,000. There was no evidence about what was to be done by Philip with the $5,000. Angela’s position was that she had never authorised Morrie to tell anyone that she would pay $270,000 for a 50 per cent share in the land.[68] She had never seen the agreement for sale of the land.[69] All that she knew was that following the transfer to her of the land for $5,000 she continued to pay the expenses of the land. Her attitude was that the price of $5,000 was fully justifiable. Although Philip had paid out his share of the mortgage and Christopher had continued to pay his share of the mortgage up to that time, she had continued to pay 50 per cent of the mortgage and had also paid all of the outgoings attributable to the land. Some of those outgoings included the cost of professional services as well as rates and taxes. An inference arises on the evidence that the loan account of the two partners Philip and Christopher, in the sum of $6,000 each had been exhausted by the debits that were attributable to them as partners arising out of the costs and expenses incurred in respect of the land from time to time. It is to be recalled that the land was purchased in 1993 and these events were taking place in 2003 and following. It appears from the documents tendered in court[70] that the loan account credit of Philip and Christopher in the accounts of the partnership was dissipated within four or five years of the purchase of the property. By that time it had become apparent that the development would not proceed. There was no specific evidence on the topic but it is implicit in all of the circumstances that the project had become stale.
[68] T259.
[69] Exhibit P17; T262.
[70] Exhibit D24.
Angela said that she was also not aware what Philip wanted to get out of the partnership.[71] She said that she only communicated with Philip and with Philip and Julie via letters in relation to accounts and bills.[72] Her communications with Philip about the partnership ended fairly quickly.[73] Her recollection is that Philip and Morrie had discussions about development but not about the partnership and, in the meantime, she continued to pay the expenses of the partnership.[74] She did not have any discussions with Morrie about the discussions that he, in turn, had with Philip about the development.[75]
[71] T272.
[72] T272.
[73] T272.
[74] T272.
[75] T273; T274; Exhibit P18.
Angela can recall that there were discussions from time to time between Morrie and Philip about the development. She also recalled conversations from time to time when Julie rang to talk to Morrie.[76] After those conversations Morrie would give her instructions to do particular things about the partnership.[77] She followed Morrie’s instructions.
[76] T274-275.
[77] T275.
Angela also agreed in cross examination that another block of land had been purchased at Streaky Bay.[78] Angela said that she knew that it was not residential land and it was only then being used as farm land. She did not know if it was to be included within any land development and she did not have a discussion with Morrie about that development. It was raised in the correspondence because there was an assertion that money from the partnership was being spent on the second block.[79]
[78] T276; Exhibit P18 pages 11-12.
[79] T276.
Philip said in his evidence that after 2003 he had numerous telephone conversations or made numerous calls to Morrie about the fact that no payment had been made for the land. He gave evidence that he rang his father about 50 to 60 times between the time that he thought the money was due and the time that his father had his stroke.[80] When he was able to speak to his father, and ask him what was happening with the land and with the money that was owed to him, his father’s responses were that either the bank manager was away on holidays or that he was waiting on investors or that he (that is, Morrie) needed to cash in a life insurance policy. The money was never forthcoming. He thinks that he might have been given these excuses a number of times over the period.
[80] T142.
After his father had a stroke in 2005, Philip made contact with his brother Ian about the land. These contacts occurred for another three years from 2005 to about 2008. That changed when a letter was sent from Moloney and Partners solicitors to Angela Malcolm dated 10 July 2008.[81] He also knows that a caveat was lodged on the land. He did not fully understand the effect of the words in the caveat.[82] He really did not take much interest in the correspondence that was passing between the parties or to the question of finances.[83]
[81] Exhibit P27.
[82] Exhibit P3; T143.
[83] Exhibit P18; T144-146.
Julie gave evidence that the $5,000 amount was received in or about December 2003.[84] When no more money was received, she and her husband had several telephone conversations with Morrie.[85] Julie has a specific recollection that Morrie acknowledged that the money was owed and recalls him giving a number of excuses as to why he could not pay.[86] Those excuses included that he was waiting on developers;[87] that he was going to cash in his super or life insurance;[88] or that he was going to sell other properties.[89] Another excuse that he used was that he was waiting on the bank.[90]
[84] T81.
[85] T81.
[86] T82; T102-104.
[87] T83-84; T103.
[88] T84.
[89] T107.
[90] T104.
Julie gave evidence that she had a number of conversations with Angela about the topic of the payment of the money when Morrie was not available. When she had those conversations they became heated.[91] Angela initially denied that she had ever had any conversations with Julie about the topic. She later changed that version of events that she could recall having discussions with Julie at that time. I am not prepared to accept the version of events given by Angela about her evidence concerning the conversations with Julie. It was plain that there were occasions when Julie and Philip or either of them could not make contact with Morrie. Logically they would have then spoken with Angela even though there seems to have been a breakdown in the relationship between them. It would be a peculiar development for both Philip and Julie not to have spoken to Angela in the event that Morrie was not available due to illness, disability or some other cause and they were unable to obtain any satisfactory response from Morrie.
[91] T85; T117-120.
Julie has clear recollections that when she spoke to Morrie, he acknowledge that the money was owing. She also has specific recollections of her conversations with Angela. She recalls that she asked Angela when they could expect the money for the land.[92] She denied that the context of the discussion was that Morrie had promised money to Philip and that he would have to wait.[93] She recalls that when she asked the question of Angela about the money for the land, Angela’s response was something to the effect that they would all have to wait.[94] She specifically recalls Angela using the words to the effect: “we all have to be patient”.
[92] T85.
[93] T86.
[94] T86.
There is no evidence that Julie or Philip identified to Angela the amount of money that they were seeking or the ‘land’ for which payment was sought. Logically it may appear that the only land that could have been in consideration was the Streaky Bay land. However, there is evidence of another parcel of land being purchased by or on behalf of Morrie to which a contribution of $200,000 was made. The consistent theme of this evidence is that Philip and Julie were enquiring of Morrie about when they would be paid. There is no evidence that Philip and Julie, separately or together confronted Angela and demanded the balance of the purchase price. If that had occurred Angela would be given the opportunity to deny liability and the authority of Morrie. That is peculiar when it is known that Julie had the benefit of legal advice from an uncle if she wanted. A copy of the documents had been sent to him. He would have seen the transfer and the contract and would have been able to identify that Angela, not Morrie, was the person intended to be liable on the contract. So much is obvious from a reading of the papers. Yet the whole focus of the enquiries of Philip was to Morrie and only after Morrie became ill did the focus of the enquiries switch to Angela.
The response of Angela to these enquiries is ambivalent. Morrie is ill; his son is seeking a payment from him; Angela’s responds in a way that objectively appears to be connected to a relationship between Philip, Julie and Morrie. It is difficult to imagine other than that Philip and Julie feel cheated. The relationship with Angela is already sour. It is to be expected that they would wish to pursue what they perceive to be their rights with all the vigour in their disposal – and against Angela. Instead their approach is slightly laconic and focuses upon Morrie. These facts have caused me significant consternation.
It is therefore necessary to view what was said in context. If it be the case that Morrie had no actual implied or ostensible authority from Angela to bind her to any contract to pay $270,000 for the moiety interest, then the suggestion of needing to be ‘patient’ assumes a slightly obtuse meaning. The question of ‘patience’ may relate to the question of Morrie recovering from his stroke, if that that was to be the case. Therefore, the need to be patient may be referrable to Morrie’s condition as opposed to any liability upon Angela that she needed time to fulfil. Julie denied that she had ever been told previously that Angela had said that they all had to be patient. This was allegedly said in about 1994 but Julie specifically denied that assertion.[95] I accept the evidence of Julie in this respect but that does not mean that Angela may not have used that expression in the course of all of these many conversations. Julie also denied that there was any mention of simply waiting for profits from the development of property,[96] although she does agree that the figure of $135,000 was not specifically mentioned.[97] Julie did not ever consider that Morrie was going to be the sole source of the money.[98]
[95] T86.
[96] T86; T118; T120-121.
[97] T117.
[98] T89-90.
Both Julie and Philip were told of Morrie’s stroke.[99] They were told that he could not speak but they did not know the other effects that the stroke might have had upon him.
[99] T107.
It was not until late 2006 that they engaged solicitors to become involved in the recovery of the money following their unsuccessful communications with Ian.[100] Julie was also under the impression that Angela took a keen interest in the Streaky Bay property[101] and that she had a clear understanding that Angela was the person responsible for all directions concerning the upkeep of the land and correspondence about the land.[102]
[100] T108.
[101] T108-110; Exhibit P18.
[102] T110; Exhibit P18 page 5.
In the interim, Philip had some awareness of the business of the partnership, ACP Investments. He agreed that the accounts prepared by Chirnside Cherry and Associates[103] were sent to he and Julie but as far as he was concerned Julie handled all financial matters.[104] He certainly did not look closely at the accounts and he did not feel that he had any connection with the firm of accountants that prepared the accounts; he did not issue the instructions for the preparation of the accounts.[105] He was aware that there was a $10,000 loan from Morrie.[106] He knew that there was some freight and carting which he thought was for bricks and a steel beam but does not exactly remember what that was for.[107] Although the accounts record that he had a reimbursement for fuel, he cannot recall that reimbursement and he does not know why there would be a $652 fee for surveying expenses. He did not contribute to that fee. He also cannot recall the reasons for the costs for travel and accommodation and that may have been for a caravan purchased at Streaky Bay. He can recall money being spent on a bulldozer, a caravan and a chainsaw.[108] He knew that in a number of years outgoings, including interest, exceeded income. In one particular year the deficiency was $18,000.[109] He had very little to do with the partnership after that time.
[103] Exhibit D23.
[104] T154.
[105] T168.
[106] Exhibit D23; T155.
[107] Exhibit D23; T158-1589.
[108] T161.
[109] T159-160; Exhibit D23.
Christopher Sawers agreed with the version of events given by Philip concerning the offer and the communication from Philip of the offer and his acceptance of it.[110] He received the paperwork sent through by Morrie and he signed it and returned it on one of his returns to Perth from his mining employment.[111] He recalls that following the signing and returning of the documents he did not have any contact with Morrie or Angela until after the initial $5,000 went into his account.[112] He did have conversations with Morrie trying to get the money and he was told a number of excuses by Morrie as to why the money was not paid including that Morrie had to sell other land and that there was a delay.[113] His enquiries to Morrie continued for over a year until Morrie had a stroke at which point he backed off.[114] He did not speak to Angela regarding this money.[115]
[110] T179.
[111] T179-180; Exhibit P17.
[112] T180.
[113] I180.
[114] T181.
[115] T182.
The involvement of Mr Peter John Balnaves
Angela is now currently married to Mr Balnaves.[116] Mr Balnaves was an accountant who Morrie had used for his accounting advice.
[116] T264.
Peter Balnaves is an accountant, adviser and consultant. From 2008 onwards he communicated with solicitors on behalf of Angela. Those letters were written with the full authority and instruction of Angela.[117] As some time was spent on this correspondence in cross examination, it is necessary to make some mention of it. It is first necessary to recount that the evidence of Angela was that the letter from Moloney and Partners addressed to her dated 10 July 2008[118] was, on her version of events, the first time she found out about the $270,000 being claimed by the plaintiffs.[119] By this time, Morrie had suffered a stroke and was unable to speak although the evidence of Angela was that he had some forms of communication.
[117] T280.
[118] Exhibit P27.
[119] T280.
Angela asked Peter Balnaves to respond to the letter of Moloney and Partners. She gave instructions for the letter. This occurred in the background that there had been a constant stream of communications between Philip and Julie and Morrie and also Christopher and Morrie concerning the failure to pay the balance of the $270,000. Angela said that she had no knowledge of what transpired in those phone calls.
On the instructions of Angela, Peter Balnaves wrote a letter on the letterhead of Balnaves and Associates addressed to Moloney and Partners dated 21 June 2008.[120] It was written at a time when Angela alleged that she had paid the $5,000 and that her understanding that this was in full and final satisfaction of any claims that may be had by either Philip or Christopher concerning the partnership. In the letter Mr Balnaves alleges that the undated and unsigned document called the agreement for sale of land share was an unauthorised proposal put by Morrie and that Morrie had paid the $5,000 for the return of the documents. Angela could not explain why the letter said that Morrie had paid the $5,000.[121] She said that it was she who had paid the $5,000.[122] Angela gave evidence in cross examination that Morrie never spoke to her about the unauthorised proposal.[123] She could not say whether she had assumed that Morrie had sent the proposal to Philip.[124]
[120] Exhibit P28.
[121] T280-281.
[122] Cf T277.
[123] T281.
[124] T281.
She was then referred to the following contained on the first page of Exhibit P28, written by Mr Balnaves:
This proposal was based on a selling price of $1 million with sub divisional and selling costs of $460,000 and the $540,000 remaining capital to be divided amongst the partners ($270,000 each).
Notwithstanding that she said that she gave instructions to Mr Balnaves in relation to the content of the letter, Angela said that she did not know about the proposal[125] and that it was not her instructions to put that statement into this portion of the letter.[126] Her position was that she had paid over $100,000 in capital to the partnership in expenses and other things as well her capital contribution of $12,000 and $5,000 was appropriate to pay to discharge the other two partners. On page 2 of the letter the following appears:
A second proposal was that Angela Malcolm develop and sub divide this property herself to which she agreed and the transfer of the property for no monetary consideration was entered into. The consideration between the partners was the pay out of the Bank of South Australia mortgage and the payment of rates and taxes and management of the property over the previous ten years by (Angela). She was never party to any other agreement other than the transfer dated the 25 November 2003…
[125] T281.
[126] T282.
Angela said in evidence that this statement in the letter was incorrect because she did not have any intention to develop the property after 1998.[127] She was also unable to explain how it could be that the discharge of the Bank of South Australia mortgage could affect the rights of Philip when Philip’s quarter share of the mortgage had been discharged when he went to New Zealand. Angela said that this was not a complete discharge, however she also agreed that at no time had she ever written to Philip to inform him of her view that his liability under the mortgage was not discharged.[128]
[127] T283.
[128] T284-285.
In response to the letter from Mr Balnaves[129] a letter was then received from Moloney and Partners solicitors dated 21 October 2008.[130] Angela said that she saw the letter. She again gave instructions to Mr Balnaves to respond to the letter on her behalf.[131] In the letter of response from Mr Balnaves to Moloney and Partners dated 11 November 2008[132] the author confirms again that Angela did not ever appoint Morrie as her agent and that she was not aware of any discussions had by Morrie. The letter denies that any conversation was had between Angela and Julie Malcolm on 20 January 2004. I am not prepared to accept that version of events. I prefer the evidence of Julie Malcolm on that topic. The letter also denies that Julie Malcolm was told to be patient and that the funds were on the way but had not yet cleared. I am not prepared to accept that evidence of Angela in contradistinction to the evidence of Julie. On the top of the second page of the letter, the following is set out by the author:
Mrs Malcolm had not entered into any arrangement for funds to pay out Philip apart from the $5,000 which she considered the pay out for his 25 per cent share when she later spoke to Morris Malcolm.
She had refused to sign any agreement presented to her by Mr Malcolm on the basis that she was the major contributor to the partnership and did not want any involvement in a future development at that stage.
[129] Exhibit P28.
[130] Exhibit P29.
[131] T287.
[132] Exhibit P30.
Angela agreed that implicitly this letter suggested that she had been shown the agreement for sale of land share.[133] Her explanation was that the letter is a mistake and that it should read that if she was presented with any such agreement, she would not have signed it.[134] She was adamant that Morrie did not ever present her with any such document.[135] She agreed that Mr Balnaves spoke to Morrie and herself after that letter was received.[136] She was the person who gave instructions for the response. She also agreed that Exhibit P28, the earlier letter from Peter Balnaves, stated that Morrie had paid the $5,000 for the return of the documentation but now, Exhibit P30 was stating that Angela had paid the $5,000 for the 25 per cent share when she later spoke to Morrie.[137] When asked to explain which version was correct, she said that the version set out in Exhibit P30, the letter of 11 November 2008 was the correct version.[138]
[133] Exhibit P17.
[134] T228.
[135] T288.
[136] T289.
[137] T289.
[138] T291.
Angela was then shown a copy of a letter from Balnaves and Associates to Thomson Playford Cutlers solicitors sent to the attention of Ms Kate Chinnery dated 26 February 2010.[139] She was taken to the second page and the heading ‘Caveat’. Under question two of this letter there is a reference to the content of an affidavit in which it is said that Angela and Morrie agreed to the purchase. The instructions from Balnaves were that Angela and Morrie did not ever agree to purchase the land. It alleges that Angela agreed to the value of $92,000. She would never have considered a value of $540,000 in 2003. She never signed the agreement for the sale of land but she would be happy to sell the property in 2010 to Philip and Christopher for $540,000. Later, the letter says that Balnaves, on his instructions from Angela, maintains that the interest was sold to Angela by way of transfer. Angela gave evidence that it was not the idea of Mr Balnaves to put this proposition.[140] The proposition was hers. She could not explain why it was that she raised this value of $92,000 in the context that she was only offering $5,000 for the land.
[139] Exhibit P31.
[140] T293.
Angela also agreed that she did borrow $200,000 in September 2003.[141] She borrowed that money from the bank and then loaned it to Morrie and she understood it had something to do with another block of land.[142] The money was obtained and used on the basis that Morrie agreed to issue to her shares in a company called Connibar Pty Ltd which owned the other block of land at Streaky Bay.[143] She thought that this money was only secured against another property at Applecross Drive Blakeview and not against Morrie’s other property at Streaky Bay.[144] However Exhibit P32 discloses that the money was secured against both properties.
[141] T297; Exhibit P32.
[142] T298.
[143] T299.
[144] T300.
The issues for determination
In my opinion, the following matters require determination:
1.Did Morrie purport to act on behalf of Angela as her agent expressly or impliedly or with ostensible authority;
2.Did Morrie purport to act on behalf of himself as principal;
3.Did Angela intend that Morrie act as her express agent;
4.If yes to 3, does a vendors lien arise in favour of the plaintiffs;
5.If no to 3, is Morrie guilty of a breach of warranty of authority or is he liable as a principal for breach of contract.
Based upon the recitation of facts that I have set out above, in my opinion there are a number of findings that can be made concerning the evidence and these matters are not seriously in dispute.
The catalyst for the buy-back arrangements was a telephone conversation between Morrie and Philip (who was then in New Zealand) which appears to have occurred sometime in about October 2003. In that telephone conversation, Morrie offered to purchase the interest in land held by Philip and Christopher for the sum of $270,000. There is no evidence of any conversation at the time concerning the value of the property. It appears to be the case that the sum of $270,000 was calculated by the offeror. As Philip and Christopher owned 50 per cent of the interest in the land, this offer would suggest that the offeror valued the land in something in the order of $540,000. There is no independent evidence to support that value. The only evidence about value is that the valuer general’s valuation disclosed a value of some $92,000 at that time.
There was then a conversation between Philip and Christopher and they decided to accept the offer; following that conversation Philip telephoned Morrie to inform him of his acceptance of the offer. There was no communication between Philip and Angela, between Christopher and Angela, or between Philip, Christopher, Angela and Morrie at that time. The communication proceeded through Morrie. I have also mentioned the possibility that Morrie was intending to purchase 50 per cent of the land from the two joint owners Philip and Christopher (the third being Angela as the 50 per cent owner) on his own behalf. However the transaction is approached, it could not occur except with the permission or knowledge of Angela as a joint owner.
In Exhibit P11 is a letter of instruction to Kevin Smith conveyancer who was required to draft an instruction sheet, bank authority, transfer and letter of appointment. These documents were prepared and were sent from Adelaide to Philip on or about 18 November 2003. Those documents were arranged to be sent by Angela and the contact name for the sender was Angela Malcolm.
The bundle of materials sent to Philip in New Zealand included a document entitled agreement for sale of land share. The consignment note indicates that the number of items contained within the envelope was five. Those five documents were received. Angela said that she was only aware of four documents, namely the letter of appointment, the authority to discharge mortgage, the instructions to transfer property and the transfer. She said that she was not aware of the agreement for sale of a share in the land.
The five documents were all prepared and sent at least through the involvement of Morrie and after receipt, the documents were signed by Philip and sent back to Adelaide by Julie. Before sending them back to Adelaide, Julie copied them and sent them to her uncle, a solicitor for his advice but no advice could be received before they were returned to Adelaide.
The agreement for sale of land share was then sent to Christopher who signed the document and it was then returned to Adelaide as requested. The document entitled ‘Instruction to Transfer Property’ was signed by Angela on 25 November 2003 and on the same day Angela signed the transfer. A day later, on 26 November 2003, the sum of $5,000 was paid to Philip. The evidence is not clear whether a further sum of $5,000 was paid or was intended to be paid to Christopher. There is evidence that Christopher was aware of a receipt of $5,000. The matter was not pursued in evidence and I will assume for present purposes that the only sum of $5,000 that was actually paid was the amount paid to Philip on or about 26 November 2003.
The documents that were executed by Philip and Christopher were lodged at the general registry office of the Lands Title’s Office and the transfer was registered on 15 January 2004. Implicitly, the conveyancer did not receive the document entitled agreement for sale of land share because, at the least, the transfer appears to have been stamped at a figure reflecting a total value of $92,000 for the land. Hence, the dutiable value of the land at transfer (50 per cent) was $46,000. Stamp duty was paid on that value. That figure was significantly less than the credit in the loan account of Angela in the partnership account, which credit reflects the fact that Angela had paid and continued to pay all outgoings in respect to the partnership property. These included professional fees concerning development that had really not proceeded since about 1995 or thereabouts when, according to the evidence, at least Angela understood that the sub division plan could not proceed.
No further payments were made to Philip apart from the $5,000. Philip and Christopher expected that, in accordance with the terms of the agreement for sale of land share, full settlement would take place by 20 January 2004. It is to be inferred that telephone contact commenced to be made soon after 20 January 2004 between Morrie and Philip. I accept that from time to time Julie also made telephone calls to Morrie. I accept that also from time to time telephone calls were made from Julie to Angela. I am unable to form any concluded view as to when those telephone calls may have taken place.
In my opinion, the wording of the agreement for sale of land share document purports to disclose an agreement between Christopher and Philip and Angela to purchase the 50 per cent share in the Streaky Bay property from Philip and Christopher for the sum of $270,000. In my opinion, nothing further is to be gained by a discussion of what Morrie may have intended at the time of his initial telephone calls to Philip concerning such a transaction. It is apparent from the face of the document prepared at the direction of Morrie, that his intention was for Angela to become the registered proprietor of the interests held by Philip and Christopher in the Streaky Bay land. Therefore, in all that he did at the time, it may be said that Morrie was purporting to act on behalf of Angela. In my opinion, it does not follow that the answer to the first question is plainly yes although I have said I am unable to accept the tripartite contract theory espoused by the defendant in her case. The difficulty I perceive in answering this question is to identify with any precision what Morrie thought that he was doing in making all of these arrangements purportedly for Angela.
There appears little doubt that Angela was prepared to receive a transfer of the moiety legally owned by Philip. The important question is whether in arranging that transaction Angela gave actual authority to Morrie to bind her to a liability to pay $270,000 for that moiety interest. Alternatively, did Morrie have implied authority to so bind Angela or further alternatively did Angela clothe Morrie with ostensible authority so to bind her. I am not satisfied on the evidence that Angela ever gave Morrie authority to bind her to a transaction to pay $270,000 for that moiety interest. The principal reason is that Angela did not execute an agreement binding herself to such an obligation and she did not execute a transfer reflecting such an obligation. The transfer document that she executed was stamped at a value of $46,000 and there is no suggestion in this case that by so acting, Angela has committed a fraud on the revenue by failing to make a declaration at the time of consideration for the transfer.
Notwithstanding that Morrie purported to bind Angela when in procuring the transaction, a question arises as to whether Morrie also purported to act for himself.
The relevant principles concerning whether a person who purports to act as an agent may be held to be a party to a contract are set out in the decision of the Full Federal Court in Carminco Gold & Ors v Findlay & Co Stockbrokers (Underwriters) Pty Ltd.[145] In Carminco Gold their Honours described the issues for consideration, the question that commonly arises and their conclusion and said as follows:[146]
The single issue of substance raised in this appeal touches on a practice that has been productive of some uncertainty in agency law. It is quite common, as in this matter, for an agent to act on behalf of an unidentified principal or principals in a contractual dealing with a third party who has knowledge that the agent is so acting. The non-disclosure of the identity, as distinct from the existence, of a principal does not of itself make the agent a party to such a contract: see Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 at 241 and following; McNally v Jackson Spanney (1938) 42 WALR 27 at 29; N & J Vlassopulos Ltd v Ney Shipping Ltd (The “Santa Carina”) [1977] 1 Lloyds Rep 478 at 481 per Lord Denning MR, at 483 per Roskill LJ; QNS Paper Co Ltd v Chartwell Shipping Ltd [1989] 2 SCR 683; but compare Restatement of Agency, Third, §6.02; see generally, G E Dal Pont, Law of Agency, Butterworths, Sydney, 2001, at [23.38]; Bowstead and Reynolds on Agency, F M B Reynolds (ed), 18th ed, Sweet & Maxwell, London, 2006, at 9–016; F M B Reynolds, “Practical Problems of the Undisclosed Principal Doctrine” [1983] CLP 119, p 120 and following. Nonetheless, the question commonly arises in such cases whether the circumstances of the contracting are such that the agent has made itself a party to the contract with the third party in substitution for, or in addition to, its principal(s) and hence can sue and be sued on the contract. The law of agency clearly admits of this possibility: see Montgomerie v United Kingdom Mutual Steamship Assn Ltd [1891] 1 QB 370 at 371–2; Australian Trade Commission v Goodman Fielder Industries Ltd (1992) 36 FCR 517 at 521–2; Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 at 795; [1980] 2 All ER 599 at 604 (Yeung Kai Yung); and see Reynolds, 2006, 9–005 and following.
In the present matter the primary judge concluded that the respondent had so contracted, seemingly to the exclusion of its principals (who, incidentally, were not ascertained at the time of the contract found). For somewhat different reasons to his Honour, we have concluded that the respondent was a party to the relevant contract and was entitled to sue thereon. Given the matters that are in issue in this appeal, this conclusion is fatal to the appeal.
[145] (2007) 243 ALR 472.
[146] (2007) 243 ALR 472 at [1]-[2].
A reading of these paragraphs discloses that a common factual issue when considering this question, is the non-disclosure of the identity of the principal. In that case, the respondent to the appeal, the applicant in the proceedings, had successfully sued for damages arising out misleading and deceptive conduct of the respondent, the appellant in the appeal. The appellant contended that the respondent was only an agent who had, as an agent, entered into a contract on behalf of its principal. Therefore, as an agent, the respondent could have suffered no loss and therefore could not sue. The issue was whether or not the agent had become a party to the agreement. If it was such a party, it could successfully sue.
Their Honours set out the relevant principles as follows:[147]
Ascertaining whether Findlays entered into a personal engagement with TPM or Trans Pacific and, if so, whether to the exclusion of its principals, or jointly and severally with them, raises a question of objective intention. As Brandon J said in Bridges & Salmon Ltd v The “Swan” (Owner); Marine Diesel Service (Grimsby) Ltd v The “Swan” (Owner) [1968] 1 Lloyd’s Rep 5 at 12:
Where A contracts with B on behalf of a disclosed principal C, the question whether both A and C are liable on the contract or only C depends on the intention of the parties. That intention is to be gathered from (1) the nature of the contract, (2) its terms and (3) the surrounding circumstances: see Bowstead on Agency, (12th ed.) (1959), at pp 257 and 258, par 113, and the authorities there cited. The intention for which the Court looks is not the subjective intention of A or of B. Their subjective intentions may differ. The intention for which the Court looks is an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended. Where a contract is wholly in writing, the intention depends on the true construction, having regard to the nature of the contract and the surrounding circumstances, of the document or documents in which the contract is contained. Where, as in the present case, the contract is partly oral and partly in writing, the intention depends on the true effect, having regard again to the nature of the contract and the surrounding circumstances, of the oral and written terms taken together.
It should be added that a like enquiry is required when the question is whether the contract is one to which the agent alone is a party, notwithstanding the agent is known by the other contracting parties to be acting as an agent for disclosed but unidentified principals: see Hichens, Harrison, Woolston & Co v Jackson & Sons [1943] AC 266 at 274; [1943] 1 All ER 128 at 131–2; Maritime Stores Ltd v H P Marshall & Co Ltd [1963] 1 Lloyd’s Rep 602 at 608; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; 211 ALR 101; [2004] HCA 55 at [33]–[35]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; 208 ALR 213; [2004] HCA 35 at [36]–[38]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [36]–[47]; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627 per McLelland J (Baulkham Hills Private Hospital); GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 636–7 per McHugh JA, Kirby P and Glass JA agreeing.
[147] (2007) 243 ALR 472 at [23].
Having regard to what fell from the Full Federal Court in Carminco Gold, it is necessary to identify the intention of the parties, assessed objectively and based upon what two reasonable business people making a contract of the relevant nature in its terms and circumstances must be taken to have intended. A contract in writing must be interpreted according to its true construction, that is the plain and ordinary meaning of the words used in the background of all of the terms of the contract itself. The same principles apply when the question is whether the contract is one to which the agent alone is a party.
The issue for determination is whether Morrie was also acting for himself. In my opinion, on a construction of the documents as they exist, there is no direct or indirect indication that in whatever he was doing, Morrie was purporting to act for himself. Everything that was done was consistent with, at least his intention, to enable Angela to purchase the balance of the Streaky Bay land. The documents do not disclose any suggestion that Morrie was binding himself to the agreement. It may be said that initially, it was unclear from the communications between Morrie and Philip whether Morrie was to be the purchaser of the other 50 per cent to hold the interest jointly with Angela although it would have been necessary for Angela to have consented to that purchase as the other joint owner.
In my opinion, the only indication, objectively, of the intention of all parties that Morrie intended to bind himself to the contract was that, historically, Morrie had involved himself in the redevelopment proposal. He had retained planning advisers and others to assist in the redevelopment proposals; he was the ‘prime mover’ of that proposal. However, that involvement appears to have ended some time in or about 1995 and the only evidence of further involvement of Morrie after that time was the purchase of another block of land. The evidence of Angela, which I accept, was that she did not have a clear understanding what Morrie was intending to do with that property or whether it was to be seen as part of the property that she owned. That is understandable because, although Angela did not give the evidence directly, it seems that when those events had occurred Morrie soon after suffered a stroke (in 2005) and was thereafter severely debilitated. Subsequently, Angela commenced a relationship with Peter Balnaves, whom she married in 2014 and, on the evidence I am satisfied as a matter of clear inference, that in the time leading up to the death of Morrie in 2014, Angela had commenced a relationship with Peter Balnaves.
In those circumstances, I am unable to identify any evidence, assessed objectively, that discloses the objective intention of both parties:[148]
… based on what two reasonable businessmen making a contract of that nature, in those terms and in those surround circumstances, must have been taken to have intended…
[148] (2007) 243 ALR 472 at [23].
in order to make a finding that it was intended that Morrie was acting for himself.
I am mindful of the concession made by Mr Hoile on behalf of Angela, that Morrie was acting on his own behalf. However, in my opinion there are a number of features that militate against that finding. The first is that the communication from Morrie was oral in nature and it was in respect of the conveyance of an interest in land. The contract documents that were forwarded mentioned only Angela as the purchaser. There was no mention of an obligation upon Morrie as a purchaser. There was no identifiable part performance of Morrie in respect of the performance of the contract.[149] In those circumstances, there was insufficient evidence to bind Morrie to the contract as a principal. I am unable therefore to accept either the concession of Mr Hoile in that regard or the contentions of the plaintiffs in that regard.
[149] Law of Property Act1936 (SA) s26.
It is then necessary to consider the third question about whether Angela intended Morrie to be her agent under the principles of ostensible agency. I am satisfied that at no time throughout this matter, has any claim been made by the plaintiffs that Morrie was the ostensible agent of Angela or that he acted with any ostensible authority as agent of Angela.
In Law of Agency G E Dal Pont the learned author said:[150]
There are at least two essential elements of an agency relationship: the consent (or assent) of both principal and agent; and the authority given to the agent by the principal to act on the principal’s behalf. A third element found in some conceptions of an agency relationship is the principal’s control over the agent’s actions. Each of these elements is discussed in greater detail below, but it should be noted here that in Australian law the alleged control element is arguably neither crucial to agency nor is it independent of the authority element.
[150] G E Dal Pont (2nd Edition) Lexis Nexis Butterworths at [4.3].
The learned author challenges the third of those elements namely the question of control as being no more than “… a logical corollary of the conferral of authority by a principal upon an agent emanating by both the terms of the agency agreement itself and the general law which mitigates against uncontrolled exercises of power”. The learned author’s view was that the question of control is best looked at in a context of the agent’s duties to the principal rather than on the question of an objective assessment of the principal’s control of the agent’s actions. The plaintiffs contend that the issue was one of implied agency and relies upon the letter of 7 July 2010 from Moloney and Partners to the defendants’ solicitors.[151]
[151] T6-7.
In the text Law of Agency the learned author says as follows:[152]
…the principal must intend that the agent will act for him or her and the agent must intend to accept the authority and act on it. Hence the existence of agency is, with the exception of agency by necessity, grounded in intention, not imposed by law without regard to intention.
As with any legal created by the intention of the parties, the existence of agency depends on the facts of a particular case. The need for consent also explains why an agency relationship, though not invariably contractual in nature, is most commonly formed via a contract, for consensus or agreement is the basis of contract.
[152] G E Dal Pont (2nd Edition) Lexis Nexis Butterworths at [4.4]-[4.5].
The learned author goes on to say:
The manifestation of consent may be made in any way. It is a question that is to be determined objectively, which in part explains why some commentators prefer to speak in terms of assent rather than consent.
The plaintiffs contended that the objective intention of Angela may be inferred from a number of circumstances. The first was that Morrie and Angela had been in a de facto relationship since about 1980 and they both had been involved in the original land purchase which took place in 1993. It was as a result of the urgings of Morrie that Angela allowed Philip to take an interest in the land. She later consented (somewhat unwillingly) for Christopher to also have a form of interest and to be a partner. Philip was the registered interest holder. The plaintiffs also pointed to a number of references by Morrie and Angela to each other in the correspondence that occurred between 1993 and 1997. However, this was the period during which the parties were giving contemplation to the possible sub division of the land and the sale of sub divided plots for profit. When assessed objectively, this evidence does not necessarily point in one direction or another and is of limited assistance.
Angela said that she received one bundle of documents from Kevin Smith the conveyancer. These comprised the four documents none of which evidences any transaction for the sale and purchase of the 50 per cent interest in the Streaky Bay land for the sum of $270,000. The plaintiffs emphasised that Angela did not contact Philip or Christopher in relation to the deal but relied upon Morrie negotiating the deal on her behalf. So much is correct but that circumstance cannot be looked at in a vacuum and without regard to other factual circumstances that in my opinion have been satisfactorily proved by the defendant. Angela’s recollection is that she first heard of the sale and purchase of the 50 per cent interest in the land when Morrie told her Philip had said that he wanted to clear some debts and be rid of his interest in the land (and presumably the partnership). It is implicit that that was a matter that was of interest to Angela because she was the person who had been continually paying the outgoings in respect of the property after the exhaustion of the credit in the partnership capital accounts. Therefore, in the overall scheme of the matter, merely for Angela to be told that Philip wanted to be rid of his interests in the property (and therefore implicitly any liability that he might have had in relation to the property) is a matter which would have been accommodated by Angela in the context of her position as a partner. There was a significant credit in her loan account with the partnership and significant debits in the same loan accounts of the other partners. The credits arose because of the cash outgoings from Angela to pay the costs of maintaining the partnership asset.
A second matter raised by the plaintiffs is that, as Angela said, she was not in any form of communication with Philip for that period. For reasons that were not explained, she did not have any communication with Philip at that time. She gave evidence that Philip came to Australia some time in about 2000 to do some work on their home. Angela said that she had little contact with Philip at that time, despite the fact that Philip was in Australia to do work on the home owned by Angela. Although this evidence was, at one level, slightly peculiar, it is consistent with the version of events given by Angela that there was a level of disaffection between Angela and Philip (and, it seems, Julie) from a time earlier than 2000. It is possible to surmise that those difficulties arose from about the time that it became clear that there could be no successful redevelopment of the Streaky Bay property (although it is not necessary for me to make any finding about that matter).
Angela’s failure to contact Philip or Christopher about the deal and leave the matter entirely to Morrie does not necessarily lead to a conclusion of Morrie’s agency from Angela to commit her to this deal.
The plaintiffs also point to the fact that Angela was the contact person on the envelope for the documents returned from New Zealand. The plaintiffs ask the court to draw an inference that Angela would have been the person to have opened the documents. She was an accountant and bookkeeper. The natural inference is that she would have received an envelope addressed to her and would have opened it in the usual course. Angela’s evidence was that she did not see the documents in the form of an envelope and that the only documents that she saw were those that she signed. She did not sign the land share sale agreement. There is no evidence that she did sign that agreement. It is also correct to say that Morrie said in the correspondence between he and Philip that he would have Angela deposit the money ($5,000) by 26 November 2003. [153] This fact is consistent only with an agency of Morrie to bind Angela to a transaction involving the payment of $5,000. It does not necessarily or at all point to an agency concerning a transaction for $270,000.
[153] Exhibit P13.
There is a significance in telephone calls made between Angela and Julie that I found have occurred notwithstanding the denials of Angela. The evidence is unclear about when those telephone calls took place. Julie had particular memories of the telephone calls occurring on specific dates. It is known that the activities surrounding this transaction ranged over a short period of time; there is a clear possibility that these telephone calls may have occurred out of the sequence which have been identified by the witnesses because of that short compass of time. It is too remarkable a proposition to suggest that Angela would never have been contacted by anyone from New Zealand. Under the Sale Agreement signed by Philip she was the person who was responsible to pay the $270,000. If no satisfaction could be obtained from Morrie, then logically the next person to be contacted would be Angela. I therefore accept Julie’s evidence in that respect. That said, it is one thing to accept that such conversations took place. It is an entirely different matter to accept that in those conversations, enough was said by Angela to indicate the conferral of authority upon Morrie to bind her to a contract to pay $270,000 for a 50 per cent interest in a property which, on valuer general’s valuation was worth $46,000. I am not focussing upon the value of the land itself; I am focussing here upon the fact of the purchase of a half interest in land in the circumstances of the partnership accounts as they existed or were likely to have existed at the time. It is not a matter of attempting to assess what Angela might have thought to have been the value of the property but rather what the situation concerning the property was at the time that Angela was involved in a transaction of purchase of the half share in the partnership property arranged by Morrie. That is the objective background of this matter. This transaction brought about the end of the partnership arrangements because the property was the largest asset that would have been involved in the partnership business. The partnership existed because of the property. Angela was the partner who contributed to the capital of the partnership in order to enable the property to be maintained. The liabilities paid remained partnership liabilities and the capital accounts of the partners reflected these transactions and the payment of these liabilities by Angela.
It is therefore necessary to focus upon the question of implied agency as raised by the plaintiffs. On the question of identification of the fact of agency, as opposed to the question of implied authority, the plaintiffs relied upon passages from the text in Dal Pont as follows:[154]
As with any legal vehicle created by the intention of the parties, the existence of agency depends on the facts of a particular case. The need for consent also explains why an agency relationship, though not invariably contractual in nature, is most commonly formed via a contract, for consensus or agreement is the basis of contract. The manifestation of consent may be made in any way. It is a question that is to be determined objectively, which in part explains why some commentators prefer to speak in terms of assent rather than consent.
For the purposes of this determination, the court looks primarily to what the parties said and did at the time of the alleged creation of the agency. Earlier words and conduct may afford evidence of a course of dealing in existence at that time and may be taken into account more generally as historical background. Also, as evidence of the acts of the parties subsequent to a written contract may be admissible to establish the existence of a contract, later words and conduct may have some bearing on determining whether or not an agency relationship was intended. [citations omitted]
[154]G E Dal Pont (2nd Edition) Lexis Nexis Butterworths at [4.5].
The learned author is careful to identify that there are limits upon this principle. In particular, a court will not impute an intention to create an agency where there is no actual evidence of intention to this effect. In my opinion, the question of implied authority is bound together with the question of actual authority. So much is clear from the decision of the Full Federal Court in Poulet Frais Pty Ltd & Anor v The Silver Fox Company Pty Ltd & Ors.[155] This case concerned an acquisition by the Silver Fox Company Pty Ltd of a Lenard’s chicken franchise. In the course of this acquisition the franchisee, Poulet Frais Pty Ltd, on behalf of the head franchisee, Lenard’s Pty Ltd, provided disclosure documents which included the trading figures of other Lenard’s shops but without any representation to Silver Fox that any particular weekly gross sales levels would be achieved at the shop purchased by Silver Fox. The trial judge, at first instance, found that there were two misleading representations: i) the likely sale/ profitability representations and, ii) a site quality representation. The appeal Court overturned the trial Judge’s decision and held that neither were misleading, and considered whether Poulet Frais was the agent for Lenard’s.[156] It is conceded that these comments are generally obiter because the appeal Court was satisfied that the representations made were not misleading no matter by whom the representations were made. Lenard’s attacked any finding of agency because it asserted that there was no evidence of any actual authority. The express terms of the Master Licence Agreement between Lenard’s and Poulet Frais, and the terms of the franchise agreement were inconsistent with any conferral of actual authority. The trial judge found that neither Poulet Frais nor its representative was authorised by Lenard’s to create legal relationships with a potential franchisee but found that Lenard’s gave actual authority to Poulet Frais or its representative to provide the disclosure documents and the financial packages to the potential purchaser and so, in reality, Poulet Frais was the agent of Lenard’s for the purpose of providing the disclosure documents.[157]
[155] (2005) FCAFC 131; 220 ALR 211.
[156] (2005) FCAFC 131 at [109].
[157] See at [228] of the original judgement, Appeal Judgement [113].
After considering the terms of the Master Licence Agreement and the Master Franchise Agreement and relevant evidence and what was contained within financial packages, the Appeal court turned to assess the question of actual authority. It held as follows:[158]
Actual authority requires the consent of both the principal and the agent but the manifestation of consent may be express or implied. Regardless of the terms of the agreement between the parties, if the facts fairly disclose that one party is acting for another with that person’s authority then agency is established. The scope of the agency is to be ascertained by applying the ordinary principles of construction of contracts but also by reference to any proper implication from the course of business between the parties: see Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132–3; Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96 at 103 (Field); Garnac Grain Company Incorporated v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137; [1967] 2 All ER 353 at 358; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502; [1964] 1 All ER 630 at 643–4; G E Dal Pont, Law of Agency, Butterworths, Sydney, 2001 at [4.3]–[4.5] and [7.1]–[7.2]; F M B Reynolds, Bowstead & Reynolds on Agency, 17th ed, Sweet & Maxwell, London, 2001 at [2-028]–[2-033].
In Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 (Bonette), Jordan CJ said:
Whether any authority has been given, and if so what is the scope of the authority, are questions of fact to be determined by evidence. Evidence that a person is purporting to do acts on behalf of a principal in some capacity in such circumstances that the knowledge and approval of the principal may fairly be inferred is evidence that the principal has authorised him to act in the particular capacity. If there is evidence justifying such an inference, it justifies the further inference that the person has authority to do such acts as would be done, as a matter of ordinary business practice, by a person acting in such a capacity.
[158] 220 ALR 211 [124]-[125].
The plaintiffs placed particular reliance upon the decision of Jordan CJ in Bonette v Woolworths Ltd referred to by the Full Federal Court at [125]. In my opinion, the comments that fell from Jordan CJ require close scrutiny. It is necessary to identify that an agent is purporting to do acts on behalf of a principal in some capacity. In general terms this may not be a particularly difficult test to satisfy. It is then necessary to decide whether the knowledge and approval of the principal may be inferred from evidence that the principal has authorised the agent to act in the particular capacity. Again, it is sufficiently evident that, at least from the point of view of Angela, she was informed by Morrie that Philip wanted to quit his interest in the property (and therefore presumably Christopher also wanted to quit his interests in the property) and that the figure of $5,000 was mentioned in that initial conversation. Angela left Morrie to make the arrangements. Morrie set about to do so and presented Angela with a transfer document which did not state any particular consideration and (on Angela’s evidence) she was not shown any contract for sale and purchase of the land. That is sufficiently evident from the fact that the transfer was stamped on the basis that the property had a value of $92,000, with a moiety interest at a value of $46,000. Therefore, it follows logically that no contract was presented to the stamp duties office disclosing a settled contract existing between the parties, executed by them, for the sale and purchase of the moiety interest for $270,000.
Returning to the judgement of Jordan CJ in Bonette v Woolworths Ltd it is necessary for there to be evidence justifying an inference that the principal has given the agent authority to act in a particular capacity. There is no evidence that Angela authorised Morrie to act in a capacity sufficient for him to enter into a contract on her behalf for the purchase of the moiety interest for $270,000. The evidence does not disclose any form of authorisation given to Morrie by Angela to that effect. Therefore, and again referring to the judgement of Jordan CJ in Bonette v Woolworths Ltd, the acts that would be done as a matter of ordinary business practice by a person acting in the capacity of Morrie would be, at the most, to prepare documents for the transfer of the moiety interest in the Streaky Bay property for the sum of $5,000. That again is to be viewed in the context of the background of the partnership which had been the basis for the proposal to redevelop the land. This is because Morrie brought to Angela the proposed deal with Philip (and so Christopher) that they wanted to quit their interest in the partnership property and were prepared to accept $5000 as consideration. This low amount was justifiable in the mind of Angela because of the state of the partnership accounts. Angela was the person who had been sustaining the asset out of her own funds. The evidence before me is that Angela dealt with Morrie on the basis of the information that he had brought to her about the deal. There is no evidence that Morrie explained the deal he had put to Philip (and Christopher) and that if she accepted such a deal she would have to pay $270,000 for the moiety interest in the land. Unsurprisingly Angela says that she would never have entered (or implicitly ratified) such a deal. Angela only saw four documents. The transfer did not describe any consideration amount. There was no indication that Angela was thus put on enquiry about the transaction because of any apparent inconsistency between the transfer documents or other contractual documents and the information received from Morrie.
In so finding I have taken into account what I have already identified as inconsistencies between the version given by Angela and some of the content of the letters from Peter Balnaves (the ‘Balnaves letters’). Mr Balnaves was the adviser to Morrie and had been involved with his affairs over a very long period of time. Peter Balnaves was not called to give evidence. At the time of writing the letters, Peter Balnaves was in a position where he had acted as the accountant for Morrie. It may be the case, and is perhaps to be expected, that part of what Peter Balnaves put in the letters reflects what he may have discussed with Morrie. I am not able to make any finding on that point. There is evidence of the purchase of other land at Streaky Bay and it appears fairly obvious that Morrie had at least some plans to revive the development but perhaps in another form. There is no evidence that Angela had any real idea of what was to happen with that extra land. She knew money had been borrowed. That knowledge is a ‘far cry’ from Angela authorising Morrie to bind her to a contract for the $270,000 amount. I accept that a Court may look to subsequent conduct to identify if authority was given by Angela to Morrie: see Cox & Anor v Goldwest Developments NSW Pty Ltd (2000) 50 NSWLR 76 at [12]. In my view the conduct pointed to by the plaintiffs in the form of the Peter Balnaves letters does not really carry the matter much further. This is because these letters are to an extent inconsistent and appear, at least in part, to reflect matters discussed between Morrie and Peter Balnaves. An example is the redevelopment proposal at $540,000 (2 x $270,000) mentioned by Peter Balnaves in his letters. Angela knew nothing of this proposal and only knew of the purchase of the further land secured by borrowings of up to $200,000. There are other inconsistencies in the letters that were highlighted in cross examination. Taking these matters at their highest for the plaintiffs, I remain of the view that they are insufficient in the background of the whole of the evidence in the action to satisfy me on the balance of probabilities that Angela expressly or impliedly authorised Morrie to bind her to the transaction to pay $270,000 for the moiety interest.
It was argued that there was sufficient opportunity for Morrie to have discussed the issues with Peter Balnaves in the absence of Angela, but as there is no evidence on that point, I put it to one side. There were a number of matters within the correspondence sent by Mr Balnaves that Angela could not explain. I have already expressed my concerns about those matters however, in the overall resolution of this matter, I am not satisfied that the concerns that I have expressed would lead me to a conclusion of the conferral of an agency and actual authority upon Morrie to bind Angela to a contract for sale and purchase of the moiety interest in the Streaky Bay land for $270,000. Although the criticisms of the plaintiffs’ position pertaining to these letters are sound, I am not satisfied that as a result of those matters I am in a position to form a conclusion that Angela expressly or impliedly authorised Morrie to bind her to a contract to purchase the moiety interest in the land for $270,000.
In light of that finding, it is unnecessary for me to give consideration to the question of a vendor’s lien. However, if I am wrong about my conclusion, then I am satisfied that if Angela is a party to the agreement, the land should also be subject to a vendors lien. I agree with the submissions of the plaintiffs that equity would not assist Angela as a volunteer who would otherwise receive land for no consideration.[159] I also accept the submission of the plaintiffs that the lien would be a charge against the land for the value of the purchase price plus interest or half of the value of the land, whichever is the lesser.
[159] Thomson v Palmner (1933) 49 CLR 507; Wossidlo v Catt (1934) 52 CLR 301.
In those circumstances, I am satisfied that, without the authority of Angela, Morrie purported to bind Angela to an agreement that she would purchase the moiety interest held by Philip (in trust for himself and for Christopher) for $270,000. I am satisfied that Morrie was not a party to that contract which Philip and Christopher intended to enter into by their execution of the agreement proffered by Morrie. I am satisfied that Morrie was not Angela’s agent with express or implied authority to bind her to that agreement but he did warrant to both Philip and Christopher his authority, on behalf of Angela to enter that agreement.
In BHPB Freight Pty Ltd v Costco Oceania Chartering Pty Ltd (No 3) Finkelstein J said as follows: [160]
The cause of action most beneficial to BHPB and the one it presses first, is breach of warranty of authority. The case has established that where a person (the first person) falsely represents that he has authority to act on behalf of another in a particular transaction and the person to whom the representation is made (the second person) is induced to act on the faith of the representation and suffers loss, the second person may recover the amount of the loss from the first person in an action for breach of a collateral contract. It matters not whether the first person acted in good faith, believing he had the authority which he purported to have. See generally Boasted and Reynolds on Agency (18th edition 2006 541); Chitty on Contract (30th edition 2008 volume 2, 65); Dal Pont, The Law of Agency (2nd edition 2008) 697; Collen v Wright (1857) 8 E B 647. The action is based on collateral contract: Penn v Bristol and West Building Society [1997] 1 WLR 1356.
[160] [2009] FCA 1087 at [40].
I also refer to the third edition of the text Law of Agency by Dal Pont at paragraphs [23.73] – [23.84] inclusive.
There is an obvious degree of artificiality on the question of making a finding of the breach of warranty of authority. This is because the action is based upon a claim for breach of an undertaking given by the agent that he had a particular level of authority. The agent did not have the authority. Therefore, the warranty given by the agent is collateral to the actual authority that the agent had and therefore the limit upon that authority imposed by the principal and upon which the agent could bind the principal. It is necessary for the court to identify what may be described as a promise by the agent that he possessed authority. This is the collateral aspect of the arrangements. This concept was summarised by Issacs J in Leggo v Brown and Dureau Ltd as follows: [161]
The essentials are (1) assertion of authority; (2) inducement by asserting; (3) transaction which but for that assertion the other party would not have entered into. Where they coexist there is a warranty. There is no suggestion that there must be a ‘belief’ in the truth of the assertion; there must, of course, be reliance on the assertion, for that is connected by the ‘inducement’. The other party might well say to the professing agent: I have no belief about it; as to the instructions that you have I am ignorant and agnostic, but I am content to rest upon and trust to your assurance and to base my dealing upon that.
[161] (1923) 32 CLR 95 at [106].
Applying the essentials of the doctrine as described by Isaacs J in Leggo, Morrie asserted his authority on behalf of Angela to bind her to a contract for the sum of $270,000. Philip (and Christopher) were induced by this assertion because they immediately indicated their willingness to enter into such a contract. There was a transaction, namely the sale of the moiety interest in the Streaky Bay land which would not have occurred except for the assertion by Morrie that Angela was prepared to enter into the contract. There is therefore, the coexistence of the three essential features identified by Issaacs J and there is plainly a warranty. As a matter of fact, there is a reliance on the warranty because of the entry by Philip and Christopher into the contract for sale of the land, they having been induced by the warranty. There is also no doubt that Philip and Christopher were content to rely upon the assurance by Morrie of his authority and to base their dealings upon it. There was no communication between Philip or Christopher and Angela at the relevant times. The plaintiffs criticised Angela for not making any communication to anybody at the time of these transactions. However, neither did Philip or Christopher make any communication with Angela about the matter. Angela said that she was estranged from Philip at the relevant times. The failure of either of them to make communication with each other at that time therefore falls evenly on either side of the argument. It does not point in one direction or the other. In any event, Philip was entitled to trust the assurance given by Morrie and Angela was also entitled to trust the assurance given to her by Morrie, as her agent, that the land would be transferred for $5,000 in the background of the arrangements concerning the partnership.
In my opinion, the requirements of the doctrine of breach of warranty of authority are made out against Morrie. In accordance with authority, the liability imposed upon Morrie in those circumstances is strict and, as was properly conceded by Mr Hoile in his submissions, the remedy is contractual and therefore the agent at fault is bound to make good to the other contracting party what that contracting party has lost or failed to obtain as a result of the non existence of that authority.[162] Dal Pont says as follows:[163]
As the doctrine is contractual in nature, the measure of damages equates to the loss which the parties should reasonably have contemplated as likely to result from the breach of warranty. Damages for breach of warranty of authority therefore cover loss of bargain if the bargain has been lost (citations omitted).
[162] Leggo at [99] per Knox CJ.
[163] G E Dal Pont (2nd Edition) Lexis Nexis Butterworths at [23.84].
In my opinion, there is no doubt that the bargain has been lost because the contract that was perfected was the contract for sale of the land for no consideration or alternatively for the $5,000 as has been paid.
In the result, I am not satisfied that the plaintiffs have made out any cause of action against Angela. In my opinion the plaintiffs have succeeded in proving a claim against Morrie (and therefore his estate) in respect of breach of warranty of authority.
I will hear the parties as to consequential orders and costs.
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